-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CvCrvQEeHZS8Y2/yq8rwDhNRLJ2IH2QngRfMPfbCabFKXvx7Taf6XzmOyltZ5aHf Vwgsh1xMOpoNisePp3EMEg== 0000100122-97-000006.txt : 19970512 0000100122-97-000006.hdr.sgml : 19970512 ACCESSION NUMBER: 0000100122-97-000006 CONFORMED SUBMISSION TYPE: DEF 14A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970327 SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TUCSON ELECTRIC POWER CO CENTRAL INDEX KEY: 0000100122 STANDARD INDUSTRIAL CLASSIFICATION: 4911 IRS NUMBER: 860062700 STATE OF INCORPORATION: AZ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: DEF 14A SEC ACT: 1934 Act SEC FILE NUMBER: 001-05924 FILM NUMBER: 97564242 BUSINESS ADDRESS: STREET 1: 220 W 6TH ST STREET 2: P O BOX 711 CITY: TUCSON STATE: AZ ZIP: 85702 BUSINESS PHONE: 5205714000 FORMER COMPANY: FORMER CONFORMED NAME: TUCSON GAS & ELECTRIC CO /AZ/ DATE OF NAME CHANGE: 19790528 DEF 14A 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON D.C. 20549 SCHEDULE 14A INFORMATION Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 (Amendment No. ) Filed by the Registrant X Filed by a Party other than the Registrant Check the appropriate box: Preliminary Proxy Statement X Definitive Proxy Statement Definitive Additional Materials Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12 TUCSON ELECTRIC POWER COMPANY - - ------------------------------------------------------------------------------- (Name of the Registrant as Specified in its Charter) - - ------------------------------------------------------------------------------- (Name of Person(s) Filing Proxy Statement, if other than the Registrant) Payment of Filing Fee (Check the appropriate box): X No fee required. Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. 1) Title of each class of securities to which transaction applies: - - ------------------------------------------------------------------------------- 2) Aggregate number of securities to which transaction applies: - - ------------------------------------------------------------------------------- 3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11(set forth the amount on which the filing fee is calculated and state how it was determined): ------------------------------------------------ 4) Proposed maximum aggregate value of transaction: --------------------------- 5) Total fee paid: ------------------------------------------------------------ _ Fee paid previously with preliminary materials. _ Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and idenfity the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing. 1) Amount previously paid: ----------------------------------------------- 2) Form, Schedule or Registration Statement No. -------------------------- 3) Filing party: --------------------------------------------------------- 4) Date filed: ----------------------------------------------------------- - - - TUCSON ELECTRIC POWER COMPANY 220 West Sixth Street P.O. Box 711 Tucson, Arizona 85702 Charles E. Bayless Chairman of the Board (520) 571-4000 March 31, 1997 Dear Shareholder: You are cordially invited to attend the Annual Meeting (the "Meeting") of Shareholders of Tucson Electric Power Company (the "Company") to be held on May 9, 1997. The Meeting will begin at 10:00 a.m., Tucson time, at Marriott University Park, 880 East Second Street, Tucson, Arizona. At the Meeting you will be asked to elect a Board of Directors for the ensuing year. During the Meeting, a report will be given on the operations of the Company. Directors and officers of the Company will be present to respond to questions that shareholders may have. Please fill out, sign, date and return the enclosed Proxy Card promptly. If you attend the Meeting and wish to vote your shares personally, you may revoke your proxy at that time. Your interest is very much appreciated. Sincerely yours, TUCSON ELECTRIC POWER COMPANY Charles E. Bayless Chairman of the Board, President and Chief Executive Officer TUCSON ELECTRIC POWER COMPANY 220 WEST SIXTH STREET P.O. BOX 711 TUCSON, ARIZONA 85702 (520) 571-4000 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS MAY 9, 1997 To the Shareholders of TUCSON ELECTRIC POWER COMPANY Notice is hereby given that the Annual Meeting (the "Meeting") of Shareholders of Tucson Electric Power Company (the "Company") will be held on the 9th day of May, 1997, at Marriott University Park, 880 East Second Street, Tucson, Arizona, at 10:00 a.m., Tucson time, for the purposes of: (1) electing a Board of Directors for the ensuing year; and (2) transacting such other business as may properly come before the Meeting or any adjournment or adjournments thereof. The holders of record of Common Stock at the close of business on March 17, 1997, will be entitled to vote at the Meeting and at any adjournments thereof. Proxy soliciting material is first being sent or given to shareholders on March 31, 1997. By order of the Board of Directors, Dennis R. Nelson Secretary Dated: March 31, 1997 IMPORTANT: Your presence at the Meeting is desired, but if you cannot be present, please fill out, sign, date and return the enclosed form of proxy in the envelope provided. Due to the number of shareholders, your cooperation in returning your proxy promptly is essential and will be very much appreciated. YOUR VOTE IS IMPORTANT, REGARDLESS OF HOW MANY SHARES YOU OWN. TO VOTE YOUR SHARES, PLEASE MARK, SIGN AND DATE THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED RETURN ENVELOPE. PROXY STATEMENT GENERAL This Proxy Statement is being mailed to shareholders in connection with the solicitation, by and on behalf of the Board of Directors of Tucson Electric Power Company (the "Company"), of proxies to be voted at the Annual Meeting of Shareholders of the Company to be held on May 9, 1997, at the time and place and for the purposes set forth in the accompanying Notice of Annual Meeting of Shareholders and at any and all adjournments of the Meeting. An appropriate form of proxy for execution by shareholders is enclosed. Any shareholder giving a proxy has the right to revoke the same by giving notice to