Document:

Exhibit 10(a)

Exhibit 10(a)

Amended and Restated

Officer Change in Control Agreement

This Amended and Restated Officer Change in Control Agreement is entered into as of this 18th
day of September, 2009 by and between Tucson Electric Power Company (the “Company”), an Arizona
corporation, and Michael J. DeConcini (the “Employee”).

RECITALS

A. The Company and the Employee entered into an Officer Change in Control Agreement (the
“Prior Agreement”) dated December 4, 1998, which was amended on one prior occasion, and which
expires by its own terms on March 3, 2010.

B. The Board of Directors of the Company has determined that it continues to be in the best
interests of the Company and its shareholders to assure continuity in the management of the
Company, UniSource Energy Corporation (“UniSource Energy”) and the applicable Affiliate(s) (as
defined in this Agreement) in the event of a Change in Control (as defined in this Agreement)
occurs.

C. By executing this Amended and Restated Officer Change in Control Agreement (the
“Agreement”), the Company and the Employee intend to replace and supersede the Prior Agreement in
its entirety.

D. In consideration for the Employee’s execution of this Agreement, the Company and UniSource
Energy will offer the Employee a new change in control agreement that will become effective
immediately following the expiration of this Agreement. The new agreement will be substantially in
the form that the Company and UniSource Energy then offer to executives of Employee’s level.

NOW, THEREFORE, in consideration of the Employee’s continued service to the Company and the
mutual agreements herein contained, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Employee hereby agree as follows:

AGREEMENT

ARTICLE I

Eligibility for Benefits

1.1 Term of Agreement; Expiration Date. This Agreement shall be effective as of the
date first indicated above and shall remain in effect until March 3, 2010 at which time it will
automatically terminate. If a Change in Control occurs on or before March 3, 2010, however, this
Agreement will remain in effect until the fifth anniversary of the Change in Control, at which time
it will automatically terminate.

 

 

 

1.2 Change in Control. For purposes of this Agreement, “Change in Control” shall mean
each occurrence of any of the following:

(a) Any person, or more than one person acting as a group (as determined in accordance
with Treas. Reg. § 1.409A-3(i)(5)), acquires (or has acquired during the 12-month period
ending on the most recent acquisition by such person or persons) ownership of stock of
UniSource Energy possessing 40% or more of the total voting power of the stock of UniSource
Energy, unless such person is, or shall be, a trustee or other fiduciary holding securities
under an employee benefit plan of UniSource Energy or a corporation owned, directly or
indirectly, by the stockholders of UniSource Energy in substantially the same proportion as
their ownership of stock of UniSource Energy;

(b) The closing of a merger or consolidation of UniSource Energy or Company with
another entity that is not affiliated with UniSource Energy immediately before the Change in
Control; provided, however, that, in the case of a merger or consolidation involving
UniSource Energy, if the merger or consolidation results in the voting securities of
UniSource Energy outstanding immediately prior thereto continuing to represent, either by
remaining outstanding or by being converted into voting securities of the surviving entity,
more than 50% of the combined voting power of the voting securities of UniSource Energy or
such surviving entity outstanding immediately after such merger or consolidation, the merger
or consolidation will be disregarded; and provided further that, in the case of a merger or
consolidation involving the Company, if UniSource Energy continues to hold more than 50% of
the combined voting power of the voting securities of the Company or the surviving entity
outstanding immediately after such merger or consolidation, the merger or consolidation will
be disregarded;

(c) During any period of twelve (12) consecutive months, excluding any period prior to
the execution of this Agreement, the majority of members of UniSource Energy’s Board is
replaced by directors whose appointment or election is not endorsed by a majority of the
members of the Board before the date of such appointment or election; or

(d) UniSource Energy’s execution of an agreement for the sale or disposition by
UniSource Energy of all or substantially all of UniSource Energy’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 been
obtained; and (2) the transaction that would otherwise be considered a Change in Control closes.
Further, to the extent required by Section 409A of the Internal Revenue Code of 1986, as amended
(the “Code”), a transaction will not be considered a Change in Control for purposes of this Section
7 unless the transaction also constitutes a “change in control event ” as such term is used in
Treas. Reg. § 1.409A-3(i)(5).

 

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1.3 Qualifying Termination. The term “Qualifying Termination” shall mean the
occurrence of both:

(a) a Change in Control on or before March 3, 2010; and

(b) either:

	 	(i)	 	the Employee incurs a Separation from Service
with the Company or its successor due to the Company’s or successor’s
termination of the Employee’s employment, other than for the reasons
delineated in Sections 1.7(a)(i), 1.7(a)(ii) or 1.7(c) hereto, within
five (5) years following the Change in Control described in paragraph
(a) (or within six (6) months before such Change in Control if the
Employee’s Separation from Service is effected in contemplation of the
Change in Control); or

	 	(ii)	 	the Employee incurs a Separation from Service
due to the Employee’s termination of employment with the Company or its
successor for “Good Reason” in accordance with the provisions of
Section 1.7(b) hereto, within five (5) years following the Change in
Control described in paragraph (a) (or within six (6) months before
such Change in Control if the Employee’s Separation from Service is
effected in contemplation of the Change in Control).

Notwithstanding any provision to the contrary, the Company shall not be required to provide
any benefits to the Employee pursuant to this Agreement unless a Change in Control occurs on or
before March 3, 2010.

1.4 Compensation.

(a) For all services rendered by the Employee in any capacity during the term of this
Agreement following a Change of Control, including services as an executive, officer,
director, or member of any committee of the Company or any subsidiary or affiliate thereof,
the Company shall pay the Employee a fixed salary at a rate of not less than Employee’s
salary in effect at the time of the Change in Control, subject to such periodic increases as
the Board of Directors, or a committee designated by said Board, shall deem appropriate in
accordance with the Company’s customary procedures and practices regarding the salaries of
senior management employees. Such salary shall be payable in accordance with the customary
payroll practices of the Company. Such periodic increases in salary, once granted, shall
not be subject to revocation.

 

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(b) Nothing in this Agreement shall preclude or affect any rights or benefits that may
now or hereafter be provided for the Employee or for which the Employee may be or become
eligible under any bonus or other form of compensation or employee benefit plan now existing
or that may hereafter be adopted or awarded by the Company. Specifically, the Employee
shall:

	 	(i)	 	participate in the Company’s Retirement Plan
and any related excess benefit or supplemental retirement program
(hereinafter referred to collectively as the “Retirement Program”);

	 
	 	(ii)	 	participate in the Company’s Deferred
Compensation Plan;

	 
	 	(iii)	 	participate in the Company’s Triple Investment
Plan;

	 
	 	(iv)	 	participate in any stock option, stock
appreciation right, equity incentive or deferred compensation plan
maintained by the Company;

	 
	 	(v)	 	participate in the Company’s death benefit
plans;

	 
	 	(vi)	 	participate in the Company’s disability benefit
plans;

	 
	 	(vii)	 	participate in the Company’s medical, dental
and health and welfare plans;

	 
	 	(viii)	 	participate in the Company’s annual incentive plan; and

	 
	 	(ix)	 	participate in equivalent successor plans
thereto for which senior management employees are eligible; provided,
however, that nothing in this Agreement shall preclude the Company from
amending or terminating any such plan or program, on the condition that
such amendment or termination is applicable to all of the Company’s
senior management employees generally.

1.5 Business Expenses. The Company shall pay or reimburse the Employee for all
reasonable travel or other expenses incurred in connection with the performance of the Employee’s
duties under this Agreement in accordance with such procedures as the Company may from time to time
establish. The Employee shall be entitled to reimbursement for business expenses in accordance
with this Section 1.5 for expenses incurred while the Employee is employed by the Company. The
amount of expenses incurred in one calendar year will not affect the expenses eligible for
reimbursement in any other calendar year. All expenses incurred in one calendar year must be
reimbursed no later than the last day of the next calendar year. The right to reimbursement is not
subject to liquidation or exchange for any other benefit.

1.6 Additional Benefits. Nothing in this Agreement shall affect the Employee’s
eligibility to participate in all group health, dental, hospitalization, life, travel or accident
or other insurance plans or programs and all other perquisites, fringe benefit or retirement plans
or additional compensation, including termination pay programs, which the Company may hereafter, in
its sole and absolute discretion, elect to make available to its senior management employees
generally, and the Employee shall be eligible to receive, during his employment, all benefits and
emoluments for which key employees are eligible under every such plan, program, perquisite or
arrangement to the extent permissible under the general terms and provisions thereof.

 

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1.7 Termination of Employment. Notwithstanding any other provision of this Agreement,
the Employee’s employment with the Company may be terminated:

(a) by the Company:

	 	(i)	 	at any time for “Cause” upon written notice to
the Employee specifying the basis for the termination. For purposes of
this Agreement, the term “Cause” shall mean the termination of the
Employee’s employment by the Company for one or more of the following
reasons:

	 	(1)	 	The Employee’s willful failure to
perform any of the Employee’s duties which continues after the
Company has given the Employee written notice describing the
Employee’s failure and provided to the Employee an opportunity
to cure such failure within thirty (30) days (or such longer
period as may be specified by the Board) of such written notice;
or

	 
	 	(2)	 	The Employee’s material violation
of Company policy; or

	 
	 	(3)	 	Any act of fraud or dishonesty
resulting or intended to result in the Employee’s personal
enrichment at the Company’s or any Affiliate’s expense; or

	 
	 	(4)	 	The Employee’s gross misconduct
in the performance of the Employee’s duties that results in
material economic harm to the Company or any Affiliate; or

	 
	 	(5)	 	The Employee’s conviction of, or
plea of guilty or no contest (or its equivalent) to, a felony;
or

	 
	 	(6)	 	The Employee’s material breach of
the Employee’s employment agreement with the Company, if any.

The existence of Cause shall be determined by the Board, in its discretion.

	 	(ii)	 	upon the Disability or death of the Employee.
For purposes of this Agreement, the term “Disability” is defined as the
inability of the Employee to engage in his regular occupation for
twelve (12) consecutive months and the inability thereafter to engage
in any occupation in which the Employee could reasonably expect to
engage giving due consideration to the Employee’s education, training
and experience. The Employee must be under the regular medical care of
a physician in connection with treatment for such Disability.

 

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(b) by the Employee for “Good Reason.” The Employee shall have “Good Reason” to
terminate employment with the Company if the Employee provides the Company with notice of
such termination as set forth below. For purposes of this Agreement, the term “Good Reason”
shall mean and include each of the following (unless the Employee has expressly agreed to
such event in a signed writing):

	 	(i)	 	A material, adverse diminution in Employee’s
authority, duties, or responsibilities; or

	 
	 	(ii)	 	A material change in the geographic location at
which Employee must primarily perform services; or

	 
	 	(iii)	 	A material diminution in Employee’s base
salary provided that such diminution is not a result of a generally
applicable reduction in the base salary of all officers of the Company
in an amount that does not exceed 10%; or

	 
	 	(iv)	 	Any action or inaction that constitutes a
material breach of this Agreement by the Company which, for this
purpose, shall include, but not be limited to, the Company’s failure to
ensure that any successor to the Company or UniSource Energy assumes
the Company’s obligations pursuant to this Agreement.

