**3.****Compensation**.**(a) ****Base Salary**. Executive’s initial annual “Base Salary” will be $600,000.Executive’s Base Salary will be paid in substantially equal periodic installments, in accordancewith Company’s standard payroll practices. Executive’s Base Salary will be reviewed at leastannually in accordance with Company’s executive compensation review policies and practices.**(b) ****Incentive Compensation**. Executive shall be eligible to participate in theUniSource Energy Corporation Performance Enhancement Plan (the “Incentive Compensation Plan”) andany and all replacement management incentive plans made available generally to executives ofCompany. Executive’s participation in the Incentive Compensation Plan will begin with the 2009year. Executive’s target award under the Incentive Compensation Plan will be 80% of Executive’sBase Salary and his maximum award will be 150% of his target award.**(c) ****Equity Compensation**. Executive also will be entitled to participate in theUniSource Energy Corporation 2006 Omnibus Stock and Incentive Plan and any other equitycompensation plans that may be adopted by Company from time to time. The Compensation Committee ofthe Board will set Executive’s award opportunity each year, beginning with the awards made for2009.**(d) ****Benefit Plans**. Executive will be entitled to participate in those benefit plansgenerally provided for Company’s senior executive officers in accordance with the terms of theapplicable benefit plans. Additionally, Executive shall be entitled to participate in any otherbenefit plans made available generally to employees of Company from time to time, including but notlimited to, any savings plan, life insurance plan and health insurance plan, all subject to anyrestrictions specified in, or amendments made to, such plans. Executive shall be entitled to D&Oinsurance and indemnification as provided by Company consistent with the coverage provided to otherdirectors and officers. Executive shall be entitled to paid vacation in accordance with Company’sstandard vacation policy for senior executive officers.**(e) ****Relocation Expenses**. In accordance with Company’s relocation policy, Company willeither directly pay for or reimburse Executive for the following: normal seller’s closing expenseson Executive’s home in Greenwood Village, CO; reasonable closing costs of up to 2% of the purchaseprice of Executive’s new home in Tucson, AZ (including a loan origination fee of no more than 1% ofthe mortgage amount and excluding discount points); movement of household goods; shipment of onevehicle; tax gross-up assistance for non-deductible items in accordance with Company policy as ineffect from time to time; and the reimbursement of duplicate mortgage expenses for up to 30 days.If necessary, Company will provide for temporary housing and household goods storage for up to sixmonths. Company also will reimburse Executive for all reasonable expenses incurred for Executiveand his spouse to visit Tucson three times before joining Company. In the event Executiveterminates this Agreement and his employment with Company without Good Reason pursuant to Section6(b) or Company terminates this Agreement and Executive’s employment for Cause pursuant to Section5(a) on or before December 31, 2009, any and all relocation assistance provided to Executivepursuant to this Section 5(e) will cease immediately, and Executive will be responsible forrepayment, on a pro rata basis, of any relocation expenses previously paid by Company. The prorata repayment amount shall be calculated as follows: (relocation expenses paid by Company todate of termination ÷ 12 months) X (12 months  —  the number of complete months worked byExecutive to date of termination). Executive shall pay to Company any amounts due pursuant to thisSection 5(e) within 30 days following Company’s written request for such payment.
 
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**(f) ****Legal Expenses**. Executive shall be reimbursed for up to $10,000 of legal expensesincurred by Executive in connection with the finalization of this Employment Agreement.**(g) ****Clawback**. To the extent required by law or Company policy, Executive agrees torepay to Company any bonus or other incentive-based or equity-based compensation paid to Executive.For example, in accordance with the Sarbanes-Oxley Act of 2002, Executive may be required to repaycertain compensation in certain instances, as described in the Act.**(h) ****No Other Compensation**. This Agreement sets forth all of the compensation to whichExecutive is entitled for his service in any capacity to Company and any Affiliate. Executiveshall not be entitled to receive any additional compensation for his service on the Board or forhis service as an officer, employee or member of the board of directors of any Affiliate ofCompany.**4.****Business Expenses**.Company will reimburse Executive for any and all necessary, customary and usual expenses whichare incurred by Executive on behalf of Company, provided Executive provides Company with receiptsto substantiate the business expense in accordance with Company’s policies or otherwise reasonablyjustifies the expense to Company.**5.****Termination by Company**.**(a) ****Termination for Cause**. Company may terminate this Agreement and Executive’semployment at any time for “Cause” upon written notice to Executive specifying the basis for thetermination. The termination will be effective immediately unless Company specifies a differentdate in the notice. If Company terminates this Agreement for “Cause,” Executive’s Base Salaryshall immediately cease, and Executive shall not be entitled to severance payments, IncentiveCompensation Plan payments or any other payments or benefits pursuant to this Agreement, except forany vested rights pursuant to any benefit plans in which Executive participates and any accruedcompensation, unpaid expense reimbursements and similar items. For purposes of this Agreement, theterm “Cause” shall mean the termination of Executive’s employment by Company for one or more of thefollowing reasons:**(1) **Executive’s willful failure to perform any of Executive’s duties after one previousfailure to perform for which Company has given Executive written notice (i) describing Executive’sfailure and (ii) providing to Executive the opportunity to cure such failure within 30 days (orsuch longer period as may be specified by the Board) of such written notice;**(2) **Executive’s material violation of Company policy;
 
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**(3) **any act of fraud or dishonesty resulting or intended to result in the personal enrichmentof Executive at Company’s or any Affiliate’s expense;**(4) **gross misconduct of Executive in the performance of his duties that results in materialeconomic harm to Company or any Affiliate;**(5) **Executive’s conviction of, or plea of guilty or no contest (or its equivalent) to, afelony; or**(6)**Executive’s material breach of this Agreement.The existence of Cause will be determined by the Board. If Company terminates Executive for Cause,and it is later determined in accordance with the dispute resolution process provided in Section 20of this Agreement that Cause did not exist, Executive agrees that his sole remedy will be toreceive the amount he would have received under this Agreement if his employment had beenterminated by Company without Cause, plus interest on any delayed payments at the prime ratepublished by the Wall Street Journal on the date of termination. Such payments and interest shallbe calculated as of the effective date of the initial termination. Payment of any amounts thatwould have been paid previously had Executive’s employment been terminated without Cause shall bemade within 15 days after such later determination is made.**(b) ****Termination Without Cause**. Company also may terminate this Agreement andExecutive’s employment at any time without Cause with 30 days advance notice to Executive. Companymay, in its discretion, place Executive on a paid administrative leave during the 30 day noticeperiod. During the administrative leave, Company may bar Executive’s access to Company’s officesor facilities if reasonably necessary to the smooth operation of Company, or may provide Executivewith access subject to such reasonable terms and conditions as Company chooses to impose. If thisAgreement and Executive’s employment are terminated by Company without Cause, Executive shall beentitled to receive his Base Salary through the effective date of the termination. Executive alsowill be eligible to receive a pro rata Incentive Compensation Plan payment for the year in whichhis employment is terminated, with such payment being made at the same time as payments are madegenerally under the Incentive Compensation Plan. The pro rata payment will equal the amount thatwould otherwise be due (based on the performance of Executive and/or Company as determined underthe Incentive Compensation Plan) under the Incentive Compensation Plan for the relevant year prorated based on the number of days that have elapsed in the year prior to Executive’s termination ascompared to 365 or 366 days, as applicable. Executive also will receive Severance Benefitspursuant to Section 8. The expiration of this Agreement as described in Section 2 will notconstitute a termination without Cause pursuant to this Section 5(b).**6.****Termination by Executive**.**(a) ****Good Reason Termination**. Executive may terminate this Agreement and hisemployment for Good Reason if Executive provides Company with written notice of the breach oraction giving rise to Good Reason within 90 days of the initial existence of such breach or action.For purposes of this Agreement, “Good Reason” shall mean and include each of the following (unlessExecutive has expressly agreed to such event in a signed writing):**(1)**A material, adverse diminution in Executive’s authority, duties, or responsibilities.**(2) **A material change in the geographic location at which Executive must perform serviceswhich also results in a materially increased commute.
 
