8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

DATE OF REPORT
(DATE OF EARLIEST EVENT REPORTED): August 8, 2011

		IRS Employer
Commission	Registrant; State of Incorporation;	Identification
File Number	Address; and Telephone Number	Number
1-13739	UNISOURCE ENERGY CORPORATION	86-0786732
	(An Arizona corporation)
	One South Church Avenue, Suite 100
	Tucson, AZ 85701
	(520) 571-4000

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.03 — Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.

UNS Gas, Inc. Note Purchase Agreement

On May 4, 2011, UNS Gas, Inc. (“UNS Gas”), as borrower, and UniSource Energy Services, Inc. (“UES”), as guarantor, entered into a Note Purchase and Guaranty Agreement (the “Note Purchase Agreement”) under which a group of investors agreed to purchase $50 million of 5.39% UNS Gas senior guaranteed notes which will mature in August 2026. Capitalized terms used in this description of the Note Purchase Agreement and not otherwise defined have the meanings given to them in the Note Purchase Agreement.

The issuance of notes and funding of the transaction occurred on August 8, 2011. The notes are guaranteed by UES, however, the UES guaranty may be terminated if certain conditions are met. The notes may be pre-paid with a make-whole call premium reflecting a discount rate equal to an equivalent maturity U.S. Treasury security yield plus 50 basis points.

Proceeds from the note issuance were used to pay in full the $50 million of UNS Gas’ 6.23% notes that matured on August 11, 2011.

The Note Purchase Agreement contains certain restrictive covenants, including restrictions on transactions with affiliates, mergers, liens to secure indebtedness, restricted payments, and incurrence of indebtedness. The incurrence of indebtedness covenant requires UNS Gas and certain of its Subsidiaries to meet certain tests before an additional dollar of indebtedness may be incurred. These tests include (a) a ratio of Consolidated Long-Term Debt to Consolidated Total Capitalization of no greater that 0.65 to 1.00, and (b) an Interest Coverage Ratio (a measure of cash flow to cover interest expense) of at least 2.50 to 1.00. However, UNS Gas and its specified Subsidiaries may, without meeting these tests, refinance indebtedness and incur short-term debt in an amount not to exceed $5 million. UNS Gas cannot declare or make distributions or dividends (restricted payments) on their common stock unless (a) such restricted payment would not violate applicable law, (b) immediately after giving effect to such action no default or event of default would exist under the Note Purchase Agreement and (c) immediately after giving effect to such action, UNS Gas and certain of its subsidiaries would be permitted to incur an additional dollar of indebtedness under the debt incurrence test described above.

Upon the occurrence and continuance of an event of default under the Note Purchase Agreement, the notes may become immediately due and payable. Events of default under the Note Purchase Agreement include failure to make payments required thereunder or to comply with the covenants contained therein, Change in Control, or certain bankruptcy events with respect to UNS Gas or UES. In addition, an event of default would include the failure of UNS Gas, any subsidiary of UNS Gas, or UES, to make required payments on certain indebtedness that is outstanding in an aggregate principal amount of at least $10 million or the events giving the holders of such indebtedness the right to require repayment of such indebtedness.

UNS Electric, Inc. Credit Agreement

On August 10, 2011, UNS Electric, Inc. (“UNS Electric”), as borrower, and UES, as guarantor, entered into a $30 million term loan credit agreement with Union Bank, N.A., as administrative agent and lender (the “Credit Agreement”). Capitalized terms used in this description of the Credit Agreement and not otherwise defined have the meanings given to them in the Credit Agreement.

The Credit Agreement expires on August 10, 2015, at which time all outstanding amounts thereunder will be due and payable.

UES has guaranteed the obligations of UNS Electric under the Credit Agreement, however, the UES guaranty may be terminated if certain conditions are met.

The loan proceeds were used to repay money drawn under UNS Electric’s revolving credit facility to fund, in part, UNS Electric’s acquisition of Black Mountain Generating Station in July 2011.

Interest rates and fees under the Credit Agreement are based on a pricing grid tied to UNS Electric’s credit ratings. Borrowings bear interest at a variable interest rate consisting of a spread over LIBOR or Alternate Base Rate. The per annum rate currently available to UNS Electric on borrowings is LIBOR plus 1.25% for Eurodollar loans or the Alternate Base Rate plus 0.25% for Alternate Base Rate loans. The rate currently in effect is three-month LIBOR plus 1.25%. On the term loan closing date UNS Electric also entered into a fixed-for-floating interest rate swap with Union Bank, N.A. Under the swap agreement UNS Electric will pay a fixed rate of 0.97% and receive a three month LIBOR rate on a $30 million notional amount over a four year period ending August 10, 2015.

The Credit Agreement contains a number of covenants which restrict UNS Electric and UES, including restrictions on transactions with affiliates, restricted payments, incurrence of transactions with affiliates, restricted payments, incurrence of additional indebtedness, liens and mergers. In order to incur additional indebtedness, UNS Electric and certain of its subsidiaries must have an Interest Coverage Ratio for the period of four consecutive fiscal quarters ending on the date of the incurrence of not less than 2.50 to 1.00. However, UNS Electric and its specified subsidiaries may, without meeting this test, refinance indebtedness and incur short-term debt in an amount not to exceed $5 million. The Credit Agreement also requires UNS Electric to maintain a ratio of Consolidated Total Indebtedness to Consolidated Total Capitalization of not greater than 0.65 to 1.00. Under the terms of the Credit Agreement, UNS Electric may pay dividends so long as it maintains compliance with the agreement.

Upon the occurrence and continuance of an event of default in respect of UNS Electric or UES under the Credit Agreement, outstanding borrowings of UNS Electric may become immediately due and payable. Events of default under the Credit Agreement include failure to make payments required thereunder or to comply with the covenants contained therein, Change in Control, or certain bankruptcy events with respect to UNS Electric or UES. In addition, an event of default would include the failure of UNS Electric, any subsidiary of UNS Electric, or UES, to make required payments on certain indebtedness that is outstanding in an aggregate principal amount of at least $10 million or the events giving the holders of such indebtedness the right to require repayment of such indebtedness.

Item 9.01 — Financial Statements and Exhibits.

Exhibit 4.1	Note Purchase Agreement, dated as of May 4, 2011, among UNS Gas, Inc., UniSource Energy Services, Inc., and a group of purchasers
Exhibit 4.2	Credit Agreement, dated as of August 10, 2011, among UNS Electric, Inc., UniSource Energy Services, Inc., and Union Bank, N.A., as Administrative Agent and lender

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	UNISOURCE ENERGY CORPORATION (Registrant)
Date: August 12, 2011	/s/ Kevin P. Larson
	Senior Vice President and Chief Financial Officer

EX-4.1

Exhibit 4.1

UNS Gas, Inc.

UniSource Energy Services, Inc.

$50,000,000

5.39% Senior Guaranteed Notes, due August 10, 2026

Note Purchase and Guaranty Agreement

Dated as of May 4, 2011

Table of Contents

(Not a part of the Agreement)

Section	Heading	Page
Section 1.	Authorization of Notes		1
Section 2.	Sale and Purchase of Notes		1
Section 3.	Execution Date; Closing		2
Section 4.	Conditions to Closing		2
Section 4.1.	Representations and Warranties		2
Section 4.2.	Performance; No Default		2
Section 4.3.	Compliance Certificates		2
Section 4.4.	Opinions of Counsel		3
Section 4.5.	Purchase Permitted by Applicable Law, Etc.		3
Section 4.6.	Sale of Other Notes		3
Section 4.7.	Payment of Special Counsel Fees		3
Section 4.8.	Private Placement Number		3
Section 4.9.	Changes in Corporate Structure		3
Section 4.10.	Funding Instructions		4
Section 4.11.	Proceedings and Documents		4
Section 4.12.	Regulatory Approval		4
Section 4.13.	Rating		4
Section 5.	Representations and Warranties of the Obligors		4
Section 5.1.	Organization; Power and Authority		4
Section 5.2.	Authorization, Etc.		4
Section 5.3.	Disclosure		5
Section 5.4.	Organization and Ownership of Shares of Subsidiaries; Affiliates		5
Section 5.5.	Financial Statements; Material Liabilities		6
Section 5.6.	Compliance with Laws, Other Instruments, Etc.		6
Section 5.7.	Governmental Authorization, Etc.		6
Section 5.8.	Litigation; Observance of Agreements, Statutes and Orders		7
Section 5.9.	Taxes		7
Section 5.10.	Title to Property; Leases		7
Section 5.11.	Licenses, Permits, Etc.		7
Section 5.12.	Compliance with ERISA		8
Section 5.13.	Private Offering by the Company		9
Section 5.14.	Use of Proceeds; Margin Regulations		9
Section 5.15.	Existing Indebtedness; Future Liens		9
Section 5.16.	Foreign Assets Control Regulations, Etc		10
Section 5.17.	Status under Certain Statutes		10
Section 5.18.	Notes Rank Pari Passu		11
Section 5.19.	Environmental Matters		11

-i-

Section	Heading	Page
Section 6.	Representations of the Purchasers		11
Section 6.1.	Purchase for Investment		11
Section 6.2.	Source of Funds		12
Section 7.	Information as to the Obligor		13
Section 7.1.	Financial and Business Information		13
Section 7.2.	Officer’s Certificate		16
Section 7.3.	Visitation		17
Section 8.	Prepayment of the Notes		17
Section 8.1.	Maturity		17
Section 8.2.	Optional Prepayments with Make-Whole Amount		17
Section 8.3.	Allocation of Partial Prepayments		17
Section 8.4.	Maturity; Surrender, Etc.		18
Section 8.5.	Change of Control		18
Section 8.6.	Purchase of Notes		18
Section 8.7.	Make-Whole Amount		19
Section 9.	Affirmative Covenants		20
Section 9.1.	Compliance with Laws		20
Section 9.2.	Insurance		20
Section 9.3.	Maintenance of Properties		21
Section 9.4.	Payment of Taxes and Claims		21
Section 9.5.	Legal Existence, Etc.		21
Section 9.6.	Notes to Rank Pari Passu		21
Section 9.7.	Books and Records		22
Section 10.	Negative Covenants		22
Section 10.1.	Transactions with Affiliates		22
Section 10.2.	Merger, Consolidation, Etc		22
Section 10.3.	Liens		23
Section 10.4.	Restricted Payments		24
Section 10.5.	Incurrence of Indebtedness		24
Section 10.6.	Line of Business		25
Section 10.7.	Terrorism Sanctions Regulations		25

-ii-

Section	Heading	Page
Section 11.	Guaranty		25
Section 11.1.	The Guaranty		25
Section 11.2.	Obligations Unconditional		26
Section 11.3.	Subrogation		28
Section 11.4.	Reinstatement		28
Section 11.5.	Remedies Unaffected		28
Section 11.6.	Continuing Guarantee; Liability in Respect of Successor		29
Section 11.7.	Termination of Guaranty		29
Section 12.	Events of Default		30
Section 13.	Remedies on Default, Etc.		32
Section 13.1.	Acceleration		32
Section 13.2.	Other Remedies		32
Section 13.3.	Rescission		33
Section 13.4.	No Waivers or Election of Remedies, Expenses, Etc.		33
Section 14.	Registration; Exchange; Substitution of Notes		33
Section 14.1.	Registration of Notes		33
Section 14.2.	Transfer and Exchange of Notes		34
Section 14.3.	Replacement of Notes		34
Section 15.	Payments on Notes		34
Section 15.1.	Place of Payment		34
Section 15.2.	Home Office Payment		35
Section 16.	Expenses, Etc.		35
Section 16.1.	Transaction Expenses		35
Section 16.2.	Survival		35
Section 17.	Survival of Representations and Warranties; Entire Agreement		36
Section 18.	Amendment and Waiver		36
Section 18.1.	Requirements		36
Section 18.2.	Solicitation of Holders of Notes		36
Section 18.3.	Binding Effect, Etc.		37
Section 18.4.	Notes Held by Any Obligor, Etc.		37

-iii-

Section	Heading	Page
Section 19.	Notices		37
Section 20.	Reproduction of Documents		38
Section 21.	Confidential Information		38
Section 22.	Substitution of Purchaser		39
Section 23.	Miscellaneous		39
Section 23.1.	Successors and Assigns		39
Section 23.2.	Payments Due on Non-Business Days		40
Section 23.3.	Accounting Terms		40
Section 23.4.	Severability		40
Section 23.5.	Construction, Etc.		40
Section 23.6.	Counterparts		40
Section 23.7.	Governing Law		41
Section 23.8.	Jurisdiction and Process; Waiver of Jury Trial		41
Signature			42

-iv-

Schedule A	—	Information Relating to Purchasers
Schedule B	—	Defined Terms
Schedule 5.3	—	Disclosure Materials
Schedule 5.4	—	Subsidiaries and Affiliates of the Obligors and Ownership of Subsidiary Stock
Schedule 5.5	—	Financial Statements
Schedule 5.15	—	Existing Indebtedness
Annex A	—	Subsidiaries and Affiliates of the Obligors as of Closing
Annex B	—	Existing Indebtedness as of Closing
Exhibit 1	—	Form of 5.39% Senior Guaranteed Notes, due August 10, 2026
Exhibit 4.4(a)(i)	—	Form of Opinion of Special Counsel for the Company
Exhibit 4.4(a)(ii)	—	Form of Opinion of General Counsel for the Guarantor
Exhibit 4.4(b)	—	Form of Opinion of Special Counsel for the Purchasers

-v-

UNS Gas, Inc.
UniSource Energy Services, Inc.
One South Church Avenue, Suite 1820
Tucson, Arizona, 85701

$50,000,000 5.39% Senior Guaranteed Notes, due August 10, 2026

Dated as of May 4, 2011

To Each of the Purchasers Listed in
Schedule A Hereto:

Ladies and Gentlemen:

UNS Gas, Inc., an Arizona corporation (the “Company”), and UniSource Energy Services, Inc., an Arizona corporation (the “Guarantor” and, together with the Company, the “Obligors”), agree with each of the purchasers whose names appear at the end hereof (each, a “Purchaser” and, collectively, the “Purchasers”) as follows:

Section 1. Authorization of Notes.

The Company will authorize the issue and sale of $50,000,000 aggregate principal amount of its 5.39% Senior Guaranteed Notes, due August 10, 2026 (the “Notes,” such term to include any such notes issued in substitution therefor pursuant to Section 13). The Notes shall be substantially in the form set out in Exhibit 1. Certain capitalized and other terms used in this Agreement are defined in Schedule B; and references to a “Schedule” or an “Exhibit” are, unless otherwise specified, to a Schedule or an Exhibit attached to this Agreement.

Section 2. Sale and Purchase of Notes.

Subject to the terms and conditions of this Agreement, the Company will issue and sell to each Purchaser and each Purchaser will purchase from the Company, at the Closing provided for in Section 3, Notes in the principal amount specified opposite such Purchaser’s name in Schedule A at the purchase price of 100% of the principal amount thereof. The Purchasers’ obligations hereunder are several and not joint obligations and no Purchaser shall have any liability to any Person for the performance or non-performance of any obligation by any other Purchaser hereunder.

UNS Gas, Inc. Note Purchase and Guaranty Agreement

Section 3. Execution Date; Closing.

The execution and delivery of this Agreement will be made at the offices of Chapman and Cutler LLP, 111 West Monroe Street, Chicago, Illinois 60603 on May 4, 2011 (the “Execution Date”).

The sale and purchase of the Notes to be purchased by each Purchaser shall occur at the offices of Chapman and Cutler LLP, 111 West Monroe, Chicago, Illinois 60603, at 10:00 a.m. Chicago time, at a closing (the “Closing”) on August 8, 2011 or on such other Business Day thereafter on or prior to August 10, 2011 as may be agreed upon by the Company and the Purchasers. At the Closing, the Company will deliver to each Purchaser the Notes to be purchased by such Purchaser in the form of a single Note (or such greater number of Notes in denominations of at least $100,000 as such Purchaser may request) dated the date of the Closing and registered in such Purchaser’s name (or in the name of its nominee), against delivery by such Purchaser to the Company or its order of immediately available funds in the amount of the purchase price therefor by wire transfer of immediately available funds for the account of the Company to account number at. If at the Closing the Company shall fail to tender such Notes to any Purchaser as provided above in this Section 3, or any of the conditions specified in Section 4 shall not have been fulfilled to such Purchaser’s satisfaction, such Purchaser shall, at its election, be relieved of all further obligations under this Agreement, without thereby waiving any rights such Purchaser may have by reason of such failure or such nonfulfillment.

Section 4. Conditions to Closing.

Each Purchaser’s obligation to execute and deliver this Agreement on the Execution Date and the obligations of each Purchaser to purchase and pay for the Notes to be sold to such Purchaser at the Closing is subject to the fulfillment to such Purchaser’s satisfaction, prior to or at the Closing, of the following conditions:

Section 4.1. Representations and Warranties. The representations and warranties of the Obligors in this Agreement shall be correct when made on the Execution Date and at the time of the Closing.

Section 4.2. Performance; No Default. Each Obligor shall have performed and complied with all agreements and conditions contained in this Agreement required to be performed or complied with by it prior to or at the Closing, and after giving effect to the issue and sale of the Notes (and the application of the proceeds thereof as contemplated by Section 5.14), no Default or Event of Default shall have occurred and be continuing. Neither any Obligor nor any Subsidiary of the Company shall have entered into any transaction since the date of the Memorandum that would have been prohibited by Sections 10.1, 10.3, 10.4 and 10.5 had such Sections applied since such date.

Section 4.3. Compliance Certificates.

(a) Officer’s Certificate. Each Obligor shall have delivered to such Purchaser an Officer’s Certificate, dated the date of the Closing, certifying that the conditions specified in Sections 4.1, 4.2 and 4.9, to the extent such conditions apply to such Obligor, have been fulfilled.

(b) Secretary’s Certificate. Each Obligor shall have delivered to such Purchaser a certificate of its Secretary or Assistant Secretary, dated the date of Closing, certifying as to the resolutions attached thereto and other corporate proceedings relating to the authorization, execution and delivery of the Notes and this Agreement, as the case may be.

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UNS Gas, Inc. Note Purchase and Guaranty Agreement

Section 4.4. Opinions of Counsel. Such Purchaser shall have received opinions in form and substance satisfactory to such Purchaser, dated the date of the Closing (a)(i) from Morgan, Lewis & Bockius LLP, special New York counsel for the Company, and (ii) General Counsel for the Guarantor, covering the matters set forth in Exhibits 4.4(a)(i) and 4.4(a)(ii), respectively, and covering such other matters incident to the transactions contemplated hereby as such Purchaser or its counsel may reasonably request (and the Company hereby instructs its counsel to deliver such opinion to the Purchasers) and (b) from Chapman and Cutler LLP, the Purchasers’ special counsel in connection with such transactions, substantially in the form set forth in Exhibit 4.4(b) and covering such other matters incident to such transactions as such Purchaser may reasonably request.

Section 4.5. Purchase Permitted by Applicable Law, Etc. On the date of the Closing such Purchaser’s purchase of Notes shall (a) be permitted by the laws and regulations of each jurisdiction to which such Purchaser is subject, without recourse to provisions (such as section 1405(a)(8) of the New York Insurance Law) permitting limited investments by insurance companies without restriction as to the character of the particular investment, (b) not violate any applicable law or regulation (including, without limitation, Regulation T, U or X of the Board of Governors of the Federal Reserve System) and (c) not subject such Purchaser to any tax, penalty or liability under or pursuant to any applicable law or regulation, which law or regulation was not in effect on the date hereof. If requested by such Purchaser, such Purchaser shall have received an Officer’s Certificate certifying as to such matters of fact as such Purchaser may reasonably specify to enable such Purchaser to determine whether such purchase is so permitted.

Section 4.6. Sale of Other Notes. Contemporaneously with the Closing, the Company shall sell to each other Purchaser, and each other Purchaser shall purchase, the Notes to be purchased by it at the Closing as specified in Schedule A.

Section 4.7. Payment of Special Counsel Fees. Without limiting the provisions of Section 15.1, the Company shall have paid on or before the Execution Date and the Closing the fees, charges and disbursements of the Purchasers’ special counsel referred to in Section 4.4 to the extent reflected in a statement of such counsel rendered to the Company at least one Business Day prior to the Execution Date and the Closing.

Section 4.8. Private Placement Number. A Private Placement Number issued by S&P’s CUSIP Service Bureau (in cooperation with the SVO of the NAIC) shall have been obtained for the Notes.

Section 4.9. Changes in Corporate Structure. No Obligor shall have changed its jurisdiction of incorporation or been a party to any merger or consolidation or succeeded to all or any substantial part of the liabilities of any other entity at any time following the date of the most recent financial statements referred to in Schedule 5.5.

3

UNS Gas, Inc. Note Purchase and Guaranty Agreement

Section 4.10. Funding Instructions. At least three Business Days prior to the date of the Closing, each Purchaser shall have received written instructions signed by a Responsible Officer on letterhead of the Company confirming the information specified in Section 3 including (a) the name and address of the transferee bank, (b) such transferee bank’s ABA number and (c) the account name and number into which the purchase price for the Notes is to be deposited.

Section 4.11. Proceedings and Documents. All corporate and other proceedings in connection with the transactions contemplated by this Agreement and all documents and instruments incident to such transactions shall be satisfactory to such Purchaser and its special counsel, and such Purchaser and its special counsel shall have received all such counterpart originals or certified or other copies of such documents as such Purchaser or such special counsel may reasonably request.

Section 4.12. Regulatory Approval. Prior to the Closing, such Purchaser and its special counsel shall have received evidence that all approvals and authorizations of the ACC that are required to be obtained in connection with the issuance of the Notes and the execution and delivery by the Company of, and the performance by the Company of its obligations under, this Agreement and the Notes have been duly obtained, and are in full force and all conditions contained in such approvals and authorizations which are to be fulfilled on or prior to the issuance of the Notes have been fulfilled.

Section 4.13. Rating. Prior to the Closing, such Purchaser and its special counsel shall have received evidence that Moody’s shall have assigned the Notes a rating of “Baa3” or better.

Section 5. Representations and Warranties of the Obligors.

Each Obligor represents and warrants to each Purchaser on the Execution Date and the date of the Closing that:

Section 5.1. Organization; Power and Authority. Such Obligor is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation, and is duly qualified as a foreign corporation and is in good standing in each jurisdiction in which such qualification is required by law, other than those jurisdictions as to which the failure to be so qualified or in good standing could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Such Obligor has the corporate power and authority to own or hold under lease the Properties it purports to own or hold under lease, to transact the business it transacts and proposes to transact, to execute and deliver this Agreement and the Notes to which it is a party and to perform the provisions hereof and thereof.

Section 5.2. Authorization, Etc. This Agreement and the Notes to which such Obligor is a party have been duly authorized by all necessary corporate action on the part of such Obligor, and this Agreement constitutes, and upon execution and delivery thereof each Note will constitute, a legal, valid and binding obligation of such Obligor enforceable against such Obligor in accordance with its terms, except as such enforceability may be limited by (a) applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors’ rights generally and (b) general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).

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UNS Gas, Inc. Note Purchase and Guaranty Agreement

Section 5.3. Disclosure. The Company, through its agent, JP Morgan Securities, has delivered to each Purchaser a copy of a Private Placement Memorandum, dated March 2011 (the “Memorandum”), relating to the transactions contemplated hereby. The Memorandum fairly describes, in all material respects, the general nature of the business and principal Properties of the Obligors and their Subsidiaries. This Agreement, the Memorandum and the documents, certificates or other writings delivered to the Purchasers by or on behalf of the Obligors in connection with the transactions contemplated hereby and identified in Schedule 5.3, and the financial statements listed in Schedule 5.5, (this Agreement, the Memorandum, the descriptions relating to the Company in the Annual Report on Form 10-K for the fiscal year ended December 31, 2010 and the Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2011 filed with the SEC by UniSource Energy Corporation and such documents, certificates or other writings and such financial statements delivered to each Purchaser being referred to, collectively, as the “Disclosure Documents”), taken as a whole, do not, as of the Execution Date, contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading in light of the circumstances under which they were made. Except as disclosed in the Disclosure Documents, since December 31, 2010, there has been no change in the financial condition, operations, business or Properties of either Obligor or any Subsidiary of the Company except changes that individually or in the aggregate could not reasonably be expected to have a Material Adverse Effect. There is no fact known to such Obligor that could reasonably be expected to have a Material Adverse Effect that has not been set forth herein or in the Disclosure Documents.

Section 5.4. Organization and Ownership of Shares of Subsidiaries; Affiliates. (a) Schedule 5.4 contains as of the Execution Date (except as noted therein) complete and correct lists (i) of each Obligor’s Subsidiaries, showing, as to each Subsidiary, the correct name thereof, the jurisdiction of its organization, and the percentage of shares of each class of its capital stock or similar equity interests outstanding owned by such Obligor and each other Subsidiary and (ii) of each Obligor’s Affiliates, other than Subsidiaries. Annex A to be attached hereto on the date of the Closing will correctly describe all changes to Schedule 5.4 since the Execution Date.

(b) All of the outstanding shares of capital stock or similar equity interests of each Subsidiary shown in Schedule 5.4 as being owned by an Obligor or its Subsidiaries have been validly issued, are fully paid and nonassessable and are owned by such Obligor or Subsidiary free and clear of any Lien (except as otherwise disclosed in Schedule 5.4).

(c) Each Subsidiary identified in Schedule 5.4 is a corporation or other legal entity duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, and is duly qualified as a foreign corporation or other legal entity and is in good standing in each jurisdiction in which such qualification is required by law, other than those jurisdictions as to which the failure to be so qualified or in good standing could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Each such Subsidiary has the corporate or other power and authority to own or hold under lease the Properties it purports to own or hold under lease and to transact the business it transacts and proposes to transact.

5

UNS Gas, Inc. Note Purchase and Guaranty Agreement

(d) No Subsidiary of the Company is a party to, or otherwise subject to, any legal, regulatory, contractual or other restriction (other than this Agreement, the agreements listed on Schedule 5.4 and customary limitations imposed by corporate law or similar statutes) restricting the ability of such Subsidiary to pay dividends out of profits or make any other similar distributions of profits to the Company or any of its Subsidiaries that owns outstanding shares of capital stock or similar equity interests of such Subsidiary.

Section 5.5. Financial Statements; Material Liabilities. Each Obligor has delivered to each Purchaser copies of the financial statements of such Obligor and its Subsidiaries listed on Schedule 5.5. All of said financial statements (including in each case the related schedules and notes) fairly present in all material respects the consolidated financial position of such Obligor and its Subsidiaries as of the respective dates specified in such financial statements and the consolidated results of their operations and cash flows for the respective periods so specified and have been prepared in accordance with GAAP consistently applied throughout the periods involved except as set forth in the notes thereto (subject, in the case of any interim financial statements, to normal year-end adjustments). Each Obligor and the Subsidiaries of the Company do not have any Material liabilities that are not disclosed on such financial statements or otherwise disclosed in the Disclosure Documents, except for liabilities incurred after the Execution Date in the ordinary course of business that individually and in the aggregate could not be reasonably expected to have a Material Adverse Effect.

Section 5.6. Compliance with Laws, Other Instruments, Etc. The execution, delivery and performance by each Obligor of this Agreement and the Notes to which it is a party will not (a) contravene, result in any breach of, or constitute a default under, or result in the creation of any Lien in respect of any Property of such Obligor or any Subsidiary of the Company under, any indenture, mortgage, deed of trust, loan, purchase or credit agreement, lease, corporate charter or by-laws, or any other agreement or instrument to which such Obligor or any Subsidiary of the Company is bound or by which such Obligor or any Subsidiary of the Company or any of their respective Properties may be bound or affected, (b) conflict with or result in a breach of any of the terms, conditions or provisions of any order, judgment, decree, or ruling of any court, arbitrator or Governmental Authority applicable to such Obligor or any Subsidiary of the Company or (c) violate any provision of any statute or other rule or regulation of any Governmental Authority applicable to such Obligor or any Subsidiary of the Company.

Section 5.7. Governmental Authorization, Etc. No consent, approval or authorization of, or registration, filing or declaration with, any Governmental Authority is required in connection with the execution, delivery or performance by either Obligor of this Agreement and the Notes to which it is a party, except for authorization by the ACC, which authorization has been obtained and is in full force and effect and all conditions contained in such authorization which are to be fulfilled on or prior to the date of issuance of Notes have been fulfilled.

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Section 5.8. Litigation; Observance of Agreements, Statutes and Orders. (a) There are no actions, suits, investigations or proceedings pending or, to the knowledge of either Obligor, threatened against or affecting either Obligor or any Subsidiary of the Company or any Property of either Obligor or any Subsidiary of the Company in any court or before any arbitrator of any kind or before or by any Governmental Authority that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect.

(b) No Obligor nor any Subsidiary of the Company is (i) in default under any term of any agreement or instrument to which it is a party or by which it is bound, (ii) in violation of any order, judgment, decree or ruling of any court, arbitrator or Governmental Authority or (iii) in violation of any applicable law, ordinance, rule or regulation of any Governmental Authority (including, without limitation, Environmental Laws, the USA PatriotAct or any of the other laws and regulations that are referred to in Section 5.16), which default or violation, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect.

Section 5.9. Taxes. Such Obligor and the Subsidiaries of the Company have filed all tax returns that are required to have been filed in any jurisdiction, and have paid all taxes shown to be due and payable on such returns and all other taxes and assessments levied upon them or their Properties, assets, income or franchises, to the extent such taxes and assessments have become due and payable and before they have become delinquent, except for any taxes and assessments (a) the amount of which is not individually or in the aggregate Material or (b) the amount, applicability or validity of which is currently being contested in good faith by appropriate proceedings and with respect to which such Obligor or Subsidiary of the Company, as the case may be, has established adequate reserves in accordance with GAAP. Such Obligor knows of no basis for any other tax or assessment that could reasonably be expected to have a Material Adverse Effect. The charges, accruals and reserves on the books of the Company and its Subsidiaries in respect of federal, state or other taxes for all fiscal periods are adequate. The federal income tax liabilities of such Obligor and the Subsidiaries of the Company have been finally determined (whether by reason of completed audits or the statute of limitations having run) for all fiscal years up to and including the fiscal year ended December 31, 2006.

Section 5.10. Title to Property; Leases. Such Obligor and the Subsidiaries of the Company have good and sufficient title to their respective Properties that individually or in the aggregate are Material, including all such Properties reflected in the most recent audited balance sheet referred to in Section 5.5 or purported to have been acquired by such Obligor or any Subsidiary of the Company after said date (except as sold or otherwise disposed of in the ordinary course of business), in each case free and clear of Liens prohibited by this Agreement. All leases of such Obligor or any Subsidiary of the Company that individually or in the aggregate are Material are valid and subsisting and are in full force and effect in all material respects.

Section 5.11. Licenses, Permits, Etc. (a) Such Obligor and the Subsidiaries of the Company own or possess all licenses, permits, franchises, authorizations, patents, copyrights, proprietary software, service marks, trademarks and trade names, or rights thereto, that individually or in the aggregate are Material, without known conflict with the rights of others.

(b) To the best knowledge of such Obligor, no product of such Obligor infringes in any Material respect any license, permit, franchise, authorization, patent, copyright, proprietary software, service mark, trademark, trade name or other right owned by any other Person.

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(c) To the best knowledge of such Obligor, there is no Material violation by any Person of any right of such Obligor or any Subsidiary of the Company with respect to any patent, copyright, proprietary software, service mark, trademark, trade name or other right owned or used by such Obligor or any Subsidiary of the Company.

Section 5.12. Compliance with ERISA. (a) Such Obligor and each ERISA Affiliate have operated and administered each Plan in compliance with all applicable laws except for such instances of noncompliance as have not resulted in and could not reasonably be expected to result in a Material Adverse Effect. Neither such Obligor nor any ERISA Affiliate has incurred any liability pursuant to Title I or IV of ERISA (other than claims for benefits in the ordinary course or PBGC premiums required by Title IV of the ERISA) or the penalty or excise tax provisions of the Code relating to employee benefit plans (as defined in section 3 of ERISA), and no event, transaction or condition has occurred or exists that could reasonably be expected to result in the incurrence of any such liability by such Obligor or any ERISA Affiliate, or in the imposition of any Lien on any of the rights, Properties or assets of such Obligor or any ERISA Affiliate, in either case pursuant to Title I or IV of ERISA or to such penalty or excise tax provisions or to section 401(a)(29) or 412 of the Code, other than such liabilities or Liens as would not be individually or in the aggregate Material.

(b) The present value of the aggregate benefit liabilities under each of such Obligor’s Plans (other than Multiemployer Plans), determined as of the end of such Plan’s most recently ended plan year on the basis of the actuarial assumptions specified for funding purposes in such Plan’s most recent actuarial valuation report, did not exceed the aggregate current value of the assets of such Plan allocable to such benefit liabilities by more than $5,000,000 in the case of any single Plan and by more than $5,000,000 in the aggregate for all Plans. The term “benefit liabilities” has the meaning specified in section 4001 of ERISA and the terms “current value” and “present value” have the meaning specified in section 3 of ERISA.

(c) Such Obligor and its ERISA Affiliates have not incurred withdrawal liabilities (and are not subject to contingent withdrawal liabilities) under section 4201 or 4204 of ERISA in respect of Multiemployer Plans that individually or in the aggregate are Material.

(d) The expected post retirement benefit obligation (determined as of the last day of such Obligor’s most recently ended fiscal year in accordance with Financial Accounting Standards Board Statement No. 106, without regard to liabilities attributable to continuation coverage mandated by section 4980B of the Code) of such Obligor and the Subsidiaries of the Company is not Material.

(e) The execution and delivery of this Agreement and the issuance and sale of the Notes hereunder will not result in any transaction that is subject to the prohibitions of section 406 of ERISA or section 4975(c)(1)(A)-(D) of the Code, in either case, for which there is no available exemption. The representation by the Company in the first sentence of this Section 5.12(e) is made in reliance upon and subject to the accuracy of such Purchaser’s representation in Section 6.2 as to the sources of the funds used to pay the purchase price of the Notes to be purchased by such Purchaser.

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Section 5.13. Private Offering by the Company. Neither the Company nor the Guarantor nor anyone acting on its respective behalf has offered the Notes, the Guaranty or any similar Securities for sale to, or solicited any offer to buy any of the same from, or otherwise approached or negotiated in respect thereof with, any Person other than the Purchasers and not more than 25 other Institutional Investors, each of which has been offered the Notes at a private sale for investment. Neither the Company nor the Guarantor nor anyone acting on its respective behalf has taken, or will take, any action that would subject the issuance or sale of the Notes to the registration requirements of section 5 of the Securities Act or to the registration requirements of any Securities or blue sky laws of any applicable jurisdiction.

Section 5.14. Use of Proceeds; Margin Regulations. (a) The Company (i) will apply the proceeds of the sale of the Notes as set forth in the “Use of Proceeds” section of the Executive Summary portion of the Memorandum and in compliance with all laws referenced in Section 5.16 and (ii) will not permit any proceeds of the sale to be applied, directly by the Company or indirectly through any Affiliate or Subsidiary, in connection with any investment in, or any transactions or dealings with, any Blocked Person. No part of the proceeds from the sale of the Notes hereunder will be used, directly or indirectly, for the purpose of buying or carrying any margin stock within the meaning of Regulation U of the Board of Governors of the Federal Reserve System (12 CFR 221), or for the purpose of buying or carrying or trading in any Securities under such circumstances as to involve any Obligor in a violation of Regulation X of said Board (12 CFR 224) or to involve any broker or dealer in a violation of Regulation T of said Board (12 CFR 220). Margin stock does not constitute any of the consolidated assets of any Obligor or any Subsidiaries of the Company and neither Obligor has any present intention to acquire margin stock. As used in this Section, the terms “margin stock” and “purpose of buying or carrying” shall have the meanings assigned to them in said Regulation U.

Section 5.15. Existing Indebtedness; Future Liens. (a) Schedule 5.15 sets forth a complete and correct list of all outstanding Indebtedness of each Obligor and each Subsidiary of the Company as of the Execution Date. Neither Obligor nor any Subsidiary of the Company is in default and no waiver of default is currently in effect, in the payment of any principal or interest on any Indebtedness of such Obligor or such Subsidiary of the Company and no event or condition exists with respect to any Indebtedness of such Obligor or any Subsidiary of the Company that would permit (or that with notice or the lapse of time, or both, would permit) one or more Persons to cause such Indebtedness to become due and payable before its stated maturity or before its regularly scheduled dates of payment. Annex B to be attached hereto on the date of the Closing will correctly describe all outstanding Indebtedness and any Liens secured thereby of the Obligors on the date of the Closing. Other than with respect to the amount of Indebtedness outstanding under the 2010 Credit Agreement and the interest rates in effect from time to time in respect thereof, since the Execution Date, there shall have been no Material change in the amounts, interest rates, sinking funds, installment payments or maturities of the Indebtedness of the Obligors listed on Schedule 5.15.

(b) Except as disclosed in Schedule 5.15, neither Obligor nor any Subsidiary of the Company has agreed or consented to cause or permit in the future (upon the happening of a contingency or otherwise) any of its Property, whether now owned or hereafter acquired, to be subject to a Lien not permitted by Section 10.3.

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(c) Neither Obligor nor any Subsidiary of the Company is a party to, or otherwise subject to any provision contained in, any instrument evidencing Indebtedness of such Obligor or such Subsidiary of the Company, any agreement relating thereto or any other agreement (including, but not limited to, its charter or other organizational document) which limits the amount of, or otherwise imposes restrictions on the incurring of, Indebtedness of such Obligor or any Subsidiary of the Company, except as specifically indicated in Schedule 5.15.

Section 5.16. Foreign Assets Control Regulations, Etc. (a) Neither Obligor nor any Affiliate or Subsidiary of the Company is (i) a Person whose name appears on the list of Specially Designated Nationals and Blocked Persons published by the Office of Foreign Assets Control, U.S. Department of Treasury (“OFAC”) (an “OFAC Listed Person”) or (ii) a department, agency or instrumentality of, or is otherwise controlled by or acting on behalf of, directly or indirectly, (x) any OFAC Listed Person or (y) any Person, entity, organization, foreign country or regime that is subject to any OFAC Sanctions Program (each OFAC Listed Person and each other Person, entity, organization and government of a country described in clause (ii), a “Blocked Person”).

(b) No part of the proceeds from the sale of the Notes hereunder constitutes or will constitute funds obtained on behalf of any Blocked Person.

(c) To the Company’s actual knowledge after making due inquiry, neither Obligor nor any Affiliate or Subsidiary of the Company (i) is under investigation by any Governmental Authority for, or has been charged with, or convicted of, money laundering, drug trafficking, terrorist-related activities or other money laundering predicate crimes under any applicable law (collectively, “Anti-Money Laundering Laws”), (ii) has been assessed civil penalties under any Anti-Money Laundering Laws or (iii) has had any of its funds seized or forfeited in an action under any Anti-Money Laundering Laws. The Company has taken reasonable measures appropriate to the circumstances (in any event as required by applicable law) to ensure that the Company and each of its Affiliates and Subsidiaries is and will continue to be in compliance with all applicable Anti-Money Laundering Laws.

(d) No part of the proceeds from the sale of the Notes hereunder will be used, directly or indirectly, for any improper payments to any governmental official or employee, political party, official of a political party, candidate for political office, official of any public international organization or any one else acting in an official capacity, in order to obtain, retain or direct business or obtain any improper advantage. The Company has taken reasonable measures appropriate to the circumstances (in any event as required by applicable law) to ensure that the Company and each of its Affiliates and Subsidiaries is and will continue to be in compliance with all applicable anti-corruption laws and regulations.

Section 5.17. Status under Certain Statutes. Neither Obligor nor any Subsidiary of the Company is subject to regulation under the Investment Company Act of 1940, as amended, or the ICC Termination Act of 1995, as amended.

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Section 5.18. Notes Rank Pari Passu. The obligations of the Company under this Agreement and the Notes rank at least pari passu in right of payment with all other senior unsecured Indebtedness (actual or contingent) of the Company, including, without limitation, all senior unsecured Indebtedness of the Company described in Schedule 5.15 hereto. The obligations of the Guarantor under the Guaranty rank at least pari passu in right of payment with all other senior unsecured Indebtedness (actual or contingent) of the Guarantor, including, without limitation, all senior unsecured Indebtedness of the Guarantor described in Schedule 5.15 hereto.

Section 5.19. Environmental Matters. (a) Neither Obligor nor any Subsidiary of the Company has knowledge of any claim or has received any notice of any claim, and no proceeding has been instituted raising any claim against such Obligor or any of the Subsidiaries of the Company or any of their respective real Properties now or formerly owned, leased or operated by any of them or other assets, alleging any damage to the environment or violation of any Environmental Laws, except, in each case, such as could not reasonably be expected to result in a Material Adverse Effect.

(b) Neither Obligor nor any Subsidiary of the Company has knowledge of any facts which would give rise to any claim, public or private, of violation of Environmental Laws or damage to the environment emanating from, occurring on or in any way related to real Properties now or formerly owned, leased or operated by any of them or to other assets or their use, except, in each case, such as could not reasonably be expected to result in a Material Adverse Effect.