Notwithstanding any provisions of this Agreement to the contrary, none of the events
described in this Section 1.7(b) will constitute Good Reason if, within thirty (30) days
after the Employee provides the Company with a written notice specifying the occurrence or
existence of the breach or action that the Employee believes constitutes Good Reason, the
Company has fully corrected (or reversed) such breach or action. The Employee’s Separation
from Service for Good Reason will occur on the day following the expiration of this thirty
(30) day “cure period,” (unless the Company has fully corrected (or reversed) the breach or
action) unless the Employee and the Company agree to a later date not later than two years
following the initial existence of such breach or action. The Employee shall be deemed to
have waived the Employee’s right to terminate for Good Reason with respect to any such
breach or action if the Employee fails to notify the Company in writing of such breach or
action within ninety (90) days of the event that gives rise to such breach or action.

(c) by either the Company or the Employee, if the Employee accepts employment or a
consulting position with another company.

 

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ARTICLE II

Compensation Upon Termination

2.1 Basic Severance Payment. In the event of a Qualifying Termination, the Company
shall, as liquidated damages or severance pay, or both, pay to the Employee the following:

(a) A lump sum cash amount equal to:

	 	(i)	 	three (3) times the sum of Employee’s base
annual salary immediately preceding the Change in Control; adjusted to
reflect any increases in such base salary following the Change in
Control plus the Employee’s annual target bonus; and

	 
	 	(ii)	 	a prorated annual target bonus for the short
year in which the Qualifying Termination occurs.

(b) A lump sum cash amount equal to the present value of the excess of:

	 	(i)	 	the aggregate benefit that would have been paid
under the Retirement Program described in paragraph 1.4(b)(i) above as
in effect on the date first above written, if the Employee had
continued to be employed and to be entitled to service credit for
eligibility and benefit purposes during the sixty (60) month period
immediately following such Qualifying Termination, at an annual rate of
compensation equal to that used to calculate the payments provided by
paragraph 2.1(a) above, calculated on the basis of the compensation
amount used in the benefit formula under said Retirement Program, and
assuming that the Employee is fully vested in such benefit, over

	 	(ii)	 	the aggregate benefit actually payable under
the Retirement Program and any successor retirement program of the
Company consisting of a tax-qualified pension plan and a related excess
benefit plan. In clarification of the immediately preceding sentence,
the aggregate benefit that would have been paid under the Retirement
Program shall be calculated as of the normal or early retirement date
for which the Employee would have qualified, if the Employee were still
employed on that date, and which would produce the highest present
value.

(c) To the extent not otherwise paid or payable under this Agreement or the Plan, a
lump sum cash amount equal to the present value of any Employee awards under the Plan which
are outstanding at the time of the Qualifying Termination (whether vested or not) prorated
based on length of service, and assuming, for the purpose of this paragraph, that any
contingencies or performance goals related to such awards are fully achieved at the one
hundred percent (100%) level.

 

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(d) For purposes of calculating the lump sum cash payments provided by paragraph 2.1(b)
above, present value shall be determined by using a discount factor equal to one (1)
percentage point below the Prime Rate, compounded annually. The “Prime Rate” shall be the
base rate on corporate loans at large U.S. money center commercial banks as reported in the
Wall Street Journal (or, if such rate is no longer published, such other base rate
on corporate loans by large money center commercial banks in the United States to their most
credit worthy customers as published by any newspaper or periodical of general circulation)
as of the date on which Qualifying Termination shall have occurred.

(e) For a period of sixty (60) months (commencing with the month in which the
Qualifying Termination shall have occurred), the Employee shall continue to be entitled to
all employee benefits provided for in paragraph 1.4(b)(v) through (vii) above as if the
Employee were still employed during such period under this Agreement, with benefits based
upon the compensation used to calculate the payments provided by paragraph 2.1(a) above, and
if and to the extent that such benefits shall not be payable or provided under any such
plan, the Company shall pay or provide such benefits on an individual basis. The benefits
provided for in paragraph 1.4(b)(vii) above in accordance with this paragraph 2.1(e) shall
be secondary to any comparable benefits provided by another employer.

(f) The Employee’s continued participation in the Company’s medical, dental and health
and welfare benefit plans pursuant to Section 2.1(e) after the period of time during which
the Employee would be entitled to continuation coverage pursuant to Section 4980B of the
Code if the Employee elected the coverage and paid the premiums (the “Excess Medical
Benefits”) may be considered to be “deferred compensation” subject to the requirements of
Section 409A of the Code. In order to assure compliance with the requirements of Section
409A and avoid adverse tax consequences to Employee, the only Excess Medical Benefits that
will be subject to reimbursement under such plans will be expenses for medical care within
the meaning of Section 105(b) of the Code. In addition, all reimbursements of Excess
Medical Benefits under such plans shall be made on or before the last day of the calendar
year following the calendar year in which the expense was incurred and the right to
reimbursement for such Excess Medical Benefits will not be subject to liquidation or
exchange for another benefit.

(g) The basic severance payments described in Sections 2.1(a), (b), and (c) above shall
be paid to the Employee within twenty (20) business days following the occurrence of a
Change in Control, in the event the Employee’s Qualifying Termination is one in which the
Employee’s Separation from Service occurs prior to the Change in Control, or the Employee’s
Separation from Service in the event the Employee’s Qualifying Termination is one in which
the Employee’s Separation from Service occurs after the occurrence of a Change in Control.
In no event will any payment be made prior to the expiration of the revocation period
described in Section 2.1(h). The payment provisions set forth in this Section 2.1(g) are
subject to the provisions of Section 3.12(b) (which generally requires a six-month delay in
payments to a Specified Employee), if applicable.

 

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(h) In order to receive the payments and benefits described in this Section 2.1, the
Employee must execute (and not revoke) any release reasonably requested by the Company of
any claims that the Employee may have against the Company, UniSource Energy or any Affiliate
in connection with the Employee’s employment with the Company and UniSource Energy or
otherwise. The release shall be provided to the Employee within five (5) days following the
occurrence of a Change in Control, in the event the Employee’s Qualifying Termination occurs
prior to the occurrence of a Change in Control. The release shall be provided to the
Employee within five (5) days following the Employee’s Qualifying Termination, in the event
such Qualifying Termination occurs following the occurrence of a Change in Control. If the
Employee is forty (40) years of age or older, the Employee shall have either twenty-one (21)
or forty-five (45) calendar days (with the exact amount of time to be specified by the
Company in the release) following the date the release is given to the Employee to sign and
return the release to the Company. If the Employee is forty (40) years of age or older,
then within seven (7) calendar days after delivery of the release to the Company by the
Employee, the Employee shall be entitled to revoke the release by returning the signed copy
or counterpart original of the release to the Company. The returned release shall include
the Employee’s written signature in a space provided thereon, indicating his or her decision
to revoke the release. The revocation of a previously signed and delivered release pursuant
to the above shall be deemed to constitute an irrevocable election by the Employee to have
declined to receive the payments and benefits described in this Section 2.1. If the
Employee is younger than forty (40) years of age, the Employee shall have ten (10) calendar
days following the date the release is given to the Employee to sign and return the release
to the Company. If the Employee is younger than forty (40) years of age, the Employee is
not entitled to revoke the release.

(i) The Employee’s receipt of the severance payments and benefits described in this
Section 2.1 also is expressly conditioned upon the Employee’s continued compliance with the
provisions of Section 2.7 (Intellectual Property) and Section 2.8 (Restrictive
Covenants).

(j) In order to receive the severance payments and benefits described in this Section
2.1, the Employee must incur a Qualifying Termination with the Company which, as noted
below, generally requires the Employee’s Qualifying Termination with the Company, UniSource
Energy and all of its Affiliates. As a result, a transfer to an Affiliate will not be
treated as a Qualifying Termination for purposes of this Agreement. For purposes of
determining whether a transfer constitutes Good Reason for the Employee’s Qualifying
Termination pursuant to Section 1.3(b), such transfer shall be treated the same as a
reassignment within the Company.

(k) 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).

 

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(l) For purposes of this Agreement, employment by a successor of the Company or a
successor of UniSource Energy or one of its Affiliates shall be considered to be employment
by the Company, UniSource Energy or one of its Affiliates. As a
result, if the Employee is employed by such a successor following a Change in Control,
the Employee will not be entitled to receive the severance benefits and payments provided by
this Section 2.1 unless the Employee subsequently incurs a Qualifying Termination from the
successor.

(m) Except as otherwise provided in Section 2(n), the right to receive any severance
payments and benefits under this Agreement is specifically conditioned upon the Employee
either waiving or being ineligible for any and all benefits under any other severance,
retention or change in control plan, program or agreement sponsored by the Company or any
successor.

(n) Notwithstanding Section 2(m), if the Employee incurs a Separation from Service for
which the Employee becomes entitled to, and receives, severance benefits pursuant to the
UniSource Energy Corporation Interim Severance Pay Plan (the “Severance Plan”) and a Change
in Control occurs within six (6) months following such Separation from Service, the Employee
will be entitled to severance payments and benefits pursuant to this Agreement. The
payments and benefits due to the Employee pursuant to this Agreement will be reduced by the
amount of any payment or benefit the Employee already has received pursuant to the Severance
Plan.

2.2 Tax Withholding. The Company may withhold from any payment made under this
Agreement, all federal, state or other tax as required by law, government regulation or ruling.

2.3 Excise Tax Gross-Up. Should Employee become entitled to any payment or benefit
under this Agreement (the “Total Payments”), and the Total Payments are subject to the tax imposed
by Section 4999 of the Code (the “Excise Tax”), the Company shall pay to Employee, in cash, an
additional amount (the “Gross-Up Payment”) such that the net amount retained by the Employee after
deduction of

(a) any Excise Tax upon the Total Payments, and

(b) any federal, state or local income tax and Excise Tax upon the Gross-Up Payment
provided for by this paragraph, shall be equal to the Total Payments. Such payment shall be
made to Employee within thirty (30) days from the Qualifying Termination giving rise to
payments under this Agreement.

In order to assure compliance with the requirements of Section 409A, in no event will any
payment due pursuant to this Section or Section 2.5 be made later than December 31 of the tax year
next following the tax year in which the Employee remits such taxes.

 

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2.4 Tax Computation. For purposes of determining whether any of the Total Payments
will be subject to the Excise Tax and the amounts of such Excise Tax:

(a) Any payments or benefits received by Employee in connection with a Qualifying
Termination (whether pursuant to the terms of this Agreement or any other plan, or agreement
with the Company, or with any person (as defined in Section 3(a)(9) of the Exchange Act,
including a “group” as defined in Section 13(d) therein) whose
actions result in a Change in Control or any person affiliated with the Company or such
persons) shall be treated as “parachute payments” within the meaning of Section 280G(b)(2)
of the Code, and all “excess parachute payments” within the meaning of Section 280G(b)(1)
shall be treated as subject to the Excise Tax, unless in the opinion of tax counsel as
supported by the Company’s independent auditors and acceptable to the Employee, such other
payments or benefits (in whole or in part) do not constitute parachute payments, or unless
such excess parachute payments (in whole or in part) represent reasonable compensation for
services actually rendered within the meaning of Section 280G(b)(4) of the Code in excess of
the base amount within the meaning of Section 280G(b)(3) of the Code, or are otherwise not
subject to the Excise Tax.