the Company in writing, directed to the Secretary, or in person at the Meeting at any time before the proxy is exercised. The entire cost of the solicitation of proxies will be borne by the Company. Solicitations will be made by the Company primarily by use of the mails. Additional solicitation of brokers, banks, nominees and institutional investors may be made pursuant to a special engagement of Beacon Hill Partners, Inc. at a cost to the Company of approximately $3,500 plus reasonable out- of-pocket expenses. If necessary to obtain reasonable representation of shareholders at the Meeting, solicitations may also be made by telephone, facsimile or personal interview. The Company will request brokers or other persons holding stock in their names, or in the names of their nominees, to forward proxy material to the beneficial owners of such stock or request authority for the execution of the proxies, and will reimburse such brokers or other persons for their expense in so doing. In accordance with the Company's Bylaws, the Board of Directors has fixed March 17, 1997 as the record date for the determination of shareholders entitled to vote at the Meeting and at any and all adjournments thereof. The stock transfer books will not be closed. Representatives of Deloitte & Touche LLP, the Company's independent auditors, are expected to be present at the Meeting with the opportunity to make a statement if they desire to do so, and to be available to respond to appropriate questions. VOTING OF SHARES At March 17, 1997, the Company had outstanding 32,135,807 shares of Common Stock no par value ("Common Stock"). At March 17, 1997, there were 30,674 shareholders of record of the Common Stock. Holders of Common Stock will be entitled to one vote per share, subject to cumulative voting rights in the election of Directors as described below. Under Arizona General Corporation Law, a majority of the shares entitled to vote on any single subject matter which may be brought before the Meeting will constitute a quorum, and business may be conducted once a quorum is represented at the Meeting. Except as otherwise specified by law, if a quorum exists, action on a matter other than the election of Directors will be deemed approved if the votes cast "For" such matter exceed votes cast "Against" it. In the election of Directors, each holder of shares of Common Stock has the right to cumulate his votes by casting as many votes in the aggregate as shall equal the number of his shares of Common Stock multiplied by the number of Directors to be elected, and he may cast the whole number of such votes for one nominee or distribute such votes among two or more nominees. If a quorum is present, directors are elected by a plurality of the votes cast by the shares entitled to vote. Withheld votes will be counted as being represented at the Meeting for quorum purposes but will not have an effect on the vote. The shares represented by an executed proxy will be voted for the election of Directors, or withheld in accordance with the specifications made in said proxy. If no specification is made in said proxy, the proxy will be voted "FOR" the nominees listed herein. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS As of March 17, 1997, the following person was known by the Company to be the beneficial owner of more than five percent of the outstanding shares of Common Stock: Name and address Amount and Nature of Percent Title of Class of Beneficial Owner of Beneficial Ownership of Class -------------- ------------------- ----------------------- -------- Common U.S. Bancorp 1,925,005 (1) 6.0% 111 S.W. Fifth Avenue Portland, OR 97204 ____________________ (1) In a statement dated February 14, 1997, filed with the Securities and Exchange Commission pursuant to Section 13(d) of the Securities Exchange Act of 1934, U.S. Bancorp indicated that, as of December 1996, it is the beneficial owner of 1,925,005 shares, or 6% of the outstanding Common Stock of the Company. Of the total 1,925,005 shares, 929,020 (2.9% of the outstanding Common Stock), is beneficially owned by Qualivest Capital Management, Inc., which is a wholly-owned subsidiary of United States National Bank of Oregon, itself a wholly- owned subsidiary of U.S. Bancorp. Qualivest Capital Management, Inc. is an investment advisor registered under Section 203 of the Investment Advisors Act of 1940, and acts as investment advisor to The Qualivest Funds, an investment company registered under Section 8 of the Investment Company Act of 1940. The remaining 995,985 shares (3.1% of the outstanding Common Stock) are held by the Trust Group of U.S. Bancorp. U.S. Bancorp is a national bank as defined in Section 3(a)(6) of the Securities Exchange Act of 1934. All but one of the owner participants in the Company's lease of Unit 1 of the Springerville Generating Station submitted a "no- action" request to the staff of the SEC regarding their status under the Public Utility Holding Company Act of 1935, as amended ("Holding Company Act"). In connection with such "no-action" request, each such owner participant entered into a separate voting agreement with the Company (each, a "Voting Agreement") with respect to the shares of Common Stock and warrants to purchase Common Stock ("Warrants") which such owner participant received as part of the 1992 comprehensive restructuring of the Company's obligations to certain of its creditors, major suppliers and lease participants, as well as the reclassification of all shares of the Company's previously outstanding preferred stock into Common Stock (the "Financial Restructuring"). Under the Financial Restructuring, such owner participants received, in the aggregate, approximately 8.9% of the total number of shares of Common Stock outstanding at the date of the closing of the Financial Restructuring on December 15, 1992 (the "Closing") (but before giving effect to the exercise of the Warrants) and Warrants in an aggregate amount of approximately 6.75% of the total number of shares of Common Stock at the date of the Closing. Each Voting Agreement constitutes an irrevocable