EMPLOYMENT AGREEMENT

Exhibit 4

EMPLOYMENT AGREEMENT

This Employment Agreement (the “Agreement”) is made and entered into by and between Paul J. Bonavia (“Executive”) and UniSource Energy Corporation (“Company”), effective as of January 1, 2009 (the “Effective Date”), but actually on the date set forth below on the signature page.

1. Position and Duties .

(a)  Position . Executive will be employed as the Chairman, Chief Executive Officer and President of Company and will report directly to the Board of Directors of Company (the “Board”). Executive also shall hold such offices and positions with respect to Company’s Affiliates (as such term is defined in Section 10) as may be determined from time to time by the Board.

(b)  Duties . Executive’s duties shall be the duties specified in Company’s Bylaws and such other executive and managerial duties with respect to Company and its Affiliates as may be assigned to him by the Board

(c)  Standard of Conduct; Outside Activities . Executive will serve Company faithfully, loyally, honestly and to the best of his ability. Subject to the following, Executive will devote substantially all of his business time and efforts to the performance of his duties on behalf of Company and its Affiliates. During his term of employment, Executive will not, without the express written consent of the Board, engage in any outside employment or engage in any activity competitive with or adverse to the business of Company or any of its Affiliates, whether alone or as a partner, officer, director, employee, shareholder of any corporation or as a trustee, fiduciary, consultant or other representative. Executive may engage in nonprofessional activities, including personal investments, without the prior consent of the Board, but Executive’s ownership of more than 1% of the issued and outstanding equity in any publicly held company, and his ownership of any interest in any non-publicly held company, must be disclosed to the Board. Executive, with the prior consent of the Board, may serve on the board of directors of another organization, as long as such service does not conflict with his duties to Company. Participation to a reasonable extent in civic, social or community activities is encouraged.

2. Term of Agreement .

Executive shall be employed by Company for the duties set forth above beginning on the Effective Date and ending on December 31, 2011, unless sooner terminated in accordance with the provisions of this Agreement. The period of time beginning on the Effective Date and ending on Executive’s “Separation from Service”, as defined below in Section 10, shall be referred to as the “Employment Period.”

Notwithstanding any provision to the contrary, the provisions of Sections 12, 13, 14 and 20 shall survive the termination of this Agreement.

3. Compensation .

(a)  Base Salary . Executive’s initial annual “Base Salary” will be $600,000. Executive’s Base Salary will be paid in substantially equal periodic installments, in accordance with Company’s standard payroll practices. Executive’s Base Salary will be reviewed at least annually in accordance with Company’s executive compensation review policies and practices.

(b)  Incentive Compensation . Executive shall be eligible to participate in the UniSource Energy Corporation Performance Enhancement Plan (the “Incentive Compensation Plan”) and any and all replacement management incentive plans made available generally to executives of Company. Executive’s participation in the Incentive Compensation Plan will begin with the 2009 year. Executive’s target award under the Incentive Compensation Plan will be 80% of Executive’s Base Salary and his maximum award will be 150% of his target award.

(c)  Equity Compensation . Executive also will be entitled to participate in the UniSource Energy Corporation 2006 Omnibus Stock and Incentive Plan and any other equity compensation plans that may be adopted by Company from time to time. The Compensation Committee of the Board will set Executive’s award opportunity each year, beginning with the awards made for 2009.

(d)  Benefit Plans . Executive will be entitled to participate in those benefit plans generally provided for Company’s senior executive officers in accordance with the terms of the applicable benefit plans. Additionally, Executive shall be entitled to participate in any other benefit plans made available generally to employees of Company from time to time, including but not limited to, any savings plan, life insurance plan and health insurance plan, all subject to any restrictions specified in, or amendments made to, such plans. Executive shall be entitled to D&O insurance and indemnification as provided by Company consistent with the coverage provided to other directors and officers. Executive shall be entitled to paid vacation in accordance with Company’s standard vacation policy for senior executive officers.

