UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ [ Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-12
UNISOURCE ENERGY CORPORATION
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(Name of the Registrant as Specified in its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
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UNISOURCE ENERGY CORPORATION
One South Church Avenue
Tucson, Arizona 85701
March 29, 2002
James S. Pignatelli (520) 571-4000
Chairman of the Board
Dear Shareholders:
You are cordially invited to attend the UniSource Energy
Corporation 2002 Annual Shareholders' Meeting to be held on Friday,
May 10, 2002, at the Sheraton Tucson Hotel and Suites, 5151 East
Grant Road, 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 we 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
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" or "UNS") at the
Sheraton Tucson Hotel and Suites, 5151 East Grant Road, Tucson,
Arizona, on Friday, May 10, 2002, at 10:00 a.m., Mountain Standard
Time. The purpose of the Meeting is to:
1. elect ten directors for the Board for the ensuing year;
2. approve the UniSource Energy Corporation Amended and Restated
1994 Outside Director Stock Option 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 13, 2002 are entitled to vote at the Meeting.
We have enclosed our 2001 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 29, 2002. 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.
/s/ Vincent Nitido
--------------------
Vincent Nitido, Jr.
Corporate Secretary
Dated: March 29, 2002
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.
UNISOURCE ENERGY CORPORATION
One South Church Avenue
Tucson, Arizona 85701
ANNUAL SHAREHOLDERS' MEETING
PROXY STATEMENT
ANNUAL MEETING May 10, 2002 Sheraton Tucson Hotel and Suites
10:00 a.m., MST 5151 East Grant Road
Tucson, Arizona 85712
RECORD DATE The record date is March 13, 2002. If you were a
shareholder of record at the close of business on
March 13, 2002, 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 33,593,969 shares of our
common stock outstanding.
AGENDA 1. Proposal One: Elect ten directors for the Board
for the ensuing year.
2. Proposal Two: Approve the UniSource Energy
Corporation Amended and Restated 1994 Outside
Director Stock Option Plan.
3. Consider any other matters which properly come
before the Meeting and any adjournments.
INDEPENDENT Representatives of PricewaterhouseCoopers, LLP are
AUDITORS expected to be present at the Meeting with the
opportunity to make a statement and respond to
appropriate questions.
PROXIES A form of proxy for execution by shareholders is
We will follow enclosed. Unless you tell us on the proxy card to
your voting vote differently, we will vote signed returned
instructions. proxies "for" the Board's nominees and "for"
If none, we Proposal Two. The Board or proxy holders will use
will vote their discretion on other matters. If a nominee
signed proxies cannot or will not serve as a director, the Board or
"for" the the persons designated as proxies will vote for a
nominees and person whom they believe will carry on our present
"for" Proposal policies.
Two.
PROXIES SOLICITED BY The Board of Directors ("Board").
FIRST MAILING DATE We anticipate first mailing this Proxy Statement and
the form of proxy on March 29, 2002.
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 "Voting Procedures/Revoking Your
Proxy."
COMMENTS Your comments about any aspects of our business are
We welcome your welcome. You may use the space provided on the proxy
comments. The card for this purpose, if desired. Although we may
proxy card has not respond on an individual basis, your comments
room for them. 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.
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...................................15
Transactions with Management and Others................................16
Compensation Committee Interlocks and Insider Participation............16
Compensation Committee Report on Executive Compensation................16
Audit Committee Report.................................................19
Performance Graph**....................................................20
Proposal Two: Amendment and Restatement of the UniSource Energy
Corporation Outside Director Stock Option Plan*......................21
Submission of Shareholder Proposals....................................26
Other Business.........................................................27
___________________
* We expect to vote on this item 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 Securities and Exchange Commission ("SEC"), even if
those reports incorporate all or any part of this Proxy Statement.
VOTING PROCEDURES/REVOKING YOUR PROXY
You can vote You can vote your shares by telephone, the Internet,
by telephone, mail or in person at the Meeting. Your proxy card
the Internet, contains instructions for voting by telephone or the
mail or in Internet, which are the least expensive and fastest
person. We methods of voting. To vote by mail, complete and sign
encourage you your proxy card, or your broker's voting instruction
to vote by card if your shares are held by your broker, and return
telephone or it in the enclosed return envelope.
the Internet
to help us Under Arizona law, a majority of the shares entitled to
save money. 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 Thus, if a quorum exists, Proposal Two must be approved
must be by a majority of the shareholders who actually vote.
approved by a Any broker "non-votes" with respect to Proposal Two
majority of will be counted for purposes of determining the
shareholders presence or absence of a quorum, but will not be
voting. 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 In the election of directors, each of our common stock
cumulate your shareholders has the right to cumulate his votes by
votes for casting as many votes in the aggregate equal to the
directors. 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 Any shareholder giving a proxy has a right to revoke
revoke your that proxy by giving notice to UniSource Energy in
proxy after writing directed to the Corporate Secretary, UniSource
sending it in Energy Corporation, One South Church Avenue, Suite
by following 1820, Tucson, Arizona 85701, or in person at the
these Meeting at any time before the proxy is exercised.
procedures. Those who fail to return a proxy or fail to 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 We will bear the entire cost of the solicitation of
SOLICITATION 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 Georgeson Shareholder, at a cost
of approximately $4,000 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 The following table sets forth the number and
OWNERSHIP percentage of shares beneficially owned as of the
OF MANAGEMENT Record Date and the nature of such ownership by each of
our directors, nominees, the Chief Executive Officer,
the five other most highly compensated executive
officers during 2001 and all directors and officers as
a group. Ownership includes direct and indirect
(beneficial) ownership, as defined by the SEC rules.
Allocable Amount of
Shares Under Deferred
Name and Amount and Compensation Stock
Title Title of Nature of Beneficial Percent Plan and Restricted
of Class Beneficial Owner Ownership (1) of Class Stock Unit Account (2)
--------- ---------------- -------------------- -------- -----------------------
Common James S. Pignatelli 226,143 (3)(4) * 122,592
Chairman, President &
Chief Executive Officer
Common Lawrence J. Aldrich 6,501 (5) * --
Director
Common Larry W. Bickle 7,201 (6) * --
Director
Common Elizabeth T. Bilby 9,101 (7) * 2,650
Director
Common Harold W. Burlingame 7,701 (6) * --
Director
Common Jose L. Canchola 11,001 (7) * 421
Director
Common John L. Carter 16,758 (8) * 6,040
Director
Common Daniel W. L. Fessler 6,704 (6) * --
Director
Common Kenneth Handy 4,000 * 1,194
Director
Common Warren Y. Jobe 500 * --
Director
Common Martha R. Seger 10,589 (7) * 2,203
Director
Common H. Wilson Sundt 9,801 (7)(9) * 1,902
Director
Common Dennis R. Nelson 70,322 (10)(11) * 25,171
Senior Vice President,
Governmental Affairs
(UNS) & Chief Operating
Officer, Energy
Resources (TEP)
Common Steven J. Glaser 53,762 (12)(13) * 27,961
Senior Vice President
& Chief Operating
Officer, Transmission
& Distribution (TEP)
Common Kevin P. Larson 33,757 (14)(15) * 15,969
Vice President, Chief
Financial Officer &
Treasurer
Common Michael J. DeConcini 25,152 (16)(17) * 23,136
Senior Vice President,
Strategic Planning &
Investments
Common Vincent Nitido, Jr. 25,979 (18)(19) * 15,631
Vice President,
General Counsel &
Corporate Secretary
Common All directors and 692,409 (20) 2.1% 299,781
executive officers as
a group
___________________
* Represents less than 1% 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, nominee or
officer. Except as otherwise indicated below, the directors,
nominees 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.
- Equivalent share amounts allocated to the individuals' 401(k)
Plan (formerly the Triple Investment Plan (401(k)) 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.
The Trust maintains a position in UNS common stock representative
of the aggregate UNS stock liability of all plan participants with
deemed investments in UNS stock. Distributions under the Deferred
Compensation Plan are made in stock or cash, at the Company's
discretion. Until the common stock is distributed, directors and
officers are not the beneficial owners of such shares. The number
of shares set forth represents the deemed investment as of December
31, 2001.
- The allocable amount of deferred shares in the participant's
Stock Unit Account (see Summary Compensation Table), of which
126,230 shares are vested within 60 days.
(3) Includes 214,130 shares subject to options exercisable
within 60 days.
(4) Includes 10,613 shares purchased under the 401(k) Plan
UniSource Energy Stock Fund as of December 31, 2001.
(5) Includes 2,001 shares subject to options exercisable
within 60 days.
(6) Includes 5,201 shares subject to options exercisable
within 60 days.
(7) Includes 8,801 shares subject to options exercisable
within 60 days.
(8) Includes 7,601 shares subject to options exercisable
within 60 days.
(9) Includes 1,000 shares held by a corporation with which Mr.
Sundt is associated.
(10) Includes 62,247 shares subject to options exercisable
within 60 days.
(11) Includes 7,268 shares purchased under the 401(k) Plan
UniSource Energy Stock Fund as of December 31, 2001.
(12) Includes 50,661 shares subject to options exercisable
within 60 days.
(13) Includes 1,751 shares purchased under the 401(k) Plan
UniSource Energy Stock Fund as of December 31, 2001.
(14) Includes 29,886 shares subject to options exercisable within
60 days.
(15) Includes 2,018 shares purchased under the 401(k) Plan
UniSource Energy Stock Fund as of December 31, 2001.
(16) Includes 20,914 shares subject to options exercisable
within 60 days.
(17) Includes 4,238 shares purchased under the 401(k) Plan
UniSource Energy Stock Fund as of December 31, 2001.
(18) Includes 22,511 shares subject to options exercisable
within 60 days.
(19) Includes 3,468 shares purchased under the 401(k) Plan
UniSource Energy Stock Fund as of December 31, 2001.
(20) Includes 608,710 shares subject to options exercisable
within 60 days, and 34,951 shares purchased under the 401(k)
Plan UniSource Energy Stock Fund as of December 31, 2001.
SECURITY The following companies are the beneficial owners of
OWNERSHIP OF more than 5% of the outstanding shares of our common
CERTAIN stock:
BENEFICIAL
OWNERS
Amount and
Title Name and Address Nature of Percent
of Class of Beneficial Owner Beneficial Ownership of Class
-------- -------------------- -------------------- --------
Common T. Rowe Price 3,122,700 (1) 9.3%
Associates, Inc.
100 E. Pratt Street
Baltimore, MD 21202
Common The Prudential 1,927,510 (2)(3) 5.7%
Financial, Inc.
751 Broad Street
Newark, NJ 07102-3777
_____________________
(1) In a statement filed February 13, 2002 with the SEC on
Schedule 13G/A under the Securities Exchange Act of 1934, as
amended ("Exchange Act"), T. Rowe Price Associates, Inc. ("Price
Associates") indicated it has sole voting power over 1,271,700
shares and sole dispositive power over 3,122,700 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 the beneficial owner of such
securities; however, Price Associates expressly disclaims that
it is, in fact, the beneficial owner of such securities.
(2) In a statement filed February 14, 2002 with the SEC on
Schedule 13G/A under the Exchange Act, Prudential Financial,
Inc. ("Prudential") indicated that it has sole voting and sole
dispositive power over 48,300 shares, shared voting power over
1,868,810 shares and shared dispositive power over 1,879,210
shares of our common stock. In addition, through its beneficial
ownership of the Prudential Insurance Company of America
("PICOA"), Prudential may be deemed to presently hold 8,100
shares of our outstanding common stock for the benefit of
PICOA's general account. In addition, Prudential may have direct
or indirect voting and/or investment discretion over 1,919,410
shares of our outstanding common stock, which are held for its
own benefit or for the benefit of its clients by its separate
accounts, externally managed accounts, registered investment
companies, subsidiaries and/or other affiliates. For purposes of
the reporting requirements of the Exchange Act, Prudential is
deemed to be the beneficial owner of such securities; however,
Prudential expressly disclaims that it is, in fact, the
beneficial owner of such securities.
(3) In a statement filed February 4, 2002 with the SEC on
Schedule 13G under the Exchange Act, Jennison Associates LLC
("Jennison") indicated that it has sole voting and shared
dispositive power over 1,760,140 shares, representing 5.24% of
our outstanding common stock, which are directly held in managed
accounts to which Jennison serves as investment advisor.
Jennison may be deemed to be the beneficial owner of the shares
of our common stock held by such managed accounts. PICOA owns
100% of equity interests of Jennison. As a result, PICOA may be
deemed to have the power to exercise or to direct the exercise
of such voting and/or dispositive power that Jennison may have
with respect to our common stock held in managed accounts.
