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”).
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:
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.
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(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.
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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
).
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(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).
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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.
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.
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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.
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;
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(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
purpos
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