proxy of the owner participant directing the Company to vote those shares issued to it under the Financial Restructuring (including shares issuable upon the exercise of the Warrants) in the same proportion as the votes cast for and against any particular matter by the other holders of Common Stock voting on such matter. However, an owner participant has the right to vote or direct the voting of the shares of Common Stock held by it upon the occurrence of any of the following events: (i) a default under the Springerville Unit 1 leases; (ii) a default by the Company in respect of obligations with an aggregate amount in excess of $500,000; or (iii) the institution of bankruptcy or similar proceedings by or against the Company or any of its affiliates. In the event of any sale or disposition of the shares that are subject to a Voting Agreement to a person who is not an owner participant or an affiliate thereof, the shares sold would no longer be subject to that Voting Agreement. SECURITY OWNERSHIP OF MANAGEMENT The following table sets forth as of March 17, 1997, the number and percentage of shares beneficially owned, along with the nature of such beneficial ownership, by each of the Company's Directors and nominees, the Company's Chief Executive Officer, the four other most highly compensated executive officers of the Company during 1996, and all directors and executive officers as a group. Allocable Amount of Shares Amount and Nature under Deferred Title Name of of Beneficial Percent Compensation of Class Beneficial Owner Ownership (1) of Class Stock Plan (2) - - -------- ---------------- ----------------- -------- ---------------- Common Elizabeth T. Alexander 1,000 (3) * 983 Director Common Charles E. Bayless 17,267 (4) * 7,659 Chairman, President and CEO Common Jose L. Canchola 1,400 (5) * 404 Director Common John L. Carter 7,000 * - Director Common John A. Jeter 2,200 (5) * 597 Director Common R. B. O'Rielly 1,480 (5) * 1,630 Director Common Martha R. Seger 1,240 (5) * 1,748 Director Common Donald G. Shropshire 1,500 (5) * - Director Common H. Wilson Sundt 2,800 (5)(6) * - Director Common James S. Pignatelli 8,310 (7) * - Senior Vice President and Chief Operating Officer Common Ira R. Adler 9,219 (8) * - Senior Vice President and Chief Financial Officer Common Romano Salvatori 1,887 (9) * 1,147 Vice President - Independent Power Common George W. Miraben 4,266 (10) * 562 Senior Vice President - Policy and Human Resources Common All directors and 93,711 (11) * 16,083 executive officers as a group ___________________ * Represents less than l% of the outstanding Common Stock of the Company. (1) Based on information furnished by executive officers and directors. Includes shares subject to options exercisable within 60 days. (2) Represents stock held in trust under the Deferred Compensation Plan. With the cash compensation deferred, the trust invests in Common Stock quarterly. Distributions under the Deferred Compensation Plan are made in Common Stock. Until the Common Stock is distributed, executive officers and directors are not the beneficial owners of such shares. The number of shares set forth includes shares purchased through the last quarterly purchase on January 15, 1997. (3) Includes 800 shares subject to options exercisable within 60 days. (4) Includes 16,267 shares subject to options exercisable within 60 days. (5) Includes 1,200 shares subject to options exercisable within 60 days. (6) Includes 1,000 shares held by a corporation with which Mr. Sundt is associated. (7) Includes 7,910 shares subject to options exercisable within 60 days. (8) Includes 8,320 shares subject to options exercisable within 60 days. (9) Includes 1,887 shares subject to options exercisable within 60 days. (10)Includes 4,206 shares subject to options exercisable within 60 days. (11)Includes 74,344 shares subject to options exercisable within 60 days. PROPOSAL 1 ELECTION OF DIRECTORS GENERAL Nine Directors are to be elected at the Meeting, to serve for the ensuing year and until their successors shall have been elected and shall have qualified. The votes applicable to the shares represented by executed proxies in the form enclosed, unless withheld, will be cast for the nine nominees listed below, or, in the discretion of the persons acting as proxies, will be voted cumulatively for one or more of such nominees, all of whom are present members of the Board of Directors. All of the nominees have consented to serve if elected. If any nominee becomes unavailable for any reason or a vacancy should occur before the election (which events are not anticipated), it is the intention of the persons designated as proxies to vote, in their discretion, for other nominees. DIRECTOR NAME AND PRINCIPAL OCCUPATION AGE SINCE ----------------------------- --- --------- (1)(2) ELIZABETH T. ALEXANDER, President and 57 1995 Treasurer of L & C Gourmet Products, Inc., an agricultural product marketing company, and Director of International Marketing of Santa Cruz Valley Pecan Co. since 1982. CHARLES E. BAYLESS, Chairman of the Board 54 1990 of Directors since January 1992; President and Chief Executive Officer of the Company since July 1990; Senior Vice President and Chief Financial Officer of the Company from December 1989 until July 1990; Director of Trigen Energy Corporation. (1)(2) JOSE L. CANCHOLA, President and Chief 65 1992 (3) Executive Officer of Canchola Group, Inc., holder of several restaurant franchises in Tucson and Nogales, Arizona, since 1972; Member of McDonald's Corporation Operators Advisory Board from 1981 to 1993; National Franchise Director, U.S. Department of Commerce, Office of Minority Business Enterprise from 1974 to 1976. (2) JOHN L. CARTER, Executive Vice President 62 1996 and Chief Financial Officer of Burr-Brown Corporation from 1993 to 1996; President and Chief Executive Officer of Qualtronics Manufacturing, Inc. from 1987 to 1996. (1)(2) JOHN A. JETER, independent business 66 1994 (3) consultant since 1991; partner in the accounting firm of Arthur Andersen & Co. from 1967 to 1991. (1)(2) R. B. O'RIELLY, President of