Jennison does not file jointly with PICOA, and as such, shares
of our common stock reported on Jennison's 13G may be included
in the shares reported on the 13G/A filed by Prudential.
SECTION Section 16(a) of the Exchange Act and SEC regulations
16(A) require directors, certain officers and persons who own
BENEFICIAL greater than 10% of our stock to file reports of
OWNERSHIP ownership and changes in ownership of such stock with
REPORTING the SEC and the New York Stock Exchange. These
COMPLIANCE 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 2001, with the
exception of Mr. Daniel W. L. Fessler, a Director of
UniSource Energy who failed to file timely a Form 4
for the single acquisition of 636 shares of our common
stock he purchased during 2001. This transaction was
subsequently reported to the SEC on a separate Form 5.
PROPOSAL ONE: ELECTION OF DIRECTORS
GENERAL At the Meeting, the shareholders will elect ten
directors to serve on our Board for the ensuing year
We will and until their successors are elected and qualified.
elect ten The shares represented by executed proxies in the form
directors enclosed, unless withheld, will be voted for the ten
this year. 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. 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 the Board of Directors, President and Chief
Executive Officer of Tucson Electric Power Company
("TEP"), the principal subsidiary of UniSource Energy,
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 to 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.
("Millennium"), a wholly owned subsidiary of UniSource
Energy, since 1997; President and Chief Executive
Officer of Mission Energy Company, a subsidiary of SCE
Corp. from 1988 to 1993. Age 58.
LAWRENCE J. Managing Director and Founder, Tucson Ventures, LLC,
ALDRICH since February 2000; President and Chief Executive
(1)(4) Officer of Tucson Newspapers from January 1992 to
February 2000; Director of TEP and Millennium since
2000. Board member since 2000. Age 49.
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 56.
ELIZABETH T. President of Gourmet Products, Inc., an agricultural
BILBY product marketing company; Director of Marketing of
(1)(3) Green Valley Pecans since 1982. Director of TEP since
1995; Director of Millennium since 1998. Board member
since 1995. Age 62.
HAROLD W. Senior Executive Advisor for AT&T Wireless Services
BURLINGAME since July 2001; Executive Vice President,
(1)(2)(3) Communications and Human Resources of AT&T Wireless
Services from April 2000 to June 2001; Executive Vice
President, Merger and Joint Venture Integration of AT&T
from March 1999 to March 2000; Executive Vice President
of Human Resources of AT&T from 1987 to March 1999;
Member of the AT&T Foundation; Director of TEP since
1998. Board member since 1998. Age 61.
JOHN L. Executive Vice President and Chief Financial Officer of
CARTER Burr-Brown Corporation from 1993 to 1996; President and
(2)(4) 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 67.
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 1993; 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 60.
KENNETH Retired CPA; Vice President and Chief Financial Officer
HANDY of The Permanente Medical Group, Inc. (the physician
(2)(3) services component of the Kaiser Permanente Medical
Care Program in Northern California) from 1978 to 1998;
Partner at Ernst & Ernst (now Ernst & Young) from 1972
to 1978; Director of TEP and Millennium since 2001.
Board member since August 2001. Age 63.
WARREN Y. Retired CPA; Sr. Vice President of Southern Company
JOBE from 1998 to 2001; Executive Vice President and Chief
(2)(4) Financial Officer and member of the Board of Directors
of Georgia Power Company from 1982 to 1998; former
President of the Georgia Power Foundation Inc.; Member
of the Board of Directors of Wellpoint Health Networks
Inc.; Director of TEP and Millennium since 2001. Board
member since August 2001. Age 61.
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
from October 1987 to January 1996; Director of
Millennium since 1998. Board member since 1976. Age 69.
___________________
(1) Member of the Corporate Governance and Nominating Committee.
(2) Member of the Audit Committee.
(3) Member of the Compensation Committee.
(4) Member of the Finance Committee.
THE BOARD RECOMMENDS THAT YOU VOTE "FOR" THESE NOMINEES.
BOARD INFORMATION
BOARD In 2001, the Board held a total of six regular
MEETINGS meetings. Each director attended at least 75% of his or
her Board and committee meetings.
BOARD THE AUDIT COMMITTEE selects and recommends to the Board
COMMITTEES 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; reviews our accounting
and internal control procedures with our internal audit
department from time to time and makes recommendations
to the Board for any changes deemed necessary in such
procedures; and performs such other functions delegated
by the Board. Our Audit Committee held five meetings in
2001 and was in full compliance with its written
charter. See Appendix A attached to this Proxy
Statement for a copy of the UniSource Energy
Corporation Audit Committee of the Board of Directors
Charter.
THE COMPENSATION COMMITTEE reviews the performance of
our directors and officers and makes recommendations to
the Board with respect to directors' and officers'
compensation. Our Compensation Committee held four
meetings in 2001.
THE FINANCE COMMITTEE reviews and recommends to the
Board 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 four meetings in 2001.
THE CORPORATE GOVERNANCE AND 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 Corporate Governance and Nominating Committee also
reviews and recommends membership for all the
committees to the Board and reviews applicable rules
and regulations relating to the duties and
responsibilities of the Board. The Corporate Governance
and Nominating Committee held five meetings in 2001. At
such times as director vacancies occur, the Corporate
Governance and Nominating Committee will consider
written recommendations from shareholders for the
Board. The deadline for consideration of
recommendations for next year's Annual Meeting of
Shareholders is November 29, 2002. 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, One South
Church Avenue, Suite 1820, Tucson, Arizona 85701.
BOARD COMPENSATION
RETAINER AND In 2001, each non-employee director received a $24,000
FEES annual cash retainer, $1,000 for each Board meeting
attended, $1,000 for each committee meeting attended
and an additional $500 if acting as a committee
chairperson. 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,
with the exception of Mr. Handy and Mr. Jobe, options
were granted to each of the directors on January 3,
2001, at an exercise price of $18.84375.
DIRECTOR COMPENSATION FOR LAST FISCAL YEAR
Cash Compensation Security Grants
------------------------- ---------------------------
Number of
Annual Number Securities
Retainer Meeting of Underlying
Name (1) Fee ($)(2) Fees ($)(2) Shares Options/SARs (3)
-------- ---------- ----------- ------ ----------------
Lawrence J. Aldrich 24,000 27,000 (4) -- 2,000
Larry W. Bickle 24,000 33,000 (5) -- 2,000
Elizabeth T. Bilby 24,000 27,500 -- 2,000
Harold W. Burlingame 24,000 30,000 -- 2,000
Jose L. Canchola 24,000 26,000 -- 2,000
John L. Carter 24,000 33,000 (5) -- 2,000
Daniel W. L. Fessler 24,000 28,000 (6) -- 2,000
Kenneth Handy 10,000 10,000 -- 2,000 (7)
John A. Jeter 10,000 10,500 -- 2,000
Warren Y. Jobe 10,000 8,000 -- 2,000 (7)
Martha R. Seger 24,000 32,000 -- 2,000
H. Wilson Sundt 24,000 29,000 -- 2,000
________________
(1) Mr. Pignatelli is not listed in this table because directors
who are officers of UniSource Energy or salaried employees of its
subsidiaries do not receive compensation in their capacity as
members of the Board. Refer to the Summary Compensation Table for
information concerning his 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.
(4) Mr. Aldrich received $1,000 in aggregate compensation for
attending, as a non-member, one Global Energy Solutions, Inc.
("GES") board meeting and one Global Solar Energy, Inc. ("GSE")
board meeting during 2001. UniSource Energy owns 67% of GES. GSE
is a wholly owned subsidiary of GES.
(5) As members of the GES board, Mr. Bickle and Mr. Carter each
received $4,000 for attending GES board meetings during 2001.
(6) As a member of the GSE board, Mr. Fessler received $4,000
for attending GSE board meetings during 2001.
(7) Mr. Handy and Mr. Jobe were granted shares on August 2,
2001, the date on which they became directors, at an exercise
price of $17.91.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY OF The following table summarizes the compensation and
COMPENSATION stock option grants to, and stock options/stock
appreciation rights ("SARs") held by, our Chief
Executive Officer and our five other most highly
compensated executive officers at December 31, 2001
("Named Executives").
SUMMARY COMPENSATION TABLE
Long Term
Annual Compensation Compensation Awards
------------------- -------------------
Restricted Securities All Other
Name and Stock Awards Underlying Compensation
Principal Position Year Salary($) Bonus($) ($)(1) Options/SARs (#) ($)(2)
------------------ ---- --------- -------- ------------ ---------------- ------------
James S. Pignatelli 2001 559,423 580,000 -- 150,000 (3) 7,650
President & 2000 528,462 440,000 -- 175,000 (3) 7,650
Chief Executive 1999 450,008 272,800 1,200,005 114,500 7,200
Officer
Dennis R. Nelson 2001 259,712 117,000 -- 34,000 7,650
Senior Vice President, 2000 244,423 112,000 -- 40,000 7,650
Governmental Affairs 1999 214,769 67,500 225,010 18,200 7,200
(UNS) & Chief Operating
Officer, Energy
Resources (TEP)
Steven J. Glaser 2001 244,231 132,000 -- 54,000 7,650
Senior Vice President & 2000 204,519 115,000 -- 40,000 7,650
Chief Operating Officer, 1999 180,000 64,800 283,760 11,450 7,200
Transmission &
Distribution (TEP)
Kevin P. Larson 2001 184,519 113,000 -- 20,000 7,650
Vice President, Chief 2000 159,808 78,500 -- 17,000 7,650
Financial Officer & 1999 149,846 45,000 186,570 9,500 7,200
Treasurer
Michael J. DeConcini 2001 184,519 97,125 -- 30,000 (3) 7,650
Senior Vice President, 2000 159,616 100,000 -- 40,000 (3) 7,650
Strategic Planning & 1999 139,785 35,000 275,319 8,900 7,200
Investments
Vincent Nitido, Jr. 2001 184,519 97,125 -- 35,000 (3) 7,650
Vice President, General 2000 159,616 84,000 -- 40,000 (3) 7,650
Counsel & Corporate 1999 139,726 38,500 186,570 8,900 7,200
Secretary
________________
(1) Award amount represents the fair market value of the restricted stock
units on the grant date. The restrictions on the 1999 grants lapse
50% on the third anniversary and 50% on the fourth anniversary of
the award date. 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 until vested. As of December 31, 2001, based on
the closing market price of UniSource Energy's stock on that date of
$18.19, Mr. Pignatelli held 100,524 restricted stock units valued at
$1,828,532; Mr. Nelson held 18,849 restricted stock units valued at
$342,863; Mr. Glaser held 23,849 restricted stock units valued at
$433,813; Mr. Larson held 15,566 restricted stock units valued at
$283,146; Mr. DeConcini held 23,079 restricted stock units valued at
$419,807; and Mr. Nitido held 15,566 restricted stock units valued at
$283,146.
(2) All Other Compensation is comprised of UniSource Energy's contributions
to the 401(k) Plan.
(3) The following options in the common stock of GES, GSE and Infinite
Power Solutions, Inc. ("IPS"), pursuant to each company's Stock
Incentive Plan are included in the aggregate number of options granted:
a) 50,000 options granted in 2001 and 75,000 options granted in 2000
to Mr. Pignatelli, b) 10,000 options granted in 2001 and 20,000 options
granted in 2000 to Mr. DeConcini, and c)10,000 options granted in 2001
and 20,000 options granted in 2000 to Mr. Nitido. Options in UniSource
Energy common stock were granted concurrent with and in an amount equal
to the aforementioned grant of GES, GSE or IPS option awards. The
exercise of options in GES, GSE or IPS reduces the relative number of
options available for exercise in the other two companies and UniSource
Energy. The Unisource Energy options will become exercisable only in
the event GES, GSE or IPS options are not registered under the applicable
securities laws and are not listed on a recognized national exchange
within five years of the award dates. If the Unisource Energy options
become exercisable, all remaining GES, GSE, or IPS options will terminate.
GSE and IPS are wholly owned subsidiaries of GES.
STOCK OPTION During 2001, the Compensation Committee of our Board
GRANTS IN granted stock options intended to be incentive stock
2001 options under the Internal Revenue Code of 1986, as
amended, to officers. The options have exercise prices
equal to the fair market value 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 2001 grants are 314,000 (UNS) and
70,000 (GES, GSE, IPS and correlating UNS).