(c) Neither Obligor nor any Subsidiary of the Company has stored any Hazardous Material on real Properties now or formerly owned, leased or operated by any of them or has disposed of any Hazardous Material in a manner contrary to any Environmental Laws in each case in any manner that could reasonably be expected to result in a Material Adverse Effect.

(d) All buildings on all real Properties now owned, leased or operated by any Obligor or any Subsidiary of the Company are in compliance with applicable Environmental Laws, except where failure to comply could not reasonably be expected to result in a Material Adverse Effect.

Section 6. Representations of the Purchasers.

Section 6.1. Purchase for Investment. Each Purchaser severally represents that it is purchasing the Notes for its own account or for one or more separate accounts maintained by such Purchaser or for the account of one or more pension or trust funds and not with a view to the distribution thereof; provided that the disposition of such Purchaser’s or their Property shall at all times be within such Purchaser’s control. Each Purchaser understands that the Notes have not been registered under the Securities Act and may be resold only if registered pursuant to the provisions of the Securities Act or if an exemption from registration is available, except under circumstances where neither such registration nor such an exemption is required by law, and that the Company is not required to register the Notes.

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Section 6.2. Source of Funds. Each Purchaser severally represents that at least one of the following statements is an accurate representation as to each source of funds (a “Source”) to be used by such Purchaser to pay the purchase price of the Notes to be purchased by such Purchaser hereunder:

(a) the Source is an “insurance company general account” (as the term is defined in the United States Department of Labor’s Prohibited Transaction Exemption (“PTE”) 95-60) in respect of which the reserves and liabilities (as defined by the annual statement for life insurance companies approved by the NAIC (the “NAIC Annual Statement”)) for the general account contract(s) held by or on behalf of any employee benefit plan together with the amount of the reserves and liabilities for the general account contract(s) held by or on behalf of any other employee benefit plans maintained by the same employer (or affiliate thereof as defined in PTE 95-60) or by the same employee organization in the general account do not exceed ten percent (10%) of the total reserves and liabilities of the general account (exclusive of separate account liabilities) plus surplus as set forth in the NAIC Annual Statement filed with such Purchaser’s state of domicile; or

(b) the Source is a separate account that is maintained solely in connection with such Purchaser’s fixed contractual obligations under which the amounts payable, or credited, to any employee benefit plan (or its related trust) that has any interest in such separate account (or to any participant or beneficiary of such plan (including any annuitant)) are not affected in any manner by the investment performance of the separate account; or

(c) the Source is either (i) an insurance company pooled separate account, within the meaning of PTE 90-1, or (ii) a bank collective investment fund, within the meaning of the PTE 91-38 and, except as have been disclosed by such Purchaser to the Company in writing pursuant to this clause (c), no employee benefit plan or group of plans maintained by the same employer or employee organization beneficially owns more than 10% of all assets allocated to such pooled separate account or collective investment fund; or

(d) the Source constitutes assets of an “investment fund” (within the meaning of Part V of the QPAM Exemption) managed by a “qualified professional asset manager” or “QPAM” (within the meaning of Part V of the QPAM Exemption), no employee benefit plan’s assets that are included in such investment fund, when combined with the assets of all other employee benefit plans established or maintained by the same employer or by an affiliate (within the meaning of section V(c)(1) of the QPAM Exemption) of such employer or by the same employee organization and managed by such QPAM, exceed 20% of the total client assets managed by such QPAM, the conditions of Part I(c) and (g) of the QPAM Exemption are satisfied, as of the last day of its most recent calendar quarter, the QPAM does not own a 10% or more interest in the Company and no Person controlling or controlled by the QPAM (applying the definition of “control” in section V(e) of the QPAM Exemption) owns a 20% or more interest in the Company (or less than 20% but greater than 10%, if such Person exercises control over the management or policies of the Company by reason of its ownership interest) and (i) the identity of such QPAM and (ii) the names of all employee benefit plans whose assets are included in such investment fund have been disclosed to the Company in writing pursuant to this clause (d); or

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(e) the Source constitutes assets of a “plan(s)” (within the meaning of section IV of PTE 96-23 (the “INHAM Exemption”)) managed by an “in-house asset manager” or “INHAM” (within the meaning of Part IV of the INHAM Exemption), the conditions of Part I(a), (g) and (h) of the INHAM Exemption are satisfied, neither the INHAM nor a Person controlling or controlled by the INHAM (applying the definition of “control” in section IV(d) of the INHAM Exemption) owns a 5% or more interest in the Company and (i) the identity of such INHAM and (ii) the name(s) of the employee benefit plan(s) whose assets constitute the Source have been disclosed to the Company in writing pursuant to this clause (e); or

(f) the Source is a governmental plan; or

(g) the Source is one or more employee benefit plans, or a separate account or trust fund comprised of one or more employee benefit plans, each of which has been identified to the Company in writing pursuant to this clause (g); or

(h) the Source does not include assets of any employee benefit plan, other than a plan exempt from the coverage of ERISA.

As used in this Section 6.2, the terms “employee benefit plan”, “governmental plan”, “party in interest” and “separate account” shall have the respective meanings assigned to such terms in section 3 of ERISA.

Section 7. Information as to the Obligor.

Section 7.1. Financial and Business Information. Each Obligor shall deliver to each holder of Notes that is an Institutional Investor:

(a) Quarterly Statements — within 60 days after the end of each quarterly fiscal period in each fiscal year of such Obligor (other than the last quarterly fiscal period of each such fiscal year), copies of:

(i) a consolidated balance sheet of such Obligor and its Subsidiaries as at the end of such quarter, and

(ii) consolidated statements of income and cash flows of such Obligor and its Subsidiaries for such quarter and (in the case of the second and third quarters) for the portion of the fiscal year ending with such quarter,

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setting forth in each case in comparative form the figures for the corresponding periods in the previous fiscal year, all in reasonable detail, prepared in accordance with GAAP applicable to quarterly financial statements generally, and certified by a Senior Financial Officer of such Obligor as fairly presenting, in all material respects, the financial position of the companies being reported on and their results of operations and cash flows, subject to changes resulting from year-end adjustments; provided that delivery within the time period specified above of copies of such Obligor’s Form 10-Q, if any, prepared in compliance with the requirements therefor and filed with the SEC shall be deemed to satisfy the requirements of this Section 7.1(a); provided, further, that such Obligor shall be deemed to have made such delivery of such Form 10-Q if it shall have timely made such Form 10-Q available on the SEC’s website and on its home page on the worldwide web and shall have given each Purchaser prior notice of such availability on the SEC’s website and on its home page in connection with each delivery (such availability and notice thereof being referred to as “Electronic Delivery”);

(b) Annual Statements — within 105 days after the end of each fiscal year of such Obligor, copies of,

(i) a consolidated balance sheet of such Obligor and its Subsidiaries, as at the end of such year, and

(ii) consolidated statements of income, changes in shareholders’ equity and cash flows of such Obligor and its Subsidiaries, for such year,

setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail, prepared in accordance with GAAP, and accompanied by an opinion thereon of independent public accountants of recognized national standing, which opinion shall state that such financial statements present fairly, in all material respects, the financial position of the companies being reported upon and their results of operations and cash flows and have been prepared in conformity with GAAP, and, if such Obligor is a reporting company under the Exchange Act, that the examination of such accountants in connection with such financial statements has been made in accordance with the standards of the Public Company Accounting Oversight Board (United States), and that such audit provides a reasonable basis for such opinion in the circumstances; provided that the delivery within the time period specified above of such Obligor’s Form 10-K, if any, for such fiscal year (together with the Company’s annual report to shareholders, if any, prepared pursuant to Rule 14a-3 under the Exchange Act) prepared in accordance with the requirements therefor and filed with the SEC shall be deemed to satisfy the requirements of this Section 7.1(b); provided, further, that such Obligor shall be deemed to have made such delivery of such Form 10-K if it shall have timely made Electronic Delivery thereof;

(c) SEC and Other Reports — promptly upon their becoming available, one copy of (i) each financial statement, report, notice or proxy statement sent by such Obligor or any Subsidiary of the Company to its principal lending banks as a whole (excluding information sent to such banks in the ordinary course of administration of a bank facility, such as information relating to pricing and borrowing availability or to its public Securities holders generally) and (ii) each regular or periodic report, each registration statement (without exhibits except as expressly requested by such holder), and each prospectus and all amendments thereto filed by the Company or any Subsidiary with the SEC and of all press releases and other statements made available generally by such Obligor or any Subsidiary to the public concerning developments that are Material;

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(d) Notice of Default or Event of Default — promptly, and in any event within five (5) days after a Responsible Officer becoming aware of the existence of any Default or Event of Default or that any Person has given any notice or taken any action with respect to a claimed default hereunder or that any Person has given any notice or taken any action with respect to a claimed default of the type referred to in Section 12(f), a written notice specifying the nature and period of existence thereof and what action the Company or the Guarantor, as the case may be, is taking or proposes to take with respect thereto;

(e) ERISA Matters — promptly, and in any event within five days after a Responsible Officer becoming aware of any of the following, a written notice setting forth the nature thereof and the action, if any, that the Company or the Guarantor, as the case may be, or an ERISA Affiliate proposes to take with respect thereto:

(i) with respect to any Plan, any reportable event, as defined in section 4043(c) of ERISA and the regulations thereunder, for which notice thereof has not been waived pursuant to such regulations as in effect on the date hereof; or

(ii) the taking by the PBGC of steps to institute, or the threatening by the PBGC of the institution of, proceedings under section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan, or the receipt by the Company or any ERISA Affiliate of a notice from a Multiemployer Plan that such action has been taken by the PBGC with respect to such Multiemployer Plan; or

(iii) any event, transaction or condition that could result in the incurrence of any liability by the Company or the Guarantor, as the case may be, or any ERISA Affiliate pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of the Code relating to employee benefit plans, or in the imposition of any Lien on any of the rights, Properties or assets of the Company or the Guarantor, as the case may be, or any ERISA Affiliate pursuant to Title I or IV of ERISA or such penalty or excise tax provisions, if such liability or Lien, taken together with any other such liabilities or Liens then existing, could reasonably be expected to have a Material Adverse Effect;

(f) Notices from Governmental Authority — promptly, and in any event within 30 days of receipt thereof, copies of any notice to the Company or the Guarantor, as the case may be, or any Subsidiary of the Company from any federal or state Governmental Authority relating to any order, ruling, statute or other law or regulation that could reasonably be expected to have a Material Adverse Effect;

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(g) ACC Communications — promptly, and in any event within 30 days of receipt thereof copies of any Material communication to the Company or the Guarantor, as the case may be, or any Subsidiary of the Company from the ACC or any Material filing by the Company or the Guarantor, as the case may be, or such Subsidiary with the ACC relating to any matter that could reasonably be expected to cause or constitute a Material Adverse Effect; and

(h) Requested Information — with reasonable promptness, such other data and information relating to the business, operations, affairs, financial condition, assets or Properties of the Company or the Guarantor, as the case may be, or any of the Subsidiaries of the Company (including, but without limitation, actual copies of the Company’s Form 10-Q and Form 10-K, if any) or relating to the ability of such Obligor to perform its obligations hereunder and in the case of the Company, under the Notes as from time to time may be reasonably requested by any such holder of Notes.

Section 7.2. Officer’s Certificate. Each set of financial statements delivered to a holder of Notes pursuant to Section 7.1(a) or Section 7.1(b) shall be accompanied by a certificate of a Senior Financial Officer of the Obligor delivering such financial statements setting forth (which, in the case of Electronic Delivery of such financial statements, shall be by separate concurrent delivery of such certificate to each holder of Notes):

(a) Covenant Compliance — the information (including detailed calculations) required in order to establish whether the Obligor was in compliance with the requirements of Section 10.4 and Section 10.5, if applicable, during the quarterly or annual period covered by the statements then being furnished (including with respect to each such Section, where applicable, the calculations of the maximum or minimum amount, ratio or percentage, as the case may be, permissible under the terms of such Sections, and the calculation of the amount, ratio or percentage then in existence); and

(b) Event of Default — a statement that such Senior Financial Officer has reviewed the relevant terms hereof and has made, or caused to be made, under his or her supervision, a review of the transactions and conditions of such Obligor from the beginning of the quarterly or annual period covered by the statements then being furnished to the date of the certificate and that such review shall not have disclosed the existence during such period of any condition or event that constitutes a Default or an Event of Default or, if any such condition or event existed or exists (including, without limitation, any such event or condition resulting from the failure of such Obligor or any Subsidiary of the Company to comply with any Environmental Law), specifying the nature and period of existence thereof and what action such Obligor shall have taken or proposes to take with respect thereto.

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Section 7.3. Visitation. Each Obligor shall permit the representatives of each holder of Notes that is an Institutional Investor:

(a) No Default — if no Default or Event of Default then exists, at the expense of such holder and upon reasonable prior notice to such Obligor, to visit the principal executive office of such Obligor, to discuss the affairs, finances and accounts of such Obligor and the Subsidiaries of the Company and with such Obligor’s officers, and (with the consent of such Obligor, which consent will not be unreasonably withheld) its independent public accountants, and (with the consent of such Obligor, which consent will not be unreasonably withheld) to visit the other offices and Properties of such Obligor and each Subsidiary of such Obligor, all at such reasonable times and as often as may be reasonably requested in writing; and

(b) Default — if a Default or Event of Default then exists, at the expense of such Obligor, to visit and inspect any of the offices or Properties of such Obligor or any Subsidiary of the Company, to examine all their respective books of account, records, reports and other papers, to make copies and extracts therefrom, and to discuss their respective affairs, finances and accounts with their respective officers and independent public accountants (and by this provision such Obligor authorizes said accountants to discuss the affairs, finances and accounts of such Obligor and the Subsidiaries of the Company), all at such times and as often as may be requested.

Section 8. Prepayment of the Notes.

Section 8.1. Maturity. As provided therein, the entire unpaid principal balance of the Notes shall be due and payable on the stated maturity date thereof.

Section 8.2. Optional Prepayments with Make-Whole Amount. The Company may, at its option, upon notice as provided below, prepay at any time all, or from time to time any part of, the Notes, in an amount not less than 10% of the aggregate principal amount of the Notes then outstanding in the case of a partial prepayment, at 100% of the principal amount so prepaid, together with interest accrued thereon to the date of such prepayment, and the Make-Whole Amount determined for the prepayment date with respect to such principal amount. The Company will give each holder of Notes written notice of each optional prepayment under this Section 8.2 not less than thirty (30) days and not more than sixty (60) days prior to the date fixed for such prepayment. Each such notice shall specify such date (which shall be a Business Day), the aggregate principal amount of the Notes to be prepaid on such date, the principal amount of each Note held by such holder to be prepaid (determined in accordance with Section 8.3), and the interest to be paid on the prepayment date with respect to such principal amount being prepaid, and shall be accompanied by a certificate of a Senior Financial Officer as to the estimated Make-Whole Amount due in connection with such prepayment (calculated as if the date of such notice were the date of the prepayment), setting forth the details of such computation. Two Business Days prior to such prepayment, the Company shall deliver to each holder of Notes a certificate of a Senior Financial Officer specifying the calculation of such Make-Whole Amount as of the specified prepayment date.

Section 8.3. Allocation of Partial Prepayments. In the case of each partial prepayment of the Notes pursuant to Section 8.2, the principal amount of the Notes to be prepaid shall be allocated among all of the Notes at the time outstanding in proportion, as nearly as practicable, to the respective unpaid principal amounts thereof not theretofore called for prepayment. All partial prepayments made pursuant to Section 8.5 shall be applied only to the Notes of the holders who have elected to participate in such prepayment.

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UNS Gas, Inc. Note Purchase and Guaranty Agreement

Section 8.4. Maturity; Surrender, Etc. In the case of each prepayment of Notes pursuant to this Section 8, the principal amount of each Note to be prepaid shall mature and become due and payable on the date fixed for such prepayment (which shall be a Business Day), together with interest on such principal amount accrued to such date and the applicable Make-Whole Amount, if any. From and after such date, unless the Company shall fail to pay such principal amount when so due and payable, together with the interest and Make-Whole Amount, if any, as aforesaid, interest on such principal amount shall cease to accrue. Any Note paid or prepaid in full shall be surrendered to the Company and cancelled and shall not be reissued, and no Note shall be issued in lieu of any prepaid principal amount of any Note.

Section 8.5. Change of Control. Promptly, and in any event within five (5) Business Days after the occurrence of a Change of Control, the Company will give written notice thereof to each Noteholder (each such notice, a “Change of Control Notice”), which notice shall (a) refer specifically to this Section 8.5 and describe such Change of Control in reasonable detail, (b) specify the date on which the Company shall prepay the Notes (the “Change of Control Prepayment Date”), which date shall be not less than forty-five (45) days and not more than sixty (60) days after the date of the giving of such Change of Control Notice and the date by which the holders of the Notes must respond accepting or declining the Company’s offer to prepay the Notes pursuant to this Section 8.5, which date shall be the third Business Day immediately preceding the Change of Control Prepayment Date (the “Response Date”), and (c) offer to prepay all Notes at 100% of the unpaid principal amount of such Notes, together with interest accrued thereon to the Change of Control Prepayment Date, but without Make-Whole Amount or other premium. Each Noteholder shall notify the Company of such Noteholder’s acceptance or rejection of such offer by giving written notice of such acceptance or rejection to the Company no later than the Response Date, and the Company shall on the Change of Control Prepayment Date prepay all of the Notes held by each Noteholder who has accepted such offer in accordance with this Section 8.5 at a price in respect of each Note held by such Noteholder equal to 100% of the unpaid principal amount of such Note, together with interest accrued thereon to the Change of Control Prepayment Date, but without Make-Whole Amount or other premium. The failure by any Noteholder for any reason whatsoever to respond to such offer in writing on or before the Response Date shall be deemed to be a rejection of such offer of prepayment in respect of such Change of Control.

Section 8.6. Purchase of Notes. The Company will not and will not permit any Affiliate to purchase, redeem, prepay or otherwise acquire, directly or indirectly, any of the outstanding Notes except (a) upon the payment or prepayment of the Notes in accordance with the terms of this Agreement and the Notes or (b) pursuant to an offer to purchase made by the Company or an Affiliate pro rata to the holders of all Notes at the time outstanding upon the same terms and conditions. Any such offer shall provide each holder with sufficient information to enable it to make an informed decision with respect to such offer, and shall remain open for at least 15 Business Days. If the holders of more than 10% of the principal amount of the Notes then outstanding accept such offer, the Company shall promptly notify the remaining holders of such fact and the expiration date for the acceptance by holders of Notes of such offer shall be extended by the number of days necessary to give each such remaining holder at least 5 Business Days from its receipt of such notice to accept such offer. The Company will promptly cancel all Notes acquired by it or any Affiliate pursuant to any payment, prepayment or purchase of Notes pursuant to any provision of this Agreement and no Notes may be issued in substitution or exchange for any such Notes.

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UNS Gas, Inc. Note Purchase and Guaranty Agreement

Section 8.7. Make-Whole Amount. The term “Make-Whole Amount” means, with respect to any Note, an amount equal to the excess, if any, of the Discounted Value of the Remaining Scheduled Payments with respect to the Called Principal of such Note over the amount of such Called Principal; provided that the Make-Whole Amount may in no event be less than zero. For the purposes of determining the Make-Whole Amount, the following terms have the following meanings:

“Called Principal” means, with respect to any Note, the principal of such Note that is to be prepaid pursuant to Section 8.2 or has become or is declared to be immediately due and payable pursuant to Section 12.1, as the context requires.

“Discounted Value” means, with respect to the Called Principal of any Note, the amount obtained by discounting all Remaining Scheduled Payments with respect to such Called Principal from their respective scheduled due dates to the Settlement Date with respect to such Called Principal, in accordance with accepted financial practice and at a discount factor (applied on the same periodic basis as that on which interest on the Notes is payable) equal to the Reinvestment Yield with respect to such Called Principal.

“Reinvestment Yield” means, with respect to the Called Principal of any Note, .50% (50 basis points) over the yield to maturity implied by (i) the yields reported as of 10:00 a.m. (New York City time) on the second Business Day preceding the Settlement Date with respect to such Called Principal, on the display designated as “Page PX1” (or such other display as may replace Page PX1) on Bloomberg Financial Markets for the most recently issued actively traded on the run U.S. Treasury Securities having a maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date, or (ii) if such yields are not reported as of such time or the yields reported as of such time are not ascertainable (including by way of interpolation), the Treasury Constant Maturity Series Yields reported, for the latest day for which such yields have been so reported as of the second Business Day preceding the Settlement Date with respect to such Called Principal, in Federal Reserve Statistical Release H.15 (or any comparable successor publication) for U.S. Treasury Securities having a constant maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date. In the case of each determination under clause (i) or clause (ii), as the case may be, of the preceding paragraph, such implied yield will be determined, if necessary, by (a) converting U.S. Treasury bill quotations to bond-equivalent yields in accordance with accepted financial practice and (b) interpolating linearly between (1) the applicable actively traded on the run U.S. Treasury Security with the maturity closest to and greater than such Remaining Average Life and (2) the applicable actively traded on the run U.S. Treasury Security with the maturity closest to and less than such Remaining Average Life. The Reinvestment Yield shall be rounded to the number of decimal places as appears in the interest rate of the applicable Note.

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UNS Gas, Inc. Note Purchase and Guaranty Agreement

“Remaining Average Life” means, with respect to any Called Principal, the number of years (calculated to the nearest one-twelfth year) obtained by dividing (a) such Called Principal into (b) the sum of the products obtained by multiplying (i) the principal component of each Remaining Scheduled Payment with respect to such Called Principal by (ii) the number of years (calculated to the nearest one-twelfth year) that will elapse between the Settlement Date with respect to such Called Principal and the scheduled due date of such Remaining Scheduled Payment.

“Remaining Scheduled Payments” means, with respect to the Called Principal of any Note, all payments of such Called Principal and interest thereon that would be due after the Settlement Date with respect to such Called Principal if no payment of such Called Principal were made prior to its scheduled due date; provided that if such Settlement Date is not a date on which interest payments are due to be made under the terms of the Notes, then the amount of the next succeeding scheduled interest payment will be reduced by the amount of interest accrued to such Settlement Date and required to be paid on such Settlement Date pursuant to Section 8.2 or 12.1.

“Settlement Date” means, with respect to the Called Principal of any Note, the date on which such Called Principal is to be prepaid pursuant to Section 8.2 or has become or is declared to be immediately due and payable pursuant to Section 12.1, as the context requires.

Section 9. Affirmative Covenants.

Each Obligor covenants that so long as any of the Notes are outstanding:

Section 9.1. Compliance with Laws. Without limiting Section 10.7, such Obligor will and the Company will cause each of its Subsidiaries to, comply with all laws, ordinances or governmental rules or regulations to which each of them is subject, including, without limitation, ERISA, Environmental Laws, the USA Patriot Act and the other laws and regulations that are referred to in Section 5.16, and will obtain and maintain in effect all licenses, certificates, permits, franchises and other governmental authorizations necessary to the ownership of their respective properties or to the conduct of their respective businesses, in each case to the extent necessary to ensure that non-compliance with such laws, ordinances or governmental rules or regulations or failures to obtain or maintain in effect such licenses, certificates, permits, franchises and other governmental authorizations could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

Section 9.2. Insurance. Such Obligor will and the Company will cause each of its Subsidiaries to, maintain, with financially sound and reputable insurers or through its own program of self insurance, insurance with respect to their respective Properties and businesses against such casualties and contingencies, of such types, on such terms and in such amounts (including deductibles, co-insurance and self-insurance, if adequate reserves are maintained with respect thereto) as is customary in the case of entities of established reputations engaged in the same or a similar business and similarly situated.

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UNS Gas, Inc. Note Purchase and Guaranty Agreement

Section 9.3. Maintenance of Properties. Such Obligor will and the Company will cause each of its Subsidiaries to, maintain and keep, or cause to be maintained and kept, their respective Properties in good repair, working order and condition (other than ordinary wear and tear), so that the business carried on in connection therewith may be properly conducted at all times; provided that this Section 9.3 shall not prevent such Obligor or any Subsidiary from discontinuing the operation and the maintenance of any of its Properties if such discontinuance is desirable in the conduct of its business and such Obligor has concluded that such discontinuance could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

Section 9.4. Payment of Taxes and Claims. Such Obligor will and the Company will cause each of its Subsidiaries to, file all tax returns required to be filed in any jurisdiction and to pay and discharge all taxes shown to be due and payable on such returns and all other taxes, assessments, governmental charges, or levies imposed on them or any of their Properties, assets, income or franchises, to the extent the same have become due and payable and before they have become delinquent and all claims for which sums have become due and payable that have or might become a Lien on Properties or assets of such Obligor and in the case of the Company, any of its Subsidiaries; provided that neither such Obligor nor any such Subsidiary need pay any such tax, assessment, charge, levy or claim if (a) the amount, applicability or validity thereof is contested by such Obligor or such Subsidiary on a timely basis in good faith and in appropriate proceedings, and such Obligor or such Subsidiary has established adequate reserves therefor in accordance with GAAP on the books of such Obligor or such Subsidiary or (b) the nonpayment of all such taxes, assessments, changes, levies and claims in the aggregate could not reasonably be expected to have a Material Adverse Effect.

Section 9.5. Legal Existence, Etc. Subject to Section 10.2, such Obligor will at all times preserve and keep in full force and effect its legal existence and the Company will at all times preserve and keep in full force and effect the legal existence of each of its Subsidiaries (unless merged into the Company or a Subsidiary of the Company) and all rights and franchises of such Obligor and in the case of the Company its Subsidiaries unless, in the good faith judgment of such Obligor, the termination of or failure to preserve and keep in full force and effect such legal existence, right or franchise could not, individually or in the aggregate, have a Material Adverse Effect.

Section 9.6. Notes to Rank Pari Passu. The Notes and all other obligations under this Agreement of the Company are and at all times shall rank at least pari passu in right of payment with all other present and future unsecured Indebtedness (actual or contingent) of the Company which is not expressed to be subordinate or junior in rank to any other unsecured Indebtedness of the Company. The obligations under the Guaranty of the Guarantor are and at all times shall rank at least pari passu in right of payment with all other present and future unsecured Indebtedness (actual or contingent) of the Guarantor which is not expressed to be subordinate or junior in rank to any other unsecured Indebtedness of the Guarantor.

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UNS Gas, Inc. Note Purchase and Guaranty Agreement

Section 9.7. Books and Records. Each Obligor will, and in the case of the Company, will cause each of its Subsidiaries to, maintain proper books of record and account in conformity with GAAP and all applicable requirements of any Governmental Authority having legal or regulatory jurisdiction over such Obligor, or such Subsidiary, as the case may be.

Section 10. Negative Covenants.

Each Obligor covenants that so long as any of the Notes are outstanding:

Section 10.1. Transactions with Affiliates. Such Obligor shall not and the Company shall not permit any of its Subsidiaries to enter into directly or indirectly any transaction or Material group of related transactions (including without limitation the purchase, lease, sale or exchange of Properties of any kind or the rendering of any service) with any Affiliate (other than the Company or another Subsidiary), except in the ordinary course and pursuant to the reasonable requirements of the Company’s or such Subsidiary’s business and upon fair and reasonable terms no less favorable to such Obligor or such Subsidiary, as the case may be, than would be obtainable in a comparable arm’s-length transaction with a Person not an Affiliate; provided that the foregoing shall not prohibit (a) shared corporate or administrative services and staffing with Affiliates, including without limitation accounting, legal, human resources and treasury operations, provided on customary terms for similarly situated companies and otherwise as set forth above or on a fully allocated cost basis and (b) transactions conducted in a manner required by applicable law, rule or regulation.

Section 10.2. Merger, Consolidation, Etc. (a) Such Obligor shall not consolidate with or merge with any other Person or convey, transfer or lease substantially all of its assets in a single transaction or series of transactions to any Person, and the Guarantor shall not sell or otherwise transfer any shares of the stock (or any options or warrants to purchase stock or other Securities exchangeable for or convertible into stock) of the Company to any Person unless:

(i) the successor formed by such consolidation or the survivor of such merger or the Person that acquires by conveyance, transfer or lease substantially all of the assets of such Obligor as an entirety or the transferee of such shares of stock, as the case may be (any such Person in relation to any such transaction involving the Company, a “Company Successor” and any such Person in relation to any such transaction involving the Guarantor, a “Guarantor Successor”), shall be a solvent corporation or limited liability company organized and existing under the laws of the United States or any State thereof (including the District of Columbia);

(ii) if any Company Successor or Guarantor Successor is not such Obligor, such Company Successor or Guarantor Successor, as the case may be, (i) shall have executed and delivered to each Noteholder its assumption of the due and punctual performance and observance of each covenant and condition of this Agreement and the Notes and (ii) shall have caused to be delivered to each Noteholder an opinion of nationally recognized independent counsel, or other independent counsel reasonably satisfactory to the Required Holders, to the effect that all agreements or instruments effecting such assumption are enforceable in accordance with their terms and comply with the terms hereof;

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UNS Gas, Inc. Note Purchase and Guaranty Agreement

(iii) immediately after giving effect to such transaction, no Default or Event of Default shall have occurred and be continuing; and

(iv) in the case of any Company Successor, immediately after giving effect to such transaction, such Company Successor would be permitted by the provisions of Section 10.5, as if such Section 10.5 applied to such Company Successor, to incur at least $1.00 of additional Indebtedness owing to a Person other than a Subsidiary of such Obligor;

provided, that this Section 10.2(a) shall not apply to the consolidation or merger of a Wholly-owned Subsidiary of the Company into the Company.

(b) No such conveyance, transfer or lease of substantially all of the assets of the Company shall have the effect of releasing the Company or any successor Person that shall theretofore have become such in the manner prescribed in this Section 10.2 from its liability under this Agreement or the Notes, or the Guarantor from its obligations hereunder, except that the Guarantor shall be released from its obligations hereunder if, in the case of any such transaction that is permitted by Section 10.2(a), the Company Successor or Guarantor Successor, as the case may be, shall have (i) executed and delivered to each Noteholder its assumption of the due and punctual performance and observance of the obligations of the Guarantor under this Agreement, and (ii) caused to be delivered to each Noteholder an opinion of nationally recognized independent counsel, or other independent counsel reasonably satisfactory to the Required Holders, to the effect that all agreements or instruments effecting such assumption are enforceable in accordance with their terms and comply with the terms hereof.

Section 10.3. Liens. Such Obligor shall not, and the Company shall not permit any of its Subsidiaries to, directly or indirectly create, incur, assume or permit to exist (upon the happening of a contingency or otherwise) any Lien (other than Permitted Liens) securing Indebtedness for borrowed money on or with respect to any Property or asset (including, without limitation, any document or instrument in respect of goods or accounts receivable) of such Obligor or any such Subsidiary, whether now owned or held or hereafter acquired, or any income or profits therefrom or assign or otherwise convey any right to receive income or profits (unless it makes, or causes to be made, effective provision whereby the Notes will be equally and ratably secured with any and all other Indebtedness thereby secured so long as such other Indebtedness shall be so secured, such security to be pursuant to an agreement reasonably satisfactory to the Required Holders with such security to be the subject of an intercreditor agreement among the creditors of such Indebtedness and the holders of Notes and, in any such case, the Notes shall have the benefit, to the fullest extent that, and with such priority as, the holders of the Notes may be entitled under applicable law, of an equitable Lien on such Property).

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Section 10.4. Restricted Payments. The Company shall not at any time, declare or make, or incur any liability to declare or make, any Restricted Payment unless:

(a) such Restricted Payment would not violate any provision of any statute or other rule or regulation of any Governmental Authority applicable to the Company;

(b) immediately after giving effect to such action no Default or Event of Default would exist; and

(c) immediately after giving effect to such action the Company and its Subsidiaries would be permitted by the provisions of Section 10.5 to incur at least $1.00 of additional Indebtedness owing to a Person other than a Subsidiary of the Company.

Section 10.5. Incurrence of Indebtedness. (a) The Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create, incur, assume, guarantee, or otherwise become directly or indirectly liable with respect to, any Indebtedness, unless on the date the Company or such Subsidiary becomes liable with respect to any such Indebtedness and immediately after giving effect thereto and the concurrent retirement of any other Indebtedness:

(i) no Default or Event of Default exists;

(ii) the ratio of Consolidated Long Term Debt to Consolidated Total Capitalization does not exceed 0.65 to 1.00; and

(iii) the Interest Coverage Ratio for the period of four consecutive fiscal quarters ending on such date is not less than 2.50 to 1.00;

provided, nothing in this Section 10.5(a) shall prevent the Company or its Subsidiaries from creating, incurring, assuming, guaranteeing, or otherwise becoming directly or indirectly liable with respect to Current Debt and Permitted Reimbursement Obligations in an aggregate amount not to exceed $5,000,000 or such greater amount as would be permitted in accordance with clauses (ii) and (iii) of this Section 10.5(a); and provided, further, that nothing in this Section 10.5(a) shall prevent any extension, renewal or refinancing of any Indebtedness of the Company or its Subsidiaries, provided that the principal amount of such Indebtedness outstanding immediately before giving effect to such extension, renewal or refunding is not increased and no Default or Event of Default exists at the time of such extension, renewal or refunding.

(b) The Company will not permit any Subsidiary to create, issue, assume, guarantee or otherwise incur or in any manner become liable in respect of any Indebtedness unless (i) such Indebtedness is created, incurred, assumed, guaranteed or such Subsidiary becomes liable with respect to such Indebtedness within the limitations of Section 10.5(a) and (ii) after giving effect to the creation, issuance, assumption, guarantee or incurrence thereof and after giving effect thereto and to the application of the proceeds thereof, the aggregate amount of all Indebtedness of the Company’s Subsidiaries would not exceed 10% of Consolidated Total Assets; provided that, if the Company acquires or creates a Subsidiary after the date hereof, such Subsidiary shall not guaranty the Company’s obligations under the 2010 Credit Agreement unless the Company shall contemporaneously provide written notice thereof to the holders of the Notes accompanied by an executed guaranty substantially in the form of the Guaranty; provided, further, that any guarantees of the 2010 Credit Agreement and the Notes in accordance with the foregoing proviso shall not be subject to the limitations of clause (ii) of this Section 10.5(b).

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UNS Gas, Inc. Note Purchase and Guaranty Agreement

(c) For the purposes of this Section 10.5:

(i) any Person becoming a Subsidiary after the date hereof shall be deemed, at the time it becomes a Subsidiary, to have incurred all of its then outstanding Indebtedness and pro forma effect shall be given to the earnings of such Person; and

(ii) upon the creation, incurrence or assumption of any Indebtedness, any other Indebtedness shall be deemed to be retired concurrently with such action if (A) such other Indebtedness is retired with the proceeds of such Indebtedness and (B) such other Indebtedness is retired within 60 days of such action.

Section 10.6. Line of Business. The Company will not and will not permit any Subsidiary to engage in any business if, as a result, the general nature of the business in which the Company and its Subsidiaries, taken as a whole, would then be engaged would be substantially changed from the general nature of the business in which the Company and its Subsidiaries, taken as a whole, are engaged on the date of this Agreement as described in the Memorandum.

Section 10.7. Terrorism Sanctions Regulations. The Obligors will not and will not permit any of their Affiliates and Subsidiaries to (a) become a Blocked Person or (b) have any investments in or engage in any dealings or transactions with any Blocked Person.

Section 11. Guaranty.

Section 11.1. The Guaranty. The Guarantor hereby guarantees to each Purchaser and their respective successors and assigns the prompt payment in full when expressed to be due (whether at stated maturity, upon acceleration or optional prepayment or otherwise) of the principal of, Make-Whole Amount, if any, and interest on any Notes at any time and from time to time outstanding and all other amounts from time to time owing by the Company hereunder (including interest on any past-due principal, interest or any other amount), in each case strictly in accordance with the express terms hereof (such obligations of the Company being herein collectively called the “GasCo Guaranteed Obligations”).

In addition, the Guarantor hereby further agrees, as an independent obligation, that, if the Company fails to pay in full when expressed to be due (whether at stated maturity, upon acceleration or optional prepayment or otherwise) any of the GasCo Guaranteed Obligations strictly in accordance with the express terms hereof, the Guarantor will promptly pay the same, without any demand or notice whatsoever, and that in the case of any extension of time of payment or renewal of any of the GasCo Guaranteed Obligations, the same will be paid in full when expressed to be due (whether at stated maturity, upon acceleration or optional prepayment or otherwise) in accordance with the terms of such extension or renewal.

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Section 11.2. Obligations Unconditional. The obligations of the Guarantor under Section 11.1 are absolute and unconditional, irrespective of the value, genuineness, validity, regularity or enforceability of the obligations of the Company hereunder or under any other agreement or instrument referred to herein and, to the fullest extent permitted by applicable law, irrespective of any other circumstance whatsoever that might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor, it being the intent of this Section 11.2 that the obligations of the Guarantor hereunder shall be absolute and unconditional under any and all circumstances. Without limiting the generality of the foregoing, the occurrence of one or more of the following shall not preclude the exercise by the Purchasers of any right, remedy or power hereunder or alter or impair the liability of the Guarantor hereunder, which shall remain absolute and unconditional as described above:

(a) at any time or from time to time, without notice to the Guarantor, the time for any performance of or compliance with any of the GasCo Guaranteed Obligations shall be extended, waived or renewed, or the Company shall be released from any of the GasCo Guaranteed Obligations, or any of the GasCo Guaranteed Obligations shall be subordinated in right of payment to any other liability of the Company;

(b) any of the acts mentioned herein or any agreement or instrument referred to herein or otherwise in connection with the GasCo Guaranteed Obligations shall be done or omitted;

(c) any of the GasCo Guaranteed Obligations shall be accelerated or otherwise become due prior to their stated maturity, or any of the GasCo Guaranteed Obligations shall be amended, supplemented, restated or otherwise modified in any respect, or any right hereunder or under any agreement or instrument referred to herein or otherwise in connection with the GasCo Guaranteed Obligations shall be waived, or any other guarantee of any of the GasCo Guaranteed Obligations or any security therefor shall be released, substituted or exchanged in whole or in part or otherwise dealt with;

(d) the Company or any other guarantor or obligor in respect of any of the GasCo Guaranteed Obligations (i) becomes insolvent or is unable to pay its debts or fails or admits in writing its inability generally to pay its debts as they become due, (ii) makes a general assignment, arrangement or composition with or for the benefit of its creditors, (iii) institutes or has instituted against it a proceeding seeking a judgment of insolvency or bankruptcy or any other relief under any bankruptcy or insolvency law or other similar law affecting creditors’ rights, or a petition is presented for its winding-up or liquidation, (iv) seeks or becomes subject to the appointment of an administrator, provisional liquidator, conservator, receiver, trustee, custodian or other similar official for it or for all or substantially all its assets, (v) has a secured party take possession of all or substantially all its assets or has a distress, execution, attachment, sequestration or other legal process levied, enforced or sued on or against all or substantially all its assets, or (vi) causes or is subject to any event with respect to it which, under the applicable laws of any jurisdiction, has an analogous effect to any of the events specified in clauses (i), (ii), (iii), (iv) or (v) above (any proceeding referred to in this paragraph is herein referred to as an “Insolvency Proceeding”);

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(e) this Agreement or any agreement or instrument referred to herein shall be rejected (including pursuant to Section 365 of the United States Bankruptcy Code, as amended) by an administrator, provisional liquidator, conservator, receiver, trustee, custodian or other similar official for the Company or for all or substantially all of the Company’s assets in any Insolvency Proceeding;

(f) the occurrence of any Default or Event of Default hereunder or the occurrence of any similar event (howsoever described) under any agreement or instrument referred to herein;

(g) except as otherwise provided in Section 10.2(b), any consolidation or amalgamation of the Company with, any merger of the Company with or into, or any transfer by the Company of all or substantially all of the Company’s assets to, another Person, any change in the legal or beneficial ownership of ownership interests issued by the Company, or any other change whatsoever in the objects, capital structure, constitution or business of the Company;

(h) any delay, failure or inability of the Company or any other guarantor or obligor in respect of any of the GasCo Guaranteed Obligations to perform, willful or otherwise, any provision hereunder or any agreement or instrument referred to herein or otherwise in connection with the GasCo Guaranteed Obligations;

(i) the failure or breach of any representation or warranty (whether written or oral) made by the Company or any other Person herein or any agreement or instrument referred to herein or otherwise in connection with the GasCo Guaranteed Obligations; or any event or circumstance constituting fraud in the inducement or any other similar event or circumstance;

(j) any action or failure to act by any Purchaser that adversely affects the Guarantor’s right of subrogation arising by reason of any performance by the Guarantor of its obligations under this Section 11;

(k) any suit or other action brought by, or any judgment in favor of, any beneficiaries or creditors of, the Company or any other Person for any reason whatsoever, including any suit or action in any way disaffirming, repudiating, rejecting or otherwise calling into question any issue; matter or thing in respect of this Agreement or any agreement or instrument referred to herein or otherwise in connection with the GasCo Guaranteed Obligations;

(l) any lack or limitation of status or of power, incapacity or disability of the Company or any other guarantor or obligor in respect of any of the GasCo Guaranteed Obligations; or

(m) any change in the laws, rules or regulations of any jurisdiction, or any present or future action or order of any Governmental Authority, amending, varying or otherwise affecting the validity or enforceability of any of the GasCo Guaranteed Obligations or the obligations of any other guarantor or obligor in respect of any of the GasCo Guaranteed Obligations.

