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. )
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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
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(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:
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2) Aggregate number of securities to which transaction applies:
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0-11(a)(2) and idenfity the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
1) Amount previously paid:
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2) Form, Schedule or Registration Statement No.
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4) Date filed:
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<PAGE>
UNISOURCE ENERGY CORPORATION
220 West Sixth Street
P.O. Box 711
Tucson, Arizona 85702
March 30, 2000
James S. Pignatelli (520) 571-4000
Chairman of the Board
Dear Shareholders:
You are cordially invited to attend the UniSource Energy
Corporation 2000 Annual Shareholders Meeting to be held on Friday,
May 12, 2000, in the first-floor auditorium at Tucson Electric
Power Company's Administration Building, 220 West Sixth Street,
Tucson, Arizona. The meeting will begin promptly at 10:00 a.m., so
please plan to arrive earlier. No admission tickets will be
required for attendance at the meeting.
Directors and officers will be available before and after the
meeting to speak with you. During the meeting, we will answer your
questions regarding our business affairs and will consider the
matters explained in the enclosed Notice and Proxy Statement.
We have enclosed a proxy card that lists all matters that
require your vote. Please vote, sign and return the proxy card as
soon as possible, whether or not you plan to attend the meeting.
You may also vote by telephone or the Internet, as explained on
the proxy card. If you attend the meeting and wish to vote your
shares personally, you may revoke your proxy at that time. Your
interest and continued support of UniSource Energy Corporation are
much appreciated.
Sincerely,
UNISOURCE ENERGY CORPORATION
/s/ James S. Pignatelli
James S. Pignatelli
Chairman of the Board, President
and Chief Executive Officer
<PAGE>
NOTICE OF ANNUAL SHAREHOLDERS MEETING
To the Holders of Common Stock of
UniSource Energy Corporation
We will hold the Annual Shareholders Meeting ("Meeting") of
UniSource Energy Corporation ("UniSource Energy") at our corporate
headquarters at 220 West Sixth Street, Tucson, Arizona, on Friday,
May 12, 2000, at 10:00 a.m., Mountain Standard Time. The Meeting's
purpose is to:
1. Elect 12 directors for the Board for the ensuing year;
2. Approve amendments to our 1994 Omnibus Stock and Incentive
Plan; and
3. Consider any other matters which properly come before the
Meeting.
Only shareholders of record of common stock at the close of
business on March 22, 2000 are entitled to vote at the Meeting.
We have enclosed our 1999 Annual Report, including financial
statements, and the Proxy Statement with this notice. Proxy
soliciting material is first being sent or given to shareholders
on March 30, 2000. Your proxy is being solicited by the UniSource
Energy Board of Directors.
Please vote, sign, date and mail the enclosed proxy as soon
as possible in the enclosed return envelope. You may also vote by
telephone or the Internet, as explained on the enclosed proxy
card.
Dennis R. Nelson
Corporate Secretary
Dated: March 30, 2000
YOUR VOTE IS IMPORTANT
EACH SHAREHOLDER IS URGED TO COMPLETE, SIGN, DATE AND RETURN
PROMPTLY THE ENCLOSED PROXY BY MAIL, OR TO VOTE BY TELEPHONE OR
THE INTERNET, AS EXPLAINED ON THE PROXY CARD. IF THE MAIL OPTION
IS SELECTED, USE THE ENCLOSED ENVELOPE, WHICH DOES NOT REQUIRE
POSTAGE IF MAILED IN THE UNITED STATES. RETURNING A SIGNED PROXY
WILL NOT PROHIBIT YOU FROM ATTENDING THE MEETING AND VOTING IN
PERSON, IF YOU SO DESIRE.
<PAGE>
UNISOURCE ENERGY CORPORATION
220 West Sixth Street
P.O. Box 711
Tucson, Arizona 85702
ANNUAL SHAREHOLDERS MEETING
PROXY STATEMENT
ANNUAL MEETING
May 12, 2000 UniSource Energy Corporation
10:00 a.m., MST 220 West Sixth Street
Tucson, Arizona 85701
RECORD DATE
March 22, 2000. If you were a shareholder of
record at the close of business on March 22,
2000, you may vote at the Annual Shareholders
Meeting ("Meeting"). Each share is entitled to
one vote. In the election of directors, you may
cumulate votes. At the close of business on the
record date, we had 32,365,259 shares of our
common stock outstanding.
AGENDA
1. Proposal One: Elect 12 directors for the Board
for the ensuing year;
2. Proposal Two: Approve amendments to our 1994
Omnibus Stock and Incentive Plan; and
3. Consider any other matters which properly come
before the Meeting and any adjournments.
INDEPENDENT AUDITORS
Representatives of PricewaterhouseCoopers, LLP
are expected to be present at the Meeting with
the opportunity to make a statement and to be
available to respond to appropriate questions.
PROXIES
. We will follow your voting instructions. If
none, we will vote signed proxies for the
nominees and Proposal Two.
A form of proxy for execution by shareholders is
enclosed. Unless you tell us on the proxy card
to vote differently, we will vote signed
returned proxies "for" the Board's nominees and
"for" Proposal Two. The Board or proxy holders
will use their discretion on other matters. If a
nominee cannot or will not serve as a director,
the Board or the persons designated as proxies
will vote for a person whom they believe will
carry on our present policies.
PROXIES SOLICITED BY
The Board of Directors.
FIRST MAILING DATE
We anticipate first mailing this Proxy Statement
on March 30, 2000.
REVOKING YOUR PROXY
You may revoke your proxy before it is voted at
the Meeting. To revoke, follow the procedures
listed on page 3 under "VotingProcedures/Revoking
Your Proxy."
YOUR COMMENTS
We welcome your comments. The proxy card has
room for them.
Your comments about any aspects of our business
are welcome. You may use the space provided on
the proxy card for this purpose, if desired.
Although we may not respond on an individual
basis, your comments help us to measure your
satisfaction, and we may benefit from your
suggestions.
PLEASE VOTE - YOUR VOTE IS IMPORTANT
Prompt return of your proxy will help reduce the costs of
re-solicitation.
<PAGE>
CONTENTS
Voting Procedures/Revoking Your Proxy.............................2
UniSource Energy Share Ownership..................................3
Proposal One: Election of Directors*..............................7
Board Information.................................................9
Board Compensation...............................................10
Executive Compensation and Other Information**...................11
Officer Change in Control Agreements.............................14
Compensation Committee Report on Executive Compensation..........15
Audit Committee Report...........................................18
Performance Graph**..............................................19
Compensation Committee Interlocks and Insider Participation......19
Proposal Two: Amendment to the UniSource Energy's
1994 Omnibus Stock and Incentive Plan*.........................19
Submission of Shareholder Proposals..............................24
Other Business...................................................25
- --------------------
* We expect to vote on these items at the Meeting.
** The Compensation Committee report and the performance graph will
not be incorporated by reference into any present or future
filings we make with the SEC, even if those reports incorporate
all or any part of this Proxy Statement.
VOTING PROCEDURES/REVOKING YOUR PROXY
You can vote by telephone, the Internet, mail, or
in person. We encourage you to vote by telephone
or the Internet to help us save money.
You can vote your shares by telephone, the Internet,
mail or in person at the Meeting. Your proxy card
contains instructions for voting by telephone or the
Internet, which are the least expensive and fastest
methods of voting. To vote by mail, complete and sign
your proxy card, or your broker's voting instruction
card if your shares are held by your broker, and
return it in the enclosed return envelope.
Under Arizona law, a majority of the shares entitled
to vote on any single matter which may be brought
before the Meeting will constitute a quorum. Business
may be conducted once a quorum is represented at the
Meeting. Except as otherwise specified by law or in
our Articles of Incorporation or Bylaws, if a quorum
exists, action on a matter other than the election of
directors will be deemed approved if the votes cast in
favor of the matter exceed votes cast against it.
Proposal Two must be approved by a majority of
shareholders voting.
Thus, if a quorum exists, Proposal Two must be
approved by a majority of the shareholders who
actually vote. Any broker "non-votes" with respect to
Proposal Two will be counted for purposes of
determining the presence or absence of a quorum, but
will not be counted as shares represented and voting
on the proposal. In contrast, proxies voted "abstain"
will have the same legal effect as shares voted
against the proposal.
Directors are elected by a plurality of the votes cast
by the shares entitled to vote if a quorum is present.
A plurality means receiving the largest number of
votes, regardless of whether that is a majority.
Withheld votes will be counted as being represented at
the Meeting for quorum purposes but will not have an
effect on the vote.
You may cumulate your votes for directors.
In the election of directors, each of our common stock
shareholders 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 all of
such votes for one nominee or distribute such votes
among two or more nominees.
You can change your mind after sending in a proxy
by following these procedures.
Any shareholder giving a proxy has a right to revoke
that proxy by giving notice to UniSource Energy in
writing directed to the Corporate Secretary, at 220
West Sixth Street, P.O. Box 711, Tucson, Arizona
85702, or in person at the Meeting at any time before
the proxy is exercised. Those who fail to return a
proxy or attend the Meeting will not count towards
determining any required plurality, majority or
quorum.
The shares represented by an executed proxy will be
voted for the election of directors and for Proposal
Two, or withheld in accordance with the specifications
in the proxy. If no specification is made in the
proxy, the proxy will be voted in favor of the
nominees and Proposal Two as set forth herein.
PROXY SOLICITATION
We will bear the entire cost of the solicitation of
proxies. Solicitations will be made 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 of approximately $3,000 plus reasonable out-of-
pocket expenses. Solicitations may also be made by
telephone, facsimile, or personal interview, if
necessary, to obtain reasonable representation of
shareholders at the Meeting. Our employees may solicit
proxies for no additional compensation. We will
request brokers or other persons holding stock in
their names, or in the names of their nominees, to
forward proxy materials to the beneficial owners of
such stock or request authority for the execution of
the proxies. We will reimburse brokers and other
persons for reasonable expenses they incur in sending
these proxy materials to you if you are a beneficial
holder of our shares.
UNISOURCE ENERGY SHARE OWNERSHIP
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth the number and
percentage of shares beneficially owned as of the
Record Date, and the nature of such ownership by each
of our directors, nominees, the Chief Executive
Officer, the four other most highly compensated
executive officers during 1999, and all directors and
officers as a group. Ownership includes direct and
indirect (beneficial) ownership, as defined by SEC
rules.