The following table includes our 2001 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 the 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 and its subsidiaries can influence
those future share values.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Individual Grants
Number of Percent of Potential Realizable Value
Securities Total Options/ at Assumed Annual Rates
Underlying SARs Granted Exercise of Stock Price Apppreciation
Options/SARs to Employees Price Expiration for Option Term
Name Granted(#) in Fiscal Year ($/Sh) Date 5%($) 10%($)
---- ------------ -------------- -------- ---------- ----- ------
James S. Pignatelli 100,000 31.8% 17.91 08/02/11 1,126,350 2,854,393
50,000(1) 71.4%(2) 17.91 08/02/11 563,175(3) 1,427,196(3)
Dennis R. Nelson 34,000 10.8% 17.91 08/02/11 382,959 970,494
Steven J. Glaser 54,000 17.2% 17.91 08/02/11 608,229 1,541,372
Kevin P. Larson 20,000 6.4% 17.91 08/02/11 225,270 570,879
Michael J. DeConcini 20,000 6.4% 17.91 08/02/11 225,270 570,879
10,000(1) 14.3%(2) 17.91 08/02/11 112,635(3) 285,439(3)
Vincent Nitido, Jr. 25,000 8.0% 17.91 08/02/11 281,588 713,598
10,000(1) 14.3%(2) 17.91 08/02/11 112,635(3) 285,439(3)
______________
(1) Options granted to Mr. Pignatelli, Mr. DeConcini and Mr. Nitido in
GES, GSE, IPS and UNS common stock pursuant to each company's Stock
Incentive Plan.
(2) The percentage of GES, GSE, IPS and correlating UNS options granted
to employees is based on the total number of GES, GSE, IPS options and
correlating UNS options granted exclusively to UniSource Energy
officers.
(3) Due to the start-up nature of the operations of GES, GSE and
IPS and the fact there is no readily available market price for the
common stock of GES, GSE and IPS; and the correlation between the
GES, GSE and IPS options and UNS options, these calculations assume
a market price equal to the UNS exercise price of $17.91 at the
grant date.
2001 OPTION The following table includes the number and value of
AND SAR exercisable and non-exercisable options and SARs held
HOLDINGS by the Named Executives as of December 31, 2001.
AGGREGATED OPTION/SAR EXERCISES IN
LAST FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUES
Number of Securities
Underlying Unexercised Value of Unexercised
Shares Options/SARs at Fiscal In-the-Money Options/SARs
Acquired Year-End (#) at Fiscal Year End ($)
on Exercise Value Exercisable/ Exercisable/
Name (#) Realized ($) Unexercisable Unexercisable
---- ----------- ------------ ---------------------- -------------------------
James S. Pignatelli -- -- 214,130/329,832 (1) 854,714/679,809
Dennis R. Nelson -- -- 62,247/66,732 234,510/122,968
Steven J. Glaser -- -- 50,661/84,482 178,533/115,271
Kevin P. Larson -- -- 29,886/34,499 116,123/57,290
Michael J. DeConcini -- -- 20,914/66,299 (1) 86,264/122,928
Vincent Nitido -- -- 22,511/71,299 (1) 89,362/124,328
_________________
(1) Includes options granted to Mr. Pignatelli, Mr. DeConcini and Mr.
Nitido in GES, GSE, IPS and correlating UNS common stock pursuant to
each company's Stock Incentive Plan. Due to the correlation between
the GES, GSE, and IPS options and UNS options; the start-up nature of
the operations of GES, GSE and IPS, and the fact there is no readily
available market price for the common stock of GES, GSE and IPS, these
calculations assume a market price equal to the UNS exercise price at
the grant date.
PENSION PLANS The following table shows the estimated annual
retirement benefit payable to participants, including
the Named Executives, for the average annual earnings
and years of service indicated. Remuneration is
comprised of the officers' average annual compensation
during the five consecutive years of employment with
the highest compensation within the last 15 years
preceding retirement. Compensation is comprised of
salary and bonus, as shown on the Summary Compensation
Table.
PENSION PLAN TABLE
Years of Service
--------------------------------------------------------------
Remuneration ($) 10 15 20 25 30 35
---------------- -- -- -- -- -- --
125,000 54,850 54,850 54,850 54,850 54,850 54,850
150,000 65,820 65,820 65,820 65,820 65,820 65,820
175,000 76,790 76,790 76,790 76,790 76,790 76,790
200,000 87,760 87,760 87,760 87,760 87,760 87,760
225,000 98,730 98,730 98,730 98,730 98,730 98,730
250,000 109,700 109,700 109,700 109,700 109,700 109,700
300,000 131,640 131,640 131,640 131,640 131,640 131,640
400,000 175,520 175,520 175,520 175,520 175,520 175,520
450,000 197,460 197,460 197,460 197,460 197,460 197,460
500,000 219,400 219,400 219,400 219,400 219,400 219,400
550,000 241,340 241,340 241,340 241,340 241,340 241,340
600,000 263,280 263,280 263,280 263,280 263,280 263,280
650,000 285,220 285,220 285,220 285,220 285,220 285,220
700,000 307,160 307,160 307,160 307,160 307,160 307,160
750,000 329,100 329,100 329,100 329,100 329,100 329,100
800,000 351,040 351,040 351,040 351,040 351,040 351,040
850,000 372,980 372,980 372,980 372,980 372,980 372,980
900,000 394,920 394,920 394,920 394,920 394,920 394,920
950,000 416,860 416,860 416,860 416,860 416,860 416,860
1,000,000 438,800 438,800 438,800 438,800 438,800 438,800
1,100,000 482,680 482,680 482,680 482,680 482,680 482,680
1,200,000 526,560 526,560 526,560 526,560 526,560 526,560
1,300,000 570,440 527,440 527,440 527,440 527,440 527,440
1,400,000 614,320 614,320 614,320 614,320 614,320 614,320
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
TEP's pension plan and any benefit payments, which may
be limited by federal income tax regulations.
The credited years of service for UniSource Energy's
Named Executives are as follows:
Credited
Name Years of Service
---- ----------------
James S. Pignatelli 7
Dennis R. Nelson 24
Steven J. Glaser 12
Kevin P. Larson 16
Michael J. DeConcini 13
Vincent Nitido, Jr. 10
OFFICER CHANGE IN CONTROL AGREEMENTS
Change in TEP has Change in Control Agreements ("Agreements")
Control with all of its officers. The Agreements are in effect
Agreements until the latter of: (i) five years after the date
were adopted either TEP or the officer gives written notice of
to attract termination of the Agreement, or (ii) if a change in
and retain control occurs during the term of the Agreement, five
quality years after the change in control. For the purpose of
management. 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 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 annual salary and
bonus compensation; (ii) the present value of the
additional amount the officer would have received under
the TEP Retirement Plan if the officer had continued to
be employed for the five-year period after a change in
control occurs; and (iii) 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 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 $19 million.
TRANSACTIONS WITH MANAGEMENT AND OTHERS
CONSULTING Mr. Carter, a member of our Board, was employed by
SERVICES FOR Millennium, a subsidiary of UniSource Energy, during
MILLENNIUM 2001. Mr. Carter advised GSE on production development
and monitored GSE production progress on behalf of
Millennium. For his services, Mr. Carter received
$100,000 plus expenses.
LEBOEUF, The law firm of LeBoeuf, Lamb, Greene & MacRae L.L.P.
LAMB, has provided certain legal services for an aggregrate
GREENE & amount of less than $25,000 during 2001 to UniSource
MACRAE L.L.P. Energy. Mr. Fessler, a member of our Board, is an
equity owner of that firm. The arrangements with that
firm are competitive with those of other law firms
serving us.
TUCSON Millennium has made a $5 million capital commitment to
COMMUNITY Tucson Community Ventures L.L.C., a venture capital
VENTURES fund. Mr. Aldrich, a member of our Board, owns the
L.L.C. company that manages the fund. As of December 31,
2001, Millennium had funded approximately $1 million
under this commitment.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
MILLENNIUM Mr. Stephen Alexander, an immediate family member of
ENERGY Mrs. Bilby, a member of our Compensation Committee, is
INVESTMENTS employed by Millennium. As Director of Energy
Investments, Mr. Alexander assists in overseeing
Millennium's investment portfolio. For his services in
2001, Mr. Alexander received compensation of
approximately $100,000 from Millennium.
HADDINGTON Millennium has been authorized by its Board of
ENERGY Directors to invest $15 million, in aggregate, over a
PARTNERS three- to five-year period in Haddington Energy
II L.P. Partners II L.P. Mr. Bickle, a member of our
Compensation Committee, is the managing director of
Haddington Ventures L.L.C., the general partner of
Haddington Energy Partners II L.P. As of December 31,
2001, Millennium has funded approximately $6 million
under this commitment, $4 million of which was funded
in 2001.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
THE The Compensation Committee is responsible for
COMMITTEE developing and administering executive compensation
policies and programs for UniSource Energy and TEP and
making recommendations to the Board with respect
thereto. 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 UniSource Energy's executive compensation policies and
OBJECTIVES 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 We review executives' pay each year. Compensation
COMPENSATION depends on many factors, including individual
GENERALLY 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 2001 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 2001, the
consultant used two comparator groups: (i) an energy
group consisting of 12 gas and electric utilities, with
revenues from $.6 to $3.4 billion, for utility specific
jobs, and (ii) a mixed group of 29 public companies in
energy and general industry, with revenues from $.6 to
$3.4 billion, for jobs not specific to the utility
industry. 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 on page 20, 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 salary for
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 2001, 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.
SHORT-TERM The Board adopted a Short-Term Incentive Plan to provide
INCENTIVE compensation for meeting or exceeding specified
COMPENSATION 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
2001, the target award levels for our executive
officers ranged from 30% to 65% of base salary. Awards
for Mr. Pignatelli and 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 the Named Executives ranging from 53% to 104%
of base salary. Incentive compensation awarded to Mr.
Pignatelli and the other Named Executives is set forth
in the preceding Summary Compensation Table.
LONG-TERM UniSource Energy's long-term incentive compensation is
INCENTIVE intended to attract and retain quality employees over
COMPENSATION the long term in a manner that directly aligns them
with shareholder interest.
At the recommendation of the Compensation Committee,
the Board 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 August 2, 2001, the Compensation
Committee issued stock options intended to be incentive
stock options 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 stock
options with a total value equal to 114% of his base
salary. The total value of stock options issued to the
other Named Executives ranged from 46% to 94% of base
salary. The number of shares covered by the stock
option grant to Mr. Pignatelli was 100,000 (UNS) and
50,000 (GES, GSE, IPS and correlating UNS). The
Compensation Committee did not consider the number of
options previously granted or outstanding.
TAX CODE The Compensation Committee does not presently have a
CONCERNS 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 our 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
Kenneth Handy
AUDIT COMMITTEE REPORT
THE COMMITTEE The Audit Committee is made up of non-employee,
financially literate, directors who are independent, as
defined in the applicable New York Stock Exchange
listing standards. Several members of the Audit
Committee have accounting or related financial
management expertise. The Board previously adopted a
written charter for the Audit Committee. On May 11,
2001, the Board approved amendments to the charter. The
Audit Committee Charter is included as Appendix A to
this Proxy Statement. 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.
In connection with our December 31, 2001 financial
statements, the Audit Committee has (i) reviewed and
discussed the audited financial statements with
management; (ii) discussed with PricewaterhouseCoopers,
LLP, our independent auditor, the matters required to
be discussed by SAS 61 (Codification of Statements on
Auditing Standards, AU Sec. 380); (iii) received from
PricewaterhouseCoopers, LLP the written disclosures and
the letter required by Independence Standards Board
Standard No. 1 (Independence Discussions with Audit
Committees); and (iv) discussed with
PricewaterhouseCoopers, LLP its independence.
The following table details fees paid to
PricewaterhouseCoopers, LLP for professional services
during the year 2001. The Audit Committee has
considered whether the provision of services to us by
PricewaterhouseCoopers, LLP, beyond those rendered in
connection with their audit and review of our financial
statements, is compatible with maintaining their
independence as auditors.
Financial Information
Systems Design and All
Audit Fees Implementation Fees Other Fees
---------- --------------------- ----------
$464,800 -- $417,607
Based on all of its activities during the year, the
Audit Committee recommended to the Board that the
audited financial statements for 2001 be included in
the Annual Report on Form 10-K for filing with the
Securities and Exchange Commission.