O'Rielly 67 1989 (3) Motor Company, an automobile dealership management company, since 1955; Director of Banc One Arizona Corporation and Bank One Arizona, N.A. (2) MARTHA R. SEGER, Distinguished Visiting 65 1992 Professor of Finance, American Graduate School of International Management from 1993 to present; John M. Olin Distinguished Fellow at the Karl Eller Center for the Study of Private Market Economy at the University of Arizona from 1991 to 1993; Financial Economist and Governor of the Federal Reserve System from 1984 until 1991; Director of Amoco Corporation, Xerox Corporation, Kroger Company, Fluor Corporation, Amerisure, Johnson Controls Inc., and Providian Corporation. (2)(3) DONALD G. SHROPSHIRE, retired President 69 1992 and Chief Executive Officer of Tucson Medical Center, TMC Health Enterprises Inc. and TMC Foundation, from 1982 to 1992, having served as Administrator of Tucson Medical Center from 1967 to 1982; Chairman of the Board of Healthways, Inc. and Partners in Health Maintenance, Inc. from 1985 to September 1992. (1)(3) H. WILSON SUNDT, Chairman of the Board and 64 1976 Chief Executive Officer of Sundt Corp, a general construction contracting firm, since 1979, having served as President from 1979 until July 1983. ____________________ (1) Member of Nominating Committee. (2) Member of Audit Committee. (3) Member of Compensation Committee. As noted above, Dr. Seger is a member of the Board of Directors of Providian Corporation. Providian is a debt participant in the Company's leases of Springerville Unit 1 and also holds certain of the Company's first mortgage bonds. Dr. Seger has advised the Company that she does not intend to participate in any deliberations or actions of either the Board of Directors of the Company or of the Board of Directors of Providian, with respect to any matter involving the other company. COMMITTEE FUNCTIONS The functions of the Audit Committee are to select and recommend to the Board of Directors a firm of independent certified public accountants to audit annually the financial statements of the Company; to review and discuss the scope of such audit; to receive and review the audit reports and recommendations; to transmit recommendations, if any, of the Audit Committee to the Board of Directors; to review with the internal audit department of the Company, from time to time, the accounting and internal control procedures of the Company and make recommendations to the Board of Directors for any changes deemed necessary in such procedures; and to perform such other functions as the Board of Directors from time to time shall delegate to that Committee. The Audit Committee held 4 meetings in 1996. The functions of the Compensation Committee are to review the performance of the Company's officers and directors and to make recommendations to the Board of Directors with respect to officers' and directors' compensation. The Compensation Committee held 4 meetings in 1996. The functions of the Nominating Committee are to interview potential directors of the Company and to nominate and recommend to the shareholders and directors, as the case may be, qualified persons to serve as directors. The Nominating Committee held 1 meeting in 1996. At such times as director vacancies occur, the Nominating Committee will consider written recommendations for the Board of Directors which have been received from shareholders. Recommendations must include detailed biographical material indicating the candidate's qualifications and also a written statement from the candidate of willingness and availability to serve. Recommendations should be directed to the Corporate Secretary, Tucson Electric Power Company, P.O. Box 711, Tucson, Arizona 85702. The Board of Directors held a total of 11 regular meetings in 1996. EXECUTIVE COMPENSATION AND OTHER INFORMATION The following tables set forth certain information concerning compensation of, stock option grants to, and stock options/SARs held by the Company's Chief Executive Officer and the four most highly compensated executive officers at December 31, 1996. SUMMARY COMPENSATION TABLE Long-Term Compensation Awards ------ Securities Annual Underlying All Other Name and Compensation Options/SARs Compensation Principal Position Year Salary ($) Bonus($) (#)(2) ($)(1) - - ------------------ ---- ------------------ ------------ ------------ Charles E. Bayless 1996 423,881 242,250 36,196 47,863 President and 1995 394,905 157,964 17,430 6,750 Chief Executive 1994 364,152 186,170 15,687 6,750 Officer James S. Pignatelli 1996 256,462 113,288 13,109 8,561 Senior Vice 1995 234,808 80,507 8,883 6,750 President and 1994 65,154 94,881 7,424 2,285 Chief Operating Officer Ira R. Adler 1996 235,400 100,633 9,652 61,073 Senior Vice 1995 234,808 80,507 8,883 6,750 President and 1994 212,572 94,881 7,632 6,750 Chief Financial Officer Romano Salvatori 1996 199,231 71,250 9,652 24,058 Vice President - 1995 180,001 51,300 5,661 6,750 Independent Power 1994 68,308 -- -- -- George W. Miraben 1996 174,376 76,950 9,652 19,096 Senior Vice 1995 160,097 45,743 5,047 6,750 President - Policy 1994 129,426 53,910 3,786 6,008 and Human Resources __________________ (1)All Other Compensation is comprised of the Company's contributions to the Company's Triple Investment Plan for Salaried Employees (401(k) Plan)($6,750 for each named executive officer in 1996), with the balance in 1996 attributable to a one-time payment for vacation accrued and unused for all years of service with the Company. (2)Restated 1995 and 1994 amounts to reflect the May 1996 one-for- five reverse split of the Company's Common Stock. OPTION/SAR GRANTS IN LAST FISCAL YEAR Individual Grants Number of Percent Potential Realizable Securities of Total Value at Assumed Underlying Options/SARs Annual Rates of Stock Options/SARs Granted to Exercise Price Appreciation Granted Employees in Price Expiration for Option Term Name (#) Fiscal Year ($/Sh) Date 5%($) 10%($) ---- ---------- ------------ -------- ---------- ----- ----- Charles E. 36,196 17.9% 13.00 7/12/06 295,925 749,932 Bayless James S. 13,109 6.5% 13.00 7/12/06 