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UNS Gas, Inc. Note Purchase and Guaranty Agreement

The Guarantor hereby expressly waives diligence, presentment, demand of payment, protest and all notices whatsoever, and any requirement that the Purchasers exhaust any right, power or remedy (including filing any proof of claim relating to the GasCo Guaranteed Obligations in any Insolvency Proceeding) or proceed against the Company under this Agreement or any agreement or instrument referred to herein, or against any other Person under any other guarantee of, or security for, any of the GasCo Guaranteed Obligations, it being understood that this Section 11 is a guarantee of payment and not just collection.

Section 11.3. Subrogation. The Guarantor hereby agrees that until the payment and satisfaction in full of all GasCo Guaranteed Obligations it shall not exercise any right or remedy (including the filing of any proof of claim in any Insolvency Proceeding) against the Company or any other guarantor or obligor in respect of any of the GasCo Guaranteed Obligations or any security therefor arising by reason of any performance by the Guarantor of its obligations under this Section 11, whether by subrogation or otherwise. In the event that, prior to the payment and satisfaction in full of all GasCo Guaranteed Obligations, any amount is received by the Guarantor from the Company in respect of the performance by the Guarantor of its obligations under Section 11.1, whether by subrogation or otherwise, the Guarantor will promptly following receipt thereof pay such amount to the Noteholders (to each Noteholder in proportion, as nearly as practicable, to the unpaid principal amount of Notes held by such Noteholder), for application to any GasCo Guaranteed Obligations then owing, whether matured or unmatured.

Section 11.4. Reinstatement. The obligations of the Guarantor under this Section 11 shall be automatically reinstated if and to the fullest extent that for any reason any payment by or on behalf of the Company in respect of the GasCo Guaranteed Obligations is rescinded or must be otherwise restored by any holder of any of the GasCo Guaranteed Obligations, whether as a result of any Insolvency Proceeding or otherwise, all as though such payment had not been made, and the Guarantor agrees that it will indemnify each Noteholder on demand for all reasonable costs and expenses (including the reasonable fees and disbursements of counsel) incurred by such Purchaser in connection with such rescission or restoration, including any such costs and expenses incurred in defending against any claim alleging that such payment constituted a preference, fraudulent transfer or similar payment under any bankruptcy, insolvency or similar law.

Section 11.5. Remedies Unaffected. The Guarantor agrees that, as between the Guarantor and the Purchasers the GasCo Guaranteed Obligations may be declared to be forthwith due and payable as provided herein (and shall be deemed to have become automatically due and payable in the circumstances provided in Section 13.1(a)) for purposes of Section 11.1, notwithstanding any stay (including under the United States Bankruptcy Code, as amended), injunction or other prohibition preventing the same as against the Company, and that, in such event, the GasCo Guaranteed Obligations (whether or not due and payable by the Company) shall forthwith become due and payable by the Guarantor for purposes of Section 11.1.

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UNS Gas, Inc. Note Purchase and Guaranty Agreement

Section 11.6. Continuing Guarantee; Liability in Respect of Successor. (a) The guarantee in this Section 11 is a continuing guarantee, and shall apply to all GasCo Guaranteed Obligations whenever arising.

(b) In the event that the Company shall consolidate or amalgamate with, or merge with or into, or transfer all or substantially all its assets to, another Person, except as otherwise provided in Section 10.2(b), the Guarantor will continue to be obligated hereunder in respect of the GasCo Guaranteed Obligations, whether or not the GasCo Guaranteed Obligations are assumed by such Person, and each reference herein to the Company shall thereafter instead be a reference to such Person.

Section 11.7. Termination of Guaranty. (a) Notwithstanding any other provision hereof, the Guarantor shall be released and discharged from all of its obligations arising under this Agreement, including its obligations arising under the Guaranty, on the Guaranty Termination Date. From and after the Guaranty Termination Date, all references to an Obligor shall not include the Guarantor and references to the Guarantor shall be disregarded. The “Guaranty Termination Date” shall mean the date that the Company delivers a certificate of a Responsible Officer to each Purchaser stating that: (i) the Guarantor has been, or will, concurrently with the release and discharge of the Guaranty, be, released and discharged as an obligor and guarantor under and in respect of all Indebtedness of the Company, including, without limitation, Indebtedness outstanding pursuant to the 2003 Note Agreement and the 2010 Credit Agreement, (ii) at least one Rating Agency shall have rated the Notes, on the basis of the Company’s credit without the benefit of the Guaranty, and the majority of the then outstanding and in effect ratings of the Notes, on the basis of the Company’s credit without the benefit of the Guaranty, issued by the Rating Agencies shall be Note Investment Grade Ratings and (iii) no Default or Event of Default exists immediately prior to such release and discharge and no Default or Event of Default would exist immediately after giving effect thereto; provided that the Guaranty Termination Date shall not be deemed to have occurred if any statement in such certificate proves to be false or incorrect on the date made; and provided further that the Guarantor shall execute a written agreement in favor of the holders of the Notes pursuant to which the Guarantor shall agree that if, for any reason whatsoever, it thereafter becomes an obligor or guarantor under and in respect of any Indebtedness of the Company, including, without limitation, the 2003 Note Agreement and the 2010 Credit Agreement, then the Guarantor shall contemporaneously provide written notice thereof to the holders of the Notes accompanied by an executed Guaranty of the Guarantor.

(b) The Obligors agree that they will not, nor will they permit any Subsidiary or Affiliate to, directly or indirectly, pay or cause to be paid any consideration or remuneration, whether by way of supplemental or additional interest, fee or otherwise, to any creditor of the Company or of the Guarantor as consideration for or as an inducement to the entering into by any such creditor of any release or discharge of the Guarantor with respect to its liability as an obligor or guarantor under or in respect of Indebtedness of the Company, unless such consideration or remuneration is concurrently paid, on the same terms, ratably to the Noteholders of all of the Notes then outstanding.

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Section 12. Events of Default.

An “Event of Default” shall exist if any of the following conditions or events shall occur and be continuing:

(a) the Company defaults in the payment of any principal or Make-Whole Amount, if any, on any Note when the same becomes due and payable, whether at maturity or at a date fixed for prepayment or by declaration or otherwise; or

(b) the Company defaults in the payment of any interest on any Note for more than five (5) Business Days after the same becomes due and payable; or

(c) any Obligor defaults in the performance of or compliance with any term contained in Section 7.1(d), 8.5, 9.5 or Sections 10.1 through 10.5 (inclusive); or

(d) any Obligor defaults in the performance of or compliance with any term contained herein (other than those referred to in Sections 12(a), (b) and (c)) and such default is not remedied within thirty (30) days after the earlier of (i) a Responsible Officer of such Obligor obtaining actual knowledge of such default and (ii) any Obligor receiving written notice of such default from any holder of a Note (any such written notice to be identified as a “notice of default” and to refer specifically to this Section 12(d)); or

(e) any representation or warranty made in writing by or on behalf of any Obligor or by any officer of any Obligor in this Agreement or in any writing furnished in connection with the transactions contemplated hereby proves to have been false or incorrect in any material respect on the date as of which made; or

(f) (i) any Obligor or any Subsidiary of the Company is in default (as principal or as guarantor or other surety) in the payment of any principal of or premium or make-whole amount or interest on any Indebtedness that is outstanding in an aggregate principal amount of at least $10,000,000 beyond any period of grace provided with respect thereto, or (ii) any Obligor or any Subsidiary of the Company is in default in the performance of or compliance with any term of any evidence of any Indebtedness in an aggregate outstanding principal amount of at least $10,000,000 or of any mortgage, indenture or other agreement relating thereto or any other condition exists, and as a consequence of such default or condition such Indebtedness has become, or has been declared (or one or more Persons are entitled to declare such Indebtedness to be), due and payable before its stated maturity or before its regularly scheduled dates of payment, or (iii) as a consequence of the occurrence or continuation of any event or condition (other than the passage of time or the right of the holder of Indebtedness to convert such Indebtedness into equity interests), (1) any Obligor or any Subsidiary of the Company has become obligated to purchase or repay Indebtedness before its regular maturity or before its regularly scheduled dates of payment in an aggregate outstanding principal amount of at least $10,000,000 or (2) one or more Persons have the right to require any Obligor or any Subsidiary of the Company so to purchase or repay such Indebtedness; or

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(g) any Obligor or any Subsidiary of the Company (i) is generally not paying, or admits in writing its inability to pay, its debts as they become due, (ii) files, or consents by answer or otherwise to the filing against it of, a petition for relief or reorganization or arrangement or any other petition in bankruptcy, for liquidation or to take advantage of any bankruptcy, insolvency, reorganization, moratorium or other similar law of any jurisdiction, (iii) makes an assignment for the benefit of its creditors, (iv) consents to the appointment of a custodian, receiver, trustee or other officer with similar powers with respect to it or with respect to any substantial part of its Property, (v) is adjudicated as insolvent or to be liquidated, or (vi) takes corporate action for the purpose of any of the foregoing; or

(h) a court or other Governmental Authority of competent jurisdiction enters an order appointing, without consent by any Obligor or any Subsidiary of the Company, a custodian, receiver, trustee or other officer with similar powers with respect to it or with respect to any substantial part of its Property, or constituting an order for relief or approving a petition for relief or reorganization or any other petition in bankruptcy or for liquidation or to take advantage of any bankruptcy or insolvency law of any jurisdiction, or ordering the dissolution, winding-up or liquidation of any Obligor or any Subsidiary of the Company, or any such petition shall be filed against any Obligor or any Subsidiary of the Company, and such petition shall not be dismissed within 60 days; or

(i) a final judgment or judgments for the payment of money aggregating in excess of $10,000,000 is or are rendered against one or more of any Obligor or any Subsidiary of the Company, and which judgments are not, within 60 days after entry thereof, bonded, discharged or stayed pending appeal, or are not discharged within 60 days after the expiration of such stay; or

(j) if (i) any Plan shall fail to satisfy the minimum funding standards of ERISA or the Code for any plan year or part thereof or a waiver of such standards or extension of any amortization period is sought or granted under section 412 of the Code, (ii) a notice of intent to terminate any Plan shall have been or is reasonably expected to be filed with the PBGC or the PBGC shall have instituted proceedings under ERISA section 4042 to terminate or appoint a trustee to administer any Plan or the PBGC shall have notified any Obligor or any ERISA Affiliate that a Plan may become a subject of any such proceedings, (iii) the aggregate “amount of unfunded benefit liabilities” (within the meaning of section 4001(a)(18) of ERISA) under all Plans, determined in accordance with Title IV of ERISA, shall exceed $30,000,000, (iv) any Obligor or any ERISA Affiliate shall have incurred or is reasonably expected to incur any liability pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of the Code relating to employee benefit plans, (v) any Obligor or any ERISA Affiliate withdraws from any Multiemployer Plan, or (vi) any Obligor or any Subsidiary of the Company establishes or amends any employee welfare benefit plan that provides post-employment welfare benefits in a manner that would increase the liability of any Obligor or any Subsidiary of the Company thereunder; and any such event or events described in clauses (i) through (vi) above, either individually or together with any other such event or events, could reasonably be expected to have a Material Adverse Effect; or

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UNS Gas, Inc. Note Purchase and Guaranty Agreement

(k) the Guaranty shall cease to be in full force and effect for any reason whatsoever, including, without limitation, a determination by any Governmental Authority that the Guaranty is invalid, void or unenforceable or the Guarantor shall contest or deny in writing the validity or enforceability of any of its obligations under the Guaranty, provided that the termination of the Guaranty in accordance with and by reason of the provisions of Section 11.7 shall in no event be deemed or construed to constitute a Default or Event of Default.

As used in Section 12(j), the terms “employee benefit plan” and “employee welfare benefit plan” shall have the respective meanings assigned to such terms in section 3 of ERISA.

Section 13. Remedies on Default, Etc.

Section 13.1. Acceleration. (a) If an Event of Default with respect to any Obligor described in Section 12(g) or (h) (other than an Event of Default described in clause (i) of Section 12(g) or described in clause (vi) of Section 12(g) by virtue of the fact that such clause encompasses clause (i) of Section 12(g)) has occurred, all the Notes then outstanding shall automatically become immediately due and payable.

(b) If any other Event of Default has occurred and is continuing, the Required Holders may at any time at its or their option, by notice or notices to the Company, declare all the Notes then outstanding to be immediately due and payable.

(c) If any Event of Default described in Section 12(a) or (b) has occurred and is continuing, any holder or holders of Notes at the time outstanding affected by such Event of Default may at any time, at its or their option, by notice or notices to the Company, declare all the Notes held by it or them to be immediately due and payable.

Upon any Notes becoming due and payable under this Section 13.1, whether automatically or by declaration, such Notes will forthwith mature and the entire unpaid principal amount of such Notes, plus (i) all accrued and unpaid interest thereon (including, but not limited to, interest accrued thereon at the Default Rate) and (ii) the Make-Whole Amount determined in respect of such principal amount (to the full extent permitted by applicable law), shall all be immediately due and payable, in each and every case without presentment, demand, protest or further notice, all of which are hereby waived. The Company acknowledges, and the parties hereto agree, that each holder of a Note has the right to maintain its investment in the Notes free from repayment by the Company (except as herein specifically provided for), and that the provision for payment of a Make-Whole Amount by the Company in the event that the Notes are prepaid or are accelerated as a result of an Event of Default, is intended to provide compensation for the deprivation of such right under such circumstances.

Section 13.2. Other Remedies. If any Default or Event of Default has occurred and is continuing, and irrespective of whether any Notes have become or have been declared immediately due and payable under Section 13.1, the holder of any Note at the time outstanding may proceed to protect and enforce the rights of such holder by an action at law, suit in equity or other appropriate proceeding, whether for the specific performance of any agreement contained herein or in any Note, or for an injunction against a violation of any of the terms hereof or thereof, or in aid of the exercise of any power granted hereby or thereby or by law or otherwise.

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UNS Gas, Inc. Note Purchase and Guaranty Agreement

Section 13.3. Rescission. At any time after any Notes have been declared due and payable pursuant to Section 13.1(b) or (c), the Required Holders, by written notice to the Company, may rescind and annul any such declaration and its consequences if (a) the Company has paid all overdue interest on the Notes, all principal of and Make-Whole Amount, if any, on any Notes that are due and payable and are unpaid other than by reason of such declaration, and all interest on such overdue principal and Make-Whole Amount, if any, and (to the extent permitted by applicable law) any overdue interest in respect of the Notes, at the Default Rate, (b) neither the Company nor any other Person shall have paid any amounts which have become due solely by reason of such declaration, (c) all Events of Default and Defaults, other than non-payment of amounts that have become due solely by reason of such declaration, have been cured or have been waived pursuant to Section 18, and (d) no judgment or decree has been entered for the payment of any monies due pursuant hereto or to the Notes. No rescission and annulment under this Section 13.3 will extend to or affect any subsequent Event of Default or Default or impair any right consequent thereon.

Section 13.4. No Waivers or Election of Remedies, Expenses, Etc. No course of dealing and no delay on the part of any holder of any Note in exercising any right, power or remedy shall operate as a waiver thereof or otherwise prejudice such holder’s rights, powers or remedies. No right, power or remedy conferred by this Agreement or by any Note upon any holder thereof shall be exclusive of any other right, power or remedy referred to herein or therein or now or hereafter available at law, in equity, by statute or otherwise. Without limiting the obligations of the Company under Section 16, the Company will pay to the holder of each Note on demand such further amount as shall be sufficient to cover all costs and expenses of such holder incurred in any enforcement or collection under this Section 13, including, without limitation, reasonable attorneys’ fees, expenses and disbursements.

Section 14. Registration; Exchange; Substitution of Notes.

Section 14.1. Registration of Notes. The Company shall keep at its principal executive office a register for the registration and registration of transfers of Notes. The name and address of each holder of one or more Notes, each transfer thereof and the name and address of each transferee of one or more Notes shall be registered in such register. Prior to due presentment for registration of transfer, the Person in whose name any Note shall be registered shall be deemed and treated as the owner and holder thereof for all purposes hereof, and the Company shall not be affected by any notice or knowledge to the contrary. The Company shall give to any holder of a Note that is an Institutional Investor promptly upon request therefor, a complete and correct copy of the names and addresses of all registered holders of Notes.

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UNS Gas, Inc. Note Purchase and Guaranty Agreement

Section 14.2. Transfer and Exchange of Notes. Upon surrender of any Note to the Company at the address and to the attention of the designated officer (all as specified in Section 19(iii)) for registration of transfer or exchange (and in the case of a surrender for registration of transfer accompanied by a written instrument of transfer duly executed by the registered holder of such Note or such holder’s attorney duly authorized in writing and accompanied by the relevant name, address and other information for notices of each transferee of such Note or part thereof), within ten Business Days thereafter, the Company shall execute and deliver, at the Company’s expense (except as provided below), one or more new Notes (as requested by the holder thereof) in exchange therefor, in an aggregate principal amount equal to the unpaid principal amount of the surrendered Note. Each such new Note shall be payable to such Person as such holder may request and shall be substantially in the form of Exhibit 1. Each such new Note shall be dated and bear interest from the date to which interest shall have been paid on the surrendered Note or dated the date of the surrendered Note if no interest shall have been paid thereon. The Company may require payment of a sum sufficient to cover any stamp tax or governmental charge imposed in respect of any such transfer of Notes. Notes shall not be transferred in denominations of less than $100,000; provided that if necessary to enable the registration of transfer by a holder of its entire holding of Notes, one Note may be in a denomination of less than $100,000. Any transferee, by its acceptance of a Note registered in its name (or the name of its nominee), shall be deemed to have made the representation set forth in Section 6.2.

Section 14.3. Replacement of Notes. Upon receipt by the Company at the address and to the attention of the designated officer (all as specified in Section 19(iii)) of evidence reasonably satisfactory to it of the ownership of and the loss, theft, destruction or mutilation of any Note (which evidence shall be, in the case of an Institutional Investor, notice from such Institutional Investor of such ownership and such loss, theft, destruction or mutilation), and

(a) in the case of loss, theft or destruction, of indemnity reasonably satisfactory to it (provided that if the holder of such Note is, or is a nominee for, an original Purchaser or another holder of a Note with a minimum net worth of at least $50,000,000 or a Qualified Institutional Buyer, such Person’s own unsecured agreement of indemnity shall be deemed to be satisfactory), or

(b) in the case of mutilation, upon surrender and cancellation thereof,

within ten Business Days thereafter, the Company at its own expense shall execute and deliver, in lieu thereof, a new Note dated and bearing interest from the date to which interest shall have been paid on such lost, stolen, destroyed or mutilated Note or dated the date of such lost, stolen, destroyed or mutilated Note if no interest shall have been paid thereon.

Section 15. Payments on Notes.

Section 15.1. Place of Payment. Subject to Section 15.2, payments of principal, Make-Whole Amount, if any, and interest becoming due and payable on the Notes shall be made in New York, New York at the principal office of Wells Fargo Bank, N.A. in such jurisdiction. The Company may at any time, by notice to each holder of a Note, change the place of payment of the Notes so long as such place of payment shall be either the principal office of the Company in such jurisdiction or the principal office of a bank or trust company in such jurisdiction.

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UNS Gas, Inc. Note Purchase and Guaranty Agreement

Section 15.2. Home Office Payment. So long as any Purchaser or its nominee shall be the holder of any Note, and notwithstanding anything contained in Section 15.1 or in such Note to the contrary, the Company will pay all sums becoming due on such Note for principal, Make-Whole Amount, if any, and interest by the method and at the address specified for such purpose below such Purchaser’s name in Schedule A, or by such other method or at such other address as such Purchaser shall have from time to time specified to the Company in writing for such purpose, without the presentation or surrender of such Note or the making of any notation thereon, except that upon written request of the Company made concurrently with or reasonably promptly after payment or prepayment in full of any Note, such Purchaser shall surrender such Note for cancellation, reasonably promptly after any such request, to the Company at its principal executive office or at the place of payment most recently designated by the Company pursuant to Section 15.1. Prior to any sale or other disposition of any Note held by a Purchaser or its nominee, such Purchaser will, at its election, either endorse thereon the amount of principal paid thereon and the last date to which interest has been paid thereon or surrender such Note to the Company in exchange for a new Note or Notes pursuant to Section 14.2. The Company will afford the benefits of this Section 15.2 to any Institutional Investor that is the direct or indirect transferee of any Note purchased by a Purchaser under this Agreement and that has made the same agreement relating to such Note as the Purchasers have made in this Section 15.2.

Section 16. Expenses, Etc.

Section 16.1. Transaction Expenses. Whether or not the transactions contemplated hereby are consummated, the Company will pay all costs and expenses (including reasonable attorneys’ fees of a special counsel and, if reasonably required by the Required Holders, local or other counsel) incurred by the Purchasers and each other holder of a Note in connection with such transactions and in connection with any amendments, waivers or consents under or in respect of this Agreement or the Notes (whether or not such amendment, waiver or consent becomes effective), including, without limitation: (a) the costs and expenses incurred in enforcing or defending (or determining whether or how to enforce or defend) any rights under this Agreement or the Notes or in responding to any subpoena or other legal process or informal investigative demand issued in connection with this Agreement or the Notes, or by reason of being a holder of any Note, and (b) the costs and expenses, including financial advisors’ fees, incurred in connection with the insolvency or bankruptcy of any Obligor or any Subsidiary of the Company or in connection with any work-out or restructuring of the transactions contemplated hereby and by the Notes. The Company will pay, and will save each Purchaser and each other holder of a Note harmless from, all claims in respect of any fees, costs or expenses, if any, of brokers and finders (other than those, if any, retained by a Purchaser or other holder in connection with its purchase of the Notes).

Section 16.2. Survival. The obligations of the Company under this Section 16 will survive the payment or transfer of any Note, the enforcement, amendment or waiver of any provision of this Agreement or the Notes, and the termination of this Agreement.

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UNS Gas, Inc. Note Purchase and Guaranty Agreement

Section 17. Survival of Representations and Warranties; Entire Agreement.

All representations and warranties contained herein shall survive the execution and delivery of this Agreement and the Notes, the purchase or transfer by any Purchaser of any Note or portion thereof or interest therein and the payment of any Note, and may be relied upon by any subsequent holder of a Note, regardless of any investigation made at any time by or on behalf of such Purchaser or any other holder of a Note. All statements contained in any certificate or other instrument delivered by or on behalf of any Obligor pursuant to this Agreement shall be deemed representations and warranties of such Obligor under this Agreement. Subject to the preceding sentence, this Agreement and the Notes embody the entire agreement and understanding between each Purchaser and the Obligors and supersede all prior agreements and understandings relating to the subject matter hereof.

Section 18. Amendment and Waiver.

Section 18.1. Requirements. This Agreement and the Notes may be amended, and the observance of any term hereof or of the Notes may be waived (either retroactively or prospectively), with (and only with) the written consent of the Obligors and the Required Holders, except that (a) no amendment or waiver of any of the provisions of Section 1, 2, 3, 4, 5, 6 or 22 hereof, or any defined term (as it is used therein), will be effective as to any Purchaser unless consented to by such Purchaser in writing, and (b) no such amendment or waiver may, without the written consent of the holder of each Note at the time outstanding affected thereby, (i) subject to the provisions of Section 13 relating to acceleration or rescission, change the amount or time of any prepayment or payment of principal of, or reduce the rate or change the time of payment or method of computation of interest or of the Make-Whole Amount, if any, the Notes, (ii) change the percentage of the principal amount of the Notes the holders of which are required to consent to any such amendment or waiver, or (iii) amend any of Section 8, 12(a), 12(b), 13, 18 or 21.

Section 18.2. Solicitation of Holders of Notes.

(a) Solicitation. The Company will provide each holder of the Notes (irrespective of the amount of Notes then owned by it) with sufficient information, sufficiently far in advance of the date a decision is required, to enable such holder to make an informed and considered decision with respect to any proposed amendment, waiver or consent in respect of any of the provisions hereof or of the Notes. The Company will deliver executed or true and correct copies of each amendment, waiver or consent effected pursuant to the provisions of this Section 18 to each holder of outstanding Notes promptly following the date on which it is executed and delivered by, or receives the consent or approval of, the requisite holders of Notes.

(b) Payment. No Obligor will directly or indirectly pay or cause to be paid any remuneration, whether by way of supplemental or additional interest, fee or otherwise, or grant any security or provide other credit support, to any holder of Notes as consideration for or as an inducement to the entering into by any holder of Notes of any waiver or amendment of any of the terms and provisions hereof unless such remuneration is concurrently paid, or security is concurrently granted or other credit support concurrently provided, on the same terms, ratably to each holder of Notes then outstanding even if such holder did not consent to such waiver or amendment.

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UNS Gas, Inc. Note Purchase and Guaranty Agreement

(c) Consent in Contemplation of Transfer. Any consent made pursuant to this Section 18.2 by the holder of any Note that has transferred or has agreed to transfer such Note to any Obligor, any Subsidiary of the Company or any Affiliate of any Obligor and has provided or has agreed to provide such written consent as a condition to such transfer shall be void and of no force or effect except solely as to such holder, and any amendments effected or waivers granted or to be effected or granted that would not have been or would not be so effected or granted but for such consent (and the consents of all other holders of Notes that were acquired under the same or similar conditions) shall be void and of no force or effect except solely as to such transferring holder.

Section 18.3. Binding Effect, Etc. Any amendment or waiver consented to as provided in this Section 18 applies equally to all holders of Notes and is binding upon them and upon each future holder of any Note and upon the Obligors without regard to whether such Note has been marked to indicate such amendment or waiver. No such amendment or waiver will extend to or affect any obligation, covenant, agreement, Default or Event of Default not expressly amended or waived or impair any right consequent thereon. No course of dealing between any Obligor and the holder of any Note nor any delay in exercising any rights hereunder or under any Note shall operate as a waiver of any rights of any holder of such Note. As used herein, the term “this Agreement” and references thereto shall mean this Agreement as it may from time to time be amended or supplemented.

Section 18.4. Notes Held by Any Obligor, Etc. Solely for the purpose of determining whether the holders of the requisite percentage of the aggregate principal amount of Notes then outstanding approved or consented to any amendment, waiver or consent to be given under this Agreement or the Notes, or have directed the taking of any action provided herein or in the Notes to be taken upon the direction of the holders of a specified percentage of the aggregate principal amount of Notes then outstanding, Notes directly or indirectly owned by any Obligor or any of its respective Affiliates shall be deemed not to be outstanding.

Section 19. Notices.

All notices and communications provided for hereunder shall be in writing and sent (a) by telefacsimile if the sender on the same day sends a confirming copy of such notice by a recognized overnight delivery service (charges prepaid), or (b) by registered or certified mail with return receipt requested (postage prepaid), or (c) by a recognized overnight delivery service (with charges prepaid). Any such notice must be sent:

(i) if to any Purchaser or its nominee, to such Purchaser or nominee at the address specified for such communications in Schedule A, or at such other address as such Purchaser or nominee shall have specified to the Company in writing,

(ii) if to any other holder of any Note, to such holder at such address as such other holder shall have specified to the Company in writing, or

(iii) if to the Company, to the Company at its address set forth at the beginning hereof to the attention of the Chief Financial Officer, or at such other address as the Company shall have specified to the holder of each Note in writing, or

(iv) if to the Guarantor at UniSource Energy Services, Inc., One South Church Avenue, Suite 1820, Tucson, Arizona 85701 to the attention of the Chief Financial Officer or at such other address as the Guarantor shall have specified to each Noteholder in writing.

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UNS Gas, Inc. Note Purchase and Guaranty Agreement

Notices under this Section 19 will be deemed given only when actually received.

Section 20. Reproduction of Documents.

This Agreement and all documents relating thereto, including, without limitation, (a) consents, waivers and modifications that may hereafter be executed, (b) documents received by any Purchaser at the Closing (except the Notes themselves), and (c) financial statements, certificates and other information previously or hereafter furnished to any Purchaser, may be reproduced by such Purchaser by any photographic, photostatic, electronic, digital or other similar process and such Purchaser may destroy any original document so reproduced. The Obligors agree and stipulate that, to the extent permitted by applicable law, any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding (whether or not the original is in existence and whether or not such reproduction was made by such Purchaser in the regular course of business) and any enlargement, facsimile or further reproduction of such reproduction shall likewise be admissible in evidence. This Section 20 shall not prohibit any Obligor or any other holder of Notes from contesting any such reproduction to the same extent that it could contest the original, or from introducing evidence to demonstrate the inaccuracy of any such reproduction.

Section 21. Confidential Information.

For the purposes of this Section 21, “Confidential Information” means information delivered to any Purchaser by or on behalf of any Obligor or any Subsidiary of the Company in connection with the transactions contemplated by or otherwise pursuant to this Agreement that is proprietary in nature and that was clearly marked or labeled or otherwise adequately identified when received by such Purchaser as being confidential information of such Obligor or such Subsidiary; provided that such term does not include information that (a) was publicly known or otherwise known to such Purchaser prior to the time of such disclosure, (b) subsequently becomes publicly known through no act or omission by such Purchaser or any Person acting on such Purchaser’s behalf, (c) otherwise becomes known to such Purchaser other than through disclosure by any Obligor or any Subsidiary of the Company or (d) constitutes financial statements delivered to such Purchaser under Section 7.1 that are otherwise publicly available. Each Purchaser will maintain the confidentiality of such Confidential Information in accordance with procedures adopted by such Purchaser in good faith to protect confidential information of third parties delivered to such Purchaser; provided that such Purchaser may deliver or disclose Confidential Information to (i) its directors, trustees, officers, employees, agents, attorneys and Affiliates (to the extent such disclosure reasonably relates to the administration of the investment represented by its Notes), (ii) its financial advisors and other professional advisors who agree to hold confidential the Confidential Information substantially in accordance with the terms of this Section 21, (iii) any other holder of any Note, (iv) any Institutional Investor to which it sells or offers to sell such Note or any part thereof or any

38

UNS Gas, Inc. Note Purchase and Guaranty Agreement

participation therein (if such Person has agreed in writing prior to its receipt of such Confidential Information to be bound by the provisions of this Section 21), (v) any Person from which it offers to purchase any Security of the Company (if such Person has agreed in writing prior to its receipt of such Confidential Information to be bound by the provisions of this Section 21), (vi) any federal or state regulatory authority having jurisdiction over such Purchaser, (vii) the NAIC or the SVO or, in each case, any similar organization, or any nationally recognized rating agency that requires access to information about such Purchaser’s investment portfolio or (viii) any other Person to which such delivery or disclosure may be necessary or appropriate (w) to effect compliance with any law, rule, regulation or order applicable to such Purchaser, (x) in response to any subpoena or other legal process, (y) in connection with any litigation to which such Purchaser is a party or (z) if an Event of Default has occurred and is continuing, to the extent such Purchaser may reasonably determine such delivery and disclosure to be necessary or appropriate in the enforcement or for the protection of the rights and remedies under such Purchaser’s Notes and this Agreement. Each holder of a Note, by its acceptance of a Note, will be deemed to have agreed to be bound by and to be entitled to the benefits of this Section 21 as though it were a party to this Agreement. On reasonable request by the Company in connection with the delivery to any holder of a Note of information required to be delivered to such holder under this Agreement or requested by such holder (other than a holder that is a party to this Agreement or its nominee), such holder will enter into an agreement with the Obligors embodying the provisions of this Section 21.

Section 22. Substitution of Purchaser.

Each Purchaser shall have the right to substitute any one of its Affiliates as the purchaser of the Notes that it has agreed to purchase hereunder, by written notice to the Company, which notice shall be signed by both such Purchaser and such Affiliate, shall contain such Affiliate’s agreement to be bound by this Agreement and shall contain a confirmation by such Affiliate of the accuracy with respect to it of the representations set forth in Section 6. Upon receipt of such notice, any reference to such Purchaser in this Agreement (other than in this Section 22) shall be deemed to refer to such Affiliate in lieu of such original Purchaser. In the event that such Affiliate is so substituted as a Purchaser hereunder and such Affiliate thereafter transfers to such original Purchaser all of the Notes then held by such Affiliate, upon receipt by the Company of notice of such transfer, any reference to such Affiliate as a “Purchaser” in this Agreement (other than in this Section 22) shall no longer be deemed to refer to such Affiliate, but shall refer to such original Purchaser, and such original Purchaser shall again have all the rights of an original holder of the Notes under this Agreement.

Section 23. Miscellaneous.

Section 23.1. Successors and Assigns. All covenants and other agreements contained in this Agreement by or on behalf of any of the parties hereto bind and inure to the benefit of their respective successors and assigns (including, without limitation, any subsequent holder of a Note) whether so expressed or not.

39

UNS Gas, Inc. Note Purchase and Guaranty Agreement

Section 23.2. Payments Due on Non-Business Days. Anything in this Agreement or the Notes to the contrary notwithstanding (but without limiting the requirement in Section 8.4 that the notice of any optional prepayment specify a Business Day as the date fixed for such prepayment), any payment of principal of or Make-Whole Amount, if any, or interest on any Note that is due on a date other than a Business Day shall be made on the next succeeding Business Day without including the additional days elapsed in the computation of the interest payable on such next succeeding Business Day; provided that if the maturity date of any Note is a date other than a Business Day, the payment otherwise due on such maturity date shall be made on the next succeeding Business Day and shall include the additional days elapsed in the computation of interest payable on such next succeeding Business Day.

Section 23.3. Accounting Terms. (a) All accounting terms used herein which are not expressly defined in this Agreement have the meanings respectively given to them in accordance with GAAP. Except as otherwise specifically provided herein, (a) all computations made pursuant to this Agreement shall be made in accordance with GAAP and (b) all financial statements shall be prepared in accordance with GAAP.

(b) For purposes of determining compliance with the financial covenants contained in this Agreement, any election by the Company to measure an item of Indebtedness using an amount other than par (as permitted by FASB ASC 825-10 or any similar accounting standard) shall be disregarded and such determination shall be made as if such election had not been made.

Section 23.4. Severability. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall (to the full extent permitted by law) not invalidate or render unenforceable such provision in any other jurisdiction.

Section 23.5. Construction, Etc. Each covenant contained herein shall be construed (absent express provision to the contrary) as being independent of each other covenant contained herein, so that compliance with any one covenant shall not (absent such an express contrary provision) be deemed to excuse compliance with any other covenant. Where any provision herein refers to action to be taken by any Person, or which such Person is prohibited from taking, such provision shall be applicable whether such action is taken directly or indirectly by such Person.

For the avoidance of doubt, all Schedules and Exhibits attached to this Agreement shall be deemed to be a part hereof.

Section 23.6. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original but all of which together shall constitute one instrument. Each counterpart may consist of a number of copies hereof, each signed by less than all, but together signed by all, of the parties hereto.

40

UNS Gas, Inc. Note Purchase and Guaranty Agreement

Section 23.7. Governing Law. This Agreement shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the law of the State of New York, excluding choice-of-law principles of the law of such State that would permit the application of the laws of a jurisdiction other than such State.

Section 23.8. Jurisdiction and Process; Waiver of Jury Trial. (a) The Obligors irrevocably submit to the non-exclusive jurisdiction of any New York State or federal court sitting in the Borough of Manhattan, The City of New York, over any suit, action or proceeding arising out of or relating to this Agreement or the Notes. To the fullest extent permitted by applicable law, the Obligors irrevocably waive and agree not to assert, by way of motion, as a defense or otherwise, any claim that such Obligor is not subject to the jurisdiction of any such court, any objection that it may now or hereafter have to the laying of the venue of any such suit, action or proceeding brought in any such court and any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum.

(b) The Obligors consent to process being served by or on behalf of any holder of Notes in any suit, action or proceeding of the nature referred to in Section 23.8(a) by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, return receipt requested, to it at its address specified in Section 19 or at such other address of which such holder shall then have been notified pursuant to said Section. The Obligors agree that such service upon receipt (i) shall be deemed in every respect effective service of process upon it in any such suit, action or proceeding and (ii) shall, to the fullest extent permitted by applicable law, be taken and held to be valid personal service upon and personal delivery to it. Notices hereunder shall be conclusively presumed received as evidenced by a delivery receipt furnished by the United States Postal Service or any reputable commercial delivery service.

(c) Nothing in this Section 23.8 shall affect the right of any holder of a Note to serve process in any manner permitted by law, or limit any right that the holders of any of the Notes may have to bring proceedings against any Obligor in the courts of any appropriate jurisdiction or to enforce in any lawful manner a judgment obtained in one jurisdiction in any other jurisdiction.

(d) The parties hereto hereby waive trial by jury in any action brought on or with respect to this Agreement, the Notes or any other document executed in connection herewith or therewith.

* * * * *

41

UNS Gas, Inc. Note Purchase and Guaranty Agreement

If you are in agreement with the foregoing, please sign the form of agreement on a counterpart of this Agreement and return it to the Company, whereupon this Agreement shall become a binding agreement among you, the Company and the Guarantor.

Very truly yours, UNS Gas, Inc.
By:	/s/ Kevin P. Larson
	Name:	Kevin P. Larson
	Title:	Vice President and Treasurer
UniSource Energy Services, Inc.
By:	/s/ Kevin P. Larson
	Name:	Kevin P. Larson
	Title:	Senior Vice President and Chief Financial Officer

42

UNS Gas, Inc. Note Purchase and Guaranty Agreement

This Agreement is hereby accepted and agreed
to as of the date thereof.

Metropolitan Life Insurance Company
By:	/s/ John A. Tanyeri
	Name:	John A. Tanyeri
	Title:	Director

UNS Gas, Inc. Note Purchase and Guaranty Agreement

This Agreement is hereby accepted and agreed
to as of the date thereof.

John Hancock Life Insurance Company (U.S.A.)
By:	/s/ Gerald C. Hanrahan
	Name:	Gerald C. Hanrahan
	Title:	Managing Director

UNS Gas, Inc. Note Purchase and Guaranty Agreement

This Agreement is hereby accepted and agreed
to as of the date thereof.

Thrivent Financial for Lutherans
By:	/s/ Patricia Eitrheim
	Name:	Patricia Eitrheim
	Title:	Director

UNS Gas, Inc. Note Purchase and Guaranty Agreement

This Agreement is hereby accepted and agreed
to as of the date thereof.

MassMutual Asia Limited
By:	Babson Capital Management LLC as
	Investment Advisor
	By:	/s/ Mark Ackerman  Name: Mark Ackerman Managing Director
Massachusetts Mutual Life Insurance Company
By:	Babson Capital Management LLC as
	Investment Advisor
	By:	/s/ Mark Ackerman  Name: Mark Ackerman Managing Director
C.M. Life Insurance Company
By:	Babson Capital Management LLC as
	Investment Advisor
	By:	/s/ Mark Ackerman  Name: Mark Ackerman Managing Director

UNS Gas, Inc. Note Purchase and Guaranty Agreement

This Agreement is hereby accepted and agreed
to as of the date thereof.

Great-West Life & Annuity Insurance Company
By:	/s/ James Lowery
	Name:	James Lowery
	Title:	AVP, Investments
By:	/s/ Eve Hampton
	Name:	Eve Hampton
	Title:	VP, Investments

Information Relating to Purchasers

	Principal Amount of
Name and Address of Purchaser	Notes to Be Purchased
Metropolitan Life Insurance Company	$13,000,000
1095 Avenue of the Americas
New York, New York 10036

Payments

All scheduled payments of principal and interest by wire transfer of immediately available funds pursuant to the instructions to be delivered to the Company prior to Closing.

For all payments other than scheduled payments of principal and interest, the Company shall seek instructions from the holder, and in the absence of instructions to the contrary, will make such payments to the account and in the manner set forth in the above-referenced instructions.

Notices

All notices and communications:

Metropolitan Life Insurance Company
Investments, Private Placements
P. O. Box 1902
10 Park Avenue
Morristown, New Jersey 07962-1902
Attention: Director
Fax Number: (973) 355-4250

With a copy (OTHER than with respect to deliveries of financial statements) to:

Metropolitan Life Insurance Company
P. O. Box 1902
10 Park Avenue
Morristown, New Jersey 07962-1902
Attention: Chief Counsel — Securities Investments (PRIV)
Email: sec_invest_law@metlife.com

Name of Nominee in which Notes are to be issued: None

Schedule A
(to Note Purchase and Guaranty Agreement)

	Principal Amount of
Name and Address of Purchaser	Notes to Be Purchased
C.M. Life Insurance Company	$1,850,000
c/o Babson Capital Management LLC
1500 Main Street, Suite 2200
P.O. Box 15189
Springfield, MA 01115-5189
Attention: Securities Investment Division

Payments

All payments on account of the Note shall be made by crediting in the form of bank wire transfer of Federal or other immediately available funds (identifying each payment as “UNS Gas, Inc., UniSource Energy Services, Inc., 5.39% Senior Guaranteed Notes due August 10, 2026, PPN 90312* AC8 principal, premium or interest”) pursuant to the instructions to be delivered to the Company prior to Closing.

