UNITED STATES
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
[ [ Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
UNISOURCE ENERGY CORPORATION
- - -------------------------------------------------------------------------------
(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:
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3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11(set forth the amount on which the filing fee is
calculated and state how it was determined):
------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
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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.
--------------------------
3) Filing party:
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4) Date filed:
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<PAGE>
UNISOURCE ENERGY CORPORATION
220 West Sixth Street
P.O. Box 711
Tucson, Arizona 85702
James S. Pignatelli
Chairman of the Board (520) 571-4000
March 30, 1999
Dear Shareholder:
You are cordially invited to attend the Annual Meeting
of Shareholders of UniSource Energy Corporation ("UniSource
Energy") to be held on May 21, 1999. The Meeting will
begin at 10:00 a.m., Tucson time, at the Leo Rich Theater,
260 South Church Avenue, Tucson, Arizona.
At the Meeting you will be asked to elect a Board of
Directors for UniSource Energy for the ensuing year.
During the Meeting, a report will be given on the
operations of UniSource Energy during fiscal year 1998.
Directors and officers of UniSource Energy will be present
to respond to questions that shareholders may have
beginning at 9:30 a.m.
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,
UNISOURCE ENERGY CORPORATION
James S. Pignatelli
Chairman of the Board, President and
Chief Executive Officier
<PAGE>
UNISOURCE ENERGY CORPORATION
220 West Sixth Street
P.O. Box 711
Tucson, Arizona 85702 (520) 571-4000
Notice of Annual Meeting of Shareholders May 21, 1999
To the Shareholders of
UNISOURCE ENERGY CORPORATION
Notice is hereby given that the Annual Meeting of
Shareholders (the "Meeting") of UniSource Energy
Corporation ("UniSource Energy") will be held on the 21st
day of May, 1999, at the Leo Rich Theater, 260 South Church
Avenue, 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 12, 1999 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 30, 1999.
By order of the Board of Directors,
Dennis R. Nelson
Corporate Secretary
Dated: March 30, 1999
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.
<PAGE>
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 UniSource Energy Corporation ("UniSource Energy"), of
proxies to be voted at the Annual Meeting of Shareholders (the
"Meeting") of UniSource Energy to be held on May 21, 1999, 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 UniSource Energy in writing, directed
to the Corporate Secretary, or in person at the Meeting at any time
before the proxy is exercised.
UniSource Energy will bear the entire cost of the solicitation
of proxies. UniSource Energy will make solicitations primarily by
mail. 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 UniSource
Energy of approximately $3,500 plus reasonable out-of-pocket
expenses not to exceed $1,500. If necessary to obtain reasonable
representation of shareholders at the Meeting, solicitations may
also be made by telephone, facsimile, or personal interview.
UniSource Energy 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 UniSource Energy's Bylaws, the Board of
Directors has fixed March 12, 1999 as the record date (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.
Change in Accountants
- - ---------------------
On November 7, 1997, based upon the recommendation of its
audit committee, the Board of Directors of UniSource Energy voted
to appoint PricewaterhouseCoopers, LLP as UniSource Energy's
independent accountants effective for the year ending December 31,
1998. UniSource Energy chose not to renew the engagement of
Deloitte & Touche LLP, UniSource Energy's then present independent
accountants. Deloitte & Touche LLP continued to serve for the 1997
fiscal year, including rendering an opinion on UniSource Energy's
financial statements for the year ended December 31, 1997.
The reports of Deloitte & Touche LLP on UniSource Energy's
financial statements for each of the two most recent years ended
December 31, 1997 did not contain any adverse opinion or disclaimer
of opinion, nor were the reports qualified in any matter.
During 1996, 1997 and the period from December 31, 1997 to
March 2, 1998, the date of UniSource Energy's Annual Report on Form
10-K for the year ended December 31, 1997, there were no
disagreements with Deloitte & Touche LLP on any matter of
accounting principle or practice, financial statement disclosure or
auditing scope or procedure. During this period, there were no
"reportable events" as that term is defined in Item 304 (a)(1)(v)
of Regulation S-K.
Deloitte & Touche LLP furnished a letter addressed to the
Securities and Exchange Commission ("SEC") stating that it agreed
with the above statements for the two most recent years ended
December 31, 1997 to March 2, 1998, the date of UniSource Energy's
Annual Report on Form 10-K for the year ended December 31, 1997.
On November 14, 1997, UniSource Energy engaged
PricewaterhouseCoopers, LLP as its principal accountants to audit
its financial statements for the year ending December 31, 1998.
During 1996, 1997 and the period from December 31, 1997 to March 2,
1998, the date of UniSource Energy's Annual Report on Form 10-K for
the year ended December 31, 1997, UniSource Energy did not consult
PricewaterhouseCoopers, LLP on items which concerned the
application of accounting principles generally, or to a specific
transaction or group of transactions, either completed or proposed,
or the type of audit opinion that might be rendered on the
financial statements except as related to transactions for the year
ending December 31, 1998.
<PAGE>
Representatives of PricewaterhouseCoopers, LLP, UniSource
Energy's current 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. Representatives of Deloitte & Touche LLP are not
expected to be present at the meeting.
Voting of Shares
- - ----------------
At the Record Date, UniSource Energy had outstanding
32,294,598 shares of common stock, no par value ("Common Stock").
At the Record Date, there were 25,219 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 the Arizona Business Corporation Act, 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 equal to the number of his shares of Common Stock
multiplied by the number of Directors to be elected. 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 in the proxy. If no specification is made in the
proxy, the proxy will be voted "FOR" the nominees listed herein.
Any broker "non-votes" with respect to a proposal will be
counted for purposes of determining the presence or absence of
quorum, but will not be counted as shares represented and voting on
that proposal. In contrast, proxies voted "abstain" will have the
same legal effect as votes against a proposal.