Respectfully submitted,
THE AUDIT COMMITTEE
John L. Carter, Chair
Larry W. Bickle
Harold W. Burlingame
Kenneth Handy
Warren Y. Jobe
Martha R. Seger
H. Wilson Sundt
PERFORMANCE GRAPH
Comparison of Cumulative Four-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 four 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 1998 to 2001, and the Y-axis shows dollar values from 50
to 200. The data points are connected by lines with the following markers:
UniSource Energy - triangles; S&P 500 Index - diamonds; EEI Index of 100
investor-owned utilities - squares. The data points are as follows:
1997 1998 1999 2000 2001
---- ---- ---- ---- ----
UniSource Energy Corporation $100 $74 $62 $106 $105
S&P 500 Index $100 $129 $156 $141 $125
EEI Index of 100 Investor-owned
Utilities $100 $114 $93 $137 $125
(1) Assumes $100 invested on December 31, 1997 in UniSource Energy
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.
Data and Calculations 1998 1999 2000 2001
--------------------- ---- ---- ---- ----
S & P 500 Total Return Change 28.58% 21.04% -9.10% -11.89%
EEI Index - 100 Electrics Change 13.89% -18.60% 47.97% -8.79%
UniSource Energy Change -25.52% -17.13% 71.80% -1.30%
PROPOSAL TWO: AMENDED AND RESTATED
1994 OUTSIDE DIRECTOR STOCK OPTION PLAN
GENERAL We maintain the UniSource Energy Corporation 1994
Outside Director Stock Option Plan (the "Director
Plan"). On March 1, 2002, our Board approved, subject
to shareholder approval, certain amendments to the
Director Plan. At the Meeting, shareholders will be
asked to approve those amendments. The principal
amendments to the Director Plan are as follows:
PRINCIPAL - DIRECTOR STOCK OPTION PROVISIONS. The Director
AMENDMENTS Plan currently provides that each member of our Board
who is not employed by us and who is not an emeritus
director (a "non-employee director") will receive an
annual option grant covering 2,000 shares of our common
stock. In addition, each new non-employee director is
granted a stock option covering 2,000 shares of our
common stock when he or she first takes office.
The proposed amendment to the Director Plan generally
provides that each new non-employee director will be
granted a stock option when he or she first takes
office that covers a number of shares of our common
stock equal to $5,000 divided by the value of an
option as of the date of grant (determined using the
Black Scholes option value model). The proposed
amendment to the Director Plan also generally
provides that each non-employee director in office on
the first business day of each year during the term
of the Director Plan (commencing in 2003) who has
been a director for at least three months will be
granted a stock option covering a number of shares of
our common stock equal to $10,000 divided by the
value of an option as of the date of grant
(determined using the Black Scholes option value
model). In addition, if the proposed Director Plan
amendment is approved by shareholders, each non-
employee director then in office will be granted a
special one-time stock option grant covering a number
of shares of our common stock equal to a) $10,000
divided by the value of an option as of the date of
grant (determined using the Black Scholes option
value model), less b) 2,000 shares. Our Board will
have the authority to adjust these grant amounts from
time to time.
- DIRECTOR RESTRICTED STOCK GRANT PROVISIONS. The
Director Plan currently does not contemplate restricted
stock grants to directors. The proposed amendment to
the Director Plan generally provides that each non-
employee director in office on the first business day
of each year will be granted a number of restricted
shares of our common stock equal to $10,000 divided by
the then fair market value of a share of our common
stock. In addition, if the proposed Director Plan
amendment is approved by shareholders, each non-
employee director then in office will be granted a
special one-time restricted stock grant covering a
number of shares of our common stock equal to $10,000
divided by the then fair market value of a share of our
common stock. These restricted stock grants are in
addition to the option grants described above. Our
Board will have the authority to adjust these grant
amounts from time to time.
- SHARE LIMIT AND TERM OF THE DIRECTOR PLAN. The
Director Plan does not currently contain a limit on the
number of shares of our common stock that may be issued
in respect of awards granted under the Director Plan.
If the amendments to the Director Plan are approved by
shareholders, the maximum number of shares of our
common stock that may be delivered in respect of awards
granted under the Director Plan on and after March 1,
2002 (the date that the proposed amendments were
approved by our Board) will be 200,000 shares. Awards
that were granted under the Director Plan before that
date will not count against the 200,000 share limit. In
addition, the Director Plan is currently scheduled to
expire in February 2004. The proposed amendments extend
the expiration date to March 2012.
- DIVIDEND EQUIVALENTS. If the proposed amendments
to the Director Plan are approved by shareholders, our
Board may grant dividend equivalents in connection with
any option awarded under the Director Plan and use
stock authorized for issuance under the Director Plan
to settle dividend equivalent benefits. Dividend
equivalents are the cash amount equal to the cash
dividends or cash distribution that would be payable on
the number of shares subject to stock options
outstanding as of a given record date.
In 2001, the Compensation Committee of our Board
engaged The Segal Company ("Segal") to evaluate our
outside director compensation program for
appropriateness and market competitiveness. Segal
determined that, when compared to a group of 21 utility
industry companies, the stock-based component of our
outside director compensation package was less than the
average stock-based component of the other companies'
outside director compensation packages. We believe that
stock-based awards focus our directors on the objective
of creating shareholder value and promoting the success
of UniSource Energy, and that incentive compensation
plans like the Director Plan are an important
attraction, retention and motivation tool for
participants in the plan. The proposed Director Plan
amendments were approved by our Board based in
substantial part on the recommendations of Segal. We
believe that the proposed amendments will help further
our goal of creating shareholder value and will help
enable us to continue to attract, retain and reward
qualified non-employee directors.
SUMMARY The following summary is qualified in its entirety by
DESCRIPTION the full text of the Director Plan, as amended and
OF THE restated to reflect the proposed amendments, which is
DIRECTOR included as Appendix B attached to this Proxy
PLAN Statement.
PURPOSE. The purpose of the Director Plan is to enable
us to attract and retain highly qualified non-employee
directors by providing to them a significant equity
interest in UniSource Energy, to more closely link the
interests of those directors with those of our
shareholders, and to help provide those directors with
reasonable and fair compensation.
AWARDS. As noted above, the Director Plan will
authorize stock option and restricted stock grants to
directors if the proposed Director Plan amendments are
approved by shareholders. If the proposed Director Plan
amendments are approved by shareholders, our Board may
also settle dividend equivalent rights through the
delivery of stock under the Director Plan.
ADMINISTRATION. Our Board will administer the Director
Plan. Our Board generally has the authority to: a)
approve the purchase of any shares purchased on
exercise of an option arranged through a broker or
other third party; b) accelerate the receipt or vesting
of benefits pursuant to an award; and c) make certain
adjustments to an outstanding award and authorize the
conversion, succession or substitution of an award.
SHAREHOLDER APPROVAL FOR CERTAIN REPRICINGS. Our Board
from time to time may authorize any adjustment in the
exercise price of an option granted under the Director
Plan by cancellation and regranting of an option, or by
other legally valid means; provided, however, that
without shareholder approval, no such action may
constitute a repricing of an outstanding option to a
price less than the fair market value of the underlying
shares on the grant date of the original option.
ELIGIBILITY. Only non-emeritus members of our Board
that are not employed by us or one of our subsidiaries
are eligible to receive awards under the Director Plan.
There are currently 11 non-employee, non-emeritus
members of our Board.
TRANSFER RESTRICTIONS. Subject to limited exceptions
contained in the Director Plan (which generally include
transfers back to the company, a participant's
designation of a beneficiary, the exercise of a
participant's option by his or her legal representative
in the event of the participant's disability, transfers
pursuant to certain court orders, and "cashless
exercises" approved by our Board), awards granted under
the Director Plan are not transferable by the recipient
other than by will or the laws of descent and
distribution and are generally exercisable only by the
recipient. Our Board may permit the transfer of an
option if the transferor presents satisfactory evidence
that the transfer is for estate and/or tax planning
purposes and without consideration (other than nominal
consideration).
LIMITS ON AWARDS; AUTHORIZED SHARES. As described
above, the maximum number of shares that may be issued
in respect of awards granted under the Director Plan
after March 1, 2002 will be 200,000 shares if
shareholders approve the proposed amendment. Shares
that are subject to options granted under the Director
Plan on or after that date that expire or otherwise
terminate without being exercised, and any restricted
shares that are granted under the Director Plan that
are forfeited, cancelled, or for any other reason do
not vest, as well as any shares reacquired pursuant to
the terms of an award, will be available for subsequent
awards under the Director Plan. The shares of our
common stock to be delivered under the Director Plan
may consist, in whole or in part, of authorized but
unissued stock or treasury stock, not reserved for any
other purpose.
As is customary in plans of this nature, the number
and kind of shares available under the Director Plan
and the then outstanding stock-based awards, as well
as exercise or purchase prices, share limits, and
future award grant levels are subject to adjustment
in the event of certain reorganizations, mergers,
combinations, consolidations, recapitalizations,
reclassifications, stock splits, stock dividends, asset
sales or other similar events, and extraordinary
dividends or distributions of property to shareholders.
The Director Plan will not limit the authority of our
Board to grant awards or authorize any other compensation,
with or without reference to our common stock, under
any other plan or authority.
STOCK OPTIONS. An option is the right to purchase
shares of our common stock at a future date at a
specified price. The stock option grant levels that are
contemplated by the proposed amendments to the Director
Plan are described above. The purchase price per share
of our common stock covered by each option granted
under the Director Plan will be the fair market value
of the common stock on the date the option is granted.
Options granted under the Director Plan will vest in
three annual installments and will generally expire on
the tenth anniversary of the date of grant. Full
payment for shares purchased on the exercise of an
option must be made at the time of such exercise in a
manner approved by our Board. The Director Plan permits
the recipient of any award to pay the purchase price of
shares of common stock pursuant to the option award in
cash, by check or by the delivery of shares of our
common stock. Additionally, subject to the approval of
our Board, the Director Plan permits the recipient of
any award to pay the purchase price of shares of common
stock pursuant to the option award by third party
payment or a cashless exercise.
RESTRICTED STOCK AWARDS, STOCK BONUSES. A restricted
stock award is an award for a fixed number of shares of
our common stock subject to vesting and transfer
restrictions. The restricted stock award grant levels
that are contemplated by the proposed amendments to the
Director Plan are described above. Directors will be
granted the restricted stock awards for the services
that they render to UniSource Energy and the directors
will not be required to otherwise pay for the
restricted shares subject to their restricted stock
awards. Restricted stock awarded under the Director
Plan will vest three years after it is granted to the
director.
DIVIDEND EQUIVALENTS. Our Board may grant dividend
equivalents in connection with any option awarded under
the Director Plan. Dividend equivalents that are
awarded may provide for payment in cash or, if
shareholders approve the proposed Plan amendments, the
delivery of shares of our common stock. Any shares of
our common stock delivered to settle dividend
equivalents granted under the Director Plan will count
against the Director Plan's share limit. Dividend
equivalents settled in cash will not count against such
limit.
ACCELERATION OF AWARDS; POSSIBLE EARLY TERMINATION OF
AWARDS. Upon a Change in Control event, each option
will become immediately vested and exercisable and each
award of restricted stock will immediately vest free of
restrictions. Generally speaking, a Change in Control
will be triggered under the Director Plan a) upon our
dissolution or liquidation, b) upon certain mergers,
consolidations, reorganizations, or sales of all or
substantially all of our assets, c) should certain
persons acquire more than 30% of our voting power, or
d) in the event certain majority changes in our Board
occur over a two-year period.
TERMINATION OF OR CHANGES TO THE DIRECTOR PLAN. Our
Board may amend or terminate the Director Plan at any
time and in any manner. Without limiting our Board's
authority to adopt other awards, our Board will have
the authority to amend the grant levels contemplated by
the Director Plan to offer competitive incentives and
to tailor benefits to specific needs and circumstances.
Shareholder approval for an amendment will generally
not be obtained unless required by applicable law or
deemed necessary or advisable by our Board. Repricings
of options will also require shareholder approval as
noted above. Unless earlier terminated by our Board,
the Director Plan will terminate on March 1, 2012, if the
shareholders approve the proposed amendments. Outstanding
awards may be amended, subject however, to the consent
of the holder if the amendment materially and adversely
affects the holder.
FEDERAL The federal income tax consequences of the Director
INCOME TAX Plan under current federal law, which is subject to
CONSEQUENCES change, are summarized in the following discussion
OF AWARDS which deals with the general federal income tax
UNDER THE principles applicable to the Director Plan. This
DIRECTOR summary is not intended to be exhaustive and, among
PLAN other considerations, does not describe state, local,
or international tax consequences.
With respect to options granted under the Director
Plan, we are generally entitled to deduct, and the
optionee recognizes, taxable income in an amount equal
to the difference between the option exercise price and
the fair market value of the shares at the time of
exercise. Restricted stock granted under the plan will
be taxed to the recipient at the time of vesting based
on the fair market value of the shares at vesting
(unless the recipient elects to accelerate recognition
as of the date of grant) and we will generally have a
corresponding deduction at that time.