With telephone advice of payment to the Securities Custody and Collection
Department of Babson Capital Management LLC at (413) 226-1754 or (413) 226-1803

Notices

All notices and communications to be addressed as first provided above, except notices with respect to payments to be addressed: Suite 200, Attention: Securities Custody and Collection Department of Babson Capital Management LLC.

Name of Nominee in which Notes are to be issued: None

A-2

	Principal Amount of
Name and Address of Purchaser	Notes to Be Purchased
Massachusetts Mutual Life Insurance Company	$6,650,000
c/o Babson Capital Management LLC
1500 Main Street, Suite 2200
P.O. Box 15189
Springfield, Massachusetts 01115-5189
Attention: Securities Investment Division

Payments

All payments on account of the Note shall be made by crediting in the form of bank wire transfer of Federal or other immediately available funds (identifying each payment as “UNS Gas, Inc., UniSource Energy Services, Inc., 5.39% Senior Guaranteed Notes due August 10, 2026, PPN 90312* AC8 principal, premium or interest”) pursuant to the instructions to be delivered to the Company prior to Closing.

With telephone advice of payment to the Securities Custody and Collection Department of Babson Capital Management LLC at (413) 226-1754 or (413) 226-1803

Notices

All notices and communications to be addressed as first provided above, except notices with respect to payments to be addressed: Suite 200, Attention: Securities Custody and Collection Department of Babson Capital Management LLC.

Name of Nominee in which Notes are to be issued: None

A-3

	Principal Amount of
Name and Address of Purchaser	Notes to Be Purchased
MassMutual Asia Limited	$1,500,000
c/o Babson Capital Management LLC
1500 Main Street, Suite 2200
PO Box 15189
Springfield, Massachusetts 01115-5189
Attention: Securities Investment Division

Payments

All payments on account of the Note shall be made by crediting in the form of bank wire transfer of Federal or other immediately available funds (identifying each payment as “UNS Gas, Inc., UniSource Energy Services, Inc., 5.39% Senior Guaranteed Notes due August 10, 2026, PPN 90312* AC8 principal, premium or interest”) pursuant to the instructions to be delivered to the Company prior to Closing.

With telephone advice of payment to the Securities Custody and Collection Department of Babson Capital Management LLC at (413) 226-1803 or (413) 226-1754.

Notices

All notices and communications to be addressed as first provided above, except notices with respect to payments to be addressed:

MassMutual Asia Limited
c/o Babson Capital Management LLC
1500 Main Street, Suite 200
P.O. Box 15189
Springfield, MA 01115-5189
Attention: Securities Custody and Collection Department

Corporate action notification to be addressed to:

Citigroup Global Securities Services
Attn: Corporate Action Dept
3800 Citibank Center Tampa
Building B Floor 3
Tampa, FL 33610-9122

Name of Nominee in which Notes are to be issued: Gerlach & Co.

A-4

	Principal Amount of
Name and Address of Purchaser	Notes to Be Purchased
Thrivent Financial for Lutherans	$5,000,000
625 Fourth Avenue South	$6,000,000
Minneapolis, Minnesota 55415
Attention: Investment Division-Private Placements
Fax Number: (612) 844-4027

Payments

All payments of principal, premium or interest on the account of the Notes shall be made by bank wire transfer (in immediately available funds) pursuant to the instructions to be delivered to the Company prior to Closing.

Notices

All notices and communications to be addressed as first provided above, except notices with respect to payment and written confirmation of each such payment, to be addressed:

Investment Division-Private Placements
Attention: Michael Groneberg
Thrivent Financial for Lutherans
625 Fourth Avenue South
Minneapolis, Minnesota 55415
Fax: (612) 844-4027

with a copy to:

Thrivent Accounts
State Street Kansas City
801 Pennsylvania
Kansas City, Missouri 64105
Attention: Brian Kershner
Fax: (816) 871-5509

Name of Nominee in which Notes are to be issued: Swanbird & Co.

A-5

	Principal Amount of
Name and Address of Purchaser	Notes to Be Purchased
Great-West Life & Annuity Insurance Company	$5,000,000
8515 East Orchard Road, 3T2
Greenwood Village, Colorado 80111
Attention: Investment Division
Telecopier: (303) 737-6193

Payments

All payments shall be made by wire transfer of immediately available funds pursuant to the instructions to be delivered to the Company prior to closing.

Notices and Communications

All notices and communications, financial statements, trustee reports, etc. to be addressed as first provided above.

Name of Nominee in which Notes are to be issued: None

A-6

	Principal Amount and
Name and Address of Purchaser	Series of Notes to Be Purchased
John Hancock Life Insurance Company (U.S.A.)	$6,000,000
c/o John Hancock Financial Services	$5,000,000
197 Clarendon Street
Boston, Massachusetts 02116

Payments

All payments to be by bank wire transfer of immediately available funds pursuant to the instructions to be delivered to the Company prior to Closing.

Notices

All notices with respect to payments, prepayments (scheduled and unscheduled, whether partial or in full) and maturity shall be sent to:

John Hancock Financial Services and	John Hancock Financial Services
197 Clarendon Street	197 Clarendon Street
Boston, MA 02116	Boston, MA 02116
Attention: US Securities Operations, C-4	Attention: Investment Administration, C-4
Fax Number: (617) 572-0628	Fax Number: (617) 572-5495
Email: bossecops@jhancock.com	Email: InvestmentAdministration@jhancock.com

All notices and communication with respect to compliance reporting, financial statements and related certifications shall be sent to:

John Hancock Financial Services
197 Clarendon Street
Boston, MA 02116
Attention: Bond and Corporate Finance, C-2
Fax Number: (617) 572-5068

All other notices shall be sent to:

John Hancock Financial Services and	John Hancock Financial Services
197 Clarendon Street	197 Clarendon Street
Boston, MA 02116	Boston, MA 02116
Attention: Investment Law, C-3	Attention: Bond and Corporate Finance, C-2
Fax Number: (617) 572-9269	Fax Number: (617) 572-5068

Name of Nominee in which Notes are to be issued: None

A-7

Defined Terms

As used herein, the following terms have the respective meanings set forth below or set forth in the Section hereof following such term:

“ACC” means the Arizona Corporation Commission.

“Affiliate” means, at any time, and with respect to any Person, any other Person that at such time directly or indirectly through one or more intermediaries Controls, or is Controlled by, or is under common Control with, such first Person, and with respect to the Company, shall include any Person beneficially owning or holding, directly or indirectly, 10% or more of any class of voting or equity interests of any Obligor or any Subsidiary or any corporation of which any Obligor and its Subsidiaries beneficially own or hold, in the aggregate, directly or indirectly, 10% or more of any class of voting or equity interests. As used in this definition, “Control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. Unless the context otherwise clearly requires, any reference to an “Affiliate” is a reference to an Affiliate of an Obligor.

“Anti-Money Laundering Laws” is defined in Section 5.16(c).

“Blocked Person” is defined in Section 5.16(a).

“Business Day” means (a) for the purposes of Section 8.7 only, any day other than a Saturday, a Sunday or a day on which commercial banks in New York City are required or authorized to be closed, and (b) for the purposes of any other provision of this Agreement, any day other than a Saturday, a Sunday or a day on which commercial banks in New York, New York or Tucson, Arizona are required or authorized to be closed.

“Capital Lease” means, at any time, a lease with respect to which the lessee is required concurrently to recognize the acquisition of an asset and the incurrence of a liability in accordance with GAAP.

“Capital Lease Obligation” means, with respect to any Person and a Capital Lease, the amount of the obligation of such Person as the lessee under such Capital Lease which would, in accordance with GAAP, appear as a liability on a balance sheet of such Person.

“Change of Control” means any of the following events or circumstances:

(a) the failure of UniSource Energy directly or indirectly to beneficially own in the aggregate at least a majority of the shares of the Company’s outstanding Voting Stock; and

Schedule B
(to Note Purchase and Guaranty Agreement)

(b) the acquisition after the date hereof by any person (as such term is used in section 13(d) and section 14(d)(2) of the Exchange Act as in effect on the date of the Closing) other than UniSource Energy or related persons constituting a group (as such term is used in Rule 13d-5 under the Exchange Act as in effect on the date of the Closing) of the power to elect, appoint or cause the election or appointment of at least a majority of the members of the board of directors of the Company, through beneficial ownership of the capital stock of the Company or otherwise; provided that the acquisition by any such person or group of the power to elect at least a majority of the Board of Directors of UniSource Energy shall not be deemed to constitute the acquisition of the power to elect at least a majority of the board of directors of the Company by a person other than UniSource Energy for the purpose of this subsection(b).

“Change of Control Notice” is defined in Section 8.5.

“Change of Control Prepayment Date” is defined in Section 8.5.

“Closing” is defined in Section 3.

“Code” means the Internal Revenue Code of 1986, as amended from time to time, and the rules and regulations promulgated thereunder from time to time.

“Company” means UNS Gas, Inc., an Arizona corporation, or any successor that becomes such in the manner prescribed in Section 10.2.

“Company Successor” is defined in Section 10.2(a)(i).

“Confidential Information” is defined in Section 21.

“Consolidated Debt” means, with respect to the Company as of any date of determination, the total of all Indebtedness of the Company and its Subsidiaries outstanding on such date, after eliminating all offsetting debits and credits between the Company and its Subsidiaries and all other items required to be eliminated in the course of the preparation of consolidated financial statements of the Company and its Subsidiaries in accordance with GAAP.

“Consolidated Income Available for Interest Charges” means, with respect to any period, Consolidated Net Income of the Company for such period plus all amounts deducted in the computation thereof on account of (a) Interest Charges, (b) taxes imposed on or measured by income or excess profits, and (c) the amount of all depreciation and amortization allowances and other noncash expenses of the Company and its Subsidiaries for such period.

“Consolidated Long Term Debt” means, as of any date of determination, the total of all Long Term Debt of the Company and its Subsidiaries outstanding on such date, after eliminating all offsetting debits and credits between the Company and its Subsidiaries and all other items required to be eliminated in the course of the preparation of consolidated financial statements of the Company and its Subsidiaries in accordance with GAAP.

B-2

“Consolidated Net Income” means, with respect to the Company and with reference to any fiscal period, the net income (or loss) of the Company and its Subsidiaries for such period (taken as a cumulative whole), as determined in accordance with GAAP, after eliminating all offsetting debits and credits between the Company and its Subsidiaries and all other items required to be eliminated in the course of the preparation of consolidated financial statements of the Company and its Subsidiaries in accordance with GAAP, adjusted to exclude (a) any extraordinary gain or loss reflected in the net income (or loss) for the Company and its Subsidiaries for such period and (b) any cumulative effect of a change in accounting principles reflected in the net income (or loss) for the Company and its Subsidiaries for such period.

“Consolidated Net Worth” means, with respect to the Company at any time:

(a) the total assets of the Company and its Subsidiaries which would be shown as assets on a consolidated balance sheet of the Company and its Subsidiaries as of such time prepared in accordance with GAAP, after eliminating all amounts properly attributable to minority interests, if any, in the stock and surplus of Subsidiaries; minus

(b) the total liabilities of the Company and its Subsidiaries which would be shown as liabilities on a consolidated balance sheet of the Company and its Subsidiaries as of such time prepared in accordance with GAAP; minus

(c) the net book value of all assets (other than intangible assets eligible for cost recovery through regulatory rates) of the Company and its Subsidiaries, after deducting any reserves applicable thereto, which would be treated as intangible under GAAP, including, without limitation, good will, trademarks, trade names, service marks, brand names, copyrights, patents, unamortized debt discount and expense, and organizational expenses.

“Consolidated Total Assets” means as of the date of any determination thereof, total assets of the Company and its Subsidiaries determined on a consolidated basis in accordance with GAAP.

“Consolidated Total Capitalization” means at any time, the sum of Consolidated Net Worth of the Company and Consolidated Debt of the Company at such time.

“Current Debt” means, with respect to the Company, all Indebtedness of the Company which by its terms or by the terms of any instrument or agreement relating thereto matures on demand or within one year from the date of the creation thereof and is not directly or indirectly renewable or extendible at the option of the Company in respect thereof to a date one year or more from such date without meeting the conditions applicable to a new borrowing.

“Current Maturities of Long Term Debt” means, at any time and with respect to any item of Long Term Debt, the portion of such Long Term Debt outstanding at such time which by the terms of such Long Term Debt or the terms of any instrument or agreement relating thereto is due on demand or within one year from such time (whether by sinking fund, other required prepayment or final payment at maturity) and is not directly or indirectly renewable, extendible or refundable at the option of the obligor under an agreement or firm commitment in effect at such time to a date one year or more from such time.

B-3

“DBRS” means Dominion Bond Rating Service, Ltd. or its successors or assigns.

“Default” means an event or condition the occurrence or existence of which would, with the lapse of time or the giving of notice or both, become an Event of Default.

“Default Rate” means that rate of interest that is the greater of (i) 2% per annum above the rate of interest stated in clause (a) of the first paragraph of the Notes or (ii) 2% over the rate of interest publicly announced by Wells Fargo Bank, N.A. in New York, New York as its “base” or “prime” rate.

“Disclosure Documents” is defined in Section 5.3.

“Distribution” means, in respect of any corporation, association or other business entity:

(a) dividends or other distributions or payments on capital stock or other equity interest of such corporation, association or other business entity (except distributions in such stock or other equity interest); and

(b) the redemption or acquisition of such stock or other equity interests or of warrants, rights or other options to purchase such stock or other equity interests (except when solely in exchange for such stock or other equity interests) unless made, contemporaneously, from the net proceeds of a sale of such stock or other equity interests.

“Electronic Delivery” is defined in Section 7.1(a).

“Environmental Laws” means any and all federal, state, local, and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or governmental restrictions relating to pollution and the protection of the environment or the release of any materials into the environment, including but not limited to those related to Hazardous Material.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the rules and regulations promulgated thereunder from time to time in effect.

“ERISA Affiliate” means any trade or business (whether or not incorporated) that is treated as a single employer together with an Obligor under section 414 of the Code.

“Event of Default” is defined in Section 12.

“Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time, and the rules and regulations promulgated thereunder from time to time in effect.

“Execution Date” is defined in Section 3.

B-4

“Fair Market Value” means, at any time and with respect to any Property, the sale value of such Property that would be realized in an arm’s-length sale at such time between an informed and willing buyer and an informed and willing seller (neither being under a compulsion to buy or sell).

“Fitch” means Fitch IBCA, Inc. or its successors or assigns.

“Form 10-K” is defined in Section 7.1(b).

“Form 10-Q” is defined in Section 7.1(a).

“GAAP” means generally accepted accounting principles as in effect from time to time in the United States of America.

“GasCo Guaranteed Obligations” is defined in Section 11.1.

“Governmental Authority” means

(a) the government of

(i) the United States of America or any State or other political subdivision thereof, or

(ii) any other jurisdiction in which any Obligor or any Subsidiary conducts all or any part of its business, or which asserts jurisdiction over any Properties of any Obligor or any Subsidiary, or

(b) any entity exercising executive, legislative, judicial, regulatory or administrative functions of, or pertaining to, any such government.

“Guarantor” means UniSource Energy Services, Inc., an Arizona corporation, or any successor that become such in the manner prescribed in the Section 10.2.

“Guarantor Successor” is defined in Section 10.2(a)(i).

“Guaranty” means the guaranty set forth in Section 11.

“Guaranty Obligation” means, with respect to any Person, any obligation (except the endorsement in the ordinary course of business of negotiable instruments for deposit or collection) of such Person guaranteeing or in effect guaranteeing any Indebtedness, dividend or other obligation of any other Person in any manner, whether directly or indirectly, including (without limitation) obligations incurred through an agreement, contingent or otherwise, by such Person:

(a) to purchase such Indebtedness or obligation or any Property constituting security therefor;

(b) to advance or supply funds (i) for the purchase or payment of such Indebtedness or obligation, or (ii) to maintain any working capital or other balance sheet condition or any income statement condition of any other Person or otherwise to advance or make available funds for the purchase or payment of such Indebtedness or obligation;

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(c) to lease Properties or to purchase Properties or services primarily for the purpose of assuring the owner of such Indebtedness or obligation of the ability of any other Person to make payment of the Indebtedness or obligation; or

(d) otherwise to assure the owner of such Indebtedness or obligation against loss in respect thereof.

In any computation of the Indebtedness or other liabilities of the obligor under any Guaranty Obligation, the Indebtedness or other obligations that are the subject of such Guaranty Obligation shall be assumed to be direct obligations of such obligor.

“Guaranty Termination Date” is defined in Section 11.7.

“Hazardous Material” means any and all pollutants, toxic or hazardous wastes or any other substances, including all substances listed in or regulated in any Environmental Law that might pose a hazard to health and safety, the removal of which may be required or the generation, manufacture, refining, production, processing, treatment, storage, handling, transportation, transfer, use, disposal, release, discharge, spillage, seepage, or filtration of which is or shall be restricted, regulated, prohibited or penalized by any applicable law including, but not limited to, asbestos, urea formaldehyde foam insulation, polychlorinated biphenyls, petroleum, petroleum products, lead based paint, radon gas or similar restricted, prohibited or penalized substances.

“holder” means, with respect to any Note, the Person in whose name such Note is registered in the register maintained by the Company pursuant to Section 14.1.

“Indebtedness” with respect to any Person means, at any time, without duplication,

(a) its liabilities for borrowed money and its redemption obligations in respect of mandatorily redeemable Preferred Stock;

(b) its liabilities for the deferred purchase price of Property acquired by such Person (excluding accounts payable arising in the ordinary course of business but including all liabilities created or arising under any conditional sale or other title retention agreement with respect to any such Property);

(c) all liabilities appearing on its balance sheet in accordance with GAAP in respect of Capital Leases;

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(d) all liabilities for borrowed money secured by any Lien with respect to any Property owned by such Person (whether or not it has assumed or otherwise become liable for such liabilities);

(e) all its liabilities in respect of letters of credit or instruments serving a similar function issued or accepted for its account by banks and other financial institutions (whether or not representing obligations for borrowed money);

(f) Swaps of such Person; and

(g) any Guaranty Obligation of such Person with respect to liabilities of a type described in any of clauses (a) through (f) hereof.

Indebtedness of any Person shall include all obligations of such Person of the character described in clauses (a) through (g) to the extent such Person remains legally liable in respect thereof notwithstanding that any such obligation is deemed to be extinguished under GAAP.

“Insolvency Proceeding” is defined in Section 11.2(d).

“Institutional Investor” means (a) any purchaser of a Note, (b) any holder of a Note holding (together with one or more of its Affiliates) more than 5% of the aggregate principal amount of the Notes then outstanding, (c) any bank, trust company, savings and loan association or other financial institution, any pension plan, any investment company, any insurance company, any broker or dealer, or any other similar financial institution or entity, regardless of legal form, and (d) any Related Fund of any holder of any Note.

“Interest Charges” means, with respect to any period, the sum (without duplication) of the following (in each case, eliminating all offsetting debits and credits between the Company and its Subsidiaries and all other items required to be eliminated in the course of the preparation of consolidated financial statements of the Company and its Subsidiaries in accordance with GAAP): (a) all interest in respect of Indebtedness of the Company and its Subsidiaries (including imputed interest on Capital Lease Obligations) deducted in determining Consolidated Net Income for such period, together with all interest capitalized or deferred during such period and not deducted in determining Consolidated Net Income for such period, and (b) to the extent actually paid, all debt discount and expense amortized or required to be amortized in the determination of Consolidated Net Income for such period.

“Interest Coverage Ratio” means, with respect to the Company for any period, the ratio of (a) Consolidated Income Available for Interest Charges for such period to (b) Interest Charges for such period.

“Lien” means, with respect to any Person, any mortgage, lien, pledge, charge, security interest or other encumbrance, or any interest or title of any vendor, lessor, lender or other secured party to or of such Person under any conditional sale or other title retention agreement or Capital Lease, upon or with respect to any Property or asset of such Person (including in the case of stock, stockholder agreements, voting trust agreements and all similar arrangements).

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“Long Term Debt” means, with respect to any Person, all Indebtedness of such Person which by its terms or by the terms of any instrument or agreement relating thereto matures, or which is otherwise payable or unpaid, one year or more from, or is directly or indirectly renewable or extendible at the option of the obligor in respect thereof to a date one year or more (including, without limitation, an option of such obligor under a revolving credit or similar agreement obligating the lender or lenders to extend credit over a period of one year or more) from, the date of the creation thereof, provided that Long Term Debt shall include, as at any date of determination, Current Maturities of Long Term Debt.

“Make-Whole Amount” is defined in Section 8.7.

“Material” means material in relation to the business, operations, affairs, financial condition, assets or Properties of any Obligor and its Subsidiaries taken as a whole.

“Material Adverse Effect” means a material adverse effect on (a) the business, operations, affairs, financial condition, assets or Properties of any Obligor and its Subsidiaries taken as a whole, or (b) the ability of any Obligor to perform its respective obligations under this Agreement and the Notes, or (c) the validity or enforceability of this Agreement or the Notes.

“Memorandum” is defined in Section 5.3.

“Moody’s” means Moody’s Investors Service, Inc. or its successors or assigns.

“Multiemployer Plan” means any Plan that is a “multiemployer plan” (as such term is defined in section 4001(a)(3) of ERISA).

“NAIC” means the National Association of Insurance Commissioners or any successor thereto.

“Note Investment Grade Rating” means in respect of the Notes, on the basis of the Company’s credit without the benefit of the Guaranty, a rating of (a) “BBB-” or better by S&P, (b) “Baa3” or better by Moody’s, (c) “BBB low” or better by DBRS or (d) “BBB-” or better by Fitch.

“Noteholders” means the holders from time to time of the Notes.

“Notes” is defined in Section 1.

“Obligors” is defined in the introductory paragraph hereof.

“OFAC” is defined in Section 5.16(a).

“OFAC Listed Person” is defined in Section 5.16(a).

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“OFAC Sanctions Program” means any economic or trade sanction that OFAC is responsible for administering and enforcing. A list of OFAC Sanctions Programs may be found at http://www.ustreas.gov/offices/enforcement/ofac/programs/.

“Officer’s Certificate” means a certificate of a Senior Financial Officer or of any other officer of any Obligor whose responsibilities extend to the subject matter of such certificate.

“PBGC” means the Pension Benefit Guaranty Corporation referred to and defined in ERISA or any successor thereto.

“Permitted Lien” means, with respect to any Person, each of the following:

(a) Liens for taxes, assessments or other governmental charges which are not yet due and payable or the payment of which is not at the time required by Section 9.4 of this Agreement;

(b) statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, materialmen and other similar Liens, in each case, incurred in the ordinary course of business for sums not yet due and payable or the payment of which is not at the time required by Section 9.4 of this Agreement;

(c) Liens (other than any Lien imposed by ERISA) incurred or deposits made in the ordinary course of business (i) in connection with workers’ compensation, unemployment insurance and other types of social security or retirement benefits, or (ii) to secure (or to obtain letters of credit that secure) the performance of tenders, statutory obligations, surety bonds, appeal bonds, bids, leases (other than Capital Leases), performance bonds, purchase, construction or sales contracts and other similar obligations, in each case not incurred or made in connection with the borrowing of money, the obtaining of advances or credit or the payment of the deferred purchase price of Property;

(d) any attachment or judgment Lien, unless the judgment it secures shall not, within sixty days after the entry thereof, have been discharged or execution thereof stayed pending appeal, or shall not have been discharged within sixty days after the expiration of any such stay;

(e) leases or subleases granted to others, easements, rights-of-way, restrictions and other similar charges or encumbrances, in each case incidental to, and not interfering with, the ordinary conduct of the business of the Company, provided that such Liens do not, in the aggregate, materially detract from the value of such Property; and

B-9

(f) any Lien created to secure all or any part of the purchase price, or to secure Indebtedness incurred or assumed to pay all or any part of the purchase price or cost of construction, of Property (or any improvement thereon) acquired or constructed by such Person or a Subsidiary of such Person after the date of the Closing, provided that:

(i) any such Lien shall extend solely to the item or items of such Property (or improvement thereon) so acquired or constructed and, if required by the terms of the instrument originally creating such Lien, other Property (or improvement thereon) which is an improvement to or is acquired for specific use in connection with such acquired or constructed Property (or improvement thereon) or which is real Property being improved by such acquired or constructed Property (or improvement thereon);

(ii) the principal amount of the Indebtedness secured by any such Lien shall not, at the time such Lien is created, exceed an amount equal to the lesser of (A) the cost to such Person or such Subsidiary of the Property (or improvement thereon) so acquired or constructed and (B) the Fair Market Value (as determined in good faith by the board of directors of such Person) of such Property (or improvement thereon) at the time of such acquisition or construction; and

(iii) any such Lien shall be created contemporaneously with, or within 90 days after, the acquisition or construction of such Property; and

(g) with respect to any interest in real Property which consists of a leasehold or other possessory interest therein, Liens to which the underlying fee estate in such real Property is subject that do not and will not result in a Material Adverse Effect.

“Permitted Reimbursement Obligation” means any liability of the Company of the type referred to in clause (e) of the definition of “Indebtedness” provided that such liability is not created in connection with a letter of credit or instrument serving a similar function related to Indebtedness for money borrowed and provided such liability is immediately due and payable upon the related payment under such letter of credit or similar instrument.

“Person” means an individual, partnership, corporation, limited liability company, association, trust, unincorporated organization, business entity or Governmental Authority.

“Plan” means an “employee benefit plan” (as defined in section 3(3) of ERISA) subject to Title I of ERISA that is or, within the preceding five years, has been established or maintained, or to which contributions are or, within the preceding five years, have been made or required to be made, by the Company or any ERISA Affiliate or with respect to which an Obligor or any ERISA Affiliate may have any liability.

“Preferred Stock” means any class of capital stock of a corporation that is preferred over any other class of capital stock of such corporation as to the payment of dividends or the payment of any amount upon liquidation or dissolution of such corporation.

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“Property” or “Properties” means, unless otherwise specifically limited, real or personal property of any kind, tangible or intangible, choate or inchoate.

“PTE” is defined in Section 6.2(a).

“Purchaser” is defined in the first paragraph of this Agreement.

“QPAM Exemption” means Prohibited Transaction Class Exemption 84-14 issued by the United States Department of Labor.

“Qualified Institutional Buyer” means any Person who is a “qualified institutional buyer” within the meaning of such term as set forth in Rule 144A(a)(1) under the Securities Act.

“Rating Agency” means any of S&P, Moody’s, DBRS or Fitch.

“Related Fund” means, with respect to any holder of any Note, any fund or entity that (a) invests in Securities or bank loans, and (b) investment advisor as such holder or by an affiliate of such holder or such investment advisor.

“Required Holders” means, at any time, the holders of at least 51% in principal amount of the Notes at the time outstanding (exclusive of Notes then owned by the Company or any of its Affiliates).

“Response Date” is defined in Section 8.5.

“Responsible Officer” means any Senior Financial Officer of an Obligor and any other officer of such Obligor with responsibility for the administration of the relevant portion of this Agreement.

“Restricted Payment” means any Distribution in respect of any Person or any Subsidiary of such Person (other than on account of capital stock or other equity interests of a Subsidiary owned legally and beneficially by such Person or another Subsidiary of such Person), including, without limitation, any Distribution resulting in the acquisition by such Person of Securities which would constitute treasury stock. For purposes of this Agreement, the amount of any Restricted Payment made in Property shall be the greater of (a) the Fair Market Value of such Property (as determined in good faith by the board of directors (or equivalent governing body) of the Person making such Restricted Payment) and (b) the net book value thereof on the books of such Person, in each case determined as of the date on which such Restricted Payment is made.

“S&P” means Standard & Poor’s Rating Services, a division of The McGraw-Hill Company, or its successors or assigns.

“SEC” shall mean the Securities and Exchange Commission of the United States, or any successor thereto.

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“Securities” or Security” shall have the same meaning as in section 2(1) of the Securities Act.

“Securities Act” means the Securities Act of 1933, as amended from time to time, and the rules and regulations promulgated thereunder from time to time in effect.

“Senior Financial Officer” means the chief financial officer, principal accounting officer, vice president, treasurer or comptroller of an Obligor.

“Subsidiary” means, as to any Person, any other Person in which such first Person or one or more of its Subsidiaries or such first Person and one or more of its Subsidiaries owns sufficient equity or voting interests to enable it or them (as a group) ordinarily, in the absence of contingencies, to elect a majority of the directors (or Persons performing similar functions) of such second Person, and any partnership or joint venture if more than a 50% interest in the profits or capital thereof is owned by such Person or one or more of its Subsidiaries or such first Person and one or more of its Subsidiaries (unless such partnership can and does ordinarily take major business actions without the prior approval of such Person or one or more of its Subsidiaries). Unless the context otherwise clearly requires, any reference to a “Subsidiary” is a reference to a Subsidiary of the Company.

“SVO” means the Securities Valuation Office of the NAIC or any successor to such Office.

“Swaps” means, with respect to any Person, payment obligations with respect to interest rate swaps, currency swaps and similar obligations obligating such Person to make payments, whether periodically or upon the happening of a contingency. For the purposes of this Agreement, the amount of the obligation under any Swap shall be the amount determined in respect thereof as of the end of the then most recently ended fiscal quarter of such Person, based on the assumption that such Swap had terminated at the end of such fiscal quarter, and in making such determination, if any agreement relating to such Swap provides for the netting of amounts payable by and to such Person thereunder or if any such agreement provides for the simultaneous payment of amounts by and to such Person, then in each such case, the amount of such obligation shall be the net amount so determined.

“2003 Note Agreement” means that certain Note Purchase and Guaranty Agreement dated as of August 11, 2003 between and among the Company, the Guarantor and the holders of the $50,000,000 aggregate principal amount 6.23% Series A Guaranteed Senior Notes due August 11, 2011 and $50,000,000 aggregate principal amount 6.23% Series B Guaranteed Senior Notes due August 11, 2015, as the same may be supplemented or amended.

“2008 Note Agreement” means that certain Note Purchase and Guaranty Agreement dated as of August 5, 2008 between and among the UNS Electric, Inc., an Arizona corporation, the Guarantor and the holders of the $50,000,000 aggregate principal amount 6.50% Series A Guaranteed Senior Notes due August 7, 2015 and $50,000,000 aggregate principal amount 7.10% Series B Guaranteed Senior Notes due August 7, 2023, as the same may be supplemented or amended.

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“2010 Credit Agreement” means that certain Second Amended and Restated Credit Agreement dated as of November 9, 2010 between and among the Company, UNS Electric, Inc., an Arizona corporation, as borrowers, the Guarantor, as guarantor, the banks listed on the signature pages thereof and Union Bank, N.A., as administrative agent, as the same may from time to time be supplemented, amended, renewed, extended or replaced.

“UniSource Energy” means UniSource Energy Corporation, a corporation incorporated under the laws of the state of Arizona.

“USA Patriot Act” means United States Public Law 107-56, Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA Patriot Act) Act of 2001, as amended from time to time, and the rules and regulations promulgated thereunder from time to time in effect.

“Voting Stock” means Securities of any class or classes, the holders of which are ordinarily, in the absence of contingencies, entitled to elect the corporate directors (or Persons performing similar functions).

“Wholly-owned Subsidiary” means, at any time, any Subsidiary one hundred percent (100%) of all of the equity interests (except directors’ qualifying shares) and voting interests of which are owned by any one or more of the Company and the Company’s other Wholly-owned Subsidiaries at such time.

B-13

Disclosure Materials

1.	Note Purchase and Guaranty Agreement dated May 4, 2011.
2.	UNS Gas, Inc. Investor Presentation dated March 25, 2011.
3.	UNS Gas, Inc. Private Placement Memorandum dated March 2011.
4.	The financial statements for UNS Gas, Inc. listed in Schedule 5.5.
5.	The financial statements for UniSource Energy Services, Inc. listed in Schedule 5.5.
6.	Description relating to the Obligors and their Subsidiaries in UniSource Energy Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010 and Quarterly Report on Form 10-Q for the quarter ended March 31, 2011.

Schedule 5.3
(to Note Purchase and Guaranty Agreement)

Subsidiaries and Affiliates

I. 5.4(a)(i) — Subsidiaries of Obligors

Company: UNS Gas, Inc.

1. Subsidiaries: None

Guarantor: UniSource Energy Services, Inc.

1.	Subsidiaries: UniSource Energy Services, Inc. (the Guarantor) has two subsidiaries: UNS Gas, Inc. and UNS Electric, Inc. The Guarantor owns 100 percent of the common stock of each subsidiary. UNS Gas, Inc. and UNS Electric, Inc. have not issued any other class of capital stock or similar equity interest. UNS Gas, Inc. and UNS Electric, Inc. have no subsidiaries.
2.	Jurisdiction of Organization of Subsidiaries: Arizona

II. 5.4(a)(ii) — Affiliates of the Obligors

UniSource Energy Corporation

UniSource Energy Services, Inc.

UNS Electric, Inc.

Millennium Energy Holdings, Inc.

Advanced Energy Technologies, Inc.

MEH Equities Management Company

POWERTRUSION International, Inc.

Southwest Energy Solutions, Inc.

Springerville Power, LLC

Tucson Electric Power Company

Escavada Company

San Carlos Resources Inc.

Tucsonel Inc.

UniSource Energy Development Company

Additional Affiliates (minority interests)

Haddington Energy Partners II LP (interest held by MEH Equities Management Company)

Infinite Power Solutions, Inc. (interest held by Advanced Energy Technologies, Inc.)

Luna Power Company, LLC (interest held by Tucson Electric Power Company)

Private Power, LLC (interest held by Millennium Energy Holdings, Inc.)

Valley Ventures III, L.P. (interest held by Millennium Energy Holdings, Inc.)

III. 5.4(d) — Restrictions on dividends

None.

Schedule 5.4
(to Note Purchase and Guaranty Agreement)

Financial Statements

1. The Company: UNS Gas, Inc.

a)	Financial Statements for the Years ended December 31, 2010 and 2009.
b)	Financial Statements for the Years ended December 31, 2009 and 2008.
c)	Financial Statements for the Years ended December 31, 2008 and 2007.
d)	Financial Statements for the Years ended December 31, 2007 and 2006.

2. The Guarantor: UniSource Energy Services, Inc.

a)	Consolidated Financial Statements for the Years ended December 31, 2010 and 2009
b)	Consolidated Financial Statements for the Years ended December 31, 2009 and 2008.
c)	Consolidated Financial Statements for the Years ended December 31, 2008 and 2007.
d)	Consolidated Financial Statements for the Years ended December 31, 2007 and 2006.

Schedule 5.5
(to Note Purchase and Guaranty Agreement)

Existing Indebtedness

I. 5.15 (a)

2003 Note Agreement

2008 Note Agreement

2010 Credit Agreement — $100 million facility of which not more than $70 million may be drawn upon by the Company

II. 5.15 (b)

Section 9.02 [Letter of Credit Cash Collateralization] of 2010 Credit Agreement

III. 5.15 (c)

2003 Note Agreement

2008 Note Agreement

2010 Credit Agreement

Schedule 5.15
(to Note Purchase and Guaranty Agreement)

Subsidiaries and Affiliates of the Obligors as of Closing

• No changes to Schedule 5.4 of the Note Purchase and Guaranty Agreement since the Execution Date.

Annex A
(to Note Purchase and Guaranty Agreement)

Existing Indebtedness as of Closing

I. 5.15(a)

2003 Note Agreement

2008 Note Agreement

2010 Credit Agreement — $100 million facility of which not more than $70 million may be drawn upon by the Company

II. 5.15(b)

Section 9.02 [Letter of Credit Cash Collateralization] of 2010 Credit Agreement

III. 5.15(c)

2003 Note Agreement

2008 Note Agreement

2010 Credit Agreement

Annex B
(to Note Purchase and Guaranty Agreement)

[Form of Note]

UNS Gas, Inc.

5.39% Senior Guaranteed Note, due August 10, 2026

No. [                    ]	[Date]
$[                    ]	PPN 90312* AC8

For Value Received, the undersigned, UNS Gas, Inc. (herein called the “Company”), a corporation organized and existing under the laws of the State of Arizona, hereby promises to pay to [_____], or registered assigns, the principal sum of [_____] Dollars (or so much thereof as shall not have been prepaid) on August 10, 2026, with interest (computed on the basis of a 360-day year of twelve 30-day months) on the unpaid balance hereof at the rate of (a) 5.39% per annum from the date hereof, payable semiannually, on the fifteenth day of February and August in each year and on August 10, 2026, commencing on February 15, 2012, until the principal hereof shall have become due and payable, and (b) to the extent permitted by law, on any overdue payment of interest and, during the continuance of an Event of Default, on such unpaid balance and on any overdue payment of any Make-Whole Amount (as defined in the Note Purchase Agreement referred to below), at a rate per annum from time to time equal to the greater of (i) 7.39% or (ii) 2% over the rate of interest publicly announced by Wells Fargo Bank, N.A. from time to time in New York, New York as its “base” or “prime” rate payable semiannually as aforesaid (or, at the option of the registered holder hereof, on demand).

Payments of principal of, interest on and any Make-Whole Amount, if any with respect to this Note are to be made in lawful money of the United States of America at New York, New York or at such other place as the Company shall have designated by written notice to the holder of this Note as provided in the Note Purchase Agreement referred to below.

This Note is one of a series of Senior Guaranteed Notes (herein called the “Notes”) issued pursuant to the Note Purchase and Guaranty Agreement, dated as of May 4, 2011 (as from time to time amended, the “Note Purchase Agreement”), between the Company, UniSource Energy Services, Inc., an Arizona corporation (“UniSource Energy Services”) and the respective Purchasers named therein and is entitled to the benefits thereof. Each holder of this Note will be deemed, by its acceptance hereof, to have (i) agreed to the confidentiality provisions set forth in Section 21 of the Note Purchase Agreement and (ii) made the representations set forth in Section 6 of the Note Purchase Agreement. Unless otherwise indicated, capitalized terms used in this Note shall have the respective meanings ascribed to such terms in the Note Purchase Agreement.

This Note is a registered Note and, as provided in the Note Purchase Agreement, upon surrender of this Note for registration of transfer, duly endorsed, or accompanied by a written instrument of transfer duly executed, by the registered holder hereof or such holder’s attorney duly authorized in writing, a new Note for a like principal amount will be issued to, and registered in the name of, the transferee. Prior to due presentment for registration of transfer, the Company may treat the person in whose name this Note is registered as the owner hereof for the purpose of receiving payment and for all other purposes, and the Company will not be affected by any notice to the contrary.

Exhibit 1
(to Note Purchase and Guaranty Agreement)

Pursuant to Section 11 of the Note Purchase Agreement, UniSource Energy Services has absolutely and unconditionally guaranteed payment in full of the principal amount of, Make-Whole Amount, if any, and interest on this Note; provided that such guaranty is subject to termination as provided in the Note Purchase Agreement.

This Note is subject to optional prepayment, in whole or from time to time in part, at the times and on the terms specified in the Note Purchase Agreement, but not otherwise.

If an Event of Default occurs and is continuing, the principal of this Note may be declared or otherwise become due and payable in the manner, at the price (including any applicable Make-Whole Amount, if any) and with the effect provided in the Note Purchase Agreement.

This Note shall be construed and enforced in accordance with, and the rights of the Company and the holder of this Note shall be governed by, the law of the State of New York, excluding choice-of-law principles of the law of such State that would permit application of the laws of a jurisdiction other than such State.

UNS Gas, Inc.
By:
	Name:
	Title:

E-1-2

Form of Opinion of Special Counsel
to the Company

August 8, 2011

To Each of the Parties Listed on Schedule A Hereto

UniSource Energy Services, Inc.
UNS Gas, Inc.
Note Purchase and Guaranty Agreement

Ladies and Gentlemen:

We have acted as special New York counsel for UniSource Energy Services, Inc., an Arizona corporation (the “Guarantor”) and UNS Gas, Inc., an Arizona corporation (the “Company”, and together with the Guarantor, the “Obligors” and each an “Obligor”), in connection with the transactions contemplated by the Note Purchase and Guaranty Agreement, dated as of May 4, 2011 (the “Note Purchase Agreement”), among the Guarantor, the Company and each of the purchasers of the Notes. Capitalized terms used herein but not defined herein shall have the respective meanings assigned thereto in the Note Purchase Agreement. We deliver this opinion to you in accordance with Section 4.4 of the Note Purchase Agreement.

In so acting, we have participated in or reviewed all corporate proceedings in connection with the authorization, execution and delivery of the Note Purchase Agreement by each Obligor. We have examined the Note Purchase Agreement, the Notes and such other documents, agreements, instruments and records, and have satisfied ourselves as to such other matters, as we have deemed necessary as a basis for the conclusions of law contained in the opinions enumerated below. We have relied as to various questions of fact upon the representations and warranties of the respective parties to the Note Purchase Agreement and in certificates of public officials and corporate officers delivered thereunder. This opinion is limited to matters governed by the laws of the States of Arizona and New York and the Federal laws of the United States of America. As to all matters of law of the State of Arizona, we have relied, with your consent, upon the opinion of even date herewith rendered to you by Todd C. Hixon, Vice President and General Counsel of the Guarantor and the opinions expressed herein upon such reliance are subject to the same assumptions, qualifications and limitations set forth therein. We have assumed that the Note Purchase Agreement has been duly authorized, executed and delivered by each party thereto other than the Obligors.