<TABLE>
<CAPTION>
Allocable Amount of
Amount and Shares Under Deferred
Name and Nature of Compensation Stock
Title Title of Beneficial Percent Plan and Restricted
of Class Beneficial Owner Ownership (1) of Class Stock Unit Account (2)
- -------- ---------------- ------------- -------- ---------------------
<S> <C> <C> <C> <C>
Common James S. Pignatelli 75,924 (3)(4) * 108,362
Chairman, President
and CEO
Common Ira R. Adler 51,506 (5)(6) * 23,272
Executive Vice President,
Chief Financial Officer,
Treasurer, and Director
Common Lawrence J. Aldrich 1,500 * ----
Director Nominee
Common Larry W. Bickle 3,467 (7) * ----
Director
Common Elizabeth T. Bilby 5,367 (8) * 2,540
Director
Common Harold W. Burlingame 3,967 (7) * ----
Director
Common Jose L. Canchola 7,267 (8) * 404
Director
Common John L. Carter 10,867 (9) * 5,804
Director
Common Daniel W. L. Fessler 2,334 (7) * ----
Director
Common John A. Jeter 9,067 (8) * 2,657
Director
Common R. B. O'Rielly 15,647 (8) * 3,951
Director
Common Martha R. Seger 6,854 (8) * 2,112
Director
Common H. Wilson Sundt 7,067 (8)(10) * 1,823
Director
Common Dennis R. Nelson 40,408 (11)(12) * 21,031
Vice President
General Counsel and
Corporate Secretary
Common Steven J. Glaser 27,726 (13)(14) * 24,678
Vice President
Energy Services
Tucson Electric Power
Company
Common Karen G. Kissinger 30,022 (15)(16) * ----
Vice President,
Controller and
Principal Accounting
Officer
Common All directors and 422,318 (17) 1.3% 294,393
executive officers as
a group
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* Represents less than l% of the outstanding common stock of UniSource Energy.
(1) Amounts include the following:
-- 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;
-- Shares subject to options exercisable within 60 days, based on
information from directors and officers; and
-- Equivalent share amounts allocated to the individuals' Triple
Investment Plan (401(k)) ("TIP") which, since June 1, 1998 has
included a UniSource Energy Stock fund election option.
(2) Amounts include the following:
-- Shares held in trust under the Deferred Compensation Plan.
With the cash compensation deferred, the trust invests in UniSource
Energy 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 14,
2000; and
-- The allocable amount of deferred shares in the participant's
Restricted Stock Unit Account (see Summary Compensation Table).
(3) Includes 60,031 shares subject to options exercisable
within 60 days.
(4) Includes 10,173 shares purchased under TIP UniSource Energy
Stock Fund.
(5) Includes 40,933 shares subject to options exercisable
within 60 days.
(6) Includes 5,531 shares purchased under TIP UniSource Energy
Stock Fund.
(7) Includes 1,467 shares subject to options exercisable
within 60 days.
(8) Includes 5,067 shares subject to options exercisable
within 60 days.
(9) Includes 3,867 shares subject to options exercisable
within 60 days.
(10) Includes 1,000 shares held by a corporation with which Mr.
Sundt is associated.
(11) Includes 28,113 shares subject to options exercisable
within 60 days.
(12) Includes 8,871 under TIP UniSource Energy Stock Fund.
(13) Includes 21,793 shares subject to options exercisable
within 60 days.
(14) Includes 2,924 shares purchased under TIP UniSource Energy
Stock Fund.
(15) Includes 1,123 shares purchased under TIP UniSource Energy
Stock Fund.
(16) Includes 21,375 shares subject to options exercisable
within 60 days.
(17) Includes 314,051 shares subject to options exercisable
within 60 days, 38,800 shares purchased under TIP UniSource
Energy Stock Fund, and 5,527 restricted stock grants pursuant
to the 1997 TEP Officer Restricted Stock Awards.
</TABLE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
As of the Record Date, we knew the following companies
to be the beneficial owners of more than 5% of the
outstanding shares of our common stock:
<TABLE>
<CAPTION>
Amount and
Name and Address Nature of Percent
Title of Class of Beneficial Owner Beneficial Ownership of Class
- --------------- ------------------- -------------------- --------
<S> <C> <C> <C>
Common Heartland Advisors, Inc. 2,845,300 (1) 8.80%
789 North Water Street
Milwaukee, WI 53202
Common T. Rowe Price Associates, Inc. 1,845,100 (2) 5.70%
100 E. Pratt Street
Baltimore, MD 21202
Common The Prudential Insurance 1,816,760 (3) 5.62%
Company of America
751 Broad Street
Newark, NJ 07102-3777
Common Ballentine Capital Management, Inc. 1,757,700 (4) 5.40%
10 Avon Meadow Lane
Avon, CT 06001
- --------------------
(1) In a statement dated February 3, 2000, filed with the SEC on Schedule
13G/A under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), Heartland Advisors, Inc. indicated it has a
sole voting power over 1,667,000 shares and sole dispositive
power over 2,845,300 shares of our outstanding common stock,
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.
(2) In a statement dated February 14, 2000, filed with the SEC on
Schedule 13G under the Exchange Act, T. Rowe Price Associates,
Inc. ("Price Associates") indicated it has a sole voting power
over 904,900 shares and sole dispositive power over 1,845,100
shares of our outstanding common stock. These securities are
owned by various individual and institutional investors for
which Price Associates serves as investment advisor with power
to direct investments and/or sole power to vote the securities.
For purposes of the reporting requirements of the Exchange Act,
Price Associates is deemed to be beneficial owner of such
securities; however Price Associates expressly disclaims that it
is, in fact, the beneficial owner of such securities.
(3) In a statement dated January 31, 2000, filed with the SEC on Schedule
13G/A under the Exchange Act, the Prudential Insurance Company
of America indicated it may have direct or indirect voting
and/or investment discretion over 1,816,760 shares of our
outstanding common stock which are held for the benefit of its
clients by its separate accounts, externally managed accounts,
registered investment companies, subsidiaries and/or other
affiliates.
(4) In a statement dated February 3, 2000, filed with the SEC on Schedule
13G/A under the Exchange Act, Ballentine Capital Management,
Inc., indicated that it has sole voting and sole dispositive
power over 1,757,700 shares of our outstanding common stock
which are directly held in managed accounts to which Ballentine
Capital Management serves as investment advisor.
</TABLE>
Section 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act and SEC regulations
require directors, certain officers, and persons who
own greater than 10% of our stock to file reports of
ownership and changes in ownership of such stock with
the SEC and the New York Stock Exchange. These
directors, officers and greater than 10% beneficial
owners are required by law to furnish us with copies
of all forms they file under Section 16(a).
Based solely on a review of the copies of such forms
furnished to us and on written representations of our
directors and officers, we believe that all Section
16(a) filing requirements applicable to our directors
and officers were complied with during 1999, with the
exception of Mr. R. B. O'Rielly, a UniSource Energy
director who inadvertently failed to timely file forms
for the acquisitions of 10,000 and 300 shares of our
common stock which he made during 1999 and Mr. Daniel
W.L. Fessler, a UniSource Energy director who
inadvertently failed to timely file a form for the
acquisition of 440 shares of our common stock. Mr.
O'Rielly's and Mr. Fessler's acquisitions subsequently
have been submitted to the SEC on a separate Form 5s.
PROPOSAL 1: ELECTION OF DIRECTORS
GENERAL
We will elect 12 directors this year.
At the Meeting, the shareholders will elect twelve
directors to serve on our Board of Directors for the
ensuing year and until their successors are elected
and qualified. The shares represented by executed
proxies in the form enclosed, unless withheld, will be
voted 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 the current nominees are present members of the
Board of Directors except Lawrence J. Aldrich. 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, it is the
intention of the persons designated as proxies to
vote, in their discretion, for other nominees.
BOARD NOMINEES
James S. Chairman of the Board of Directors, President and Chief
Pignatelli Executive Officer of UniSource Energy since July 1998;
Senior Vice President and Chief Operating Officer of
UniSource Energy from December 1997 to July 1998;
Chairman of Board of Directors, President and Chief
Executive Officer of Tucson Electric Power Company, a
wholly-owned subsidiary of UniSource Energy ("TEP")
since July 1998; Executive Vice President and Chief
Operating Officer of 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. Age 56.
Ira R. Adler Director of UniSource Energy since July 1998; Executive
Vice President, Chief Financial Officer and Treasurer
of UniSource Energy since July 1998; Director of TEP
since 1998; Chief Operating Officer of Generation of
TEP since 1999; 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. Age 49.
Lawrence J. Principal, Tucson Ventures Group, a venture capital
Aldrich company, since February 2000; President and Chief
Executive Officer of Tucson Newspapers from January
1992 to February 2000. Age 47.
Larry W. Managing Director of Haddington Ventures, LLC, an
Bickle investment company, since 1997; Chairman and Chief
(2)(3)(4) Executive Officer of TPC Corporation (formerly Tejas
Power Corporation) from 1982 to May 1997; Director, St.
Mary Land & Exploration Company; Director, Western Hub
Properties. Director of Millennium since 1998. Board
member since 1998. Age 54.
Elizabeth T. President and Treasurer of Gourmet Products, Inc., an
Bilby agricultural product marketing company; Director of
(1)(2)(3)(4) Marketing of Green Valley Pecans since 1982. Director
of TEP since 1995; Director of Millennium since 1998.
Board member since 1995. Age 60.
Harold W. Executive Vice President, Merger & Joint Venture
Burlingame Integration of AT&T since March 1999; Executive Vice
(1)(2)(3) President of Human Resources of AT&T from 1987 to March
1999; Chairman of the AT&T Foundation; Director of TEP
since 1998. Board member since 1998. Age 59.
Jose L. Chairman of Canchola Foods, Inc., holder of several
Canchola restaurant franchises in Tucson and Nogales, Arizona,
(2)(3)(4) 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;
Director of Millennium since 1998. Board member since
1992. Age 68.
John L. Carter Executive Vice President and Chief Financial Officer of
(2)(4) Burr-Brown Corporation from 1993 to 1996; President and
Chief Executive Officer of Qualtronics Manufacturing,
Inc. from 1987 to 1996; Director of TEP since 1996;
Director of Millennium since 1998. Board member since
1996. Age 65.
Daniel W.L. Partner in the law firm of LeBoeuf, Lamb, Greene &
Fessler MacRae L.L.P. since 1997; Member of the Harvard
(1)(4) 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; Director
of TEP since 1998. Board member since 1998. Age 58.
John A. Jeter Independent business consultant since 1991; partner in
(1)(2)(3) the accounting firm of Arthur Andersen & Co. from 1967
to 1991; Director of TEP since 1994; Director of
Millennium since 1998. Board member since 1994. Age 68.
Martha R. Consultant, Martha R. Seger and Associates Economic and
Seger Financial Consulting; John M. Olin Distinguished Fellow
(1)(2)(4) 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; Director of TEP since 1992. Board member
since 1992. Age 68.
