Filed by Bowne Pure Compliance






Exhibit 10.1


December 9, 2008


Mr. Paul J. Bonavia 

Denver, CO


Dear Paul:


I am pleased to
confirm our offer to employ you as the new Chairman, Chief Executive Officer
and President of UniSource Energy Corporation. We have asked our attorneys to
prepare a formal Employment Agreement. As an interim measure, I will summarize
the terms of our offer in this letter.


1. Position. You will be employed as the
Chairman, Chief Executive Officer and President of UniSource, reporting
directly to the UniSource Board of Directors.


2. Base
Salary. Your initial base salary will be $600,000 per year. Your base
salary will be reviewed by our Compensation Committee annually as part of our
executive review process.


3. Annual Incentive Opportunity. You will
participate in UniSource’s annual cash incentive compensation program.
Your target award will be 80% of your base salary ($480,000), with a maximum
award equal to 150% of the target. In other words, the maximum award will equal
120% of your base salary ($720,000).


4. Long-Term Incentives. You will
participate in the UniSource Energy Corporation 2006 Omnibus Stock and
Incentive Plan, which is our long-term equity incentive program. The
Compensation Committee sets the applicable award opportunities each year. Our
current practice is to split the annual awards between time vested stock
options and performance shares, but that is always subject to modification in
the discretion of the Compensation Committee. You will be eligible to
participate in the 2009 long-term incentive program.


5. Other
Benefit Plans. You will be entitled to participate in all of the
pension, medical, and other benefit programs available to senior executive
officers of UniSource. Attached is a very brief summary of the pension and
deferred compensation programs as well as a listing of the types of health and
welfare plans maintained by UniSource for its employees.


 


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6. Relocation. In accordance with UniSource
Relocation policy, the company will either directly pay for or reimburse you
for the following: normal seller’s closing expenses on your home in
Denver, CO, reasonable closing costs up to 2% of the purchase price of your new
home in Tucson, AZ (including a loan origination fee of no more than 1% of the
mortgage amount and excluding discount points), movement of household goods,
shipment of one vehicle, tax gross-up assistance and duplicate mortgage
expenses up to 30 days. If necessary, the company will provide for
temporary housing and household goods storage for up to six months. We will
also reimburse you for all reasonable expenses incurred for you and your spouse
to visit Tucson three times before joining the Company.


7. Term
of Employment; Severance. The formal Employment Agreement will apply
for a term of three years. Under the terms of the Employment Agreement, you
will be entitled to severance pay if your employment is terminated by UniSource
without “Cause” or if you terminate your employment for “Good
Reason,” during the three year term of the Agreement. In either case, you
will receive severance benefits equal to 200% of your base salary to be paid in
accordance with the company’s normal payroll practices. Your health and
welfare benefits will be continued for a period of up to one year, with the
benefit continuation terminating if you receive similar benefits from a
subsequent employer. You also will receive a pro rata incentive compensation
payment for the year in which your employment is terminated. The amount of this
payment will be based on actual performance and will be paid following the end
of the performance year.


The definitions of
“Cause” and “Good Reason” are described in the attached
Exhibit.


8. Change in Control. We also will enter
into a Change in Control Agreement. Under this Agreement, if a Change in
Control occurs, you will be entitled to receive change in control benefits if
UniSource terminates your employment without Cause or if you terminate
employment for Good Reason within 24 months after the Change in Control.
In this instance, you will receive a lump sum severance payment equal to 200%
of the sum of your base salary and average bonus earned in the prior three
years. In calculating the amount of this payment, we will use your target bonus
for the year of termination if you were not eligible to receive a bonus during
the prior three years. You also will receive a pro rata incentive compensation
payment for the year of termination based on actual performance to date (if
determinable). Otherwise, the pro-rata bonus will be based on your target
opportunity. Your health and welfare benefits will be continued for a period of
two years in the context of a Change in Control termination, but the health and
welfare benefits will be discontinued if you become eligible for comparable
benefits under the plan of a successor employer. The Change in Control benefits
described in this paragraph will be in lieu of the benefits described in
paragraph 7.


The definition of
“Change in Control” is described in the attached Exhibit.


9. Legal
Expenses. UniSource will reimburse you for up to $10,000 of legal
expenses incurred by you in connection with the finalization of the formal
Employment Agreement.


 


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10. Competition, Confidentiality, Etc. The
Employment Agreement will include customary confidentiality, non-competition,
non-solicitation and non-disparagement requirements. The non-competition and
non-solicitation covenants will continue for a period of 12 months
following your termination of employment.


11. Dispute Resolution. The Employment
Agreement also will include mandatory mediation and arbitration provisions.
UniSource will agree to reimburse you for any legal fees and expenses if you
prevail on at least one material issue.


If these terms are
consistent with your understanding, please sign the extra copy of this letter
which is enclosed and return it to me. As already mentioned, the purpose of
this letter is to memorialize our understanding regarding the terms that will
be included in the formal Employment Agreement. Neither you nor UniSource are
bound until the Employment Agreement is signed.


We look forward to
your joining the UniSource team and your leadership of the organization.





	 	 	 
	 	UniSource Energy
	 
	 	By	/s/ Harold W. Burlingame
	 	 	Chairman, Compensation Committee






ACKNOWLEDGEMENT


I acknowledge that
this letter accurately describes the terms of UniSource’s offer to employ
me as its Chairman, Chief Executive Officer and President.




	 	 	 
	 	 	/s/ Paul J. Bonavia
	 	 	(Your Signature)





 


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Definitions Exhibit



Cause Definition 



	•	 	
Willful and continued failure to perform
duties after written notice








	•	 	
Material violation of Company policy








	•	 	
Act of fraud or dishonesty resulting or
intended to result in personal enrichment at Company’s expense








	•	 	
Gross misconduct in performance of duties that
results in material economic harm to Company








	•	 	
Conviction of, or plea of guilty or no contest
to, felony








	•	 	
Executive’s material breach of Agreement
that is not corrected within 30 consecutive days after written notice







Good Reason Definition




	•	 	
Material and adverse change in authority, duties or
responsibilities







	•	 	
Material reduction in base salary








	•	 	
A material change in the geographic location
at which you must perform your duties resulting in a materially increased
commute








	•	 	
Company’s material breach of any other
obligation under Agreement that is not corrected within 30 consecutive days
after written notice (A failure of a successor to Company to assume agreement
will qualify as a material breach








	•	 	
The definition will include standard notice
and opportunity to cure provisions







Change in Control
Definition



	•	 	
Acquisition of 40% or more of common stock or
voting power








	•	 	
Consummation of merger, reorganization,
consolidation or similar transaction involving the Company or a subsidiary that
requires shareholder and ACC approval, unless Company’s voting stock
represents more than 50% of voting power of surviving entity








	•	 	
During any 24-month period, incumbent
directors at beginning of period (and directors elected or nominated by
majority of incumbent directors) cease to be a majority of the Board of
Directors








	•	 	
Shareholder approval of a sale of all or
substantially all Company assets plan of liquidation of Company







 


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