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**(3)**A material diminution in Executive’s Base Salary.**(4)**Any action or inaction that constitutes a material breach of this Agreement by Company.Notwithstanding any provisions of this Agreement to the contrary, none of the events described inthis Section 6(a) will constitute Good Reason if, within 30 days after Executive provides Companywritten notice specifying the occurrence or existence of the breach or action that Executivebelieves constitutes Good Reason, Company has fully corrected (or reversed) such breach or action.Executive’s employment will terminate on the day following the expiration of this 30 day “cureperiod,” unless Executive and Company agree to a later date not later than two years following theinitial existence of such breach or action. Executive shall be deemed to have waived Executive’sright to terminate for Good Reason with respect to any such breach or action if Executive does notnotify Company in writing of such breach or action within 90 days of the event that gives rise tosuch breach or action.If Executive terminates this Agreement and his employment for Good Reason, Executive shall beentitled to receive his Base Salary through the effective date of the termination. Executive alsowill be eligible to receive a pro rata Incentive Compensation Plan payment for the year in whichhis employment is terminated, with such payment being made at the same time as payments are madegenerally under the Incentive Compensation Plan. The pro rata payment will equal the amount thatwould otherwise be due (based on the performance of Executive and/or Company as determined underthe Incentive Compensation Plan) under the Incentive Compensation Plan for the relevant year prorated based on the number of days that have elapsed in the year prior to Executive’s termination ascompared to 365 or 366 days, as applicable. Executive also will be entitled to receive SeveranceBenefits pursuant to Section 8.**(b) ****Termination Without Good Reason**. Executive also may terminate this Agreement andhis employment without Good Reason at any time by giving 60 days written notice to Company. IfExecutive terminates this Agreement and his employment without Good Reason, Executive shall beentitled to receive his Base Salary through the effective date of his termination. If Executiveterminates this Agreement without Good Reason, Executive will not receive any IncentiveCompensation Plan payments for the year of termination or any Severance Benefits.**(c) ****Administrative Leave**. Company may, in its discretion, place Executive on a paidadministrative leave prior to the actual date of termination of Executive’s employment. During theadministrative leave, Company may bar Executive’s access to Company’s offices or facilities ifreasonably necessary to the smooth operation of Company, or may provide Executive with accesssubject to such reasonable terms and conditions as Company chooses to impose.
 
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**7.****Termination by Death or Disability**.**(a) ****Death in General**. If Executive dies while employed by Company, Company shall payExecutive’s Base Salary for the period prior to his death. The payment shall be made in accordancewith applicable law to Executive’s surviving spouse, or, if required by applicable law, toExecutive’s estate. Company shall not have any obligation to pay any additional Base Salary forperiods following the date of Executive’s death. Incentive Compensation Plan payments may be dueto Executive for the year of death in accordance with the provisions of the Incentive CompensationPlan. No Severance Benefits will be due if Executive’s employment is terminated due to his death.**(b) ****Disability**. Company may terminate Executive’s employment and this Agreement dueto Executive’s “Disability” upon written notice to Executive of such termination. For purposes ofthis Agreement, Executive will be considered to be suffering from a Disability if Executive is, byreason of any medically determinable physical or mental impairment that can be expected to (1)result in death or (2) last for a continuous period of not less than 12 months, unable to continueto perform the essential functions of his job, with or without any accommodation required by law,for six consecutive calendar months or for shorter periods aggregating 125 business days in any12-month period. Company shall not have any obligation to pay any additional Base Salary forperiods following the date on which Executive’s employment is terminated due to Executive’sDisability. Incentive Compensation Plan payments may be due to Executive for the year in whichExecutive’s termination of employment due to Disability occurs in accordance with the provisions ofthe Incentive Compensation Plan. No Severance Benefits will be due if Executive’s employment isterminated due to his Disability.**8.****Severance Benefits**.**(a) ****Eligibility**. Executive shall be eligible and entitled to receive the SeveranceBenefits provided by Section 8(b) in the following instances:**(1) **If this Agreement is terminated by Company without Cause pursuant to Section 5(b) and thetermination constitutes a Separation from Service as defined in Section 10; or**(2) **If this Agreement is terminated by Executive for Good Reason pursuant to Section 6(a) andthe termination constitutes a Separation from Service.In order to receive the Severance Benefits, within the time periods described below Executive mustexecute (and not revoke) any release reasonably requested by Company of any claims that Executivemay have in connection with his employment with Company. The release shall be provided toExecutive within five days following Executive’s Separation from Service. The release must beexecuted and returned to Company within the 21 or 45 day (as applicable) period that will bedescribed in the release and it must not be revoked by Executive within the seven day revocationperiod that will be described in the release. Executive also must provide any statement requestedpursuant to Section 8(d).
 