Based upon and subject to the foregoing, and subject to the qualifications hereinafter set forth, we are of the opinion that:

1. Each Obligor is a corporation duly organized, validly existing and in good standing under the laws of the State of Arizona and has the corporate power and authority to carry on its business as presently conducted, to own or hold under lease its properties and to execute and deliver, and to incur and perform its obligations under, the Note Purchase Agreement and, in the case of the Company, the Notes.

Exhibit 4.4(a)(i)
(to Note Purchase and Guaranty Agreement)

2. The execution any delivery by each Obligor of, and the incurrence and performance by each Obligor of its obligations under, the Note Purchase Agreement and, in the case of the Company, each Note have been duly authorized by all necessary corporate action by or on behalf of such Obligor.

3. The Note Purchase Agreement and, in the case of the Company, each Note has been duly executed and delivered by or on behalf of each Obligor party thereto.

4. Neither the execution and delivery by each Obligor of the Note Purchase Agreement or, in the case of the Company, the Notes, nor the consummation of the transactions contemplated thereby, nor the incurrence and performance of such Obligor of its obligations thereunder nor compliance by such Obligor with any of the terms and provisions thereof as of the time of such performance or compliance will result (a) in any violation of any term of the Articles of Incorporation or the Bylaws of such Obligors, or (b) in any violation of any law administered by or any rule or regulation of the Federal Energy Regulatory Commission (“FERC”) or the ACC.

5. The Note Purchase Agreement and, in the case of the Company, the Notes constitute legal, valid and binding obligations of such Obligor, enforceable against such Obligor in accordance with their terms, except as enforceability may be limited by bankruptcy, insolvency, fraudulent transfer, fraudulent conveyance, reorganization, moratorium, receivership and other laws affecting the rights and remedies of creditors generally and general principles of equity (whether considered in a proceeding in equity or at law).

6. No consent, approval or authorization of, or registration, filing or declaration with, any Governmental Authority is required in connection with the execution, delivery or incurrence or performance by any Obligor of any of its obligations under the Note Purchase Agreement or, in the case of the Company, the Notes, except for the approval of the ACC, which approval has been obtained and is in full force and effect.

7. The issuance of the Notes under the Note Purchase Agreement and the use of proceeds from the sale of such Notes in accordance with the provisions of the Note Purchase Agreement does not violate or conflict with Regulations T, U or X of the Board of Governors of the Federal Reserve System.

8. Neither of the Obligors is an “investment company”, or a company “controlled” by an “investment company”, within the meaning of the Investment Company Act of 1940, as amended.

E-4.4(a)(i)-2

9. Assuming the representations of the Obligors and each Noteholder set forth in Sections 5.13 and 6.1 of the Note Purchase Agreement are accurate, in connection with the issuance of the Notes on the date hereof pursuant to the Note Purchase Agreement, it is not necessary to register such Notes under the Securities Act of 1933, as amended, or to qualify any indenture under the Trust Indenture Act of 1939, as amended; we express no opinion, however, as to any subsequent offer or sale of the Notes.

This letter is furnished to you and solely for your information in connection with the Note Purchase Agreement and may not be relied upon by any other person without our express written permission, except that (i) Todd C. Hixon is authorized to rely upon this letter as to the matters of New York and Federal law covered hereby, (ii) your successors and each future permitted holder of any Note under (and to the extent permitted by) the Note Purchase Agreement may rely on this opinion as of the original date of this opinion subject to the limitations, qualifications, exceptions and assumptions set forth herein, and (iii) a copy of this letter may be furnished by you to, but not relied upon by, the National Association of Insurance Commissioners and any state, federal or provincial authority or independent banking or insurance board or body having regulatory jurisdiction over you in the exercise of their regulatory due diligence.

Very truly yours,

MORGAN, LEWIS & BOCKIUS LLP

E-4.4(a)(i)-3

Form of Opinion of General Counsel
to the Company

August 8, 2011

To Each of the Parties Listed on
      Schedule A Hereto

UniSource Energy Services, Inc.
UNS Gas, Inc.
Note Purchase and Guaranty Agreement

Ladies and Gentlemen:

I have acted as counsel to UniSource Energy Services, Inc., an Arizona corporation (the “Guarantor”), and UNS Gas, Inc., an Arizona corporation (the “Company” and, together with the Guarantor, the “Obligors” and each an “Obligor”), in connection with the transactions contemplated by the Note Purchase and Guaranty Agreement, dated as of May 4, 2011 (the “Note Purchase Agreement”), among the Guarantor, the Company and each of the purchasers of the Notes. Capitalized terms used herein but not defined herein shall have the respective meanings assigned thereto in the Note Purchase Agreement. I deliver this opinion to you in accordance with Section 4.4(ii) of the Note Purchase Agreement.

In so acting, I have participated in or reviewed all corporate proceedings in connection with the authorization, execution and delivery of the Note Purchase Agreement by each Obligor. I have examined the Note Purchase Agreement, the Notes, and such other documents, agreements, instruments and records, and have satisfied myself as to such other matters, as I have deemed necessary as a basis for the conclusions of law contained in the opinions enumerated below. I have relied as to various questions of fact upon the representations and warranties of the respective parties to the Note Purchase Agreement and in certificates of public officials and corporate officers delivered thereunder. This opinion is limited to matters governed by the laws of the States of Arizona and New York and the Federal laws of the United States of America. As to all matters relating to the laws of the State of New York and the Federal Power Act involved in the opinions enumerated below, I have relied, with your consent, upon the opinion of even date herewith rendered to you by Morgan, Lewis & Bockius LLP, special New York counsel to the Company, and the opinions expressed herein upon such reliance are subject to the same assumptions, qualifications and limitations set forth therein. I have assumed that the Note Purchase Agreement has been duly authorized, executed and delivered by each party thereto other than the Obligors.

Based upon and subject to the foregoing, and subject to the qualifications hereinafter set forth, I am of the opinion that:

1. Each Obligor is a corporation duly organized, validly existing and in good standing under the laws of the State of Arizona and has the corporate power and authority to carry on its business as presently conducted, to own or hold under lease its properties and to execute and deliver, and to incur and perform its obligations under, the Note Purchase Agreement and, in the case of the Company, the Notes.

Exhibit 4.4(a)(ii)
(to Note Purchase and Guaranty Agreement)

2. The execution any delivery by each Obligor of, and the incurrence and performance by each Obligor of its obligations under, the Note Purchase Agreement and, in the case of the Company, each Note have been duly authorized by all necessary corporate action by or on behalf of such Obligor.

3. The Note Purchase Agreement and, in the case of the Company, each Note has been duly executed and delivered by or on behalf of each Obligor party thereto.

4. Neither the execution and delivery by each Obligor of the Note Purchase Agreement or, in the case of the Company, the Notes, nor the consummation of the transactions contemplated thereby, nor the incurrence and performance of such Obligor of its obligations thereunder nor compliance by such Obligor with any of the terms and provisions thereof as of the time of such performance or compliance will result (a) in any violation of any term of the Articles of Incorporation or the Bylaws of such Obligor, (b) in any violation of any material agreement, indenture or similar instrument, to which such Obligor is a party, or any license, judgment, decree or order of which I have knowledge (after due inquiry) applicable to such Obligor, or (c) in any violation of any statute or other rule or regulation of any Governmental Authority applicable to such Obligor.

5. The Note Purchase Agreement and, in the case of the Company, the Notes constitute legal, valid and binding obligations of such Obligor enforceable in accordance with their terms, except as enforceability may be limited by bankruptcy, insolvency, fraudulent transfer, fraudulent conveyance, reorganization, moratorium, receivership and other laws affecting the rights and remedies of creditors generally and general principles of equity (whether considered in a proceeding in equity or at law).

6. No consent, approval or authorization of, or registration, filing or declaration with any Governmental Authority is required in connection with, the execution, delivery or incurrence or performance by any Obligor of any of its obligations under the Note Purchase Agreement or, in the case of the Company, the Notes, except for the approval of the ACC, which approval has been obtained and is in full force and effect.

7. There is no action, suit or proceeding pending, or, to my knowledge (after due inquiry), threatened against the Obligors, before any court or administrative agency or arbitrator which questions the validity or enforceability of the Note Purchase Agreement or the Notes or the transactions contemplated thereby.

This letter is furnished to you and solely for your information in connection with the Note Purchase Agreement and may not be relied upon by any other person without my express written permission, except that (i) Morgan, Lewis & Bockius LLP is authorized to rely upon this letter as to the matters of Arizona law covered hereby, (ii) your successors and each future permitted holder of any Note under (and to the extent permitted by) the Note Purchase Agreement may rely on this opinion as of the original date of this opinion subject to the limitations, qualifications, exceptions and assumptions set forth herein, and (iii) a copy of this letter may be furnished by you to, but not relied upon by, the National Association of Insurance Commissioners and any state, federal or provincial authority or independent banking or insurance board or body having regulatory jurisdiction over you in the exercise of their regulatory due diligence.

Very truly yours,

Todd C. Hixon

E-4.4(a)(ii)-2

Form of Opinion of Special Counsel
to the Purchasers

(Delivered to Purchasers only)

EXHIBIT 4.4(b)
(to Note Purchase and Guaranty Agreement)

EX-4.2

Exhibit 4.2

[Execution Version]

$30,000,000

CREDIT AGREEMENT

dated as of August 10, 2011,

among

UNS ELECTRIC, INC.,
as Borrower,

UNISOURCE ENERGY SERVICES, INC.,
as Guarantor,

THE LENDERS NAMED HEREIN AND
FROM TIME TO TIME PARTY HERETO,
as Lenders,

and

UNION BANK, N.A.,
as Administrative Agent

TABLE OF CONTENTS

Section	Page
ARTICLE I DEFINITIONS AND ACCOUNTING TERMS		1
SECTION 1.01. Certain Defined Terms		1
SECTION 1.02. Computation of Time Periods; Construction		20
SECTION 1.03. Accounting Terms		20
ARTICLE II LOANS		21
SECTION 2.01. Loans		21
SECTION 2.02. Interest Rate Determination and Protection		21
SECTION 2.03. Conversion Option		22
ARTICLE III TERMS APPLICABLE TO THE LOANS		23
SECTION 3.01. The Commitments		23
SECTION 3.02. Payments and Prepayments		23
SECTION 3.03. Lending Office		23
SECTION 3.04. Pro Rata Treatment		23
SECTION 3.05. Interest Rates		24
SECTION 3.06. Payment Dates		24
SECTION 3.07. Maximum Interest		24
SECTION 3.08. Promissory Notes		24
SECTION 3.09. Termination by Borrower		24
ARTICLE IV MANNER OF BORROWING; PAYMENTS, COMPUTATIONS, ETC.; TAXES		25
SECTION 4.01. Making the Loans		25
SECTION 4.02. Payments and Computations		26
SECTION 4.03. Sharing of Payments, Etc.		27
SECTION 4.04. Taxes		28
SECTION 4.05. Status of the Lenders and the Administrative Agent		29
SECTION 4.06. Tax Documentation		30
ARTICLE V YIELD PROTECTION AND ILLEGALITY		30
SECTION 5.01. Additional Costs		30
SECTION 5.02. Illegality		32
SECTION 5.03. Compensation		32

Section	Page
ARTICLE VI CONDITIONS PRECEDENT		33
SECTION 6.01. Conditions Precedent to Effectiveness		33
SECTION 6.02. Determinations Under Section 6.01		34
SECTION 6.03. Reliance on Certificates		34
ARTICLE VII REPRESENTATIONS AND WARRANTIES		35
SECTION 7.01. Representations and Warranties of the Obligors		35
ARTICLE VIII COVENANTS OF THE OBLIGORS		41
SECTION 8.01. Affirmative Covenants		41
SECTION 8.02. Negative Covenants		47
SECTION 8.03. Financial Covenant		50
ARTICLE IX DEFAULTS		50
SECTION 9.01. Events of Default		50
SECTION 9.02. Remedies		53
ARTICLE X THE ADMINISTRATIVE AGENT		53
SECTION 10.01. Authorization and Action		53
SECTION 10.02. Indemnification		55
ARTICLE XI GUARANTY		55
SECTION 11.01. The Guaranty		55
SECTION 11.02. Obligations Unconditional		56
SECTION 11.03. Subrogation		58
SECTION 11.04. Reinstatement		59
SECTION 11.05. Remedies Unaffected		59
SECTION 11.06. Continuing Guarantee; Liability in Respect of Successor		59
ARTICLE XII MISCELLANEOUS		59
SECTION 12.01. Amendments, Etc		59
SECTION 12.02. Notices, Etc		60
SECTION 12.03. No Waiver of Remedies		60
SECTION 12.04. Costs, Expenses and Indemnification		61
SECTION 12.05. Right of Set-off		62
SECTION 12.06. Binding Effect		62
SECTION 12.07. Assignments and Participation		62
SECTION 12.08. Confidentiality		67
SECTION 12.09. WAIVER OF JURY TRIAL		67
SECTION 12.10. Governing Law; Submission to Jurisdiction		67
SECTION 12.11. Relation of the Parties; No Beneficiary		68
SECTION 12.12. Execution in Counterparts		68
SECTION 12.13. Survival of Agreement		68
SECTION 12.14. Patriot Act Notice		68

-ii-

Exhibits

EXHIBIT A-1	—	Form of Notice of Borrowing
EXHIBIT A-2	—	Form of Notice of Conversion
EXHIBIT B	—	Form of Opinion of Morgan, Lewis & Bockius LLP, New York counsel to the Obligors
EXHIBIT C	—	Form of Opinion of the General Counsel of the Guarantor and counsel to the Borrower
EXHIBIT D	—	Form of Lender Assignment

Schedules

SCHEDULE 1.01	Pricing Schedule
SCHEDULE 1.02	Applicable Lending Offices
SCHEDULE 7.01(e)	Subsidiaries

-iii-

CREDIT AGREEMENT

Dated as of August 10, 2011

THIS CREDIT AGREEMENT is made by and among:

(i)	UNS Electric, Inc., an Arizona corporation (the “Borrower”),
(ii)	UniSource Energy Services, Inc., an Arizona corporation (the “Guarantor”),
(iii)	the Lenders listed on the signature pages hereof (each, together with its successors and assigns, individually, a “Lender” and collectively, the “Lenders”), and
(iv)	Union Bank, N.A., as administrative agent (in such capacity, together with its successors and assigns in such capacity, the “Administrative Agent”) for the Lenders hereunder.

PRELIMINARY STATEMENTS

WHEREAS, the Borrower has requested that the Lenders make term loans to the Borrower for the purposes described herein; and

WHEREAS, the Lenders are willing to make such term loans to the Borrower on the terms and subject to the conditions contained herein.

NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties hereto agree as follows:

ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS

SECTION 1.01. Certain Defined Terms. As used in this Agreement, the following terms shall have the following meanings:

“ABR”, when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Alternate Base Rate.

“ABR Loan” means a Loan that bears interest as provided in Section 3.05(a).

“ACC” means the Arizona Corporation Commission.

“ACC Order” means the Opinion and Order (Decision No. 70360) issued and docketed by the ACC on May 27, 2008 in Docket No. E-04204A-06-0783.

“ACC Settlement Agreement” means the settlement agreement dated as of April 1, 2003 between the Staff of the ACC Utilities Division, UniSource Energy, Tucson Electric Power Company and Citizens Communications Company.

“Additional Costs” has the meaning assigned to such term in Section 5.01(a).

“Adjusted LIBOR Rate” means, with respect to any Eurodollar Rate Loan for any Interest Period, an interest rate per annum equal to (a) the LIBOR Rate for such Interest Period multiplied by (b) the Statutory Reserve Rate

“Administrative Agent” has the meaning assigned to such term in the preamble hereto.

“Affiliate” means, at any time, and with respect to any Person, (a) any other Person that at such time directly or indirectly through one or more intermediaries Controls, or is Controlled by, or is under common Control with, such first Person, and (b) any Person beneficially owning or holding, directly or indirectly, 10% or more of any class of voting or equity interests of any Obligor or any Subsidiary or any Person of which any Obligor and its Subsidiaries beneficially own or hold, in the aggregate, directly or indirectly, 10% or more of any class of voting or equity interests. As used in this definition, “Control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. Unless the context otherwise clearly requires, any reference to an “Affiliate” is a reference to an Affiliate of an Obligor.

“Agreement” means this Credit Agreement, as amended, supplemented or otherwise modified from time to time.

“Alternate Base Rate” means, for any day, a rate per annum equal to the greatest of (a) the Reference Rate in effect on such day, (b) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%, and (c) the Adjusted LIBOR Rate for an Interest Period of one month beginning on such day (or, if such day is not a Business Day, the immediately preceding Business Day) plus 1.0%. Any change in the Alternate Base Rate due to a change in the Reference Rate, the Federal Funds Effective Rate or the Adjusted LIBOR Rate shall be effective from and including the effective date of such change in the Reference Rate, the Federal Funds Effective Rate or the Adjusted LIBOR Rate, respectively.

“Applicable Lending Office” means, for each Lender and for each Type of Loan, the lending office of such Lender (or of an affiliate of such Lender) designated for such Type of Loan specified opposite its name on Schedule 1.02 or in the Lender Assignment pursuant to which it became a Lender or such other office of such Lender (or of an affiliate of such Lender) as such Lender may from time to time specify to the Administrative Agent and the Borrower as the office by which its Loans of such Type are to be made and maintained.

2

“Applicable Margin” means for any day, with respect to any Eurodollar Rate Loan or ABR Loan, as the case may be, the applicable percentage per annum determined in accordance with the Pricing Schedule attached hereto as Schedule 1.01. Notwithstanding the foregoing, upon the occurrence and during the continuance of an Event of Default (including, without limitation, the failure to pay the principal amount of any Loan or any other amount payable hereunder when due), each of the foregoing applicable percentages shall be increased by the Post-Default Margin.

“Authorized Officer” means, with respect to any Person, the president, any vice president, the chief financial officer, the principal accounting officer, the treasurer or the controller of such Person.

“Board” means the Board of Governors of the Federal Reserve System of the United States of America (or any successor).

“Borrower” has the meaning assigned to such term in the preamble hereto.

“Borrower Successor” has the meaning assigned to such term in Section 8.02(b).

“Borrowing” means a borrowing consisting of Loans of the same Type, having the same Interest Period and made or Converted on the same day by the Lenders, ratably in accordance with their respective Proportionate Shares. All Loans of the same Type, having the same Interest Period and made or Converted on the same day shall be deemed a single Borrowing hereunder until repaid or next Converted.

“Business Day” means (a) for all purposes other than as covered by clause (b) below, a day other than a Saturday, Sunday or other day on which commercial banks in New York City or Los Angeles, California are authorized or required by law to close and (b) with respect to all notices and determinations in connection with, and payments of principal and interest on, Eurodollar Rate Loans, any day which is a Business Day described in clause (a) and which is also a day for trading by and between banks in Dollar deposits in the London interbank market.

“Capital Lease” means, at any time, a lease with respect to which the lessee is required concurrently to recognize the acquisition of an asset and the incurrence of a liability in accordance with GAAP.

“Capital Lease Investment” of any Person means, with respect to the Borrower, the aggregate outstanding capitalized amount of Capital Lease Obligations of the Borrower and its Consolidated Subsidiaries that are owned by such Person and in respect of which such Person has the right to receive all future payments to be made.

“Capital Lease Obligations” of any Person means the obligations of such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as Capital Leases on a balance sheet of such Person under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP.

3

“Capital Stock” means any and all shares, interests, participations or other equivalents (however designated) of capital stock of a corporation, any and all equivalent ownership interests in a Person (other than a corporation) and any and all warrants, rights or options to purchase any of the foregoing.

“Change of Control” means the failure of UniSource Energy directly or indirectly to beneficially own 100% of the shares of each Obligor’s voting stock outstanding.

“Closing Date” means the date upon which each of the conditions precedent enumerated in Section 6.01 has been fulfilled to the satisfaction of the Lenders, the Administrative Agent and the Borrower. The Closing Date shall take place on or before August 10, 2011 at the offices of Hughes Hubbard & Reed LLP, One Battery Park Plaza, New York, New York 10004, at 10:00 A.M. (New York, New York time), or such other time and/or location as the parties hereto may mutually agree.

“Code” means the Internal Revenue Code of 1986, as amended from time to time, and the rules and regulations promulgated thereunder from time to time.

“Commitment” means, with respect to each Lender, the amount identified opposite such Lender’s name on the signature pages attached hereto. “Commitments” means the total of the Lenders’ Commitments hereunder. The Commitments shall in no event exceed $30,000,000.

“Confidential Information” has the meaning assigned to such term in Section 12.08.

“Consolidated Net Worth” means, at any date with respect to the Borrower, the sum as of such date of (a) the par value (or value stated on the books of the Borrower) of all classes of Capital Stock of the Borrower and its Subsidiaries, excluding the Borrower’s Capital Stock owned by the Borrower and/or its Subsidiaries, plus (or minus in the case of a surplus deficit) (b) the amount of consolidated surplus, whether capital or earned, of the Borrower, determined in accordance with GAAP as of the date of determination (excluding the effect on the Borrower’s accumulated other comprehensive income/loss of the ongoing application of Accounting Standards Codification Topic 815).

“Consolidated Subsidiary” means, at any date with respect to the Borrower, each Subsidiary of the Borrower the accounts of which would be consolidated with those of the Borrower in the Borrower’s consolidated financial statements if such financial statements were prepared in accordance with GAAP as of such date.

“Consolidated Total Capitalization” means, with respect to the Borrower at any time, the sum of Consolidated Net Worth and Consolidated Total Indebtedness of the Borrower at such time.

4

“Consolidated Total Indebtedness” means, at any date with respect to the Borrower, (a) the sum (without duplication) for the Borrower and its Consolidated Subsidiaries as of such date of (i) the aggregate principal amount of all Loans made to the Borrower outstanding on such date, (ii) the aggregate outstanding principal amount of other Indebtedness for borrowed money (including Guaranty Obligations in respect thereof) of the Borrower and its Consolidated Subsidiaries and (iii) the aggregate outstanding capitalized amount of Capital Lease Obligations, minus (b) the sum (without duplication) as of such date of (i) the aggregate outstanding capitalized amount of the Capital Lease Investments of the Borrower and its Consolidated Subsidiaries as of such date and (ii) to the extent included in clause (a)(ii) above, any Treasury Indebtedness of the Borrower and its Consolidated Subsidiaries as of such date, all as determined on a consolidated basis in accordance with GAAP; provided, however, that there shall be disregarded for purposes of the determination of Consolidated Total Indebtedness of the Borrower the aggregate outstanding principal amount of any Indebtedness for borrowed money of the Borrower or any of its Subsidiaries for which (1) cash in an amount sufficient to repay and discharge in full such Indebtedness on its scheduled maturity date or redemption date shall have been irrevocably deposited in trust with a trustee, escrow agent, paying agent or similar agent for the payment thereof on such maturity date or redemption date (as the case may be), and (2) the Borrower or such Subsidiary (as the case may be) shall have irrevocably instructed such trustee, escrow agent, paying agent or similar agent (as the case may be) to apply all such cash to the repayment and discharge of such Indebtedness on such maturity date or redemption date (as the case may be).

“Contractual Obligation” means, as to any Person, any provision of any security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its Property is bound.

“Conversion”, “Convert” and “Converted” each refers to a conversion of Loans of one Type into Loans of another Type pursuant to Section 2.03.

“Debtor Relief Laws” means the Bankruptcy Code of the United States and all other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization or similar debtor relief laws of the United States or other applicable jurisdictions from time to time in effect and affecting the rights of creditors generally.

“Default” means any of the events specified in Section 9.01, whether or not any requirement for the giving of notice, the lapse of time, or both, has been satisfied.

“Disclosure Documents” means (i) the Annual Report on Form 10-K of UniSource Energy for the fiscal year ended December 31, 2010, as filed with the SEC, and (ii) the Quarterly Reports on Form 10-Q of UniSource Energy for the fiscal quarters ended March 31, 2011 and June 30, 2011, as filed with the SEC.

“Disposition” means, with respect to any Property, any sale, lease, sale and leaseback, assignment, conveyance, transfer or other disposition thereof; and the terms “Dispose” and “Disposed of” shall have correlative meanings.

5

“Distribution” means, in respect of any corporation, association or other business entity:

(a) dividends or other distributions or payments on capital stock or other equity interests of such corporation, association or other business entity (except distributions in such stock or other equity interests); and

(b) the redemption or acquisition of such stock or other equity interests or of warrants, rights or other options to purchase such stock or other equity interests (except when solely in exchange for such stock or other equity interests) unless made, contemporaneously, from the net proceeds of a sale of such stock or other equity interests.

“Dodd-Frank Act” means the Dodd-Frank Wall Street Reform and Consumer Protection Act (Public Law 111-203), as amended.

“Dollars” and the sign “$” each means lawful money of the United States.

“Eligible Assignee” means (a) a commercial bank or trust company organized under the laws of the United States, or any State thereof; (b) a commercial bank organized under the laws of any other country that is a member of the OECD, or a political subdivision of any such country, provided that such bank is acting through a branch or agency located in the United States; (c) the central bank of any country that is a member of the OECD; (d) any other commercial bank or other financial institution engaged generally in the business of extending credit or purchasing debt instruments; and (e) a Lender or an Affiliate of a Lender; provided, however, that (A) any such Person described in clauses (a) through (e) above shall also (i) have outstanding unsecured indebtedness that is rated A- or better by S&P or A3 or better by Moody’s (or an equivalent rating by another nationally-recognized credit rating agency of similar standing if neither of such corporations is then in the business of rating unsecured indebtedness of entities engaged in such businesses) or (ii) have combined capital and surplus (as established in its most recent report of condition to its primary regulator) of not less than $250,000,000 (or its equivalent in foreign currency), (B) any Person described in clause (b), (c), or (d) above, shall, on the date on which it is to become a Lender hereunder, (1) be entitled to receive payments hereunder without deduction or withholding of any United States Federal income taxes (as contemplated by Section 4.04) and (2) not be incurring any losses, costs or expenses of the type for which such Person could demand payment under Section 5.01 (except to the extent that, in the absence of the making of an assignment to such Person, the assigning Lender would have incurred an equal or greater amount of such losses, costs or expenses and such losses, costs or expenses would have been payable by the Borrower to such assigning Lender hereunder), and (C) in no event shall the Borrower or any Affiliate or Subsidiary of the Borrower constitute an Eligible Assignee.

“Environmental Laws” means any and all Federal, state, local, and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or governmental restrictions relating to pollution and the protection of the environment or the release of any materials into the environment, including but not limited to those related to hazardous substances or wastes, air emissions and discharges to waste or public systems.

6

“Environmental Liability” means, with respect to any Person, any liability, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of such Person or any of its Subsidiaries directly or indirectly resulting from or based upon (a) violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or threatened release of any Hazardous Materials into the environment or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the rules and regulations promulgated thereunder from time to time in effect.

“ERISA Affiliate” means, with respect to any Obligor, any trade or business (whether or not incorporated) that is treated as a single employer together with such Obligor under section 414 of the Code.

“ERISA Event” means, with respect to any Obligor, (a) any “reportable event”, as defined in Section 4043 of ERISA or the regulations issued thereunder with respect to any Plan of such Obligor (other than an event for which the 30-day notice period is waived); (b) a determination that any Plan is in “at risk” status (within the meaning of Section 430 of the Code or Section 303 of ERISA); (c) the filing pursuant to Section 412(c) of the Code or Section 302(c) of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan of such Obligor; (d) the incurrence by such Obligor or any of its ERISA Affiliates of any liability under Title IV of ERISA with respect to the termination of any Plan of such Obligor; (e) the receipt by such Obligor or any of its ERISA Affiliates from the PBGC of any notice of its intent to institute proceedings to terminate any Plan of such Obligor or to appoint a trustee to administer any Plan of such Obligor under Section 4042 of ERISA or the providing of notice by a plan administrator of the intent to terminate any Plan of such Obligor under Section 4041 of ERISA; (f) the incurrence by such Obligor or any of its ERISA Affiliates of any liability with respect to the withdrawal or partial withdrawal from any Plan or Multiemployer Plan of such Obligor; or (g) the receipt by such Obligor or any of its ERISA Affiliates of any notice, or the receipt by any Multiemployer Plan from such Obligor or any of its ERISA Affiliates of any notice, concerning the imposition of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA.

“Eurodollar Rate Loan” means a Loan that bears interest as provided in Section 3.05(b).

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“Event of Default” means any of the events specified in Section 9.01, provided that any requirement for the giving of notice, the lapse of time, or both, has been satisfied.

“Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time, and the rules and regulations promulgated thereunder from time to time.

“Fair Market Value” means, at any time and with respect to any Property, the sale value of such Property that would be realized in an arm’s-length sale at such time between an informed and willing buyer and an informed and willing seller (neither being under a compulsion to buy or sell).

“Federal Funds Effective Rate” means, for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average (rounded upwards, if necessary, to the next 1/100 of 1%) of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average (rounded upwards, if necessary, to the next 1/100 of 1%) of the quotations for such day for such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by the Administrative Agent.

“Foreign Lender” means any Lender that is organized under the laws of a jurisdiction other than that in which the Borrower is located. For purposes of this definition, the United States of America, each State thereof and the District of Columbia shall be deemed to constitute a single jurisdiction.

“GAAP” means generally accepted accounting principles in the United States of America as in effect from time to time.

“Governmental Approval” means all authorizations, approvals, certificates, permits, waivers, exemptions, consents, variances, franchises, registrations, filings, authorizations, licenses or similar orders of, or from, any Governmental Authority.

“Governmental Authority” means (a) the government of (i) the United States of America or any State or other political subdivision thereof, or (ii) any jurisdiction in which any Obligor or any Subsidiary thereof conducts all or any part of its business, or which asserts jurisdiction over any Properties of any Obligor or any Subsidiary thereof, or (b) any entity exercising executive, legislative, judicial, regulatory or administrative functions of, or pertaining to, any such government.

“Governmental Rule” means any statute, law, regulation, ordinance, rule, judgment, order, decree, permit, license, concession, directive, guideline, policy or rule of common law, requirement of, or other governmental restriction or any similar form of decision of or determination by, or any interpretation or administration of any of the foregoing by, any Governmental Authority, whether now or hereafter in effect.

“Granting Lender” has the meaning assigned to such term in Section 12.07(j).

“Guarantor” has the meaning assigned to such term in the preamble hereto.

“Guarantor Successor” has the meaning assigned to such term in Section 8.02(b).

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“Guaranty” means the guaranty set forth in Article XI of this Agreement.

“Guaranty Obligation” means, with respect to any Person, any obligation (except the endorsement in the ordinary course of business of negotiable instruments for deposit or collection) of such Person guaranteeing or in effect guaranteeing any Indebtedness, dividend or other obligation of any other Person in any manner, whether directly or indirectly, including, without limitation, obligations incurred through an agreement, contingent or otherwise, by such Person:

(a) to purchase such Indebtedness or obligation or any Property constituting security therefor;

(b) to advance or supply funds (i) for the purchase or payment of such Indebtedness or obligation, or (ii) to maintain any working capital or other balance sheet condition or any income statement condition of any other Person or otherwise to advance or make available funds for the purchase or payment of such Indebtedness or obligation;

(c) to lease Properties or to purchase Properties or services primarily for the purpose of assuring the owner of such Indebtedness or obligation of the ability of any other Person to make payment of the Indebtedness or obligation; or

(d) otherwise to assure the owner of such Indebtedness or obligation against loss in respect thereof.

In any computation of the Indebtedness or other liabilities of the obligor under any Guaranty Obligation, the Indebtedness or other obligations that are the subject of such Guaranty Obligation shall be assumed to be direct obligations of such obligor.

“Guaranty Termination Date” means the first date after the Closing Date on which the Borrower shall have delivered to the Administrative Agent a certificate signed by an Authorized Officer of the Borrower certifying that the Guarantor has been or, concurrently with the release and discharge of the Guarantor’s Guaranty Obligations under Article XI of this Agreement, will be released and discharged as a guarantor of all Indebtedness of the Borrower (including, without limitation, Indebtedness under the UNS Electric Note Purchase Agreement and under the Second Amended and Restated Credit Agreement, but excluding Indebtedness under this Agreement) that is guaranteed by, or otherwise has the benefit of any Guaranty Obligation of, the Guarantor; provided, however, that the Guaranty Termination Date shall be deemed not to have occurred if any statement in such certificate proves to be false or incorrect on the date made.

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“Hazardous Material” means any and all pollutants, toxic or hazardous wastes or any other substances that might pose a hazard to health or safety, the removal of which may be required or the generation, manufacture, refining, production, processing, treatment, storage, handling, transportation, transfer, use, disposal, release, discharge, spillage, seepage, or filtration of which is or shall be restricted, prohibited or penalized by any applicable law (including, without limitation, asbestos, urea formaldehyde foam insulation and polycholorinated biphenyls).

“Indebtedness” of any Person means, without duplication, (a) all obligations of such Person for borrowed money or with respect to deposits or advances of any kind, (b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such Person upon which interest charges are customarily paid, (d) all obligations of such Person under conditional sale or other title retention agreements relating to property acquired by such Person, (e) all obligations of such Person in respect of the deferred purchase price of property or services (excluding current accounts payable incurred in the ordinary course of business), (f) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such Person, whether or not the Indebtedness secured thereby has been assumed, (g) all Guaranty Obligations of such Person in respect of Indebtedness of others, (h) all Capital Lease Obligations of such Person, (i) all obligations, contingent or otherwise, of such Person as an account party in respect of letters of credit and letters of guaranty and (j) all obligations, contingent or otherwise, of such Person in respect of bankers’ acceptances. The Indebtedness of any Person shall include the Indebtedness of any other entity (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Person’s ownership interest in or other relationship with such entity, except to the extent the terms of such Indebtedness provide that such Person is not liable therefor.

“Index Debt” means (i) the Indebtedness of the Borrower under the Second Amended and Restated Credit Agreement so long as such Indebtedness is rated by either Moody’s or S&P or (ii) if such Indebtedness is not rated by either Moody’s or S&P, the Indebtedness of the Borrower under this Agreement.

“Interest Payment Date” means:

(a) as to any ABR Loan, each Quarterly Date occurring after such ABR Loan is made or Converted from a Eurodollar Rate Loan and the date on which such ABR Loan is Converted to a Eurodollar Rate Loan; and

(b) as to any Eurodollar Rate Loan, the last day of each Interest Period with respect thereto (and, if such Interest Period has a duration of more than three months, on each day that occurs during such Interest Period every three months from the first day of such Interest Period (or, if there is no numerically corresponding day in the applicable subsequent calendar month, then on the last day of such month)).

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“Interest Period” means, with respect to any Eurodollar Rate Loan:

(a) initially, the period commencing on, as the case may be, the Borrowing or Conversion date with respect to such Eurodollar Rate Loan and ending one, two, three or six months thereafter as specified by the Borrower in its Notice of Borrowing or its Notice of Conversion as provided in Section 2.03; and

(b) thereafter, each period commencing on the last day of the next preceding Interest Period applicable to such Eurodollar Rate Loan and ending one, two, three or six months thereafter as specified by the Borrower by irrevocable notice to the Administrative Agent not less than three Business Days prior to the last day of the then current Interest Period with respect to such Eurodollar Rate Loan;

provided, however, that the foregoing provisions relating to Interest Periods are subject to the following:

(i) if any Interest Period would otherwise end on a day which is not a Business Day, such Interest Period shall be extended to the next succeeding Business Day (unless such next succeeding Business Day would fall in a subsequent calendar month, in which event such Interest Period shall end on the next preceding Business Day);

(ii) any Interest Period in respect of any Loan that would otherwise extend beyond the Termination Date shall end on the Termination Date;

(iii) if any Interest Period commences on the last Business Day of a calendar month (or on any day for which there is no numerically corresponding day in the appropriate subsequent calendar month), such Interest Period shall end on the last Business Day of the appropriate subsequent calendar month; and

(iv) no more than four (4) Interest Periods shall be in effect at the same time.

“Interest Rate Protection Agreement” means an interest rate swap, cap or collar agreement or similar arrangement between the Borrower and Union Bank providing for the transfer or mitigation of interest rate risks either generally or under specific contingencies with respect to the Loans hereunder, in an aggregate notional amount of up to $30,000,000.

“Lender Assignment” means an assignment and assumption agreement entered into by a Lender and an Eligible Assignee, and accepted by the Administrative Agent, in substantially the form of Exhibit D.

“Lenders” has the meaning assigned to such term in the preamble hereto.

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“LIBOR Rate” means, with respect to any Eurodollar Rate Loan for any Interest Period, the rate per annum determined by the Administrative Agent at approximately 11:00 a.m., London time, on the date that is two (2) Business Days prior to the commencement of such Interest Period by reference to the British Bankers’ Association Interest Settlement Rates for deposits in Dollars (as set forth by the Bloomberg Information Service or any successor thereto or any other service selected by the Administrative Agent which has been nominated by the British Bankers’ Association as an authorized information vendor for the purpose of displaying such rates) for a period equal to such Interest Period; provided that, to the extent that an interest rate is not ascertainable pursuant to the foregoing provisions of this definition, the “LIBOR Rate” with respect to such Eurodollar Rate Loan for such Interest Period shall be the rate per annum at which Dollar deposits of $5,000,000 and for a maturity comparable to such Interest Period would be offered to the Administrative Agent in the London interbank market at approximately 12:00 noon, London time, on the date that is two (2) Business Days prior to the beginning of such Interest Period

“Lien” means, with respect to any Person, any mortgage, lien, pledge, charge, security interest or other encumbrance, or any interest or title of any vendor, lessor, lender or other secured party to or of such Person under any conditional sale or other title retention agreement or Capital Lease, upon or with respect to any Property or asset of such Person (including in the case of stock, stockholder agreements, voting trust agreements and all similar arrangements).

“Loan” means a loan by a Lender to the Borrower pursuant to Section 2.01, and refers to an ABR Loan or a Eurodollar Rate Loan. All Loans by a Lender of the same Type, having the same Interest Period and made or Converted on the same day shall be deemed to be a single Loan by such Lender until repaid or next Converted.

“Loan Documents” means (a) this Agreement, (b) any Promissory Notes, (c) prior to the occurrence of the Guaranty Termination Date, any Interest Rate Protection Agreement, and (d) any amendment, waiver, supplement or other modification to any of the foregoing.

“Material” means, with respect to any Obligor, material in relation to the business, operations, affairs, financial condition, assets, Properties or prospects of such Obligor and its Subsidiaries taken as a whole.

“Material Adverse Effect” means, with respect to any Obligor, a material adverse effect on (a) the business, operations, affairs, financial condition, assets or Properties of such Obligor and its Subsidiaries taken as a whole, or (b) the ability of such Obligor to perform its obligations under this Agreement and the other Loan Documents to which it is a party, or (c) the validity or enforceability of this Agreement or any other Loan Document to which it is a party.

“Moody’s” means Moody’s Investors Service, Inc. or any successor thereto.

“Multiemployer Plan” means, with respect to any Obligor, a “multiemployer plan” (as such term is defined in Section 4001(a)(3) of ERISA) that is subject to Title IV of ERISA and to which such Obligor or any ERISA Affiliate of such Obligor is making or accruing an obligation to make contributions, or has within any of the preceding five plan years made or accrued an obligation to make contributions.

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“Notice of Borrowing” has the meaning assigned to such term in Section 4.01(a).

“Notice of Conversion” has the meaning assigned to such term in Section 2.03.

“OECD” means the Organization for Economic Cooperation and Development.

“Obligations” means the unpaid principal of and interest on (including, without limitation, interest accruing after the maturity of the Loans and interest accruing after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding) the Loans, any applicable Prepayment Premium and all other obligations and liabilities of the Borrower to the Administrative Agent or any Lender, whether direct or indirect, absolute or contingent, due or to become due, or now existing or hereafter incurred, which may arise under, out of, or in connection with, this Agreement, any Promissory Note, any other Loan Document or any other document made, delivered or given in connection herewith or therewith, whether on account of principal, interest, fees, indemnities, costs, expenses (including, without limitation, all fees, charges and disbursements of counsel to the Administrative Agent or any Lender that are required to be paid by the Borrower pursuant hereto) or otherwise.

“Obligors” means the Borrower and, prior to the occurrence of the Guaranty Termination Date, the Guarantor.

“Other Taxes” has the meaning assigned to such term in Section 4.04(b).

“Participant” has the meaning assigned to such term in Section 12.07(e).

“PBGC” means the Pension Benefit Guaranty Corporation referred to in ERISA or any successor thereto.

“Person” means an individual, partnership, corporation, limited liability company, association, trust, unincorporated organization, or a government or agency or political subdivision thereof.