(b) The amount of the Total Payments which shall be treated as subject to the Excise
Tax shall be equal to the lesser of:

	 	(i)	 	the total amount of the Total Payments; or

	 
	 	(ii)	 	the amount of excess parachute payments within
the meaning of Section 280G(b)(1) (after applying clause (a) above);
and

	 
	 	(iii)	 	the value of any noncash benefits or any
deferred payment or benefit, which shall be determined by the Company’s
independent auditors in accordance with the principles of Sections
280G(d)(3) and (4) of the Code.

For purposes of determining the amount of the Gross-Up Payment, the Employee shall be
deemed to pay federal, state and local income taxes at the Employee’s actual marginal rate
of federal, state and local income taxation in the calendar year in which the Gross-Up
Payment is to be made, net of the maximum reduction in federal income taxes which could be
obtained from deduction of such state and local taxes. Any additional tax imposed on the
Employee pursuant to Section 409A(a)(1)(B) of the Code shall be disregarded for purposes of
this calculation. In the event the Company determines it is necessary, the Employee agrees
to provide to the Company a copy of the Employee’s federal and state income tax returns for
the year in which the Gross-Up Payment becomes due so that the Company may calculate the
amount due pursuant to Section 2.3.

2.5 Subsequent Recalculation. In the event the Internal Revenue Service adjusts the
computation made by the Company under paragraph 2.4 herein so that Employee did not receive the
greatest net benefit, the Company shall reimburse Employee for the full amount necessary to make
Employee whole, plus a market rate of interest, as determined by the Company.

2.6 Source of Payments. All payments provided for in paragraphs 1.4, 2.1, 2.3, and
2.5 above shall be paid in cash from the general funds of the Company. The Company shall not be
required to establish a special or separate fund or other segregation of assets to assure such
payments.

 

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2.7 Intellectual Property.

(a) Proprietary Information. The Employee and the Company hereby acknowledge
and agree that in connection with the performance of the Employee’s services, the Employee
shall be provided with or shall otherwise be exposed to or receive certain proprietary
information of the Company. Such proprietary information may include, but shall not be
limited to, information concerning the Company’s customers and products, information
concerning certain marketing, selling, and pricing strategies of the Company, and
information concerning methods, manufacturing techniques, and processes used by the Company
in its operations (all of the foregoing shall be deemed “Proprietary Information” for
purposes of this Agreement). The Employee hereby agrees that, without the prior written
consent of the Company, any and all Proprietary Information shall be and shall forever
remain the property of the Company, and that during the Employee’s employment with the
Company, and at all times thereafter, the Employee shall not in any way disclose or reveal
the Proprietary Information other than to the Company’s executives, officers and other
employees and agents in the normal course of the Employee’s provision of services hereunder.
The term “Proprietary Information” does not include information that (1) becomes generally
available to the public other than as a result of a disclosure by the Employee contrary to
the terms of this Agreement, (2) was available on a non-confidential basis prior to its
disclosure, or (3) becomes available on a non-confidential basis from a source other than
the Employee, provided that such source is not contractually obligated to keep such
information confidential.

(b) Trade Secrets. The Employee, prior to and during this Agreement, has had
and will have access to and become acquainted with various trade secrets that are owned by
the Company or by its Affiliates and are regularly used in the operation of their respective
businesses and that may give the Company or an Affiliate an opportunity to obtain an
advantage over competitors who do not know or use such trade secrets. The Employee agrees
and acknowledges that the Employee has been granted access to these valuable trade secrets
only by virtue of the confidential relationship created by the Employee’s employment and the
Employee’s prior relationship to, interest in, and fiduciary relationships to the Company.
The Employee shall not disclose any of the aforesaid trade secrets, directly or indirectly,
or use them in any way, either during the Employee’s employment with the Company or at any
time thereafter, except as required in the course of employment by the Company and for its
benefit.

(c) Ownership of Documents. The Company shall own all papers, records, books,
drawings, documents, manuals, and anything of a similar nature (collectively, the
“Documents”) prepared by the Employee in connection with the Employee’s employment. The
Documents shall be the property of the Company and are not to be used on other projects
except upon the Company’s prior written consent. Upon termination of the Employee’s
employment with the Company, the Employee shall surrender to the Company any and all
Documents or other property of whatsoever kind now or hereafter in the Employee’s
possession, custody, or control that contain or reflect in any manner whatsoever Proprietary
Information or information that in any way relates to the Company’s business.

 

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(d) Company Defined. For purposes of this Section 2.7, “Company” shall be
interpreted to include the Company, UniSource Energy and all of UniSource Energy’s
Affiliates.

2.8 Restrictive Covenants.

(a) Covenant Not to Compete. In consideration of the Company’s agreements
contained herein and the payments to be made by it to the Employee pursuant hereto, the
Employee agrees that during the Restricted Period the Employee will not, without prior
written consent of the Company, consult with, engage in or act as an advisor to another
company about activity that is a “Competing Business” of such company in the Restricted
Territory, as defined in this Section 2.8.

(b) Non-Solicitation. The Employee recognizes that the Company’s customers are
valuable and proprietary resources of the Company. Accordingly, the Employee agrees that
during the Restricted Period the Employee will not directly or indirectly, through the
Employee’s own efforts or through the efforts of another person or entity, solicit business
in the Restricted Territory for or in connection with any Competing Business from any
individual or entity that obtained products or services from the Company at any time during
the Employee’s employment with the Company. In addition, during the Restricted Period the
Employee will not solicit business in the Restricted Territory for or in connection with a
Competing Business from any individual or entity that was solicited by the Employee on
behalf of the Company. Further, during the Restricted Period the Employee will not solicit
employees of the Company who would have the skills and knowledge necessary to enable or
assist efforts by the Employee to engage in a Competing Business.

(c) Competing Business. For purposes of this Section 2.8, the Employee shall
be deemed to be engaged in a “Competing Business” if, in any capacity, including proprietor,
shareholder, partner, officer, director or employee, the Employee engages or participates,
directly or indirectly, in the operation, ownership or management of the activity of any
proprietorship, partnership, company or other business entity which activity is competitive
with the then actual business in which the Company or its operating subsidiaries and
Affiliates are engaged on the date of, or any business contemplated by such entities’
business plans in effect on the date of notice of, the Employee’s termination of employment.
Nothing in this Section 2.8(c) is intended to limit the Employee’s ability to own equity in
a public company constituting less than 1% of the outstanding equity of such company, when
the Employee is not actively engaged in the management thereof. If requested by the
Employee, the Company shall furnish the Employee with a good-faith written description of
the business or businesses in which the Company is then actively engaged or that is
contemplated by the Company’s current business plan within thirty (30) days after such
request is made, and only those activities so timely described in which the Company is, in
fact, actively engaged or which are so contemplated may be treated as activities that are
directly competitive with the Company.

 

13

 

(d) Restricted Period. For purposes of this Section 2.8, the “Restricted
Period” shall include the time during which the Employee is employed by the Company
and a period of one (1) year (or in the event any reviewing court finds this period to
be over-broad or unenforceable, for a period of nine (9) months; or in the event any
reviewing court finds this period to be over-broad or unenforceable, for a period of six (6)
months) following the termination of the Employee’s employment with the Company for any
reason.

(e) Restricted Territory. The Employee and the Company understand and agree
that the Company’s business is not geographically restricted and in some respects at least
is unrelated to the physical location of the Company facilities or the physical location of
any Competing Business, due to extensive use of the power grid, Internet, telephones,
facsimile transmissions and other means of electronic information and product distribution.
The Employee and the Company further understand and agree that the Employee will, in part,
work toward expanding the Company’s markets and geographic business territories and will be
compensated for performing this work on behalf of the Company.

Accordingly, the Company has a protectable business interest in, and the parties intend
the Restricted Territory to encompass, each and every geographical location from which the
Employee could engage in a Competing Business. If, but only if, this Restricted Territory
is held to be invalid on the ground that it is unreasonably broad, the Restricted Territory
shall be limited to any geographical location that is within ten (10) miles of any
geographical location in which the Company is in fact carrying out its business operations
or, pursuant to the Company’s business plans, is contemplating conducting business
operations on the date of the Employee’s termination of employment. If, but only if, this
Restricted Territory is held to be invalid on the ground that it is unreasonably broad, the
Restricted Territory shall be any location within a fifty (50) mile radius of any Company
office in existence or, pursuant to the Company’s business plans, intended to be opened at
the time of the Employee’s termination of employment.

(f) Remedies; Reasonableness. The Employee acknowledges and agrees that a
breach by the Employee of the provisions of this Section 2.8 will constitute such damage as
will be irreparable, the exact amount of which will be impossible to ascertain, and for that
reason agrees that the Company will be entitled to an injunction to be issued by any court
of competent jurisdiction restraining and enjoining the Employee from violating the
provisions of this Section 2.8. The right to an injunction shall be in addition to and not
in lieu of any other remedy available to the Company for such breach or threatened breach,
including the recovery of damages from the Employee.

The Employee expressly acknowledges and agrees that: (1) the Restrictive Covenants
contained herein are reasonable as to time and geographical area and do not place any
unreasonable burden upon the Employee, (2) the general public will not be harmed as a result
of enforcement of these Restrictive Covenants, and (3) the Employee understands and hereby
agrees to each and every term and condition of the Restrictive Covenants set forth in this
Agreement.

 

14

 

The Employee also expressly acknowledges and agrees that the Employee’s covenants and
agreements in this Section 2.8 shall survive this Agreement and continue to be binding upon
the Employee after the expiration or termination of this Agreement, whether by passage of
time or otherwise.

(g) Company Not in Default. The Company agrees that the restrictions described
in this Section 2.8 apply only so long as the Company is continuously not in material
default of its obligations to provide payments or employment-type benefits to the Employee
hereunder or under any other agreement, covenant or obligation.

(h) Company Defined. For purposes of this Section 2.8, “Company” shall be
interpreted to include the Company, UniSource Energy and all of UniSource Energy’s
Affiliates.

ARTICLE III

Miscellaneous

3.1 Alternative Dispute Resolution.

(a) The parties agree that any controversy, dispute or claim arising out of or relating
to the Agreement or breach thereof, including without limitation the Employee’s employment
with or separation of employment from the Company, compensatory and punitive damages, and to
the extent allowable by law, all claims that the Company or any of its representatives
engaged in conduct prohibited on any basis under any federal, state, or local statute,
including federal or state discrimination statutes or public policy (collectively the
“Dispute”), shall be resolved in accordance with the procedures described in this Section,
which shall be the sole and exclusive procedures for resolution of any Dispute. The parties
shall bear their own attorneys’ fees and costs, unless provided otherwise by an arbitration
award, and share equally the cost thereof of all Dispute Resolution procedures described in
the Section.