107,174 271,601 Pignatelli Ira R. 9,652 4.8% 13.00 7/12/06 78,911 199,976 Adler Romano 9,652 4.8% 13.00 7/12/06 78,911 199,976 Salvatori George W. 9,652 4.8% 13.00 7/12/06 78,911 199,976 Miraben During 1996, the Compensation Committee granted stock options intended to qualify as incentive stock options under the Internal Revenue Code of 1986, as amended (the "Code"), to the executive officers of the Company with exercise prices equal to the market price of the Common Stock at the date of grant. The options vest ratably over a three year period. The aggregate number of shares attributable to the 1996 grants is 201,884. AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUES Number of Securities Value of Unexercised Underlying Unexercised In-the-Money Options/SARs at Options/SARs at Shares Fiscal Year-End (#) Fiscal Year-End ($) Acquired on Value Exercisable/ Exercisable/ Name Exercise (#) Realized ($) Unexercisable Unexercisable ---- ----------- ----------- ------------------- -------------------- Charles E. -- -- 16,267/53,046 6,100/137,530 Bayless James S. -- -- 7,910/21,506 1,110/49,741 Pignatelli Ira R. -- -- 8,320/18,118 3,018/38,164 Adler Romano -- -- 1,887/13,426 708/36,404 Salvatori George W. -- -- 4,206/14,279 1,578/36,724 Miraben ________________ PENSION PLAN TABLE Remuneration ($) Years of Service - - --------------- ---------------------------------------------- 15 20 25 30 35 125,000 32,910 43,880 54,850 54,850 54,850 150,000 39,492 52,656 65,820 65,820 65,820 175,000 46,074 61,432 76,790 76,790 76,790 200,000 52,656 70,208 87,760 87,760 87,760 225,000 59,238 78,984 98,730 98,730 98,730 250,000 65,820 87,760 109,700 109,700 109,700 300,000 78,984 105,312 131,640 131,640 131,640 400,000 105,312 140,416 175,520 175,520 175,520 450,000 118,476 157,968 197,460 197,460 197,460 500,000 131,640 175,520 219,400 219,400 219,400 550,000 144,804 193,072 241,340 241,340 241,340 Remuneration is comprised of the officers' average annual compensation during the five consecutive years of employment with the highest compensation within the last 15 years preceding retirement. Compensation is comprised of salary only, shown on the Summary Compensation Table. The estimated credited years of service for the Company's most highly compensated executive officers follows: Credited Years of Name Service Charles E. Bayless 7 James S. Pignatelli 2 Ira R. Adler 11 Romano Salvatori 2 George W. Miraben 7 The amount of the pension benefit is equal to a base of 40% of the compensation for 25 years of service, plus 9.7% of such calculated amount. The estimated benefits shown in the Pension Plan Table are straight life annuities not subject to a reduction for any Social Security benefits. The table also reflects amounts payable under the Excess Benefits Plan which will pay from the general funds of the Company the difference, if any, between the benefits shown in the table above and any benefit payments which may be limited by federal income tax regulations. DIRECTOR COMPENSATION FOR LAST FISCAL YEAR Cash Compensation Security Grants ------------------------------------------ Number of Annual Securities Retainer Meeting Number Underlying Name and Principal Fee Fees of Options Position (1) ($)(2) ($)(2) Shares(#) SARs (#) - - ------------------ ------ ------ --------- -------- Elizabeth T. Alexander 15,000 16,000 --- 1,200 Jose L. Canchola 15,000 20,000 --- 1,200 John L. Carter 3,750 4,000 --- 1,200 John A. Jeter 15,000 20,000 --- 1,200 R.B. O'Rielly 15,000 20,000 --- 1,200 Martha R. Seger 15,000 15,000 --- 1,200 Donald G. Shropshire 15,000 16,000 --- 1,200 H. Wilson Sundt 15,000 16,000 --- 1,200 (1) Directors who are also executives of the Company are not listed in the above table. They do not receive compensation as directors. Refer to the Summary Compensation Table for information concerning their compensation. (2) Amounts shown include cash compensation earned and received as well as amounts earned but deferred at the election of directors. Each Director who is not a full-time salaried employee of the Company received an annual cash retainer of $15,000, $1,000 for each Board meeting and $1,000 for each committee meeting attended in 1996. Mr. J. Luther Davis, as Director Emeritus, received monthly compensation in the amount of $2,000. Mr. Davis retired as Director Emeritus on May 14, 1996. In addition, under the 1994 Outside Director Stock Option Plan (the "Plan"), each Director who is not a full-time salaried employee of the Company received a grant of 1,200 Common Stock Options on January 3, 1996 with an exercise price of $15.9375/share, the fair market value of the underlying stock on the date of grant. Such options vest in 1/3 increments on the 3rd day of January 1997, 1998 and 1999. Mr. Carter joined the Board in October 1996, and, pursuant to the Plan, received a grant of 1,200 Common Stock Options on October 4, 1996, at an exercise price of $17.00/share. Mr. Carter's options vest in 1/3 increments on the 4th day of October 1997, 1998 and 1999. Directors who are salaried employees of the Company do not receive compensation in their capacity as members of the Board of Directors. EXECUTIVE EMPLOYMENT CONTRACTS The Company has employment agreements with 12 officers (including the five most highly compensated officers) which become effective in the event of a change in control of the Company (which includes the acquisition of beneficial ownership of 30% of the Common Stock, certain changes in the Board of Directors, or approval by the shareholders of certain mergers or consolidations or upon certain transfers of the Company's assets). The agreements provide that each officer shall be employed by the Company or one of its subsidiaries or affiliates in a position comparable to his current position, with compensation and benefits which, as set forth in each agreement, are at least equal to such officer's then current compensation and benefits, for an employment period of five years after a change in control occurs (subject to earlier termination due to such officer's acceptance of a position with another company, or termination