Filed pursuant to Rule 424(b)(3)
Registration No. 333-60809
PROSPECTUS
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UNISOURCE ENERGY CORPORATION
220 WEST SIXTH STREET
TUCSON, ARIZONA 85701
(520) 571-4000
1,492,411 SHARES OF COMMON STOCK,
NO PAR VALUE, UPON THE EXERCISE OF
WARRANTS EXPIRING IN 2000
By this prospectus, UniSource Energy Corporation offers up to 1,492,411 shares
of its Common Stock to holders of its Warrants.
Each Warrant entitles its holder to purchase one share of common stock at a
purchase price of $16.00 through and including December 15, 2000.
THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK. POTENTIAL INVESTORS
SHOULD CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 5 OF THIS
PROSPECTUS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED
UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
The common stock is listed on the New York Stock Exchange and the Pacific
Exchange under the ticker symbol UNS.
The date of this prospectus is August 19, 1999
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TABLE OF CONTENTS
PAGE
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WHERE YOU CAN FIND MORE INFORMATION......................................... 3
RISK FACTORS................................................................ 5
UNISOURCE ENERGY............................................................ 7
USE OF PROCEEDS............................................................. 8
DESCRIPTION OF THE WARRANTS................................................. 8
DESCRIPTION OF CAPITAL STOCK................................................14
EXPERTS......................................................................17
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WHERE YOU CAN FIND MORE INFORMATION
AVAILABLE INFORMATION
UniSource Energy Corporation ("UniSource Energy") files reports, proxy
statements and other information with the Securities and Exchange Commission
("SEC"). You may read and copy this information at the SEC's Public Reference
Room and at the Regional Offices of the SEC:
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. 7 World Trade Center Citicorp Center
Room 1024 Suite 1300 500 West Madison Street
Washington, D. C. 20549 New York, New York Suite 1400
10048 Chicago, Illinois
60661-2551
You may also obtain copies of this information by mail from the Public
Reference Section of the SEC, 450 Fifth Street, N.W., Room 1024, Washington, D.
C. 20549, at prescribed rates. You may obtain further information on the
operation of the SEC's Public Reference Room in Washington, D. C. by calling the
SEC at 1-800-SEC-0330.
The SEC also maintains an Internet world wide web site that contains
reports, proxy statements and other information about issuers, such as UniSource
Energy, who file electronically with the SEC. The address of that site is
http://www.sec.gov.
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UniSource Energy's Common Stock is listed on the New York Stock Exchange
and on the Pacific Exchange (ticker symbol: UNS) and reports, proxy statements
and other information concerning UniSource Energy can also be inspected at the
offices of the New York Stock Exchange at 20 Broad Street, New York, New York
10005 or Pacific Exchange, Inc. 301 Pine Street, San Francisco, California
94104. In addition, reports, proxy statements and other information concerning
UniSource Energy can be inspected at its offices at 220 West Sixth Street,
Tucson, Arizona 85701. You may obtain more information by contacting the
UniSource Energy Internet world wide web site (http://www.unisourceenergy.com).
This prospectus is part of a registration statement that we filed with the
SEC. You may obtain the full registration statement from the SEC or UniSource
Energy, as indicated below.
INCORPORATION BY REFERENCE
The rules of the SEC allow us to "incorporate by reference" information
into this prospectus, which means that we can disclose important information to
you by referring you to another document filed separately with the SEC. The
information incorporated by reference is deemed to be part of this prospectus,
and later information that we file with the SEC will automatically update and
supersede that information. The prospectus incorporates by reference the
documents set forth below that have been previously filed with the SEC. These
documents contain important information about UniSource Energy.
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o Annual Report on Form 10-K for the year ended December 31, 1998
(the "1998 10-K")
o Quarterly Reports on Form 10-Q for the quarters ended March
31, 1999, as amended by Form 10-Q/A, dated May 24, 1999 and
June 30, 1999 (the "Second Quarter 10-Q").
o Current Reports on Form 8-K dated, respectively, January 8, 1999,
February 16, 1999, March 16, 1999, June 18, 1999, June 25, 1999
and August 9, 1999.
We are also incorporating by reference additional documents that UniSource
Energy files with the SEC pursuant to Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), between the
date of this prospectus and the termination of this offering.
UniSource Energy will provide without charge to each person, including any
beneficial owner, to whom a copy of this prospectus has been delivered a copy of
any and all of these filings. You may request a copy of these filings by writing
or telephoning us at:
UniSource Energy Corporation
220 West Sixth Street
Tucson, Arizona 85701
Attention: Records and Library Services
Telephone: (520) 884-3781
The information contained at the Internet site of UniSource Energy is not
incorporated in this prospectus by reference and you should not consider it a
part of this prospectus.
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RISK FACTORS
UniSource Energy is presenting the following discussion solely to furnish
limited introductory information regarding selected risks and uncertainties
facing UniSource Energy. This discussion does not contain all the information
you should consider. You should read the entire prospectus, before making any
investment decision.
The financial condition and results of operations of Tucson Electric Power
Company ("TEP") are currently the principal factors affecting the financial
condition and results of operations of UniSource Energy on an annual basis since
TEP currently accounts for substantially all of UniSource Energy's assets,
revenues and net income.