H. Wilson Retired Chairman of the Board, The Sundt Companies
Sundt Inc.; Chairman of the Board and Chief Executive Officer
(2)(3) 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. Director of Millennium
since 1998. Board member since 1976. Age 67.
- --------------------
(1) Member of the Nominating Committee. Mr. Fessler was elected
to this Committee effective July 1, 1999.
(2) Member of the Audit Committee. Mr. Canchola served on this
Committee through June 30, 1999. Dr. Seger was elected to the
Audit Committee effective July 1, 1999.
(3) Member of the Compensation Committee.
(4) Member of the Finance Committee. Dr. Seger was elected to
the Finance Committee effective July 1, 1999.
The Board recommends that you vote "FOR" these nominees.
BOARD INFORMATION
BOARD MEETINGS
In 1999, the Board held a total of six regular
meetings. Each director attended at least 75% of his
or her Board and committee meetings.
BOARD COMMITTEES
The Audit Committee selects and recommends to the
Board of Directors a firm of independent certified
public accountants to audit annually our financial
statements; 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 our accounting and
internal control procedures with our internal audit
department from time to time, and makes
recommendations to the Board of Directors for any
changes deemed necessary in such procedures; and
performs such other functions delegated by the Board
of Directors. Our Audit Committee held four meetings
in 1999 and was in full compliance with its written
charter.
The Compensation Committee reviews the performance of
our directors and officers and makes recommendations
to the Board of Directors with respect to directors'
and officers' compensation. Our Compensation Committee
held four meetings in 1999.
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. Our Finance
Committee held three meetings in 1999.
The Nominating Committee interviews potential
directors, nominates and recommends to the
shareholders and directors, as the case may be,
qualified persons to serve as directors. The
Nominating Committee held one meeting in 1999. At such
times as director vacancies occur, the Nominating
Committee will consider written recommendations from
shareholders for the Board of Directors. The deadline
for consideration of recommendations for next year's
Annual Meeting of Shareholders is November 30, 2000.
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.
BOARD COMPENSATION
RETAINER AND FEES
Each non-employee director received a $17,500 annual
cash retainer, $1,000 for each Board meeting, $1,000
for each committee meeting and $1,500 as chairperson
for each committee meeting attended in 1999. We
reimburse directors for any expenses related to their
Board service.
OPTION GRANTS
Non-employee directors also receive options to
purchase 2,000 shares of our common stock when they
become directors and another 2,000 for each year they
serve as director thereafter. The exercise price of
the options is the fair market value of our shares on
the grant date. These are grants of UniSource Energy
common stock options under the 1994 Outside Director
Stock Option Plan which vest in one-third increments
on the grant date anniversary and expire in ten years.
This year, options were granted to each of the
directors on January 3, 1999, at an exercise price of
$13.3125.
<TABLE>
<CAPTION>
DIRECTOR COMPENSATION FOR LAST FISCAL YEAR
Cash Compensation Security Grants
----------------- ---------------
Number of
Number Securities
Annual Retainer of Underlying
Name (1) Fee ($) (2) Meeting Fees ($)(2) Shares Options/SARs (3)
- -------- --------------- ------------------- ------ ----------------
<S> <C> <C> <C> <C>
Larry W. Bickle 17,500 28,000 - 2,000
Elizabeth T. Bilby 17,500 30,000 - 2,000
Harold W. Burlingame 17,500 22,000 - 2,000
Jose L. Canchola 17,500 26,000 - 2,000
John L. Carter 17,500 30,500 - 2,000
Daniel W. L. Fessler 17,500 25,000 - 2,000
John A. Jeter 17,500 31,000 - 2,000
R.B. O'Rielly 17,500 21,500 - 2,000
Martha R. Seger 17,500 21,000 - 2,000
H. Wilson Sundt 17,500 26,000 - 2,000
- --------------------
(1) Mr. Pignatelli and Mr. Adler are not listed in the above
table because directors who are salaried employees of UniSource
Energy do not receive compensation in their capacity as members
of the Board. Refer to the Summary Compensation Table for
information concerning their compensation.
(2) Cash compensation includes amounts earned but deferred at
the election of directors.
(3) Grants of UniSource Energy common stock options under the
1994 Outside Director Stock Option Plan.
</TABLE>
<PAGE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY OF COMPENSATION
The following table summarizes the compensation and
stock option grants to, and stock options/stock
appreciation rights ("SARs") held by our Chief
Executive Officer and our four other most highly
compensated executive officers at December 31, 1999
("Named Executives").
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term
Annual Compensation Compensation Awards
------------------- -------------------
Restricted Securities
Stock underlying All Other
Name and Awards Options/ Compensation
Principal Position Year Salary ($) Bonus ($) ($) (1) SARs (#) ($) (2)
- ------------------ ---- ---------- --------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
James S. Pignatelli 1999 450,008 272,800 1,200,005 114,500 7,200
President and Chief 1998 410,050 216,004 - 58,246 7,200
Executive Officer 1997 307,924 186,001 67,524 16,800 7.200
Ira R. Adler 1999 299,988 135,000 225,010 31,800 7,200
Executive Vice 1998 297,614 125,995 - 17,700 7,200
President, 1997 244,558 147,001 83,853 13,300 7,200
Chief Financial
Officer and
Treasurer
Dennis R. Nelson 1999 214,769 67,500 225,010 18,200 7,200
Vice President, 1998 206,693 72,000 - 8,800 7,200
General Counsel 1997 179,595 90,001 61,605 8,400 7,200
and Corporate Secretary
Steven J. Glaser 1999 180,000 64,800 283,760 11,450 7,200
Vice President 1998 186,174 54,000 - 8,000 7,200
Energy Services (TEP) 1997 164,423 82,500 35,935 7,700 7,200
Karen G. Kissinger 1999 170,000 56,100 90,009 10,800 7,200
Vice President, 1998 175,789 51,000 - 7,400 7,200
Controller and Principal 1997 154,019 77,500 53,043 7,200 7,200
Accounting Officer
- --------------------
(1) Award amount represents the fair market value of the restricted stock units on
the grant date. The restrictions on the 1997 grants lapse over a three-year period
in one-third increments on each anniversary date of the grant. The restrictions on
the 1999 grants lapse over a two-year period in one-half 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 units are not entitled to dividends. As of December 31,
1999, based on the closing market price of UniSource Energy's stock on that date of
$11.1875, James S. Pignatelli 105,201 restricted stock units valued at $1,176,936;
Ira R. Adler held 24,657 restricted stock units valued at $275,850; Dennis R. Nelson held
23,116 restricted stock units valued at $258,610; Steven J. Glaser held 26,338 restricted
stock units valued at $294,656; and Karen G. Kissinger held 7,540 restricted stock units
valued at $84,354 and 1,224 shares of restricted stock valued at $13,693.
(2) All Other Compensation is comprised of UniSource Energy's contributions to the TIP.
</TABLE>
<PAGE>
STOCK OPTIONS GRANTS IN 1999
During 1999, the Compensation Committee of our Board
of Directors granted stock options intended to qualify
as incentive stock options under the Internal Revenue
Code of 1986, as amended, to most employees. The
options have exercise prices equal to the market price
of the common stock at the date of grant. The options
vest ratably over a three-year period. The aggregate
number of shares attributable to the 1999 grants is
606,243.
The following table includes our 1999 grants of stock
options and SARs to the Named Executives. The amounts
shown as potential realizable values rely on
arbitrarily assumed increases in value required by the
SEC. In assessing those amounts, please note that the
ultimate value of the options, as well as your shares,
depends on actual future share prices. Market
conditions and the efforts of the directors, the
officers and others to foster the future success of
UniSource Energy can influence those future share
values.
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Individual Grants
Potential
Percent of Realizable Value at
Number of Total Options/ Assumed Annual Rates
Securities SARs of Stock Price
Underlying Granted to Exercise Appreciation for
Options/SARs Employees Price Expiration Option Term
Name Granted (#) in Fiscal Year ($/Sh) Date 5% ($) 10%($)
- ---- ------------ -------------- -------- ---------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
James S. Pignatelli 114,500 18.9% 12.2812 7/16/09 884,350 2,241,116
Ira R. Adler 31,800 5.2% 12.2812 7/16/09 245,610 622,423
Dennis R. Nelson 18,200 3.0% 12.2812 7/16/09 140,569 356,230
Steven J. Glaser 11,450 1.9% 12.2812 7/16/09 88,435 224,112
Karen G. Kissinger 10,800 1.8% 12.2812 7/16/09 83,415 211,389
</TABLE>
1999 OPTION AND SAR HOLDINGS
The following table includes the number and value of
exercisable and non-exercisable options and SARs held
by the Named Executives as of December 31, 1999. At
December 31,1999, none of the options were "in the
money," meaning a positive difference between the year-
end share price of $11.1875 and the exercise price.
The options might never be exercised, and the value,
if any, will depend on the share price on the exercise
date.
<PAGE>
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN
LAST FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUES
Number of Securities
Underlying
Unexercised Value of Unexercised
Shares Options/SARs at In-the-Money
Acquired Fiscal Year-End (#) Options/SARs at Fiscal
on Exercise Value Exercisable/ Year End ($) Exercisable/
Name (#) Realized ($) Unexercisable Unexercisable
---- ----------- ------------ ------------- -------------------------
<S> <C> <C> <C> <C>
James S. Pignatelli -- -- 60,032/158,930 0/0
Ira R. Adler -- -- 40,933/48,034 0/0
Dennis R.Nelson -- -- 28,113/26,866 0/0
Steven J. Glaser -- -- 21,793/19,350 0/0
Karen G. Kissinger -- -- 21,375/18,133 0/0
</TABLE>
PENSION PLANS
The following table shows the estimated annual
retirement benefit payable to participants, including
the Named Executives, for the average annual earnings
and years of service indicated. Remuneration is
comprised of the officers' average annual compensation
during the five consecutive years of employment with
the highest compensation within the last 15 years
preceding retirement. Compensation is comprised of
salary and bonus, as shown on the Summary Compensation
Table.
The amount of the pension benefit is equal to a base
of 40% of the compensation for 25 years of service,
plus 9.7% of such calculated amount. The estimated
benefits shown in the Pension Plan Table are straight
life annuities not subject to a reduction for any
Social Security benefits. The table also reflects
amounts payable under the Excess Benefits Plan which
will pay from the general funds of UniSource Energy
the difference, if any, between the benefits under
UniSource Energy's pension plan and any benefit
payments which may be limited by federal income tax
regulations.