(e)  Relocation Expenses . In accordance with Company’s relocation policy, Company will either directly pay for or reimburse Executive for the following: normal seller’s closing expenses on Executive’s home in Greenwood Village, CO; reasonable closing costs of up to 2% of the purchase price of Executive’s new home in Tucson, AZ (including a loan origination fee of no more than 1% of the mortgage amount and excluding discount points); movement of household goods; shipment of one vehicle; tax gross-up assistance for non-deductible items in accordance with Company policy as in effect from time to time; and the reimbursement of duplicate mortgage expenses for up to 30 days. If necessary, Company will provide for temporary housing and household goods storage for up to six months. Company also will reimburse Executive for all reasonable expenses incurred for Executive and his spouse to visit Tucson three times before joining Company. In the event Executive terminates this Agreement and his employment with Company without Good Reason pursuant to Section 6(b) or Company terminates this Agreement and Executive’s employment for Cause pursuant to Section 5(a) on or before December 31, 2009, any and all relocation assistance provided to Executive pursuant to this Section 5(e) will cease immediately, and Executive will be responsible for repayment, on a pro rata basis, of any relocation expenses previously paid by Company. The pro rata repayment amount shall be calculated as follows: (relocation expenses paid by Company to date of termination ÷ 12 months) X (12 months — the number of complete months worked by Executive to date of termination). Executive shall pay to Company any amounts due pursuant to this Section 5(e) within 30 days following Company’s written request for such payment.

(f)  Legal Expenses . Executive shall be reimbursed for up to $10,000 of legal expenses incurred by Executive in connection with the finalization of this Employment Agreement.

(g)  Clawback . To the extent required by law or Company policy, Executive agrees to repay to Company any bonus or other incentive-based or equity-based compensation paid to Executive. For example, in accordance with the Sarbanes-Oxley Act of 2002, Executive may be required to repay certain compensation in certain instances, as described in the Act.

(h)  No Other Compensation . This Agreement sets forth all of the compensation to which Executive is entitled for his service in any capacity to Company and any Affiliate. Executive shall not be entitled to receive any additional compensation for his service on the Board or for his service as an officer, employee or member of the board of directors of any Affiliate of Company.

4. Business Expenses .

Company will reimburse Executive for any and all necessary, customary and usual expenses which are incurred by Executive on behalf of Company, provided Executive provides Company with receipts to substantiate the business expense in accordance with Company’s policies or otherwise reasonably justifies the expense to Company.

5. Termination by Company .

(a)  Termination for Cause . Company may terminate this Agreement and Executive’s employment at any time for “Cause” upon written notice to Executive specifying the basis for the termination. The termination will be effective immediately unless Company specifies a different date in the notice. If Company terminates this Agreement for “Cause,” Executive’s Base Salary shall immediately cease, and Executive shall not be entitled to severance payments, Incentive Compensation Plan payments or any other payments or benefits pursuant to this Agreement, except for any vested rights pursuant to any benefit plans in which Executive participates and any accrued compensation, unpaid expense reimbursements and similar items. 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:

(1)  Executive’s willful failure to perform any of Executive’s duties after one previous failure to perform for which Company has given Executive written notice (i) describing Executive’s failure and (ii) providing to Executive the opportunity to cure such failure within 30 days (or such longer period as may be specified by the Board) of such written notice;

(2)  Executive’s material violation of Company policy;

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

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

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

(6) Executive’s material breach of this Agreement.

The existence of Cause will be determined by the Board. If Company terminates Executive for Cause, and it is later determined in accordance with the dispute resolution process provided in Section 20 of this Agreement that Cause did not exist, Executive agrees that his sole remedy will be to receive the amount he would have received under this Agreement if his employment had been terminated by Company without Cause, plus interest on any delayed payments at the prime rate published by the Wall Street Journal on the date of termination. Such payments and interest shall be calculated as of the effective date of the initial termination. Payment of any amounts that would have been paid previously had Executive’s employment been terminated without Cause shall be made within 15 days after such later determination is made.