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**(b) ****Benefits Payable**. Executive’s Severance Benefits will consist of the following:**(1) **The continuation of Executive’s Base Salary, at the rate in effect on Executive’stermination of employment, for a period of 24 months from the effective date of Executive’sSeparation from Service. The continued Base Salary will be paid in accordance with Company’sregular payroll practices as in effect on Executive’s Separation from Service, with the firstpayment due for the payroll period that begins immediately following Executive’s Separation fromService. In order to qualify for the separation pay exception to Section 409A of the InternalRevenue Code (the “Code”) and avoid a complete ban on payments within six months followingExecutive’s Separation from Service as generally required by Section 409A, the total amount thatmay be paid to Executive within the first six months following his Separation from Service may notexceed the “Cap” described in the next sentence. The “Cap” shall equal two times the lesser of(i) the sum of Executive’s annualized compensation based upon the annual rate of pay for servicesprovided to Company for the taxable year of Executive preceding the taxable year of Executive inwhich he has a Separation from Service with Company (adjusted for any increase during that yearthat was expected to continue indefinitely if Executive had not Separated from Service); or(ii) the maximum amount that may be taken into account under a qualified plan pursuant to Section401(a)(17) of the Code for the year in which Executive has a Separation from Service. (ForSeparations from Service occurring in 2009, the maximum amount that may be taken into account forqualified plan purposes is $245,000). If the total amount that would be payable to Executiveduring the first six months following his Separation from Service would exceed the Cap, the excessshall be subtracted, in equal installments, from the amounts that would otherwise be due pursuantto the first sentence of this paragraph (1). The excess then will be paid, in one lump sumpayment, on the first day of the seventh month following the day on which Executive has aSeparation from Service**(2) **The continuation of any health, life, disability, or other insurance benefits thatExecutive was receiving as of his last day of active employment for a period expiring on theearlier of (i) 12 months following Executive’s Separation from Service or (ii) the day on whichExecutive becomes eligible to receive any substantially similar benefits under any plan or programof any successor employer. The continuation of any health, life, disability or other insurancebenefits will run concurrently with Executive’s COBRA continuation coverage for health benefits.Company will satisfy the obligation to provide the health insurance benefits pursuant to thisSection 8 by either paying for or reimbursing Executive for the actual cost of COBRA coverage (andExecutive shall cooperate with Company in all respects in securing and maintaining such benefits,including exercising all appropriate COBRA elections and complying with all terms and conditions ofsuch coverage in a manner to minimize the cost). Company will reimburse Executive for the cost ofcomparable coverage for all other insurance benefits that are not subject to the COBRA continuationrules. It will be Executive’s responsibility to procure such benefits and Company will promptlyreimburse Executive for the premiums for such benefits upon Executive’s submission of an invoice orother acceptable proof of payment.**(c) ****No Duty to Mitigate**. The payment of Severance Benefits will not be affected bywhether Executive seeks or obtains other employment. Executive will have no obligation to seek orobtain other employment and Executive’s Severance Benefits will not be impacted by Executive’sfailure to “mitigate.” As provided above, however, Company’s obligation to provide continuedhealth, life, disability and other insurance benefits will ceasewith respect to a particular type of coverage when and if Executive becomes eligible toreceive substantially similar coverage with a successor employer.
 
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**(d) ****Section 16**. If, at the time Executive’s employment is terminated for any reason,Executive is a person designated to file reports pursuant to Section 16 under the SecuritiesExchange Act of 1934 (the “1934 Act”), on request Executive will provide to Company a writtenrepresentation in a form acceptable to Company that all reportable pre-termination securitiestransactions relating to Executive have been reported.**(e) ****Compliance with Covenants**. Executive’s receipt of the Severance Benefitsdescribed in this Section 8 is expressly conditioned upon Executive’s continued compliance with theprovisions of Section 12 (Intellectual Property), Section 13 (RestrictiveCovenants) and Section 14 (Non-Disparagement).**(f) ****Non-Duplication of Benefits**. The Severance Benefits provided to Executivepursuant to this Section 8 are in lieu of and are intended to replace any severance benefits due toExecutive under any other policy, plan or agreement with Company.**9.****Change in Control Severance Benefits**.**(a) ****Eligibility**. Executive shall be eligible and entitled to receive the Change inControl Severance Benefits provided by Section 9(b) if a Change in Control (as defined inSection 9(c)) occurs and if prior to the expiration of 24 months after the Change in Control(1) this Agreement is terminated by Executive for Good Reason in accordance with the requirementsof Section 6(a), or (2) Company terminates this Agreement without Cause in accordance withSection 5(b). Change in Control Severance Benefits are in lieu of the standard Severance Benefitsprovided by Section 8. Executive shall not be entitled to receive Severance Benefits under bothSection 8 and this Section 9.In order to receive the Change in Control Severance Benefits, Executive must execute (and notrevoke) any release reasonably requested by Company of any claims that Executive may have inconnection with his employment with Company within the time periods described in Section 8(a).Executive also must provide any statement requested pursuant to Section 8(d).The provisions of this Section 9 shall continue in effect during the 24-month period following aChange in Control that occurs on or before December 31, 2011 despite the general termination ofthis Agreement on December 31, 2011 pursuant to Section 2.**(b) ****Benefits Payable**. Executive’s Change in Control Severance Benefits shall consistof the following:**(1) **A single lump sum cash payment, to be paid within ten days following the date oftermination of Executive’s employment, in an amount equal to two times the greater of (i)Executive’s annualized Base Salary as of the date of the termination or (ii) Executive’s annualizedBase Salary in effect immediately prior to any material diminution in Executive’s Base Salary.
 
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**(2) **A single lump sum cash payment, to be paid within ten days following the date oftermination of Executive’s employment, in an amount equal to two times the Executive’s averageIncentive Compensation Plan payment for the three calendar years immediately preceding the calendaryear in which the Change in Control occurs. If Executive was not eligible to participate in theIncentive Compensation Plan during the three calendar years prior to the year in which Executive’stermination occurs, Executive’s target payment under the Incentive Compensation Plan for the yearin which the termination occurs will be used in calculating the amount to which he is entitledpursuant to the preceding sentence in lieu of the average payment for the three preceding years.**(3) **A single lump sum cash payment, to be paid within ten days following the date oftermination of Executive’s employment, in an amount equal to a prorated portion (based on thenumber of calendar days that have elapsed during the calendar year prior to the date of terminationof Executive’s employment) of the payment to which Executive would be entitled under the IncentiveCompensation Plan (had Executive’s employment not been terminated) for the calendar year in whichExecutive’s employment is terminated. The payment due pursuant to this paragraph (3) will be basedon actual performance through the date of Executive’s termination if actual performance isdeterminable. If actual performance is not determinable, the payment due pursuant to thisparagraph will be based on Executive’s target payment under the Incentive Compensation Plan for theyear in which the termination occurs.**(4) **The continuation of any health, life, disability of other insurance benefits thatExecutive was receiving as of his last day of active employment for a period expiring on theearlier of (i) 24 months following Executive’s Separation from Service or (ii) the day on whichExecutive becomes eligible to receive any substantially similar benefits under any plan or programof any successor employer. The continuation of any health, life, disability or other insurancebenefits shall run concurrently with Executive’s COBRA continuation coverage for health benefits.Company will satisfy the obligation to provide the health insurance benefits pursuant to thisSection 9 by either paying for or reimbursing Executive for the actual cost of COBRA coverage (andExecutive shall cooperate with Company in all respects in securing and maintaining such benefits,including exercising all appropriate COBRA elections and complying with all terms and conditions ofsuch coverage in a manner to minimize the cost). Following the expiration of the COBRAcontinuation period, Company will reimburse Executive for the cost of comparable health insurancebenefits. Similarly, Company will reimburse Executive for the cost of comparable coverage for allother insurance benefits that are not subject to the COBRA continuation rules. It will beExecutive’s responsibility to procure such benefits and Company will promptly reimburse Executivefor the premiums for such benefits upon Executive’s submission of an invoice or other acceptableproof of payment.**(c) ****Change in Control Defined**. For purposes of this Agreement, “Change in Control”shall mean each occurrence of any of the following:**(1) **Any “person,” as such term is used in Sections 13(d) and 14(d) of the 1934 Act becomesdirectly or indirectly the “beneficial owner” as defined in Rule 13d-3 under the 1934 Act, ofsecurities of Company representing 40% or more of the combined voting power of Company’s thenoutstanding securities unless such personis, or shall be, a trustee or other fiduciary holding securities under an employee benefitplan of Company or a corporation owned, directly or indirectly, by the stockholders of Company insubstantially the same proportion as their ownership of stock of Company;
 