<TABLE>
<CAPTION>
PENSION PLAN TABLE
Years of Service
--------------------------------------------------------
Remuneration ($) 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
Remuneration ($) 10 15 20 25 30 35
---------------- -- -- -- -- -- --
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
600,000 263,280 263,280 263,280 263,380 263,280 263,280
650,000 285,220 285,220 285,220 285,220 285,220 285,220
</TABLE>
The estimated credited years of service for UniSource Energy's
Named Executives are as follows:
Credited
Name Years of Service
---- ----------------
James S. Pignatelli 5
Ira R. Adler 14
Dennis R. Nelson 22
Steven J. Glaser 10
Karen G. Kissinger 9
OFFICER CHANGE IN CONTROL AGREEMENTS
Change in Control Agreements were adopted to attract
and retain quality management.
TEP has Change in Control Agreements ("Agreements")
with all of its officers. The Agreements are in effect
until the latter of: (i) five years after the date
either TEP or the officer gives written notice of
termination of the Agreement; or (ii) 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 of UniSource Energy, certain changes in
the UniSource Energy 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 are at
least equal to their then current compensation and
benefits, for an employment period of five years after
a change in control (subject to earlier termination
due to the 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 the present value of three times 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 1994 Omnibus Stock and
Incentive 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 under certain
conditions. Any payments made in respect of such
excise taxes 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 other Named Executives, the total
payments made by UniSource Energy pursuant to the
Agreements would not be expected to exceed $16
million.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
THE COMMITTEE
The Compensation Committee of the Board of Directors
(the "Compensation Committee") is responsible for
developing and administering executive compensation
policies and programs for UniSource Energy and TEP and
making recommendations to the Board with respect
thereto. In 1999, the Compensation Committee was
comprised of five independent outside directors. The
Compensation Committee determines the compensation of
UniSource Energy's executive officers, including Mr.
Pignatelli and the other 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.
OVERALL OBJECTIVES
UniSource Energy's executive compensation policies and
programs generally are intended to relate the
compensation of employees to the success of UniSource
Energy and the corresponding creation of shareholder
value to attract, retain and motivate executives and
key employees with competitive compensation
opportunities.
EXECUTIVE COMPENSATION GENERALLY
We review executives' pay each year. Compensation
depends on many factors, including individual
performance responsibilities, future challenges and
objectives and the executive's potential contribution
to our future success. We also look at UniSource
Energy's financial performance and the compensation
levels at comparable companies.
UniSource Energy's 1999 compensation program consisted
of three components:
-- base salary;
-- short-term incentive compensation; and
-- long-term incentive compensation.
BASE SALARY
The base salary component of compensation is intended
to be competitive with that paid by comparable
companies in the energy industry. 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 1999,
the consultant used two comparator groups: (i) an
energy group consisting of 11 gas and electric
utilities with revenues from $.5 to $1.4 billion; and
(ii) a mixed group of 22 public companies in the
energy and related technology industries, with
revenues from $.5 to $1.4 billion. The Compensation
Committee believes the companies in the comparator
groups are a more appropriate comparison for UniSource
Energy than the Edison Electric 100 companies used in
the Performance Graph set forth below, 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
comparator groups represent primary competitors to
UniSource Energy for top-level management personnel.
The external data from companies in the comparator
groups was used to develop a market compensation for
each executive position. "Market compensation" refers
to the median total salary for utility executives in
the comparator groups. Base salaries for UniSource
Energy's executive officers, including Mr. Pignatelli
and the other 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 and 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. Base salaries for the Company's
executives, including the Named Executives, were not
increased in 1999, with the exception of four newly
named officers whose salaries were set at market
compensation levels and one additional officer of TEP,
whose salary was increased to a market level
reflecting new responsibilities.
SHORT-TERM INCENTIVES
The Board adopted a Short-Term Incentive Plan to
provide compensation for meeting or exceeding
specified 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 1999, the percentage for
our executive officers ranged from 25-55%. Actual
awards can vary from 0 to 150% of the target award
level. Awards for Mr. Pignatelli, Mr. Adler and Mr.
Nelson are determined by the Board based on individual
contributions to business results and individual
performance. Awards for the remaining executive
officers are determined by the Board based on the
accomplishment of previously established individual
goals and contribution to business results. Based on
the foregoing factors, the Compensation Committee made
awards to executive officers of the Company ranging
from 0% to 125% of the target award level. Incentive
compensation awarded to Mr. Pignatelli and the other
Named Executives is set forth in the preceding Summary
Compensation Table.
LONG-TERM INCENTIVES
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 Tucson Electric Power
Company 1994 Omnibus Stock and Incentive Plan. On July
16, 1999 the Compensation Committee issued Non-
Qualified Stock Options ("NQSOs") to all executive
officers of UniSource Energy including Mr. Pignatelli
and the other Named Executives. In calculating the
level of awards to the other executive officers, the
Compensation Committee considered the above analysis
of executive compensation for comparative companies.
Based on such analysis, the Compensation Committee
awarded Mr. Pignatelli NQSOs with a total value equal
to 120% of his base salary (based on a Black-Scholes
pricing model which assigned a value of $4.72 per
share). The total value of stock options issued to the
other Named Executives ranged from 30% to 50% of base
salary. The number of shares covered by the stock
option grant to Mr. Pignatelli was 114,500. The
Compensation Committee did not consider the number of
options previously granted or outstanding.
In 1999, the Compensation Committee issued awards of
restricted stock units to 12 executive officers
including the Named Executives. Restricted stock units
represent the right to receive UniSource stock
following the expiration of a stated period of time
and were issued to retain key management personnel.
Executives that received restricted stock awards in
1999 are entitled to receive one-half of the awarded
stock on March 5, 2002 and the remaining half on March
5, 2003, provided they are then still employed by
UniSource Energy or its subsidiaries. The Compensation
Committee awarded Mr. Pignatelli 100,524 restricted
stock units with a total value equal to 267% of his
base salary (based on the closing market price of
$11.9375 on the grant date). The total number of
shares of restricted stock issued to other Named
Executives ranged from 53% to 158% of base salary.
TAX CODE CONCERNS
The Compensation Committee does not presently have a
policy regarding qualifying compensation paid to
executive officers for deductibility under Section
162(m) of the Internal Revenue Code of 1986, as
amended.
CONCLUSION
We believe Mr. Pignatelli and his executive team have
provided outstanding service to UniSource Energy. We
will work to assure the executive compensation
programs continue to meet out strategic goals as well
as the overall objectives discussed above.
Respectfully submitted,
THE COMPENSATION COMMITTEE
H. Wilson Sundt, Chair
Larry W. Bickle
Elizabeth T. Bilby
Harold W. Burlingame
Jose L. Canchola
John A. Jeter
<PAGE>
AUDIT COMMITTEE REPORT
THE COMMITTEE
The Audit Committee is made up of non-employee,
financially literate, independent directors. Several
members of the Audit Committee have accounting or
related financial management expertise. The Committee
has complied with its charter including the
requirement to meet periodically with UniSource
Energy's independent auditors, our Internal Audit
Department, and our management to discuss the
auditors' findings and other financial and accounting
matters.
PricewaterhouseCoopers LLP, our independent auditor,
has provided the Audit Committee with written
assurance of its independence. The Audit Committee has
discussed the results of the PricewaterhouseCoopers
audit as required by applicable accounting standards.
The Committee has also reviewed and discussed with
management the audited financial statements that
appear in our 1999 Annual Report.
Based on all of its activities during the year, the
Audit Committee recommended to the Board of Directors
that the financial statements for 1999 be included in
the Annual Report on Form 10-K for filing with the
Securities and Exchange Commission.
Respectfully submitted,
THE AUDIT COMMITTEE
John A. Jeter, Chair
Larry W. Bickle
Elizabeth T. Bilby
Harold W. Burlingame
Martha R. Seger
John L. Carter
H. Wilson Sundt
<PAGE>
PERFORMANCE GRAPH
Comparison of Cumulative Five Year Total Return Among
UNISOURCE ENERGY, Standard & Poor's 500 Index
and EEI Index of 100 Investor-Owned Utilities (1)
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 1994 to 1999, and the Y-axis shows dollar values from
50 to 400. 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>
1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
UniSource Energy
Corporation $100 $108 $110 $121 $ 90 $ 75
S&P 500 Index $100 $138 $169 $226 $290 $351
EEI Index of 100
Investor-owned
Utilities $100 $131 $133 $169 $192 $157
- --------------------
(1) Assumes $100 invested on December 31, 1994 in Tucson Electric
Power Company common stock, S&P Index and EEI Index. It is assumed
that all dividends are reinvested in stock at the frequency paid
and the returns of each component peer group issuer are weighted
according to the issuer's stock market capitalization at the
beginning of the period.
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
LEBOEUF LAMB GREEN & MACRAE L.L.P.
The law firm of LeBoeuf Lamb Green & MacRae L.L.P. has
provided certain legal services to UniSource Energy.
Mr. Fessler, a member of our Compensation Committee is
an equity owner of that firm. The arrangements with
that firm are competitive with those of other law
firms serving us.
PROPOSAL 2: AMENDMENT TO UNISOURCE ENERGY'S
1994 OMNIBUS STOCK AND INCENTIVE PLAN
GENERAL
Our 1994 Omnibus Stock and Incentive Plan (the
"Omnibus Plan") was originally adopted by the TEP
Board of Directors, effective February 4, 1994 and
approved by the TEP shareholders in May, 1994. The
Omnibus Plan has since been assumed by UniSource
Energy in connection with the establishment of
UniSource Energy as the holding company for TEP in
1998. UniSource Energy and the Compensation Committee
of the Board believe that UniSource Energy's prospects
for returning gradually to long-term financial
viability depend, in part, upon the capability and
performance of its salaried employees and that
appropriate compensation and incentives are integral
in attracting and retaining these personnel. The
Omnibus Plan is designed to accomplish these
objectives by providing equity interests in UniSource
Energy for salaried employees, and providing
incentives for superior performance. The following is
a summary of the material features of the Omnibus
Plan, as amended, a complete copy of which appears as
Appendix A hereto. The summary is qualified in its
entirety by reference to Appendix A.
PROPOSED AMENDMENTS
The Board of Directors has adopted, subject to
shareholder approval, amendments to the Omnibus Plan
including making an additional 2,500,000 shares of
UniSource Energy common stock available for awards
under the Omnibus Plan. The Amendment also limits the
maximum number of shares of stock subject to options
or SARs granted during any calendar year to any
individual to 200,000 shares and the maximum number of
shares of stock for all awards under the Plan in a
given year to any one individual to 300,000. The
Amendment also adds a provision to the Omnibus Plan
which will prohibit repricings of any outstanding
option or SAR to a price that is less than the fair
market value of a share of UniSource Energy stock on
the date the option or SAR was granted. At the
Meeting, the shareholders are being asked to ratify
and approve making the 2,500,000 additional shares
available under the Plan.