Security Ownership of Certain Beneficial Owners
- - -----------------------------------------------
As of the Record Date, UniSource Energy knew the following
persons to be the beneficial owners of more than 5% of the
outstanding shares of Common Stock:
<TABLE>
<CAPTION>
Amount and
Name and Address Nature of Percent of
Title of Class of Beneficial Owner Beneficial Ownership Class
- - -------------------------------------------------------------------------
<S> <C> <C> <C>
Common Heartland Advisors, Inc. 2,825,400 (1) 8.80%
790 North Milwaukee Street
Milwaukee, WI 53202
Common The Prudential Insurance 1,786,720 (2) 5.54%
Company of America
751 Broad Street
Newark, NJ 07102-3777
____________________
<FN>
(1) In a statement dated February 4, 1999, filed with the SEC on
Schedule 13G under the Securities Exchange Act of 1934, as
amended, Heartland Advisors, Inc. indicated it has sole
voting power over 1,213,700 shares and sole dispositive
power over 2,825,400 shares of the outstanding Common Stock
of UniSource Energy, which are held in investment advisory
accounts. Heartland Advisors, Inc. is a registered
investment advisor as defined under Section 203 of the
Investment Advisors Act of 1940.
<PAGE>
(2) In a statement dated February 1, 1999, filed with the SEC on
Schedule 13G under the Securities Exchange Act of 1934, as
amended, The Prudential Insurance Company of America
indicated it may have direct or indirect voting and/or
investment discretion over 1,786,720 shares of the
outstanding Common Stock of UniSource Energy which are held
for the benefit of its clients by its separate accounts,
externally managed accounts, registered investment
companies, subsidiaries and/or other affiliates.
</TABLE>
Section 16(a) Beneficial Ownership Reporting Compliance
- - -------------------------------------------------------
Section 16(a) of the Securities and Exchange Act of 1934, as
amended, and SEC regulations require Directors, certain officers,
and persons who own greater than 10% of the stock of UniSource
Energy to file reports of ownership and changes in ownership of
such UniSource Energy stock with the SEC and New York Stock
Exchange. These Directors, officers and greater than 10%
beneficial owners are required by law to furnish UniSource Energy
with copies of all Section 16(a) forms they file.
Based solely on a review of the copies of such forms
furnished to UniSource Energy and on written representations of
its Directors and officers, UniSource Energy believes that all
Section 16(a) filing requirements applicable to its Directors and
officers were complied with during 1998, with the exception of
Mr. Jose L. Canchola, a Director of UniSource Energy who
inadvertently failed to timely file a Form 4 for the single
acquisition of 1,000 shares of Common Stock he purchased during
1998, Ms. Elizabeth T. Bilby, a Director of UniSource Energy who
inadvertently failed to timely file a Form 4 for the single
acquisition of 100 shares of Common Stock she purchased during
1998, and Mr. Daniel W. L. Fessler, a Director of UniSource
Energy who inadvertently failed to timely file a Form 4 for the
single acquisition of 423 shares of Common Stock he purchased
during 1998. Mr. Canchola's acquisition was subsequently
reported to the SEC on his Form 5 for 1998. Ms. Bilby and Mr.
Fessler's acquisitions were each subsequently submitted to the
SEC on separate Form 5s.
Security Ownership of Management
- - --------------------------------
The following table sets forth as of the Record Date, the
number and percentage of shares beneficially owned, along with
the nature of such beneficial ownership, by each of UniSource
Energy's Directors and nominees, UniSource Energy's Chief
Executive Officer, the four other most highly compensated
executive officers ("Named Executives") of UniSource Energy
during 1998, and all Directors and officers as a group.
<TABLE>
<CAPTION>
Allocable Amount
Amount and Shares Under Deferred
Nature of Compensation Stock
Title of Name of Beneficial Percent of Plan and Restricted
Class Beneficial Owner Ownership (1)(2)(3) Class Stock Unit Account(4)(5)
- - ------ ---------------- ------------------- ----------- -------------------------
<S> <C> <C> <C> <C>
Common James S. Pignatelli 39,091 (6)(7) * 5,669
Chairman, President
and CEO
Common Ira R. Adler 31,955 (8)(9) * 6,663
Executive Vice President,
Chief Financial Officer,
Treasurer, and Director
Common Charles E. Bayless 6,000 ____ ____
Former Chairman,
President and CEO
Common Larry W. Bickle 2,000 * ____
Director
Common Elizabeth T. Bilby 3,900 (10) * 2,847
Director
Common Harold W. Burlingame 2,500 * ____
Director
Common Jose L. Canchola 5,800 (10) * 404
Director
<PAGE>
Common John L. Carter 9,000 (11) * 5,804
Director
Common Daniel W. L. Fessler 423 * ____
Director
Common John A. Jeter 6,600 (10) * 597
Director
Common R. B. O'Rielly 3,880 (10) * 3,289
Director
Common Martha R. Seger 5,388 (10) * 2,112
Director
Common H. Wilson Sundt 5,600 (10)(12) * 364
Director
Common George W. Miraben (13) 21,686(14) * 562
Senior Vice President
Common Dennis R. Nelson 19,741 (15) * 6,052
Vice President
General Counsel and
Corporate Secretary
Common Steven J. Glaser 16,623 (16)(17) * 2,601
Vice President
Energy Services
Tucson Electric Power
Company
Common All Directors and 255,376(18)(19) * 67,439 (20)
executive officers as
a group
- - ------------------
<FN>
* Represents less than l% of the outstanding Common Stock of
UniSource Energy.
(1)Includes any shares held in the name of the spouse, minor
children, or other relatives sharing the home of the Director
or officer. Except as otherwise indicated below, the
Directors, nominees for Director, and officers have sole
voting and investment power over the shares shown. Voting
power includes the power to direct the voting of the shares
held, and investment power includes the power to direct the
disposition of the shares held.
(2)Based on information furnished by Directors and officers.
Includes shares subject to options exercisable within 60
days.
(3)Effective June 1, 1998, UniSource Energy added a UniSource
Energy Stock Fund election option to its Triple Investment
Plan (401(k)) ("TIP") portfolio. Amounts include equivalent
share amounts allocated to the individual's TIP portfolio.
(4)Includes shares 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, Directors and officers 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, 1999.
(5)Includes allocable amount of deferred shares in the
participant's Restricted Stock Unit Account (see Summary
Compensation Table).