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**(2) **The closing of a merger or consolidation of Company or its subsidiary Tucson ElectricPower Company (“TEP”) with another entity that is not affiliated with Company immediately beforethe Change in Control; provided, however, that, in the case of a merger or consolidation involvingCompany, if the merger or consolidation results in the voting securities of Company outstandingimmediately prior thereto continuing to represent, either by remaining outstanding or by beingconverted into voting securities of the surviving entity, more than 50% of the combined votingpower of the voting securities of Company or such surviving entity outstanding immediately aftersuch merger or consolidation, the merger or consolidation will be disregarded; and provided furtherthat, in the case of a merger or consolidation involving TEP, if Company continues to hold morethan 50% of the combined voting power of the voting securities of TEP or the surviving entityoutstanding immediately after such merger or consolidation, the merger or consolidation will bedisregarded;**(3) **During any period of 24 consecutive months, excluding any period prior to the execution ofthis Agreement, the following individuals cease, for any reason, to constitute a majority of theBoard of Directors:**(i)**directors who were directors at the beginning of such period; and**(ii) **any new directors whose election by the Board or nomination for election by Company’sstockholders was approved by a vote of at least a majority of the directors then still in officewho either were directors at the beginning of the period or whose election or nomination forelection was previously so approved, with each such new director being referred to as an “ApprovedNew Director;” provided however that for purposes of determining whether a Change in Control hasoccurred pursuant to this paragraph (3), a director shall not be considered to be an “Approved NewDirector” if the director is designated by or on behalf of any person other than the Board inconnection with an actual or threatened proxy contest or as a result of any other actual orthreatened solicitation of proxies; or**(4) **The adoption of a plan of complete liquidation of Company or an agreement for the sale ordisposition by Company of all or substantially all of Company’s assets.**Notwithstanding the foregoing, a Change in Control will not be deemed to have occurred until:(1) any required regulatory approval, including any final non-appealable regulatory order, has beenobtained; and (2) the transaction that would otherwise be considered a Change in Control closes**.**(d) ****No Duty to Mitigate**. The payment of Change in Control Severance Benefits will notbe affected by whether Executive seeks or obtains other employment. Executive will have noobligation to seek or obtain other employment and Executive’s Change in Control Severance Benefitswill not be impacted by Executive’s failure to “mitigate.” Asprovided above, however, Company’s obligation to provide continued health, life, disabilityand other insurance benefits will cease with respect to a particular type of coverage when and ifExecutive becomes eligible to receive substantially similar coverage with a successor employer.
 
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**(e) ****Employment by Successor**. For purposes of this Agreement, employment by asuccessor of Company or a successor of any subsidiary of Company that has assumed this Agreementshall be considered to be employment by Company or one of its subsidiaries. As a result, ifExecutive is employed by such a successor following a Change in Control, Executive will not beentitled to receive the benefits provided by this Section 9 unless Executive’s employment with thesuccessor is subsequently terminated without Cause or for Good Reason within 24 months followingthe Change in Control.**(f) ****Compliance with Covenants**. Executive’s receipt of the Change in Control SeveranceBenefits described in this Section 9 is expressly conditioned upon Executive’s continued compliancewith the provisions of Section 12 (Intellectual Property), Section 13 (RestrictiveCovenants) and Section 14 (Non-Disparagement).**(g) ****Non-Duplication of Benefits**. The Change in Control Severance Benefits provided toExecutive pursuant to this Section 9 are in lieu of and are intended to replace any severancebenefits due to Executive under any other policy, plan or agreement with Company.**10.****Section 409A Compliance**.**(a) ****Compliance Strategy; Responsibility for Taxes**. Section 409A of the Code imposesan additional 20% tax, plus interest, on payments from “non-qualified deferred compensation plans.”Certain payments under this Agreement could be considered to be payments under a “non-qualifieddeferred compensation plan.” The additional 20% tax, and interest, does not apply if the paymentqualifies for an exception to the requirements of Section 409A or complies with the requirements ofSection 409A. Company intends that the cash payments and benefits due pursuant to this Agreementeither comply with the requirements of Section 409A or qualify for an exception to the requirementsof Section 409A. Nevertheless, Company does not guarantee any particular tax effect or treatmentof the amounts due under this Agreement. Except for Company’s responsibility to withholdapplicable income and employment taxes from compensation paid or provided to Executive, Companywill not be responsible for the payment of any applicable taxes on compensation paid or providedpursuant to this Agreement.**(b) ****Delay in Payments**. Prior to making any payments due under this Agreement, Companywill determine, on the basis of any regulations, rulings or other available guidance and the adviceof counsel, whether the short-term deferral exception, the separation pay exception or any otherexception to the requirements of Section 409A of the Code is available. If Company concludes thatno exception is available, no payments will be made prior to Executive’s Separation from Service,despite any provision in this Agreement to the contrary. In addition, if Executive is a “SpecifiedEmployee” (as defined in Treas. Reg. § 1.409A-1(i)), and Company concludes that no exception to therequirements of Section 409A of the Code is available, no payments shall be made to Executive priorto the first business day following the date which is six months after Executive’s Separation fromService. Any amounts that wouldhave been paid during the six months following Executive’s Separation from Service will bepaid on the first business day following the expiration of the six-month period without interestthereon. The provisions of this paragraph apply to all amounts due pursuant to this Agreement,other than amounts that do not constitute a deferral of compensation within the meaning of Treas.Reg. §1.409A-1(b) or other amounts or benefits that are not subject to the requirements of Section409A of the Code.
 