(b) The parties shall initially try in good faith to settle the Dispute through
non-binding mediation. 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 and the relief requested. A neutral third party mediator shall be
agreed upon by the parties. If, within fourteen (14) days after a party makes a written
request for mediation or within any longer period mutually agreed upon by the parties, the
parties have not agreed upon the identity of the mediator and the procedure for mediation,
the mediation shall be held in Tucson, Arizona, and administered by the American Arbitration
Association (“AAA”) under its Employment Arbitration and Mediation Procedures 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 by the Rules. A
good faith attempt at mediation shall be a condition precedent to the commencement of
arbitration, but is not a condition precedent to any court action for injunctive or other
interim relief pending the outcome of these Dispute Resolution procedures.

 

15

 

(c) If the parties are unable to resolve the dispute by mediation in a timely manner
(which, in any case, shall not exceed sixty (60) days from the first notice of mediation or
such longer period mutually agreed upon by the parties), the Dispute shall be resolved by
final, binding and conclusive arbitration with a sole arbitrator in Tucson, Arizona. The
parties shall initiate arbitration by filing a written notice of intention to arbitrate at
any office of the AAA. The selection of the arbitrator and the arbitration shall proceed
pursuant to the Rules and judgment upon the award rendered by the arbitrator may be entered
in any court having jurisdiction thereof.

(d) The arbitrator shall award the Employee his attorneys’ fees and costs if the
Employee prevails on at least one (1) material issue in the Dispute, including any
attorneys’ fees and costs the Employee incurs in connection with any appeal or the
enforcement of any award. “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 attorneys’ fees and costs
to the Employee shall be paid by the Company within sixty (60) days following the award of
such fees and costs by the arbitrator, but in no event later than December 31 of the
calendar year following the year of the conclusion of the arbitration.

A party may apply to the arbitrator for injunctive or other equitable relief until the
arbitration award is rendered or the matter is otherwise resolved. A party may, without
waiving the Dispute Resolution procedures under the Agreement, seek from any court having
jurisdiction any interim or provisional relief, including a temporary restraining order, an
injunction both preliminary and final, and any other appropriate equitable relief, that is
necessary to protect the rights or property of that party, pending the final decision of the
arbitrator on all issues related to the injunctive relief.

3.2 Entire Understanding. This Agreement contains the entire understanding between
the Company and the Employee with respect to the subject matter hereof and supersedes any prior
employment or change in control agreement and amendment thereto between the Company and the
Employee, except that this Agreement shall not affect or operate to reduce any benefit or
compensation inuring to the Employee of a kind elsewhere provided and not expressly provided in
this Agreement. For purposes of clarity, this Agreement is not intended to affect or operate to
reduce any benefit or compensation to which the Employee is entitled that is not triggered by a
Change in Control.

3.3 Severability. If, for any reason, any one or more of the provisions or part of a
provision contained in this Agreement shall be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any other provision or
part of a provision of this Agreement not held so invalid, illegal or unenforceable, and each other
provision or part of a provision shall, to the full extent consistent with law, continue in full
force and effect. If this Agreement is held invalid or cannot be enforced, then to the full extent
permitted by law, any prior agreement between the Company and the Employee shall be deemed
reinstated as if this Agreement had not been executed.

 

16

 

3.4 Consolidation, Merger, or Sale of Assets. Nothing in this Agreement shall
preclude the Company from consolidating or merging into or with or transferring all or
substantially all of its assets to another corporation with a net worth at least equal to that
of the Company and which assumes this Agreement and all obligations and undertakings of the Company
hereunder. Upon such a consolidation, merger or transfer of assets and assumption, the term, “the
Company,” as used herein shall mean such other corporation and this Agreement shall continue in
full force and effect.

3.5 Notices. All notices, requests, demands and other communications required or
permitted hereunder shall be given in writing and shall be deemed to have been duly given if
delivered or mailed, postage prepaid, first class as follows:

	 	 	 	 	 
	 

	 	To the Company:
	 	Tucson Electric Power Company 

P.O. Box 711

Tucson, AZ 85702

Attention: Corporate Secretary
	 
	 	 	 	 
	 

	 	To the Employee:
	 	Michael DeConcini
	 

	 	 	 	Mail Stop UE182
	 

	 	 	 	Tucson Electric Power Company
	 

	 	 	 	P.O. Box 711
	 

	 	 	 	Tucson, AZ 85702-0711
	 
	 	 	 	 
	 

	 	 	 	with an additional copy to:
	 
	 	 	 	 
	 

	 	 	 	Michael DeConcini

or to such other address as either party shall have previously specified in writing to the other.

3.6 No Attachment. Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance,
charge, pledge, or hypothecation or to execution, attachment, levy, or similar process or
assignment by operation of law, or any attempt, voluntary or involuntary, to effect any such action
shall be null, void and of no effect.

3.7 Binding Agreement. This Agreement shall be binding upon, and shall inure to the
benefit of, the Employee and the Company and their respective permitted successors and assigns.

3.8 Modification and Waiver. This Agreement may not be modified or amended except by
an instrument in writing signed by the parties. No term or condition of this Agreement shall be
deemed to have been waived, nor shall there be any estoppel against the enforcement of any
provision of this Agreement except by written instrument signed by the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver unless specifically
stated therein, and each such waiver shall operate only as to the specific term or condition waived
and shall not constitute a waiver of such term or condition for the future or as to any act other
than that specifically waived.

 

17

 

3.9 Headings. The headings contained in this Agreement are included solely for
convenience and shall not in any way affect the meaning or interpretation of any of the provisions
of this Agreement.

3.10 Governing Law. This Agreement and its validity, interpretation, performance, and
enforcement shall be governed by the laws of the State of Arizona, without regard to the choice of
law provisions thereof.

3.11 Tax Compliance.

(a) Compliance Strategy; Responsibility for Taxes. Section 409A of the Code
imposes an additional twenty percent (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-qualified deferred compensation plan.” The
additional twenty percent (20%) tax, and interest, does not apply if the payment qualifies
for an exception to the requirements of Section 409A or complies with the requirements of
Section 409A. The Company intends that the payments and benefits due pursuant to this
Agreement either comply with the requirements of Section 409A or qualify for an exception to
the requirements of Section 409A. Nevertheless, the Company does not guarantee any
particular tax effect or treatment of the amounts due under this Agreement. Except for the
Company’s responsibility to withhold applicable income and employment taxes from
compensation paid or provided to the Employee, the Company will not be responsible for the
payment of any applicable taxes on compensation paid or provided pursuant to this Agreement.

(b) Delay in Payments. Prior to making any payments due under this Agreement,
the Company will determine, on the basis of any regulations, rulings or other available
guidance, whether the short-term deferral exception, the separation pay exception or any
other exception to the requirements of Section 409A of the Code is available. If the
Employee is a “Specified Employee” (as defined in Treas. Reg. § 1.409A-1(i)), and the
Company concludes that no exception to the requirements of Section 409A of the Code is
available, no payments that are payable to the Employee as a result of the Employee’s
Separation from Service pursuant to this Agreement, or under any arrangement that is
aggregated with this Agreement under Section 409A of the Code, shall be made to the
Employee prior to the first business day following the date which is six (6) months after
the Employee’s Separation from Service. Any amounts that would have been paid during the six
(6) months following the Employee’s Separation from Service will be paid on the first
business day following the expiration of the six (6) month period without interest thereon.
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
Section 409A of the Code.

(c) Separation from Service Defined. For purposes of this Agreement, the term
“Separation from Service” means, either (1) termination of Employee’s employment with the
Company and all Affiliates, or (2) a permanent reduction in the level of bona fide services
Employee provides to the Company and all Affiliates to an amount that is
twenty percent (20%) or less of the average level of bona fide services Employee
provided to the Company in the immediately preceding thirty-six (36) months, with the level
of bona fide service calculated in accordance with Treas. Reg. § 1.409A-1(h)(1)(ii).

 

18

 

Solely for purposes of determining whether Employee has a “Separation from Service,”
Employee’s employment relationship is treated as continuing while Employee is on military
leave, sick leave, or other bona fide leave of absence (if the period of such leave does not
exceed six (6) months, or if longer, so long as Employee’s right to reemployment with the
Company or an Affiliate is provided either by statute or contract). If Employee’s period of
leave exceeds six (6) months and Employee’s right to reemployment is not provided either by
statute or by contract, the employment relationship is deemed to terminate on the first day
immediately following the expiration of such six (6) month period. Whether a termination of
employment has occurred will be determined based on all of the facts and circumstances and
in accordance with regulations issued by the United States Treasury Department pursuant to
Section 409A of the Code.

(d) Distributions Treated as Made upon a Designated Event. If the Company
fails to make any payment, either intentionally or unintentionally, within the time period
specified in this Agreement, but the payment is made within the same calendar year, such
payment will be treated as made within the time period specified in this Agreement pursuant
to Treas. Reg. § 1.409A-3(d). In addition, if a payment is not made due to a dispute with
respect to such payment, the payment may be delayed in accordance with Treas. Reg. §
1.409A-3(g).

(e) Reimbursements. In order to ensure compliance with the applicable
regulations, the amounts reimbursed by the Company in one taxable year will not affect the
amounts eligible for reimbursement by the Company in a different taxable year. All
reimbursements must be made no later than December 31 of the calendar year following the
calendar year in which the expense was incurred. The Employee may not 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
schedule of any payment made or benefit provided pursuant to this Agreement be accelerated
or subject to a further deferral except as otherwise permitted or required pursuant to
regulations and other guidance issued pursuant to Section 409A of the Code. The Employee
does not have any right to make any election regarding the time or form of any payment due
under this Agreement. This Agreement shall be operated in compliance with Section 409A of
the Code or an exception thereto and each provision of this Agreement shall be interpreted,
to the extent possible, to comply with Section 409A of the Code or to qualify for an
applicable exception.

 

19

 

IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its authorized
representative and the Employee has signed this Agreement, on the date set forth below.

	 	 	 	 	 	 	 
	 	 	TUCSON ELECTRIC POWER COMPANY	 	 
	 
	 	 	 	 	 	 
	 
	 	/s/ Raymond S. Heyman	 	 
	 	 	 	 	 
	 	 	Raymond S. Heyman	 	 
	 	 	Senior Vice President and General Counsel	 	 
	 
	 	 	 	 	 	 
	 

	 	Date:
	 	October 9, 2009.	 	 
	 
	 	 	 	 	 	 
	 	 	EMPLOYEE	 	 
	 
	 	 	 	 	 	 
	 
	 	/s/ Michael J. DeConcini	 	 
	 	 	 	 	 
	 	 	Michael J. DeConcini	 	 
	 
	 	 	 	 	 	 
	 

	 	Date:
	 	October 9, 2009.	 	 

 

20

 

Schedule of other officers who are covered by substantially identical agreements as Michael J. DeConcini.

Kevin P. Larson, Senior Vice President, Chief Financial Officer and Treasurer

Karen G. Kissinger, Vice President, Controller and Chief Compliance Officer

 

21Exhibit 10(b)

Exhibit 10(b)

UNISOURCE ENERGY CORPORATION

OFFICER CHANGE IN CONTROL AGREEMENT

This Officer Change in Control Agreement (the “Agreement”) is made and entered into by and
between UniSource Energy Corporation (“Company”) and Raymond S. Heyman (“Executive”), effective as
of the date set forth below (the “Effective Date”).

RECITALS

A. The Board of Directors of Company (the “Board”) believes that it is in the best interests
of Company and its shareholders to take appropriate steps to ensure the continuity in the
management of Company and its Affiliates (as defined in this Agreement), in the event a Change in
Control (as defined in this Agreement) occurs.