(6)Includes 30,646 shares subject to options exercisable within
60 days.
(7)Includes 7,045 shares purchased under TIP UniSource Energy
Stock Fund.
(8)Includes 27,382 shares subject to options exercisable within
60 days.
(9)Includes 3,403 shares purchased under TIP UniSource Energy
Stock Fund.
(10)Includes 3,600 shares subject to options exercisable
within 60 days.
(11)Includes 2,000 shares subject to options exercisable
within 60 days.
<PAGE>
(12)Includes 1,000 shares held by a corporation with which
Mr. Sundt is associated.
(13)Mr. Miraben resigned effective January 15, 1999.
(14)Includes 20,726 shares subject to options exercisable
within 60 days.
(15)Includes 19,161 shares subject to options exercisable
within 60 days.
(16)Includes 14,520 shares subject to options exercisable
within 60 days.
(17)Includes 753 shares purchased under TIP UniSource Energy
Stock Fund.
(18)Includes 218,688 shares subject to options exercisable
within 60 days.
(19)Includes 16,192 shares purchased under TIP UniSource Energy
Stock Fund.
(20)Includes 5,527 restricted stock grants pursuant to the
1997 TEP Officer Restricted Stock Awards.
</TABLE>
<PAGE>
PROPOSAL 1
ELECTION OF DIRECTORS
---------------------
General
- - -------
At the Meeting, the shareholders will elect twelve Directors
to serve on the Board of Directors of UniSource Energy 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 twelve 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.
<TABLE>
<CAPTION>
Director
Name and Principal Occupation Age Since
----------------------------- --- --------
<S> <C> <C>
JAMES S. PIGNATELLI, Chairman of the 55 1998
Board of Directors, President and Chief
Executive Officer of UniSource Energy
since July 1998; Senior Vice President
and Chief Operating Officer of UniSource
Energy from December 1997 to July 1998;
Executive Vice President and Chief
Operating Officer of Tucson Electric
Power Company, a wholly-owned subsidiary
of UniSource Energy ("TEP") from March
1998 to July 1998; Senior Vice President
and Chief Operating Officer of TEP from
1996 until 1998; Senior Vice President
of Business Development of TEP from 1994
to 1996; Chairman of the Board of
Directors, President and Chief Executive
Officer of Millennium Energy Holdings,
Inc., a wholly owned subsidiary of
UniSource Energy ("Millennium"), since
1997. President and Chief Executive
Officer of Mission Energy Company, a
subsidiary of SCE Corp., from 1988 to
1993; Director of INNCOM International,
Inc.
IRA R. ADLER, Director of UniSource 48 1998
Energy since July 1998; Executive Vice
President, Chief Financial Officer and
Treasurer of UniSource Energy since July
1998; Executive Vice President of TEP
since March 1998; Chief Financial
Officer of TEP since 1990; Senior Vice
President of TEP from 1990 to 1998;
Director of Millennium since 1998; Vice
President and Chief Financial Officer of
Millennium from April 1998 to November
1998.
(2)(3) LARRY W. BICKLE, Managing Director of 53 1998
(4) Haddington Ventures, LLC, an investment
company, since 1997; Chairman, Market
Hub Partners, a developer of natural gas
storage facilities from 1994 to 1997;
Chairman and CEO, TPC Corporation
(formerly Tejas Power Corporation) from
1984 to May 1997; Director, St. Mary
Land & Exploration Company.
<PAGE>
(1)(2) ELIZABETH T. BILBY, President and 59 1995
(3)(4) Treasurer of Gourmet Products, Inc., an
agricultural product marketing company,
and Director of International Marketing
of Santa Cruz Valley Pecan Co. since
1982.
(1)(2) HAROLD W. BURLINGAME, Executive Vice 58 1998
(3) President, Merger & Joint Venture
Integration of AT&T since March 1999;
Executive Vice President of Human
Resources of AT&T from 1987 to March
1999; Chairman of the AT&T Foundation.
(1)(2) JOSE L. CANCHOLA, President and Chief 67 1992
(3)(4) Executive Officer of Canchola Group,
(5) Inc., holder of several restaurant
franchises in Tucson and Nogales,
Arizona, since 1976; 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)(4) JOHN L. CARTER, Executive Vice President 64 1996
(5) 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.
(4) DANIEL W. L. FESSLER, Partner in the law 57 1998
firm of LeBoeuf, Lamb, Greene & MacRae
L.L.P. since 1997; Member of the Harvard
Electricity Policy Group since 1994;
Member of the American Law Institute
since 1985; Professor of Law, University
of California, Davis from 1970 to 1995;
President of the California Public
Utilities Commission from 1991 to 1996;
Commissioner of the California
Transportation Commission from 1991 to
1995.
(1)(2) JOHN A. JETER, Independent business 68 1994
(3)(5) consultant since 1991; partner in the
accounting firm of Arthur Andersen &
Co. from 1967 to 1991.
(1)(4) R. B. O'RIELLY, President of O'Rielly 69 1989
(5) Motor Company, an automobile dealership
management company, since 1955.
(1)(2) MARTHA R. SEGER, Distinguished Visiting 67 1992
(4) Professor of Finance, American Graduate
School of International Management from
1993 to 1998; 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 to
1991; Director of Xerox Corporation,
Kroger Company, Fluor Corporation, and
Amerisure.
(2)(3) H. WILSON SUNDT, Chairman of the Board, 66 1976
(5) The Sundt Companies Inc., since January
1999; Chairman of the Board and Chief
Executive Officer of Sundt Corp, a
general construction contracting firm,
from 1979 to December 1998, having
served as President from 1979 to 1983;
Director of Magma Copper Company,
October 1987 to January 1996.
- - --------------------
<FN>
(1)Member of Nominating Committee. Mr. Canchola served on
this Committee through May 8, 1998. Mr. Burlingame and Dr.
Seger were elected to the Nominating Committee on May 8, 1998.
<PAGE>
(2)Member of Audit Committee. Dr. Seger served on this
Committee through May 8, 1998. Dr. Bickle and Mr. Burlingame
were elected to the Audit Committee on May 8, 1998.