by the Company for cause). Following a change in control of the Company, in the event that the officer's employment is terminated by the Company (with the exception of termination due to the officer's acceptance of another position or for cause) or if the officer terminates his employment because of a reduction in position, responsibility, salary or for certain other stated reasons, the officer is entitled to severance benefits in the form of (i) a lump sum payment equal to the present value of his salary and short-term incentive compensation for the next two years under the agreement, (ii) the present value of the additional amount he would have received under the Retirement Plan if he had continued to be employed for the five-year period after a change in control occurs, (iii) the present value of contributions that would have been made by the Company under the 401(k) Plan if he had continued to be employed for such five-year period, and (iv) the spread on any Company stock options which would have been granted to the officer if he had continued to be employed for two years following such termination. Such officer is also entitled to continue to participate for such five-year period in the Company's health plans, death benefit plans and disability benefit plans. Notwithstanding the above, any payment which is determined to be a parachute payment under the Code shall be limited to the maximum amount permitted to be paid without the imposition of an excess parachute payment excise tax, minus one dollar (and if it shall be determined that the Company has made a payment in excess of this limitation, such excess would become a loan and the officer would be required to repay such amount). Assuming a change in control occurred on December 31, 1996 which resulted in the immediate termination of all five of the Company's most highly compensated officers, the total payments made by the Company pursuant to the said contracts would not be expected to exceed $4,000,000. REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION The Compensation Committee of the Board of Directors (the "Compensation Committee") is responsible for developing and administering the Company's executive compensation policies and programs and making recommendations to the Board with respect thereto. In 1996, the Compensation Committee was comprised of five of the Company's independent outside Directors. The Compensation Committee determines the compensation of the Company's executive officers, including Mr. Bayless and the other senior executives named in the Summary Compensation Table (the "Named Executives"), and sets policies for and reviews the compensation awarded to other key members of management. The Company applies a consistent philosophy to compensation for all executive employees, including the Named Executives. COMPENSATION POLICIES APPLICABLE TO EXECUTIVE OFFICERS The Company's executive compensation policies and programs generally are intended to (i) relate the compensation of employees to the success of the Company and the creation of shareholder value; and (ii) attract, motivate and retain highly qualified executives. In 1996, the Company continued its compensation program developed in 1994 with the assistance of an external consultant. The program is intended to provide competitive pay levels which are linked to the achievement of the Company's strategic objectives. The Company's 1996 compensation program consisted of three components: (i) base salary, (ii) short-term incentive compensation and (iii) long-term incentive compensation. BASE SALARIES The base salary component of compensation is intended to be competitive with that paid by comparable companies in the electric industry. As noted previously, in developing the compensation program, the Compensation Committee retained an external consultant to conduct a competitive analysis of pay for the Company's officer group. In conducting its analysis for 1996, the consultant used a comparative survey of 15 electric utilities, chosen based on their business and size, with revenues from $.5 billion to $2.4 billion. The Compensation Committee believes the companies participating in the survey are a more appropriate comparison for the Company than the Edison Electric 100 companies used in the Performance Graph set forth following this Report, because the type of business and annual revenues of the companies included in the survey are more closely related to those of the Company. The companies included in the survey were Arizona Public Service Company; Boston Edison Company; CIPSCO Incorporated; Destec Energy, Inc.; Iowa-Illinois Gas and Electric Company; IPALCO Enterprises, Inc.; KU Energy Corporation; Louisville Gas and Electric Company; Minnesota Power; NIPSCO Industries, Inc.; Northern States Power Company; Puget Sound Power & Light Company; SCANA Corporation; and Wisconsin Power and Light Company. The external data from that survey was used to develop a market compensation for each executive position. "Market compensation" refers to the average total salary for utility executives as shown in the survey. Base salaries for the Company's executive officers (including Mr. Bayless and the other Named Executives) were set at market compensation levels in January 1996, in recognition of the increasingly competitive environment in the electric industry and the need to continue to attract and retain highly qualified executives, as well as the fact that a substantial portion of each executive's total compensation package is "at-risk," based on the achievement of certain corporate goals. See Short-Term Incentive Compensation and Long-Term Incentive Compensation below. Mr. Bayless received a 7.34% increase in base salary. The other Named Executives received increases ranging from 0% to 11%. SHORT-TERM INCENTIVE COMPENSATION The Board adopted the Short-Term Incentive Plan to provide compensation for meeting or exceeding specified corporate objectives designed to contribute to the attainment of the Company'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 1996, the percentage for