UNISOURCE ENERGY CORPORATION NONQUALIFIED STOCK OPTION AGREEMENT
UNISOURCE
ENERGY CORPORATION
THIS NONQUALIFIED STOCK OPTION
AGREEMENT (this “Option
Agreement”) dated September 15, 2005 by and between UniSource Energy
Corporation, an Arizona corporation (the “Corporation”), and Xxxxxxx X.
Xxxxxx (the “Grantee”)
evidences the nonqualified stock option (the “Option”) granted by the
Corporation to the Grantee as to the number of shares of the Corporation’s
common stock, no par value per share (the “Common Stock”), first set
forth below.
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Number
of Shares of Common Stock:1 50,000 Award
Date: September 15, 2005
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Exercise Price per
Share:1 $33.55 Expiration Date:1,2
September 15, 2015
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Vesting1,2 The Option shall become
vested as to 33-1/3% of the total number of shares of Common Stock subject
to the Option on each of the first, second and third
anniversaries of the Award Date.
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The Option is
subject to the Terms and Conditions of Nonqualified Stock Option (the “Terms”) attached to this
Option Agreement (incorporated herein by this reference). The Option
has been granted to the Grantee in addition to, and not in lieu of, any other
form of compensation otherwise payable or to be paid to the Grantee and is in
full satisfaction of the Corporation’s obligation to grant stock options to the
Grantee pursuant to the Offer Letter dated July 8, 2005. The parties
agree to the terms of the Option set forth herein, and the Grantee acknowledges
receipt of, and having read and understanding, a copy of the Terms.
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“GRANTEE”
______________________________________
Signature
______________________________________
Print
Name
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UNISOURCE
ENERGY CORPORATION
an Arizona
corporation
By:__________________________________
Print
Name:___________________________
Title:_________________________________
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CONSENT
OF SPOUSE
In
consideration of the Corporation’s execution of this Option Agreement, the
undersigned spouse of the Grantee agrees to be bound by all of the terms and
provisions hereof.
__________________________________ ______________________
Signature of Spouse Date
TERMS
AND CONDITIONS OF NONQUALIFIED STOCK OPTION
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1.
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Vesting; Limits on
Exercise; Incentive Stock Option
Status.
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The Option shall
vest and become exercisable in percentage installments of the aggregate number
of shares subject to the Option as set forth on the cover page of this Option
Agreement. The Option may be exercised only to the extent the Option
is vested and exercisable.
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Cumulative
Exercisability. To the extent that the Option is vested
and exercisable, the Grantee has the right to exercise the Option (to the
extent not previously exercised), and such right shall continue, until the
expiration or earlier termination of the
Option.
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No Fractional
Shares. Fractional share interests shall be disregarded,
but may be cumulated.
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Minimum
Exercise. No fewer than 1001
shares of Common Stock may be purchased at any one time, unless the number
purchased is the total number at the time exercisable under the
Option.
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Nonqualified Stock
Option. The Option is a nonqualified stock option and is
not, and shall not be, an incentive stock option within the meaning of
Section 422 of the Code.
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2.
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Continuance of
Employment/Service Required; No Employment/Service
Commitment.
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The vesting schedule requires continued
employment or service through each applicable vesting date as a condition to the
vesting of the applicable installment of the Option and the rights and benefits
under this Option Agreement. Employment or service for only a portion
of the vesting period, even if a substantial portion, will not entitle the
Grantee to any proportionate vesting or avoid or mitigate a termination of
rights and benefits upon or following a termination of employment or services as
provided in Section 5.
Nothing contained in this Option Agreement
constitutes a continued employment or service commitment by the Corporation or
any corporation or other entity a majority of whose outstanding voting stock or
voting power is beneficially owned directly or indirectly by the Corporation (a
“Subsidiary”), affects
the Grantee’s status, if he or she is an employee, as an employee at will who is
subject to termination without cause, confers upon the Grantee any right to
remain employed by or in service to the Corporation or any Subsidiary,
interferes in any way with the right of the Corporation or any Subsidiary at any
time to terminate such employment or service, or affects the right of the
Corporation or any Subsidiary to increase or decrease the Grantee’s other
compensation.