ELECTRIC UTILITY DEREGULATION RULES ISSUED BY THE ARIZONA CORPORATION COMMISSION
WILL SUBJECT TEP, FOR THE FIRST TIME, TO COMPETITION FOR ENERGY SALES TO RETAIL
CUSTOMERS. IF TEP IS UNABLE TO COMPETE EFFECTIVELY FOR RETAIL BUSINESS OR FULLY
RECOVER STRANDED COSTS, TEP'S AND UNISOURCE ENERGY'S OPERATING RESULTS AND
FINANCIAL CONDITION MAY BE MATERIALLY ADVERSELY AFFECTED.
We cannot predict the impact of retail competition on our future operating
results or financial condition. Some of the possible impacts include:
o loss of customers and revenues to competing energy providers; and
o possible sale of generation assets.
In December 1998 the Arizona Corporation Commission (ACC) approved an order to
put into effect rules to govern retail electric competition beginning January 1,
1999. However, in January 1999 the ACC voted to delay the start date of these
rules and then amended the rules in April 1999. On June 9, 1999, TEP filed a
Settlement Agreement with the ACC related to the implementation of retail
electric competition. Competition could begin as early as the fourth quarter of
1999. See the Second Quarter 10-Q for information regarding the details of the
proposed Settlement Agreement. There can be no assurance that the Settlement
Agreement filed with the ACC will be accepted as filed nor can we predict the
timing of the ACC's action on the Settlement Agreement.
WE CANNOT PREDICT WHAT THE ACTUAL AMOUNT OF OUR STRANDED COSTS WILL BE OR
WHETHER WE WILL BE ABLE TO RECOVER 100% OF THE STRANDED COSTS.
One of the major issues arising from electric utility deregulation is the
method of quantifying and recovering stranded costs. Stranded costs are the
difference between the value of generation assets (generating plants, purchased
power contracts, and related regulatory assets) under traditional regulation and
the market value of the assets in a competitive environment. As described in our
1998 10-K and Second Quarter 10-Q, TEP filed a proposed plan of divestiture and
stranded cost recovery with the ACC in August 1998. In this plan, TEP proposed
to divest all of its generating assets and estimated that its stranded costs may
range from $600 million to $1.1 billion. The April 1999 amendments to the rules
provide for certain additional options for stranded cost recovery. On June 9,
1999, TEP filed a Settlement Agreement with the ACC related to the
implementation of retail electric competition. This Settlement Agreement
includes provisions to allow TEP the opportunity to recover 100% of its stranded
costs and would require TEP to transfer most of its generating assets to a
separate subsidiary. There can be no assurances that the Settlement Agreement
filed with the ACC will be accepted as filed or that key assumptions and related
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events will be realized. See the Second Quarter 10-Q for additional information
on the proposed stranded cost recovery methodology and the estimated impact on
TEP's financial results.
OUR HIGH DEBT LEVERAGE MIGHT LIMIT OUR ACCESS TO CAPITAL MARKETS.
Our capital structure is highly leveraged. Although TEP was able to
refinance and extend the maturities of certain debt obligations at favorable
rates and terms in 1997 and 1998, you should not assume that TEP will continue
to have such favorable access to the capital markets. See ITEM 7. - MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION -
"Overview" and ITEM 8. - Financial Statements and Supplementary Data in the 1998
10-K and Item 1 - Financial Statements and ITEM 2. - MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS - "Overview" in the
Second Quarter 10-Q.
ASSET DIVESTITURE, TAX LAW CHANGES OR INDUSTRY OR SYSTEM OPERATION CHANGES COULD
MAKE IT NECESSARY FOR US TO REDEEM TAX-EXEMPT BONDS.
A substantial portion of TEP's utility plant assets have been financed with
the proceeds from the issuance of tax-exempt bonds (approximately $580 million
at the date of this prospectus). The interest on these bonds is excluded from
bondholders' gross income for federal income tax purposes. The following could
make it necessary to redeem or defease these bonds:
o asset divestiture;
o tax law changes;
o industry or system operation changes.
See ITEM 7. -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS Of OPERATIONS -- "Liquidity and Capital Resources, Investing and
Financing Activities, TEP - Regulated Electric Utility, Tax Exempt Local
Furnishing Bonds," in the 1998 10-K.
WE MAY EXPERIENCE FURTHER LOSSES FROM UNREGULATED ENERGY BUSINESSES.
Our investments in the unregulated energy businesses owned by Millennium
Energy Holdings, Inc. (Millennium) comprise approximately 3% of the consolidated
total assets of UniSource Energy. Millennium recorded a net loss of $8.1 million
for the year ended December 31, 1998 and a net loss of $6.0 million for the six
months ended June 30, 1999 related to these investments. These results are
included in the Other Income (Deductions) section on UniSource Energy's income
statement. The net loss in the first six months of 1999 was primarily due to
project development costs and expenses at Nations Energy Corporation, a
subsidiary of Millennium. Net losses from our equity investment in NewEnergy,
Inc. were the primary contributors to net losses at Millennium in 1998. The
NewEnergy losses in 1998 resulted from
o narrow margins on energy sales;
o gross margin that does not yet support administrative costs,
including start-up costs associated with expansion into
additional regions of the country; and
o recognition of one-time losses from adverse sales commitments
resulting from contracts made prior to the start of operations.