B. Executive currently serves as an officer of Company and one or more of its Affiliates.

C. The Board has determined that Executive is a key employee whose continued service to
Company and the applicable Affiliate(s) is critical in the event a Change of Control is being
considered or occurs.

D. In order to ensure that Company retains Executive’s services in the event a Change in
Control is being considered or occurs, the Board has decided to offer to Executive the Change in
Control Severance Benefits described in this Agreement.

NOW THEREFORE, in consideration of Executive’s continued service to Company and the mutual
agreements contained in this Agreement, and for other good and valuable consideration, the receipt
and sufficiency of which Executive hereby acknowledges, Company and Executive agree as follows:

AGREEMENT

1. TERM OF AGREEMENT.

This Agreement is effective immediately and will continue in effect until December 31, 2010
(the “Initial Term”). This Agreement will be automatically renewed at the end of the Initial Term
for additional terms commencing on each January 1, and ending on the next following December 31 (a
“Renewal Term”), unless Company provides Executive with written notice of its intent to terminate
the Agreement at least 12 months before the end of the Initial Term or the applicable Renewal Term.
If a Change in Control occurs during the Initial Term or any Renewal Term, the scheduled
expiration date of the Initial Term or Renewal Term, as the case may be, shall be extended for a
term ending on the 24-month anniversary of the Change in Control, at which time this Agreement will
expire. The expiration of the term of this Agreement will not reduce or diminish any liabilities
that have accrued prior to the expiration.

 

 

 

2. CHANGE IN CONTROL SEVERANCE BENEFITS.

(a) Entitlement to Change in Control Severance Benefits. Executive will be entitled
to receive the “Change in Control Severance Benefits” described in this Section 2 if Executive
incurs a “Separation from Service” (as defined in Section 3) due to Company’s termination of
Executive’s employment without “Cause” (as defined in Section 4) or due to Executive’s termination
of employment with Company for “Good Reason” (as defined in Section 5) during the six-month period
prior to the occurrence of a “Change in Control” (as defined in Section 7) and if Executive’s
Separation from Service is effected in contemplation of such Change in Control. Executive also
will be entitled to receive the Change in Control Severance Benefits described in this Section 2 if
Executive incurs a Separation from Service due to Company’s termination of Executive’s employment
with Company without Cause or due to Executive’s termination of employment with Company for Good
Reason during the 24-month period following the occurrence of a Change in Control.

The Change in Control Severance Benefits described in this Section 2 will not be payable if
Executive’s employment is terminated for Cause, if Executive voluntarily terminates Executive’s
employment without Good Reason, or if Executive’s employment is terminated by reason of Executive’s
“Disability” (as defined in Section 6) or Executive’s death. In addition, the Change in Control
Severance Benefits will not be payable if Executive’s employment is terminated by Executive or
Company for any or no reason more than six-months prior to the occurrence of a Change in Control or
more than 24 months following the occurrence of a Change in Control. The Change in Control
Severance Benefits also will not be payable if Executive’s employment is terminated within
six-months prior to a Change in Control if such termination is effected for reasons other than in
contemplation of a Change in Control.

Further, as noted in Section 2(f), a transfer to an Affiliate is not a Separation from Service
for purposes of this Agreement.

(b) Change in Control Severance Benefits. If Executive is entitled to receive Change
in Control Severance Benefits pursuant to Section 2(a), the Change in Control Severance Benefits
provided to Executive pursuant to the terms of this Agreement will consist of the following:

(i) A single lump sum cash payment in an amount equal to one and one-half times the greater of
(a) Executive’s annualized base salary as of the date of Executive’s Separation from Service or (b)
Executive’s annualized base salary in effect immediately prior to any material diminution in
Executive’s base salary following the execution of this Agreement.

(ii) A single lump sum cash payment in an amount equal to one and one-half times the average
payment to which Executive was entitled pursuant to the UniSource Energy Corporation Performance
Enhancement Plan or any successor plan (the “Incentive Compensation Plan”) for the three calendar
years immediately preceding the calendar year in which Executive’s Separation from Service occurs.
If, during each of the three calendar years prior to the year in which Executive’s Separation from
Service occurs, Executive was not eligible to (a) participate in the Incentive Compensation Plan or
(b) receive a payment pursuant to the Incentive Compensation Plan based on Executive’s pay grade
level in effect at the time of
Executive’s Separation from Service, then Executive’s target payment under the Incentive
Compensation Plan for the year of Executive’s Separation from Service will be used to calculate the
amount to which Executive is entitled pursuant to this paragraph (ii) in lieu of the average
payment for the preceding three years.

 

2

 

(iii) A single lump sum cash payment in an amount equal to a prorated portion (based on the
number of calendar days that have elapsed during the calendar year prior to the date of Executive’s
Separation from Service) of the payment to which Executive would be entitled under the Incentive
Compensation Plan (had Executive’s Separation from Service not occurred) for the calendar year in
which Executive’s Separation from Service occurs. The payment due pursuant to this paragraph (iii)
will be based on Executive’s target payment under the Incentive Compensation Plan for the year in
which Executive’s Separation from Service occurs.

(iv) A single lump sum cash payment in the amount of the payment, if any, to which Executive
is entitled under the Incentive Compensation Plan (based on Executive’s actual performance) for the
year prior to the year in which the Executive’s Separation from Service occurs, to the extent
Executive has not yet received such payment from Company.

(v) The continuation of any health, life, disability or other insurance benefits that
Executive was receiving as of Executive’s last day of active employment for a period expiring on
the earlier of (a) 18 months following Executive’s Separation from Service or, if Executive’s
Separation from Service occurs within six months prior to the occurrence of a Change in Control,
for the 18 months following the date on which the Change in Control occurs or (b) the day on which
Executive becomes eligible to receive any substantially similar benefits, on a benefit-by-benefit
basis, under any plan or program of any successor employer. The continuation of any health, life,
disability or other insurance benefits 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 this paragraph (v) by either paying for or reimbursing Executive for the
employer’s portion of the COBRA premium (and Executive 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 of such coverage in a manner to minimize the cost). In the
event Executive’s right to Company’s continued payment for the employer’s portion of health
insurance benefits extends beyond the applicable COBRA coverage period, Company will satisfy the
obligation to provide the health insurance benefits by either paying for or reimbursing Executive
for the employer’s portion of premiums for health insurance benefits that are comparable to those
Executive receives during the COBRA continuation period. Company also will reimburse Executive for
the employer’s portion of the cost of comparable coverage for all other insurance benefits that are
not subject to the COBRA continuation rules. It will be Executive’s responsibility to procure such
benefits and Company will promptly reimburse Executive for the employer’s portion of the premiums
for such benefits upon Executive’s submission of an invoice or other acceptable proof of payment.
For purposes of this Agreement, the “employer’s portion” is an amount equal to the cost of
Company’s corresponding coverage for the applicable benefit for an active employee at Executive’s
level at the time of Executive’s Separation from Service.

 

3

 

Notwithstanding the foregoing, if Executive has elected a health care option pursuant to which
Company has agreed to make contributions to Executive’s Health Savings Account, then Company will
pay to Executive a single lump sum cash payment in an amount equal to the contributions that
Company would have made to Executive’s Health Savings Account during the 18-month benefit
continuation period described above had Executive not incurred a Separation from Service.

(c) Timing of Lump Sum Change in Control Severance Benefits. The lump sum Change in
Control Severance Benefit payments described in Sections 2(b)(i), (ii), (iii), (iv) and (v) that
become payable due to Executive’s Separation from Service within the six-month period prior to a
Change in Control will be paid to Executive within 20 days following the later of the (1) date on
which the Change in Control occurs or (2) the expiration of the revocation period provided in the
release required pursuant to Section 2(d). In the event Executive becomes entitled to the Change
in Control Severance Benefit payments described above as a result of Executive’s Separation from
Service within the 24-month period following a Change in Control, such payments will be paid to
Executive within 20 days following the later of (1) the date of Executive’s Separation from Service
or (2) the expiration of the revocation period provided in the release required pursuant to Section
2(d). The payment provisions set forth in this Section 2(c) are subject to the provisions of
Section 8(b) (which generally requires a six-month delay in payments to a Specified Employee), if
applicable.

(d) Release Agreement. In order to receive the Change in Control Severance Benefits
described in this Section 2, Executive must execute (and not revoke) any release reasonably
requested by Company of any claims that Executive may have against Company or any Affiliate in
connection with Executive’s employment with Company and/or any Affiliate or otherwise. The release
shall be provided to Executive within five days following the occurrence of a Change in Control, in
the event Executive’s Separation from Service occurs during the six-month period prior to the
occurrence of a Change in Control. The release shall be provided to Executive within five days
following Executive’s Separation from Service, in the event such Separation from Service occurs
during the 24-month period following the occurrence of a Change in Control. If Executive is 40
years of age or older, Executive shall have either 21 or 45 calendar days (with the exact amount of
time to be specified by Company in the release) following the date the release is given to
Executive to sign and return the release to Company. If Executive is 40 years of age or older, then
within seven calendar days after delivery of the release to Company by Executive, Executive shall
be entitled to revoke the release by returning the signed copy or counterpart original of the
release to Company. The returned release shall include Executive’s written signature in a space
provided thereon, indicating his or her decision to revoke the release. The revocation of a
previously signed and delivered release pursuant to the above shall be deemed to constitute an
irrevocable election by Executive to have declined to receive Change in Control Severance Benefits
pursuant to this Agreement. If Executive is younger than 40 years of age, Executive shall have ten
calendar days following the date the release is given to Executive to sign and return the release
to Company. If Executive is younger than 40 years of age, Executive shall not be entitled to
revoke the release.

(e) Compliance with Covenants. Executive’s receipt of the Change in Control Severance
Benefits described in this Section 2 also is expressly conditioned upon
Executive’s continued compliance with the provisions of Section 10 (Intellectual
Property) and Section 11 (Restrictive Covenants).

 

4

 

(f) Transfers to Affiliates. In order to receive the Change in Control Severance
Benefits, Executive must incur a Separation from Service with Company which, as noted below,
generally requires Executive’s Separation from Service with UniSource Energy Corporation and all of
its Affiliates. As a result, a transfer to an Affiliate will not be treated as a Separation from
Service for purposes of this Agreement. For purposes of determining whether a transfer constitutes
Good Reason for Executive’s Separation from Service pursuant to Section 5, a transfer shall be
treated the same as a reassignment within Company.

(g) “Affiliate” Defined. 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).

(h) Employment by Successor. For purposes of this Agreement, employment by a
successor of Company or a successor of one of its Affiliates shall be considered to be employment
by Company or one of its Affiliates. As a result, if Executive is employed by such a successor
following a Change in Control, Executive will not be entitled to receive the Change in Control
Severance Benefits provided by this Section 2 unless Executive subsequently incurs a Separation
from Service with the successor either without Cause or for Good Reason within 24 months following
the Change in Control.

(i) Non-Duplication of Benefits. Except as otherwise provided in Section 2(j), the
right to receive any Change in Control Severance Benefits under this Agreement is specifically
conditioned upon the Executive either waiving or being ineligible for any and all benefits under
any other severance, retention or change in control plan, program or agreement sponsored by Company
or any successor.