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3.
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Exercise of
Option.
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3.1 Method of
Exercise. The Option shall be exercisable by the delivery to
the Secretary of the Corporation (or such other person as the Corporation may
require pursuant to
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such administrative
exercise procedures as the Corporation may implement from time to time)
of:
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a written
notice stating the number of shares of Common Stock to be purchased
pursuant to the Option or by the completion of such other administrative
exercise procedures as the Corporation may require from time to
time,
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payment in
full for the Exercise Price of the shares to be purchased in cash, check
or by electronic funds transfer to the Corporation, or (subject to
compliance with all applicable laws, rules, regulations and listing
requirements and further subject to such rules as the Corporation may
adopt as to any non-cash payment) in shares of Common Stock already owned
by the Grantee, valued at their Fair Market Value (as defined below) on
the exercise date, provided, however, that
any shares initially acquired upon exercise of a stock option or otherwise
from the Corporation must have been owned by the Grantee for at least six
(6) months before the date of such
exercise;
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any written
statements or agreements required pursuant to Section 7;
and
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satisfaction
of the tax withholding provisions of Section
3.2.
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The Corporation
also may, but is not required to, authorize a non-cash payment alternative by
notice and third party payment in such manner as may be authorized by the
Corporation.
For purposes of this Option Agreement, “Fair Market Value” means,
unless otherwise determined or provided by the Corporation in the circumstances,
the closing price of a share of Common Stock as reported on the composite tape
for securities listed on the New York Stock Exchange (the “Exchange”) for the date in
question or, if no sales of Common Stock were made on the Exchange on that date,
the closing price of a share of Common Stock as reported on said composite tape
for the next preceding day on which sales of Common Stock were made on the
Exchange. If the Common Stock is no longer listed or is no longer
actively traded on the Exchange as of the applicable date, the fair market value
of the Common Stock shall be the value as reasonably determined by the
Corporation for purposes of the Option in the circumstances.
3.2 Tax
Withholding. Upon any exercise of the Option, the Corporation
shall have the right at its option to:
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require the
Grantee (or his personal representative or beneficiary, as the case may
be) to pay or provide for payment of the amount of any taxes which the
Corporation may be required to withhold with respect to such Option
event;
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deduct from
any amount payable to the Grantee (or his personal representative or
beneficiary, as the case may be) in cash or equivalent (in respect of the
Option or otherwise) the amount of any taxes which the Corporation may be
required to withhold with respect to such Option event;
or
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reduce the
number of shares of Common Stock to be delivered by (or otherwise
reacquire shares held by the Grantee for at least 6 months) the
appropriate number of shares of Common Stock, valued at their then Fair
Market Value, to satisfy such withholding
obligation.
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In
no event will the value of any shares withheld exceed the minimum amount of
required withholding under applicable law.
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4.
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Adjustments;
Acceleration.
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4.1 Adjustments. Upon or in
contemplation of: any reclassification, recapitalization, stock split (including
a stock split in the form of a stock dividend) or reverse stock split (“stock
split”); any merger, combination, consolidation, or other reorganization; any
spin-off, split-up, or similar extraordinary dividend distribution in respect of
the Common Stock (whether in the form of securities or property); any exchange
of Common Stock or other securities of the Corporation, or any similar, unusual
or extraordinary corporate transaction in respect of the Common Stock; or a sale
of all or substantially all the business or assets of the Corporation as an
entirety; then the Corporation shall, in such manner, to such extent (if any)
and at such time as it deems appropriate and equitable in the
circumstances:
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(a)
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proportionately
adjust any or all of (1) the number and type of shares of Common Stock (or
other securities) that thereafter may be made the subject of the Option,
(2) the Exercise Price of the Option, and (3) the securities, cash or
other property deliverable upon exercise or vesting of the Option,
or
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(b)
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make
provision for a cash payment or for the assumption, substitution or
exchange of the Option or the cash, securities or property deliverable to
the Grantee, based upon the distribution or consideration payable to
holders of the Common Stock upon or in respect of such
event.
