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): November 21, 2003
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 Avenue, Suite 100
Tucson, AZ 85701
(520) 571-4000
1-5924 TUCSON ELECTRIC POWER COMPANY 86-0062700
(An Arizona Corporation)
One South Church Avenue, Suite 100
Tucson, AZ 85701
(520) 571-4000
Item 5. Other Events
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On November 21, 2003, UniSource Energy Corporation ("UniSource Energy") and
Saguaro Acquisition Corp., a Delaware corporation (the "Acquisition Company"),
entered into an Agreement and Plan of Merger (the "Acquisition Agreement"),
providing for the acquisition of all of the common stock of UniSource Energy by
Saguaro Utility Group L.P., an Arizona limited partnership ("Saguaro"), whose
general partner is Sage Mountain, L.L.C. ("Sage Mountain") and whose limited
partners include investment funds affiliated with Kohlberg Kravis Roberts & Co.,
L.P., J.P. Morgan Partners, LLC and Wachovia Capital Partners.
Frederick B. Rentschler is the managing member of Sage Mountain, an Arizona
limited liability company, and the Acquisition Company is a wholly-owned
indirect subsidiary of Saguaro.
Pursuant to the Acquisition Agreement, the Acquisition Company will merge
with and into UniSource Energy (the "Acquisition"), with UniSource Energy being
the surviving corporation. The Acquisition has been approved by UniSource
Energy's Board of Directors, and is expected to occur after all of the
conditions specified in the Acquisition Agreement to the consummation of the
Acquisition are satisfied, including the receipt of required regulatory
authorizations and the required approval of UniSource Energy's shareholders.
Under the terms of the Acquisition Agreement, each outstanding share of
UniSource Energy's common stock, no par value per share (the "UniSource Energy
Common Stock"), other than shares owned by Saguaro, the Acquisition Company or
UniSource Energy or its subsidiaries, will be converted into the right to
receive $25.25 in cash (the "Acquisition Consideration") and a wholly-owned
subsidiary of Saguaro (the "Financing Company") will become the sole shareholder
of UniSource Energy. Pursuant to the Acquisition Agreement, approximately $880
million in cash will be paid to holders of shares of UniSource Energy Common
Stock and holders of stock options and performance shares awarded under
UniSource Energy's performance incentive plans.
The Board of Directors of UniSource Energy has received an opinion from its
financial advisor, Morgan Stanley & Co. Incorporated, to the effect that as of
the date of the Acquisition Agreement, the Acquisition Consideration is fair
from a financial point of view to the holders of UniSource Energy Common Stock.
The cash purchase price is expected to be funded by a combination of equity
contributions by the partners of Saguaro and borrowings and issuances of debt
securities by the Financing Company. It is a condition to the consummation of
the Acquisition that restrictions on the ability of Tucson Electric Power
Company ("TEP") to pay dividends be eliminated. In connection with the
satisfaction of this condition, TEP's ratio of equity to total capitalization is
expected to be improved to 40% (excluding capital lease obligations) at the time
of the Acquisition by causing UniSource Energy to provide up to $168 million in
equity contributions and by causing the $95 million note of UniSource Energy to
TEP to be repaid. TEP would use most of the proceeds of the equity contributions
and note repayment to retire some of its outstanding debt.
It is expected that the partners of Saguaro will contribute approximately
$557 million as common and/or preferred equity to the Financing Company and that
the Financing Company will borrow up to $660 million to fund the cash purchase
price, make the payments to TEP described above and to pay transaction expenses.
The Financing Company is also expected to obtain a $50 million revolving credit
facility for general corporate purposes. It is further expected that TEP's
existing credit facility will be refinanced with a new $220 million facility and
that a new $40 million revolving credit facility will be made available to
UniSource Energy Services and its subsidiaries. The Financing Company and the
Acquisition Company received commitments from lenders for a portion of the debt
financing described above. The commitments are subject to customary conditions.
It is expected that the balance of the debt financing will be raised through a
notes issuance by the Financing Company. The Financing Company and the
Acquisition Company delivered to UniSource Energy a letter from a group of
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investment banks that they were highly confident that they could arrange for the
sale of such notes through a private sale and/or a public offering.
The Acquisition is subject to several closing conditions, including without
limitation, (i) the absence of any material adverse change in the business,
properties, assets, condition, prospects or results of operations of UniSource
Energy and its subsidiaries taken together as a whole, (ii) the receipt of the
required approval of UniSource Energy's shareholders, (iii) all necessary
governmental approvals and the making of all necessary governmental filings, and
(iv) the availability of the $970 million in debt financing described above on
the conditions described in the Acquisition Agreement. Approvals and actions of
the Arizona Corporation Commission, the Securities and Exchange Commission under
the Public Utility Holding Company Act of 1935, as amended, and the Federal
Energy Regulatory Commission under the Federal Power Act, as amended, are
required. 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, as amended, and the expiration of the associated waiting period are
also required. A meeting of UniSource Energy's shareholders to vote on the
Acquisition will be convened as soon as reasonably practicable and is expected
to be held in the first half of 2004.
The Acquisition Agreement contains certain operating covenants with respect
to UniSource Energy and its subsidiaries pending the consummation of the
Acquisition. Generally, unless the parties have otherwise agreed with respect to
specified business activities or UniSource Energy obtains the Acquisition
Company's prior written consent, which consent can not be unreasonably withheld
by the Acquisition Company, UniSource Energy and its subsidiaries must carry on
their business in the ordinary course consistent with past practice and use all
commercially reasonable efforts to preserve substantially intact their present
business organization and present regulatory, business and employee
relationships. In addition, the Acquisition Agreement contains certain specific
restrictions or limitations on the activities of each of UniSource Energy and
its subsidiaries, subject to the receipt of the Acquisition Company's prior
written consent, which consent can not be unreasonably withheld by the
Acquisition Company, including the issuance or repurchase of capital stock, the
amendment of its charter and bylaws, acquisitions and dispositions of assets,
capital expenditures, incurrence of indebtedness, modification of employee
compensation and benefits, changes in accounting methods, discharging of
liabilities, and matters relating to UniSource Energy's investment in Millennium
Energy Holdings, Inc. UniSource Energy, however, is permitted to declare and pay
its regular quarterly dividend.
The Acquisition Agreement may be terminated by either UniSource Energy
or the Acquisition Company in certain circumstances, including if the
Acquisition is not consummated by March 31, 2005. In certain circumstances, upon
the termination of the Acquisition Agreement, UniSource Energy would be required
to pay the Acquisition Company's expenses and a termination fee in an aggregate
amount of up to $25 million.
As a result of the approval of the Acquisition by UniSource Energy's Board
of Directors, the Acquisition will not be an event that triggers the provisions
of UniSource Energy's shareholder rights plan or the restrictions on "business
combinations" or "control share acquisitions" under the Arizona Business
Corporation Act.
Item 7. Financial Statements and Exhibits
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(c) Exhibits
10 Agreement and Plan of Merger between UniSource Energy
Corporation and Saguaro Acquisition Corp., dated as of
November 21, 2003
99 Press release of UniSource Energy issued on November 24, 2003
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, each
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: November 24, 2003 /s/ Kevin P. Larson
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Kevin P. Larson
Vice President and
Principal Financial Officer
TUCSON ELECTRIC POWER COMPANY
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(Registrant)
Date: November 24, 2003 /s/ Kevin P. Larson
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Kevin P. Larson
Vice President and
Principal Financial Officer