SPECIFIC Assuming that the nominees identified in Proposal One
BENEFITS are elected or re-elected, as the case may be, to our
Board at our 2002 Meeting, and assuming that
shareholders approve the proposed Director Plan
amendments, the following options and restricted stock
awards will be granted as of the date of the 2002
Meeting:
NEW PLAN BENEFITS
AMENDED AND RESTATED 1994 OUTSIDE DIRECTOR STOCK OPTION PLAN
--------------------------------------------------------------------------------
NUMBER OF NUMBER OF
DOLLAR SHARES SUBJECT DOLLAR RESTRICTED
NAME OF DIRECTOR VALUE ($) TO THE OPTION (1) VALUE ($) SHARES GRANTED (1)
Lawrence J. Aldrich 129.33 26 10,000 571
Larry W. Bickle 129.33 26 10,000 571
Elizabeth T. Bilby 129.33 26 10,000 571
Harold W. Burlingame 129.33 26 10,000 571
John L. Carter 129.33 26 10,000 571
Daniel W. L. Fessler 129.33 26 10,000 571
Kenneth Handy 129.33 26 10,000 571
Warren Y. Jobe 129.33 26 10,000 571
H. Wilson Sundt 129.33 26 10,000 571
___________________
(1) The respective numbers of shares reflected in the above table have
been calculated based on the fair market value of our common stock on
February 21, 2002 and, for purposes of the stock option grant level,
based on the approximate Black Scholes value of an option granted on
that date. The option grant shown above represents a one-time grant
equal to the positive difference between a) $10,000 divided by the Black
Scholes value, less b) 2,000 options granted on January 3, 2002 under
the plan in effect prior to the Board's approval of this amendment and
restatement. The actual grant levels in connection with the 2002 Meeting
may vary based on changes in the value of our common stock and changes
in the Black Scholes option value calculation before that date.
The options granted will have a per share exercise
price that is equal to the fair market value of a share
of our common stock on the date of our 2002 Meeting.
The awards will otherwise be granted consistent with
the terms and conditions summarized in this proposal.
If the proposed Director Plan amendments are approved
by shareholders, it is also expected that dividend
equivalent rights will be granted with respect to the
shares that are subject to the options granted in
connection with the 2002 Meeting.
The future number and amount of other awards to be
received by, or allocated to, non-employee directors
under the Director Plan, as amended by this proposal,
cannot be determined at this time.
On March 13, 2002, the most recent practicable date for
which quotations were available prior to the printing
of this document, the closing price per share of our
common stock was $19.30, as reported on the New York
Stock Exchange Composite Transaction Tape.
RECOMMENDATION OF OUR BOARD OF DIRECTORS "FOR" THIS PROPOSAL;
VOTE REQUIRED
OUR BOARD OF DIRECTORS HAS APPROVED AND RECOMMENDS THAT
SHAREHOLDERS VOTE FOR THE PROPOSED AMENDMENTS TO THE
1994 OUTSIDE DIRECTOR STOCK OPTION 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 2003
Annual Meeting of Shareholders, any such notice must be
submitted to the Corporate Secretary of UniSource Energy
on or before February 12, 2003.
We must This requirement is separate and apart from the SEC's
receive requirements that a shareholder must meet in order to
your have a shareholder proposal included in our Proxy
shareholder Statement. Shareholder proposals intended to be
proposals presented at our 2003 Annual Meeting of Shareholders
by November must be received by us no later than November 29, 2002
29, 2002. in order to be eligible for inclusion 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 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.
Copies of our 2001 Annual Report on Form 10-K may be
obtained by shareholders, without charge, upon written
request to Library and Resource Center, 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.
/s/ Vincent Nitido, Jr.
-----------------------------------
Vincent Nitido, Jr.
Corporate Secretary
PLEASE VOTE - YOUR VOTE IS IMPORTANT
APPENDIX A
Amended
May 11, 2001
UNISOURCE ENERGY CORPORATION
------------------------------
AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
-----------------------------------------
CHARTER
-------
1. COMPOSITION
-----------
The Audit Committee of the Board of Directors (the
"Committee") consists of not less than five non-employee
Directors appointed annually by the Board. Directors eligible
to serve on the Committee shall be determined in accordance
with the NYSE Listed Company Manual, Corporate Governance
Standards for Audit Committees. The Board shall designate one
of the Committee members as Chairman of the Committee. Each
member of the Committee shall be financially literate, and
one member shall have accounting or financial management
expertise.
2. MEETINGS
--------
The Committee will hold at least four regular meetings each
year, and such additional meetings as it may deem necessary.
Additional meetings will be called by the Chairman of the
Committee. The agendas for the regular meetings shall include
all items necessary to complete the duties of the Committee as
set forth herein. In addition to the Committee members and the
Secretary, the Chairman of the Board, Chief Executive Officer
and President and other members of management, internal audit
and representatives of the independent auditors may attend as
appropriate.
3. RULES OF PROCEDURE
------------------
The Committee will determine its own rules of procedure with
respect to how its meetings are to be called, as well as the
place and time.
4. COMPENSATION
------------
Each member will be paid such fees as may be established from
time to time by the Board for service on the Committee, and
will be reimbursed for travel expenses incurred by attendance
at meetings.
5. COMMITTEE SECRETARY
-------------------
The Secretary of the Committee will be the Assistant
Corporate Secretary of the Company (or such other
representative of management as the Committee may designate)
and not be a member of the Committee. The Secretary will
attend all meetings and maintain minutes, advise members of
all meetings called, arrange with the Chairman or other
convening authority for preparation and distribution of the
agenda for each meeting, and carry out other functions as may
be assigned from time to time by the Committee. At such
meetings where attendance by a Company representative is not
appropriate, the Chairman shall act as secretary of the
meeting or appoint another member of the Committee to act as
secretary of such meetings.
6. QUORUM
------
A majority of the total membership of the Committee will
constitute a quorum.
7. RESPONSIBILITIES
----------------
The Committee is to assist the Board in discharging its
duties and responsibilities regarding financial accounting,
reporting and internal controls. To ensure independence and
assure adequate consideration of audit recommendations the
Corporate General Auditor reports directly to the Chairman of
the Committee.
8. SPECIFIC DUTIES OF THE COMMITTEE
--------------------------------
a) Select and evaluate a firm for recommendation to the Board
for the Board to engage as the Company's independent
auditor and, where appropriate, to replace such firm.
b) Review the independent auditor's compensation, the
proposed terms of its engagement, and its independence.
c) Ensure that the auditors understand that they are
ultimately accountable to the Board of Directors and the
Committee, as representatives of the stockholders.
d) Annually receive a written statement from the auditors
delineating all relationships between the auditor and the
Company.
e) Review the appointment, replacement, reassignment or
dismissal of the Company's General Auditor.
f) Review and approve the internal audit department charter.
g) Serve as a channel of communication between the independent
auditor and the Board and between the Company's General
Auditor and the Board to maintain the best allocation of
available resources.
h) Review the results of each independent audit, including
any qualifications in the independent auditor's opinion,
any related management letter, management's response to
recommendations made by the independent auditor in
connection with the audit, reports submitted to the
Committee by the internal and independent auditors that are
material to the Company as a whole, and management's
response to those reports.
i) Review the Company's annual financial statements and any
significant disputes between management and the independent
auditor that arose in connection with the preparation of
those financial statements. (The Committee does not review
interim financial reports before they are published,
because our independent auditors review such reports and
issue written reports on their reviews, and because of the
tight preparation and distribution schedule of such
reports.)
j) Discuss with the independent auditor the quality (not just
the acceptability) of the Company's application of
Generally Accepted Accounting Principles (GAAP), including
a discussion of such issues as the clarity of the financial
disclosures and the degree of aggressiveness or
conservatism of the Company's application of GAAP.
k) Review management and General Auditor reports on the
adequacy of the Company's internal controls established by
management to provide, among other things, reasonable
assurance that the Company's publicly reported financial
statements are presented fairly in conformity with GAAP.
l) Consider major changes and other major questions of choice
proposed by management regarding the appropriate auditing
practices to be followed by the Company's internal audit
staff and accounting principles and practices to be
followed when preparing the Company's financial statements.
m) Review the procedures employed by the Company in preparing
published financial statements and related management
commentaries.
n) Meet periodically with management to review the Company's
major financial risk exposure, and the measures taken to
reduce such risk.
o) Annually review the Company policy on a Corporate Code of
Conduct and compliance therewith.
p) Annually review this Audit Committee Charter and make any
necessary changes.
q) Annually review travel and entertainment expenses of
officers and directors. Include in this review a discussion
of perquisites.
r) Annually perform an evaluation of the Committee, its
members, functions and performance.
9. EXECUTIVE SESSION
-----------------
At all meetings of the Committee, sufficient opportunity
shall be made available for the internal and independent
auditors to meet with the Committee members in executive
session without management present.
10. RESPONSIBILITIES OF THE CHAIRMAN
--------------------------------
The Chairman of the Committee will present the Committee's
recommendations to the Board for its approval and
periodically provide the Board, for its information, with a
summary of the Committee's determinations and approvals.
11. RESPONSIBILITIES OF THE CHIEF EXECUTIVE OFFICER
-----------------------------------------------
The Chief Executive Officer of the Company will advise and
make recommendations to the Committee and, in the normal
course, attend all meetings of the Committee.
12. OTHER AUTHORITY
---------------
The Committee may call upon any person including employees of
the Company or its subsidiaries, knowledgeable in matters
discussed by the Committee, for information and counsel,
provided, however, the Committee shall not retain independent
counsel or advisors without the consent of the Board.
APPENDIX B
UNISOURCE ENERGY CORPORATION
Amended and Restated 1994 Outside Director Stock Option Plan
TABLE OF CONTENTS
-----------------
Page
Section 1 - Establishment, Purpose and Effective Date of Plan.....1
1.1 Establishment.........................................1
1.2 Purpose...............................................1
1.3 Effective Date........................................1
1.4 Stock Subject to Plan.................................1
1.5 Reissue of Awards and Shares..........................1
1.6 Fractional Shares.....................................1
Section 2 - Definitions...........................................2
2.1 Definitions...........................................2
Section 3 - Eligibility...........................................3
3.1 Eligibility...........................................3
Section 4 - Administration........................................3
4.1 Administration........................................3
4.2 Decisions in Good Faith; Reliance on Experts;
Delegation..........................................4
Section 5 - Duration of Plan......................................4
5.1 Duration of Plan......................................4
Section 6 - Stock Options.........................................4
6.1 One-Time Grant........................................4
6.2 New Director Grants...................................4
6.3 Annual Awards.........................................5
6.4 Black Scholes Value...................................5
6.5 Exercise Price........................................5
6.6 Vesting...............................................5
6.7 Expiration............................................5
6.8 Payment; Exercise.....................................5
6.9 Agreement.............................................6
6.10 Non-Transferability of Options........................6
6.11 Beneficiary Designation...............................6
6.12 Dividend Equivalents..................................7
Section 7 - Restricted Stock Grants...............................7
7.1 Initial Grant.........................................7
7.2 Annual Awards.........................................7
7.3 Restricted Stock Awards...............................7
7.4 Vesting...............................................7
7.5 Transfer Restrictions.................................7
7.6 Voting; Dividends.....................................7
Section 8 - Termination of Service................................8
8.1 Stock Options.........................................8
8.2 Restricted Stock Awards...............................8
8.3 Continuance of Service................................8
Section 9 - Adjustment in Capitalization..........................9
9.1 Adjustment in Capitalization..........................9
Section 10 -Change in Control.....................................9
10.1 In General............................................9
10.2 Possible Early Termination of Options................10
10.3 Definition...........................................10
Section 11 -Amendment, Modification, and Termination of Plan.....11
11.1 Amendment, Modification, and Termination of Plan.....11
Section 12 -Requirements of Law; Miscellaneous...................11
12.1 Requirements of Law..................................11
12.2 Plan Not Funded......................................11
12.3 Governing Law........................................11
12.4 No Stockholder Rights................................12
12.5 Construction.........................................12
12.6 Non-Exclusivity of Plan..............................12
12.7 Captions.............................................12
12.8 No Corporate Action Restriction......................12
UNISOURCE ENERGY CORPORATION
Amended and Restated 1994 Outside Director Stock Option Plan
Section 1
Establishment, Purpose and Effective Date of Plan
1.1 ESTABLISHMENT. The Company maintains the UniSource
Energy Corporation 1994 Outside Director Stock Option Plan. The
Company hereby amends and restates such plan in its entirety as
the UniSource Energy Corporation Amended and Restated 1994
Outside Director Stock Option Plan to provide certain stock-based
incentives to non-employee members of the Board.