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**(c) ****Separation from Service**. For purposes of this Agreement, the term “Separationfrom Service” means, either (1) termination of Executive’s employment with Company and allAffiliates, or (2) a permanent reduction in the level of bona fide services Executive provides toCompany and all Affiliates to an amount that is 20% or less of the average level of bona fideservices Executive provided to Company in the immediately preceding 36 months, with the level ofbona fide service calculated in accordance with Treas. Reg. § 1.409A-1(h)(1)(ii).For purposes of this Agreement, the term “Affiliate” shall have the meaning assigned in Treas.Reg. § 1.409A-1(h)(3) (which generally requires 50% common ownership).Solely for purposes of determining whether Executive has a “Separation from Service,”Executive’s employment relationship is treated as continuing while Executive is on military leave,sick leave, or other bona fide leave of absence (if the period of such leave does not exceed sixmonths, or if longer, so long as Executive’s right to reemployment with Company or an Affiliate isprovided either by statute or contract). If Executive’s period of leave exceeds six months andExecutive’s right to reemployment is not provided either by statute or by contract, the employmentrelationship is deemed to terminate on the first day immediately following the expiration of suchsix-month period. Whether a termination of employment has occurred will be determined based on allof the facts and circumstances and in accordance with regulations issued by the United StatesTreasury Department pursuant to Section 409A of the Code.**(d) ****Distributions Treated as Made upon a Designated Event**. If Company fails to makeany payment, either intentionally or unintentionally, within the time period specified in thisAgreement, but the payment is made within the same calendar year, such payment will be treated asmade within the time period specified in this Agreement pursuant to Treas. Reg. § 1.409A-3(d). Inaddition, if a payment is not made due to a dispute with respect to such payment, the payment maybe delayed in accordance with Treas. Reg. § 1.409A-3(g).**(e) ****Reimbursements**. In order to ensure compliance with the applicable regulations,the amounts reimbursed in one taxable year will not affect the amounts eligible for reimbursementby Company in a different taxable year. All reimbursements must be made no later than December 31of the calendar year following the calendar year in which the expense was incurred. Executive maynot elect to receive cash or any other benefit in lieu of the benefits provided by this Agreement.**(f) ****Miscellaneous Payment Provisions**. Under no circumstances may the time or scheduleof any payment made or benefit provided pursuant to this Agreement be accelerated or subject to afurther deferral except as otherwise permitted or required pursuant to regulations and otherguidance issued pursuant to Section 409A of the Code. Executive does nothave any right to make any election regarding the time or form of any payment due under thisAgreement. This Agreement shall be operated in compliance with Section 409A of the Code or anexception thereto and each provision of this Agreement shall be interpreted, to the extentpossible, to comply with Section 409A of the Code or to qualify for an applicable exception.
 
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**11.****Cap on Payments**.**(a) ****General Rules**. The Code places significant tax burdens on Executive and Companyif the total payments made to Executive due to a change in control (which, for purposes of thisSection 11, shall have the meaning ascribed to it in Section 280G of the Code and the regulationsadopted thereunder) exceed prescribed limits. For example, if Executive’s “Base Period Income” (asdefined below) is $500,000, Executive’s limit or “280G Cap” is $1,499,999. If Executive’s “BasicPayments” exceed the 280G Cap by even $1.00, Executive is subject to an excise tax under Section4999 of the Code of 20% of all amounts paid to him in excess of $500,000. In other words, ifExecutive’s 280G Cap is $1,499,999, Executive will not be subject to an excise tax if Executivereceives exactly $1,499,999. If Executive receives $1,500,000, Executive will be subject to anexcise tax of $200,000 (20% of $1,000,000). In order to avoid this excise tax and the relatedadverse tax consequences for Company, by signing this Agreement Executive agrees that Executive’sBasic Payments will not exceed an amount equal to Executive’s 280G Cap unless the exceptiondescribed in Section 11(e) applies.**(b) ****Special Definitions**. For purposes of this Section 11, the following specializedterms will have the following meanings:**(1) “****Base Period Income**.**”**“Base Period Income” is an amount equal to Executive’s“annualized includable compensation” for the “base period” as defined in Sections 280G(d)(1) and(2) of the Code and the regulations adopted thereunder. Generally, Executive’s “annualizedincludable compensation” is the average of Executive’s annual taxable income from Company for the“base period,” which is the five calendar years prior to the year in which the change in controloccurs. These concepts are complicated and technical and all of the rules set forth in theapplicable regulations apply for purposes of this Agreement.**(2) ****“280G Cap**.**”**“280G Cap” shall mean an amount equal to three times Executive’s“Base Period Income” minus $1.00. This is the maximum amount which Executive may receive withoutbecoming subject to the excise tax imposed by Section 4999 of the Code or which Company may paywithout loss of deduction under Section 280G of the Code.**(3) “****Basic Payments**.**”**The “Basic Payments” include any “payments in the nature ofcompensation” (as defined in Section 280G of the Code and the regulations adopted thereunder), madepursuant to this Agreement or otherwise, to Executive or for Executive’s benefit, the receipt ofwhich is contingent on a change in control and to which Section 280G of the Code applies.
 
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**(c) ****Calculating the 280G Cap**. If Company believes that these rules will result in areduction of the payments to which Executive is entitled under this Agreement, it willso notify Executive as soon as possible. Company will then, at its expense, retain a“Consultant” (which shall be a law firm, a certified public accounting firm and/or a firm ofrecognized executive compensation consultants working with a law firm or certified publicaccounting firm) to provide a determination concerning whether Executive’s Basic Payments exceedthe limit discussed above (the “Determination”). Company will select the Consultant.At a minimum, the Determination required by this Section must set forth the amount ofExecutive’s Base Period Income, the value of the Basic Payments and the amount and present value ofany “Excess Parachute Payment.” For purposes of this Section 11(c), the term “Excess ParachutePayment” means an amount equal to the excess of any Basic Payment to which Executive is entitledover the Base Period Income allocated to such Basic Payment.If the Determination states that the Basic Payments exceed the 280G Cap, Executive’s BasicPayments will be reduced to the extent necessary to eliminate the excess. In making suchreduction, Company first will reduce the amount of Executive’s payments under this Agreement and,if necessary, any other payments to which Executive is entitled under any other arrangement that donot constitute “non-qualified deferred compensation” that is subject to Section 409A of the Code.Company will reduce the amount of any Basic Payments payable to Executive that are subject toSection 409A of the Code only to the extent reductions in addition to those described in thepreceding sentence are necessary to avoid exceeding the 280G Cap. If reduction of any BasicPayments which are subject to Section 409A of the Code becomes necessary to avoid exceeding the280G Cap, Company first will reduce the non-equity based Basic Payments on a proportional basis.To the extent additional reductions are necessary to avoid exceeding the 280G Cap, Company willthen reduce the equity based Basic Payments on a proportional basis.If the Consultant selected to provide the Determination so requests, a firm of recognizedexecutive compensation consultants selected by Company (which may, but is not required to be, theConsultant) shall provide an opinion, upon which such Consultant may rely, as to the reasonablenessof any item of compensation as reasonable compensation for services rendered before or after thechange in control.If Company believes that Executive’s Basic Payments will exceed the limitations of thisSection 11, it will nonetheless make payments to Executive, at the times stated above, in themaximum amount that it believes may be paid without exceeding such limitations. The balance, ifany, will then be paid after the opinions called for above have been received.If the amount paid to Executive by Company is ultimately determined, pursuant to theDetermination or by the Internal Revenue Service, to have exceeded the limitation of this Section11, Executive must repay the excess promptly on demand of Company. If it is ultimately determined,pursuant to the Determination or by the Internal Revenue Service, that a greater payment shouldhave been made to Executive, Company shall pay Executive the amount of the deficiency, togetherwith interest thereon from the date such amount should have been paid to the date of such payment,at the rate set forth above, so that Executive will have received or be entitled to receive themaximum amount to which Executive is entitled under this Agreement.
 