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In July 1999, Millennium's subsidiary, MEH Corporation, sold its 50% ownership
interest in NewEnergy to The AES Corporation. See the Second Quarter 10-Q and
the August 9 8-K for additional information on this transaction. As a result of
this sale, UniSource Energy will recognize no further losses from, and require
no further investments in NewEnergy. Unisource Energy will recognize a gain on
the sale in the third quarter of 1999. Other energy related businesses held by
Millennium are in the developmental and start-up stages, have limited operating
histories and, to date, have had limited profitability. Consequently, there can
be no assurance that UniSource Energy will not experience additional losses from
the activities of its other unregulated energy businesses in future periods.
OUR ABILITY TO PAY DIVIDENDS IS UNCERTAIN AND DEPENDS UPON CASH FLOW FROM OUR
SUBSIDIARIES, TEP AND MILLENNIUM. TEP COMPRISES SUBSTANTIALLY ALL OF OUR ASSETS.
TEP IS SUBJECT TO CONSTRAINTS WHICH LIMIT ITS ABILITY TO PAY DIVIDENDS TO
UNISOURCE ENERGY.
In December 1998, TEP declared and paid a dividend of $30 million on its
common stock. Prior to such dividend, no dividend on TEP's common stock has been
declared or paid by TEP since 1989.
TEP's credit agreement allows TEP to pay dividends if it maintains
compliance with the agreement and meets certain financial covenants, including a
covenant that requires TEP to maintain a minimum level of net worth. As of June
30, 1999, the required minimum net worth was $186 million. As of June 30, 1999,
TEP was in compliance with the terms of the Credit Agreement.
Pursuant to an ACC order, until such time as TEP's equity ratio equals
37.5% of total capital (excluding capital lease obligations), TEP may not pay
dividends to us in excess of 75% of TEP's earnings. As of June 30, 1999, TEP's
equity ratio, as so calculated, was 16.7%.
In addition to these restrictive covenants, the Federal Power Act states
that dividends shall not be paid out of funds properly included in the capital
account. Although the terms of the Federal Power Act are unclear, TEP believes
that there is a reasonable basis to pay dividends from current year earnings.
UNISOURCE ENERGY
UniSource Energy was incorporated under the laws of the State of Arizona on
March 8, 1995. UniSource Energy is a holding company which owns all of the
outstanding common stock of TEP and Millennium Energy Holdings, Inc.
(Millennium). On January 1, 1998, TEP and UniSource Energy completed a statutory
share exchange, pursuant to which the outstanding common stock of TEP was
exchanged, on a share-for-share basis, for shares of UniSource Energy common
stock, no par value. Following the share exchange, TEP transferred the stock of
its subsidiary, MEH Corporation (MEH), to UniSource Energy in exchange for a
promissory note in the approximate amount of $95 million. MEH subsequently
changed its name to Millennium Energy Holdings, Inc. on November 20, 1998.
UniSource Energy's stock is traded on the New York and Pacific Stock Exchanges
under the ticker symbol UNS.
TEP is the principal subsidiary of UniSource Energy and accounts for
substantially all of its assets, revenues and net income. TEP is an operating
public utility engaged in delivering energy services to retail customers
primarily in the Tucson, Arizona metropolitan area and to wholesale customers
throughout the Western United States. As a public utility, TEP falls under the
jurisdiction of the Arizona Corporation Commission which has the authority to
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approve rates and certain other corporate actions.
TEP provides electric power to approximately 325,000 retail customers. In
1998, TEP generated more than 10,000 gigawatt hours and sold more than 7,600
gigawatt hours of energy to retail customers and 4,500 gigawatt hours to other
customers at wholesale. TEP owns or leases 1,896 MW of generating capacity
located in Arizona and New Mexico. TEP also has transmission and distribution
assets to transmit electricity from TEP's remote generating facilities to the
Tucson area for use by TEP's retail customers and to provide interconnections to
neighboring utilities. Operating revenues from energy sales and transmission and
distribution services exceeded $768 million in 1998.
Millennium owns all of the outstanding common stock of the following
subsidiaries:
o Nations Energy Corporation (Nations Energy), which is active in
the development of independent power projects worldwide,
o MEH Corporation (MEH), which held a 50% interest in NewEnergy,
Inc., a buyer's agent active in procuring electric energy,
performing energy services, engaging in power marketing and other
energy related activities,
o Advanced Energy Technologies, Inc. (AET), which holds a 50%
interest in Global Solar Energy, L.L.C. (Global Solar), a
manufacturer of thin-film photovoltaic cells, and
o Southwest Energy Solutions, Inc. (SES), a provider of ancillary
energy services to electric consumers. SES owns all of the
outstanding common stock of SWPP Investment Company (SWPP) and
SWPP International, Ltd. (SWPPI), which hold ownership interests
in businesses engaged in the manufacture and sale of concrete
power poles.