1.2 PURPOSE. The purpose of this Plan is to enable the
Company to attract and retain highly qualified non-employee
members of the Board by providing to them a significant equity
interest in the Company, to more closely link the interests
of those directors with those of the Company's stockholders, and
to help provide those directors with reasonable and fair
compensation.
1.3 EFFECTIVE DATE. The Plan was originally approved by
the Board of Directors of Tucson Electric Power Company effective
on February 3, 1994 and was approved by the stockholders of
Tucson Electric Power Company on May 20, 1994. Sponsorship of
the Plan was assumed by the Company as of January 1, 1998. This
amendment and restatement of the Plan is effective immediately
upon its approval by the Board (the date of such Board approval
is referred to as the "Board Approval Date"), subject to the
approval of the Company's stockholders no later than twelve
months after the Board Approval Date (the date of such
stockholder approval is referred to as the "Stockholder Approval
Date"). Awards granted under this Plan prior to the Board
Approval Date shall be governed by the provisions of the
applicable prior version of this Plan. Awards granted under this
Plan on or after the Board Approval Date shall be subject to the
terms and conditions set forth herein and any applicable
amendment hereof.
1.4 STOCK SUBJECT TO PLAN. Subject to the provisions of
Section 9, the capital stock that may be delivered under this
Plan will be shares of the Company's Common Stock. Subject to
adjustment as provided in or pursuant to this Section 1 or
Section 9, the maximum number of shares of Common Stock that may
be delivered pursuant to all awards granted under this Plan on or
after the Board Approval Date shall be 200,000 shares. Shares
subject to awards granted under this Plan prior to the Board
Approval Date shall not count against such limit. The shares of
Common Stock to be delivered under this Plan may consist, in
whole or in part, of authorized but unissued shares or treasury
shares, not reserved for any other purpose.
1.5 REISSUE OF AWARDS AND SHARES. Shares of Common Stock
that are subject to Options granted under this Plan on or after
the Board Approval Date that expire or otherwise terminate
without being exercised, and any restricted shares of Common
Stock that are granted as Restricted Stock Awards under this Plan
that are forfeited, cancelled, or for any other reason do not
vest, as well as any shares reacquired pursuant to the terms of
an award, shall be available for subsequent awards under this
Plan. Any shares of Common Stock issued or delivered to settle
dividend equivalents granted pursuant to Section 6.12 shall count
against the share limit of Section 1.4. Dividend equivalents
settled in cash shall not count against such limit.
1.6 FRACTIONAL SHARES. Fractional share interests shall
be disregarded, but may be accumulated. The Board, however, may
determine that cash, other securities, or other property will be
paid or transferred in lieu of any fractional share interests.
Section 2
Definitions
2.1 DEFINITIONS. Whenever used herein, capitalized terms
shall have the respective meaning set forth below or elsewhere in
this Plan:
(a) "Award" means an Option and/or Restricted Stock
Award, as the context may require, granted under
this Plan.
(b) "Black Scholes Value" has the meaning given to
such term in Section 6.4.
(c) "Board" means the Board of Directors of the
Company.
(d) "Board Approval Date" shall have the meaning
given to such term in Section 1.3.
(e) "Cause" means that the Participant has ceased to
be a member of the Board due to either: (1) a
removal by the Company's stockholders for cause
pursuant to Arizona Revised Statutes Section
10-808 (or a successor provision thereto), or
(2)a removal pursuant to Arizona Revised Statutes
Section 10-809(or a successor provision thereto).
(f) "Common Stock" means the Common Stock, no par
value, of the Company and such other securities
or property as may become the subject of Awards,
or become subject to Awards, pursuant to an
adjustment made pursuant to Section 9.
(g) "Company" or "UniSource" means UniSource Energy
Corporation, an Arizona corporation, and any
successor corporation.
(h) "Eligible Director" means a member of the Board
who is not either (1) an employee of the Company
or a Subsidiary, or (2) an emeritus member of the
Board.
(i) "Exchange Act" means the Securities Exchange Act
of 1934, as amended.
(j) "Excluded Person" means (1) any person described
in and satisfying the conditions of Rule 13d-1
(b)(1) under the Exchange Act, (2) the Company and
any Subsidiary, and (3) an employee benefit plan
(or related trust) sponsored or maintained
by the Company, a Subsidiary, or any Successor
Entity.
(k) "Fair Market Value" means the average of the
highest and lowest sales prices of a share of
Common 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 Common 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
Common Stock transactions.
(l) "Option" means an option to acquire a number of
shares of Common Stock granted under this Plan.
(m) "Participant" means an Eligible Director or
former Eligible Director, as the case may be, who
has been granted and holds an Award granted under
this Plan (or a permitted transferee of such a
director, as the context may require).
(n) "Plan" means the UniSource Energy Corporation
Amended and Restated 1994 Outside Director Stock
Option Plan (formerly the 1994 Outside Director
Stock Option Plan), as set forth herein and as it
may be amended from time to time.
(o) "Restricted Stock Award" means an award of shares
of Common Stock under this Plan, which shares are
subject to vesting as set forth in Section 7 and
other restrictions as set forth herein.
(p) "Retirement" means a Board member's termination
as a director upon or after attaining age 62
(other than an involuntary termination for Cause).
(q) "Stockholder Approval Date" shall have the meaning
given to such term in Section 1.3.
(r) "Subsidiary" means any corporation or other entity
a majority of whose outstanding voting stock or
voting power is beneficially owned directly or
indirectly by the Company.
(s) "Total Disability" means a Board member's
termination as a director (other than an
involuntary termination for Cause) due to his or
her "permanent and total disability" within the
meaning of Section 22(e)(3) of the Internal
Revenue Code of 1986, as amended.
Section 3
Eligibility
3.1 ELIGIBILITY. All Eligible Directors are eligible to
participate in this Plan.
Section 4
Administration
4.1 ADMINISTRATION. This Plan shall be administered by the
Board. Subject to the express provisions of this Plan and
notwithstanding the intent that Award grants under this Plan be
self-effectuating to the maximum extent possible, the Board is
authorized and empowered to do all things necessary or desirable
in connection with the authorization of awards and the
administration of this Plan, including, without limitation, the
authority to:
(a) adopt, amend and rescind rules, regulations and
procedures relating to this Plan and its
administration or the Awards granted under this
Plan;
(b) determine whether, and the extent to which,
adjustments are required pursuant to Section 9
hereof; and
(c) interpret and construe this Plan and the terms and
conditions of any Award granted hereunder.
Subject to the express provisions of this Plan and without
limiting other authority of the Board under this Plan, the Board
also may:
(a) accelerate the receipt and/or vesting of benefits
pursuant an Award granted under this Plan upon or
in connection with (whether before, at the time of
or after) the occurrence of a specified event or
events, including, without limitation, any
termination of service; and
(b) adjust the exercisability, term (subject to a
maximum 10-year term of Awards granted under this
Plan) or vesting schedule of any or all outstanding
Awards, adjust the assumptions used in determining
the Black Scholes Value under Section 6.4 or
provide for a different valuation formula for such
purposes, adjust the number of Common Shares
subject to any Award, adjust the price of any or
all outstanding Awards (subject to the repricing
limitation set forth below) or otherwise change
previously imposed terms and conditions, in the
circumstances referenced in clause (a) above or in
other circumstances or upon the occurrence of other
events as deemed appropriate by the Board, by
amendment of an outstanding Award, by substitution
of an outstanding Award, by waiver or by other
legally valid means (which may result, among other
changes, in a greater or lesser number of shares
subject to the Award, a shorter or longer vesting
or exercise period, or, except as provided below,
an exercise or purchase price that is higher or
lower than the original or prior Award), in each
case subject to Sections 1 and 11; and
(c) authorize the conversion, succession or
substitution of one or more outstanding Awards upon
the occurrence of an event of the type described
in Section 9 or in other circumstances or upon the
occurrence of other events as deemed appropriate
by the Board.
Notwithstanding the foregoing or anything in Section 11 to the
contrary, any Board action (either by amending an Option, by
canceling and regranting an Option or otherwise) to reduce the
per share exercise price of an Option (except for adjustments to
reflect stock splits and similar recapitalization events as
contemplated by Section 9) granted under this Plan shall be
subject to stockholder approval if such an action would
constitute a repricing of the Option to a price that is less than
the Fair Market Value of the underlying shares on the grant date
of the original Option.
4.2 DECISIONS IN GOOD FAITH; RELIANCE ON EXPERTS;
DELEGATION. In making any determination or in taking or not
taking any action under this Plan, the Board may obtain and may
rely upon the advice of experts, including employees of and
professional advisors to the Company. No director, officer or
agent of the Company shall be liable for any such action or
determination taken or made or omitted under this Plan in good
faith. Any action taken by, or inaction of, the Board relating
to or pursuant to this Plan shall be within the absolute
discretion of that body and shall be conclusive and binding on
all persons. The Board may delegate ministerial, non-
discretionary functions to individuals who are officers or
employees of the Company.
Section 5
Duration of Plan
5.1 DURATION OF PLAN. No new Award shall be granted under
this Plan after the tenth anniversary of the Board Approval Date.
After that date, this Plan shall, however, continue in effect as
to then outstanding Awards.
Section 6
Stock Options
6.1 ONE-TIME GRANT. Each Eligible Director in office on the
Stockholder Approval Date shall be granted an Option as of that
date to purchase a number of shares of Common Stock equal to the
positive difference (if any) between: (1) $10,000 divided by the
Black Scholes Value as of the Stockholder Approval Date, less (2)
2,000.
6.2 NEW DIRECTOR GRANTS. Each individual who first becomes
an Eligible Director after the Stockholder Approval Date shall be
granted an Option as of that date to purchase a number of shares
of Common Stock equal to $5,000 divided by the Black Scholes
Value as of the date the individual first becomes an Eligible
Director.
6.3 ANNUAL AWARDS. On the first business day of each
calendar year during the term of this Plan after the Stockholder
Approval Date, each person who is an Eligible Director on that
date and who has served as a member of the Board for at least
three months as of that date shall be granted an Option as of
that date to purchase a number of shares of Common Stock equal to
$10,000 divided by the Black Scholes Value as of that date.
6.4 BLACK SCHOLES VALUE. As noted above, the number of
shares to be granted subject to any particular Option is
determined with reference to the Black Scholes Value as of the
particular date of grant of the Option. For this purpose,
"Black Scholes Value" means the value of an option to purchase
one share of Common Stock calculated as of the applicable date
of grant under the Black Scholes option value model. Unless
otherwise provided by the Board prior to the applicable date
of grant, the Black Scholes option valuation for Options
to be granted on a particular date shall be based on the
following assumptions:
- the then current price of a share of Common Stock is
equal to the Fair Market Value of a share of Common
Stock as of the date of grant of the Option;
- the per share exercise price of the Option is equal
to the Fair Market Value of a share of Common Stock
as of the date of grant of the Option;
- the time until expiration of the Option is 5 years;
- the risk-free interest rate is the asked yield rate,
as of the day preceding the date of grant of the
Option and as reported in the Wall Street Journal,
for the U.S. Treasury Note or Bond having a maturity
date that is closest to the date that is five years
after the date of grant of the Option;
- the volatility of the price of the Common Stock is
calculated based on the closing price of a share of
Common Stock on the last trading day of each month
for each of the 60 months preceding the month in
which the date of grant of the Option occurs; and
- the dividend yield on the Common Stock equals the
rate determined by dividing the most recent annual
dividend declared on the Common Stock as of the date
of grant of the Option by the Fair Market Value of a
share of Common Stock as of the date of grant of the
Option.
6.5 EXERCISE PRICE. Each Option granted hereunder shall
have a per share exercise price equal to the Fair Market Value of
a share of Common Stock as of the day such Option is granted.
6.6 VESTING. Each Option granted hereunder shall be
exercisable only to the extent that it is vested. Each Option
granted hereunder shall vest as to 1/3 of the total number of
shares of Common Stock subject thereto (rounded up to the nearest
whole share) on each of the first and second anniversaries of the
date of grant of the Option and the balance of the remaining
portion of the Option shall vest on the third anniversary of the
date of grant of the Option; provided, in each case, that the
Eligible Director who received the Option has remained a member
of the Board through the respective vesting date.