Mr. Bayless was 40% and for the other executive officers ranged from 25-30%. Actual awards can vary from 0 to 150% of the target award level, depending upon the Company's performance in relation to pre- established goals. For 1996, pre-established goals for officers (including Mr. Bayless and the other Named Executives) consisted of three corporate objectives and six operational objectives. Seventy percent of target award levels were based on performance in relation to the corporate objectives and 30 percent of target award levels were based on performance in relation to operational objectives. The corporate objectives consisted of: 1) increasing the Company's intrinsic value, measured by cash flow return on investment; 2) improving profitability and cost management, measured by Operations & Maintenance expenses per kilowatt hour sold; and 3) improving customer and community satisfaction, measured by a customer satisfaction survey. The operational objectives consisted of: 1) utilizing human resources effectively, measured by a formula based on average number of retail customers and total full-time equivalent employees; 2) achieving employee assimilation of corporate values and culture, measured by an employee satisfaction survey; 3) maintaining a safe working environment, measured by a formula based on number of OSHA recordable injuries and illnesses; 4) improving the success of affirmative action/EEO hiring opportunities, measured by a formula based on number of successful candidates meeting affirmative action qualifications; and enhancing service reliability to meet customer needs and expectations, measured by: 5) a weighted average forced outage rate; and 6) average outage duration in minutes. In calculating the percentage of target awards payable, the Compensation Committee established target performance levels for each of the corporate and operational objectives. Minimum performance levels (50%) and exceptional performance levels (150%) were established as well. No credit was given for performance below minimum levels. In order for any incentive compensation to be paid, the Company was required to meet at least the minimum performance levels on each of the corporate objectives. The Company exceeded the minimum performance levels for each of the corporate objectives in 1996. In addition, the Company exceeded the aggregate target levels for the corporate objectives and for the operational objectives. Based upon such performance, incentive compensation was awarded to each of the executive officers (including Mr. Bayless) in the amount of 142.5% of his or her target award level. Incentive compensation earned in 1996 by Mr. Bayless and the other Named Executives is set forth in the preceding Summary Compensation Table. LONG-TERM INCENTIVE COMPENSATION At the recommendation of the Compensation Committee, the Board of Directors unanimously adopted, and, at the 1994 Annual Meeting of Shareholders, the shareholders approved the Tucson Electric Power Company 1994 Omnibus Stock and Incentive Plan (the "Omnibus Plan"). The Omnibus Plan was designed to retain and attract quality employees over the long term in a manner which directly aligns their interests with shareholder interests. On July 12, 1996, the Compensation Committee issued Incentive Stock Options ("ISOs") to all executive officers of the Company including Mr. Bayless and the other Named Executives. In calculating the level of awards to Mr. Bayless and the other executive officers under the Omnibus Plan, the Compensation Committee considered the aforementioned competitive analyses of executive compensation for comparable positions at other companies. Based on such analyses, as well as Mr. Bayless' continuing contribution to the Company's financial recovery and achievement of its long-term strategic goals, the Compensation Committee awarded Mr. Bayless incentive stock options with a total value equal to 53% of his base salary (based on 5% projected appreciation over the term of the options). The total value of stock options issued to other Named Executives ranged from 30% to 33% of base salary. The number of shares covered by the stock option grant to Mr. Bayless was 36,196. The Compensation Committee did not consider the number of options previously granted or outstanding. The Compensation Committee does not presently have a policy regarding qualifying compensation paid to executive officers for deductibility under Section 162(m) of the Code. Respectfully submitted, THE COMPENSATION COMMITTEE H. Wilson Sundt Jose L. Canchola John A. Jeter R. B. O'Rielly Donald G. Shropshire TUCSON ELECTRIC POWER COMPANY COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN TUCSON ELECTRIC POWER COMPANY, S&P 500 INDEX, AND EEI INDEX OF 100 INVESTOR-OWNED UTILITIES The graph showing on the hard copy represents the comparison of five year cumulative total return between Tucson Electric Power Company, the S&P 500 Index, and EEI index of 100 investor-owned utilities. The graph's X-axis shows the years 1991 to 1996, and the Y-axis shows dollar values from 0 to 250. The data points are connected by lines with the following markers: TEP - triangles; S&P 500 Index - diamonds; EEI index of 100 investor- owned utilities - squares. The datapoints are as follows: 1991 1992 1993 1994 1995 1996 ---- ---- ---- ---- ---- ---- Tucson Electric Power Company $100 $ 56 $ 81 $ 67 $ 72 $ 73 S&P 500 Index $100 $108 $118 $120 $165 $203 EEI Index of 100 Investor-owned Utilities $100 $108 $120 $106 $139 $140 Assumes $100 invested on December 31, 1990 in Tucson Electric Power Company Common Stock, S&P Index and EEI Index. It is assumed that all dividends are reinvested in stock at the frequency paid and the returns of each component peer group issuer are weighted according to the issuer's stock market capitalization at the beginning of the period. TRANSACTION OF OTHER BUSINESS So far as the Company is aware, no matters other than those described in this Proxy Statement will be acted upon at the Meeting. If, however, any other matters shall properly come before the Meeting, it is the intention of