USE OF PROCEEDS
To the extent that shares of common stock are purchased from UniSource
Energy pursuant to the exercise of the Warrants, UniSource Energy will receive
all of the proceeds from such sales and intends to use the proceeds for general
corporate purposes.
DESCRIPTION OF THE WARRANTS
The statements contained herein concerning the Warrants and the Warrant
Agreement, dated as of October 26, 1998 (the "Warrant Agreement"), by and
between UniSource Energy Corporation and The Bank of New York, as warrant agent
(the "Warrant Agent"), do not purport to be complete and are qualified in their
entirety by reference to the Warrant Agreement.
GENERAL
The Warrants were issued under and are entitled to all the rights and
benefits of, and subject to the limitations under, the Warrant Agreement. There
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are 1,492,411 issued and outstanding warrants.
TERMS OF THE WARRANTS
Exercise and Expiration. Subject to adjustments in certain circumstances,
each Warrant gives the registered holder of such Warrant (the "Registered
Warrant Holder") the right to purchase one share of UniSource Energy Common
Stock at an initial price of $16.00 per share (the "Exercise Price") at any time
prior to 5:00 p.m. on December 15, 2000.
Registration and Transfer of the Warrants. Warrant certificates may be
exchanged for other Warrant certificates representing an equal aggregate number
of Warrants of like tenor and the transfer of Warrant certificates may be
registered, in whole or in part, at the offices of the Warrant Agent.
Redemption. The Warrants are not subject to mandatory redemption by
UniSource Energy, except that the Registered Warrant Holders have the option to
require UniSource Energy to redeem the Warrants in the case of a merger,
consolidation or sale, transfer or lease of all or substantially all the assets
of UniSource Energy, as described below.
Method of Exercise. The Warrants are exercisable by surrendering to the
Warrant Agent at its principal office a Warrant certificate signed by the
Registered Warrant Holder or his duly authorized agent indicating such
Registered Warrant Holder's election to exercise all or a portion of the
Warrants evidenced by that certificate. Surrendered Warrant certificates have to
be accompanied by the amount of the aggregate Exercise Price. Payment of such
amount has to be made in lawful money of the United States in cash or by
certified or official bank check. UniSource Energy has reserved for issuance a
number of shares of Common Stock sufficient to provide for exercise of the
rights of purchase represented by the Warrants. When delivered, those shares of
Common Stock will be duly and validly authorized and issued, fully paid and
nonassessable, and will be free and clear of all liens, encumbrances, equities
and claims, and no preemptive rights or rights of first refusal will exist with
respect to the shares.
Adjustment of Exercise Price and Number of Shares of Common Stock. The
number and kind of shares purchasable upon the exercise of Warrants and the
Exercise Price are subject to adjustment from time to time as follows:
(a) Changes in Common Stock. In the event UniSource Energy shall (i) issue
any shares of Common Stock as a stock dividend to the holders of Common Stock,
(ii) subdivide or combine the outstanding shares Common Stock into a greater or
lesser number of shares or (iii) issue any shares of its capital stock in a
reclassification or reorganization of the Common Stock (any such issuance,
subdivision, combination, reclassification or reorganization being herein called
a "Change of Shares"), then (A) in the case of (i) or (ii) above the number of
shares of Common Stock that may be purchased upon the exercise of each Warrant
shall be adjusted to the number of shares of Common Stock of UniSource Energy
that the Registered Warrant Holder would have owned or have been entitled to
receive after the happening of such event had such Warrant been exercised
immediately prior to the record date (or, if there is no record date, the
effective date) for such event, and the Exercise Price shall be adjusted to the
price (calculated to the nearest 1,000th of one cent) determined by multiplying
the Exercise Price immediately prior to such event by a fraction the numerator
of which shall be the number of shares of Common Stock purchasable with one
Warrant immediately prior to such event and the denominator of which shall be
the number of shares of Common Stock purchasable with one Warrant after the
adjustment referred to above and (B) in the case of (iii) above, paragraph (h)
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below shall apply.
(b) Common Stock Distribution. In the event UniSource Energy shall issue,
sell or otherwise distribute any shares of Common Stock (other than (x) pursuant
to Change of Shares or (y) upon the exercise of any Option, Convertible Security
(each as defined in paragraph (c) below) or Warrant) (any such event, including
any event described in paragraphs (c) and (d) below, being herein called a
"Common Stock Distribution"), for a consideration per share less than the
current market price per share of Common Stock (as defined in paragraph (f)
below) on the date of such Common Stock Distribution, then, effective upon such
Common Stock Distribution, the Exercise Price shall be reduced to the price
determined by multiplying the Exercise Price in effect immediately prior to such
Common Stock Distribution by a fraction, the numerator of which shall be the sum
of (i) the number of shares of Common Stock outstanding (exclusive of any
treasury shares) immediately prior to such Common Stock Distribution multiplied
by the current market price per share of Common Stock on the date of such Common
Stock Distribution, plus (ii) the consideration, if any, received by UniSource
Energy upon such Common Stock Distribution, and the denominator of which shall
be the product of (A) the total number of shares of Common Stock outstanding
(exclusive of any treasury shares) immediately after such Common Stock
Distribution multiplied by (B) the current market price per share of Common
Stock on the date of such Common Stock Distribution.