(j) Severance Plan Benefits. Notwithstanding Section 2(i), if Executive incurs a
Separation from Service for which Executive becomes entitled to, and receives, severance benefits
pursuant to the UniSource Energy Corporation Severance Pay Plan (the “Severance Plan”) and if
Executive’s Separation from Service occurs within six months prior to the occurrence of a Change in
Control and is effected in contemplation of such change in Control, Executive also will be entitled
to Change in Control Severance Benefits pursuant to this Agreement. The payments and benefits due
to Executive as Change in Control Severance Benefits then will be reduced by the amount of any
payment or benefit Executive already has received pursuant to the Severance Plan.

3. SEPARATION FROM SERVICE DEFINED.

For purposes of this Agreement, the term “Separation from Service” means, either (a)
termination of Executive’s employment with Company and all Affiliates, or (b) a permanent reduction
in the level of bona fide services Executive provides to Company and all Affiliates to an amount
that is 20% or less of the average level of bona fide services Executive provided to Company in the
immediately preceding 36 months, with the level of bona fide service calculated in accordance with
Treas. Reg. § 1.409A-1(h)(1)(ii).

 

5

 

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 six
months, or if longer, so long as Executive’s right to reemployment with Company or an Affiliate is
provided either by statute or contract). If Executive’s period of leave exceeds six months and
Executive’s right to reemployment is not provided either by statute or by contract, the employment
relationship is deemed to terminate on the first day immediately following the expiration of such
six-month period. Whether a termination of employment has occurred will be determined based on all
of the facts and circumstances and in accordance with regulations issued by the United States
Treasury Department pursuant to Section 409A of the Code.

4. CAUSE DEFINED.

Company may terminate Executive’s employment at any time for “Cause” upon written notice to
Executive specifying the basis for the termination. If Executive incurs a Separation from Service
due to Company’s termination of Executive’s employment for “Cause,” Executive shall not be entitled
to any Change in Control Severance Benefits pursuant to this Agreement. For purposes of this
Agreement, the term “Cause” shall mean the termination of Executive’s employment by Company for one
or more of the following reasons:

(a) Executive’s willful failure to perform any of Executive’s duties which continues after
Company has given Executive written notice describing Executive’s failure and provided to Executive
an opportunity to cure such failure within 30 days (or such longer period as may be specified by
the Board) of such written notice; or

(b) Executive’s material violation of Company policy; or

(c) Any act of fraud or dishonesty resulting or intended to result in Executive’s personal
enrichment at Company’s or any Affiliate’s expense; or

(d) Executive’s gross misconduct in the performance of Executive’s duties that results in
material economic harm to Company or any Affiliate; or

(e) Executive’s conviction of, or plea of guilty or no contest (or its equivalent) to, a
felony; or

(f) Executive’s material breach of Executive’s employment agreement with Company, if any.

The existence of Cause shall be determined by the Board, in its discretion.

 

6

 

5. GOOD REASON DEFINED.

Executive may Separate from Service due to Executive’s termination of employment with Company
for “Good Reason” if Executive provides Company with notice of such termination as set forth below.
For purposes of this Agreement, the term “Good Reason” shall mean and include each of the
following (unless Executive has expressly agreed to such event in a signed writing):

(a) A material, adverse diminution in Executive’s authority, duties, or responsibilities; or

(b) A material change in the geographic location at which Executive must primarily perform
services; or

(c) A material diminution in Executive’s base salary provided that such diminution is not a
result of a generally applicable reduction in the base salary of all officers of Company in an
amount that does not exceed 10%; or

(d) Any action or inaction that constitutes a material breach of this Agreement by Company
which, for this purpose, shall include, but not be limited to, Company’s failure to ensure that any
successor to Company or to any Affiliate assumes Company’s obligations pursuant to this Agreement.

Notwithstanding any provisions of this Agreement to the contrary, none of the events described
in this Section 5 will constitute Good Reason if, within 30 days after Executive provides Company
with a written notice specifying the occurrence or existence of the breach or action that Executive
believes constitutes Good Reason, Company has fully corrected (or reversed) such breach or action.
Executive’s Separation from Service for Good Reason will occur on the day following the expiration
of this 30 day “cure period,” (unless Company has fully corrected (or reversed) such breach or
action) unless Executive and Company agree to a later date not later than two years following the
initial existence of such breach or action. Executive shall be deemed to have waived Executive’s
right to terminate for Good Reason with respect to any such breach or action if Executive fails to
notify Company in writing of such breach or action within 90 days of the event that gives rise to
such breach or action.

6. DISABILITY DEFINED.

For purposes of this Agreement, the term “Disability” means Executive is, by reason of any
medically determinable physical or mental impairment that can be expected to (a) result in death or
(b) last for a continuous period of not less than 12 months, unable to continue to perform the
essential functions of Executive’s job, with or without any accommodation required by law, for six
consecutive calendar months or for shorter periods aggregating 125 business days in any 12-month
period.

7. CHANGE IN CONTROL DEFINED.

For purposes of this Agreement, “Change in Control” shall mean each occurrence of any of the
following:

(a) Any person, or more than one person acting as a group (as determined in accordance with
Treas. Reg. § 1.409A-3(i)(5)), acquires (or has acquired during the 12-month period ending on the
most recent acquisition by such person or persons) ownership of stock of Company possessing 40% or
more of the total voting power of the stock of Company, unless such person is, or shall be, a
trustee or other fiduciary holding securities under an employee benefit plan of Company or a
corporation owned, directly or indirectly, by the stockholders of Company in substantially the same
proportion as their ownership of stock of Company;

 

7

 

(b) The closing of a merger or consolidation of Company or its subsidiary, Tucson Electric
Power Company (“TEP”), with another entity that is not affiliated with Company immediately before
the Change in Control; provided, however, that, in the case of a merger or consolidation involving
Company, if the merger or consolidation results in the voting securities of Company outstanding
immediately prior thereto continuing to represent, either by remaining outstanding or by being
converted into voting securities of the surviving entity, more than 50% of the combined voting
power of the voting securities of Company or such surviving entity outstanding immediately after
such merger or consolidation, the merger or consolidation will be disregarded; and provided further
that, in the case of a merger or consolidation involving TEP, if Company continues to hold more
than 50% of the combined voting power of the voting securities of TEP or the surviving entity
outstanding immediately after such merger or consolidation, the merger or consolidation will be
disregarded;

(c) During any period of 12 consecutive months, excluding any period prior to the execution of
this Agreement, the majority of members of Company’s Board is replaced by directors whose
appointment or election is not endorsed by a majority of the members of the Board before the date
of such appointment or election; or

(d) Company’s execution of an agreement for the sale or disposition 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 been
obtained; and (2) the transaction that would otherwise be considered a Change in Control closes.
Further, to the extent required by Section 409A of the Code, a transaction will not be considered a
Change in Control for purposes of this Section 7 unless the transaction also constitutes a “change
in control event” as such term is used in Treas. Reg. § 1.409A-3(i)(5).

8. SECTION 409A COMPLIANCE.

(a) Compliance Strategy; Responsibility for Taxes. Section 409A of the Code imposes
an 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-qualified
deferred compensation plan.” The additional 20% tax, and interest, does not apply if the payment
qualifies for an exception to the requirements of Section 409A of the Code or complies with the
requirements of Section 409A of the Code. Company intends that the payments and benefits due
pursuant to this Agreement either comply with the requirements of Section 409A of the Code or
qualify for an exception to the requirements of Section 409A of the Code. Nevertheless, Company
does not guarantee any particular tax effect or treatment of the amounts due under this Agreement.
Except for Company’s responsibility to withhold applicable income and employment taxes from
compensation paid or provided to Executive, Company will not be responsible for the payment of any
applicable taxes on compensation paid or provided pursuant to this Agreement.

 

8

 

(b) Delay in Payments. Prior to making any payments due under this Agreement, Company
will determine, on the basis of any regulations, rulings or other available
guidance, whether the short-term deferral exception, the separation pay exception or any other
exception to the requirements of Section 409A of the Code is available. If Executive is a
“Specified Employee” (as defined in Treas. Reg. § 1.409A-1(i)), and Company concludes that no
exception to the requirements of Section 409A of the Code is available, no payments that are
payable to Executive as a result of Executive’s Separation from Service under this Agreement, or
under any other arrangement that is aggregated with this Agreement under Section 409A of the Code,
shall be made to Executive prior to the first business day following the date which is six months
after Executive’s Separation from Service. Any amounts that would have been paid during the six
months following Executive’s Separation from Service will be paid on the first business day
following the expiration of the six-month period without interest thereon. 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 Section 409A of the Code.

(c) Distributions Treated as Made upon a Designated Event. If Company fails to make
any payment, either intentionally or unintentionally, within the time period specified in this
Agreement, but the payment is made within the same calendar year, such payment will be treated as
made within the time period specified in this Agreement pursuant to Treas. Reg. § 1.409A-3(d). In
addition, if a payment is not made due to a dispute with respect to such payment, the payment may
be delayed in accordance with Treas. Reg. § 1.409A-3(g).

(d) Reimbursements. In order to ensure compliance with the applicable regulations,
the amounts reimbursed by Company in one taxable year will not affect the amounts eligible for
reimbursement by Company in a different taxable year. All reimbursements must be made no later
than December 31 of the calendar year following the calendar year in which the expense was
incurred. Executive may not elect to receive cash or any other benefit in lieu of the benefits
provided by this Agreement.

(e) Miscellaneous Payment Provisions. Under no circumstances may the time or schedule
of any payment made or benefit provided pursuant to this Agreement be accelerated or subject to a
further deferral except as otherwise permitted or required pursuant to regulations and other
guidance issued pursuant to Section 409A of the Code. Executive does not have any right to make
any election regarding the time or form of any payment due under this Agreement. This Agreement
shall be operated in compliance with Section 409A of the Code or an exception thereto and each
provision of this Agreement shall be interpreted, to the extent possible, to comply with Section
409A of the Code or to qualify for an applicable exception.

9. CAP ON PAYMENTS.

(a) General Rules. The Code places significant tax burdens on Executive and Company
if the total payments made to Executive due to a “change in control” (which, for purposes of this
Section 9, shall have the meaning ascribed to it in Section 280G of the Code and the regulations
adopted thereunder) exceed prescribed limits. For example, if Executive’s “Base Period Income” (as
defined below) is $100,000, Executive’s limit or “280G Cap” is $299,999. If Executive’s “Basic
Payments” exceed the 280G Cap by even $1.00, Executive is subject to an excise tax under Section
4999 of the Code of 20% of all amounts paid to him in excess of
$100,000. In other words, if Executive’s 280G Cap is $299,999, Executive will not be subject
to an excise tax if Executive receives exactly $299,999. If Executive receives $300,000, Executive
will be subject to an excise tax of $40,000 (20% of $200,000). In order to avoid this excise tax
and the related adverse tax consequences for Company, by signing this Agreement Executive agrees
that Executive’s Basic Payments will not exceed an amount equal to Executive’s 280G Cap unless the
exception described in Section 9(e) applies.