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The Corporation may
adopt such valuation methodologies for the Option as it deems reasonable in the
event of a cash or property settlement. Without limitation on other
methodologies, the Corporation may base such settlement solely upon the excess
if any of the per share amount payable upon or in respect of such event over the
Exercise Price of the Option.
In
any of such events, the Corporation may take such action prior to such event to
the extent that the Corporation deems the action necessary to permit the Grantee
to realize the benefits intended to be conveyed with respect to the underlying
shares in the same manner as is or will be available to stockholders
generally. In the case of any stock split or reverse stock split, if
no action is taken by the Corporation, the proportionate adjustments
contemplated by clause (a) above shall nevertheless be made.
4.2 Automatic Acceleration of
Option. Upon a dissolution of the Corporation or other event
described in Section 4.1 that the Corporation does not survive (or does not
survive as a public company in respect of its Common Stock), then the Option
shall become fully vested; provided that such acceleration provision shall not
apply, unless otherwise expressly provided by
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the Corporation,
with respect to the Option to the extent that the Corporation has made a
provision for the substitution, assumption, exchange or other continuation or
settlement of the Option, or the Option would otherwise continue in accordance
with its terms, in the circumstances.
4.3 Early Termination of
Award. If the Option has been accelerated as required by
Section 4.2 (or would have been so accelerated but for Section 4.4 or 4.5), the
Option shall terminate upon the related event referred to in Section 4.2,
subject to any provision that has been expressly made by the Corporation,
through a plan of reorganization or otherwise, for the survival, substitution,
assumption, exchange or other continuation or settlement of the Option and
provided that, if the Option will not survive, be substituted for, assumed,
exchanged, or otherwise continued or settled in the transaction, the Grantee
shall be given reasonable advance notice of the impending termination and a
reasonable opportunity to exercise the Option in accordance with its terms
before the termination of the Option (except that in no case shall more than ten
days’ notice of accelerated vesting and the impending termination be required
and any acceleration may be made contingent upon the actual occurrence of the
event).
4.4 Other Acceleration
Rules. Any acceleration of awards pursuant to this Section 4
shall comply with applicable legal requirements and, if necessary to accomplish
the purposes of the acceleration or if the circumstances require, may be deemed
by the Corporation to occur a limited period of time not greater than 30 days
before the event. Without limiting the generality of the foregoing,
the Corporation may deem an acceleration to occur immediately prior to the
applicable event and/or reinstate the original terms of the Option if an event
giving rise to an acceleration does not occur. The Corporation may
accord the Grantee a right to refuse any acceleration pursuant to this Section 4
in such circumstances as the Corporation may approve.
4.5 Possible Rescission of
Acceleration. If the vesting of the Option has been
accelerated expressly in anticipation of an event or upon stockholder approval
of an event and the Corporation later determines that the event will not occur,
the Corporation may rescind the effect of the acceleration to the extent the
Option is then outstanding and unexercised or otherwise unvested.
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5.
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Termination
of Option upon a Termination of Grantee’s Employment or
Services.