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As a general rule, the Determination shall be binding on Executive and Company. Section 280Gand the excise tax rules of Section 4999, however, are complex and uncertain and,as a result, the Internal Revenue Service may disagree with the Consultant’s conclusions. Ifthe Internal Revenue Service determines that the 280G Cap is actually lower than calculated by theConsultant, the 280G Cap will be recalculated by the Consultant. Any payment over that revised280G Cap will then be repaid by Executive to Company. If the Internal Revenue Service determinesthat the actual 280G Cap exceeds the amount calculated by the Consultant, Company shall payExecutive any shortage.Company has the right to challenge any determinations made by the Internal Revenue Service.If Company agrees to indemnify Executive from any taxes, interest and penalties that may be imposedupon Executive (including any taxes, interest and penalties on the amounts paid pursuant toCompany’s indemnification agreement), Executive must cooperate fully with Company in connectionwith any such challenge. Company shall bear all costs associated with the challenge of anydetermination made by the Internal Revenue Service and Company shall control all such challenges.Executive must notify Company in writing of any claim or determination by the Internal RevenueService that, if upheld, would result in the payment of excise taxes. Such notice shall be givenas soon as possible but in no event later than 15 days following Executive’s receipt of notice ofthe Internal Revenue Service’s position.**(d) ****Effect of Repeal or Inapplicability**. In the event that the provisions of Sections280G and 4999 of the Code are repealed without succession, this Section 11 shall be of no furtherforce or effect. Moreover, if the provisions of Sections 280G and 4999 of the Code do not apply toimpose the excise tax to payments under this Agreement, then the provisions of this Section 11shall not apply.**(e) ****Exception**. The Consultant selected pursuant to this Section 11 will calculateExecutive’s “Uncapped Benefit” and Executive’s “Capped Benefit.” The limitations of this Section11 will not apply if Executive’s “Uncapped Benefit” minus the excise taxes that will be imposed onExecutive pursuant to Section 4999 of the Code exceeds Executive’s “Capped Benefit.” For thispurpose, Executive’s “Uncapped Benefit” is equal to the Basic Payments to which Executive will beentitled pursuant to this Agreement, or otherwise, without regard to the limitations of thisSection 11. Executive’s “Capped Benefit” is the amount to which Executive will be entitledpursuant to Section 9 of this Agreement after the application of the limitations of this Section11.**12.****Intellectual Property**.**(a) ****Proprietary Information**. Executive and Company hereby acknowledge and agree thatin connection with the performance of Executive’s services, Executive shall be provided with orshall otherwise be exposed to or receive certain proprietary information of Company. Suchproprietary information may include, but shall not be limited to, information concerning Company’scustomers and products, information concerning certain marketing, selling, and pricing strategiesof Company, and information concerning methods, manufacturing techniques, and processes used byCompany in its operations (all of the foregoing shall be deemed “Proprietary Information” forpurposes of this Agreement). Executive hereby agrees that, without the prior written consent ofCompany, any and all Proprietary Information shall be and shall forever remain the property of Company, and that during the Employment Period, and at alltimes thereafter, Executive shall not in any way disclose or reveal the Proprietary Informationother than to Company’s executives, officers and other employees and agents in the normal course ofExecutive’s provision of services hereunder. The term “Proprietary Information” does not includeinformation which (1) becomes generally available to the public other than as a result of adisclosure by Executive contrary to the terms of this Agreement, (2) was available on anon-confidential basis prior to its disclosure, or (3) becomes available on a non-confidentialbasis from a source other than Executive, provided that such source is not contractually obligatedto keep such information confidential.
 
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**(b) ****Trade Secrets**. Executive, prior to and during this Agreement, has had and willhave access to and become acquainted with various trade secrets which are owned by Company or byits Affiliates and are regularly used in the operation of their respective businesses and which maygive Company or an Affiliate an opportunity to obtain an advantage over competitors who do not knowor use such trade secrets. Executive agrees and acknowledges that Executive has been grantedaccess to these valuable trade secrets only by virtue of the confidential relationship created byExecutive’s employment and Executive’s prior relationship to, interest in, and fiduciaryrelationships to Company. Executive shall not disclose any of the aforesaid trade secrets,directly or indirectly, or use them in any way, either during the Employment Period or at any timethereafter, except as required in the course of employment by Company and for its benefit.**(c) ****Intellectual Property**. Executive acknowledges and agrees that all products,services, methods, know-how, procedures, processes, specifications, and anything of a similarnature that relate to the services to be provided by Executive to Company, whether the same arederived from the use of Proprietary Information or otherwise developed or conceived of byExecutive, shall be and shall remain the exclusive property of Company. Executive further agreesthat for a period of one year after the Employment Period, there shall be an irrebuttablepresumption that all products, services, methods, know-how, procedures, formulae, processes,specifications, and anything of a similar nature which relate to such services rendered hereunderdeveloped, formulated, created, or conceived of by Executive were derived from the use ofProprietary Information or were otherwise developed, formulated, created, or conceived of byExecutive during the Employment Period, and, as such, the same shall be and shall remain theexclusive property of Company. Executive shall promptly disclose to Company all written andgraphic materials, computer software, inventions, discoveries and improvements authored, prepared,conceived or made by, for or at the direction of Executive during the Employment Period and whichare related to the business of Company, and shall execute all such documents and instruments,including but not limited to any assignments and invention disclosure documents, as Company mayreasonably determine are necessary or desirable in order to give effect to the preceding sentenceor to preserve, protect or enforce Company’s rights with respect to any such work and anyintellectual property therein.**(d) ****Ownership of Documents**. Company shall own all papers, records, books, drawings,documents, manuals, and anything of a similar nature (collectively, the “Documents”) prepared byExecutive in connection with his employment. The Documents shall be the property of Company andare not to be used on other projects except upon Company’s prior written consent. Upon terminationof the Employment Period, Executive shall surrender toCompany any and all Documents or other property of whatsoever kind now or hereafter inExecutive’s possession, custody, or control which contain or reflect in any manner whatsoeverProprietary Information or information which in any way relates to Company’s business.
 