(3)Member of Compensation Committee. Dr. Bickle and Mr.
Burlingame were elected to the Compensation Committee on May
8, 1998.
(4)Member of Finance Committee. Dr. Bickle and Mr. Canchola
were elected to the Finance Committee on May 8, 1998. Mr.
Fessler was elected in November 1998 but did not attend any
meetings in 1998.
(5)Member of Executive Committee.
</TABLE>
Committee Functions
- - -------------------
The Audit Committee selects and recommends to the Board of
Directors a firm of independent certified public accountants to
audit annually the financial statements of UniSource Energy;
reviews and discusses the scope of such audit; receives and
reviews the audit reports and recommendations; transmits its
recommendations to the Board of Directors; reviews with the
internal audit department of UniSource Energy, from time to time,
the accounting and internal control procedures of UniSource
Energy, and makes recommendations to the Board of Directors for
any changes deemed necessary in such procedures; and performs
such other functions as the Board of Directors, from time to
time, shall delegate to the Audit Committee. The Audit Committee
of UniSource Energy held four meetings in 1998 and was in full
compliance with its written charter.
The Compensation Committee reviews the performance of
UniSource Energy's Directors and officers and makes
recommendations to the Board of Directors with respect to
Directors' and officers' compensation. The Compensation
Committee of UniSource Energy held four meetings in 1998.
The Nominating Committee interviews potential Directors of
UniSource Energy, nominates, and recommends to the shareholders
and Directors, as the case may be, qualified persons to serve as
Directors. The Nominating Committee of UniSource Energy held
four meetings in 1998. 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. The deadline for consideration for
next year's Annual Meeting of Shareholders is December 2, 1999.
Recommendations must include detailed biographical material
indicating the candidate's qualifications and a written statement
from the candidate of willingness and availability to serve.
Recommendations should be directed to the Corporate Secretary,
UniSource Energy Corporation, P.O. Box 711, Tucson, Arizona
85702.
The Finance Committee reviews and recommends to the Board of
Directors long-range financial policies and objectives, and
actions required to achieve those objectives. Specifically, the
Finance Committee reviews capital and operating budgets, current
and projected financial results of operations, short-term and
long-range financing plans, dividend policy, risk management
activities, and major commercial banking, investment banking,
financial consulting, and other financial relations of UniSource
Energy. The Finance Committee of UniSource Energy held four
meetings in 1998.
The Executive Committee coordinated and consulted with the
Chief Executive Officer regarding the establishment of short-term
goals and objectives in support of UniSource Energy's overall
strategic direction and recommended its determinations to the
Board of Directors. The Executive Committee was established on
June 23, 1998, dissolved on December 31, 1998, and held two
meetings in 1998.
The Board of Directors of UniSource Energy held a total of
eight regular and special meetings in 1998.
Executive Compensation and Other Information
- - --------------------------------------------
The following tables set forth certain information
concerning compensation of, stock option grants to, and stock
options/Stock Appreciation Rights ("SARs") held by UniSource
Energy's Chief Executive Officer and the Named Executives at
December 31, 1998. Mr. Bayless served as UniSource Energy's
Chief Executive Officer until July 6, 1998. Mr. Pignatelli was
named Chief Executive Officer on July 6, 1998.
<PAGE>
<TABLE>
<CAPTION>
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY COMPENSATION TABLE
Long Term Compensation
Awards
----------------------
Annual Restricted Securities All Other
Compensation Stock Underlying Compensation
Name and principal position Year Salary ($) Bonus ($) Awards ($)(1) Options/SARs(#) ($) (2)
- - --------------------------- ---- ---------- --------- ------------- ---------------- -------------
<S> <C> <C> <C> <C> <C> <C>
James S. Pignatelli 1998 410,050 216,004 - 58,246 7,200
President and 1997 307,924 186,001 67,524 16,800 7,200
Chief Executive Officer 1996 256,462 113,288 - 13,109 8,561
Charles E. Bayless 1998 254,524 - - - 600,276(3)
Former President 1997 439,309 352,001 451,793 41,890 7,200
and Chief Executive Officer 1996 423,881 242,250 - 36,196 47,863
Ira R. Adler 1998 297,614 125,995 - 17,700 7,200
Executive Vice President, 1997 244,558 147,001 83,853 13,300 7,200
Chief Financial Officer and 1996 235,400 100,633 - 9,652 61,073
Treasurer
George W. Miraben (4) 1998 238,965 73,500 - 14,400 7,200
Senior Vice President 1997 208,616 126,001 71,870 11,400 7,200
1996 174,376 76,950 - 9,652 19,096
Dennis R. Nelson 1998 206,693 72,000 - 8,800 7,200
Vice President, 1997 179,595 90,001 61,605 8,400 7,200
General Counsel and 1996 171,518 60,990 - 9,652 23,294
Corporate Secretary
Steven J. Glaser 1998 186,174 54,000 - 8,000 7,200
Vice President 1997 164,423 82,500 35,935 7,700 7,200
Energy Services (TEP) 1996 151,780 54,328 - 6,116 23,212
<FN>
(1) Represents the fair market value of the restricted stock
award on June 27, 1997, the grant date. The restrictions lapse
over a three-year period in one-third increments on each
anniversary date of the grant. Recipients are entitled to
receive shares of stock after the restrictions have lapsed, but
may elect to defer receipt of such stock to a future period.
The restricted stock is entitled to dividends at the same rate
as UniSource Energy's Common Stock. As of December 31, 1998,
based on the closing market price of UniSource Energy's Common
Stock on that date of $13.50, James S. Pignatelli held 4,677
shares of restricted stock valued at $63,140; Ira R. Adler held
5,808 shares of restricted stock valued at $78,408; George W.
Miraben held 4,978 shares of restricted stock valued at $67,203;
Dennis R. Nelson held 4,267 shares of restricted stock valued at
$57,605; and Steven J. Glaser held 2,489 shares of restricted
stock valued at $33,602. On August 13, 1998, Charles E. Bayless
received 10,431 shares of restricted stock valued at $147,990,
based on the closing market price of UniSource Energy's Common
Stock on that date of $14.1875. Mr. Bayless' 20,862 remaining
restricted stock awards were canceled when he resigned July 6,
1998.