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Subject to earlier
termination on the Expiration Date of the Option or pursuant to Section 4 above,
if the Grantee ceases to be employed by or ceases to provide services to the
Corporation or a Subsidiary, the following rules shall apply (the last day that
the Grantee is employed by or provides services to the Corporation or a
Subsidiary is referred to as the Grantee’s “Severance Date”):
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other than as
expressly provided below in this Section 5, (a) the Grantee will have
until the date that is 90 days after his or her Severance Date to exercise
the Option (or portion thereof) to the extent that it was vested on the
Severance Date, (b) the Option, to the extent not vested on the Severance
Date, shall terminate on the Severance Date, and (c) the Option, to the
extent exercisable for the 90-day period following the Severance Date and
not exercised during such period, shall terminate at the close of business
on the last day of the 90-day
period;
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if the
termination of the Grantee’s employment or services is the result of the
Grantee’s death or Total Disability (as defined below), (a) the Grantee
(or his beneficiary or personal representative, as the case may be) will
have until the date that is 12 months after the Grantee’s Severance Date
to exercise the Option, (b) the Option, to the extent not vested on the
Severance Date, shall terminate on the Severance Date, and (c) the Option,
to the extent exercisable for the 12-month period following the Severance
Date and not exercised during such period, shall terminate at the close of
business on the last day of the 12-month
period;
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if the
termination of the Grantee’s employment or services is the result of the
Grantee’s Retirement (as defined below), (a) the Grantee (or his
beneficiary or personal representative, as the case may be) will have
until the date that is 3 years after the Grantee’s Severance Date to
exercise the Option, (b) the Option, to the extent not vested on the
Severance Date, shall terminate on the Severance Date, and (c) the Option,
to the extent exercisable for the 3-year period following the Severance
Date and not exercised during such period, shall terminate at the close of
business on the last day of the 3-year
period;
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if the
Grantee’s employment or services are terminated by the Corporation or a
Subsidiary for Cause (as defined below), the Option (whether vested or
not) shall terminate on the Severance
Date.
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For purposes of the
Option, “Total
Disability” means a “permanent and total disability” (within the meaning
of Section 22(e)(3) of the Code or as otherwise determined by the
Corporation).
For purposes of the
Option, “Retirement”
means termination of employment on or after the Grantee’s early, normal or late
retirement date or age as applicable under the terms of the Corporation’s
Salaried Employees Retirement Plan or the Pension Trust Plan for Employees of
Tucson Electric Power Company represented by IBEW Local 1116.
For purposes of the
Option, “Cause” means
that the Grantee:
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(1)
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has been
negligent in the discharge of his or her duties to the Corporation or any
of its Subsidiaries, has refused to perform stated or assigned duties or
is incompetent in or (other than by reason of a disability or analogous
condition) incapable of performing those
duties;
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(2)
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has been
dishonest or committed or engaged in an act of theft, embezzlement or
fraud, a breach of confidentiality, an unauthorized disclosure or use of
inside information, customer lists, trade secrets or other confidential
information; has breached a fiduciary duty, or willfully and materially
violated any other duty, law, rule, regulation or policy of the
Corporation, any of its Subsidiaries or any affiliate of the Corporation
or any of its Subsidiaries; or has been convicted of a felony or
misdemeanor (other than minor traffic violations or similar
offenses);
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(3)
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has
materially breached any of the provisions of any agreement with the
Corporation, any of its Subsidiaries or any affiliate of the Corporation
or any of its Subsidiaries; or
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(4)
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has engaged
in unfair competition with, or otherwise acted intentionally in a manner
injurious to the reputation, business or assets of, the Corporation, any
of its Subsidiaries or any affiliate of the Corporation or any of its
Subsidiaries; has improperly induced a vendor or customer to break or
terminate any contract with the Corporation, any of its Subsidiaries or
any affiliate of the Corporation or any of its Subsidiaries; or has
induced a principal for whom the Corporation, any of its Subsidiaries or
any affiliate of the Corporation or any of its Subsidiaries acts as agent
to terminate such agency
relationship.
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In
all events the Option is subject to earlier termination on the Expiration Date
of the Option or as contemplated by Section 4. The Corporation shall
be the sole judge of whether the Grantee continues to render employment or
services for purposes of this Option Agreement.
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6.
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Non-Transferability.