 

9

 

(b) Special Definitions. For purposes of this Section 9, the following specialized
terms will have the following meanings:

(i) “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 “annualized
includable 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 control
occurs. These concepts are complicated and technical and all of the rules set forth in the
applicable regulations apply for purposes of this Agreement.

(ii) “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 without
becoming subject to the excise tax imposed by Section 4999 of the Code or which Company may pay
without loss of deduction under Section 280G of the Code.

(iii) “Basic Payments.” The “Basic Payments” include any “payments in the nature of
compensation” (as defined in Section 280G of the Code and the regulations adopted thereunder), made
pursuant to this Agreement or otherwise, to Executive or for Executive’s benefit, the receipt of
which is contingent on a change in control and to which Section 280G of the Code applies.

(c) Calculating the 280G Cap. If Company believes that these rules will result in a
reduction of the payments to which Executive is entitled under this Agreement, it will so 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 of recognized executive
compensation consultants working with a law firm or certified public accounting firm) to provide a
determination concerning whether Executive’s Basic Payments exceed Executive’s 280G Cap (the
“Determination”). Company will select the Consultant.

At a minimum, the Determination required by this Section must set forth the amount of
Executive’s Base Period Income, the value of the Basic Payments, the amount, if any, by which
Executive’s Basic Payments exceed Executive’s 280G Cap and the amount and present value of any
“Excess Parachute Payment.” For purposes of this Section 9(c), the term “Excess Parachute Payment”
means an amount equal to the excess of any Basic Payment to which Executive is entitled over the
Base Period Income allocated to such Basic Payment. Executive shall have the right to review the
final calculations used by the Consultant in reaching its conclusions with respect to the
Determination.

 

10

 

If the Determination states that the Basic Payments exceed the 280G Cap, Executive’s Basic
Payments will be reduced to the extent necessary to eliminate the excess. In making such
reduction, 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 do
not 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 to
Section 409A of the Code only to the extent reductions in addition to those described in the
preceding sentence are necessary to avoid exceeding the 280G Cap. If reduction of any Basic
Payments which are subject to Section 409A of the Code becomes necessary to avoid exceeding the
280G 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 then
will reduce the equity based Basic Payments on a proportional basis.

If the Consultant selected to provide the Determination so requests, a firm of recognized
executive compensation consultants selected by Company (which may, but is not required to be, the
Consultant) shall provide an opinion, upon which such Consultant may rely, as to the reasonableness
of any item of compensation as reasonable compensation for services rendered before or after the
change in control.

If Company believes that Executive’s Basic Payments will exceed the limitations of this
Section 9, it will nonetheless make payments to Executive, at the times stated above, in the
maximum amount that it believes may be paid without exceeding such limitations. The balance, if
any, will then be paid after the opinions called for above have been received.

As a general rule, the Determination shall be binding on Executive and Company. Section 280G
and the excise tax rules of Section 4999, however, are complex and somewhat uncertain and, as a
result, the Internal Revenue Service may disagree with the Consultant’s conclusions. If the
Internal Revenue Service finally and conclusively determines that the 280G Cap is actually lower
than calculated by the Consultant, the 280G Cap will be recalculated by the Consultant. Any
payment over that revised 280G Cap will then be repaid by Executive to Company. If the Internal
Revenue Service finally and conclusively determines that the actual 280G Cap exceeds the amount
calculated by the Consultant, Company shall pay Executive any shortage, together with interest
thereon, from the date such amount should have been paid to the date of such payment, so that
Executive will have received or be entitled to receive the maximum amount to which Executive is
entitled under this Agreement. For purposes of this Section 9, the applicable interest rate shall
be the prime rate published by the Wall Street Journal on the date the amounts described in the
preceding sentence should have been paid to Executive.

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 imposed
upon Executive (including any taxes, interest and penalties on the amounts paid pursuant to
Company’s indemnification agreement), Executive must cooperate fully with Company in connection
with any such challenge. Company shall bear all costs associated with the challenge by Company of
any determination made by the Internal Revenue Service and Company shall control all such
challenges.

 

11

 

Executive must notify Company in writing of any claim or determination by the Internal Revenue
Service that, if upheld, would result in the payment of excise taxes. Such notice shall be given
as soon as possible but in no event later than 15 days following Executive’s receipt of notice of
the Internal Revenue Service’s position.

(d) Effect of Repeal or Inapplicability. In the event that the provisions of Sections
280G and 4999 of the Code are repealed without succession, this Section 9 shall be of no further
force or effect. Moreover, if the provisions of Sections 280G and 4999 of the Code do not apply to
impose the excise tax to payments under this Agreement, then the provisions of this Section 9 shall
not apply.

(e) Exception. The Consultant selected pursuant to this Section 9 will calculate
Executive’s “Uncapped Benefit” and Executive’s “Capped Benefit.” The limitations of this Section 9
will not apply if Executive’s “Uncapped Benefit” minus the excise taxes that will be imposed on
Executive pursuant to Section 4999 of the Code exceeds Executive’s “Capped Benefit.” For this
purpose, Executive’s “Uncapped Benefit” is equal to the Basic Payments to which Executive will be
entitled pursuant to this Agreement, or otherwise, without regard to the limitations of this
Section 9. Executive’s “Capped Benefit” is the amount to which Executive will be entitled pursuant
to Section 9 of this Agreement after the application of the limitations of this Section 9.

10. INTELLECTUAL PROPERTY.

(a) Proprietary Information. Executive and Company hereby acknowledge and agree that
in connection with the performance of Executive’s services, Executive shall be provided with or
shall otherwise be exposed to or receive certain proprietary information of Company. Such
proprietary information may include, but shall not be limited to, information concerning Company’s
customers and products, information concerning certain marketing, selling, and pricing strategies
of Company, and information concerning methods, manufacturing techniques, and processes used by
Company in its operations (all of the foregoing shall be deemed “Proprietary Information” for
purposes of this Agreement). Executive hereby agrees that, without the prior written consent of
Company, any and all Proprietary Information shall be and shall forever remain the property of
Company, and that during Executive’s employment with Company, and at all times thereafter,
Executive shall not in any way disclose or reveal the Proprietary Information other than to
Company’s executives, officers and other employees and agents in the normal course of Executive’s
provision of services hereunder. The term “Proprietary Information” does not include information
that (1) becomes generally available to the public other than as a result of a disclosure by
Executive contrary to the terms of this Agreement, (2) was available on a non-confidential basis
prior to its disclosure, or (3) becomes available on a non-confidential basis from a source other
than Executive, provided that such source is not contractually obligated to keep such information
confidential.

 

12

 

(b) Trade Secrets. Executive, prior to and during this Agreement, has had and will
have access to and become acquainted with various trade secrets that are owned by Company or by its
Affiliates and are regularly used in the operation of their respective businesses and that may give
Company or an Affiliate an opportunity to obtain an advantage over competitors who do not know or
use such trade secrets. Executive agrees and
acknowledges that Executive has been granted access to these valuable trade secrets only by
virtue of the confidential relationship created by Executive’s employment and Executive’s prior
relationship to, interest in, and fiduciary relationships to Company. Executive shall not disclose
any of the aforesaid trade secrets, directly or indirectly, or use them in any way, either during
Executive’s employment with Company or at any time thereafter, except as required in the course of
employment by Company and for its benefit.

(c) Ownership of Documents. Company shall own all papers, records, books, drawings,
documents, manuals, and anything of a similar nature (collectively, the “Documents”) prepared by
Executive in connection with Executive’s employment. The Documents shall be the property of
Company and are not to be used on other projects except upon Company’s prior written consent. Upon
termination of Executive’s employment with Company, Executive shall surrender to Company any and
all Documents or other property of whatsoever kind now or hereafter in Executive’s possession,
custody, or control that contain or reflect in any manner whatsoever Proprietary Information or
information that in any way relates to Company’s business.

(d) Company Defined. For purposes of this Section 10, “Company” shall be interpreted
to include Company and all of Company’s Affiliates.

11. RESTRICTIVE COVENANTS.

(a) Covenant Not to Compete. In consideration of Company’s agreements contained
herein and the payments to be made by it to Executive pursuant hereto, Executive agrees that during
the 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 that is a “Competing Business” of
such company in the Restricted Territory, as defined in this Section 11.

(b) Non-Solicitation. Executive recognizes that Company’s customers are valuable and
proprietary resources of Company. Accordingly, Executive agrees that during the Restricted Period
Executive will not directly or indirectly, through Executive’s own efforts or through the efforts
of another person or entity, solicit business in the Restricted Territory for or in connection with
any Competing Business from any individual or entity that obtained products or services from
Company at any time during Executive’s employment with Company. In addition, during the Restricted
Period Executive will not solicit business in the Restricted Territory for or in connection with a
Competing Business from any individual or entity that was solicited by Executive on behalf of
Company. Further, during the Restricted Period Executive will not solicit employees of Company who
would have the skills and knowledge necessary to enable or assist efforts by Executive to engage in
a Competing Business.

 

13

 

(c) Competing Business. For purposes of this Section 11, Executive shall be deemed to
be engaged in a “Competing Business” if, in any capacity, including proprietor, shareholder,
partner, officer, director or employee, Executive engages or participates, directly or indirectly,
in the operation, ownership or management of the activity of any proprietorship, partnership,
company or other business entity which activity is competitive with the then actual business in
which Company or its operating subsidiaries and Affiliates are engaged on the date of, or any
business contemplated by such entities’ business plans in effect on the date of notice
of, Executive’s termination of employment. Nothing in this Section 11(c) is intended to limit
Executive’s ability to own equity in a public company constituting less than 1% of the outstanding
equity of such company, when Executive is not actively engaged in the management thereof. If
requested by Executive, Company shall furnish Executive with a good-faith written description of
the business or businesses in which Company is then actively engaged or that is contemplated by
Company’s current business plan within 30 days after such request is made, and only those
activities so timely described in which Company is, in fact, actively engaged or which are so
contemplated may be treated as activities that are directly competitive with Company.

(d) Restricted Period. For purposes of this Section 11, the “Restricted Period” shall
include the time during which Executive is employed by Company and a period of one year (or in the
event any reviewing court finds this period to be over-broad or unenforceable, for a period of nine
months; 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 for
any reason.

(e) Restricted Territory. Executive and Company understand and agree that Company’s
business is not geographically restricted and in some respects at least is unrelated to the
physical location of Company facilities or the physical location of any Competing Business, due to
extensive use of the power grid, Internet, telephones, facsimile transmissions and other means of
electronic information and product distribution. Executive and Company further understand and
agree that Executive will, in part, work toward expanding Company’s markets and geographic business
territories and will be compensated for performing this work on behalf of Company.

Accordingly, Company has a protectable business interest in, and the parties intend the
Restricted Territory to encompass, each and every geographical location from which Executive could
engage in a Competing Business. If, but only if, this Restricted Territory is held to be invalid
on the ground that it is unreasonably broad, the Restricted Territory shall be limited to any
geographical location that is within 10 miles of any geographical location in which Company is in
fact carrying out its business operations or, pursuant to Company’s business plans, is
contemplating conducting business operations on the date of Executive’s termination of employment.
If, but only if, this Restricted Territory is held to be invalid on the ground that it is
unreasonably broad, the Restricted Territory shall be any location within a 50 mile radius of any
Company office in existence or, pursuant to Company’s business plans, intended to be opened at the
time of Executive’s termination of employment.

