UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): October 31, 2002
Commission Registrant; State of Incorporation; IRS Employer
File Number Address; and Telephone Number Identification Number
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1-13739 UNISOURCE ENERGY CORPORATION 86-0786732
(An Arizona Corporation)
One South Church, Suite 100
Tucson, AZ 85701
(520) 571-4000
Item 5. Other Events
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UniSource Energy Corporation (UniSource Energy) and Citizens
Communications Company (Citizens) have entered into two Asset
Purchase Agreements, each dated October 29, 2002, one of which
provides for the purchase by UniSource Energy of Citizens'
electric utility business in Arizona and the other of which
provides for the purchase by UniSource Energy of Citizens' gas
utility business in Arizona. The asset purchases are expected to
close in the second half of 2003 after the conditions to the
consummation of the transactions, including federal and state
regulatory approvals, are satisfied or waived.
The Asset Purchase Agreements are filed as exhibits to this
report and are incorporated herein by reference. The
descriptions of the Asset Purchase Agreements set forth herein do
not purport to be complete and are qualified in their entirety by
the provisions of the Asset Purchase Agreements.
The terms of the two Asset Purchase Agreements, other than
pricing and descriptions of the assets, are substantially
identical. Under the Asset Purchase Agreements, UniSource Energy
will pay a total of $230 million in cash at the closing for both
transactions, subject to adjustment based on the date on which
the transactions are closed and, in each case, on the amount of
certain assets and liabilities of the purchased business at the
time of closing. The purchase price in either transaction may
also be adjusted if there is a casualty loss, governmental
taking, or discovery of substantial additional environmental
liabilities, in each case subject to materiality thresholds,
prior to the closing. UniSource Energy will assume certain
liabilities associated with the purchased assets, but will not
assume Citizens' obligations under the industrial development
revenue bonds issued to finance certain of the purchased assets
on which Citizens will remain the economic obligor.
The Asset Purchase Agreements contain covenants of the
parties that, among other things, generally require Citizens to
conduct the business and operate the purchased assets prior to
the closing in accordance with good utility practices and require
Citizens and UniSource Energy to undertake certain efforts to
achieve the closing of the transactions.
The closing of the transactions is subject to approval of
the Arizona Corporation Commission, the Federal Energy Regulatory
Commission and the Securities and Exchange Commission under the
Public Utility Holding Company Act of 1935, as amended, the
filing of the requisite notification with the Federal Trade
Commission and the Department of Justice under the Hart-Scott-
Rodino Antitrust Improvements Act of 1976, and other customary
closing conditions.
The Asset Purchase Agreements are subject to termination if
the closing has not occurred within 15 months of the date of the
Asset Purchase Agreements (subject to extension in limited
circumstances), if a governmental authority seeks to prohibit the
transactions, if required regulatory approvals are not obtained
with satisfactory terms and conditions, or if either party is in
material breach and such breach is not cured. If one Asset
Purchase Agreement is terminated, the other will also be
automatically terminated. If the Asset Purchase Agreements are
terminated by Citizens due to UniSource Energy's breach,
UniSource Energy must pay to Citizens a $25 million termination
fee as liquidated damages. If the Asset Purchase Agreements are
terminated by UniSource Energy due to Citizen's breach, Citizens
must pay to UniSource Energy a $10 million termination fee as
liquidated damages. The termination fees are also payable in
certain other limited circumstances.
Citizens' electric systems, which consist primarily of
transmission and distribution facilities, serve a total of
approximately 77,000 retail customers in Santa Cruz and Mohave
Counties, having a historical maximum peak demand of
approximately 300 megawatts. In connection with the purchase of
the electric business, UniSource Energy will assume Citizens'
power purchase agreement with Pinnacle West Capital Corporation
under which Citizens currently purchases substantially all of its
electric requirements. Citizens' natural gas systems, which
consist primarily of distribution facilities, serve a total of
approximately 122,000 retail customers in Santa Cruz, Mohave,
Yavapai, Coconino, Navajo and Apache Counties. In connection
with the purchase of the gas business, UniSource Energy will
assume six gas purchase agreements under which Citizens
currently purchases substantially all of its gas requirements.
Substantially all of Citizens electric and gas customers are in
the residential and commercial classifications.
Tucson Electric Power Company (TEP), UniSource Energy's
principal subsidiary, currently provides electric service to over
350,000 retail customers in the Tucson metropolitan area in Pima
County, as well as parts of Cochise County. TEP also sells
electricity to other utilities and power marketing entities in
the western U.S.
Under the Asset Purchase Agreements, UniSource Energy and
Citizens will assume joint responsibility for completing two
utility rate cases that Citizens has pending before the Arizona
Corporation Commission. UniSource Energy expects to reduce the
amount of rate relief requested due to the significant discount
represented by the purchase price.
UniSource Energy expects that the purchase price will be
financed by funds from UniSource Energy and its affiliates and
debt secured by the purchased assets. UniSource Energy may also
consider financing a portion of the purchase with new equity,
depending on market conditions and other factors. UniSource
Energy expects to form a new subsidiary to hold the purchased
assets, which subsidiary will maintain a separate rate structure
from TEP.
Item 7. Financial Statements and Exhibits
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Exhibits:
99.1 Asset Purchase Agreement - Electric Utility Business
99.2 Asset Purchase Agreement - Gas Utility Business
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
UNISOURCE ENERGY CORPORATION
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(Registrant)
Date: October 31, 2002 /s/ Kevin P. Larson
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Kevin P. Larson
Vice President and
Chief Financial Officer
(Principal Financial Officer)