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The Option and any
other rights of the Grantee under this Option Agreement are nontransferable and
exercisable only by the Grantee; provided, however, that the Corporation may
permit the Option to be exercised by and paid to, or otherwise transferred to,
other persons or entities pursuant to such conditions and procedures, including
limitations on subsequent transfers, as the Corporation may, in its discretion,
establish in writing; provided, further, that any permitted transfer shall be
subject to compliance with applicable federal and state securities laws and
shall not be for value (other than nominal consideration, settlement of marital
property rights, or for interests in an entity in which more than 50% of the
voting interests are held by the Grantee or the Grantee’s family
members). The exercise and transfer restricts set forth in the
preceding sentence shall not apply to:
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transfers to
the Corporation;
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the
designation of a beneficiary to receive benefits in the event of the
Grantee’s death or, if the Grantee has died, transfers to or exercise by
the Grantee’s beneficiary, or, in the absence of a validly designated
beneficiary, transfers by will or the laws of descent and
distribution;
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transfers to
a family member (or former family member) pursuant to a domestic relations
order if approved or ratified by the
Corporation;
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if the
Grantee has suffered a disability, permitted transfers or exercises on
behalf of the Grantee by the Grantee’s legal representative;
or
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the
authorization by the Corporation of “cashless exercise” procedures with
third parties who provide financing for the purpose of (or who otherwise
facilitate) the exercise of options consistent with applicable laws and
the express authorization of the
Corporation.
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7.
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Compliance with
Laws.
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The grant and
vesting of the Option, the offer, issuance and delivery of shares of Common
Stock and/or the payment of money under this Option Agreement are subject to
compliance with all applicable federal and state laws, rules and regulations
(including but not limited to state and federal securities laws and federal
margin requirements) and to such approvals by any listing, regulatory or
governmental authority as may, in the opinion of counsel for the Corporation, be
necessary or advisable in connection therewith. The Grantee will, if
requested by the Corporation or one of its Subsidiaries, provide such assurances
and representations to the Corporation or one of its Subsidiaries as the
Corporation may deem necessary or desirable to assure compliance with all
applicable legal and accounting requirements.
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8.
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Notices.
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Any notice to be
given under the terms of this Option Agreement shall be in writing and addressed
to the Corporation at its principal office to the attention of the Secretary,
and to the Grantee at the address last reflected on the Corporation’s payroll
records, or at such other address as either party may hereafter designate in
writing to the other. Any such notice shall be delivered in person or
shall be enclosed in a properly sealed envelope addressed as aforesaid,
registered or certified, and deposited (postage and registry or certification
fee prepaid) in a post office or branch post office regularly maintained by the
United States Government. Any such notice shall be given only when
received, but if the Grantee is no longer employed by the Corporation or a
Subsidiary, shall be deemed to have been duly given five business days after the
date mailed in accordance with the foregoing provisions of this Section
8.
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9.
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Entire Agreement;
Amendment.
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This Option
Agreement (including these Terms) constitutes the entire agreement and
supersedes all prior understandings and agreements, written or oral, of the
parties hereto with respect to the subject matter hereof. This Option
Agreement may be amended by the Corporation; provided, however, any amendment of
this Option Agreement shall not, without written consent of the Grantee, affect
in any manner materially adverse to the Grantee any rights or benefits of the
Grantee or obligations of the Corporation under the Option prior to the
effective date of such change. The Corporation may unilaterally waive
any provision hereof in writing to the extent such waiver does not adversely
affect the interests of the Grantee hereunder, but no such waiver shall operate
as or be construed to be a subsequent waiver of the same provision or a waiver
of any other provision hereof.
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10.
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Governing
Law.
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This Option
Agreement shall be governed by and construed and enforced in accordance with the
laws of the State of Arizona without regard to conflict of law principles
thereunder.
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11.
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Effect of this
Agreement.
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Subject to the
Corporation’s right to terminate the Option pursuant to Section 4, this Option
Agreement shall be assumed by, be binding upon and inure to the benefit of any
successor or successors to the Corporation.
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12.
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Counterparts.
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This Option
Agreement may be executed simultaneously in any number of counterparts, each of
which shall be deemed an original but all of which together shall constitute one
and the same instrument.
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13.
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Section
Headings.
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The section
headings of this Option Agreement are for convenience of reference only and
shall not be deemed to alter or affect any provision hereof.
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