6.7 EXPIRATION. Except as otherwise provided in Sections 8
and 10, Options granted hereunder shall expire at the close of
business on the day before the tenth anniversary of the date of
grant of the Option.
6.8 PAYMENT; EXERCISE. The purchase price of any shares
purchased on exercise of an Option granted under this Plan shall
be paid in full at the time of each purchase in one or a
combination of the following methods: (a) in cash or by
electronic funds transfer; (b) by check payable to the order of
the Company; (c) by notice and third party payment in such manner
as may be authorized by the Board; (d) subject to compliance
with all applicable law, by the delivery of shares of Common
Stock already owned by the Participant, provided that any
shares delivered which were initially acquired upon exercise of
a stock option must have been owned by the Participant
at least six months as of the date of delivery;
or (e) subject to the approval of the Board, pursuant to
"cashless exercise" procedures with third parties who provide
financing for the purpose of (or who otherwise facilitate) the
exercise of Options. Shares of Common Stock used to satisfy
the exercise price of an Option shall be valued at their Fair
Market Value on the date of exercise of the Option. The proceeds
from payment of Option exercise prices shall be added to the
general funds of the Company and shall be used for general
corporate purposes. No fewer than 100 shares may be purchased on
exercise of any Option at one time unless the number purchased
is the total number at the time available for purchase under the
Option.
6.9 AGREEMENT. Options awarded under this Plan will be
evidenced by an agreement in writing, signed by a duly authorized
officer of the Company and, if required by the Board, by the
Option recipient. Each Option granted under this Plan shall be a
nonqualified stock option and shall not be an "incentive stock
option" within the meaning of Section 422 of the Internal Revenue
Code of 1986, as amended.
6.10 NON-TRANSFERABILITY OF OPTIONS. Each Award granted
under this Plan is non-transferable and shall not be subject in
any manner to sale, transfer, anticipation, alienation, assignment,
pledge, encumbrance or charge. Each Award shall be exercised
only by the Eligible Director who received the grant. Amounts
payable or shares issuable pursuant to any Award shall be
delivered only to (or for the account of) the Eligible Director
who received the grant.
The Board may permit Options to be exercised by and paid to
certain persons or entities related to the Eligible Director
pursuant to such conditions and procedures, including limitations
on subsequent transfers, as the Board may establish. Any
permitted transfer shall be subject to the condition that the
Board receive evidence satisfactory to it that the transfer (a)
is being made for essentially estate and/or tax planning purposes
on a gratuitous or donative basis and without consideration
(other than nominal consideration or in exchange for an interest
in a qualified transferee), and (b) will not compromise the
Company's ability to register shares issuable under this Plan on
SEC Form S-8 under the Securities Act of 1933, as amended, or to
rely on such registration in connection with an Option exercise.
The exercise and transfer restrictions in the first paragraph of
this Section 6.10 will not, however, apply to:
(a) transfers to the Company;
(b) the designation of a beneficiary to receive
benefits in the event of the Eligible Director's
death or, if the Eligible Director has died,
transfers to or exercises by the Eligible
Director's beneficiary, or, in the absence of a
validly designated beneficiary, transfers by will
or the laws of descent and distribution;
(c) transfers to a family member (or former family
member) pursuant to a domestic relations order if
received by the Board prior to the exercise of the
Option or other payment of the Award;
(d) if the Eligible Director has suffered a disability,
permitted transfers or exercises on behalf of the
Eligible Director by his or her legal
representative; or
(e) the authorization by the Board of "cashless
exercise" procedures with third parties who provide
financing for the purpose of (or who otherwise
facilitate) the exercise of Options consistent with
applicable laws and the express authorization of
the Board.
6.11 BENEFICIARY DESIGNATION. Any beneficiary designation
made by an Eligible Director will revoke all prior designations
by the same director, shall be in a form prescribed by the Board,
and will be effective only when filed by the director in writing
with the Company during his or her lifetime.
6.12 DIVIDEND EQUIVALENTS. The Board may, in its sole
discretion, grant dividend equivalents in connection with any
Option awarded under this Plan. Any dividend equivalents granted
by the Board shall be either expressly provided for in the
related written stock option agreement or evidenced by a separate
written award agreement executed by an authorized officer of the
Company. The Board may provide that dividend equivalents will be
settled in cash or the delivery of shares of Common Stock.
Section 7
Restricted Stock Grants
7.1 INITIAL GRANT. Each Eligible Director in office on the
Stockholder Approval Date shall be granted a Restricted Stock
Award for a number of restricted shares of Common Stock equal to
$10,000 divided by the Fair Market Value of a share of Common
Stock as of the Stockholder Approval Date.
7.2 ANNUAL AWARDS. On the first business day of each
calendar year during the term of this Plan after the Stockholder
Approval Date, each person who is an Eligible Director on that
date shall be granted a Restricted Stock Award for a number of
restricted shares of Common Stock equal to $10,000 divided by the
Fair Market Value of a share of Common Stock as of that date.
7.3 RESTRICTED STOCK AWARDS. Stock certificates evidencing
shares of restricted stock subject to a Restricted Stock Award
pending the lapse of the restrictions shall bear a legend making
appropriate reference to the restrictions imposed hereunder and,
if so provided by the Board, shall be held by the Company or by a
third party designated by the Board until the restrictions on
such shares shall have lapsed and the shares shall have vested in
accordance with the provisions hereof. Restricted Stock Awards
granted under this Plan will be evidenced by an agreement in
writing, signed by a duly authorized officer of the Company and,
if required by the Board, by the Restricted Stock Award
recipient.
7.4 VESTING. Each Restricted Stock Award granted under this
Section 7 shall become vested as to 100% of the total number of
shares of Common Stock subject thereto on the third anniversary
of the date of grant of the award; provided that the Eligible
Director who received the award has remained a member of the
Board through such vesting date. Promptly after the vesting date
and satisfaction of all applicable restrictions, a certificate or
certificates evidencing the number of the shares of Common Stock
as to which the restrictions have lapsed shall be delivered to
the Participant holding the award (to the extent such certificate
had not previously been so delivered). Certificates evidencing
vested shares and any other amounts deliverable in respect
thereof shall be delivered and paid only to the Participant
holding the award or his or her personal representative, as the
case may be.
7.5 TRANSFER RESTRICTIONS. Prior to the time that they have
become vested, neither the restricted shares comprising any
Restricted Stock Award, nor any interest therein, amount payable
in respect thereof, or Restricted Property (as defined in Section
7.6), may be sold, assigned, transferred, pledged or otherwise
disposed of, alienated or encumbered, either voluntarily or
involuntarily. The transfer restrictions in the preceding
sentence shall not apply to (a) transfers to the Company, and (b)
the designation of a beneficiary to receive benefits in the event
of the director's death or, if the director has died, transfers
to the director's beneficiary, or, in the absence of a validly
designated beneficiary, transfers by will or the laws of descent
and distribution.
7.6 VOTING; DIVIDENDS. After the applicable date of grant
of a Restricted Stock Award, the Participant holding the
Restricted Stock Award shall have voting rights and dividend
rights with respect to the shares of Common Stock subject to the
award. Any securities or other property receivable in respect of
the shares subject to the award as a result of any dividend or
other distribution (other than cash dividends), conversion or
exchange of or with respect to the shares ("Restricted Property")
will be subject to the restrictions set forth in this Agreement
to the same extent as the shares to which such securities or
other property relate and shall be held and accumulated for the
benefit of the Participant, but subject to such risks. The
Participant's voting and dividend rights shall terminate
immediately as to any shares that are forfeited back to the
Company in accordance with Section 8.2.
Section 8
Termination of Service
8.1 STOCK OPTIONS. If a director ceases to be a member of
the Board for any reason, then the director's (and his or her
permitted transferee's, as the case may be) rights under any then
outstanding Option shall be as follows:
(a) if the director ceases to be a Board member due to
the director's death or Total Disability: (1) the
Option shall continue to vest for the 12-month
period following the date the director ceased to be
a member of the Board (the director's "Termination
Date"); and (2) the Option, to the extent then
vested, may be exercised at any time within the 12-
month period following the director's Termination
Date;
(b) if the director ceases to be a Board member due to
the director's Retirement, or due to the director's
death or Total Disability upon or after attaining
age 62: (1) the Option shall vest on its scheduled
vesting dates irrespective of the director's
Retirement, death or Total Disability, as the case
may be; and (2) the Option, to the extent then
vested, may be exercised at any time within the
term of the Option;
(c) if the director ceases to be a Board member for any
reason other than due to the director's death,
Total Disability, Retirement, or involuntary
termination for Cause: (1) the Option shall
continue to vest for the 3-month period following
the director's Termination Date; and (2) the
Option, to the extent then vested, may be exercised
at any time within the 3-month period following
the director's Termination Date;
(d) if the director's service as a member of the Board
is terminated for Cause, the Option shall terminate
(whether or not vested) on the director's
Termination Date.
In any case where a director's Option continues to be exercisable
following the director's Termination Date, the Option, to the
extent exercisable following the director's Termination Date and
not exercised on or before the applicable date determined under
clause (a), (b) or (c) above, shall terminate on that applicable
date. In any case where an director's Option continues to vest
following the director's Termination Date in accordance with
clause (a), (b) or (c) above, the Option, to the extent not
vested as of the director's Termination Date and not scheduled to
vest following the director's Termination Date in accordance with
clause (a), (b) or (c) above, shall terminate on the director's
Termination Date. In each case, the Option shall be subject to
earlier termination in accordance with Section 6.7 or Section 10
notwithstanding anything else to the contrary in this Section
8.1.
8.2 RESTRICTED STOCK AWARDS. If a director ceases to be a
member of the Board for any reason, then the director's rights
under any then outstanding Restricted Stock Award shall be as
follows:
(a) if the director ceases to be a Board member due to
the director's death, Total Disability or
Retirement, the director's Restricted Stock Award
shall vest as of the director's Termination Date;
(b) if the director ceases to be a Board member for any
reason other than due to the director's death,
Total Disability, or Retirement, any shares subject
to the director's Restricted Stock Award that are
not fully vested and free from restriction as of
the director's Termination Date shall thereupon be
forfeited and returned to the Company.
8.3 CONTINUANCE OF SERVICE. The vesting schedule applicable
to an Award requires continued service through each applicable
vesting date as a condition to the vesting of the applicable
installment of the Award and the rights and benefits under
this Plan. Service for only a portion of a vesting
period, even if substantial, will not entitle the award
recipient to any proportionate vesting or avoid or mitigate
a termination of rights and benefits upon or following a
termination of services as provided in Section 8.1 or 8.2,
as applicable. Nothing contained in this Plan constitutes an
employment or service commitment by the Company or any affiliate,
confers upon any Award recipient any right to remain employed by
or in service to the Company or any affiliate, interferes in any
way with the right of the Company or any affiliate at any time
to terminate such employment or service, or affects the right of
the Company or any affiliate to increase or decrease the
recipient's other compensation.
Section 9
Adjustment in Capitalization
9.1 ADJUSTMENT IN CAPITALIZATION. Upon or in contemplation
of any reclassification, recapitalization, stock split (including
a stock split in the form of a stock dividend) or reverse stock
split ("stock split"); any merger, combination, consolidation, or
other reorganization; any spin-off, split-up, or similar
extraordinary dividend distribution ("spin-off") in respect of
the Common Stock (whether in the form of securities or property);
any exchange of Common Stock or other securities of the Company,
or any similar, unusual or extraordinary corporate transaction in
respect of the Common Stock; or a sale of all or substantially
all the assets of the Company as an entirety ("asset sale"); then
the Board shall, in such manner, to such extent (if any) and at
such time as it deems appropriate and equitable in the
circumstances:
(a) proportionately adjust any or all of (1) the number
and type of shares of Common Stock (or other
securities) that thereafter may be made the subject
of Awards (including the specific share limits and
numbers of shares set forth elsewhere in this
Plan), (2) the number, amount and type of shares of
Common Stock (or other securities or property)
subject to any or all outstanding Awards, (3) the
grant, purchase, or exercise price of any or all
outstanding Awards, or (4) the securities, cash or
other property deliverable upon exercise of any
outstanding Awards; or
(b) make provision for a cash payment or for the
assumption, substitution or exchange of any or all
outstanding Awards or the cash, securities or
property deliverable to the holder of any or all
outstanding Awards, based upon the distribution
or consideration payable to holders of the Common
Stock upon or in respect of such event.
The Board may adopt such valuation methodologies for outstanding
Awards as it deems reasonable in the event of a cash or property
settlement and, in the case of Options, but without limitation on
other methodologies, may base such settlement solely upon the
excess if any of the per share amount payable upon or in respect
of such event over the exercise price of the Option.