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**(e) ****Company Defined**. For purposes of this Section 12, “Company” shall be interpretedto include Company and all of its direct and indirect subsidiaries.**13.****Restrictive Covenants**.**(a) ****Covenant Not To Compete**. In consideration of Company’s agreements containedherein and the payments to be made by it to Executive pursuant hereto, Executive agrees that duringthe Restricted Period Executive will not, without prior written consent of Company, consult with,engage in or act as an advisor to another company about activity which is a “Competing Business” ofsuch company in the Restricted Territory, as defined below. For purposes of this Agreement,Executive shall be deemed to be engaged in a “Competing Business” if, in any capacity, includingproprietor, shareholder, partner, officer, director or employee, Executive engages or participates,directly or indirectly, in the operation, ownership or management of the activity of anyproprietorship, partnership, company or other business entity which activity is competitive withthe then actual business in which Company and its operating subsidiaries and Affiliates are engagedon the date of, or any business contemplated by such entities’ business plans in effect on the dateof notice of, Executive’s termination of employment. Nothing in this Section 13(a) is intended tolimit Executive’s ability to own equity in a public company constituting less than 1% of theoutstanding equity of such company, when Executive is not actively engaged in the managementthereof. If requested by Executive, Company shall furnish Executive with a good-faith writtendescription of the business or businesses in which Company is then actively engaged or which iscontemplated by Company’s current business plan within 30 days after such request is made, and onlythose activities so timely described in which Company is, in fact, actively engaged or which are socontemplated may be treated as activities which are directly competitive with Company.**(b) ****Non-Solicitation**. Executive recognizes that Company’s customers are valuable andproprietary resources of Company. Accordingly, Executive agrees that during the Restricted PeriodExecutive will not directly or indirectly, through Executive’s own efforts or through the effortsof another person or entity, solicit business in the Restricted Territory for or in connection withany Competing Business from any individual or entity which obtained products or services fromCompany at any time during Executive’s employment with Company. In addition, during the RestrictedPeriod Executive will not solicit business for or in connection with a Competing Business from anyindividual or entity which may have been solicited by Executive on behalf of Company. Further,during the Restricted Period Executive will not solicit employees of Company who would have theskills and knowledge necessary to enable or assist efforts by Executive to engage in a CompetingBusiness. Company agrees that the restrictions described in this paragraph apply only so long asCompany is continuously not in material default of its obligations to provide payments oremployment-type benefits to Executive hereunder or under any other agreement, covenant, orobligation.
 
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**(c) ****Restricted Period**. For purposes of this Section 13, the “Restricted Period” shallinclude the Employment Period and a period of one year (or in the event anyreviewing court finds this period to be over-broad or unenforceable, for a period of ninemonths; or in the event any reviewing court finds this period to be over-broad or unenforceable,for a period of six months) following the termination of Executive’s employment with Company forany reason.**(d) ****Restricted Territory**. Executive and Company understand and agree that Company’sbusiness is not geographically restricted and in some respects at least is unrelated to thephysical location of Company facilities or the physical location of any Competing Business, due toextensive use of the power grid, Internet, telephones, facsimile transmissions and other means ofelectronic information and product distribution. Executive and Company further understand andagree that Executive will, in part, work toward expanding Company’s markets and geographic businessterritories and will be compensated for performing this work on behalf of Company.Accordingly, Company has a protectable business interest in, and the parties intend theRestricted Territory to encompass, each and every location from which Executive could engage in aCompeting Business in any country, state, province, county or other political subdivision in whichCompany has customers, employees, suppliers, distributors or other business partners or operations.If, but only if, this Restricted Territory is held to be invalid on the ground that it isunreasonably broad, the Restricted Territory shall be any location within a 50 mile radius of anyCompany office.**(e) ****Remedies; Reasonableness**. Executive acknowledges and agrees that a breach byExecutive of the provisions of this Section 13 will constitute such damage as will be irreparableand the exact amount of which will be impossible to ascertain and, for that reason, agrees thatCompany will be entitled to an injunction to be issued by any court of competent jurisdictionrestraining and enjoining Executive from violating the provisions of this Section 13. The right toan injunction shall be in addition to and not in lieu of any other remedy available to Company forsuch breach or threatened breach, including the recovery of damages from Executive.Executive expressly acknowledges and agrees that: (1) the Restrictive Covenants containedherein are reasonable as to time and geographical area and do not place any unreasonable burdenupon Executive, (2) the general public will not be harmed as a result of enforcement of theseRestrictive Covenants, and (3) Executive understands and hereby agrees to each and every term andcondition of the Restrictive Covenants set forth in this Agreement.Executive also expressly acknowledges and agrees that Executive’s covenants and agreements inthis Section 13 shall survive this Agreement and continue to be binding upon Executive after theexpiration or termination of this Agreement, whether by passage of time or otherwise.
 
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**14.****Non-Disparagement**.Executive will not criticize, defame, be derogatory toward or otherwise disparage Company (orCompany’s past, present and future officers, directors, stockholders, attorneys, agents,representatives, employees or Affiliates), or its or their business plans or actions, to anythird party, either orally or in writing; provided, however, that this provision will notpreclude Executive from giving testimony in response to a lawful subpoena or preclude any conductprotected under 18 U.S.C. § 1514A(a) or any similar state or federal law providing “whistleblower”protection to Executive. Company will not criticize, defame, be derogatory toward or otherwisedisparage Executive to any third party either orally or in writing; provided, however, that thisprovision will not preclude Company from giving testimony in response to a lawful subpoena.**15.****Freedom From Restrictions**.Executive represents and warrants that Executive has not entered into any agreement, whetherexpress, implied, oral, or written, that poses an impediment to Executive’s employment by Companyincluding Executive’s compliance with the terms of this Agreement. In particular, Executive is notsubject to a valid, pre-existing non-competition agreement which prohibits Executive fromfulfilling Executive’s job duties under this Agreement, and no restrictions or limitations existrespecting Executive’s ability to perform fully Executive’s obligations to Company, includingExecutive’s compliance with the terms of this Agreement.**16.****Third-Party Trade Secrets**.During the term of this Agreement, Executive agrees not to copy, refer to, or in any way use,information that is proprietary to any third party (including any previous employer). Executiverepresents and warrants that Executive has not improperly taken any documents, listings, hardware,software, discs, or any other tangible medium that embodies proprietary information from any thirdparty, and that Executive does not intend to copy, refer to, or in any way use, information that isproprietary to any third party in performing duties for Company.**17.****Notices**.All notices hereunder shall be in writing and delivered personally or sent by United Statesregistered or certified mail, postage prepaid and return receipt requested:         If to Company, to: UniSource Energy Corporation      One South Church Avenue, Suite 1820      Tucson, Arizona 85701           If to Executive, to: Paul J. Bonavia                              Either party may change the address to which notices are to be sent to it by giving ten dayswritten notice of such change of address to the other party in the manner above provided for givingnotice.Notices will be considered delivered on personal delivery or on the date of deposit in theUnited States mail in the manner provided for giving notice by mail.
 