“Permitted Lien” means, with respect to any Person, each of the following:

(a) Liens for taxes, assessments or other governmental charges which are not yet due and payable or the payment of which is not at the time required by Section 8.01(g);

(b) statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, materialmen and other similar Liens, in each case, incurred in the ordinary course of business for sums not yet due and payable or the payment of which is not at the time required by Section 8.01(g);

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(c) Liens (other than any Lien imposed by ERISA) incurred or deposits made in the ordinary course of business (i) in connection with workers’ compensation, unemployment insurance and other types of social security or retirement benefits, or (ii) to secure (or to obtain letters of credit that secure) the performance of tenders, statutory obligations, surety bonds, appeal bonds, bids, leases (other than Capital Leases), performance bonds, purchase, construction or sales contracts and other similar obligations, in each case not incurred or made in connection with the borrowing of money, the obtaining of advances or credit or the payment of the deferred purchase price of Property;

(d) any attachment or judgment Lien, unless the judgment it secures shall not, within sixty days after the entry thereof, have been discharged or execution thereof stayed pending appeal, or shall not have been discharged within sixty days after the expiration of any such stay;

(e) leases or subleases granted to others, easements, rights-of-way, restrictions and other similar charges or encumbrances, in each case incidental to, and not interfering with, the ordinary conduct of the business of such Person, provided that such Liens do not, in the aggregate, materially detract from the value of such Person’s Property subject to any such leases, subleases, easements, rights-of-way, restrictions or other similar charges or encumbrances;

(f) any Lien created to secure all or any part of the purchase price, or to secure Indebtedness incurred or assumed to pay all or any part of the purchase price or cost of construction, of property (or any improvement thereon) acquired or constructed by such Person or a Subsidiary of such Person after the Closing Date, provided that:

(i) any such Lien shall extend solely to the item or items of such property (or improvement thereon) so acquired or constructed and, if required by the terms of the instrument originally creating such Lien, other property (or improvement thereon) which is an improvement to or is acquired for specific use in connection with such acquired or constructed property (or improvement thereon) or which is real property being improved by such acquired or constructed property (or improvement thereon);

(ii) the principal amount of the Indebtedness secured by any such Lien shall not, at the time such Lien is created, exceed an amount equal to the lesser of (A) the cost to such Person or such Subsidiary of the property (or improvement thereon) so acquired or constructed and (B) the Fair Market Value (as determined in good faith by the board of directors of such Person) of such property (or improvement thereon) at the time of such acquisition or construction; and

(iii) any such Lien shall be created contemporaneously with, or within 90 days after, the acquisition or construction of such property; and

(g) with respect to any Asset which consists of a leasehold or other possessory interest in real property, Liens to which the underlying fee estate in such real property is subject that do not and could not reasonably be expected to result in a Material Adverse Effect.

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“Plan” means, with respect to any Obligor, any employee pension benefit plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Sections 412 and 430 of the Code or Sections 302 and 303 of ERISA, and in respect of which such Obligor or any of its ERISA Affiliates is (or, if such plan were terminated, would under Section 4069 of ERISA be deemed to be) an “employer” as defined in Section 3(5) of ERISA.

“Post-Default Margin” means 2.00% per annum.

“Post-Default Rate” means, in respect of any principal of any Loan or any other amount payable by the Borrower under this Agreement or under any other Loan Document which is not paid when due (whether at stated maturity, by acceleration or otherwise), a rate per annum commencing on the due date thereof until such amount is paid in full equal to the Alternate Base Rate in effect from time to time plus the Applicable Margin (provided that, if such amount in default is principal of a Eurodollar Rate Loan and the due date is a day other than the last day of the Interest Period therefor, the “Post-Default Rate” for such principal shall be, for the period commencing on the due date and ending on the last day of the Interest Period therefor, the interest rate for such Loan as provided in Section 3.05 and, thereafter, the rate provided for in this definition).

“Prepayment Premium” means, in the case of any prepayment or acceleration of all or any portion of the Loans pursuant to Section 3.02(a) or Section 9.02, respectively, an amount equal to (i) 0.50% in aggregate principal amount of the Loans then being paid in the case of any such prepayment or acceleration occurring on or before the second anniversary of the Closing Date or (ii) 0.00% in aggregate principal amount of the Loans then being paid in the case of any such prepayment or acceleration occurring after the second anniversary of the Closing Date.

“Principal Office” means the principal office of Union Bank, presently located at 445 South Figueroa Street, Los Angeles, California 90071.

“Promissory Note” means any promissory note of the Borrower payable to the order of a Lender (and, if requested, its registered assigns), issued pursuant to Section 3.08; and “Promissory Notes” means any or all of the foregoing.

“Property” or “Properties” means, unless otherwise specifically limited, real or personal property of any kind, tangible or intangible, choate or inchoate, including cash, securities, accounts and contract rights; and the words “asset” and “property” as used herein shall be construed to have the same meaning and effect as the foregoing.

“Proportionate Share” means, with respect to each Lender, the ratio of (i) such Lender’s Commitment to (ii) the Total Commitments (or, in the event that the Commitments have terminated, the ratio of (A) the aggregate outstanding principal amount of all Loans made by such Lender to (B) the aggregate outstanding principal amount of all Loans).

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“Quarterly Dates” means the last day of each March, June, September and December, the first of which Quarterly Dates shall be September 30, 2011, provided that, if any such date is not a Business Day, the relevant Quarterly Date shall be the next succeeding Business Day.

“Rating Agencies” means each of Moody’s and S&P.

“Recipient” has the meaning assigned to such term in Section 12.08.

“Reference Rate” means the variable rate of interest per annum established by Union Bank from time to time as its “reference rate”. Such “reference rate” is set by Union Bank as a general reference rate of interest, taking into account such factors as Union Bank may deem appropriate, it being understood that many of Union Bank’s commercial or other loans are priced in relation to such rate, that it is not necessarily the lowest or best rate actually charged to any customer and that Union Bank may make various commercial or other loans at rates of interest having no relationship to such rate. For purposes of this Agreement, each change in the Reference Rate shall be effective as of the opening of business on the date announced as the effective date of any change in such “reference rate”.

“Register” has the meaning assigned to such term in Section 12.07(c).

“Regulation U” means Regulation U of the Board as in effect from time to time.

“Regulatory Change” means, with respect to any Lender, any change after the date of this Agreement in United States federal, state or foreign laws or regulations (including, without limitation, Regulation D and any regulations adopted under the Dodd-Frank Act) or the adoption or making after such date of any interpretations, directives or requests applying to a class of banks including such Lender of or under any United States federal or state, or any foreign, laws or regulations (whether or not having the force of law) by any court or governmental or monetary authority charged with the interpretation or administration thereof

“Related Parties” means, with respect to any specified Person, such Person’s Affiliates and the respective directors, trustees, officers, employees, agents and advisors of such Person and of such Person’s Affiliates.

“Required Lenders” means, on any date of determination, Lenders that, collectively, on such date hold at least 51% of the then aggregate outstanding principal amount of the Loans owing to Lenders. Any determination of those Lenders constituting the Required Lenders shall be made by the Administrative Agent and shall be conclusive and binding on all parties absent manifest error.

“Requirement of Law” means, as to any Person, the articles of incorporation and by-laws or other organizational or governing documents of such Person, and any Governmental Rules or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its Property or to which such Person or any of its Property is subject.

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“Reserve Requirement” shall mean, for any Eurodollar Rate Loan for any Interest Period therefor, the average maximum rate at which reserves (including any marginal, supplemental or emergency reserves) are required to be maintained during such Interest Period under Regulation D by member banks of the Federal Reserve System with deposits exceeding one billion Dollars against “Eurocurrency liabilities” (as such term is used in Regulation D).

“Restricted Payment” means (i) any Distribution in respect of any Person or any Subsidiary of such Person (other than on account of capital stock or other equity interests of a Subsidiary owned legally and beneficially by such Person or another Subsidiary of such Person), including, without limitation, any Distribution resulting in the acquisition by such Person of Securities which would constitute treasury stock, (ii) the purchase or acquisition (including pursuant to any merger with any Person that was not a wholly-owned Subsidiary of such Person prior to such merger) of any capital stock, evidences of indebtedness or other securities (including any option, warrant or other right to acquire any of the foregoing) of any other Person, (iii) the making of any loans or advances to, or any other investment in, any other Person, and (iv) the purchase or acquisition (in one transaction or a series of transactions) of any assets of any other Person constituting a business unit. For purposes of this Agreement, the amount of any Restricted Payment made in Property shall be the greater of (x) the Fair Market Value of such Property (as determined in good faith by the board of directors (or equivalent governing body) of the Person making such Restricted Payment) and (y) the net book value thereof on the books of such Person, in each case determined as of the date on which such Restricted Payment is made.

“S&P” means Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc., or any successor thereto.

“Sanctioned Person” means (a) any Person designated in the list of Specially Designated Nationals and Blocked Persons published by the Office of Foreign Assets Control of the U.S. Department of the Treasury, as amended from time to time; and (b) any other Person with which transactions are prohibited under U.S. Economic Sanctions Law.

“SEC” means the Securities and Exchange Commission (or any successors thereto or an analogous Governmental Authority).

“Securities Act” means the Securities Act of 1933, as amended from time to time, and the rules and regulations promulgated thereunder from time to time in effect.

“Security” has the meaning set forth in section 2(a)(1) of the Securities Act.

“Second Amended and Restated Credit Agreement” means the Second Amended and Restated Credit Agreement, dated as of November 9, 2010, among the Borrower and UNS Gas, Inc., as borrowers, the Guarantor, the lenders named therein and from time to time party thereto and Union Bank, as administrative agent, as the same may be amended, restated, supplemented, refinanced, replaced or otherwise modified from time to time.

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“Solvent” means, with respect to any Person as of any date of determination, that (a) the amount of the “present fair saleable value” of the assets of such Person will, as of such date, exceed the amount of all “liabilities of such Person, contingent or otherwise”, as of such date, as such quoted terms are determined in accordance with applicable federal and state laws governing determinations of the insolvency of debtors, (b) the present fair saleable value of the assets of such Person will, as of such date, be greater than the amount that will be required to pay the liability of such Person on its debts as such debts become absolute and matured, (c) such Person will not have, as of such date, an unreasonably small amount of capital with which to conduct its business, and (d) such Person will be able to pay its debts as they mature. For purposes of this definition, (i) “debt” means liability on a “claim”, and (ii) “claim” means any (x) right to payment, whether or not such a right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured or (y) right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured or unmatured, disputed, undisputed, secured or unsecured.

“SPC” has the meaning assigned to such term in Section 12.07(j).

“Statutory Reserve Rate” means a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one minus the aggregate of the maximum reserve percentages (including any marginal, special, emergency or supplemental reserves) expressed as a decimal established by the Board with respect to the Eurodollar Rate for eurocurrency funding (currently referred to as “Eurocurrency Liabilities” in Regulation D of the Board). Such reserve percentages shall include those imposed pursuant to such Regulation D. Eurodollar Rate Loans shall be deemed to constitute eurocurrency funding and to be subject to such reserve requirements without benefit of or credit for proration, exemptions or offsets that may be available from time to time to any Lender under such Regulation D or any comparable regulation. The Statutory Reserve Rate shall be adjusted automatically on and as of the effective date of any change in any reserve percentage.

“Subsidiary” means, as to any Person, any corporation, association or other business entity in which such Person or one or more of its Subsidiaries or such Person and one or more of its Subsidiaries owns sufficient equity or voting interests to enable it or them (as a group) ordinarily, in the absence of contingencies, to elect a majority of the directors (or Persons performing similar functions) of such entity, and any partnership or joint venture if more than a 50% interest in the profits or capital thereof is owned by such Person or one or more of its Subsidiaries or such Person and one or more of its Subsidiaries (unless such partnership can and does ordinarily take major business actions without the prior approval of such Person or one or more of its Subsidiaries). Unless the context otherwise clearly requires, any reference to a Subsidiary is a reference to a Subsidiary of an Obligor.

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“Taxes” has the meaning assigned to such term in Section 4.04(a).

“Termination Date” means August 10, 2015.

“Total Commitments” means the aggregate amount of the Commitments of the Lenders, which amount as of the Closing Date is equal to $30,000,000.

“Transactions” means the execution, delivery and performance by the Obligors of this Agreement and the other Loan Documents, the borrowing of Loans and the use of the proceeds thereof.

“Treasury Indebtedness” means, with respect to any Person, the aggregate outstanding principal amount of Indebtedness of such Person and its Subsidiaries that is owned by such Person or its Subsidiaries and in respect of which such Person or one or more of its Subsidiaries has the right to receive, pursuant to the terms of such Indebtedness, all future principal, interest and other payments to be made with respect thereto.

“Type” when used in reference to any Loan or Borrowing, refers to whether the rate of interest on such Loan, or on the Loans comprising such Borrowing, is determined by reference to the Eurodollar Rate or the Alternate Base Rate (provided that, for the avoidance of doubt, Loans and Borrowings the interest rate with respect to which is determined by reference to the Adjusted LIBOR Rate by operation of clause (c) of the definition of Alternate Base Rate herein shall be considered Loans or Borrowings, the interest rates with respect to which are determined by reference to the Alternate Base Rate).

“Union Bank” means Union Bank, N.A., a national banking association.

“UniSource Energy” means UniSource Energy Corporation, a corporation incorporated under the law of the State of Arizona.

“UNS Electric Note Purchase Agreement” means that certain Note Purchase and Guaranty Agreement, dated as of August 5, 2008, among the Borrower, the Guarantor and the Purchasers named therein, as the same may be amended, restated, supplemented, refinanced, replaced or otherwise modified from time to time.

“U.S. Economic Sanctions Law” means (a) the International Emergency Economic Powers Act of 1977, as amended, the Trading with the Enemy Act of 1917, as amended, and any executive order issued thereunder and in effect from time to time and (b) the foreign assets control regulations of the U.S. Department of the Treasury, codified at Title 31, Subtitle B, Chapter V of the Code of Federal Regulations, as amended, and any enabling legislation thereof.

“Utility Business” means the business of producing, developing, generating, transmitting, distributing, selling or supplying electrical energy or natural gas for any purpose, or any business incidental thereto or necessary in connection therewith, or any business reasonably desirable in connection therewith which the ACC or other utility regulatory body shall have authorized the Guarantor or any Subsidiary to enter.

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“Wholly-Owned Subsidiary” means, at any time, any Subsidiary one hundred percent (100%) of all of the equity interests (except directors’ qualifying shares) and voting interests of which are owned by any one or more of any Obligor and such Obligor’s other Wholly-Owned Subsidiaries at such time.

“Withdrawal Liability” means liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA.

SECTION 1.02. Computation of Time Periods; Construction. (a) Unless otherwise indicated, each reference in this Agreement to a specific time of day is a reference to Los Angeles, California time. In the computation of periods of time under this Agreement, any period of a specified number of days or months shall be computed by including the first day or month occurring during such period and excluding the last such day or month. Unless the context requires otherwise, in the case of a period of time “from” a specified date “to” or “until” a later specified date, the word “from” means “from and including” and the words “to” and “until” each means “to but excluding”.

(b) Unless the context requires otherwise, the definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words “include”, “includes”, and “including” shall be deemed to be followed by the phrase “without limitation”. The word “will” shall be construed to have the same meaning and effect as the word “shall”. Unless the context requires otherwise (i) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, restated, replaced, supplemented or otherwise modified (subject to any restrictions on such amendments, restatements, replacements, supplements or modifications set forth herein), (ii) any reference herein to any Person shall be construed to include such Person’s successors and assigns, (iii) the words “herein”, “hereof” and “hereunder”, and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof and (iv) all references herein to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this Agreement.

SECTION 1.03. Accounting Terms. Except as otherwise expressly provided herein, all terms of an accounting or financial nature shall be construed in accordance with GAAP, as in effect from time to time; provided that, if the Borrower notifies the Administrative Agent that the Borrower requests an amendment to any provision hereof to eliminate the effect of any change occurring after the date hereof in GAAP or in the application thereof on the operation of such provision (including the effects of the application or discontinuance of the application of accounting for the effects of regulation to all or any portion of the Borrower’s operations), or if the Administrative Agent notifies the Borrower that the Required Lenders request an amendment to any provision hereof for such purpose, regardless of whether any such notice is given before or after such change in GAAP or in the application thereof, then such provision shall be interpreted on the basis of GAAP as in effect and applied immediately before such change shall have become effective until such notice shall have been withdrawn or such provision amended in accordance herewith.

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ARTICLE II
LOANS

SECTION 2.01. Loans. Subject to the terms and conditions of this Agreement, each Lender severally agrees to make Loans to the Borrower in a single advance on the Closing Date in an aggregate principal amount up to but not exceeding the amount of such Lender’s Commitment. Subject to the terms and conditions of this Agreement, the Borrower may borrow the Loans made under this Section 2.01 by means of ABR Loans and/or Eurodollar Rate Loans, and such Loans may be Converted pursuant to Section 2.03. Amounts repaid or prepaid in respect of the Loans may not be reborrowed.

SECTION 2.02. Interest Rate Determination and Protection.

(a) The Administrative Agent shall give prompt notice to the Borrower and the Lenders of the applicable interest rate determined by the Administrative Agent for purposes of Section 3.05(b).

(b) If the Administrative Agent shall determine, in good faith, that adequate and reasonable means do not exist for ascertaining the Adjusted LIBOR Rate for any Eurodollar Rate Loans,

(i) the Administrative Agent shall forthwith notify the Borrower and the Lenders as promptly as practicable that the interest rate cannot be determined for such Eurodollar Rate Loans and any request for a Eurodollar Rate Loan shall be deemed to be a request for an ABR Loan hereunder,

(ii) each such Eurodollar Rate Loan will automatically, on the last day of the then existing Interest Period therefor, Convert into an ABR Loan, and

(iii) the obligation of the Lenders to make, or to Convert Loans into, Eurodollar Rate Loans shall be suspended until the Administrative Agent shall notify the Borrower and the Lenders that the circumstances causing such suspension no longer exist.

(c) If, with respect to any Eurodollar Rate Loans, the Required Lenders notify the Administrative Agent reasonably and in good faith that the Adjusted LIBOR Rate for any Interest Period for such Eurodollar Rate Loans will not adequately and fairly reflect the cost to such Required Lenders of making, funding or maintaining their respective Eurodollar Rate Loans for such Interest Period, the Administrative Agent shall forthwith so notify the Borrower and the Lenders, as promptly as practicable, whereupon

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(i) each such Eurodollar Rate Loan will automatically, on the last day of the then existing Interest Period therefor, Convert into an ABR Loan and any request for a Eurodollar Rate Loan shall be deemed to be a request for an ABR Loan hereunder, and

(ii) the obligation of the Lenders to make, or to Convert Loans into, Eurodollar Rate Loans shall be suspended until the Administrative Agent shall notify the Borrower and the Lenders that the circumstances causing such suspension no longer exist.

(d) If the Borrower shall fail to select the duration of any Interest Period for any Eurodollar Rate Loan in accordance with the provisions contained in the definition of “Interest Period” in Section 1.01, the Administrative Agent will forthwith so notify the Borrower and the Lenders and such Eurodollar Rate Loan will automatically, on the last day of the then existing Interest Period therefor, Convert into an ABR Loan.

(e) Upon the occurrence and during the continuance of an Event of Default, each Eurodollar Rate Loan shall be Converted to an ABR Loan at the end of the Interest Period therefor.

SECTION 2.03. Conversion Option. The Borrower may, on any Business Day, upon notice (a “Notice of Conversion”) given to the Administrative Agent not later than 11:00 A.M. (Los Angeles, California time) on (a) the third Business Day prior to the date of any proposed Conversion into a Eurodollar Rate Loan or (b) the same Business Day of any proposed Conversion into an ABR Loan, and subject to the provisions of Section 5.02 and Section 5.03, Convert any Loans of one Type into Loans of another Type; provided, however, that (i) any Conversion of any Eurodollar Rate Loans into ABR Loans shall (except as contemplated by Section 5.02) be made on, and only on, the last day of an Interest Period for such Eurodollar Rate Loans, (ii) no Conversion into Eurodollar Rate Loans shall be permitted when any Default has occurred and is continuing and (iii) partial Conversions shall be in an aggregate principal amount of at least $1,000,000. Each such Notice of a Conversion shall be in substantially the form of Exhibit A-2 and shall, within the restrictions specified above, specify (A) the requested date of such Conversion, (B) the Type of, and Interest Period, if any, applicable to, the Loans (or portions thereof) proposed to be Converted, (C) the requested Type of Loans to which such Loans (or portions thereof) are proposed to be Converted, (D) the requested initial Interest Period, if any, to be applicable to the Loans resulting from such Conversion and (E) the aggregate amount of Loans (or portions thereof) proposed to be Converted. If the Borrower shall either fail to give a timely Notice of Conversion pursuant to this Section 2.03 in respect of any Loans or fail, in any Notice of Conversion that has been timely given by the Borrower, to select the duration of any Interest Period for Loans to be Converted into Eurodollar Rate Loans in accordance with the definition of “Interest Period” contained in Section 1.01, such Loans shall, on the last day of the then existing Interest Period therefor, automatically Convert into, or remain as, as the case may be, ABR Loans.

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ARTICLE III
TERMS APPLICABLE TO THE LOANS

SECTION 3.01. The Commitments. As of the Closing Date, the amount of the Total Commitments is $30,000,000. The Commitments of the Lenders shall terminate in whole on the Closing Date immediately after the making of the Loans pursuant to Section 2.01.

SECTION 3.02. Payments and Prepayments.

(a) Optional Prepayments. The Borrower may, subject to Section 5.03, prepay the Loans in whole or in part in the aggregate principal amount of $1,000,000 or an integral multiple of $500,000 in excess thereof, upon at least three (3) Business Days’ prior written notice by the Borrower to the Administrative Agent in the case of Eurodollar Rate Loans and at least one (1) Business Day’s prior written notice to the Administrative Agent in the case of ABR Loans (in each case, each such notice to the Administrative Agent to be irrevocable), specifying the date and amount of such prepayment, and whether the prepayment is of Eurodollar Rate Loans or ABR Loans (or a combination thereof). If such notice is given, the Borrower shall make such prepayment and the payment amount specified in such notice shall be due and payable on the date specified therein, together with (i) accrued interest to such date on the amount prepaid, (ii) any amount payable pursuant to Section 5.03 and (iii) the applicable Prepayment Premium, if any (but without any other premium or penalty). Subject to the terms and conditions of this Agreement, the Borrower may borrow Loans under Section 2.01 and prepay any such Loans to the extent permitted by this Section 3.02(a).

(b) Repayment at Maturity. On the Termination Date, the Borrower shall repay in full the outstanding principal amount of the Loans, together with all accrued and unpaid interest thereon, and all other Obligations payable to the Lenders under this Agreement and the other Loan Documents.

(c) Application of Prepayments. If the amount of any payment or prepayment on a Loan is less than the sum of (i) the outstanding principal amount of such Loan and (ii) interest accrued on such Loan to the date of such payment or prepayment, the amounts paid or prepaid on such Loan shall be applied first to accrued interest and then to principal.

(d) Payments through Administrative Agent. All payments by the Borrower to the Lenders under this Section 3.02 shall be made through the Administrative Agent.

SECTION 3.03. Lending Office. Loans of each Type shall be made and maintained at each Lender’s Applicable Lending Office for such Type of Loan.

SECTION 3.04. Pro Rata Treatment. Except as otherwise provided herein, each Borrowing of Loans shall be made among the Lenders pro rata according to there respective Proportionate Shares, and payment of principal of and interest on the Loans and any applicable Prepayment Premium shall be made pro rata among the Lenders according to the respective unpaid principal amounts of the Loans held by the Lenders.

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SECTION 3.05. Interest Rates. The Borrower shall pay interest on the unpaid principal amount of each Loan made by each Lender from the date of such Loan until such principal amount shall be paid in full, at one of the following rates per annum:

(a) ABR Loans. If such Loan is an ABR Loan, a rate per annum equal at all times to the sum of the Alternate Base Rate in effect from time to time plus the Applicable Margin;

(b) Eurodollar Rate Loans. If such Loan is a Eurodollar Rate Loan, a rate per annum equal at all times during each Interest Period for such Loan to the sum of the Adjusted LIBOR Rate for such Interest Period for such Loan plus the Applicable Margin; and

(c) Post-Default Interest. Notwithstanding the foregoing, the Borrower will pay interest at the applicable Post-Default Rate on any principal of any Loan, and (to the fullest extent permitted by law) any other amount payable by the Borrower hereunder or under any Promissory Note, which shall not be paid when due (whether at stated maturity, by acceleration or otherwise), for the period commencing on the due date thereof until the same is paid in full.

SECTION 3.06. Payment Dates. Interest on each Loan shall be payable in arrears on each Interest Payment Date for such Loan, provided that interest payable at the Post-Default Rate shall be payable from time to time on demand of the Administrative Agent.

SECTION 3.07. Maximum Interest. Notwithstanding anything to the contrary contained in this Agreement or in any other Loan Document, the interest paid or agreed to be paid under this Agreement and the Promissory Notes shall not exceed the maximum rate of non-usurious interest permitted by the laws of any state of applicable jurisdiction as the same may be modified by Federal law (the “Maximum Rate”). If the Administrative Agent or any Lender shall receive interest in an amount that exceeds the Maximum Rate, the excess interest shall be applied to the principal amount of the Loans owing to such Lender or, if it exceeds such unpaid principal amount, refunded to the Borrower. In determining whether the interest contracted for, charged, or received by the Administrative Agent or a Lender exceeds the Maximum Rate, such Person may, to the extent permitted by applicable law, (a) characterize any payment that is not principal as an expense, fee, or premium rather than interest, (b) exclude voluntary prepayments and the effects thereof, and (c) amortize, prorate, allocate, and spread in equal or unequal parts the total amount of interest throughout the contemplated term of the Obligations hereunder.

SECTION 3.08. Promissory Notes. Any Lender may request that Loans made by it hereunder be evidenced by a Promissory Note. In such event, the Borrower shall prepare, execute and deliver to such Lender a Promissory Note payable to the order of such Lender (or, if requested by such Lender, to such Lender and its registered assigns) and in a form approved by the Administrative Agent. Thereafter, the Loans evidenced by such Promissory Note and interest thereon shall at all times (including after assignment pursuant to Section 12.07) be represented by one or more Promissory Notes in such form payable to the order of the payee named therein (or, if such Promissory Note is a registered note, to such payee and its registered assigns).

SECTION 3.09. Termination by Borrower. The Borrower may terminate this Agreement upon payment in full of all amounts then owing to the Lenders and the Administrative Agent under this Agreement and the other Loan Documents and all other Obligations (including, without limitation, any applicable Prepayment Premium), subject to Section 3.02(a); provided, however, that no such termination shall be effective until all such amounts have been paid in full and, prior to the occurrence of the Guaranty Termination Date, all outstanding Interest Rate Protection Agreements have expired or been terminated.

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ARTICLE IV
MANNER OF BORROWING; PAYMENTS, COMPUTATIONS, ETC.; TAXES

SECTION 4.01. Making the Loans.

(a) The initial Borrowing shall be made upon notice, given not later than 11:00 A.M. (Los Angeles, California time) one (1) Business Day (to the extent that the initial Borrowing will consist of ABR Loans) and three (3) Business Days (to the extent that the initial Borrowing will consist of Eurodollar Rate Loans) prior to the Closing Date, by the Borrower to the Administrative Agent, which shall give to each Lender prompt notice thereof and of each other notice received from the Borrower hereunder. The notice of such Borrowing (the “Notice of Borrowing”) shall be in writing, substantially in the form of Exhibit A-1 hereto, and specifying therein (i) the requested date of such Borrowing, (ii) the requested Type and amount of each Loan comprising such Borrowing, (iii) the requested aggregate amount of such Borrowing, and (iv) in the case of a Borrowing comprised of Eurodollar Rate Loans, the initial Interest Period for each such Loan. In the case of a proposed Borrowing comprised of Eurodollar Rate Loans, the Administrative Agent shall promptly notify each Lender of the applicable interest rate pursuant to Section 3.05. Each Lender shall, before 11:00 A.M. (Los Angeles, California time) on the date of such Borrowing, make available for the account of its Applicable Lending Office to the Administrative Agent at its Principal Office, in same day funds, such Lender’s Proportionate Share of such Borrowing. After the Administrative Agent’s receipt of such funds and upon fulfillment of the applicable conditions set forth in Article VI, the Administrative Agent will make such funds available to the Borrower by promptly crediting the amounts so received in like funds to an account of the Borrower designated by the Borrower in the Notice of Borrowing. For the purposes of determining whether the applicable conditions set forth in Article VI have been fulfilled, the Administrative Agent may assume the truth of the statements contained in certificates delivered pursuant to said Section.

(b) Each Notice of Borrowing and Notice of Conversion shall be irrevocable and binding on the Borrower. In the case of any Borrowing which the related Notice of Borrowing or Notice of Conversion specifies is to be comprised of Eurodollar Rate Loans, the Borrower shall indemnify each Lender against any loss, cost or expense incurred by such Lender as a result of any failure by the Borrower to fulfill, on or before the date specified in such Notice of Borrowing or Notice of Conversion for such Borrowing, the applicable conditions (if any) set forth in Article II (other than failure pursuant to the provisions of Section 2.02(c)), this Article IV or Article VI, including, without limitation, any amounts payable to the applicable Lenders pursuant to Section 5.03 (excluding loss of anticipated profits).

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(c) Unless the Administrative Agent shall have received notice from a Lender prior to the date of any Borrowing pursuant to Section 4.01(a) that such Lender will not make available to the Administrative Agent such Lender’s Proportionate Share of such Borrowing, the Administrative Agent may assume that such Lender has made such portion available to the Administrative Agent on the date of such Borrowing in accordance with Section 4.01(a) and the Administrative Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If such Lender’s Proportionate Share of such Borrowing is made available to the Administrative Agent on a date after the date of such Borrowing, such Lender shall pay to the Administrative Agent on demand an amount equal to the product of (i) the daily average Federal Funds Effective Rate during such period as quoted by the Administrative Agent, times (ii) the amount of such Lender’s Proportionate Share of such Borrowing, times (iii) the number of days that elapse from and including the date of such Borrowing to the date on which such Lender’s ratable portion of such Borrowing shall have been made available to the Administrative Agent. A certificate of the Administrative Agent submitted to any Lender with respect to any amounts owing under this Section 4.01(c) shall be conclusive absent manifest error. If such Lender’s Proportionate Share of such Borrowing is not in fact made available to the Administrative Agent by such Lender within three (3) Business Days after the date of such Borrowing, the Borrower agrees to pay to the Administrative Agent, on demand, an amount equal to such Proportionate Share together with interest thereon, for each day from the date such amount was made available to the Borrower until the date such amount is repaid to the Administrative Agent, at the interest rate applicable at the time to the Loans comprising such Borrowing.

(d) The failure of any Lender to make the Loan to be made by it as part of any Borrowing shall not relieve any other Lender of its obligation hereunder to make its Loan on the date of such Borrowing, but no Lender shall be responsible for the failure of any other Lender to make the Loan to be made by such other Lender on the date of any Borrowing.

SECTION 4.02. Payments and Computations.

(a) The Borrower shall make each payment hereunder and under the other Loan Documents not later than 11:00 A.M. (Los Angeles, California time) on the day when due in Dollars to the Administrative Agent at its Principal Office in same day funds. The Administrative Agent will promptly thereafter (and in any event no later than 2:00 P.M., Los Angeles, California time, on the Business Day on which the Administrative Agent shall have received such payment in accordance with this Section 4.02(a)) cause to be distributed like funds relating to the payment of principal or interest (other than pursuant to Article V) ratably to the Lenders for the account of their respective Applicable Lending Offices, and like funds relating to the payment of any other amount payable to any Lender to such Lender for the account of its Applicable Lending Office, in each case to be applied in accordance with the terms of this Agreement.

(b) Subject to Section 12.05, the Borrower hereby authorizes each Lender, if and to the extent payment owed to such Lender is not made when due hereunder or under any other Loan Document, to charge (with notice thereof to the Borrower and the Administrative Agent) from time to time against any or all of the Borrower’s accounts with such Lender any amount so due. The rights of each Lender under this subsection (b) are in addition to (and not in limitation of) other rights and remedies (including, without limitation, rights of set-off) which such Lender may have.

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(c) All computations of interest based on the Reference Rate shall be made by the Administrative Agent on the basis of a year of 365 or 366 days, as the case may be, and all computations of interest based on the Adjusted LIBOR Rate or the Federal Funds Effective Rate shall be made by the Administrative Agent on the basis of a year of 360 days, in each case for the actual number of days (including the first day but excluding the last day) occurring in the period for which such is payable. Each computation by the Administrative Agent (or, in the case of Section 5.01, by a Lender) of interest owing hereunder shall be conclusive and binding for all purposes absent manifest error.

(d) Whenever any payment hereunder or under any other Loan Document shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest payable hereunder and under the other Loan Documents; provided, however, that if such extension would cause payment of interest on or principal of Eurodollar Rate Loans to be made in the next following calendar month, such payment shall be made on the next preceding Business Day.

(e) Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Lenders hereunder that the Borrower will not make such payment in full, the Administrative Agent may assume that the Borrower has made such payment in full to the Administrative Agent on such date, and the Administrative Agent may, in reliance upon such assumption, cause to be distributed to each Lender on such due date an amount equal to the amount then due to such Lender. If and to the extent the Borrower shall not have so made such payment in full to the Administrative Agent, such Lender shall repay to the Administrative Agent forthwith on demand such amount distributed to such Lender together with interest thereon, for each day from the date such amount is distributed to such Lender until the date such Lender repays such amount to the Administrative Agent, at the daily Federal Funds Effective Rate as quoted by the Administrative Agent. A certificate of the Administrative Agent submitted to any Lender with respect to any amounts owing by such Lender under this Section 4.02(e) shall be conclusive absent manifest error.

SECTION 4.03. Sharing of Payments, Etc. If any Lender shall obtain any payment (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise) on account of the Loans owing to it (other than pursuant to Article V or Section 12.07) in excess of its ratable share of payments obtained by all the Lenders on account of the Loans of such Lenders, such Lender shall forthwith purchase from the other Lenders such participation in the Loans owing to them as shall be necessary to cause such purchasing Lender to share the excess payment ratably with each of them; provided, however, that if all or any portion of such excess payment is thereafter recovered from such purchasing Lender, such purchase from each Lender shall be rescinded and such Lender shall repay to the purchasing Lender the purchase price to the extent of such recovery together with an amount equal to such Lender’s ratable share (according to the proportion of (i) the amount of such Lender’s required repayment to (ii) the total amount so recovered from the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered. The Borrower agrees that any Lender so purchasing a participation from another Lender pursuant to this Section 4.03 may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of set-off) with respect to such participation as fully as if such Lender were the direct creditor of the Borrower in the amount of such participation. Notwithstanding the foregoing, if any Lender shall obtain any such excess payment involuntarily, such Lender may, in lieu of purchasing participations from the other Lenders in accordance with this Section 4.03, on the date of receipt of such excess payment, return such excess payment to the Administrative Agent for distribution in accordance with Section 4.02.

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SECTION 4.04. Taxes.

(a) Any and all payments to the Administrative Agent and each Lender by the Borrower hereunder or under the other Loan Documents shall be made free and clear of and without deduction for any and all taxes, levies, imposts, deductions, charges or withholdings prescribed under the laws of the United States or a political subdivision thereof, and all liabilities with respect thereto, excluding in the case of each Lender and the Administrative Agent, (i) any taxes of such Lender or the Administrative Agent (including all income taxes) that would not have been imposed but for the existence of a connection between such Lender or the Administrative Agent and the jurisdiction imposing such taxes (other than a connection arising solely by reason of this Agreement, the other Loan Documents or the transactions contemplated herein) and (ii) franchise or capital or doing business taxes imposed on such Lender or the Administrative Agent by reason of a connection, created other than through this Agreement, the other Loan Documents or the transactions contemplated herein, between such Lender or the Administrative Agent and any jurisdiction where it is imposed (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as “Taxes”). If the Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder or under any other Loan Document to any Lender or the Administrative Agent, (A) except as set forth in subsection (e) below, the sum payable shall be increased as may be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 4.04) such Lender or the Administrative Agent, as the case may be, receives an amount equal to the sum it would have received had no such deductions been made, (B) the Borrower shall make such deductions and (C) the Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law.

(b) In addition, except as set forth in subsection (e) below, the Borrower agrees to pay any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or under the other Loan Documents or from the execution or delivery or otherwise with respect to this Agreement or the other Loan Documents (hereinafter referred to as “Other Taxes”).

(c) Except as set forth in subsection (e) below, the Borrower will indemnify each Lender and the Administrative Agent for the full amount of Taxes or Other Taxes (including, without limitation, any taxes, levies, imposts, deductions, charges or withholdings imposed by any jurisdiction on amounts payable under this Section 4.04) paid by such Lender or the Administrative Agent (as the case may be) or any liability (including penalties, interest and reasonable expenses) arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted. This indemnification shall be made within ten (10) days from the date such Lender or the Administrative Agent (as the case may be) makes written demand therefor. A certificate setting forth and containing an explanation in reasonable detail of the manner in which such amount shall have been determined and the amount of such payment or liability prepared by a Lender or the Administrative Agent on its behalf shall accompany any written demand for amounts due under this Section and shall be conclusive absent manifest error.

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(d) Within ten (10) days after the date of any payment of Taxes by the Borrower, the Borrower will furnish to the Administrative Agent, at its Principal Office, the original or a certified copy of a receipt evidencing payment thereof.

(e) If (i) the representations set forth in Section 4.05(a) with respect to a Lender or the Administrative Agent shall prove to have been incorrect or (ii) a party fails to perform or observe its covenant set forth in Section 4.05(b) or Section 4.06, then the Borrower shall not be obligated to increase the sum payable in respect of Taxes as required by subsection (a) above, to make payments in respect of Other Taxes as required by subsection (b) above, or to indemnify such Lender or the Administrative Agent, as the case may be, as required by subsection (c) above to the extent that any increase in such Taxes or Other Taxes (as referred to in subsections (a), (b) and (c) above) proximately results from (A) any incorrect representations in Section 4.05(a) or (B) any failure to perform or observe the covenants set forth in Section 4.05(b) or Section 4.06 by such Lender or the Administrative Agent.

(f) Each Lender hereby agrees that it will designate a different Applicable Lending Office if such designation will avoid the need for, or, if unavoidable, reduce the amount of, Taxes or Other Taxes for which the Borrower is required to indemnify such Lender under this Section 4.04 and will not, in the sole opinion of such Lender, be disadvantageous to such Lender. Each Lender and the Administrative Agent hereby agrees to use reasonable efforts to contest the imposition of Taxes and Other Taxes (including penalties and interest) and, in the event of a determination that such Taxes or Other Taxes are not due, to return to the Borrower amounts paid pursuant to this Section 4.04. If any Taxes or Other Taxes for which the Administrative Agent or any Lender has received indemnification from the Borrower hereunder shall be finally determined to have been incorrectly or illegally asserted and are refunded to the Administrative Agent or such Lender, the Administrative Agent or such Lender, as the case may be, shall promptly forward to the Borrower any such refunded amount.

SECTION 4.05. Status of the Lenders and the Administrative Agent.

(a) Each Lender and the Administrative Agent severally represents and warrants (solely for purposes of Section 4.04(e)) that so long as such Lender or the Administrative Agent has any obligation under Article II or is entitled to receive payments hereunder, either (i) it is acting for purposes hereof through a branch or office in the United States or (ii) it qualifies as a corporation, company, enterprise or resident of (A) the United States or (B) the country in which the branch or office it is acting through is located for purposes of an income tax convention between such country and the United States providing for a complete exemption from any withholding for or on account of Taxes with respect to all payments receivable by it hereunder, and, in case the foregoing clause (B) is applicable, that such Lender or the Administrative Agent is fully eligible for the benefit of that convention with respect to all payments receivable by it hereunder.

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(b) If any Lender organized outside the United States is acting through a branch or office in the United States, so long as such Lender has any obligation under Article II or is entitled to receive payments hereunder, such Lender represents and warrants (solely for purposes of Section 4.04(e)) that it shall conduct its business so that each payment received by it hereunder is effectively connected with the conduct by it of a trade or business in the United States.

SECTION 4.06. Tax Documentation.

(a) On or before the Closing Date, each Lender and the Administrative Agent shall, solely for the purposes of Section 4.04(e), deliver to the Borrower all requested forms and documents appropriate under the circumstances that are required to establish that payments hereunder by the Borrower are exempt from withholding for or on account of Taxes, all in form and substance satisfactory to the Administrative Agent and the Borrower. The forms to be delivered by any Lender or the Administrative Agent organized outside the United States shall include, if appropriate under the circumstances, and upon the request of the Borrower, Internal Revenue Service Form W-8ECI (if such Lender or the Administrative Agent is acting through a branch or office in the United States) or Form W-8BEN (if such Lender or the Administrative Agent is acting through a branch or office outside the United States).

(b) If any Lender is required at any time to execute any form or document (including, without limitation, Internal Revenue Service Form W-8BEN or Form W-8ECI) in order for payments to it hereunder to qualify for exemption from withholding for or on account of Taxes or for such withholding at a reduced rate, such Lender represents and warrants (solely for purposes of Section 4.04(e)) that it shall, to the extent permitted by applicable Laws, execute the required form or document and deliver it to the appropriate party.

ARTICLE V
YIELD PROTECTION AND ILLEGALITY

SECTION 5.01. Additional Costs.