(2) All Other Compensation consists of TEP's contributions to
the TIP ($7,200 for each Named Executive officer in 1998 and
1997 and $6,750 in 1996). In addition, in 1996 the All Other
Compensation amount included a one-time payment for vacation
accrued and unused for all years of service with UniSource
Energy.
(3) Mr. Bayless' All Other Compensation consists of a $593,076
payment for accrued supplemental retirement plans (paid
following his resignation) and TEP's contribution of $7,200 to
the TIP.
(4) Mr. Miraben resigned effective January 15, 1999.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
Potential
Realizable Value at
Number of Percent of Total Assumed Annual Rates of
Underlying Granted to Exercise Stock Price Appreciation
Options/SARs Employees in Price Expiration for Option Term
Name Granted (#) Fiscal Year ($/Sh) Date 5% ($) 10% ($)
- - ----- --------------- -------------- -------- ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
James S. Pignatelli 58,246 27.8% 15.5625 7/9/08 570,063 1,444,653
Charles E. Bayless - - - - - -
Ira R. Adler 17,700 8.5% 15.5625 7 /9/08 173,233 439,006
George W. Miraben 14,400 6.9% 15.5625 4/15/99 140,935 357,158
Dennis R. Nelson 8,800 4.2% 15.5625 7/9/08 86,127 218,263
Steven J. Glaser 8,000 3.8% 15.5625 7/9/08 78,297 198,421
</TABLE>
During 1998, the Compensation Committee of the Board of
Directors granted stock options, a portion of which are intended to
qualify as incentive stock options under the Internal Revenue Code
of 1986, as amended (the "Code"), to the officers of UniSource
Energy with exercise prices equal to the market price of the Common
Stock at the date of grant. The options vest annually over a three-
year period. The aggregate number of shares attributable to the
1998 grants is 209,246.
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
Number of Securities Value of
Underlying Unexercied
Unexercied In-the-Money
Options/SARs at Options/SARs at
Fiscal Year-End (#) Fiscal Year End ($)
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise (#) Realized ($) Unexercisable Unexercisable
----- --------------- ------------ -------------------- -------------------
<S> <C> <C> <C> <C>
James S. Pignatelli - - 30,646/73,816 4,370/2,185
Charles E. Bayless 71,210 58,532 - -
Ira R. Adler - - 27,382/29,785 3,217/1,609
George W. Miraben - - 19,067/25,218 3,217/1,609
Dennis R. Nelson - - 19,161/17,618 3,217/1,609
Steven J. Glaser - - 14,520/15,173 2,039/1,020
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LONG-TERM INCENTIVE PLANS - AWARDS
IN LAST FISCAL YEAR
Number Performance Or Estimated Future Payouts Under Non-Stock
Shares, Other Period Price-Based Plans
Units Or Until ----------------------------------------
Other Maturation or Threshold Target Maximum
Name Rights Payout (#) (#) (#)
---- ------- ------------- --------- ------ -------
<S> <C> <C> <C> <C> <C>
James S. Pignatelli 80,000 12/31/01 40,000 80,000 120,000
Charles E. Bayless -- -- -- -- --
Ira R. Adler -- -- -- -- --
George W. Miraben -- -- -- -- --
Dennis R. Nelson -- -- -- -- --
Steve J. Glaser -- -- -- -- --
</TABLE>
On June 26, 1997, at the recommendation of the Compensation
Committee, the Board of Directors unanimously approved a
Performance Share Program under the TEP 1994 Omnibus Stock and
Incentive Plan (the "Omnibus Plan"). The Performance Share Program
is intended to align the interests of UniSource Energy's officers
directly with the interest of its shareholders. On October 10,
1997, the Compensation Committee approved a total of 254,540
performance shares to be awarded (the "Target Number of Shares") to
all executive officers, including Mr. Pignatelli and the Named
Executives. The Performance Share Program provides for the
delivery of shares of UniSource Energy's Common Stock equal to 0 to
150% of the Target Number of Shares, depending upon UniSource
Energy's total shareholder return (stock price increase plus
dividends, divided by the initial stock price) over the performance
period ending December 31, 2001, compared to corporations in a peer
group. For this purpose, "peer group" means those corporations
that, as of the vesting date, are included in the S&P Electric
Utility Index. At the end of the performance period, the
Compensation Committee will determine the number of performance
shares that vest (the "Vested Performance Shares") based on
UniSource Energy's performance against the peer group. Performance
share recipients will receive one share of Common Stock for each
Vested Performance Share. The shares of Common Stock underlying
the performance shares are subject to limitations on their sale,
transfer, or pledge prior to the time they become vested.
Recipients of performance shares will have no rights as
stockholders of UniSource Energy, including dividend rights and
voting rights, with respect to the performance shares and any
shares of Common Stock underlying or issuable in respect of such
performance shares until such shares are actually issued and held
of record by the recipient.
<TABLE>
<CAPTION>
PENSION PLAN TABLE
------------------
Remuneration ($) Years of Service
- - ---------------- ----------------
10 15 20 25 30 35
<S> <C> <C> <C> <C> <C> <C>
125,000 54,850 54,850 54,850 54,850 54,850 54,850
150,000 65,820 65,820 65,820 65,820 65,820 65,820
175,000 76,790 76,790 76,790 76,790 76,790 76,790
200,000 87,760 87,760 87,760 87,760 87,760 87,760
225,000 98,730 98,730 98,730 98,730 98,730 98,730
250,000 109,700 109,700 109,700 109,700 109,700 109,700
300,000 131,640 131,640 131,640 131,640 131,640 131,640
400,000 175,520 175,520 175,520 175,520 175,520 175,520
450,000 197,460 197,460 197,460 197,460 197,460 197,460
500,000 219,400 219,400 219,400 219,400 219,400 219,400
550,000 241,340 241,340 241,340 241,340 241,340 241,340
600,000 263,280 263,280 263,280 263,280 263,280 263,280
650,000 285,220 285,220 285,220 285,220 285,220 285,220
</TABLE>
<PAGE>
Remuneration is comprised of the officer's 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 and bonuses, shown
on the Summary Compensation Table. The listed amounts are to be
paid out annually, commencing on the officer's normal retirement
date.