(b)  Termination Without Cause . Company also may terminate this Agreement and Executive’s employment at any time without Cause with 30 days advance notice to Executive. Company may, in its discretion, place Executive on a paid administrative leave during the 30 day notice period. During the administrative leave, Company may bar Executive’s access to Company’s offices or facilities if reasonably necessary to the smooth operation of Company, or may provide Executive with access subject to such reasonable terms and conditions as Company chooses to impose. If this Agreement and Executive’s employment are terminated by Company without Cause, Executive shall be entitled to receive his Base Salary through the effective date of the termination. Executive also will be eligible to receive a pro rata Incentive Compensation Plan payment for the year in which his employment is terminated, with such payment being made at the same time as payments are made generally under the Incentive Compensation Plan. The pro rata payment will equal the amount that would otherwise be due (based on the performance of Executive and/or Company as determined under the Incentive Compensation Plan) under the Incentive Compensation Plan for the relevant year pro rated based on the number of days that have elapsed in the year prior to Executive’s termination as compared to 365 or 366 days, as applicable. Executive also will receive Severance Benefits pursuant to Section 8. The expiration of this Agreement as described in Section 2 will not constitute a termination without Cause pursuant to this Section 5(b).

6. Termination by Executive .

(a)  Good Reason Termination . Executive may terminate this Agreement and his employment for Good Reason if Executive provides Company with written notice of the breach or action giving rise to Good Reason within 90 days of the initial existence of such breach or action. For purposes of this Agreement, “Good Reason” shall mean and include each of the following (unless Executive has expressly agreed to such event in a signed writing):

(1) A material, adverse diminution in Executive’s authority, duties, or responsibilities.

(2)  A material change in the geographic location at which Executive must perform services which also results in a materially increased commute.

(3) A material diminution in Executive’s Base Salary.

(4) Any action or inaction that constitutes a material breach of this Agreement by Company.

Notwithstanding any provisions of this Agreement to the contrary, none of the events described in this Section 6(a) will constitute Good Reason if, within 30 days after Executive provides Company 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 employment will terminate on the day following the expiration of this 30 day “cure period,” 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 does not notify Company in writing of such breach or action within 90 days of the event that gives rise to such breach or action.

If Executive terminates this Agreement and his employment for Good Reason, Executive shall be entitled to receive his Base Salary through the effective date of the termination. Executive also will be eligible to receive a pro rata Incentive Compensation Plan payment for the year in which his employment is terminated, with such payment being made at the same time as payments are made generally under the Incentive Compensation Plan. The pro rata payment will equal the amount that would otherwise be due (based on the performance of Executive and/or Company as determined under the Incentive Compensation Plan) under the Incentive Compensation Plan for the relevant year pro rated based on the number of days that have elapsed in the year prior to Executive’s termination as compared to 365 or 366 days, as applicable. Executive also will be entitled to receive Severance Benefits pursuant to Section 8.

(b)  Termination Without Good Reason . Executive also may terminate this Agreement and his employment without Good Reason at any time by giving 60 days written notice to Company. If Executive terminates this Agreement and his employment without Good Reason, Executive shall be entitled to receive his Base Salary through the effective date of his termination. If Executive terminates this Agreement without Good Reason, Executive will not receive any Incentive Compensation Plan payments for the year of termination or any Severance Benefits.

(c)  Administrative Leave . Company may, in its discretion, place Executive on a paid administrative leave prior to the actual date of termination of Executive’s employment. During the administrative leave, Company may bar Executive’s access to Company’s offices or facilities if reasonably necessary to the smooth operation of Company, or may provide Executive with access subject to such reasonable terms and conditions as Company chooses to impose.

7. Termination by Death or Disability .

(a)  Death in General . If Executive dies while employed by Company, Company shall pay Executive’s Base Salary for the period prior to his death. The payment shall be made in accordance with applicable law to Executive’s surviving spouse, or, if required by applicable law, to Executive’s estate. Company shall not have any obligation to pay any additional Base Salary for periods following the date of Executive’s death. Incentive Compensation Plan payments may be due to Executive for the year of death in accordance with the provisions of the Incentive Compensation Plan. No Severance Benefits will be due if Executive’s employment is terminated due to his death.