If any Common Stock Distribution shall require an adjustment to the
Exercise Price, then, effective at the time such adjustment is made, the number
of shares of Common Stock purchasable upon the exercise of each Warrant shall be
increased to a number determined by multiplying the number of such shares so
purchasable immediately prior to such Common Stock Distribution by a fraction,
the numerator of which shall be the Exercise Price in effect immediately prior
to such adjustment and the denominator of which shall be the Exercise Price in
effect immediately after such adjustment.
The provisions described in this paragraph (b), including by operation of
the provisions described in paragraph (c) or (d) below, shall not operate to
increase the Exercise Price or reduce the number of shares of Common Stock
purchasable upon the exercise of any Warrant.
(c) Issuance of Options. In the event UniSource Energy shall issue, sell,
distribute or otherwise grant in any manner (including by assumption) any rights
to subscribe for or to purchase, or any warrants or options for the purchase of,
Common Stock or any stock or securities convertible into or exchangeable for
Common Stock (any such rights, warrants or options being herein called "Options"
and any such convertible or exchangeable stock or securities being herein called
"Convertible Securities"), and the price per share at which Common Stock is
issuable upon the exercise of such Options or upon the conversion or exchange of
such Convertible Securities shall be less than the current market price per
share of Common Stock on the date of the issuance, sale, distribution or
granting of such Options then, for purposes of the provisions described in
paragraph (b) above, the total maximum number of shares of Common Stock issuable
upon the exercise of all such Options or upon the conversion or exchange of the
total maximum amount of the Convertible Securities issuable upon the exercise of
all such Options shall be deemed to have been issued as of the date of the
issuance, sale, distribution or granting of such Options and thereafter shall be
deemed to be outstanding and UniSource Energy shall be deemed to have received
as consideration the price per share therefor. Except in certain limited
circumstances, no additional adjustment of the Exercise Price shall be made upon
the actual exercise of such Options or conversion or exchange of the Convertible
Securities issuable upon the exercise of such Options.
(d) Issuance of Convertible Securities. In the event UniSource Energy shall
issue, sell or otherwise distribute (including by assumption) any Convertible
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Securities (other than upon the exercise of any Option), and the price per share
at which Common Stock is issuable upon the conversion or exchange of such
Convertible Securities shall be less than the current market price per share of
Common Stock on the date of such issuance, sale or distribution, then, for
purposes of the provisions described in paragraph (b) above, the total maximum
number of shares of Common Stock issuable upon the conversion or exchange of all
such Convertible Securities shall be deemed to have been issued as of the date
of the issuance, sale or distribution of such Convertible Securities and
thereafter shall be deemed to be outstanding and UniSource Energy shall be
deemed to have received as consideration the price per share therefor. Except in
certain limited circumstances, no additional adjustment of the Exercise Price
shall be made upon the actual conversion or exchange of such Convertible
Securities.
(e) Dividends and Distributions. In the event UniSource Energy shall
distribute to the holders of Common Stock any dividend or other distribution of
cash, evidences of its indebtedness, other securities or other properties or
assets (in each case other than (i) dividends payable in Common Stock, Options
or Convertible Securities and (ii) any cash dividend that, when added to all
other cash dividends paid in the one year prior to the declaration date of such
dividend (excluding any such other dividend included in a previous adjustment of
the Exercise Price pursuant to the provisions described in this paragraph (e)),
does not exceed 10% of the current market price per share of Common Stock on
such declaration date), or any options, warrants or other rights to subscribe
for or purchase any of the foregoing, then (A) the Exercise Price shall be
decreased to a price determined by multiplying the Exercise Price then in effect
by a fraction, the numerator of which shall be the current market price per
share of Common Stock on the record date for such distribution less the sum of
(X) the cash portion, if any, of such distribution per share of Common Stock
outstanding (exclusive of any treasury shares) on the record date for such
distribution plus (Y) the then fair market value (as determined in good faith by
the Board of Directors of UnISource Energy) per share of Common Stock
outstanding (exclusive of any treasury shares) on the record date for such
distribution of that portion, if any, of such distribution consisting of
evidences of indebtedness, other securities, properties, assets, options,
warrants or subscription or purchase rights, and the denominator of which shall
be such current market price per share of Common Stock and (B) the number of
shares of Common Stock purchasable upon the exercise of each Warrant shall be
increased to a number determined by multiplying the number of shares of Common
Stock so purchasable immediately prior to the record date for such distribution
by a fraction, the numerator of which shall be the Exercise Price in effect
immediately prior to the adjustment required by the provisions described in
clause (A) of this sentence and the denominator of which shall be the Exercise
Price in effect immediately after such adjustment.