PURPOSE OF AMENDMENT
As set forth above, equity incentives are an integral
part of our compensation philosophy. All salaried
employees with six or more months of experience
historically have been granted options.
Since the adoption of the Omnibus Plan, we have
granted options with respect to substantially all of
the shares authorized under the Omnibus Plan. We
believe that awarding options under the Omnibus Plan
has been integral to our success in returning to long-
term financial viability. We also believe the dilutive
effect of the awards is substantially less than the
earnings improvements driven by recruiting, retaining
and motivating employees through the Omnibus Plan. We
believe that failure to continue the Omnibus Plan in
the future would have a materially negative impact on
our ability to attract and retain skilled employees
and management and accordingly to maintain growth in
the newly deregulated and increasingly competitive
electricity environment.
We believe the 2,500,000 additional shares requested
under this proposed amendment will be sufficient to
accommodate all anticipated awards during the
remaining term of the Omnibus Plan. We further believe
that the proposed amendment benefits shareholders in
that it continues to align shareholder interests with
employee interests.
PARTICIPATION
All salaried employees (approximately 452) are
eligible to participate in the Omnibus Plan.
Participants are those salaried employees who may be
selected by the Compensation Committee in its sole
discretion from those eligible for awards. In
addition, approximately 677 union employees are
included as eligible participants under the Omnibus
Plan.
ADMINISTRATION
The Omnibus Plan is administered by the Compensation
Committee of the Board of Directors, which Committee
is composed entirely of non-employee directors.
TYPES OF AWARDS
The Omnibus Plan provides for granting of any or all
of the following types of awards: (i) stock options,
including incentive stock options, non-qualified stock
options and discounted stock options; (ii) stock
appreciation rights; (iii) restricted stock; (iv)
performance units; (v) performance shares; and (vi)
dividend equivalents. The type and amount of awards,
the time when made, the term, the price, exercise
provisions, vesting provisions, performance criteria,
if any, method of payment, and any other terms of the
award are determined by the Compensation Committee at
the time of each grant, subject to the express
provisions of the Omnibus Plan.
Awards which are not yet exercisable will be
accelerated upon any "change in control" of UniSource
Energy as defined in the Omnibus Plan.
TERM AND AMENDMENT
No awards may be made under the Omnibus Plan on or
after tenth anniversary of its effective date. The
Omnibus Plan is subject to earlier termination by the
Board. The Board may amend the Omnibus Plan without
further approval of the shareholders except to the
extent approval is required by Rule 16b-3 under the
Exchange Act or is otherwise required by law.
SHARES SUBJECT TO THE OMNIBUS PLAN
The number of shares of common stock of UniSource
Energy, no par value, underlying awards under the
Omnibus Plan currently may not exceed 1.6 million in
the aggregate (subject to anti-dilution adjustments).
If the shareholders approve Proposal Two, an
additional 2,500,000 shares of UniSource Energy common
stock will be made available for awards under the
Omnibus Plan. Shares underlying awards that expire or
terminate unexercised or that are not settled in stock
are thereafter available for further grants to the
maximum extent possible. The shares of common stock to
be delivered under the Omnibus Plan may consist, in
whole or in part, of authorized but unissued stock or
treasury stock, not reserved for any other purpose. On
March 22, 2000, the most recent practicable date for
which quotations were available prior to the printing
of this document, the closing price per share of the
UniSource Energy common stock was $14.25, as reported
on the New York Stock Exchange Composite Transaction
Tape.
The table below reflects the 1999 grants made under the 1994 Plan. We
do not believe that the amounts granted in 1999 would have differed
if the proposed amendments had been adopted at the beginning of
1999. At this time, we are unable to predict the awards that will be
made in the future if the proposed Plan amendments are passed.
<TABLE>
<CAPTION>
New Plan Benefits
1999 Grants Under the 1994 Omnibus Stock and Incentive Plan
Restricted Share Units Stock Options Granted
---------------------- ---------------------
Dollar Number of
Name and Principal Position Dollar Value (1) Number of Units Value Units
- --------------------------- ---------------- --------------- ------ ---------
<S> <C> <C> <C> <C>
James S. Pignatelli 1,200,005 100,524 (2) 114,500
President and Chief
Executive Officer
Ira R. Adler 225,010 18,849 (2) 31,800
Executive Vice President,
Chief Financial Officer
and Treasurer
Dennis R. Nelson 225,010 18,849 (2) 18,200
Vice President, General
Counsel and Corporate
Secretary
Steven J. Glaser 283,760 23,849 (2) 11,450
Vice President
Energy Services (TEP)
Karen G. Kissinger 90,009 7,540 (2) 10,800
Vice President,
Controller and Principal
Accounting Officer
All current executive officers 3,047,279 255,238 (2) 263,450
as a group
All non-employee directors -- -- -- --
as a group
All employees, excluding -- -- (2) 342,793
executive officers, as a
group
- -------------------
(1) The value represents the fair market value of the restricted
stock award on the grant date.
(2) The exercise price of the options equaled the market price of
UniSource Energy's common stock at the grant date.
</TABLE>
GRANT INFORMATION
The number of officers and employees who are selected
for awards under the Omnibus Plan varies from year to
year. It is not possible to determine awards that will
be made pursuant to the Omnibus Plan in the future.
The exercise price for incentive and non-qualified
stock options granted under the Omnibus Plan may not
be less than the fair market value of UniSource
Energy's common stock on the date of grant; provided,
however, that non-qualified stock options which are
discounted stock options are not subject to this
restriction but must have an exercise price not less
than the greater of $1.00 or 25% of the fair market
value of the stock on the date of grant.
Other terms of option grants will be determined by the
Compensation Committee on the date of grant.
OPTIONS FEDERAL INCOME TAX CONSEQUENCES
Consequences to the Optionholder
Grant. There are no federal income tax consequences to
the optionholder solely by reason of the grant of
incentive stock options and non-qualified stock
options under the Omnibus Plan.
Exercise. The exercise of incentive stock options is
not a taxable event for regular federal income tax
purposes.
Upon the exercise of a non-qualified stock option, the
optionholder will generally recognize ordinary income
in an amount equal to the excess of the fair market
value of the shares of UniSource Energy common stock
at the time of exercise over the amount paid as the
exercise price. The ordinary income recognized in
connection with the exercise by an optionholder of a
non-qualified stock option will be subject to both
wage and employment tax withholding.
The optionholder's tax basis in the shares acquired
pursuant to the exercise of a stock option will be the
amount paid upon exercise plus, in the case of a non-
qualified stock option, the amount of ordinary income
recognized by the optionholder upon exercise.
Qualifying Disposition. If an optionholder disposes of
shares of UniSource Energy common stock acquired upon
exercise of an incentive stock option in a taxable
transaction, and such disposition occurs more than two
years from the date on which the option is granted and
more than one year after the date on which the shares
are transferred to the optionholder, the optionholder
will recognize long-term capital gain or loss equal to
the difference between the amount realized upon such
disposition and the optionholder's adjusted basis in
such shares (generally the option exercise price.)
Disqualifying Disposition. If an optionholder disposes
of shares of UniSource Energy common stock acquired
upon exercise of an incentive stock option (other than
in certain tax-free transactions) within two years
from the date on which the incentive stock option is
granted or within one year after the transfer of the
shares to the optionholder, then at the time of
disposition the optionholder will generally recognize
ordinary income equal to the lesser of (i) the excess
of such shares' fair market value on the date of
exercise over the exercise price paid by the
optionholder or (ii) the optionholder's actual gain
(i.e., the excess, if any, of the amount realized on
the disposition over the exercise price paid by the
optionholder). If the amount realized on a taxable
disposition exceeds the fair market value on the date
of exercise, then the optionholder will recognize a
capital gain in the amount of such excess. If the
optionholder incurs a loss on the disposition (i.e.,
if the amount realized is less than the exercise price
paid by the optionholder), then the loss will be a
capital loss.
Other Disposition. If an optionholder disposes of
shares of UniSource Energy common stock acquired upon
exercise of a non-qualified stock option in a taxable
transaction, the optionholder will recognize capital
gain or loss in an amount equal to the difference
between his basis (as discussed above) in the shares
sold and the amount realized upon disposition. Any
such capital gain or loss (and any capital gain or
loss recognized on a disqualifying disposition of
shares of UniSource Energy common stock acquired upon
exercise of incentive stock options as discussed
above) will be long-term or short-term depending on
whether the shares of UniSource Energy common stock
were held for more than one year from the date such
shares were transferred to the optionholder.
Consequences to UniSource Energy
There are no federal income tax consequences to
UniSource Energy by reason of the grant of incentive
stock options or non-qualified stock options or the
exercise of incentive stock options (other than
disqualifying dispositions).
At the time the optionholder recognizes ordinary
income from the exercise of an non-qualified stock
option, UniSource Energy will be entitled to a federal
income tax deduction in the amount of the ordinary
income so recognized (as described above), provided
that UniSource Energy satisfies its withholding
obligations described below. To the extent the
optionholder recognizes ordinary income by reason of a
disqualifying disposition of the stock acquired upon
exercise of incentive stock option, UniSource Energy
will be entitled to a corresponding deduction in the
year in which the disposition occurs.
UniSource Energy will be required to report to the
Internal Revenue Service any ordinary income
recognized by any optionholder by reason of the
exercise of a non-qualified stock option. UniSource
Energy will be required to withhold income and
employment taxes (and pay the employer's share of
employment taxes) with respect to ordinary income
recognized by the optionholder upon the exercise of
non-qualified stock options.
Other Tax Consequences
The above discussion is not a complete description of
the federal income tax aspects of incentive stock
options and non-qualified stock options under the
Omnibus Plan. In addition, administrative and judicial
interpretations of the application of the federal
income tax laws are subject to changes. Furthermore,
the above discussion does not address state or local
tax consequences.
The Board recommends that you vote "FOR" the Amendment to the
Omnibus Plan.
SUBMISSION OF SHAREHOLDER PROPOSALS
GENERAL
Rule 14a-4 of the SEC's proxy rules allows us to use
discretionary voting authority to vote on a matter
coming before an annual meeting of the shareholders
which was not included in our Proxy Statement (if we
do not have notice of the matter at least 45 days
before the date on which we first mailed our proxy
materials for the prior year's annual meeting of the
shareholders). In addition, we may also use
discretionary voting authority if we receive timely
notice of such matter (as described in the preceding
sentence) and if, in the Proxy Statement, we describe
. the nature of such matter and how we intend to
exercise our discretion to vote on it. Accordingly,
for our 2001 Annual Meeting of Shareholders, any such
notice must be submitted to the Corporate Secretary of
UniSource Energy on or before February 13, 2001.