(b)  Disability . Company may terminate Executive’s employment and this Agreement due to Executive’s “Disability” upon written notice to Executive of such termination. For purposes of this Agreement, Executive will be considered to be suffering from a Disability if Executive is, by reason of any medically determinable physical or mental impairment that can be expected to (1) result in death or (2) last for a continuous period of not less than 12 months, unable to continue to perform the essential functions of his job, with or without any accommodation required by law, for six consecutive calendar months or for shorter periods aggregating 125 business days in any 12-month period. Company shall not have any obligation to pay any additional Base Salary for periods following the date on which Executive’s employment is terminated due to Executive’s Disability. Incentive Compensation Plan payments may be due to Executive for the year in which Executive’s termination of employment due to Disability occurs in accordance with the provisions of the Incentive Compensation Plan. No Severance Benefits will be due if Executive’s employment is terminated due to his Disability.

8. Severance Benefits .

(a)  Eligibility . Executive shall be eligible and entitled to receive the Severance Benefits provided by Section 8(b) in the following instances:

(1)  If this Agreement is terminated by Company without Cause pursuant to Section 5(b) and the termination constitutes a Separation from Service as defined in Section 10; or

(2)  If this Agreement is terminated by Executive for Good Reason pursuant to Section 6(a) and the termination constitutes a Separation from Service.

In order to receive the Severance Benefits, within the time periods described below Executive must execute (and not revoke) any release reasonably requested by Company of any claims that Executive may have in connection with his employment with Company. The release shall be provided to Executive within five days following Executive’s Separation from Service. The release must be executed and returned to Company within the 21 or 45 day (as applicable) period that will be described in the release and it must not be revoked by Executive within the seven day revocation period that will be described in the release. Executive also must provide any statement requested pursuant to Section 8(d).

(b)  Benefits Payable . Executive’s Severance Benefits will consist of the following:

(1)  The continuation of Executive’s Base Salary, at the rate in effect on Executive’s termination of employment, for a period of 24 months from the effective date of Executive’s Separation from Service. The continued Base Salary will be paid in accordance with Company’s regular payroll practices as in effect on Executive’s Separation from Service, with the first payment due for the payroll period that begins immediately following Executive’s Separation from Service. In order to qualify for the separation pay exception to Section 409A of the Internal Revenue Code (the “Code”) and avoid a complete ban on payments within six months following Executive’s Separation from Service as generally required by Section 409A, the total amount that may be paid to Executive within the first six months following his Separation from Service may not exceed the “Cap” described in the next sentence. The “Cap” shall equal two times the lesser of (i) the sum of Executive’s annualized compensation based upon the annual rate of pay for services provided to Company for the taxable year of Executive preceding the taxable year of Executive in which he has a Separation from Service with Company (adjusted for any increase during that year that was expected to continue indefinitely if Executive had not Separated from Service); or (ii) the maximum amount that may be taken into account under a qualified plan pursuant to Section 401(a)(17) of the Code for the year in which Executive has a Separation from Service. (For Separations from Service occurring in 2009, the maximum amount that may be taken into account for qualified plan purposes is $245,000). If the total amount that would be payable to Executive during the first six months following his Separation from Service would exceed the Cap, the excess shall be subtracted, in equal installments, from the amounts that would otherwise be due pursuant to the first sentence of this paragraph (1). The excess then will be paid, in one lump sum payment, on the first day of the seventh month following the day on which Executive has a Separation from Service

(2)  The continuation of any health, life, disability, or other insurance benefits that Executive was receiving as of his last day of active employment for a period expiring on the earlier of (i) 12 months following Executive’s Separation from Service or (ii) the day on which Executive becomes eligible to receive any substantially similar benefits under any plan or program of any successor employer. The continuation of any health, life, disability or other insurance benefits will run concurrently with Executive’s COBRA continuation coverage for health benefits. Company will satisfy the obligation to provide the health insurance benefits pursuant to this Section 8 by either paying for or reimbursing Executive for the actual cost of COBRA coverage (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). Company will reimburse Executive for 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 premiums for such benefits upon Executive’s submission of an invoice or other acceptable proof of payment.

(c)  No Duty to Mitigate . The payment of 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 Severance Benefits will not be impacted by Executive’s failure to “mitigate.” As provided above, 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.