In any of such events, the Board may take such action prior to
such event to the extent that the Board deems the action
necessary to permit the Award holder to realize the benefits
intended to be conveyed with respect to the underlying shares in
the same manner as is or will be available to stockholders
generally. In the case of any stock split or reverse stock
split, if no action is taken by the Board, the proportionate
adjustments contemplated by clause (a) above shall nevertheless
be made.
Section 10
Change in Control
10.1 IN GENERAL. In the event of a Change in Control (as
defined in Section 10.3), all Options then outstanding under this
Plan shall vest 100% and shall be immediately exercisable by the
holder, and all shares subject to Restricted Stock Awards then
outstanding under this Plan shall vest 100% free of restrictions.
Any acceleration of Awards shall comply with applicable legal
requirements and, if necessary to accomplish the purposes of the
acceleration or if the circumstances require, may be deemed by the
Board to occur a limited period of time not greater than 30
days before the event. Without limiting the generality of the
foregoing, the Board may deem an acceleration to occur
immediately prior to the applicable event and/or reinstate the
original terms of an Award if an event giving rise to an
acceleration does not occur.
10.2 POSSIBLE EARLY TERMINATION OF OPTIONS. Without
limiting the authority of the Board under Section 9, if any
Option under this Plan is fully vested (after giving effect to,
without limitation, any accelerated vesting pursuant to Section
10.1), but is not exercised prior to (1) a dissolution of the
Company, or (2) an event described in Section 9 that the Company
does not survive (or does not survive as a public company in
respect of its Common Stock), such Option shall terminate,
subject to any provision that has been expressly made by the
Board, through a plan of reorganization or otherwise, for the
survival, substitution, assumption, exchange or other
continuation or settlement of such Option; provided that the
Option holder shall be given reasonable advance notice of the
impending termination and a reasonable opportunity to exercise
the Option in accordance with its terms before the termination
(except that in no case shall more than ten day's notice be
required).
10.3 DEFINITION. For purposes of this Plan, a "Change in
Control" shall mean any of the following events:
(a) The dissolution or liquidation of the Company,
other than in the context of a transaction that
does not constitute a Change in Control under
clause (b) below.
(b) Consummation of a merger, consolidation, or other
reorganization, with or into, or the sale of all or
substantially all of the Company's business and/or
assets as an entirety to, one or more entities that
are not Subsidiaries (as defined below) (a
"Business Combination"), unless (1) as a result of
the Business Combination more than 50% of the
outstanding securities voting generally in the
election of directors of the surviving or resulting
entity or a parent thereof (the "Successor Entity")
immediately after the reorganization are, or will
be, owned, directly or indirectly, by stockholders
of the Company immediately before the Business
Combination; (2) no person (as defined in clause
(c) below, but excluding the Successor Entity or an
Excluded Person) beneficially owns, directly or
indirectly, more than 30% of the outstanding shares
of the combined voting power of the outstanding
voting securities of the Successor Entity, after
giving effect to the Business Combination; and (3)
more than 50% of the members of the board of
directors of the Successor Entity were members of
the Board at the time of the execution of the
initial agreement or of the action of the Board
approving the Business Combination.
(c) Any "person" (as such term is used in Sections
13(d) and 14(d) of the Exchange Act) other than an
Excluded Person becomes the beneficial owner (as
defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the
Company representing more than 30% of the combined
voting power of the Company's then outstanding
securities entitled to then vote generally in the
election of directors of the Company, other than as
a result of (1) an acquisition directly from the
Company or a Subsidiary, (2) an acquisition by the
Company or a Subsidiary, (3) an acquisition by any
employee benefit plan (or related trust) sponsored
or maintained by the Company, a Subsidiary, or a
Successor Entity, or (4) or an acquisition by any
entity pursuant to a transaction which is expressly
excluded under clause (b) above.
(d) During any period not longer than two consecutive
years, individuals who at the beginning of
such period constituted the Board cease to
constitute at least a majority thereof, unless
the election, or the nomination for election
by the Company's stockholders, of each new Board
member was approved by a vote of at
least two-thirds of the Board members then still
in office who were Board members at the beginning
of such period (including for these purposes, new
members whose election or nomination was so
approved), but excluding, for this purpose, any
such individual whose initial assumption of office
occurs as a result of an actual or threatened
election contest with respect to the election or
removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf
of a person other than the Board.
Section 11
Amendment, Modification, and Termination of Plan
11.1 AMENDMENT, MODIFICATION, AND TERMINATION OF PLAN. The
Board at any time may terminate, and from time to time amend or
modify this Plan and/or any outstanding Award. Without limiting
the generality of the foregoing, the Board may at any time
prospectively amend the Award grant levels set forth in Sections
6 and 7 and prospectively change the other terms of Award grants
hereunder. Any amendment or termination of this Plan or change
in or affecting any outstanding Award that materially and
adversely affects the rights of an Award holder under and with
respect to that Award shall be subject to the consent of the
holder. Adjustments contemplated by Section 9 shall not be
deemed to constitute a change requiring such consent.
Stockholder approval for any amendment shall not be required
unless (a) required by applicable law or deemed necessary or
advisable by the Board, or (b) such approval is required
pursuant to Section 4.1 for the repricing of an Option.
Section 12
Requirements of Law; Miscellaneous
12.1 REQUIREMENTS OF LAW. This Plan, the granting and
vesting of Awards under this Plan, the offer, issuance and
delivery of shares of Common Stock, and the payment of money
under this Plan or under Awards are subject to compliance with
all applicable federal and state laws, rules and regulations
(including but not limited to state and federal securities law)
and to such approvals by any listing, regulatory or governmental
authority as may, in the opinion of counsel for the Company, be
necessary or advisable in connection therewith. The person
acquiring any securities under this Plan will, if requested by
the Company and as a condition to any exercise and/or payment of
an Award, provide such assurances and representations to the
Company as the Board may deem necessary or desirable to assure
compliance with all applicable legal requirements.
12.2 PLAN NOT FUNDED. Awards payable under this Plan shall
be payable in shares or from the general assets of the Company,
and (other than a reservation of shares corresponding to the
number of shares that may be issued under this Plan) no special
or separate reserve, fund or deposit shall be made to assure
payment of such Awards. No participant, beneficiary or other
person shall have any right, title or interest in any fund or in
any specific asset (including shares of Common Stock, except as
expressly otherwise provided) of the Company by reason of any
Award hereunder. Neither the provisions of this Plan (or of any
related documents), nor the creation or adoption of this Plan,
nor any action taken pursuant to the provisions of this Plan
shall create, or be construed to create, a trust of any kind or a
fiduciary relationship between the Company and any Participant or
other person. To the extent that a Participant or other person
acquires a right to receive payment pursuant to any Award
hereunder, such right shall be no greater than the right of any
unsecured general creditor of the Company.
12.3 GOVERNING LAW. This Plan, and all agreements
hereunder, shall be construed in accordance with and governed by
the laws of the State of Arizona.
12.4 NO STOCKHOLDER RIGHTS. Except as otherwise expressly
authorized by the Board or this Plan: (a) a Participant shall not
be entitled to any privilege of stock ownership as to any shares
of Common Stock not actually delivered to and held of record by
the Participant, and (b) no adjustment will be made for dividends
or other rights as a stockholder for which a record date is prior
to such date of delivery.
12.5 CONSTRUCTION. It is the intent of the Company that the
Awards and transactions permitted by Awards be interpreted in a
manner that satisfies the applicable requirements for exemptions
under SEC Rule 16b-3 promulgated under the Exchange Act.
Notwithstanding the foregoing, the Company shall have no
liability to any person for Exchange Act Section 16 consequences
of Awards or events under Awards.
12.6 NON-EXCLUSIVITY OF PLAN. Nothing in this Plan shall
limit or be deemed to limit the authority of the Board to grant
awards or authorize any other compensation, with or without
reference to the Common Stock, under any other plan or authority.
12.7 CAPTIONS. Captions and headings are given to the
sections and subsections of this Plan solely as a convenience to
facilitate reference. Such headings shall not be deemed in any
way material or relevant to the construction or interpretation of
this Plan or any provision thereof.
12.8 NO CORPORATE ACTION RESTRICTION. The existence of this
Plan and the Awards granted hereunder shall not limit, affect or
restrict in any way the right or power of the Board or the
stockholders of the Company to make or authorize: (a) any
adjustment, recapitalization, reorganization or other change in
the Company's capital structure or its business, (b) any merger,
amalgamation, consolidation or change in the ownership of the
Company, (c) any issue of bonds, debentures, capital, preferred
or prior preference stock ahead of or affecting the Company's
capital stock or the rights thereof, (d) any dissolution or
liquidation of the Company, (e) any sale or transfer of all or
any part of the Company's assets or business, or (f) any other
corporate act or proceeding by the Company. No Participant or
any other person shall have any claim under any Award or Award
agreement against any member of the Board, or the Company or any
employees, officers or agents of the Company, as a result of any
such action.
APPENDIX C
FORM OF PROXY CARD
UNISOURCE ENERGY
Two New Ways to Vote
VOTE BY TELEPHONE OR INTERNET
24 Hours a Day - 7 Days a Week
Save Your Company Money - It's Fast and Convenient
TELEPHONE
---------
1-866-358-4695
- 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
INTERNET
--------
https://www.proxyvotenow.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
MAIL
----
- Mark, sign and date your proxy card.
- Detach your proxy card.
- Return your proxy card in the postage-paid envelope provided.
You can vote your shares by telephone,
the Internet, mail or in person at
the Annual Shareholders' Meeting. Your
telephone or Internet 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
to mail your proxy card.
1-866-358-4695
CALL TOLL-FREE TO VOTE
-------------------------------
CONTROL NUMBER
FOR TELEPHONE OR INTERNET VOTING
--------------------------------
THE INTERNET AND TELEPHONE VOTING FACILITIES WILL BE AVAILABLE UNTIL 5:00 P.M.
E.S.T. ON THURSDAY, MAY 9, 2002.
DETACH PROXY CARD HERE IF YOU ARE NOT VOTING BY THE INTERNET OR TELEPHONE
-------------------------------------------------------------------------------
(FORM OF PROXY CARD - FRONT)
Please Sign, Date and Return [X]
the Proxy Promptly Using the Votes MUST be indicated (x)
Enclosed Envelope. in Black or Blue Ink.
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: 01-James S. Pignatelli, 02-Lawrence J. Aldrich, 03-Larry W. Bickle,
04-Elizabeth T.Bilby, 05-Harold W. Burlingame, 06-John L. Carter,
07-Daniel W. L. Fessler, 08-Kenneth Handy, 09-Warren Y. Jobe,
10-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. UniSource Energy Corporation FOR AGAINST ABSTAIN
Amended and Restated 1994 Outside [ ] [ ] [ ]
Director Stock Option Plan.
If you agree to access
our Annual Report and Proxy
Statement electronically in
the future, please mark this
box. [ ]
To change your address,
please mark this box. [ ]
To include any comments,
please mark this box. [ ]
-----------------------------------
SCAN LINE
-----------------------------------
PLEASE SIGN EXACTLY AS YOUR 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 2001
Annual Report.
Date Share Owner sign here
----------------------------------------
----------------------------------------
Date Co-Owner sign here
----------------------------------------
----------------------------------------
-------------------------------------------------------------------------------
[A street map showing the location SHERATON TUCSON
of the Annual Shareholders' Meeting ----------------
is set forth in this area.] Hotel & Suites
LOCATION
5151 East Grant Road
Tucson, Arizona 85712
(Between Swan and Craycroft)
520.323.6262 Hotel Direct
800.257.7275 Reservations
520.321.7637 Facsimile
TRANSPORTATION
From Tucson International Airport
Shuttle Service
Arizona Stagecoach
Call 800.889.1000 for pricing
and reservations
Automobile - Interstate 10 to
Grant Road exit
-------------------------------------------------------------------------------
(FORM OF PROXY CARD - BACK)
UNISOURCE ENERGY
This Proxy is Solicited on Behalf of the Board of Directors of the Company
for the Annual Shareholders' Meeting to be held Friday, May 10, 2002
P R O X Y
The undersigned hereby appoints James S. Pignatelli and Kevin P. Larson,
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 Shareholders' Meeting scheduled to be held at
the Sheraton Tucson Hotel and Suites, 5151 East Grant Road, Tucson, Arizona,
on Friday, May 10, 2002, and at any adjournments thereof, with all powers the
shareholder would possess if personally present and particularly with respect
to Proposals 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" Proposals 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