(f) Current Market Price. For the purpose of any computation described in
paragraphs (b), (c), (d) and (e) above, the current market price per share of
Common Stock at any date shall be the average of the daily closing prices for
the shorter of (i) the 20 consecutive trading days ending on the last full
trading day on the exchange or market specified in the second succeeding
sentence prior to the Time of Determination and (ii) the period commencing on
the date next succeeding the first public announcement of the issuance, sale,
distribution or granting in question through such last full trading day prior to
the Time of Determination. The term "Time of Determination" shall mean the time
and date of the earlier to occur of (A) the date as of which the current market
price is to be computed and (B) the last full trading day on such exchange or
market before the commencement of "ex-dividend" trading in the Common Stock
relating to the event giving rise to the adjustment required by the provisions
described in paragraph (b), (c), (d) or (e). The closing price for any day shall
be the last reported sale price regular way or, in case no such reported sale
takes place on such day, the average of the closing bid and asked prices regular
way for such day, in each case (1) on the principal national securities exchange
on which the shares of Common Stock are listed or to which such shares are
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admitted to trading or (2) if the Common Stock is not listed or admitted to
trading on a national securities exchange, in the over-the-counter market as
reported by NASDAQ or any comparable system or (3) if the Common Stock is not
listed on NASDAQ or a comparable system, as furnished by two members of the NASD
selected from time to time in good faith by the Board of Directors of UniSource
Energy for that purpose. In the absence of all of the foregoing, or if for any
other reason the current market price per share cannot be determined pursuant to
the foregoing provisions described in this paragraph (f), the current market
price per share shall be the fair market value thereof as determined in good
faith by the Board of Directors of UniSource Energy.
(g) Deferral of Certain Adjustments. No adjustment to the Exercise Price
(including the related adjustment to the number of shares of Common Stock
purchasable upon the exercise of each Warrant) shall be required unless such
adjustment, together with other adjustments carried forward as provided below,
would result in an increase or decrease of at least one percent of the purchase
price; provided, however, that any adjustments which by reason of the provisions
described in this paragraph are not required to be made shall be carried forward
and taken into account in any subsequent adjustment. No adjustment need be made
for a change in the par value of the Common Stock.
(h) Other Adjustments. In the event that at any time, as a result of an
adjustment made pursuant to the anti-dilution provisions of the Warrant
Agreement, the Registered Warrant Holders shall become entitled to receive any
securities of UniSource Energy other than shares of Common Stock, thereafter the
number of such other securities so receivable upon exercise of the Warrants and
the Exercise Price applicable to such exercise shall be subject to adjustment
from time to time in a manner and on terms as nearly equivalent as practicable
to the provisions with respect to the shares of Common Stock contained in the
Warrant Agreement.
(i) Excluded Transactions. Notwithstanding any provision in this section to
the contrary, no adjustment shall be made as described above in respect of (A)
the granting of any Options or the issuance of any shares of Common Stock that
may be registered on Form S-8 or any successor form under the Securities Act of
1933, as amended, to any officers, directors or employees of, or any consultants
or advisors to, UniSource Energy or any of its affiliates, or (ii) the issuance
of Common Stock pursuant to any dividend reinvestment or direct stock purchase
plan which provides that the price of the Common Stock purchased for plan
participants from UniSource Energy will be the average of the high and low sales
prices of the Common Stock on the consolidated tape on the investment date or,
if no trading in the Common Stock occurs on such date, the next preceding date
on which trading occurred; provided, however, that clause (A) of this paragraph
(i) shall not apply to any such grant or issuance, if, after giving effect
thereto, the aggregate amount of Common Stock issued in all transactions covered
by clause (A) of this paragraph (i) (assuming the exercise of all then
outstanding Options granted in such transactions) would exceed 5% of the number
of shares of Common Stock then outstanding (after giving effect to the exercise
of all then outstanding Options so granted but before giving effect to any other
exercise of Options or Convertible Securities).
Preservation of Purchase Rights upon Merger, Consolidation, etc.; Mandatory
Redemption of Warrants. (a) In case of any consolidation or merger of UniSource
Energy with or into another person or in case of any sale, transfer or lease to
another person of all or substantially all the property of UniSource Energy,
UniSource Energy and such successor or purchasing person, as the case may be,
shall agree in writing (and such consolidation, merger, sale, transfer or lease
shall not be consummated without such agreement) that each Registered Warrant
Holder shall have the right thereafter upon payment of the Exercise Price in
effect immediately prior to such action to purchase upon exercise of a Warrant
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the kind and amount of securities, cash and other property that it would have
owned or have been entitled to receive after the happening of such
consolidation, merger, sale, transfer or lease had such Warrant been exercised
immediately prior to such action (provided that if the kind and amount of
securities, cash and other property receivable upon such consolidation, merger,
sale, transfer or lease is not the same for each share of Common Stock, then for
the purposes of the provisions described in this paragraph (a) the kind and
amount of securities, cash and other property receivable upon exercise of the
Warrants immediately after such consolidation, merger, sale, transfer or lease
shall be the kind and amount so receivable per share by the holders of a
majority of the outstanding shares of Common Stock).
(b) Each Registered Warrant Holder shall have the option to require
UniSource Energy (or its successor) to redeem all or any part of such Registered
Warrant Holder's Warrants upon the consummation of any consolidation or merger
of UniSource Energy with or into another person or any sale, transfer or lease
to another person of all or substantially all the property of UniSource Energy.