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**18.****Benefit and Binding Effect; Nondelegability of Executive’s Rights**.This Agreement shall inure to the benefit of and be binding upon Company, its successors andassigns, including, but not limited to, any company, person, or other entity which may acquire allor substantially all of the assets and business of Company or any company with or into whichCompany may be consolidated or merged, and Executive, Executive’s heirs, executors, administrators,and legal representatives. Nevertheless, the obligations, rights and benefits of Executivehereunder are personal and may not be delegated, assigned or transferred in any manner whatsoever,nor are such obligations, rights or benefits subject to involuntary alienation, assignment ortransfer. This Agreement shall be assigned automatically to any entity merging with or acquiringCompany or its business.**19.****Severability**.If any term or provision of this Agreement is declared by a court or tribunal of competentjurisdiction to be invalid or unenforceable for any reason, this Agreement shall remain in fullforce and effect, and either (a) the invalid or unenforceable provision shall be modified to theminimum extent necessary to make it valid and enforceable or (b) if such a modification is notpossible, this Agreement shall be interpreted as if such invalid or unenforceable provision werenot a part hereof.**20.****Dispute Resolution**.**(a) **The parties agree that any controversy, dispute or claim arising out of or relating to theAgreement or breach thereof, including without limitation Executive’s employment with or separationof employment from Company, compensatory and punitive damages, and to the extent allowable by law,all claims that Company or any of its representatives engaged in conduct prohibited on any basisunder any federal, state, or local statute, including federal or state discrimination statutes orpublic policy (collectively the “Dispute”), shall be resolved in accordance with the proceduresdescribed in this Section, which shall be the sole and exclusive procedures for resolution of anyDispute. The parties shall bear their own attorneys’ fees and costs, unless provided otherwise byan arbitration award, and share equally the cost thereof of all Dispute Resolution proceduresdescribed in the Section.**(b) **The parties shall initially try in good faith to settle the Dispute through non-bindingmediation. A party seeking mediation shall make a written request for mediation by certified mail,return receipt requested, setting forth with reasonable specificity the basis for the Dispute andthe relief requested. A neutral third party mediator shall be agreed upon by the parties. If,within 14 days after a party makes a written request for mediation or within any longer periodmutually agreed upon by the parties, the parties have not agreed upon the identity of the mediatorand the procedure for mediation, the mediation shall be held in Phoenix, Arizona, and administeredby the American Arbitration Association (“AAA”) under its Employment Arbitration and MediationProcedures formally known as the National Rules for Resolution of Employment Disputes (“Rules”)currently in effect. Unless otherwise agreed, the parties shall select a mediator as provided bythe Rules. A good faith attempt at mediation shall be a condition precedent to the commencement ofarbitration, but is not a condition precedent to anycourt action for injunctive or other interim relief pending the outcome of these DisputeResolution procedures.
 
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**(c) **If the parties are unable to resolve the dispute by mediation in a timely manner (which,in any case, shall not exceed 60 days from the first notice of mediation or such longer periodmutually agreed upon by the parties), the Dispute shall be resolved by final, binding andconclusive arbitration with a sole arbitrator in Phoenix, Arizona. The parties shall initiatearbitration by filing a written notice of intention to arbitrate at any office of the AAA. Theselection of the arbitrator and the arbitration shall proceed pursuant to the Rules and judgmentupon the award rendered by the arbitrator may be entered in any court having jurisdiction thereof.**(d) **The arbitrator shall award Executive his attorneys fees and costs if Executive prevails onat least one material issue in the Dispute. If the prior sentence is inapplicable, any arbitrationaward may, in the discretion of the arbitrator, include reasonable attorneys’ fees and costs of theprevailing party. “Attorneys’ fees and costs” mean all reasonable pre-award expenses,administrative fees, travel expenses, out-of-pocket expenses such as copying and telephone costs,witness fees and attorneys’ fees. Any award of attorney’s fees and costs to Executive shall bepaid by Company on or before December 31 of the calendar year following the year of the conclusionof the arbitration.**(e) **A party may apply to the arbitrator for injunctive or other equitable relief until thearbitration award is rendered or the matter is otherwise resolved. A party may, without waivingthe Dispute Resolution procedures under the Agreement, seek from any court having jurisdiction anyinterim or provisional relief, including a temporary restraining order, an injunction bothpreliminary and final, and any other appropriate equitable relief, that is necessary to protect therights or property of that party, pending the appointment of the arbitrator.**21.****Counterparts**.This Agreement may be executed in counterparts, each of which shall be deemed to be anoriginal, but which together shall constitute one and the same instrument.**22.****Entire Agreement**.The entire understanding and agreement between the parties has been incorporated into thisAgreement, and this Agreement supersedes all other agreements and understandings between Executiveand Company with respect to the relationship of Executive with Company, except with respect toother continuing or future stock option, health or other benefit and similar plans or agreements.**23.****Governing Law**.Executive’s employment shall be governed in all respects by the laws of the State of Arizona,excluding the conflicts of law principles, as governs transactions occurring entirely withinArizona among Arizona residents, except as preempted by Federal law.
 
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**24.****Definitions**.Throughout this Agreement, certain defined terms will be identified by the capitalization ofthe first letter of the defined word or the first letter of each substantive word in a definedphrase. Whenever used, these terms will be given the indicated meaning.**25.****Time is of the Essence**.Company and Executive agree that time is of the essence with respect to the duties andperformance of the covenants and promises of this Agreement.**26.****Construction**.This Agreement is the result of negotiation between Company and Executive and both have hadthe opportunity to have this Agreement reviewed by their legal counsel and other advisors.Accordingly, this Agreement shall not be construed for or against Company or Executive, regardlessof which party drafted the provision at issue. The language in all parts of this Agreement shallin all cases be construed as a whole according to its fair meaning and not strictly for or againsteither party. The Section headings contained in this Agreement are for reference purposes only andwill not affect the meaning or interpretation of this Agreement in any way. Whenever the words“include,” “includes,” or “including” are used in the Agreement, they shall be deemed to befollowed by the words “without limitation.”**27.****Successors**.Company will require any successor (whether direct or indirect, by purchase, merger,consolidation or otherwise) to all or substantially all of the business and/or assets of Company orany of its subsidiaries to expressly assume and agree to perform this Agreement in the same mannerand to the same extent that Company or any subsidiary would be required to perform it if no suchsuccession had taken place. Failure of Company to obtain such assumption and agreement prior tothe effectiveness of any such succession shall be a material breach of this Agreement. As used inthis Section, “Company” shall mean Company and any successor to its business and/or assets thatassumes and agrees to perform this Agreement by operation of law or otherwise. The rights ofExecutive hereunder may be exercised by any guardian, personal representative, heir or othersuccessor, as the case may be.**28.****Amendments**.Any amendment, modification or change in this Agreement must be committed to in writing andsigned by both parties.
 
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IN WITNESS WHEREOF, Company and Executive have executed this Agreement on this4th day ofMay, 2009.           **UNISOURCE ENERGY CORPORATION**             By                 Its                        **EXECUTIVE**                  Paul J. Bonavia  
 
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