The estimated credited years of service for the CEO, former CEO
and Named Executives are as follows:
Credited
Years of
Name Service
---- --------
James S. Pignatelli 4
Charles E. Bayless 9
Ira R. Adler 13
George W. Miraben 9
Dennis R. Nelson 21
Steven J. Glaser 9
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
UniSource Energy, 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.
<TABLE>
<CAPTION>
DIRECTOR COMPENSATION FOR LAST FISCAL YEAR
------------------------------------------
Cash Security Grants
Compensation ---------------
---------------
Annual Number of
Retainer Meeting Number Securities
Fee Fees of Underlying
Name(1) ($) (2) ($)(2) Shares(#) Options/SARs (#)(3)
------- ------- ----- -------- -------------------
<S> <C> <C> <C> <C>
Larry W. Bickle 16,040 24,000 - 1,200
Elizabeth T. Bilby 17,500 41,000 - 1,200
Harold W. Burlingame 16,040 20,000 - 1,200
Jose L. Canchola 17,500 40,000 - 1,200
John L. Carter 17,500 38,000 - 1,200
Daniel W. L. Fessler 13,122 13,000 - 1,200
John A. Jeter 17,500 41,000 - 1,200
R.B. O'Rielly 17,500 35,000 - 1,200
Martha R. Seger 17,500 27,000 - 1,200
Donald G. Shropshire 5,835 12,500 - 1,200
H. Wilson Sundt 17,500 37,000 - 1,200
<FN>
(1) Mr. Pignatelli, Mr. Adler and Mr. Bayless are not listed
in the above table because Directors who are salaried
employees of UniSource Energy do not receive compensation in
their capacity as members of the Board of Directors. Refer to
the Summary Compensation Table for information concerning
their compensation.
(2) Cash compensation includes amounts earned but deferred at
the election of Directors.
(3) These are grants of UniSource Energy Common Stock options
under the 1994 Outside Director Stock Option Plan (the
"Plan"), which vest in one-third increments on the grant date
anniversary and expire in ten years.
</TABLE>
Except for Dr. Bickle, Mr. Burlingame and Mr. Fessler, options
were granted to each of the Directors on January 3, 1998, at an
exercise price of $18.1250, the market value of the underlying
stock on the grant date. Dr. Bickle and Mr. Burlingame joined the
board in March 1998 and were granted their options on March 6, 1998
at an exercise price of $16.7813, the market value of the
underlying Common Stock on the grant date. Mr. Fessler joined the
board in May 1998, and was granted his options under the Plan on
May 8, 1998 at an exercise price of $17.1250, the market value of
the underlying stock on the grant date. Each Director of UniSource
Energy, other than Mr. Pignatelli, Mr. Adler and Mr. Bayless,
received an annual cash retainer of $17,500, $1,000 for each Board
meeting, $1,000 for each committee meeting and $1,500 as
chairperson for each committee meeting attended in 1998. The
annual retainer amount paid to Dr. Bickle, Mr. Burlingame and Mr.
Fessler was prorated because they were each appointed to the Board
during 1998 and served less than the entire year. The annual
retainer amount paid to Mr. Shropshire was prorated because he
retired from the Board effective May 8, 1998 and thus served less
than the entire year.
<PAGE>
OFFICER CHANGE IN CONTROL AGREEMENTS
TEP has Change in Control Agreements ("Agreements") with
fourteen officers (including Mr. Pignatelli, Mr. Adler, Mr. Nelson
and Mr. Glaser) which became effective as of December 4, 1998 and
remain in effect until the latter of: (1) five years after the date
either TEP or the officer gives written notice of termination; or
(2) if a change in control occurs during the term of the Agreement,
five years after the change of control. For the purpose of the
Agreements, a change in control includes the acquisition of
beneficial ownership of 30% of the Common Stock, certain changes in
the Board of Directors, approval by the shareholders of certain
mergers or consolidations, or certain transfers of the assets of
UniSource Energy. The Agreements provide that each officer shall
be employed by TEP or one of its subsidiaries or affiliates in a
position comparable to their 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 for cause).
Following a change in control, in the event that the officer's
employment is terminated by TEP (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 three times the present value
of his salary and bonus compensation; (ii) the present value of the
additional amount he would have received under the TEP 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 TEP under the TIP if he
had continued to be employed for such five-year period; and (iv)
the present value of any employee awards under the Omnibus Plan or
any successor plan, which are outstanding at the time of the
officer's termination (whether vested or not), prorated based on
length of service. Such officer is also entitled to continue to
participate in TEP's health, death benefit and disability benefit
plans for five years after the termination. The Agreements further
provide that TEP will make a payment to the officer to offset any
excise taxes that may become payable by the officer by reason of
application of Sections 280G and 4999 of the Code, and any
associated federal, state, local, employment and or excise tax owed
on this gross-up payment. Any payments by UniSource Energy which
are subject to Section 280G of the Code are not deductible.
Assuming a change in control occurred on the Record Date which
resulted in the immediate termination of the Chief Executive
Officer and the three Named Executives with whom TEP has
Agreements, the total payments made by UniSource Energy pursuant to
the Agreements would not be expected to exceed $13.2 million.
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 UniSource Energy's executive compensation policies
and programs and making recommendations to the Board of Directors
with respect thereto. In 1998, the Compensation Committee was
comprised of six of UniSource Energy's independent outside
Directors. Dr. Bickle and Mr. Burlingame were appointed to the
Compensation Committee in May 1998 replacing Mr. Donald G.
Shropshire, who retired in May. The Compensation Committee
determines the compensation of UniSource Energy's executive
officers, including Mr. Pignatelli and the
Named Executives, and sets policies for and reviews the
compensation awarded to other key members of management. UniSource
Energy applies a consistent philosophy to compensation for all
executive employees, including the Named Executives.