A Registered Warrant Holder may exercise such option by giving to the Warrant
Agent, within 10 business days after such Registered Warrant Holder's receipt of
the notice given by UniSource Energy in respect of the consolidation, merger,
sale, transfer or lease in question (or, if such notice is not timely given by
UniSource Energy, at any time prior to such consummation), a written notice (a
"Notice of Exercise") specifying (i) that such option is being exercised by such
Registered Warrant Holder and (ii) the number of Warrants as to which such
option is being exercised.
From and after the giving of any Notice of Exercise, each Warrant covered
thereby shall represent the right of the Registered Warrant Holder thereof to
receive from UniSource Energy (or its successor), in immediately available funds
on the date on which the consolidation, merger, sale, transfer or lease in
question is consummated, an amount equal to the current market price of such
Warrant. For purposes of this paragraph (b), the current market price of each
Warrant shall equal the average of the daily closing prices of the Warrants for
the 20 consecutive trading days ending on the last full trading day on the
exchange or market identified pursuant to the next succeeding sentence prior to
the first public announcement of the consolidation, merger, sale, lease or
transfer in question. The closing price of the Warrants for any day shall be
determined in the same manner as the closing price of the Common Stock is
determined under the anti-dilution provisions of the Warrant Agreement
(described above). If for any reason the daily closing price of the Warrants
during such 20-trading day period cannot be determined as provided in such
sentence, current market price of each Warrant shall equal the average fair
market value for the 20 consecutive business days preceding such first public
announcement, as determined by two members of the NASD selected in good faith by
the Board of Directors of UniSource Energy.
The nonexercise of the foregoing option with respect to any Warrant in
connection with any consolidation, merger, sale, lease or transfer shall not
preclude the exercise of such option with respect to such Warrant in connection
with any subsequent consolidation, merger, sale, lease or transfer. In the case
of any consolidation or merger in which UniSource Energy is not the surviving
entity or in the case of any sale, lease or transfer, UniSource Energy shall
cause its successor to agree in writing (and such consolidation, merger, sale,
lease or transfer shall not be consummated without such agreement) that it shall
be responsible for the performance of UniSource Energy's obligations described
above.
Miscellaneous. Registered Warrant Holders will not be entitled, by virtue
of being holders, to receive dividends or to consent or to receive notice as
shareholders in respect of any meeting of shareholders for the election of
directors of UniSource Energy or any other matter, or to vote at any such
meeting, or to exercise any rights whatsoever as shareholders.
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WARRANT AGENT
The Bank of New York serves as the Warrant Agent under the Warrant
Agreement.
DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of UniSource Energy presently consists of
76,000,000 shares, consisting of 75,000,000 shares of Common Stock without par
value, and 1,000,000 shares of preferred stock without par value ("Preferred
Stock"). As of May 7, 1999, there were 32,303,281 shares of Common Stock
outstanding and no shares of Preferred Stock outstanding.
The following is a summary of certain rights and privileges of the holders
of UniSource Energy's stock. This summary does not purport to be complete. The
following information is qualified in its entirety by reference to UniSource
Energy's Restated Articles of Incorporation and shareholder rights plan and to
the laws of the State of Arizona.
COMMON STOCK
Dividend Rights. UniSource Energy may pay dividends on shares of Common
Stock out of any funds legally available for payment, when and as declared by
UniSource Energy's Board of Directors. Payment of dividends may be subject to
certain limitations specified with respect to the Preferred Stock, or any series
of Preferred Stock.
Liquidation Rights. In the event of any dissolution or other winding up of
UniSource Energy, whether voluntary or involuntary, the assets of UniSource
Energy available for payment and distribution to shareholders shall be
distributed ratably in accordance with their holdings to the holders of shares
of the Common Stock. Those distributions may be subject to certain limitations
specified with respect to the Preferred Stock, or any series of Preferred Stock.
Voting Rights. All voting power is vested in the holders of the Common
Stock, except as otherwise specified with respect to the Preferred Stock, or any
series of Preferred Stock. With respect to the election of directors and each
other matter coming before any meeting of shareholders, each holder of the
Common Stock shall be entitled to one (1) vote for each share of such stock
outstanding in the name of that holder on the books of UniSource Energy.
Miscellaneous. The Common Stock has no preemptive or conversion rights or
redemption or sinking fund provisions and the outstanding Common Stock is fully
paid and non-assessable.
PREFERRED STOCK
The Board of Directors of UniSource Energy has authority to divide the
Preferred Stock into series and to determine the designation, preferences, and
voting powers of the shares of each series so established and the restrictions
and qualifications thereof, all to the extent and in the manner provided by law.
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PREFERRED SHARE PURCHASE RIGHTS
General
On March 5, 1999, UniSource Energy Corporation ("UniSource Energy") adopted
a shareholder rights plan. Under that plan, UniSource Energy will grant one
preferred share purchase right ("Right") on each outstanding share of Common
Stock to holders of Common Stock outstanding on April 1, 1999 or issued
thereafter. The description and terms of the Rights are set forth in the Rights
Agreement, dated as of March 5, 1999 (the "Rights Agreement"), between UniSource
Energy and The Bank of New York, as Right Agent. The following statements are
qualified in their entirety reference to the Rights Agreement.
Each Right will entitle the registered holder, subject to regulatory
approvals and other specified conditions, to purchase one ten-thousandth of a
share of Preferred Stock, Series X, without par value, of UniSource Energy (the
"Series X Preferred Stock"), at a purchase price of $50.00 (the "Purchase
Price").