(f) Remedies; Reasonableness. Executive acknowledges and agrees that a breach by
Executive of the provisions of this Section 11 will constitute such damage as will be irreparable
and the exact amount of which will be impossible to ascertain and for that reason agrees that
Company will be entitled to an injunction to be issued by any court of competent jurisdiction
restraining and enjoining Executive from violating the provisions of this Section 11. The right to
an injunction shall be in addition to and not in lieu of any other remedy available to Company for
such breach or threatened breach, including the recovery of damages from Executive.

 

14

 

Executive expressly acknowledges and agrees that: (1) the Restrictive Covenants contained
herein are reasonable as to time and geographical area and do not place any unreasonable burden
upon Executive, (2) the general public will not be harmed as a result of enforcement of these
Restrictive Covenants, and (3) Executive understands and hereby agrees to each and every term and
condition of the Restrictive Covenants set forth in this Agreement.

Executive also expressly acknowledges and agrees that Executive’s covenants and agreements in
this Section 11 shall survive this Agreement and continue to be binding upon Executive after the
expiration or termination of this Agreement, whether by passage of time or otherwise.

(g) Company Not in Default. Company agrees that the restrictions described in this
Section 11 apply only so long as Company is continuously not in material default of its obligations
to provide payments or employment-type benefits to Executive hereunder or under any other
agreement, covenant or obligation.

(h) Company Defined. For purposes of this Section 11, “Company” shall be interpreted
to include Company and all of Company’s Affiliates.

12. NO MITIGATION.

The payment of Change in Control Severance Benefits will not be affected by whether Executive
seeks or obtains other employment. Executive will have no obligation to seek or obtain other
employment and Executive’s Change in Control Severance Benefits will not be impacted by Executive’s
failure to “mitigate.” As provided in Section 2(b)(v), however, Company’s obligation to provide
continued health, life, disability and other insurance benefits will cease with respect to a
particular type of coverage when and if Executive becomes eligible to receive substantially similar
coverage with a successor employer.

13. 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 or
any Affiliate to expressly assume and agree to perform this Agreement in the same manner and to the
same extent that Company or any Affiliate would be required to perform it if no such succession had
taken place. Failure of Company to obtain such assumption and agreement prior to the effectiveness
of any such succession shall be a material breach of this Agreement.

14. BINDING AGREEMENT; ASSIGNMENT.

This Agreement shall inure to the benefit of and be binding upon Company, its successors and
assigns, including, but not limited to, any company, person, or other entity which may acquire all
or substantially all of the assets and business of Company or any company with or into which
Company may be consolidated or merged, and Executive, Executive’s heirs, executors, administrators,
and legal representatives. Nevertheless, the obligations, rights and benefits of Executive
hereunder 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 or transfer. This Agreement shall be assigned automatically to any
entity merging with or acquiring Company or its business.

 

15

 

15. NOTICE.

All notices hereunder shall be in writing and delivered personally or sent by United States
registered 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:
	 	Raymond S. Heyman
	 

	 	 	 	Tucson Electric Power Company
	 

	 	 	 	Mail Stop UE183
	 

	 	 	 	P.O. Box 711
	 

	 	 	 	Tucson, AZ 85702-0711
	 
	 	 	 	 
	 

	 	 	 	and an additional copy to:
	 
	 	 	 	 
	 

	 	 	 	Raymond S. Heyman

Either party may change the address to which notices are to be sent to it by giving ten days
written notice of such change of address to the other party in the manner above provided for giving
notice.

Notices will be considered delivered on personal delivery or on the date of deposit in the
United States mail in the manner provided for giving notice by mail.

16. MISCELLANEOUS.

No provision of this Agreement may be modified, waived or discharged unless such waiver,
modification or discharge is agreed to in writing and signed by Executive and the Chief Executive
Officer of Company or his designee. No waiver by either party hereto at any time of any breach by
the other party hereto of, or compliance with, any condition or provision of this Agreement to be
performed by such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. Any payments provided for hereunder
shall be paid net of any applicable withholding required under federal, state or local law. The
obligations of Company that arise prior to the expiration of this Agreement shall survive the
expiration of the term of this Agreement.

 

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17. SEVERABILITY.

If any term or provision of this Agreement is declared by a court or tribunal of competent
jurisdiction to be invalid or unenforceable for any reason, this Agreement shall remain
in full force and effect, and either (a) the invalid or unenforceable provision shall be
modified to the minimum extent necessary to make it valid and enforceable or (b) if such a
modification is not possible or permitted by law, this Agreement shall be interpreted as if such
invalid or unenforceable provision were not a part hereof.

18. COUNTERPARTS.

This Agreement may be executed in several counterparts, each of which shall be deemed to be an
original but all of which together will constitute one and the same instrument.

19. ALTERNATIVE DISPUTE RESOLUTION.

(a) The parties agree that any controversy, dispute or claim arising out of or relating to the
Agreement or breach thereof, including without limitation Executive’s employment with or separation
of 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 basis
under any federal, state, or local statute, including federal or state discrimination statutes or
public policy (collectively the “Dispute”), shall be resolved in accordance with the procedures
described in this Section, which shall be the sole and exclusive procedures for resolution of any
Dispute. The parties shall bear their own attorneys’ fees and costs, unless provided otherwise by
an arbitration award, and share equally the cost thereof of all Dispute Resolution procedures
described in the Section.

(b) The parties shall initially try in good faith to settle the Dispute through non-binding
mediation. 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 and
the 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 period
mutually agreed upon by the parties, the parties have not agreed upon the identity of the mediator
and the procedure for mediation, the mediation shall be held in Tucson, Arizona, and administered
by the American Arbitration Association (“AAA”) under its Employment Arbitration and Mediation
Procedures 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 by
the Rules. A good faith attempt at mediation shall be a condition precedent to the commencement of
arbitration, but is not a condition precedent to any court action for injunctive or other interim
relief pending the outcome of these Dispute Resolution procedures.

(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 period
mutually agreed upon by the parties), the Dispute shall be resolved by final, binding and
conclusive arbitration with a sole arbitrator in Tucson, Arizona. The parties shall initiate
arbitration by filing a written notice of intention to arbitrate at any office of the AAA. The
selection of the arbitrator and the arbitration shall proceed pursuant to the Rules and judgment
upon the award rendered by the arbitrator may be entered in any court having jurisdiction thereof.

 

17

 

(d) The arbitrator shall award Executive his attorneys’ fees and costs if Executive prevails
on at least one material issue in the Dispute, including the attorneys’ fees Executive incurs in
connection with any appeal or the enforcement of any award. “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 attorneys’ fees and
costs to Executive shall be paid by Company within 60 days following the award of such fees and
costs by the arbitrator, but in no event later than December 31 of the calendar year following the
year of the conclusion of the arbitration.

A party may apply to the arbitrator for injunctive or other equitable relief until the
arbitration award is rendered or the matter is otherwise resolved. A party may, without waiving
the Dispute Resolution procedures under the Agreement, seek from any court having jurisdiction any
interim or provisional relief, including a temporary restraining order, an injunction both
preliminary and final, and any other appropriate equitable relief, that is necessary to protect the
rights or property of that party, pending the final decision of the arbitrator on all issues
related to the injunctive relief.

20. PAYMENT OBLIGATIONS ABSOLUTE.

Company’s obligation to pay Executive the compensation and to make the arrangements in
accordance with the provisions herein shall be absolute and unconditional and shall not be affected
by any circumstances. All amounts payable by Company in accordance with this Agreement shall be
paid without notice or demand. If Company has paid Executive more than the amount to which
Executive is entitled under this Agreement, Company shall have the right to recover all or any part
of such overpayment from Executive or from whomsoever has received such amount.

21. ENTIRE AGREEMENT.

This Agreement sets forth the entire agreement between Executive and Company concerning the
subject matter discussed in this Agreement and supersedes all prior agreements, promises,
covenants, arrangements, communications, representations or warranties, whether written or oral, by
any officer, employee or representative of Company. Any prior agreements or understandings with
respect to the subject matter set forth in the aforementioned agreements are hereby terminated and
canceled.

22. STATUTORY REFERENCES.

All references to sections of the Code shall be deemed also to refer to any successor
provisions to such sections. All references to sections of the final regulations issued pursuant
to Section 409A shall be deemed also to refer to any successor provisions of such regulations or
rulings or other guidance that clarify such regulations.

23. DEFINITIONS.

A number of terms have been defined throughout this Agreement. These defined terms are
identified by the capitalization of the first letter of each word or the first letter of each
substantive word of a phrase. Whenever these terms are capitalized they shall be given the
defined meaning.

 

18

 

24. PARTIES.

This Agreement is an agreement between Executive and Company. In certain cases, though,
obligations imposed upon Company may be satisfied by an Affiliate of Company. Any payment made or
action taken by an Affiliate of Company shall be considered to be a payment made or action taken by
Company for purposes of determining whether Company has satisfied its obligations under this
Agreement.

25. NO RIGHTS IN ANY PROPERTY OF COMPANY.

The undertakings of Company constitute merely the unsecured promise of Company to make
payments as provided for herein. No property of Company shall, by reason of this Agreement, be
held in trust for Executive, Executive’s spouse or any other person, and neither Executive nor
Executive’s spouse or any other person shall have, by reason of this Agreement, any rights, title
or interest of any kind in any property of Company.

26. NOT AN EMPLOYMENT AGREEMENT.

Nothing in this Agreement shall be construed as an offer or commitment by Company to continue
Executive’s employment with Company for any period of time.

27. CONSTRUCTION.

This Agreement is the result of negotiation between Company and Executive and both have had
the 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, regardless
of which party drafted the provision at issue. The language in all parts of this Agreement shall
in all cases be construed as a whole according to its fair meaning and not strictly for or against
either party. The Section headings contained in this Agreement are for reference purposes only and
will 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 be
followed by the words “without limitation.”

28. GOVERNING LAW.

This Agreement shall be governed in all respects by the laws of the State of Arizona,
excluding the conflicts of law principles, and except as preempted by or governed solely by Federal
law.

29. AMENDMENTS.

This Agreement may be amended at any time by a written agreement executed by Company and
Executive. No amendment that will result in a violation of Section 409A of the Code, or any other
provision of applicable law, may be made to this Agreement and any such amendment shall be void ab
initio.

 

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IN
WITNESS WHEREOF, Company and Executive have executed this Agreement on this 9th day of
October 2009.

	 	 	 	 	 	 	 
	 	 	UNISOURCE ENERGY CORPORATION
	 
	 	 	 	 	 	 
	 
	 	/s/ Paul J. Bonavia	 	 
	 	 	 	 	 
	 

	 	By:
	 	Paul J. Bonavia	 	 
	 

	 	Its:
	 	Chairman, Chief Executive Officer and President	 	 
	 
	 	 	 	 	 	 
	 	 	EXECUTIVE
	 
	 	 	 	 	 	 
	 
	 	/s/ Raymond S. Heyman	 	 
	 	 	 	 	 
	 	 	Raymond S. Heyman

 

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