(a) The Borrower shall pay directly to any Lender from time to time such amounts as such Lender may determine to be necessary to compensate it for any costs which such Lender determines are attributable to its making or maintaining any Eurodollar Rate Loans, or its obligation to make any such Loans hereunder, or any reduction in any amount receivable by such Lender hereunder in respect of any of such Loans or such obligations (such increases in costs and reductions in amounts receivable being herein called “Additional Costs”), resulting from any Regulatory Change which: (i) imposes or modifies any reserve, special deposit, minimum capital, capital ratio or similar requirements, to the extent not included within the definition of “Reserve Requirement” in Section 1.01, relating to any extensions of credit or other assets of, or any deposits with or other liabilities of, such Lender (including any of such Loans or any deposits referred to in the definition of “LIBOR Rate” in Section 1.01), or any commitments of such Lender; or (ii) imposes any other

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condition affecting this Agreement or the Promissory Notes (or any of such extensions of credit or liabilities) or its Commitment (other than with respect to taxes (including any Taxes or Other Taxes), Section 4.04 being the sole remedy of such Lender with respect thereto). Such Lender will notify the Borrower and the Administrative Agent of any event occurring after the date of this Agreement which will entitle such Lender to compensation pursuant to this Section 5.01(a) as promptly as practicable after it obtains knowledge thereof and shall determine as promptly as practicable after delivery of such notice whether it will determine to request such compensation, and such Lender will designate a different Applicable Lending Office for the Loans affected by such event if such designation will avoid the need for, or, if unavoidable, reduce the amount of, such compensation and will not, in the sole opinion of such Lender, be disadvantageous to such Lender, provided that such Lender shall have no obligation to so designate an Applicable Lending Office located in the United States. Each Lender will furnish the Borrower (with a copy to the Administrative Agent) with a certificate setting forth the basis and amount of each request by such Lender for compensation under this Section 5.01(a).

(b) Without limiting the effect of the provisions of Section 5.01(a), in the event that, by reason of any Regulatory Change, any Lender either (i) incurs Additional Costs based on or measured by the excess above a specified level of the amount of a category of deposits or other liabilities of such Lender which includes deposits by reference to which the interest rate on Eurodollar Rate Loans is determined as provided in this Agreement or a category of extensions of credit or other assets of such Lender which includes Eurodollar Rate Loans or (ii) becomes subject to restrictions on the amount of such a category of liabilities or assets which it may hold, then, if such Lender so elects by notice to the Administrative Agent and the Borrower, the obligation of such Lender to make additional Loans of such Type hereunder shall be suspended until such Regulatory Change ceases to be in effect.

(c) Without limiting the effect of the foregoing provisions of this Section 5.01 (but without duplication), the Borrower shall pay directly to each Lender from time to time on request such amounts as such Lender may determine to be necessary to compensate such Lender for any costs which it determines are attributable to the maintenance by such Lender or any of its affiliates, as a result of a Regulatory Change, of capital in respect of its maintaining Loans hereunder or its obligation to make Loans hereunder (such compensation to include, without limitation, an amount equal to any reduction of the rate of return on assets or equity of such Lender to a level below that which such Lender could have achieved but for such law, regulation, interpretation, directive or request). Each Lender will notify the Borrower that it is entitled to compensation pursuant to this Section 5.01(c) as promptly as practicable after it obtains knowledge thereof and shall determine as promptly as practicable after delivery of such notice whether it will determine to request such compensation, and such Lender will designate a different Applicable Lending Office for the Loans affected by such event if such designation will avoid the need for, or, if unavoidable, reduce the amount of, such compensation and will not, in the sole opinion of such Lender, be disadvantageous to such Lender, provided that such Lender shall have no obligation to so designate an Applicable Lending Office located in the United States. Each Lender will furnish the Borrower (with a copy to the Administrative Agent) with a certificate setting forth the basis and amount of each request by such Lender for compensation under this Section 5.01(c).

(d) Determinations and allocations by any Lender for purposes of this Section 5.01 of the effect of any Regulatory Change on its costs of making or maintaining Loans or maintaining its obligations to make Loans or on amounts receivable by it in respect of its Loans or such obligations, and of the additional amounts required to compensate such Lender in respect of any Additional Costs, shall be conclusive, provided that such determinations and allocations are made on a reasonable basis.

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(e) If any Lender requests compensation for Additional Costs from the Borrower under Section 5.01(a), the Borrower may either (i) prepay in full all Eurodollar Rate Loans of all Lenders then outstanding, together with interest accrued thereon, in accordance with Section 3.02, or (ii) Convert all Eurodollar Rate Loans of all Lenders in accordance with Section 2.03, and in each case the Borrower shall also pay such Additional Costs to such Lender in accordance with this Section 5.01 on the date of such prepayment or Conversion, as the case may be.

(f) Failure or delay on the part of any Lender to demand compensation pursuant to this Section shall not constitute a waiver of such Lender’s right to demand such compensation; provided that the Borrower shall not be required to compensate a Lender pursuant to this Section for any increased costs or reductions incurred more than 270 days prior to the date that such Lender notifies the Borrower of the Regulatory Change giving rise to such increased costs or reductions and of such Lender’s intention to claim compensation therefor; provided further that, if the Regulatory Change giving rise to such increased costs or reductions is retroactive, then the 270-day period referred to above shall be extended to include the period of retroactive effect thereof.

SECTION 5.02. Illegality. Notwithstanding any other provision of this Agreement, if, subsequent to the date hereof, the enactment of or any change in or in the interpretation of any law or regulation shall make it unlawful, or any central bank or other Governmental Authority shall assert that it is unlawful, for any Lender or its Applicable Lending Office to perform its obligations hereunder to make Eurodollar Rate Loans or to continue to fund or maintain Eurodollar Rate Loans hereunder, then, on notice thereof and demand therefor by such Lender to the Borrower through the Administrative Agent, (a) the obligation of such Lender to make Eurodollar Rate Loans and to Convert Loans into Eurodollar Rate Loans shall terminate and (b) the Borrower shall forthwith prepay in full all Eurodollar Rate Loans of such Lender then outstanding (but only to the extent that prepayment prior to the last day of the applicable Interest Period(s) therefor is required by law or by any central bank or other Governmental Authority), together with interest accrued thereon, and compensation with respect thereto pursuant to Section 5.03, unless the Borrower, within five (5) Business Days of such notice and demand, Converts all Eurodollar Rate Loans of all Lenders then outstanding into ABR Loans in accordance with Section 2.03.

SECTION 5.03. Compensation. The Borrower shall compensate each Lender, upon written request by such Lender (which request shall set forth the basis for requesting such amounts) to the Administrative Agent and the Borrower, for all reasonable losses and expenses, including, without limitation, any interest paid by such Lender to lenders of funds borrowed by it or deposited with it to make or maintain its Eurodollar Rate Loans, which such Lender may sustain, to the extent not otherwise compensated for hereunder and not mitigated by the reemployment of such funds: (a) if for any reason (other than a default by such Lender) a Borrowing or Conversion of any Loan does not occur on a date specified therefor in a Notice of Borrowing given pursuant to Section 4.01 or in a Notice of Conversion given pursuant to Section 2.03, (b) if any prepayment, repayment or Conversion of its Eurodollar Rate Loans occurs on a date which is not the expiration date of the relevant Interest Period or (c) if any prepayment of its Eurodollar Rate Loans is not made on any date specified in a notice of prepayment given by the Borrower. Without prejudice to the foregoing, the Borrower

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shall indemnify each Lender against any loss or expense which such Lender (or its Applicable Lending Office or affiliate) may sustain or incur as a consequence of the default by the Borrower in payment of principal of or interest on any Eurodollar Rate Loan, or any part thereof, or of any amount due under this Agreement, including, but not limited to, any premium or penalty incurred by such Lender (or its Applicable Lending Office or affiliate) in respect of funds borrowed by it or deposited with it for the purpose of making or maintaining such Eurodollar Rate Loan, as determined by such Lender in good faith in the exercise of its sole discretion. A certificate as to any such loss or expense (specifying the basis of such loss or expense) shall be promptly submitted by such Lender to the Borrower (with a copy to the Administrative Agent) and shall, in the absence of manifest error, be conclusive and binding as to the amount thereof.

ARTICLE VI
CONDITIONS PRECEDENT

SECTION 6.01. Conditions Precedent to Effectiveness. This Agreement, and the obligation of each Lender to make Loans hereunder, shall not become effective until the date on which each of the following conditions is satisfied (or waived in accordance with Section 12.01):

(a) The Administrative Agent (or its counsel) shall have received from each party hereto either (i) a counterpart of this Agreement signed on behalf of such party or (ii) written evidence satisfactory to the Administrative Agent (which may include telecopy or other electronic transmission of a signed signature page of this Agreement) that such party has signed a counterpart of this Agreement.

(b) The Administrative Agent shall have received the Promissory Notes payable to the order of each Lender that has requested a Promissory Note pursuant to Section 3.08, duly executed by the Borrower.

(c) The Administrative Agent shall have received a favorable written opinion (addressed to the Administrative Agent and the Lenders and dated the Closing Date) of (i) Morgan, Lewis & Bockius LLP, New York counsel for the Obligors, substantially in the form of Exhibit B, and (ii) Todd C. Hixon, Esq., General Counsel for the Guarantor and counsel for the Borrower, substantially in the form of Exhibit C. The Obligors hereby request such counsel to deliver such opinions.

(d) The Administrative Agent shall have received such documents and certificates as the Administrative Agent or its counsel may reasonably request relating to the organization, existence and good standing of the Obligors, the authorization of the Transactions and any other legal matters relating to the Obligors, the Loan Documents or the Transactions, all in form and substance satisfactory to the Administrative Agent and its counsel.

(e) The representations and warranties of the Obligors set forth in this Agreement and the other Loan Documents shall be true and correct, no Default or Event of Default shall have occurred and be continuing, and the Administrative Agent shall have received a certificate, dated the Closing Date and signed by an Authorized Officer of each Obligor, confirming the same as of the Closing Date.

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(f) The Administrative Agent shall have received a certificate, dated the Closing Date and signed an Authorized Officer of each Obligor, confirming compliance with the conditions set forth in this Section 6.01.

(g) The Administrative Agent and the Lenders shall have received all documentation and other information required by bank regulatory authorities under applicable “know your customer” and anti-money laundering rules and regulations, including without limitation the Patriot Act, with respect to the Obligors.

(h) The Administrative Agent shall have received all fees and other amounts due and payable on or prior to the Closing Date, including, to the extent invoiced, reimbursement or payment of all out-of-pocket expenses required to be reimbursed or paid by the Borrower hereunder or under any other Loan Document.

(i) All requisite Governmental Authorities and third parties, if any, shall have approved or consented to this Agreement, the other Loan Documents and the Transactions to the extent required and material (and the Administrative Agent shall have received certified copies of all such approvals and consents, which shall be in form and substance satisfactory to the Administrative Agent and the Lenders), no stay of any applicable regulatory approval shall have been issued and there shall be no litigation, governmental, administrative or judicial action, actual or, to the knowledge of the Obligors, threatened, that could reasonably be expected to restrain, prevent or impose burdensome conditions on this Agreement, the other Loan Documents or the Transactions.

(j) The Administrative Agent shall have received true, correct and complete copies, certified as to authenticity by the Borrower, of the UNS Electric Note Purchase Agreement, together with any amendments or supplements thereto.

(k) The Administrative Agent shall have received such other approvals, opinions and documents as any Lender, through the Administrative Agent, may reasonably request.

SECTION 6.02. Determinations Under Section 6.01. For purposes of determining compliance with the conditions specified in Section 6.01, each Lender shall be deemed to have consented to, approved or accepted or to be satisfied with each document or other matter required thereunder to be consented to or approved by or acceptable or satisfactory to the Lenders unless an officer of the Administrative Agent responsible for the transactions contemplated by this Agreement shall have received written notice from such Lender or prior to the Closing Date specifying its objection thereto.

SECTION 6.03. Reliance on Certificates. The Lenders and the Administrative Agent shall be entitled to rely conclusively upon the certificates delivered from time to time by officers of an Obligor as to the names, incumbency, authority and signatures of the respective individuals named therein until such time as the Administrative Agent may receive a replacement certificate, in form acceptable to the Administrative Agent, from an officer of such Obligor identified to the Administrative Agent as having authority to deliver such certificate, setting forth the names and true signatures of the officers and other representatives of such Obligor thereafter authorized to act on behalf of such Obligor.

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ARTICLE VII
REPRESENTATIONS AND WARRANTIES

SECTION 7.01. Representations and Warranties of the Obligors. To induce the Administrative Agent and the Lenders to enter into this Agreement and to make the Loans to the Borrower pursuant to Section 2.01, each Obligor hereby represents and warrants to the Administrative Agent and each Lender that:

(a) Organization; Power and Authority. Such Obligor is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation, and is duly qualified as a foreign corporation and is in good standing in each jurisdiction in which such qualification is required by law, other than those jurisdictions as to which the failure to be so qualified or in good standing could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Such Obligor has the corporate power and authority to own or hold under lease the Properties it purports to own or hold under lease, or proposes to own or hold under lease, to transact the business it transacts and proposes to transact, to execute and deliver the Loan Documents to which it is a party and to perform the provisions thereof.

(b) Authorization, Execution and Delivery. Each Loan Document to which such Obligor is a party has been duly authorized by all necessary corporate action on the part of such Obligor, and upon execution and delivery thereof each such Loan Document will constitute a legal, valid and binding obligation of such Obligor enforceable against such Obligor in accordance with its terms, except as such enforceability may be limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors’ rights generally and (ii) general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). Each Loan Document to which such Obligor is a party has been duly executed and delivered by such Obligor.

(c) Disclosure; No Material Adverse Change; Etc.

(i) Such Obligor has disclosed to the Administrative Agent and the Lenders all agreements, instruments and corporate or other restrictions to which it or any of its Subsidiaries is subject, and all other matters known to it, that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect. Neither the Disclosure Documents nor any of the other reports, financial statements, certificates or other information furnished by or on behalf of such Obligor to the Administrative Agent or any Lender in connection with the negotiation of this Agreement or any other Loan Document or delivered hereunder (as modified or supplemented by, and taken together with, other information so furnished) contains any material misstatement of a fact or omits to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that, with respect to forward looking statements, such Obligor represents only that such information was prepared in good faith based upon assumptions believed to be reasonable at the time and notes that there can be no assurance that such expectations, beliefs or projections will be achieved or accomplished and that such projections are subject to an increasing degree of uncertainty as they relate to later periods of time.

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(ii) Except as disclosed in the Disclosure Documents or in one of the documents, certificates or other writings identified therein, since December 31, 2010, there has been no change in the financial condition, operations, business, Properties or prospects of any Obligor or any Subsidiary of any Obligor except changes that individually or in the aggregate could not reasonably be expected to have a Material Adverse Effect.

(iii) There is no fact known to such Obligor that could reasonably be expected to have a Material Adverse Effect that has not been set forth herein or in the Disclosure Documents or the other documents, certificates and other writings delivered to the Administrative Agent and the Lenders prior to the Closing Date by or on behalf of the Obligors specifically for use in connection with the transactions contemplated hereby.

(d) Financial Condition. The most recent financial statements delivered by such Obligor pursuant to Section 8.01(a)(i) or Section 8.01(a)(ii) (including, without limitations, the financial statements of the Obligors for the fiscal year ended December 31, 2010) present fairly, in all material respects, the financial position and results of operations and cash flows of such Obligor and its Subsidiaries as of such dates and for such periods in accordance with GAAP, subject to year-end audit adjustments and the absence of footnotes in the case of the statements delivered pursuant to Section 8.01(a)(i). Neither such Obligor nor any of its Subsidiaries had, at the date of the most recent balance sheet referred to above, any Guaranty Obligation, contingent liability or liability for taxes, or any long-term lease or unusual forward or long-term commitment, including any interest rate or foreign currency swap or exchange transaction, which, in any case, was material to such Obligor and its Subsidiaries, taken as a whole, and which was not reflected in the foregoing statements or in the notes thereto. During the period from December 31, 2010 to and including the date hereof there has been no Disposition by such Obligor or any of its Subsidiaries of any material part of its business or Property.

(e) Organization and Ownership of Shares of Subsidiaries of each Obligor.

(i) As of the Closing Date, Schedule 7.01(e) contains (except as noted therein) complete and correct lists of such Obligor’s Subsidiaries, showing, as to each Subsidiary, the correct name thereof, the jurisdiction of its organization, and the percentage of shares of each class of its capital stock or similar equity interests outstanding owned by such Obligor and each other Subsidiary.

(ii) All of the outstanding shares of capital stock or similar equity interests of each Subsidiary shown in Schedule 7.01(e) as being owned by an Obligor and its Subsidiaries have been validly issued, are fully paid and nonassessable and are owned by such Obligor or another Subsidiary free and clear of any Lien (except as otherwise disclosed in Schedule 7.01(e)).

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(iii) Each Subsidiary identified in Schedule 7.01(e) is a corporation or other legal entity duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, and is duly qualified as a foreign corporation or other legal entity and is in good standing in each jurisdiction in which such qualification is required by law, other than those jurisdictions as to which the failure to be so qualified or in good standing could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Each such Subsidiary has the corporate or other power and authority to own or hold under lease the Properties it purports to own or hold under lease and to transact the business it transacts and proposes to transact.

(iv) No Subsidiary of the Borrower is a party to any agreement, or otherwise subject to any legal restriction, restricting the ability of such Subsidiary to pay dividends out of profits or make any other similar distributions of profits to the Borrower or any of its Subsidiaries that owns outstanding shares of capital stock or similar equity interests of such Subsidiary, other than (A) this Agreement and the other Loan Documents, (B) the agreements listed on Schedule 7.01(e), (C) customary limitations imposed by corporate law statutes and (D) any covenant contained in an agreement evidencing Indebtedness permitted to be incurred by such Subsidiary pursuant to Section 8.02(e) that restricts the payment of a dividend or distribution upon the occurrence and during the continuance of a default thereunder.

(f) Compliance with Laws, Other Instruments, etc. The execution, delivery and performance by such Obligor of each Loan Document to which it is a party will not (i) contravene, result in any breach of, or constitute a default under, or result in the creation of any Lien in respect of any Property of such Obligor or any of its Subsidiaries under, any indenture, mortgage, deed of trust, loan, purchase or credit agreement, lease, corporate charter or by-laws, or any other agreement or instrument to which such Obligor or any such Subsidiary is bound or by which such Obligor or any such Subsidiary or any of their respective Properties may be bound or affected, (ii) conflict with or result in a breach of any of the terms, conditions or provisions of any order, judgment, decree, or ruling of any court, arbitrator or Governmental Authority applicable to such Obligor or any of its Subsidiaries or (iii) violate any provision of any Governmental Rule applicable to such Obligor or any of its Subsidiaries.

(g) Governmental Authorizations, etc. No consent, approval or authorization of, or registration, filing or declaration with, any Governmental Authority is required in connection with the execution, delivery or performance by such Obligor of any Loan Document to which it is a party, except for the ACC Order, which ACC Order has been obtained and is in full force and effect. After giving effect to the making of the Loans by the Lenders to the Borrower and the application of the proceeds thereof, the Borrower is in compliance with all applicable requirements, if any, contained in the ACC Order.

(h) Litigation; Observance of Agreements, Statutes and Orders.

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(i) Except as disclosed in the Disclosure Documents, there are no actions, suits or proceedings pending or, to the knowledge of such Obligor, threatened against or affecting such Obligor or any of its Subsidiaries or any Property of such Obligor or any of its Subsidiaries in any court or before any arbitrator of any kind or before or by any Governmental Authority (A) that involve any of the Loan Documents or the Transactions or (B) that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect.

(ii) Neither such Obligor nor any of its Subsidiaries is in default under any term of any agreement or instrument to which it is a party or by which it is bound, or any order, judgment, decree or ruling of any court, arbitrator or Governmental Authority or is in violation of any applicable law, ordinance, rule or regulation (including, without limitation, Environmental Laws) of any Governmental Authority, which default or violation, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect.

(i) Taxes. Such Obligor and each of its Subsidiaries have filed all tax returns that are required to have been filed in any jurisdiction, and have paid all taxes shown to be due and payable on such returns and all other taxes and assessments levied upon them or their Properties, income or franchises, to the extent such taxes and assessments have become due and payable and before they have become delinquent, except for any taxes and assessments (i) the amount of which is not individually or in the aggregate Material or (ii) the amount, applicability or validity of which is currently being contested in good faith by appropriate proceedings and with respect to which such Obligor or such Subsidiary, as the case may be, has established adequate reserves in accordance with GAAP. Such Obligor knows of no basis for any other tax or assessment that could reasonably be expected to have a Material Adverse Effect. The charges, accruals and reserves on the books of such Obligor and its Subsidiaries in respect of Federal, state or other taxes for all fiscal periods are adequate.

(j) Title to Property; Leases. Such Obligor and its Subsidiaries have good and sufficient title to their respective properties that individually or in the aggregate are Material, in each case free and clear of Liens prohibited by this Agreement. All leases that individually or in the aggregate are Material are valid and subsisting and are in full force and effect in all Material respects.

(k) Licenses, Permits, etc.

(i) Such Obligor and its Subsidiaries own or possess all licenses, permits, franchises, authorizations, patents, copyrights, service marks, trademarks and trade names, or rights thereto, that individually or in the aggregate are Material, without known conflict with the rights of others;

(ii) to the best knowledge of such Obligor, no product of such Obligor infringes in any material respect any license, permit, franchise, authorization, patent, copyright, service mark, trademark, trade name or other right owned by any other Person; and

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(iii) to the best knowledge of such Obligor, there is no Material violation by any Person of any right of such Obligor or any of its Subsidiaries with respect to any patent, copyright, service mark, trademark, trade name or other right owned or used by such Obligor or such Subsidiary.

(l) Compliance with ERISA.

(i) Such Obligor and each of its ERISA Affiliates have operated and administered each Plan in compliance with all applicable laws except for such instances of noncompliance as have not resulted in and could not reasonably be expected to result in a Material Adverse Effect. Neither such Obligor nor any of its ERISA Affiliates has incurred any liability pursuant to Title I or IV of ERISA (other than claims for benefits in the ordinary course or PBGC premiums required by Title IV of ERISA) or the penalty or excise tax provisions of the Code relating to employee benefit plans (as defined in Section 3 of ERISA), and no event, transaction or condition has occurred or exists that could reasonably be expected to result in the incurrence of any such liability by such Obligor or any of its ERISA Affiliates, or in the imposition of any Lien on any of the rights or Properties of such Obligor or any of its ERISA Affiliates, in either case pursuant to Title I or IV of ERISA or to such penalty or excise tax provisions or to Section 412 or 430 of the Code or in contravention of Section 436(c) of the Code, other than such liabilities or Liens as have not resulted in and could not reasonably be expected to result in a Material Adverse Effect.

(ii) The present value of the aggregate benefit liabilities under each of such Obligor’s Plans (other than Multiemployer Plans), determined as of the end of such Plan’s most recently ended plan year on the basis of the actuarial assumptions specified for funding purposes in such Plan’s most recent actuarial valuation report, did not exceed the aggregate current value of the assets of such Plan allocable to such benefit liabilities by an amount, in the case of any single Plan or in the aggregate for all Plans, that has resulted or could reasonably be expected to result in a Material Adverse Effect. The term “benefit liabilities” has the meaning specified in section 4001 of ERISA and the terms “current value” and “present value” have the meaning specified in section 3 of ERISA.

(iii) Such Obligor and its ERISA Affiliates have not incurred withdrawal liabilities (and are not subject to contingent withdrawal liabilities) under section 4201 or 4204 of ERISA in respect of Multiemployer Plans that individually or in the aggregate have resulted or could reasonably be expected to result in a Material Adverse Effect.

(iv) The expected postretirement benefit obligations (determined as of the last day of such Obligor’s most recently ended fiscal year in accordance with Financial Accounting Standards Board Statement No. 106, without regard to liabilities attributable to continuation coverage mandated by section 4980B of the Code) of such Obligor and its Subsidiaries could not reasonably be expected to result in a Material Adverse Effect.

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(m) Use of Proceeds; Margin Regulations. The Borrower will apply the proceeds of all Loans solely to refinance existing Indebtedness of the Borrower and for other general corporate purposes. No part of the proceeds of any Loan made to the Borrower will be used, directly or indirectly, for the purpose of buying or carrying any margin stock within the meaning of Regulation U, or for the purpose of buying or carrying or trading in any securities under such circumstances as to involve the Borrower in a violation of Regulation X of the Board or to involve any broker or dealer in a violation of Regulation T of the Board. As used in this Section 7.01(m), the terms “margin stock” and “purpose of buying or carrying” shall have the meanings assigned to them in Regulation U.

(n) Existing Indebtedness.

(i) Neither such Obligor nor any of its Subsidiaries is in default and no waiver of default is currently in effect, in the payment of any principal or interest on any Indebtedness of such Obligor or such Subsidiary and no event or condition exists with respect to any Indebtedness of such Obligor or any such Subsidiary that would permit (or that with the giving of notice or the lapse of time, or both, would permit) one or more Persons to cause such Indebtedness to become due and payable before its stated maturity or before its regularly scheduled dates of payment.

(ii) Neither such Obligor nor any of its Subsidiaries has agreed or consented to cause or permit in the future (upon the happening of a contingency or otherwise) any of its Property, whether now owned or hereafter acquired, to be subject to a Lien not permitted by Section 8.02(c).

(o) Foreign Assets Control Regulations, etc. None of the Transactions will violate the Trading with the Enemy Act, as amended, or any of the foreign assets control regulations of the United States Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) or any enabling legislation or executive order relating thereto.

(p) Status under Certain Statutes. Neither such Obligor nor any of its Subsidiaries is subject to regulation under the Investment Company Act of 1940, as amended, or the Interstate Commerce Act, as amended.

(q) Anti-Terrorism Order. Neither such Obligor nor any of its Subsidiaries is a Sanctioned Person. To the best knowledge of such Obligor, neither such Obligor nor any of its Subsidiaries has any legally binding contracts or agreements with any Sanctioned Person.

(r) Labor Matters. There are no strikes or other labor disputes against such Obligor or any of its Subsidiaries pending or, to the knowledge of such Obligor, threatened that (individually or in the aggregate) could reasonably be expected to have a Material Adverse Effect. Hours worked by and payments made to employees of such Obligor or any of its Subsidiaries have not been in violation of the Fair Labor Standards Act or any other applicable requirement of law dealing with such matters that (individually or in the aggregate) could reasonably be expected to have a Material Adverse Effect. All payments due from such Obligor or any of its Subsidiaries on account of employee health and welfare insurance that (individually or in the aggregate) could reasonably be expected to have a Material Adverse Effect if not paid have been paid or accrued as a liability on the books of such Obligor or the relevant Subsidiary.

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(s) Environmental Matters. Neither such Obligor nor any of its Subsidiaries has knowledge of any claim or has received any notice of any claim, and no proceeding has been instituted raising any claim against such Obligor or any of its Subsidiaries or any of their respective real Properties now or formerly owned, leased or operated by any of them or other Properties, alleging any damage to the environment or violation of any Environmental Laws, except, in each case, such as could not reasonably be expected to result in a Material Adverse Effect. Except as disclosed in the Disclosure Documents:

(i) neither such Obligor nor any of its Subsidiaries has knowledge of any facts which would give rise to any claim, public or private, of violation of Environmental Laws or damage to the environment emanating from, occurring on or in any way related to real Properties now or formerly owned, leased or operated by any of them, or in any way related to its Properties or their use, except, in each case, such as could not reasonably be expected to result in a Material Adverse Effect;

(ii) neither such Obligor nor any of its Subsidiaries has stored any Hazardous Materials on real Properties now or formerly owned, leased or operated by any of them and has not disposed of any Hazardous Materials in a manner contrary to any Environmental Laws in each case in any manner that could reasonably be expected to result in a Material Adverse Effect; and

(iii) all buildings on all real Properties now owned, leased or operated by such Obligor or any of its Subsidiaries are in compliance with applicable Environmental Laws, except where failure to comply could not reasonably be expected to result in a Material Adverse Effect.

(t) Solvency. Each Obligor is, and after giving effect to the incurrence of all Indebtedness and obligations being incurred in connection herewith and the Transactions will be, Solvent.

ARTICLE VIII
COVENANTS OF THE OBLIGORS

SECTION 8.01. Affirmative Covenants. Each Obligor covenants and agrees that so long as any Loan or any other Obligations payable hereunder or under any other Loan Document shall remain unpaid or any Lender shall have any Commitment:

(a) Financial and Business Information. Such Obligor shall deliver to the Administrative Agent, with a copy for each Lender (and the Administrative Agent will forward such copies to the Lenders):

(i) Quarterly Statements — within 60 days after the end of each quarterly fiscal period in each fiscal year of such Obligor (other than the last quarterly fiscal period of each such fiscal year), copies of,

(A) a consolidated balance sheet of such Obligor and its Subsidiaries as at the end of such quarter,

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(B) consolidated statements of income of such Obligor and its Subsidiaries, for such quarter and (in the case of the second and third quarters) for the portion of the fiscal year ending with such quarter, and

(C) consolidated statements of cash flow for the period from the beginning of such fiscal year to the end of such quarter,

setting forth in each case in comparative form the figures for the corresponding periods in the previous fiscal year, all in reasonable detail, prepared in accordance with GAAP applicable to quarterly financial statements generally, and certified by an Authorized Officer of such Obligor as fairly presenting, in all material respects, the financial position of the companies being reported on and their results of operations and cash flows, subject to changes resulting from year-end adjustments, provided that delivery within the time period specified above of copies of such Obligor’s Quarterly Report on Form 10-Q, if any, prepared in compliance with the requirements therefor and filed with the SEC shall be deemed to satisfy the requirements of this Section 8.01(a)(i);

(ii) Annual Statements — within 105 days after the end of each fiscal year of such Obligor, copies of,

(A) a consolidated balance sheet of such Obligor and its Subsidiaries, as at the end of such year, and

(B) consolidated statements of income, changes in shareholders’ equity and cash flows of such Obligor and its Subsidiaries, for such year, setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail, prepared in accordance with GAAP,

and accompanied by an opinion thereon of independent certified public accountants of recognized national standing, which opinion shall not contain any qualification or exception as to the scope of such audit and shall state that such financial statements present fairly, in all material respects, the financial position of the companies being reported upon and their results of operations and cash flows and have been prepared in conformity with GAAP, and that the examination of such accountants in connection with such financial statements has been made in accordance with generally accepted auditing standards, and that such audit provides a reasonable basis for such opinion in the circumstances;

provided, that the delivery within the time period specified above of such Obligor’s Annual Report on Form 10-K (if any) for such fiscal year (together with such Obligor’s annual report to shareholders, if any, prepared pursuant to Rule 14a-3 under the Exchange Act) prepared in accordance with the requirements therefor and filed with the SEC, together with the accountant’s opinion described above, shall be deemed to satisfy the requirements of this Section 8.01(a)(ii);

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(iii) SEC and Other Reports — promptly upon their becoming available, one copy of (A) each financial statement, report, notice or proxy statement sent by such Obligor or any of its Subsidiaries to public securities holders generally, and (B) each regular or periodic report, each registration statement (without exhibits except as expressly requested by the Administrative Agent or a Lender), and each prospectus and all amendments thereto filed by such Obligor or any of its Subsidiaries with the SEC and of all press releases and other statements made available generally by such Obligor or any of its Subsidiaries to the public concerning developments that are Material;

(iv) Notice of Default or Event of Default — promptly, and in any event within five days after an Authorized Officer of such Obligor becoming aware of the existence of any Default or Event of Default or that any Person has given any notice or taken any action with respect to a claimed default hereunder or that any Person has given any notice or taken any action with respect to a claimed default of the type referred to in Section 9.01(e), a written notice specifying the nature and period of existence thereof and what action the applicable Obligor is taking or proposes to take with respect thereto;

(v) ERISA Matters — promptly, and in any event within five days after an Authorized Officer of such Obligor becoming aware of any of the following, a written notice setting forth the nature thereof and the action, if any, that the applicable Obligor or an ERISA Affiliate of such Obligor proposes to take with respect thereto:

(A) with respect to any Plan, any reportable event, as defined in section 4043(b) of ERISA and the regulations thereunder, for which notice thereof has not been waived pursuant to such regulations as in effect on the date hereof; or

(B) (1) the taking by the PBGC of steps to institute, or the threatening by the PBGC of the institution of, proceedings under section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan, (2) the providing of notice by a plan administrator of the intent to terminate any Plan under section 4041 of ERISA, or (3) the receipt by such Obligor or any of its ERISA Affiliates of a notice, or the receipt by any Multiemployer Plan from such Obligor or any of its ERISA Affiliates of any notice, concerning the imposition of withdrawal liability under section 4201 or 4204 of ERISA or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA; or

(C) any event (including, without limitation, any ERISA Event), transaction or condition that could result in the incurrence of any liability by such Obligor or any of its ERISA Affiliates pursuant to Title I or IV of ERISA (other than claims in the ordinary course or PBGC premiums required by Title IV of ERISA) or the penalty or excise tax provisions of the Code relating to employee benefit plans, or in the imposition of any Lien on any of the rights or Properties of such Obligor or any of its ERISA Affiliates pursuant to Title I or IV of ERISA or such penalty or excise tax provisions, if such liability or Lien, taken together with any other such liabilities or Liens then existing, could reasonably be expected to have a Material Adverse Effect;

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(vi) Notices from Governmental Authority — promptly, and in any event within 30 days of receipt thereof, copies of any notice to such Obligor or any of its Subsidiaries from any Federal or state Governmental Authority relating to any order, ruling, statute or other law or regulation that could reasonably be expected to have a Material Adverse Effect;

(vii) ACC Communications — promptly, and in any event within 30 days of receipt thereof, copies of any Material communication to such Obligor or any of its Subsidiaries from the ACC or any Material filing by such Obligor or any of its Subsidiaries with the ACC relating to any breach of the ACC Settlement Agreement or any matter that could reasonably be expected to cause or constitute a Material Adverse Effect;

(viii) Default and Litigation — promptly, and in any event within five days after an Authorized Officer of such Obligor becoming aware of any of the following, a written notice setting forth the nature thereof and the action, if any, that the applicable Obligor proposes to take with respect thereto:

(A) any default or event of default under any Contractual Obligation (other than under the Loan Documents) of such Obligor or any of its Subsidiaries that, if not cured or waived, could reasonably be expected to have a Material Adverse Effect;

(B) any litigation, investigation or proceeding which may exist at any time between such Obligor or any of its Subsidiaries and any Governmental Authority that, if adversely determined, could reasonably be expected to have a Material Adverse Effect; or

(C) any litigation or proceeding affecting such Obligor or any of its Subsidiaries in which the amount involved is greater than $4,000,000 and not covered by insurance or in which injunctive or similar relief is sought;

(ix) Change in Ratings of Index Debt — as soon as practicable and in any event within five (5) Business Days after any Obligor receives written notice of an upgrading or a downgrading of the Borrower’s Index Debt by any Rating Agency, a notice of such upgrading or downgrading; and

(x) Requested Information — with reasonable promptness, such other data and information relating to the business, operations, affairs, financial condition or Properties of such Obligor or any of its Subsidiaries or relating to the ability of such Obligor to perform its obligations under the Loan Documents to which it is a party as from time to time may be reasonably requested by the Administrative Agent or any Lender.

(b) Officer’s Certificate. Each set of financial statements delivered to the Administrative Agent pursuant to Section 8.01(a)(i) or Section 8.01(a)(ii) shall be accompanied by a certificate of an Authorized Officer of the Obligor delivering such financial statements setting forth:

(i) Covenant Compliance — if such Obligor is the Borrower, the information (including detailed calculations) required in order to establish whether the Borrower was in compliance with the requirements of Section 8.03 during the quarterly or annual period covered by the statements then being furnished (including, without limitation, a listing of any Indebtedness for borrowed money of the Borrower or any of its Subsidiaries that has been disregarded, at any time during such period, for purposes of the determination of Consolidated Total Indebtedness pursuant to the proviso contained in the definition thereof set forth in Section 1.01); and

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(ii) Event of Default — a statement that such officer has reviewed the relevant terms hereof and has made, or caused to be made, under his or her supervision, a review of the transactions and conditions of such Obligor and its Subsidiaries from the beginning of the quarterly or annual period covered by the statements then being furnished to the date of the certificate and that such review shall not have disclosed the existence during such period of any condition or event that constitutes a Default or an Event of Default or, if any such condition or event existed or exists (including, without limitation, any such event or condition resulting from the failure of such Obligor or any of its Subsidiaries to comply with any Environmental Law), specifying the nature and period of existence thereof and what action such Obligor shall have taken or proposes to take with respect thereto.

(c) Books and Records; Inspection. Such Obligor will, and will cause each of its Subsidiaries to, keep proper books of record and account in which entries are made of all dealings and transactions in relation to its business and activities, all in accordance with customary and prudent business practices. Such Obligor shall permit the representatives of the Administrative Agent and each Lender:

(i) No Default — if no Default or Event of Default with respect to such Obligor then exists, at the expense of the Administrative Agent or such Lender (as the case may be) and upon reasonable prior notice to such Obligor, to visit the principal executive office of such Obligor, to discuss the affairs, finances and accounts of such Obligor and its Subsidiaries with such Obligor’s officers, and (with the consent of such Obligor, which consent will not be unreasonably withheld) its independent public accountants, and (with the consent of such Obligor, which consent will not be unreasonably withheld) to visit the other offices and Properties of such Obligor and its Subsidiaries, all at such reasonable times and as often as may be reasonably requested in writing; and

(ii) Default — if a Default or Event of Default with respect to such Obligor then exists, at the expense of such Obligor, to visit and inspect any of the offices or Properties of such Obligor or any of its Subsidiaries, to examine all their respective books of account, records, reports and other papers, to make copies and extracts therefrom, and to discuss their respective affairs, finances and accounts with their respective officers and independent public accountants (and by this provision such Obligor authorizes said accountants to discuss the affairs, finances and accounts of such Obligor and its Subsidiaries), all at such times and as often as may be requested.

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(d) Compliance with Law. Such Obligor shall, and shall cause each of its Subsidiaries to, comply with all Governmental Rules to which each of them is subject, including, without limitation, ERISA and Environmental Laws, and will obtain and maintain in effect all Governmental Approvals necessary to the ownership of their respective Properties or to the conduct of their respective businesses, in each case to the extent necessary to ensure that non-compliance with such Governmental Rules or failures to obtain or maintain in effect such Governmental Approvals could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

(e) Insurance. Such Obligor shall, and shall cause each of its Subsidiaries to, maintain, with financially sound and reputable insurers, or through its own program of self-insurance, insurance with respect to their respective Properties and businesses against such casualties and contingencies, of such types, on such terms and in such amounts (including deductibles, co-insurance and self-insurance, if adequate reserves are maintained with respect thereto) as is customary in the case of entities of established reputations engaged in the same or a similar business and similarly situated.

(f) Maintenance of Properties. Such Obligor shall, and shall cause each of its Subsidiaries to, maintain and keep, or cause to be maintained and kept, their respective Properties in good repair, working order and condition (other than ordinary wear and tear), so that the business carried on in connection therewith may be properly conducted at all times, provided that this Section 8.01(f) shall not prevent such Obligor or any such Subsidiary from discontinuing the operation and the maintenance of any of its Properties if such discontinuance is desirable in the conduct of its business and such Obligor has concluded that such discontinuance could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

(g) Payment of Taxes, Obligations and Claims. Such Obligor shall, and shall cause each of its Subsidiaries to, file all tax returns required to be filed in any jurisdiction and pay and discharge (i) all taxes shown to be due and payable on such returns and all other taxes, assessments, governmental charges, or levies imposed on them or any of their Properties, income or franchises, to the extent such taxes and assessments have become due and payable and before they have become delinquent, and (ii) all claims and other obligations of whatever nature for which sums have become due and payable that have or might become a Lien on Properties of such Obligor or any such Subsidiary, provided that neither such Obligor nor any such Subsidiary need pay any such tax, assessment. claims or obligations if (A) the amount, applicability or validity thereof is contested by such Obligor or such Subsidiary on a timely basis in good faith and in appropriate proceedings, and such Obligor or such Subsidiary has established adequate reserves therefor in accordance with GAAP on the books of such Obligor or such Subsidiary or (B) the nonpayment of all such taxes, assessments, claims and obligations in the aggregate could not reasonably be expected to have a Material Adverse Effect.

(h) Legal Existence, etc. Such Obligor shall at all times preserve and keep in full force and effect its legal existence. Subject to Section 8.02(b), such Obligor shall at all times preserve and keep in full force and effect the legal existence of each of its Subsidiaries (unless merged into such Obligor or a Subsidiary) and all rights and franchises of such Obligor and its Subsidiaries unless, in the good faith judgment of such Obligor, the termination of or failure to preserve and keep in full force and effect such legal existence, right or franchise could not, individually or in the aggregate, have a Material Adverse Effect.

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(i) Maintain Ownership of the Borrower. At all times prior to the occurrence of the Guaranty Termination Date, the Guarantor shall maintain, directly or indirectly, legal and beneficial ownership of all of the outstanding capital stock of the Borrower, free and clear of any Liens; provided that the foregoing shall not prohibit any merger, consolidation, sale or transfer permitted under Section 8.02(b).