the persons named in the enclosed proxy to vote the proxy in accordance with their judgment on such matters. SHAREHOLDER PROPOSALS FOR 1998 ANNUAL MEETING Shareholder proposals intended to be presented at the 1998 Annual Meeting of the Company must be received by the Company no later than December 2, 1997 in order to be eligible for inclusion in the Company's Proxy Statement and the form of proxy relating to that meeting. By order of the Board of Directors DENNIS R. NELSON, Secretary Dated: March 31, 1997 SHAREHOLDERS ARE REQUESTED TO FILL OUT, DATE, SIGN, AND PROMPTLY RETURN THE ACCOMPANYING FORM OF PROXY IN THE ENCLOSED ENVELOPE. APPENDIX (FORM OF PROXY CARD FOR REGISTERED SHAREHOLDERS) Shareholder Name Address Address You are cordially invited to join us at the Annual Meeting of Shareholders of Tucson Electric Power Company. This year's meeting will be held at the Marriott University Park, 880 E. Second Street, Tucson, Arizona on Friday, May 9,1997. At the meeting you will be asked to elect a Board of Directors. It is important that your shares be voted whether or not you plan to be present at the meeting. You should specify your choices by marking the appropriate boxes on the proxy form below, and date, sign and return your proxy form in the enclosed, postpaid return envelope as promptly as possible. If you date, sign and return your proxy form without specifying your choices, your shares will be voted in accordance with the recommendations of your directors. As in the past years, we will discuss the business of TEP during the meeting. I welcome your comments and suggestions, and we will provide time during the meeting for questions from shareholders. I am looking forward to having you with us on the 9th of May. In the meantime, if you have questions regarding the Meeting, please phone our Investor Services Department at 520-884-3661. Sincerely, (FORM OF PROXY CARD -- FRONT) TEAR HERE TUCSON ELECTRIC POWER COMPANY THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEM 1. PROXY THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED "FOR" ITEM 1. The Board of Directors Recommends a vote FOR the following proposal: Election of Directors: ELIZABETH T. ALEXANDER, CHARLES E. BAYLESS, JOSE L. CANCHOLA, JOHN L. CARTER, JOHN A. JETER, R. B. O'RIELLY, MARTHA R. SEGER, DONALD G SHROPSHIRE, H.WILSON SUNDT FOR WITHHOLD AUTHORITY To withhold authority to all nominees listed [ ] to vote for all [ ] vote for any individual above (except as marked nominees listed nominee, write that to the contrary to the above nominee's name in the left) space provided below. _____________________________ PLEASE MARK ALL CHOICES LIKE THIS [x] SIGNATURE______________________________________________DATE______ SIGNATURE______________________________________________DATE______ (FORM OF PROXY CARD -- BACK) TUCSON ELECTRIC POWER COMPANY This Proxy is Solicited on Behalf of the Board of Directors of the Company for the Annual Meeting to be held May 9, 1997. PROXY The shareholder hereby appoints Charles E. Bayless and Ira R. Adler, and each of them, with the power of substitution, to represent and to vote on behalf of the shareholder all shares of Common Stock which the shareholder is entitled to vote at the Annual Meeting of Shareholders scheduled to be held at the Marriott University Park, 880 E. Second Street, Tucson, Arizona, on May 9, 1997, and at any adjournments thereof, with all powers the shareholder would possess if personally present and particularly with respect to Item 1 and in their discretion, upon such other business as may properly come before the meeting. This proxy, when properly executed, will be voted in the manner directed herein by the shareholder. If no direction is made, this proxy will be voted "FOR" Item 1. continued, and to be voted on the other side (FORM OF PROXY CARD FOR SHAREHOLDERS IN STREET NAME) (FORM OF PROXY CARD -- FRONT) TUCSON ELECTRIC POWER COMPANY NOTE: THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEM 1. Participant Number:__________ 1. Election of the FOR WITHHOLD Participant Name:____________ following nominees all nominees AUTHORITY Depository:__________________ as Directors: (except as as to all Shares:______________________ Alexander, Bayless, indicated nominees Canchola, Carter, below) Jeter, O'Reilly, Seger, Shropshire, [ ] [ ] Sundt, and Winter Withhold Authority to vote for the following nominees (write names): ____________________________________________________ (continued, and to be signed, on the other side) (FORM OF PROXY CARD -- BACK) TUCSON ELECTRIC POWER COMPANY THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY FOR THE ANNUAL MEETING TO BE HELD ON MAY 9, 1997 PROXY The undersigned hereby appoints Charles E. Bayless and Ira R. Adler, and each of them, with the power of substitution, to represent and to vote on behalf of the undersigned all shares of Common Stock which the shareholder is entitled to vote at the Annual Meeting of Shareholders scheduled to be held at the Marriott University Park, 880 E. Second Street, Tucson, Arizona, on May 9, 1997, and at any and all adjournments thereof, with all powers undersigned would possess if personally present and particularly with respect to Item 1 and, in their discretion, upon such other business as may properly come before the meeting. This proxy, when properly executed, will be voted in the manner directed herein by the undersigned shareholder. If no direction is made, this proxy will be voted "FOR" Item 1. SHAREHOLDER SIGN HERE X ------------------------- --------- SIGNED (DATE) PLEASE SIGN EXACTLY AS NAME APPEARS HEREON. When shares are held by joint tenants in common or as community property, both should sign. When signing as attorney, executor, administrator, trustee, guardian, or custodian, please give full title as such. If a corporation, please sign corporate name by President or other authorized office. If a partnership, please sign in partnership name by authorized person. Receipt is hereby acknowledged of Notice of Annual Meeting, Proxy Statement and the 1996 Annual Report. -----END PRIVACY-ENHANCED MESSAGE-----