We must receive your shareholder proposals by
November 30, 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 our Proxy
Statement. Shareholder proposals intended to be
presented at our 2001 Annual Meeting of Shareholders
must be received by us no later than November 30, 2000
in order to be eligible for inclusion in our Proxy
Statement and the form of proxy relating to that
meeting. Direct any proposals, as well as related
questions to the undersigned.
OTHER BUSINESS
The Board of Directors knows of no other matters for
consideration at the Meeting. If any other business
should properly arise, the persons appointed in the
enclosed proxy have discretionary authority to vote in
accordance with their best judgment.
Additional copies of our 1999 Annual Report on form
10-K may be obtained by shareholders, without charge,
upon written request to Library, UniSource Energy
Corporation, 3950 East Irvington Road, Mail Stop
RC114, P.O. Box 711, Tucson, Arizona 85702. You may
also obtain our SEC filings through the Internet at
www.sec.gov.
By order of the Board of Directors.
Dennis R. Nelson
Corporate Secretary
PLEASE VOTE - YOUR VOTE IS IMPORTANT
<PAGE>
APPENDIX A
Tucson Electric Power Company
1994 Omnibus Stock and Incentive Plan
Section 1: Establishment, Purpose and Effective Date of Plan.....A-1
Section 2: Definitions...........................................A-1
Section 3: Eligibility and Participation.........................A-2
Section 4: Administration/.......................................A-3
Section 5: Stock Subject to Plan.................................A-3
Section 6: Duration of Plan......................................A-3
Section 7: Stock Options.........................................A-4
Section 8: Stock Appreciation Rights.............................A-5
Section 9: Restricted Stock......................................A-6
Section 10: Performance Units and Performance Shares..............A-7
Section 11: Discounted Stock Options..............................A-8
Section 12: Beneficiary Designation...............................A-8
Section 13: Rights of Employees...................................A-8
Section 14: Change in Control.....................................A-8
Section 15: Amendment, Modification and Termination of Plan.......A-9
Section 16: Tax Withholding.......................................A-9
Section 17: Indemnification......................................A-10
Section 18: Requirements of Law..................................A-10
Section 19: Funding..............................................A-10
<PAGE>
Section 1: Establishment, Purpose and Effective Date of Plan
1.1 Establishment. Tucson Electric Power Company, an Arizona
corporation, hereby establishes the "Tucson Electric Power Company
1994 Omnibus Stock and Incentive Plan" (the "Plan") for Employees.
The Plan permits the grant of stock options, dividend equivalents,
stock appreciation rights, restricted stock, performance units and
performance shares.
1.2 Purpose. The purpose of the Plan is to advance the
interests of the Company, by encouraging and providing for the
acquisition of an equity interest in the success of the Company by
Employees, by providing additional incentives and motivation toward
superior performance of the Company, and by enabling the Company to
attract and retain the services of Employees upon whose judgment,
interest and special effort and successful conduct of its
operations is largely dependent.
1.3 Effective Date. The Plan shall become effective
immediately upon its adoption by the Board of Directors of the
Company subject to its ratification by the shareholders of the
Company and the receipt of any necessary governmental approvals.
Section 2: Definitions
2.1 Definitions. Whenever used herein, the following terms
shall have their respective meanings set forth below:
(a) "Award" means any Option, Stock Appreciation Right,
Restricted Stock, Performance Unit or Performance Share granted
under this Plan.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as
amended.
(d) "Committee" means the non-Employee independent
directors of the Company serving on the Compensation Committee of
the Board of Directors. No person, while a member of the Committee,
shall be eligible for participation in the Plan, and no person
shall become a member of the Committee unless such person meets the
requirements for disinterested administration set forth in Rule 16b-
3 of the Securities Exchange Act of 1934, as amended.
(e) "Company" means Tucson Electric Power Company, an
Arizona Corporation.
(f) "Discounted Stock Option" means an Option granted
pursuant to Section 11 of the Plan.
(g) "Disability" means disability as defined in the
Company's Salaried Employees Retirement Plan.
(h) "Employee" means a common law salaried Employee
(including officers and directors who are also Employees) of the
Company or its subsidiaries.
(i) "Fair Market Value" means the average of the highest
and lowest sales prices of the Stock as reported on the
consolidated tape for securities listed on the New York Stock
Exchange on a particular date. In the event that there are no Stock
transactions on such date, the Fair Market Value shall be
determined by utilization of the above formula as of the
immediately preceding date on which there were Stock transactions.
(j) "Option" means the right to purchase Stock at a stated
price for a specified period of time. For purposes of the Plan an
Option may be either (i) an "incentive stock option" within the
meaning of Section 422 of the Code, (ii) a "nonstatutory stock
option" (an option which is not an incentive stock option)
including a Discounted Stock Option, or (iii) any other type of
option encompassed by the Code.
(k) "Participant" means any Employee designated by the
Committee to participate in the Plan.
(l) "Performance Unit" means a right to receive a payment
equal to the value of a Performance Unit as determined by the
Committee.
(m) "Performance Share" means a right to receive a payment
equal to the value of a Performance Share as determined by the
Committee.
(n) "Period of Restriction" means the period during which
shares of Restricted Stock are subject to restrictions pursuant to
Section 9 of the Plan.
(o) "Restricted Stock" means Stock granted to a Participant
pursuant to Section 9 of the Plan.
(p) "Retirement" (including "Early Retirement" and "Normal
Retirement") means termination of employment for retirement under
the terms of the Company's Salaried Employees Retirement Plan.
(q) "Stock" means the Common Stock of the Company, no par
value.
(r) "Stock Appreciation Right" and "SAR" mean the right to
receive a payment from the Company equal to the excess of the Fair
Market Value of the share of Stock at the date of exercise over a
specified price fixed by the Committee, which shall not be less
than 100% of the Fair Market Value of the Stock on the date of
grant. In the case of a Stock Appreciation Right which is granted
in conjunction with an Option, the specified price shall be the
Option exercise price.
2.2 Gender and Number. Except when otherwise indicated by
the context, words in the masculine gender when used in the Plan
shall include the feminine gender, the singular shall include the
plural, and the plural shall include the singular.
Section 3: Eligibility and Participation
3.1 Eligibility and Participation. Participants in the Plan
shall be selected by the Committee from among those Employees who,
in the opinion of the Committee, are in a position to contribute
materially to the Company's continued growth and development and to
its long-term financial success.
Section 4: Administration
4.1 Administration. The Committee shall be responsible for
the administration of the Plan. The Committee, by majority action
thereof, is authorized to interpret the Plan, to prescribe, amend
and rescind rules and regulations relating to the Plan, to provide
for conditions and assurances deemed necessary or advisable to
protect the interests of the Company, and to make all other
determinations necessary or advisable for the administration of the
Plan, but only to the extent not contrary to the express provisions
of the Plan. Determinations, interpretations, or other actions made
or taken by the Committee in good faith pursuant to the provisions
of the Plan shall be final, binding and conclusive for all purposes
and upon all persons whomsoever.
The Committee shall have the authority, in its discretion, to
determine the Employees to whom Awards shall be granted, the times
when such Awards shall be granted, the number of Awards, the
purchase price or exercise price, the period(s) during which such
Awards shall be exercisable (whether in whole or in part), the
restrictions applicable to Awards, and the other terms and
provisions thereof (which need not be identical). The Committee
shall have the authority to modify existing Awards; however no
modification of existing Awards shall occur without the consent of
the Employee holding such Awards.
Section 5: Stock Subject to Plan
5.1 Number. The total number of shares of Stock subject to
Awards under the Plan may not exceed eight million, subject to
adjustment upon occurrence of any of the events indicated in
Section 5.3. The shares to be delivered under the Plan may consist,
in whole or in part, of authorized but unissued Stock or treasury
Stock, not reserved for any other purpose.
5.2 Lapsed Awards. Subject to the express provisions of the
Plan, if any Award granted under the Plan terminates, expires or
lapses for any reason, or is paid in cash, any Stock subject to
such Award again shall be Stock available for the grant of an
Award. With respect to Awards made to Section 16 insiders, shares
of such Stock may be reused to the maximum extent permitted under
Section 16 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act").
5.3 Adjustment in Capitalization. In the event of any change
in the outstanding shares of Stock that occurs after ratification
of the Plan by the shareholders of the Company by reason of a Stock
dividend or split, recapitalization, merger, consolidation,
combination, exchange of shares, or other similar corporate change,
the aggregate number of shares of Stock available under the Plan
subject to each outstanding Award, and its stated exercise price,
or the basis upon which the Award is measured shall be adjusted
appropriately by the Committee, whose determination shall be
conclusive; provided, however, that fractional shares shall be
rounded to the nearest whole share. Any adjustment to an incentive
stock option shall be made pursuant to the requirements of Section
424(b) of the Code.
Section 6: Duration of Plan
6.1 Duration of Plan. The Plan shall remain in effect,
subject to the Board's right to earlier terminate the Plan pursuant
to Section 15 hereof, until all Stock subject to it shall have been
purchased or acquired pursuant to the provisions hereof.
Notwithstanding the foregoing, no Award may be granted under the
Plan on or after the tenth (10th) anniversary of the Plan's
effective date.
Section 7: Stock Options
7.1 Grant of Options. Subject to the provisions of Sections
5 and 6, Options may be granted to Participants at any time and
from time to time as shall be determined by the Committee. The
Committee shall have complete discretion in determining the number
of Options granted to each Participant. The Committee may grant any
type of Option to purchase Company Stock that is permitted by law
at the time of grant. To the extent the aggregate Fair Market Value
(determined at the time the Option is granted) of the Stock with
respect to which incentive stock options are exercisable for the
first time by a Participant in any calendar year (under this Plan
and any other plans of the Company) exceeds $100,000, such Options
shall not be deemed incentive stock options. In determining which
Options may be treated as non-qualified Options under the preceding
sentence, Options will be taken into account in the order of their
dates of grant. No incentive stock option may be granted to any
person who owns, directly or indirectly, more than ten percent
(10%) of the total combined voting power of all classes of stock of
the Company. Nothing in this Section 7 of the Plan shall be deemed
to prevent the grant of nonstatutory stock options in amounts which
exceed the maximum established by Section 422 of the Code.
7.2 Option Agreement. Each Option shall be evidenced by an
Option agreement that shall specify the type of Option granted, the
Option price, the duration of the Option, the number of shares of
Stock to which the Option pertains and such other provisions as the
Committee shall determine.
7.3 Option Price. No Option shall be granted pursuant to the
Plan at an Option price that is less than the Fair Market Value of
the Stock on the date the Option is granted, except Discounted
Stock Options described in Section 11.
7.4 Duration of Options. Each Option shall expire at such
time or times as the Committee shall determine at the time it is
granted; provided, however, that no Option shall be exercisable
later than ten (10) years from the date of its grant.