Compensation Policies Applicable to Executive Officers
------------------------------------------------------
UniSource Energy's executive compensation policies and
programs generally are intended to (i) relate the compensation of
employees to the success of UniSource Energy and the creation of
shareholder value; and (ii) attract, motivate and retain highly
qualified executives. UniSource Energy's compensation program was
developed with the assistance of an external consultant, and is
intended to provide competitive pay levels which are linked to the
achievement of UniSource Energy's strategic objectives.
UniSource Energy's 1998 compensation program consisted of
three components: (i) base salary; (ii) short-term incentive
compensation; and (iii) long-term incentive compensation.
<PAGE>
Base Salaries
- - -------------
The base salary component of compensation is intended to be
competitive with that paid by companies with which UniSource Energy
competes for employees. In developing the compensation program,
the Compensation Committee retained an external consultant to
conduct a competitive analysis of pay for UniSource Energy's
officer group. In conducting its analysis for 1998, the consultant
used comparative groups of utility (primarily electric) industry as
well as general industry companies with revenues similar to
UniSource Energy, chosen based on their business and size. The
utility industry group served as an industry comparator group for
top-level personnel, and the general industry group was used as a
comparator based on the Compensation Committee's belief that
UniSource Energy's market for top-level personnel extends beyond
the utility industry. The Compensation Committee believes the
companies in the comparative group are a more appropriate
comparison for UniSource Energy 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 UniSource Energy and the companies in the comparative group
represent primary competitors to UniSource Energy for top-level
management personnel. The external data from companies in the
comparative group was used to develop a competitive compensation
for each executive position. Base salaries for UniSource Energy's
executive officers (including Mr. Bayless, Mr. Pignatelli and the
Named Executives) were set at market compensation levels in January
1998, 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 resigned as Chairman, President
and Chief Executive Officer in July 1998. Mr. Pignatelli was named
Chairman, President and Chief Executive Officer at that time. His
base salary was determined based on the aforementioned competitive
pay analysis of pay for UniSource Energy's officer group. Mr.
Bayless received a 4% increase in base salary for 1998. The Named
Executives received increases ranging from 4% to 13%.
Short-Term Incentive Compensation
- - ---------------------------------
The Board of Directors adopted the Short-Term Incentive Plan
to provide compensation for meeting or exceeding specified
corporate objectives designed to contribute to the attainment of
UniSource Energy'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 1998, the percentage for Mr.
Pignatelli was 40% and for the other executive officers ranged from
25 to 30%. Actual awards can vary from 0 to 200% of the target
award level, depending upon UniSource Energy's performance in
relation to pre-established goals. For 1998, pre-established goals
for officers (including Mr. Pignatelli and the Named Executives)
consisted of two corporate objectives and a customer service
multiplier. The corporate objectives consisted of: (i) increasing
UniSource Energy's intrinsic value, measured by cash flow return on
investment; and (ii) improving profitability and cost management,
measured by operations & maintenance expenses per kilowatt hour
sold. The customer service multiplier consisted of eight component
goals, relating to: (i) reducing the number of outages; (ii)
decreasing average outage duration; (iii) improving customer
service satisfaction; (iv) increasing customer use of special
programs and services; (v) increasing services provided to
customers; (vi) increasing customer service options; (vii)
sustaining air quality compliance; and (viii) sustaining Company
visibility through participation in community activities.
In calculating the percentage of target awards payable, the
Compensation Committee established target performance levels for
each of the corporate objectives. Minimum performance levels (50%
of target awards payable) and exceptional performance levels (150%
of target awards payable) were established as well. No credit was
given for performance below minimum levels. The customer service
multiplier was established at levels ranging from 0.8 to 1.2,
depending upon the number of component goals met. In order for any
incentive compensation to be paid, UniSource Energy was required to
meet at least the minimum performance levels on each of the
corporate objectives. Based on the achievement of corporate
objectives for 1998, incentive compensation was paid in the amount
of 120% of target award levels to Mr. Pignatelli and the Named
Executives. Mr. Bayless did not receive incentive compensation for
1998. Incentive compensation earned in 1998 by Mr. Pignatelli and
the Named Executives is set forth in the preceding Summary
Compensation Table.
<PAGE>
Long-Term Incentive Compensation
- - --------------------------------
UniSource Energy's long-term incentive compensation is
intended to attract and retain quality employees over the long term
in a manner that directly aligns them with shareholder interests.
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 Omnibus Plan. On
July 9, 1998, the Compensation Committee issued Incentive Stock
Options ("ISOs") and Non-Qualified Stock Options ("NQSOs") to all
executive officers of UniSource Energy including Mr. Pignatelli and
the Named Executives. In calculating the level of awards to Mr.
Pignatelli and the other executive officers, the Compensation
Committee considered the aforementioned analysis of executive
compensation for comparative companies. Based on such analysis,
the Compensation Committee awarded Mr. Pignatelli ISOs and NQSOs
with a total value equal to 60% of his base salary (based on a
Black-Scholes pricing model which assigned a value of $6.79 per
share for ISOs and $5.91 per share for NQSOs). The total value of
stock options issued to the Named Executives ranged from 30% to 33%
of base salary. The number of shares covered by the stock option
grant to Mr. Pignatelli was 58,246. The Compensation Committee did
not consider the number of options previously granted or
outstanding.
On June 26, 1997, at the recommendation of the Compensation
Committee, the Board of Directors unanimously approved a
Performance Share Program under the Omnibus Plan. The Performance
Share Program is intended to align the interests of UniSource
Energy's executive officers directly with the interest of its
shareholders. The Performance Share Program provides for the
delivery of shares of UniSource Energy's Common Stock equal to 0 to
150% of the Target Number of Shares, depending upon UniSource
Energy's total shareholder return (stock price increase plus
dividends, divided by the initial stock price) over the performance
period ending December 31, 2001, compared to corporations in a peer
group. For this purpose, "peer group" means those corporations that
as of the vesting date are included in the S&P Electric Utility
Index. At the end of the performance period, the Compensation
Committee will determine the number of Vested Performance Shares
based on UniSource Energy's performance against the peer group.