Distribution of Rights
UniSource Energy has distributed one Right to shareholders of UniSource
Energy for each share of Common Stock owned of record by them at the close of
business on April 1, 1999. Until the earliest of
o such time as any person or group acquires 15% or more of the
outstanding shares of Common Stock,
o March 31, 2009 or
o the redemption of the Rights,
UniSource Energy will issue one Right with each share of Common Stock that is
issued after April 1, 1999 so that all shares of Common Stock will have attached
Rights. UniSource Energy has initially authorized and reserved 10,000 shares of
Preferred Stock for issuance upon exercise of the Rights.
Exercise
The Rights will be exercisable only if a person or group:
o acquires 15% or more of the outstanding shares of Common Stock or
o commences a tender or exchange offer, the consummation of which
would result in the beneficial ownership by a person or group of
15% or more of the outstanding shares of Common Stock.
Until that time the Rights will be evidenced by and will trade with the
shares of Common Stock. The Rights will expire on March 31, 2009 unless
UniSource Energy first redeems or exchanges them, in each case as described
below.
The purchase of stock pursuant to the Rights may be subject to regulatory
approval and other specified conditions. Under no circumstance will the person
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or group that acquired 15% of the Common Stock be entitled to exercise Rights.
"Flip-in"
If any person or group acquires 15% or more of the outstanding shares of
Common Stock, each Right will entitle its holder to purchase that number of
shares of Common Stock or, at the option of UniSource Energy, Preferred Stock
which has a market value at that time of twice the Purchase Price.
"Flip-over"
In addition, in the event that any person or group has acquired 15% or more
of the outstanding shares of Common Stock and UniSource Energy
o consolidates or merges with or into, or
o sells 50% or more of its assets or earning power to,
any person or group, each Right would instead entitle its holder to purchase the
acquiring company's common shares having a market value of twice the Purchase
Price.
Exchange
If a person or group acquires more than 15% but less than 50% of the
outstanding shares of Common Stock, UniSource Energy may exchange each
outstanding Right for one share of Common Stock or cash, securities or other
assets having a value equal to the market value of one share of Common Stock.
That exchange may be subject to regulatory approval.
Redemption
UniSource Energy may redeem the Rights, at a redemption price of $0.001 per
Right, at any time until any person or group has acquired 15% or more of the
outstanding shares of Common Stock.
Certain Adjustments
The Purchase Price, the amount and type of securities covered by each Right
and the number of Rights outstanding will be adjusted to prevent dilution
o in the event of a stock dividend on, or a subdivision,
combination or reclassification of, the Preferred Stock,
o if holders of the Preferred Stock are granted certain rights,
options or warrants to subscribe for Preferred Stock or
securities convertible into Preferred Stock or equivalent
preferred shares at less than the current market price of the
Preferred Stock, or
o upon the distribution to holders of the Preferred Stock of
evidences of indebtedness or assets (excluding regular quarterly
cash dividends) or of subscription rights or warrants (other than
those referred to above).
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With certain exceptions, no adjustments in the Purchase Price will be made
until cumulative adjustments amount to a least 1% of the Purchase Price.
UniSource Energy will not issue fractional shares of Series X Preferred Stock
other than in integral multiples of one ten-thousandth of a share. Instead,
UniSource Energy will make an adjustment in cash based on the market price of
the Series X Preferred Stock on the last trading date prior to the date of
exercise.
Amendment
UniSource Energy may amend the Rights Agreement in any respect until any
person or group has acquired 15% or more of the outstanding shares of Common
Stock. Thereafter, UniSource Energy may amend the Rights Agreement in any manner
which will not adversely affect the holders of the Rights in any material
respect.
EXPERTS
The consolidated financial statements incorporated in this prospectus by
reference to the Annual Report on Form 10-K for the year ended December 31,
1998, have been so incorporated in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
With respect to the unaudited consolidated financial information of
UniSource Energy for the three-month periods ended March 31, 1999 and
1998 and the six-month periods ended June 30, 1999 and 1998, incorporated by
reference in this prospectus, PricewaterhouseCoopers LLP reported that they have
applied limited procedures in accordance with professional standards for a
review of such information. However, their separate reports dated May 24, 1999
and August 12, 1999, incorporated by reference herein, state that they did not
audit and they do not express an opinion on that unaudited consolidated
financial information. Accordingly, the degree of reliance on their reports on
such information should be restricted in light of the limited nature of the
review procedures applied. PricewaterhouseCoopers LLP is not subject to the
liability provisions of Section 11 of the Securities Act of 1933 for their
reports on the unaudited consolidated financial information because those
reports are not a "report" or a "part" of the registration statement prepared or
certified by PricewaterhouseCoopers LLP within the meaning of Sections 7 and 11
of the Act.
The consolidated financial statements as of December 31, 1997 and for each
of the two years in the period then ended, incorporated in this prospectus by
reference from the 1998 10-K have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report included in the 1998 10-K which
is incorporated herein by reference, and have been so incorporated in reliance
upon the report of such firm given upon their authority as experts in accounting
and auditing.
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