7.5 Exercise of Options. Options granted under the Plan
shall be exercisable at such times and be subject to such
restrictions and conditions as the Committee shall in each instance
approve, which need not be the same for all Participants.
7.6 Payment. The purchase price of Stock upon exercise of
any option shall be paid in full either (i) in cash, (ii) in Stock
valued at its Fair Market Value on the date of exercise, or (iii)
by a combination of (i) and (ii) at the discretion of the
Committee. The Committee in its sole discretion may also permit
payment of the purchase price upon exercise of any Option to be
made by (i) having shares withheld from the total number of shares
of common stock to be delivered upon exercise, or (ii) delivering a
properly executed notice together with irrevocable instructions to
a broker to promptly deliver to the Company the amount of sale or
loan proceeds to pay the exercise price. The proceeds from payment
of option prices shall be added to the general funds of the Company
and shall be used for general corporate purposes.
7.7 Restrictions on Stock Transferability. The Committee
shall impose such restrictions on any shares of Stock acquired
pursuant to the exercise of an Option under the Plan as it may deem
advisable, including, without limitation, restrictions under
applicable Federal securities law, under the requirements of any
stock exchange upon which such shares of Stock are then listed and
under any blue sky or state securities laws applicable to such
shares.
7.8 Termination of Employment Due to Death, Disability or
Retirement. In the event the employment of a Participant is
terminated by reason of death, Disability or Retirement, any
outstanding Options then exercisable may be exercised by the
Participant (or the beneficiary, in the case of death) at any time
prior to the expiration date of the Options, or within twelve (12)
months after such date of termination of employment, whichever
period is the shorter, except in the case of Retirement, where a
three (3) year period shall be substituted for the twelve (12)
month period. However, in the case of incentive stock options, the
favorable tax treatment prescribed under Section 422 of the Code
shall not be available if such Options are not exercised within
three (3) months after date of termination, or twelve (12) months
in the case of Disability. If an incentive stock option is not
exercised within three (3) months of termination due to Retirement,
it shall be treated as a nonstatutory stock option for the
remainder of its allowable exercise period.
7.9 Termination of Employment Other Than for Death,
Disability or Retirement. If the employment of the Participant
shall terminate for any reason other than death, Disability,
Retirement, or involuntarily for cause, the rights under any then
outstanding Option granted pursuant to the Plan shall terminate
upon the expiration date of the Option or three months after such
date of termination of employment, whichever first occurs. Where
termination of employment is involuntarily for cause, rights under
all Options shall terminate immediately upon termination of
employment.
7.10 Non-Transferability of Options. No Option granted under
the Plan may be sold, transferred, pledged, assigned, or otherwise
alienated or hypothecated, otherwise than by will or by the laws of
descent and distribution or pursuant to a domestic relations order.
Further, all Options granted to a Participant under the Plan shall
be exercisable only by such Participant during his lifetime.
Section 8: Stock Appreciation Rights
8.1 Grant of Stock Appreciation Rights. Subject to the
provisions of Sections 5 and 6, Stock Appreciation Rights ("SARs")
may be granted to Participants at any time and from time to time as
shall be determined by the Committee. An SAR grant shall be in
writing.
8.2 Payment of SAR Amount. Upon exercise of the SAR, the
holder shall be entitled to receive payment of an amount determined
by multiplying:
(a) The difference between the Fair Market Value of a share
of Stock at the date of exercise over the price fixed by the
Committee at the date of grant, by
(b) The number of shares with respect to which the SAR is
exercised.
8.3 Form and Timing of Payment. At the sole discretion of
the Committee, payment for SARs may be made in cash or Stock, or in
a combination thereof.
8.4 Rule 16b-3 Requirements. Notwithstanding any other
provision of the Plan, the Committee may impose such conditions on
exercise of an SAR (including, without limitation, the right of the
Committee to limit the time of exercise to specified periods) as
may be required to satisfy the requirements of Rule 16b-3 (or any
successor rule), under the Exchange Act.
8.5 Term of SAR. The term of an SAR granted under the Plan
shall not exceed ten (10) years.
8.6 Termination of Employment. In the event the employment
of a Participant is terminated by reason of death, Disability,
Retirement, or any other reason, any SARs outstanding shall
terminate in the same manner as specified for Options under
Sections 7.8 and 7.9 herein.
8.7 Non-Transferability of SARs. No SAR granted under the
Plan may be sold, transferred, pledged, assigned or otherwise
alienated or hypothecated, otherwise than by will or by the laws of
descent and distribution or pursuant to a domestic relations order.
Further, all SARs granted to a Participant under the Plan shall be
exercisable only by such Participant during his lifetime.
Section 9: Restricted Stock
9.1 Grant of Restricted Stock. Subject to the provisions of
Sections 5 and 6, the Committee, at any time and from time to time,
may grant shares of Restricted Stock under the Plan to such
participants and in such amounts as it shall determine. Each grant
of Restricted Stock shall be in writing.
9.2 Transferability. Except as provided in Sections 9.6 and
9.7 hereof, the shares of Restricted Stock granted hereunder may
not be sold, transferred, pledged, assigned or otherwise alienated
or hypothecated for such a period of time as shall be determined by
the Committee and shall be specified in the Restricted Stock grant,
or upon earlier satisfaction of other conditions as specified by
the Committee in its sole discretion and set forth in the
Restricted Stock grant.
9.3 Other Restrictions. The Committee shall impose such
other restrictions on any shares of Restricted Stock granted
pursuant to the Plan as it may deem advisable including, without
limitation, restrictions under applicable Federal or state
securities law, and may legend the certificates representing
Restricted Stock to give appropriate notice of such restrictions.
9.4 Voting Rights. Participants holding shares of Restricted
Stock granted hereunder may exercise full voting rights with
respect to those shares during the Period of Restriction.
9.5 Dividend and Other Distributions. During the Period of
Restriction, Participants holding shares of Restricted Stock
granted hereunder shall be entitled to receive all dividends and
other distributions paid with respect to those shares while they
are so held. If any such dividends or distributions are paid in
shares of Stock, the shares shall be subject to the same
restrictions on transferability as the shares of Restricted Stock
with respect to which they were paid.
9.6 Termination of Employment Due to Retirement. In the
event that a Participant attains normal retirement age under the
Company's Salaried Employees Retirement Plan, the Period of
Restriction applicable to the Restricted Stock pursuant to
Subsection 9.2 hereof shall automatically terminate and, except as
otherwise provided in Subsection 9.3, the shares of Restricted
Stock shall thereby be free of restrictions and freely
transferable. In the event that a participant terminates his
employment with the Company because of Early Retirement under the
Salaried Employees Pension Plan, any shares of Restricted Stock
still subject to restrictions shall be forfeited and returned to
the Company; provided, however, that the Committee in its sole
discretion may waive the restrictions remaining on any or all
shares of Restricted Stock or add such new restrictions to those
shares of Restricted Stock as it deems appropriate.
9.7 Termination of Employment Due to Death or Disability. In
the event a Participant terminates his employment with the Company
because of death or Disability during the Period of Restriction,
the restrictions applicable to the shares of Restricted Stock
pursuant to Section 9.2 hereof shall terminate automatically with
respect to that number of shares (rounded to the nearest whole
number) equal to the number of shares of Restricted Stock granted
to such Participant multiplied by the number of full months which
have elapsed since the date of grant divided by the maximum number
of full months of the Period of Restriction. All remaining shares
still subject to restrictions shall be forfeited and returned to
the Company; provided, however, that the Committee in its sole
discretion, may waive the restrictions remaining on any or all such
remaining shares.
9.8 Termination of Employment for Reasons Other Than Death,
Disability or Retirement. In the event that a Participant
terminates his employment with the Company for any reason other
than those set forth in Sections 9.6 and 9.7 hereof during the
Period of Restrictions, then any shares of Restricted Stock still
subject to restrictions at the date of such termination
automatically shall be forfeited and returned to the Company;
provided, however, that, in the event of an involuntary termination
of the employment of a Participant by the Company, the Committee in
its sole discretion may waive the automatic forfeiture of any or
all such shares and/or may add such new restrictions to such shares
of Restricted Stock as it deems appropriate.
Section 10: Performance Units and Performance Shares
10.1 Grant of Performance Units or Performance Shares.
Subject to the provisions of Sections 5 and 6, Performance Units or
Performance Shares may be granted to Participants at any time and
from time to time as shall be determined by the Committee. The
Committee shall have complete discretion in determining the number
of Performance Units or Performance Shares granted to each
Participant.
10.2 Value of Performance Units and Performance Shares. Each
Performance Unit and each Performance Share shall have a value
determined by the Committee at the time of grant. The Committee
shall set performance goals in its discretion which, depending on
the extent to which they are met, will determine the ultimate value
of the Performance Unit or Performance Share to the Participant.
The time period during which the performance goals must be met
shall be called a performance period and shall be determined by the
Committee.
10.3 Form and Timing of Payment. Payment shall be made in
cash, Stock or a combination thereof as determined by the
Committee. Payment may be made in a lump sum or installments as
prescribed by the Committee. If any payment is to be made on a
deferred basis, the Committee may provide for the payment of
dividend equivalents or interest during the deferral period.
10.4 Termination of Employment Due to Death, Disability or
Retirement. In the case of death, Disability or Retirement, the
holder of a Performance Unit or Performance Share (or his
beneficiary in the event of death) shall receive pro rata payment
based on the number of months' service during the performance
period but based on the achievement of performance goals during the
entire performance period. Payment shall be made at the time
payments are made to Participants who did not terminate service
during the performance period.
10.5 Termination of Employment for Other Reasons. In the
event that a Participant terminates employment with the Company for
any reason other than death, Disability or Retirement, all
Performance Units and Performance Shares shall be forfeited;
provided, however, that in the event of an involuntary termination
of the employment of the Participant by the Company, the Committee
in its sole discretion may waive the automatic forfeiture
provisions and pay out on a pro rata basis as set forth in Section
10.4.
10.6 Non-Transferability. No Performance Units or Performance
Shares granted under the Plan may be sold, transferred, pledged,
assigned or otherwise alienated or hypothecated, otherwise than by
will or by the laws of descent and distribution or pursuant to a
domestic relations order until the termination of the applicable
performance period. All rights with respect to Performance Units
and Performance Shares granted to a Participant under the Plan
shall be exercisable only by such Participant during his lifetime.
Section 11: Discounted Stock Options
11.1 Grant of Discounted Stock Options. Subject to the
provisions of Sections 5 and 6 of the Plan, Discounted Stock
Options may be granted to Participants hereunder. Such Discounted
Stock Options shall satisfy each of the requirements set forth in
Section 7 hereof, and the other provisions of this Plan which are
applicable to Option awards which are not intended to be incentive
stock options (except Section 7.3 of the Plan which requires the
exercise price of an Option to be not less than the Fair Market
Value of the Stock covered by the Option).