(d)  Section 16 . If, at the time Executive’s employment is terminated for any reason, Executive is a person designated to file reports pursuant to Section 16 under the Securities Exchange Act of 1934 (the “1934 Act”), on request Executive will provide to Company a written representation in a form acceptable to Company that all reportable pre-termination securities transactions relating to Executive have been reported.

(e)  Compliance with Covenants . Executive’s receipt of the Severance Benefits described in this Section 8 is expressly conditioned upon Executive’s continued compliance with the provisions of Section 12 ( Intellectual Property ), Section 13 ( Restrictive Covenants ) and Section 14 ( Non-Disparagement ).

(f)  Non-Duplication of Benefits . The Severance Benefits provided to Executive pursuant to this Section 8 are in lieu of and are intended to replace any severance benefits due to Executive under any other policy, plan or agreement with Company.

9. Change in Control Severance Benefits .

(a)  Eligibility . Executive shall be eligible and entitled to receive the Change in Control Severance Benefits provided by Section 9(b) if a Change in Control (as defined in Section 9(c)) occurs and if prior to the expiration of 24 months after the Change in Control (1) this Agreement is terminated by Executive for Good Reason in accordance with the requirements of Section 6(a), or (2) Company terminates this Agreement without Cause in accordance with Section 5(b). Change in Control Severance Benefits are in lieu of the standard Severance Benefits provided by Section 8. Executive shall not be entitled to receive Severance Benefits under both Section 8 and this Section 9.

In order to receive the Change in Control Severance Benefits, Executive must execute (and not revoke) any release reasonably requested by Company of any claims that Executive may have in connection with his employment with Company within the time periods described in Section 8(a). Executive also must provide any statement requested pursuant to Section 8(d).

The provisions of this Section 9 shall continue in effect during the 24-month period following a Change in Control that occurs on or before December 31, 2011 despite the general termination of this Agreement on December 31, 2011 pursuant to Section 2.

(b)  Benefits Payable . Executive’s Change in Control Severance Benefits shall consist of the following:

(1)  A single lump sum cash payment, to be paid within ten days following the date of termination of Executive’s employment, in an amount equal to two times the greater of (i) Executive’s annualized Base Salary as of the date of the termination or (ii) Executive’s annualized Base Salary in effect immediately prior to any material diminution in Executive’s Base Salary.

(2)  A single lump sum cash payment, to be paid within ten days following the date of termination of Executive’s employment, in an amount equal to two times the Executive’s average Incentive Compensation Plan payment for the three calendar years immediately preceding the calendar year in which the Change in Control occurs. If Executive was not eligible to participate in the Incentive Compensation Plan during the three calendar years prior to the year in which Executive’s termination occurs, Executive’s target payment under the Incentive Compensation Plan for the year in which the termination occurs will be used in calculating the amount to which he is entitled pursuant to the preceding sentence in lieu of the average payment for the three preceding years.

(3)  A single lump sum cash payment, to be paid within ten days following the date of termination of Executive’s employment, 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 termination of Executive’s employment) of the payment to which Executive would be entitled under the Incentive Compensation Plan (had Executive’s employment not been terminated) for the calendar year in which Executive’s employment is terminated. The payment due pursuant to this paragraph (3) will be based on actual performance through the date of Executive’s termination if actual performance is determinable. If actual performance is not determinable, the payment due pursuant to this paragraph will be based on Executive’s target payment under the Incentive Compensation Plan for the year in which the termination occurs.

(4)  The continuation of any health, life, disability of other insurance benefits that Executive was receiving as of his last day of active employment for a period expiring on the earlier of (i) 24 months following Executive’s Separation from Service or (ii) the day on which Executive becomes eligible to receive any substantially similar benefits 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 Section 9 by either paying for or reimbursing Executive for the actual cost of COBRA coverage (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). Following the expiration of the COBRA continuation period, Company will reimburse Executive for the cost of comparable health insurance benefits. Similarly, Company will reimburse Executive for the cost of comparable coverage for all other insurance benefits that are not subject to the COBRA continuation rules. It will be Executive’s