Performance share recipients will receive one share of Common Stock
for each Vested Performance Share. The shares of Common Stock
underlying the performance shares are subject to limitations on
their sale, transfer, or pledge prior to the time they become
vested. Recipients of performance shares will have no rights as
stockholders of UniSource Energy, including dividend rights and
voting rights, with respect to the performance shares and any
shares of Common Stock underlying or issuable in respect of such
performance shares until such shares are actually issued and held
of record by the recipient. On October 10, 1997, the Compensation
Committee approved a total of 254,540 Target Number of Shares to
all executive officers, including Mr. Bayless, Mr. Pignatelli and
the other Named Executives. When he was named President and Chief
Executive Officer in July 1998, Mr. Pignatelli's performance shares
were increased by 80,000 to 104,790, representing a target value of
approximately 200% of his base salary.
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
Larry W. Bickle
Elizabeth T. Bilby
Harold W. Burlingame
Jose L. Canchola
John A. Jeter
<PAGE>
UNISOURCE ENERGY CORPORATION
Comparison of Five-Year Cumulative Total Return
UniSource Energy Corporation, 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 UniSource Energy Corporation, the S&P
500 Index, and EEI index of 100 investor-owned utilities. The graph's
X-axis shows the years 1993 to 1998, and the Y-axis shows dollar values from
50 to 300. The data points are connected by lines with the following markers:
UNS - triangles; S&P 500 Index - diamonds; EEI index of 100 investor-
owned utilities - squares. The datapoints are as follows:
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
UniSource Energy
Corporation $100 $83 $90 $91 $100 $74
S&P 500 Index $100 $101 $139 $171 $229 $294
EEI Index of 100
Investor-owned
Utilities $100 $88 $116 $117 $149 $170
</TABLE>
Assumes $100 invested on December 31, 1992 in UniSource Energy
Corporation 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 UniSource Energy 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 2000 ANNUAL MEETING
Rule 14a-4 of the SEC's proxy rules allows UniSource Energy to
use discretionary voting authority to vote on a matter coming
before an annual meeting of the shareholders which was not included
in UniSource Energy's Proxy Statement (if UniSource Energy does not
have notice of the matter at least 45 days before the date on which
UniSource Energy first mailed its proxy materials for the prior
year's annual meeting of the shareholders). In addition,
discretionary voting authority may generally also be used if
UniSource Energy receives timely notice of such matter (as
described in the preceding sentence) and if, in the proxy
statement, UniSource Energy describes the nature of such matter and
how UniSource Energy intends to exercise its discretion to vote on
such matter. Accordingly, for the 2000 Annual Meeting of
Shareholders of UniSource Energy Corporation, any such notice must
be submitted to the Corporate Secretary of UniSource Energy on or
before February 14, 2000.
This requirement is separate and apart from the SEC's
requirements that a shareholder must meet in order to have a
shareholder proposal included in the UniSource Energy Proxy
Statement. Shareholder proposals intended to be presented at the
2000 Annual Meeting of Shareholders of UniSource Energy Corporation
must be received by UniSource Energy no later than December 1, 1999
in order to be eligible for inclusion in UniSource Energy's Proxy
Statement and the form of proxy relating to that meeting.
By order of the Board of Directors,
Dennis R. Nelson
Corporate Secretary
Dated: March 30, 1999
Shareholders are requested to fill out, date, sign, and promptly
return the accompanying form of proxy in the enclosed envelope.
<PAGE>
APPENDIX
(FORM OF PROXY CARD)
UNISOURCE ENERGY CORPORATION
220 West Sixth Street, Post Office Box 711
Tucson, Arizona 85702
You are cordially invited to join us at the Annual Meeting of Shareholders of
UniSource Energy Corporation. This year's meeting will be held at the Leo Rich
Theater, 260 S. Church Avenue, Tucson, Arizona on Friday, May 21, 1999.
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 choice, your shares will be voted in accordance
with the recommendations of your directors.
We will discuss the business of UniSource Energy 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 21st of May. In the meantime,
if you have questions regarding the Meeting, please phone our Investor Relations
Department at 520-884-3661.
Sincerely,
DETACH PROXY CARD HERE
- - ---------------------------------------------------------------------------
(FORM OF PROXY CARD FRONT)
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE FOLLOWING PROPOSAL:
1. Election of Directors
FOR all nominees WITHHOLD AUTHORITY to vote *EXCEPTIONS [ ]
listed below for all nominees listed
[ ] below [ ]
Nominees: Ira R. Adler, Larry W. Bickle, Elizabeth T. Bilby, Harold W.
Burlingame, Jose L. Canchola, John L. Carter, Daniel W. L. Fessler, John A.
Jeter, R.B. O'Rielly, James S. Pignatelli, Martha R. Seger, H. Wilson Sundt
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, MARK
THE "EXCEPTIONS" BOX AND WRITE THAT NOMINEE'S NAME IN THE SPACE PROVIDED BELOW).
*Exceptions --------------------------------------------------------------------
Change of Address and
or Comments Mark Here [ ]
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 in corporate name by President
or other authorized officer. If a partnership, please sign in partnership name
by authorized person. Receipt is hereby acknowledged of Notice of Annual
Meeting, Proxy Statement and the 1998 Annual Report.
Dated: , 1999
---------------------------
Signature
---------------------------
Signature
VOTES MUST BE INDICATED
(X) IN BLACK OR BLUE INK.
PLEASE SIGN, DATE AND RETURN THE PROXY PROMPTLY USING THE ENCLOSED ENVELOPE.
(FORM OF PROXY CARD - BACK)
UNISOURCE ENERGY CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY FOR
THE ANNUAL MEETING TO BE HELD MAY 21, 1999
P R O X Y
The undersigned hereby appoints James S. Pignatelli 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 Leo
Rich Theater, 260 S. Church Avenue, Tucson, Arizona, on May 21, 1999, 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 dated and signed on reverse side.)
UNISOURCE ENERGY CORPORATION
C/O THE BANK OF NEW YORK
P.O. BOX 11030
NEW YORK, N.Y. 10203-0030