11.2 Pricing of Discounted Stock Options. The exercise price
of a Discounted Stock Option shall be determined by the Committee
and set forth in the stock option agreement with the Participant,
but in no event shall such price be less than the greater of $1.00
or 25 percent (25%) of the Fair Market Value of the Stock covered
by the Option on the date the Discounted Stock Option is granted.
Section 12: Beneficiary Designation
12.1 Beneficiary Designation. Each Participant under the Plan
may name, from time to time, any beneficiary or beneficiaries (who
may be named contingently or successively) to whom any benefit
under the Plan is to be paid in case of his death before he
receives any or all of such benefit. Each designation will revoke
all prior designations by the same Participant, shall be in a form
prescribed by the Committee, and will be effective only when filed
by the Participant in writing with the Committee during his
lifetime. In the absence of any such designation, benefits
remaining unpaid at the Participant's death shall be paid to his
estate.
Section 13: Rights of Employees
13.1 Employment. Nothing in the Plan shall interfere with or
limit in any way the right of the Company to terminate any
Participant's employment at any time, nor confer upon any
Participant any right to continue in the employ of the Company.
13.2 Participant. No Employee shall have a right to be
selected as a Participant, or, having been so selected, to be
selected again as a Participant.
Section 14: Change in Control
14.1 In General. In the event of a change in control of the
Company as defined in Section 14.2 below, all Awards under the Plan
shall vest 100%. All Performance Units and Performance Shares shall
be paid out based upon the extent to which performance goals during
the performance period have been met up to the date of the change
in control, or at target, whichever is higher. Restrictions on
Restricted Stock shall lapse. Options and SAR's shall be
immediately exercisable by the holder.
14.2 Definition. For purposes of the Plan, a "change in
control" shall mean any of the following events:
(i) the Company receives a report on Schedule 13D filed
with the Securities and Exchange Commission pursuant to Section
13(d) of the Exchange Act disclosing that any person, group,
corporation or other entity is the beneficial owner directly or
indirectly of thirty percent or more of the outstanding Common
Stock of the Company;
(ii) any person (as such term is defined in Section 13(d)
of the Exchange Act), group, corporation or other entity other than
the Company of a wholly-owned subsidiary of the Company, purchases
shares pursuant to a tender offer or exchange offer to acquire any
common stock of the Company (or securities convertible into common
stock) for cash, securities or any other consideration, provided
that after consummation of the offer, the person, group,
corporation or other entity in question is the beneficial owner (as
such term is defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of thirty percent or more of the
outstanding Common Stock of the Company (calculated as provided in
paragraph (d) of Rule 13d-3 under the Exchange Act in the case of
rights to acquire common stock);
(iii) the stockholders of the Company approve (a) any
consolidation or merger of the Company in which the Company is not
the continuing or surviving corporation or pursuant to which shares
of Common Stock would be converted into cash, securities or other
property, or (b) any sale, lease, exchange or other transfer (in
one transaction or a series of related transactions) of all or
substantially all of the assets of the Company; or
(iv) there shall have been a change in a majority of the
members of the Board of Directors of the Company within a 24-month
period unless the election or nomination for election by the
Company's stockholders of each new director was approved by the
vote of two-thirds of the directors then still in office who were
in office at the beginning of the 24-month period.
Section 15: Amendment, Modification and Termination of Plan
15.1 Amendment, Modification and Termination of Plan. The
Board at any time may terminate, and from time to time may amend or
modify the Plan; provided, however, that any such action of the
Board, shall be subject to approval of the shareholders, to the
extent required by law.
No amendment, modification or termination of the Plan shall in
any manner adversely affect any Award theretofore granted under the
Plan, without the consent of the Participant.
Section 16: Tax Withholding
16.1 Tax Withholding. The Company shall have the power to
withhold, or require a Participant to remit to the Company, an
amount sufficient to satisfy federal, state and local withholding
tax requirements on any Award under the Plan.
To the extent permissible under applicable tax, securities,
and other laws, the Company may, in its sole discretion, permit the
Participant to satisfy a tax withholding requirement by (i) using
already owned shares, (ii) through a cashless transaction, or
(iii) directing the Company to apply shares ofstock to which the
Participant is entitled as a result of the exercise of an option or
the lapse of a Period of Restriction (including, for this purpose,
the filing of an election under Section 83(b) of the Code), to satisfy
such requirement.
16.2 Disposition of Shares. In the event that a Participant
shall dispose (whether by sale, exchange, gift or any like
transfer) of any shares of Common Stock of the Company (to the
extent such shares are deemed to be purchased pursuant to an
incentive stock option) acquired by him within two (2) years of the
date of grant of the related option or within one (1) year after
the acquisition of such shares, he will notify the secretary of the
Company no later than fifteen (15) days from the date of such
disposition of the date or dates and the number of shares disposed
of by him and the consideration received, if any, and, upon
notification from the Company, promptly forward to the secretary of
the Company any amount requested by the Company for the purpose of
satisfying its liability, if any, to withhold federal, state or
local income or earnings tax or any other applicable tax or
assessment (plus interest or penalties thereon, if any, caused by
delay in making such payment) incurred by reason of such
disposition.
Section 17: Indemnification
17.1 Indemnification. Each person who is or shall have been
a member of the Committee or of the Board shall be indemnified and
held harmless by the Company against and from any loss, cost,
liability or expense that may be imposed upon or reasonably
incurred by him in connection with or resulting from any claim,
action, suit or proceeding to which he may be a party or in which
he may be involved by reason of any action taken or failure to act
under the Plan and against and from any and all amounts paid by him
in settlement thereof, with the Company's approval, or paid by him
in satisfaction of any judgment in any such action, suit or
proceeding against him, provided he shall give the Company an
opportunity, at its own expense, to handle and defend the same
before he undertakes to handle and defend it on his own behalf. The
foregoing right of indemnification shall not be exclusive of any
other rights of indemnification to which such persons may be
entitled under the Company's Articles of Incorporation or Bylaws,
as a matter of law, or otherwise, or any power that the Company may
have to indemnify them or hold them harmless.
Section 18: Requirements of Law
18.1 Requirements of Law. The granting of Awards and the
issuance of shares of Stock upon the exercise of an Option shall be
subject to all applicable laws, rules and regulations and to such
approvals by any governmental agencies or national securities
exchanges as may be required.
18.2 Governing Law. The Plan, and all agreements hereunder,
shall be construed in accordance with and governed by the laws of
the State of Arizona.
Section 19: Funding
19.1 Funding of Plan. Except in the case of Awards of
Restricted Stock, the Plan shall be unfunded. The Company shall not
be required to segregate any of its assets to assure the payment of
any Award under the Plan. Neither the Participant nor any other
persons shall have any interest in any fund or in any specific
asset or assets of the Company or any other entity by reason of any
Award, except to the extent expressly provided hereunder. The
interest of each Participant and former Participant hereunder are
unsecured and shall be subject to the general creditors of the
Company.
<PAGE>
APPENDIX B
FORM OF PROXY CARD
UNISOURCE ENERGY
Two New Ways to Vote
VOTE BY INTERNET OR TELEPHONE
24 Hours a Day - 7 Days a Week
It's Fast and Convenient
INTERNET
- --------
http://proxy.shareholder.com/uns
- -- Go to the website address listed above.
- -- Have your proxy card ready.
- -- Enter your Control Number located in the box below.
- -- Follow the simple instructions on the website.
OR
TELEPHONE
- ---------
1-800-574-6864
- -- Use any touch-tone telephone.
- -- Have your proxy card ready.
- -- Enter your Control Number located in the box below.
- -- Follow the simple recorded instructions.
OR
MAIL
- ----
- -- Mark, sign and date your proxy card.
- -- Detach your proxy card.
- -- Return your proxy card in the postage-paid envelope provided.
Your Internet or telephone vote authorizes the named proxies to vote your
shares in the same manner as if you marked, signed and returned your proxy
card. If you have submitted your proxy by the Internet or telephone there is
no need for you to mail back your proxy card.
1-800-574-6864
CALL TOLL-FREE TO VOTE
-----------------------------
CONTROL NUMBER
FOR INTERNET/TELEPHONE VOTING
-----------------------------
THE INTERNET AND TELEPHONE VOTING FACILITIES WILL BE AVAILABLE UNTIL 5:00 P.M.
E.S.T. ON MAY 11, 2000.
DETACH PROXY CARD HERE IF YOU ARE NOT VOTING BY THE INTERNET OR TELEPHONE
- -------------------------------------------------------------------------------
(FORM OF PROXY CARD - FRONT)
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE FOLLOWING PROPOSALS:
1. Election of Directors
FOR all nominees WITHHOLD AUTHORITY to vote *EXCEPTIONS [ ]
listed below for all nominees listed
[ ] below [ ]
Nominees: Ira R. Adler, Lawrence J. Aldrich, Larry W. Bickle, Elizabeth T.
Bilby, Harold W. Burlingame, Jose L. Canchola, John L. Carter,
Daniel W. L.Fessler, John A. Jeter, 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 -------------------------------------------------------------------
2. Amendments to the 1994 Omnibus Stock and Incentive Plan.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
If you agree to access
our Annual Report and Proxy
Statement electronically in
the future, please mark this
box. [ ]
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 1999 Annual Report.
Dated: 2000
------------------------,
------------------------------------
Signature
------------------------------------
Signature
Votes MUST be indicated
(x) in Black or Blue ink. [X]
Please Sign, Date and Return the Proxy
Promptly Using the Enclosed Envelope.
- -------------------------------------------------------------------------------
PLEASE DETACH HERE
You Must Detach This Portion of the Proxy Card
Before Returning it in the Enclosed Envelope
- -------------------------------------------------------------------------------
The Tucson Electric Power Company Building
[A street map showing the location of
the annual shareholders meeting is set forth
in this area.]
Directions
From Interstate 10
Take Saint Marys Road Exit 257A
head east (about 1/16 of a mile)
on Saint Marys Road
to Main (past the light at Granada)
Turn left (north) onto Main
and then right into the parking lot.
The annual meeting
will be held in
the 6th story building.
Tucson Electric Power Company
220 West Sixth Street
Tucson, AZ 85701
- -------------------------------------------------------------------------------
(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 12, 2000
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 in Tuscon
Electric Power Company's Administration building at 220 West Sixth Streeet,
Tucson, Arizona, on May 12, 2000, and at any adjournments thereof, with all
powers the shareholder would possess if personally present and particularly
with respect to Items 1 and 2 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" ITEMS 1 and 2.
(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