SECTION 8.02. Negative Covenants. Each Obligor covenants and agrees that so long as any Loan or any other Obligations payable hereunder or under any other Loan Document shall remain unpaid or any Lender shall have any Commitment:

(a) Transactions with Affiliates. Such Obligor shall not, and shall not permit any of its Subsidiaries to, sell, lease or otherwise transfer any property or assets to, or purchase, lease or otherwise acquire any property or assets from, or otherwise engage in any other transactions with, any of its Affiliates, except, subject to Section 8.02(b) and the other terms and conditions contained in this Agreement and the other Loan Documents, (i) at prices and on terms and conditions (A) not less favorable to such Obligor or such Subsidiary than could be obtained on an arm’s-length basis from unrelated third parties or (B) as approved by the ACC or the Federal Energy Regulatory Commission, (ii) transactions between or among such Obligor and its Subsidiaries not involving any other Affiliate, (iii) any Restricted Payment permitted by Section 8.02(d), (iv) shared corporate or administrative services and staffing with Affiliates, including accounting, legal, human resources and treasury operations, provided on customary terms for similarly situated companies, (v) tax sharing arrangements on customary terms for similarly situated companies, and (vi) customary fees paid to members of the board of directors of such Obligor and its Subsidiaries who are not officers of such Obligor or any of its Subsidiaries.

(b) Merger, Consolidation, etc.

(i) Such Obligor shall not consolidate with or merge with any other Person or convey, transfer or lease all or substantially all of its assets in a single transaction or series of transactions to any Person, and, prior to the occurrence of the Guaranty Termination Date, the Guarantor shall not sell or otherwise transfer any shares of the stock (or any options or warrants to purchase stock or other Securities exchangeable for or convertible into stock) of the Borrower to any Person unless:

(A) the successor formed by such consolidation or the survivor of such merger or the Person that acquires by conveyance, transfer or lease substantially all of the assets of such Obligor as an entirety or the transferee of such shares of stock, as the case may be (any such Person, in relation to any such transaction involving the Borrower, being referred to herein as a “Borrower Successor” and any such Person, in relation to any such transaction involving the Guarantor, being referred to herein as a “Guarantor Successor”), shall have a credit rating in respect of its long-term debt from S&P of “BBB” or higher or from Moody’s of “Baa2” or higher;

(B) any Borrower Successor shall be primarily engaged in the Utility Business;

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(C) any Borrower Successor or, for so long as the Guarantor (or any Guarantor Successor) is an Obligor, Guarantor Successor shall be a Solvent corporation or limited liability company organized and existing under the laws of the United States or any State thereof (including the District of Columbia);

(D) if any Borrower Successor or Guarantor Successor is not such Obligor, such Borrower Successor or, for so long as the Guarantor (or any Guarantor Successor) is an Obligor, Guarantor Successor, as the case may be, (1) shall have executed and delivered to the Administrative Agent its assumption of the due and punctual performance and observance of each covenant and condition of this Agreement and the other Loan Documents to which it is a party and (2) shall have caused to be delivered to the Administrative Agent an opinion of nationally recognized independent counsel, or other independent counsel reasonably satisfactory to the Required Lenders, to the effect that all agreements or instruments effecting such assumption are enforceable in accordance with their terms and comply with the terms hereof; and

(E) immediately after giving effect to such transaction and, if any Borrower Successor or Guarantor Successor is not such Obligor, the effectiveness of all agreements and instruments effecting the assumption (if any) required pursuant to clause (D) above, no Default or Event of Default shall have occurred and be continuing;

provided, however, that this Section 8.02(b)(i) shall not apply to the consolidation or merger of a Wholly-Owned Subsidiary of the Borrower into the Borrower.

(ii) No such conveyance, transfer or lease of substantially all of the assets of the Borrower shall have the effect of releasing the Borrower or any successor Person that shall theretofore have become such in the manner prescribed in this Section 8.02(b) from its liability under this Agreement or the other Loan Documents, or the Guarantor from its obligations hereunder or under the Guaranty, except that, if the Guaranty Termination Date has not occurred, the Guarantor shall be released from its obligations hereunder and under the Guaranty if, in the case of any such transaction that is permitted by Section 8.02(b)(i), the Guarantor Successor shall have (A) executed and delivered to the Administrative Agent its assumption of the due and punctual performance and observance of the obligations of the Guarantor under this Agreement and under the Guaranty, and (B) caused to be delivered to the Administrative Agent an opinion of nationally recognized independent counsel, or other independent counsel reasonably satisfactory to the Administrative Agent, to the effect that all agreements or instruments effecting such assumption are enforceable in accordance with their terms and comply with the terms hereof.

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(c) Liens.

(i) The Guarantor (for so long as it is an Obligor) shall not directly or indirectly create, incur, assume or permit to exist (upon the happening of a contingency or otherwise) any Lien (other than Permitted Liens) securing Indebtedness for borrowed money on or with respect to any Property (including, without limitation, any document or instrument in respect of goods or accounts receivable) of the Guarantor, whether now owned or held or hereafter acquired, or any income or profits therefrom or assign or otherwise convey any right to receive income or profits (unless it makes, or causes to be made, effective provision whereby its obligations with respect to the Guaranty will be equally and ratably secured with any and all other Indebtedness thereby secured so long as such other Indebtedness shall be so secured, such security to be pursuant to an agreement reasonably satisfactory to the Administrative Agent and, in any such case, the Guarantor’s obligations with respect to the Guaranty shall have the benefit, to the fullest extent that, and with such priority as, the Lenders and the Administrative Agent may be entitled under applicable law, of an equitable Lien on such Property).

(ii) The Borrower shall not, and shall not permit any of its Subsidiaries to, directly or indirectly create, incur, assume or permit to exist (upon the happening of a contingency or otherwise) any Lien (other than Permitted Liens) securing Indebtedness for borrowed money on or with respect to any Property (including, without limitation, any document or instrument in respect of goods or accounts receivable) of the Borrower or any such Subsidiary, whether now owned or held or hereafter acquired, or any income or profits therefrom or assign or otherwise convey any right to receive income or profits (unless it makes, or causes to be made, effective provision whereby the Obligations of the Borrower will be equally and ratably secured with any and all other Indebtedness thereby secured so long as such other Indebtedness shall be so secured, such security to be pursuant to an agreement reasonably satisfactory to the Administrative Agent and, in any such case, the Obligations of the Borrower shall have the benefit, to the fullest extent that, and with such priority as, the Lenders and the Administrative Agent may be entitled under applicable law, of an equitable Lien on such Property).

(d) Restricted Payments. The Borrower shall not at any time declare or make, or incur any liability to declare or make, any Restricted Payment unless:

(i) such Restricted Payment would not violate any Requirement of Law applicable to the Borrower; and

(ii) immediately after giving effect to such action no Default or Event of Default would exist.

(e) Incurrence of Indebtedness.

(i) The Borrower shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create, incur, assume, guarantee, or otherwise become directly or indirectly liable with respect to, any Indebtedness, unless on the date the Borrower or such Subsidiary becomes liable with respect to any such Indebtedness and immediately after giving effect thereto and the concurrent retirement of any other Indebtedness, (A) no Default or Event of Default shall have occurred and be continuing, and (B) the Borrower is in compliance with Section 10.5(a)(iii) of the UNS Electric Note Purchase Agreement (or the corresponding provision of any agreement that amends, restates, refinances or otherwise replaces the UNS Electric Note Purchase Agreement) (provided, that this clause (B) shall apply only so long as the Borrower is required to comply with the “Interest Coverage Ratio” (as defined in the UNS Electric Note Purchase Agreement) set forth in such Section 10.5(a)(iii) or any such corresponding provision).

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(ii) For the purposes of this Section 8.02(e):

(A) any Person becoming a Subsidiary after the date hereof shall be deemed, at the time it becomes a Subsidiary, to have incurred all of its then outstanding Indebtedness and pro forma effect shall be given to the earnings of such Person; and

(B) upon the creation, incurrence or assumption of any Indebtedness, any other Indebtedness shall be deemed to be retired concurrently with such action if (1) such other Indebtedness is retired with the proceeds of such Indebtedness and (2) such other Indebtedness is retired within 60 days of such action.

(f) Anti-Terrorism Order. Such Obligor shall not, and shall not permit any of its Subsidiaries to, enter into any legally binding contracts or agreements with any Sanctioned Person.

(g) Change in Nature of Business. Such Obligor will not, and will not permit any of its Subsidiaries to, engage to any material extent in any business other than businesses of the type conducted by such Obligor and its Subsidiaries on the date of execution of this Agreement and businesses reasonably related thereto.

SECTION 8.03. Financial Covenant. The Borrower covenants and agrees that so long as any Loan or any other Obligations payable hereunder or under any other Loan Document shall remain unpaid or any Lender shall have any Commitment, the Borrower shall maintain at all times a ratio of the Borrower’s Consolidated Total Indebtedness to its Consolidated Total Capitalization of not greater than 0.65 to 1.00.

ARTICLE IX
DEFAULTS

SECTION 9.01. Events of Default. If any of the following events shall occur and be continuing, the Administrative Agent and the Lenders shall be entitled to exercise the remedies set forth in Section 9.02:

(a) (i) The Borrower shall fail to pay any principal of any Loan when due and payable in accordance with the terms hereof; or (ii) the Borrower shall fail to pay any interest on any Loan, any fees or any other amount payable hereunder or under any other Loan Document, within five (5) days after any such interest, fees or other amount becomes due and payable in accordance with the terms hereof or thereof; or

(b) any representation or warranty made or deemed made by the Borrower or, prior to the occurrence of the Guaranty Termination Date, the Guarantor herein or in any other Loan Document or that is contained in any certificate, document or financial or other statement furnished by the Borrower or the Guarantor at any time under or in connection with this Agreement or any other Loan Document shall prove to have been inaccurate in any material respect on or as of the date made or deemed made or furnished; or

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(c) the Borrower or, prior to the occurrence of the Guaranty Termination Date, the Guarantor shall default in the observance or performance of any agreement contained in Section 8.01(a)(iv), Section 8.01(h), Section 8.01(i), Section 8.02 or Section 8.03; or

(d) the Borrower or, prior to the occurrence of the Guaranty Termination Date, the Guarantor shall default in the observance or performance of any other agreement contained in this Agreement or any other Loan Document to which it is a party (other than those referred to in paragraphs (a), (b) and (c) of this Section) and such default is not remedied within 30 days after the Borrower or the Guarantor, as applicable, receives written notice of such default from the Administrative Agent (any such written notice to be identified as a “notice of default” and to refer specifically to this Section 9.01(d)) (which notice will be given at the request of any Lender); or

(e) (i) the Borrower, any Subsidiary of the Borrower or, prior to the occurrence of the Guaranty Termination Date, the Guarantor is in default (as principal or as guarantor or other surety) in the payment of any principal of or premium or make-whole amount or interest on any Indebtedness that is outstanding in an aggregate principal amount of at least $10,000,000 beyond any period of grace provided with respect thereto, or (ii) the Borrower, any Subsidiary of the Borrower or, prior to the occurrence of the Guaranty Termination Date, the Guarantor is in default in the performance of or compliance with any term of any evidence of any Indebtedness in an aggregate outstanding principal amount of at least $10,000,000 or of any mortgage, indenture or other agreement relating thereto or any other condition exists, and as a consequence of such default or condition such Indebtedness has become, or has been declared, due and payable before its stated maturity or before its regularly scheduled dates of payment, or (iii) as a consequence of the occurrence or continuation of any event or condition (other than the passage of time or the right of the holder of Indebtedness to convert such Indebtedness into equity interests), (x) the Borrower, any Subsidiary of the Borrower or, prior to the occurrence of the Guaranty Termination Date, the Guarantor has become obligated to purchase or repay Indebtedness before its regular maturity or before its regularly scheduled dates of payment in an aggregate outstanding principal amount of at least $10,000,000, or (y) one or more Persons have the right to require the Borrower, any Subsidiary of the Borrower or, prior to the occurrence of the Guaranty Termination Date, the Guarantor to purchase or repay such Indebtedness; or

(f) the Borrower, any Subsidiary of the Borrower or, prior to the occurrence of the Guaranty Termination Date, the Guarantor or any other Subsidiary of the Guarantor (i) is generally not paying, or admits in writing its inability to pay, its debts as they become due, (ii) files, or consents by answer or otherwise to the filing against it of, a petition for relief or reorganization or arrangement or any other petition in bankruptcy, for liquidation or to take advantage of any bankruptcy, insolvency, reorganization, moratorium or other similar law of any jurisdiction, (iii) makes an assignment for the benefit of its creditors, (iv) consents to the appointment of a custodian, receiver, trustee or other officer with similar powers with respect to it or with respect to any substantial part of its Property, (v) is adjudicated as insolvent or to be liquidated, or (vi) takes corporate action for the purpose of any of the foregoing; or

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(g) a court or governmental authority of competent jurisdiction enters an order (i) appointing, without consent by the Borrower, any Subsidiary of the Borrower or, prior to the occurrence of the Guaranty Termination Date, the Guarantor or any other Subsidiary of the Guarantor, a custodian, receiver, trustee or other officer with similar powers (A) with respect to the Borrower, any Subsidiary of the Borrower or, prior to the occurrence of the Guaranty Termination Date, the Guarantor or any other Subsidiary of the Guarantor or (B) with respect to any substantial part of the Property of the Borrower, any Subsidiary of the Borrower or, prior to the occurrence of the Guaranty Termination Date, the Guarantor or any other Subsidiary of the Guarantor, or (ii) constituting an order for relief or approving a petition for relief or reorganization or any other petition in bankruptcy or for liquidation or to take advantage of any bankruptcy or insolvency law of any jurisdiction, or ordering the dissolution, winding-up or liquidation of the Borrower, any Subsidiary of the Borrower or, prior to the occurrence of the Guaranty Termination Date, the Guarantor or any other Subsidiary of the Guarantor, or any such petition shall be filed against the Borrower, any Subsidiary of the Borrower or, prior to the occurrence of the Guaranty Termination Date, the Guarantor or any other Subsidiary of the Guarantor and such petition shall not be dismissed within 60 days; or

(h) a final judgment or judgments for the payment of money aggregating in excess of $10,000,000 are rendered against the Borrower, any of its Subsidiaries or, prior to the occurrence of the Guaranty Termination Date, the Guarantor and such judgment or judgments are not, within 60 days after entry thereof, bonded, discharged or stayed pending appeal, or are not discharged within 60 days after the expiration of such stay; or

(i) an ERISA Event with respect to the Borrower or, prior to the occurrence of the Guaranty Termination Date, the Guarantor shall have occurred that, when taken together with all other such ERISA Events that have occurred, has resulted or could reasonably be expected to result in a Material Adverse Effect; or

(j) prior to the occurrence of the Guaranty Termination Date, the Guarantor shall fail to observe or perform any of its obligations contained in Article XI or shall renounce in writing its obligations with respect thereto; or

(k) any material provision of this Agreement or any other Loan Document to which the Borrower or Guarantor is a party shall for any reason, except to the extent permitted by the express terms hereof or thereof, cease to be valid and binding on or enforceable against the Borrower or, prior to the occurrence of the Guaranty Termination Date, the Guarantor, or the Borrower or the Guarantor shall so assert in writing; or

(l) Any Change of Control shall occur; or

(m) Any Governmental Approval required to be made or obtained by the Borrower or, prior to the occurrence of the Guaranty Termination Date, the Guarantor in connection with the Transactions shall be rescinded, revoked, otherwise terminated, or amended or modified in any manner which is materially adverse to the interests of the Lenders and the Administrative Agent.

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SECTION 9.02. Remedies. If any Event of Default has occurred and is continuing, then the Administrative Agent shall at the request, or may with the consent, of the Required Lenders, upon notice to the Borrower (i) declare the Commitments and the obligation of each Lender to make or Convert Loans to be terminated, whereupon the same shall forthwith terminate, and/or (ii) declare the principal amount of the Loans outstanding hereunder, all interest thereon and all other amounts payable by the Borrower under this Agreement and the other Loan Documents to be forthwith due and payable, whereupon the outstanding principal amount of the Loans, all such interest, any applicable Prepayment Premium and all such other amounts shall become and be forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Borrower; provided, however, upon the occurrence of any Event of Default specified in Section 9.01(f) or Section 9.01(g) with respect to the Borrower (other than an Event of Default described in clause (i) of Section 9.01(f) or described in clause (vi) of Section 9.01(f) by virtue of the fact that such clause encompasses clause (i) of Section 9.01(f)), (A) the Commitments and the obligation of each Lender to make or Convert Loans shall automatically be terminated, and (B) the principal amount of the Loans outstanding hereunder, all interest thereon, any applicable Prepayment Premium and all other amounts payable by the Borrower under this Agreement and the other Loan Documents shall automatically become and be immediately due and payable, without presentment, demand, protest or any notice of any kind, all of which are hereby expressly waived by the Borrower.

ARTICLE X
THE ADMINISTRATIVE AGENT

SECTION 10.01. Authorization and Action.

(a) Each of the Lenders hereby irrevocably appoints the Administrative Agent as its agent and authorizes the Administrative Agent to take such actions on its behalf and to exercise such powers as are delegated to the Administrative Agent by the terms of the Loan Documents, together with such actions and powers as are reasonably incidental thereto.

(b) Any Lender serving as Administrative Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not the Administrative Agent, and such Lender and its Affiliates may accept deposits from, lend money to and generally engage in any kind of business with the Obligors or any of their Subsidiaries or other Affiliates thereof as if it were not the Administrative Agent hereunder.

(c) The Administrative Agent shall not have any duties or obligations except those expressly set forth in the Loan Documents. Without limiting the generality of the foregoing, (i) the Administrative Agent (in such capacity) shall not be subject to any fiduciary or other implied duties, regardless of whether a Default or an Event of Default has occurred and is continuing, (ii) the Administrative Agent shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated by the Loan Documents that the Administrative Agent is required to exercise in writing by the Required Lenders (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in Section 12.01), and (iii) except as expressly set forth in the Loan Documents, the Administrative Agent shall not have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to the Obligors or any of their Subsidiaries or Affiliates that is communicated to or obtained by the Lender serving as Administrative Agent or any of its Affiliates in any capacity. The Administrative Agent shall not be liable for any action taken or not taken by it with the consent or at the request of the Required Lenders (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in Section

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12.01) or in the absence of its own gross negligence or willful misconduct. The Administrative Agent shall be deemed not to have knowledge of any Default or Event of Default unless and until written notice thereof is given to the Administrative Agent by an Obligor or a Lender (in which case the Administrative Agent shall promptly give a copy of such written notice to the Lenders). The Administrative Agent shall not be responsible to any of the Lenders for or have any duty to ascertain or inquire into (A) any statement, warranty or representation made in or in connection with any Loan Document, (B) the contents of any certificate, report or other document delivered thereunder or in connection therewith, (C) the performance or observance of any of the covenants, agreements or other terms or conditions set forth in any Loan Document, (D) the validity, enforceability, effectiveness or genuineness of any Loan Document or any other agreement, instrument or document, or (E) the satisfaction of any condition set forth in Article VI or elsewhere in any Loan Document, other than to confirm receipt of items expressly required to be delivered to the Administrative Agent.

(d) The Administrative Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing believed by it to be genuine and to have been signed or sent by the proper Person. The Administrative Agent also may rely upon any statement made to it orally or by telephone and believed by it to be made by the proper Person, and shall not incur any liability for relying thereon. The Administrative Agent may consult with legal counsel (who may be counsel for any Obligor), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in good faith in accordance with the advice of any such counsel, accountants or experts.

(e) The Administrative Agent may perform any and all its duties and exercise its rights and powers by or through one or more sub-agents appointed by the Administrative Agent. The Administrative Agent and any such sub-agent may perform any and all its duties and exercise its rights and powers through their respective Related Parties. The exculpatory provisions of the preceding subsections of this Section 10.01 shall apply to any such sub-agent and to the Related Parties of the Administrative Agent and any such sub-agent, and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as Administrative Agent.

(f) Subject to the appointment and acceptance of a successor Administrative Agent as provided in this subsection (f), the Administrative Agent may resign at any time by notifying the Lenders and the Obligors. Upon any such resignation, the Required Lenders shall have the right, in consultation with the Borrower, to appoint a successor. If no successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days after the retiring Administrative Agent gives notice of its resignation, then the retiring Administrative Agent may, on behalf of the Lenders, appoint a successor Administrative Agent which shall be a Lender or an Affiliate of a Lender. Upon the acceptance of its appointment as Administrative Agent hereunder by a successor, such successor shall succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations hereunder. The fees payable by the Borrower to a successor Administrative Agent shall be the same as those payable to its predecessor unless otherwise agreed between the Borrower and such successor. After the Administrative Agent’s resignation hereunder, the provisions of this Article and Section 12.04 shall continue in effect for the benefit of such retiring Administrative Agent, its sub-agents and their respective Related Parties in respect of any actions taken or omitted to be taken by any of them while it was acting as Administrative Agent.

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(g) Each Lender acknowledges that it has independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement, any other Loan Document or any related agreement or any document furnished hereunder or thereunder.

SECTION 10.02. Indemnification. The Lenders agree to indemnify the Administrative Agent (to the extent not reimbursed by the Obligors), ratably in accordance with their respective Proportionate Shares, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against the Administrative Agent in any way relating to or arising out of this Agreement or any other Loan Document or any action taken or omitted by the Administrative Agent under this Agreement or any other Loan Document, provided that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the Administrative Agent’s gross negligence or willful misconduct, as determined by the final and nonappealable judgment of a court of competent jurisdiction. Without limitation of the foregoing, each Lender agrees to reimburse the Administrative Agent promptly upon demand for its ratable share of any out-of-pocket expenses (including counsel fees) incurred by the Administrative Agent in connection with the preparation, execution, syndication, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement or any other Loan Document to the extent that the Administrative Agent is entitled to reimbursement for such expenses pursuant to Section 12.04 but is not reimbursed for such expenses by the Obligors.

ARTICLE XI
GUARANTY

SECTION 11.01. The Guaranty. The Guarantor hereby guarantees to each Lender, the Administrative Agent and their respective successors and assigns the prompt payment in full of all unpaid principal of and interest on (including, without limitation, interest accruing after the maturity of the Loans and interest accruing after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to the Borrower, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding) the Loans and all other Obligations of the Borrower to the Administrative Agent or any Lender, whether direct or indirect, absolute or contingent, due or to become due, or now existing or hereafter incurred, which may arise under, out of, or in connection with, this Agreement, any other Loan Document or any other document made, delivered or given in connection herewith or therewith, whether on account of principal, interest, fees, indemnities, Prepayment

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Premium, costs, expenses (including, without limitation, all reasonable fees, charges and disbursements of counsel to the Administrative Agent or any Lender that are required to be paid by the Borrower pursuant hereto) or otherwise, in each case strictly in accordance with the express terms hereof (such obligations of the Borrower being herein collectively called the “Guaranteed Obligations”), and agrees to pay any and all expenses (including, without limitation, reasonable fees and expenses of counsel) incurred by the Administrative Agent or the Lenders in enforcing any rights under this Article XI. Without limiting the generality of the foregoing, the Guarantor’s liability shall extend to all amounts that constitute part of the Guaranteed Obligations and would be owed by the Borrower to the Administrative Agent or the Lenders under this Agreement and the other Loan Documents but for the fact that they are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving the Borrower. For the avoidance of doubt, each reference to a Lender in this Article XI shall include Union Bank in its capacity as a counterparty to any Interest Rate Protection Agreement.

In addition, the Guarantor hereby further agrees, as an independent obligation, that, if the Borrower fails to pay in full when expressed to be due (whether at stated maturity, upon acceleration or optional prepayment or otherwise) any of the Guaranteed Obligations strictly in accordance with the express terms hereof, the Guarantor will promptly pay the same, without any demand or notice whatsoever, and that in the case of any extension of time of payment or renewal of any of the Guaranteed Obligations, the same will be paid in full when expressed to be due (whether at stated maturity, upon acceleration or optional prepayment or otherwise) in accordance with the terms of such extension or renewal.

SECTION 11.02. Obligations Unconditional. The obligations of the Guarantor under Section 11.01 are irrevocable, absolute and unconditional, irrespective of the value, genuineness, validity, regularity or enforceability of the obligations of the Borrower hereunder or under any other agreement or instrument referred to herein and, to the fullest extent permitted by applicable law, irrespective of any other circumstance whatsoever that might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor, it being the intent of this Section 11.02 that the obligations of the Guarantor hereunder shall be irrevocable, absolute and unconditional under any and all circumstances. Without limiting the generality of the foregoing, the occurrence of one or more of the following shall not preclude the exercise by the Lenders or the Administrative Agent of any right, remedy or power hereunder or alter or impair the liability of the Guarantor hereunder, which shall remain irrevocable, absolute and unconditional as described above:

(a) at any time or from time to time, without notice to the Guarantor, the time for any performance of or compliance with any of the Guaranteed Obligations shall be extended, waived or renewed, or the Borrower shall be released from any of the Guaranteed Obligations, or any of the Guaranteed Obligations shall be subordinated in right of payment to any other liability of the Borrower;

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(b) any of the acts mentioned herein or any agreement or instrument referred to herein or otherwise in connection with the Guaranteed Obligations shall be done or omitted;

(c) any of the Guaranteed Obligations shall be accelerated or otherwise become due prior to their stated maturity, or any of the Guaranteed Obligations shall be amended, supplemented, restated or otherwise modified in any respect, or any right hereunder or under any agreement or instrument referred to herein or otherwise in connection with the Guaranteed Obligations shall be waived, or any other guarantee of any of the Guaranteed Obligations or any security therefor shall be released, substituted or exchanged in whole or in part or otherwise dealt with;

(d) the Borrower or any other guarantor or obligor in respect of any of the Guaranteed Obligations (i) becomes insolvent or is unable to pay its debts or fails or admits in writing its inability generally to pay its debts as they become due, (ii) makes a general assignment, arrangement or composition with or for the benefit of its creditors, (iii) institutes or has instituted against it a proceeding seeking a judgment of insolvency or bankruptcy or any other relief under any bankruptcy or insolvency law or other similar law affecting creditors’ rights, or a petition is presented for its winding-up or liquidation, (iv) seeks or becomes subject to the appointment of an administrator, provisional liquidator, conservator, receiver, trustee, custodian or other similar official for it or for all or substantially all its assets, (v) has a secured party take possession of all or substantially all its assets or has a distress, execution, attachment, sequestration or other legal process levied, enforced or sued on or against all or substantially all its assets or (vi) causes or is subject to any event with respect to it which, under the applicable laws of any jurisdiction, has an analogous effect to any of the events specified in clauses (i), (ii), (iii), (iv) or (v) above (any proceeding referred to in this paragraph is herein referred to as an “Insolvency Proceeding”);

(e) this Agreement or any agreement or instrument referred to herein shall be rejected (including pursuant to Section 365 of the United States Bankruptcy Code, as amended) by an administrator, provisional liquidator, conservator, receiver, trustee, custodian or other similar official for the Borrower or for all or substantially all of the Borrower’s assets in any Insolvency Proceeding;

(f) the occurrence of any Default or Event of Default hereunder or the occurrence of any similar event (howsoever described) under any agreement or instrument referred to herein;

(g) except as otherwise provided in Section 8.02(b)(ii), any consolidation or amalgamation of the Borrower with, any merger of the Borrower with or into, or any transfer by the Borrower of all or substantially all of the Borrower’s assets to, another Person, any change in the legal or beneficial ownership of ownership interests issued by the Borrower, or any other change whatsoever in the objects, capital structure, constitution or business of the Borrower;

(h) any delay, failure or inability of the Borrower or any other guarantor or obligor in respect of any of the Guaranteed Obligations to perform, willful or otherwise, any provision hereunder or any agreement or instrument referred to herein or otherwise in connection with the Guaranteed Obligations;

(i) the failure or breach of any representation or warranty (whether written or oral) made by the Borrower or any other Person herein or in any agreement or instrument referred to herein or otherwise in connection with the Guaranteed Obligations; or any event or circumstance constituting fraud in the inducement or any other similar event or circumstance;

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(j) any action or failure to act by any Lender or the Administrative Agent that adversely affects the Guarantor’s right of subrogation arising by reason of any performance by the Guarantor of its obligations under this Article XI;

(k) any suit or other action brought by, or any judgment in favor of, any beneficiaries or creditors of, the Borrower or any other Person for any reason whatsoever, including any suit or action in any way disaffirming, repudiating, rejecting or otherwise calling into question any issue, matter or thing in respect of this Agreement, the other Loan Documents or any agreement or instrument referred to herein or therein or otherwise in connection with the Guaranteed Obligations;

(l) the existence of any claim, set-off, defense or other right which the Guarantor may have at any time against the Administrative Agent, any Lender or any other Person, whether in connection with this Guaranty, the Transactions or any unrelated transaction;

(m) any lack or limitation of status or of power, incapacity or disability of the Borrower or any other guarantor or obligor in respect of any of the Guaranteed Obligations; or

(n) any change in the laws, rules or regulations of any jurisdiction, or any present or future action or order of any Governmental Authority, amending, varying or otherwise affecting the validity or enforceability of any of the Guaranteed Obligations or the obligations of any other guarantor or obligor in respect of any of the Guaranteed Obligations.

The Guarantor hereby expressly waives diligence, presentment, demand of payment, protest and all notices whatsoever, and any requirement that the Lenders or the Administrative Agent exhaust any right, power or remedy (including filing any proof of claim relating to the Guaranteed Obligations in any Insolvency Proceeding) or proceed against the Borrower under this Agreement, any other Loan Document or any agreement or instrument referred to herein or therein, or against any other Person under any other guarantee of, or security for, any of the Guaranteed Obligations, it being understood that this Article XI is a guarantee of payment and not just collection.

SECTION 11.03. Subrogation. The Guarantor hereby agrees that until the payment and satisfaction in full of all Guaranteed Obligations it shall not exercise any right or remedy (including the filing of any proof of claim in any Insolvency Proceeding) against the Borrower or any other guarantor or obligor in respect of any of the Guaranteed Obligations or any security therefor arising by reason of any performance by the Guarantor of its obligations under this Article XI, whether by subrogation or otherwise. In the event that, prior to the payment and satisfaction in full of all Guaranteed Obligations, any amount is received by the Guarantor from the Borrower in respect of the performance by the Guarantor of its obligations under this Article XI, whether by subrogation or otherwise, the Guarantor will promptly following receipt thereof pay such amount to the Administrative Agent for application to any Guaranteed Obligations then owing, whether matured or unmatured.

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SECTION 11.04. Reinstatement. The obligations of the Guarantor under this Article XI shall be automatically reinstated if and to the fullest extent that for any reason any payment by or on behalf of the Borrower in respect of the Guaranteed Obligations is rescinded or must be otherwise restored by any holder of any of the Guaranteed Obligations, whether as a result of any Insolvency Proceeding or otherwise, all as though such payment had not been made, and the Guarantor agrees that it will indemnify each Lender and the Administrative Agent on demand for all reasonable costs and expenses (including the reasonable fees and disbursements of counsel) incurred by such Lender and the Administrative Agent in connection with such rescission or restoration, including any such costs and expenses incurred in defending against any claim alleging that such payment constituted a preference, fraudulent transfer or similar payment under any bankruptcy, insolvency or similar law.

SECTION 11.05. Remedies Unaffected. The Guarantor agrees that, as between the Guarantor and the Lenders and the Administrative Agent, the Guaranteed Obligations may be declared to be forthwith due and payable as provided herein (and shall be deemed to have become automatically due and payable in the circumstances provided in the proviso contained in Section 9.02) for purposes of Section 11.01, notwithstanding any stay (including under the United States Bankruptcy Code, as amended), injunction or other prohibition preventing the same as against the Borrower, and that, in such event, the Guaranteed Obligations (whether or not due and payable by the Borrower) shall forthwith become due and payable by the Guarantor for purposes of Section 11.01.

SECTION 11.06. Continuing Guarantee; Liability in Respect of Successor.

(a) The guarantee in this Article XI is a continuing guarantee, and shall apply to all Guaranteed Obligations whenever arising.

(b) In the event that the Borrower shall consolidate or amalgamate with, or merge with or into, or transfer all or substantially all its assets to, another Person, except as otherwise provided in Section 8.02(b)(ii), the Guarantor will continue to be obligated hereunder in respect of the Guaranteed Obligations, whether or not the Guaranteed Obligations are assumed by such Person, and each reference herein to the Borrower shall thereafter instead be a reference to such Person.

(c) Notwithstanding any other provision contained in this Article XI to the contrary, this Guaranty shall automatically terminate upon the occurrence of the Guaranty Termination Date.

ARTICLE XII
MISCELLANEOUS

SECTION 12.01. Amendments, Etc. No amendment or waiver of any provision of this Agreement or any other Loan Document, nor consent to any departure by any Obligor therefrom, shall in any event be effective unless the same shall be in writing and signed by the Required Lenders, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no amendment, waiver or consent shall, unless in writing and signed by all the Lenders, do any of the following: (i) waive, modify or eliminate any of the conditions specified in Article VI, (ii) increase the Commitments of the Lenders or subject the Lenders to any additional obligations, (iii) reduce the principal of, or interest on, any Loan, any Applicable Margin, any Prepayment Premium or any fees or other amounts payable hereunder, (iv) extend the Termination Date or postpone any

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date fixed for any payment of principal of, or interest on, any Loan, any applicable Prepayment Premium or any fees or other amounts payable hereunder, (v) change the definition of “Required Lenders” contained in Section 1.01 or change any other provision that specifies the percentage of the Commitments or of the aggregate unpaid principal amount of the Loans or the number of Lenders which shall be required for the Lenders or any of them to take any action hereunder, (vi) amend any Loan Document in a manner intended to prefer one or more Lenders over any other Lenders, (vii) release the Guaranty, in whole or in part, except for any such release expressly permitted hereunder, or change the definition of “Guaranty Termination Date” contained in Section 1.01, or (viii) amend, waive or modify this Section 12.01; and provided, further, that no amendment, waiver or consent shall, unless in writing and signed by the Administrative Agent in addition to the Lenders required above to take such action, affect the rights or duties of the Administrative Agent under this Agreement or any other Loan Document. Any request from the Borrower for any amendment, waiver or consent under this Section 12.01 shall be addressed to the Administrative Agent.

SECTION 12.02. Notices, Etc. All notices and other communications provided for hereunder and under the other Loan Documents shall be in writing (including telegraphic, facsimile, telex or cable communication) and mailed, telegraphed, telecopied, telexed, cabled or delivered, (i) if to the Borrower, at its address at One South Church Avenue, Suite 1820, Tucson, Arizona 85701, Attention: Chief Financial Officer (Telecopy No. (520) 884-3612); (ii) if to the Guarantor, at its address at One South Church Avenue, Suite 200, Tucson, Arizona 85701, Attention: Chief Financial Officer (Telecopy No. (520) 884-3612); (iii) if to any Lender, at its address for notices specified below its name on the signature pages hereof or in the applicable Lender Assignment pursuant to which it became a Lender; and (iv) if to the Administrative Agent, at its address at 445 South Figueroa Street, Los Angeles, California 90071, Attention: Kevin Zitar (Telecopy No. (213) 236-4096); or, as to each party, at such other address as shall be designated by such party in a written notice to the other parties. All such notices and communications shall, when mailed, telegraphed, telecopied, telexed or cabled, be effective five days after being deposited in the mails, or when delivered to the telegraph company, telecopied, confirmed by telex answerback or delivered to the cable company, respectively, except that notices and communications to the Administrative Agent pursuant to Article II, Article III, Article IV, Article V or Article X shall not be effective until received by the Administrative Agent.

SECTION 12.03. No Waiver of Remedies. No failure on the part of any Lender or the Administrative Agent to exercise, and no delay in exercising, any right hereunder or under any other Loan Document shall operate as a waiver thereof; nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law.

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SECTION 12.04. Costs, Expenses and Indemnification. (a) The Borrower agrees to pay, promptly after delivery to the Borrower of a reasonably detailed statement therefor, all reasonable costs and expenses of the Administrative Agent in connection with the preparation, negotiation, syndication, execution and delivery of the Loan Documents and any proposed modification, amendment, waiver or consent relating to any Loan Document, including the reasonable fees and disbursements of counsel to the Administrative Agent with respect thereto and with respect to the administration of, and advising the Administrative Agent as to its rights and responsibilities under, this Agreement and the other Loan Documents. The Borrower further agrees to pay, promptly after delivery to the Borrower of a reasonably detailed statement therefor, all costs and expenses of the Administrative Agent and each Lender (including the fees and disbursements of counsel to the Administrative Agent and counsel for each Lender) in connection with the enforcement (whether through negotiations, legal proceedings or otherwise) of this Agreement, the other Loan Documents and the other documents to be delivered hereunder.

(b) The Borrower shall indemnify the Administrative Agent, each Lender, and each Related Party of any of the foregoing Persons (each such Person being called an “Indemnified Person”) against, and hold each Indemnified Person harmless from, any and all losses, claims, damages, liabilities and related expenses, including the reasonable fees, charges and disbursements of any counsel for any Indemnified Person (whether or not such Indemnified Person is named as a party to any proceeding or is otherwise subjected to judicial or legal process arising from any such proceeding), incurred by or asserted against any Indemnified Person arising out of, in connection with, or as a result of (i) the execution or delivery of any Loan Document or any other agreement or instrument contemplated hereby or thereby, the performance by the parties to the Loan Documents of their respective obligations thereunder or the consummation of the transactions contemplated hereby or thereby, (ii) any Loan or the use or proposed use of the proceeds therefrom, (iii) any actual or alleged presence or release of any Hazardous Materials on or from any property owned or operated by the Borrower or any of its Affiliates, or any Environmental Liability related in any way to the Borrower or any of its Affiliates, or (iv) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory; provided that such indemnity shall not, as to any Indemnified Person, be available to the extent that such losses, claims, damages, liabilities or related expenses are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Indemnified Person.

(c) To the extent permitted by applicable law, the Borrower shall not assert, and the Borrower hereby waives, any claim against any Indemnified Person, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement, any other Loan Document or any agreement or instrument contemplated hereby, the Transactions, any Loan or the use of the proceeds thereof.

(d) The Borrower’s obligations under this Section 12.04 shall survive the repayment of all amounts owing to the Lenders and the Administrative Agent under the Loan Documents and the termination of the Commitments. If and to the extent that the obligations of the Borrower under this Section 12.04 are unenforceable for any reason, the Borrower agrees to make the maximum contribution to the payment and satisfaction thereof which is permissible under applicable law, which contribution shall in any event not exceed the amount that the Borrower would otherwise have been obligated to pay under this Section 12.04.

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SECTION 12.05. Right of Set-off. (a) Upon (i) the occurrence and during the continuance of any Event of Default and (ii) the making of the request or the granting of the consent specified by Section 9.02 to authorize the Administrative Agent to declare the principal amount outstanding hereunder to be due and payable pursuant to the provisions of Section 9.02, each Lender is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Lender to or for the credit or the account of the Borrower or, prior to the occurrence of the Guaranty Termination Date, the Guarantor, against any and all of the obligations of the Borrower or the Guarantor, respectively, to such Lender existing under any Loan Document and any Promissory Notes held by such Lender, irrespective of whether or not such Lender shall have made any demand under such Loan Document or such Promissory Notes, as the case may be, and although such obligations may be unmatured. Each Lender agrees to notify promptly the Borrower or the Guarantor (as applicable) after any such set-off and application made by such Lender, provided that the failure to give such notice shall not affect the validity of such set-off and application. The rights of each Lender under this Section 12.05 are in addition to other rights and remedies (including other rights of set-off) which such Lender may have.

(b) The Borrower agrees that it shall have no right of off-set, deduction or counterclaim in respect of its obligations hereunder, and that the obligations of the Lenders hereunder are several and not joint. Nothing contained herein shall constitute a relinquishment or waiver of the Borrower’s rights to any independent claim that the Borrower may have against the Administrative Agent or any Lender for the Administrative Agent’s or such Lender’s, as the case may be, gross negligence or willful misconduct, but no Lender shall be liable for any such conduct on the part of the Administrative Agent or any other Lender, and the Administrative Agent shall be liable for any such conduct on the part of any Lender.

SECTION 12.06. Binding Effect. This Agreement shall become effective when it shall have been executed by the Obligors and the Administrative Agent and when the Administrative Agent shall have been notified by each Lender that such Lender has executed it and thereafter shall be binding upon and inure to the benefit of the Obligors, the Administrative Agent and each Lender and their respective successors and assigns, except that no Obligor shall have the right to assign its rights hereunder or any interest herein without the prior written consent of the Lenders.

SECTION 12.07. Assignments and Participation. (a) Each Lender may, with the consent of the Borrower and the Administrative Agent (such consent not to be unreasonably withheld or delayed and, in the case of the Borrower, shall not be required if an Event of Default has occurred and is continuing), assign to one or more banks or other financial institutions all or a portion of its rights and obligations under this Agreement and the other Loan Documents (including the Loans owing to it and any Promissory Notes held by it); provided, however, that (i) each such assignment shall be of a constant, and not a varying, percentage of all of the assigning Lender’s rights and obligations under this Agreement, (ii) the amount of the Loans of the assigning Lender being assigned pursuant to each such assignment (determined as of the date of the Lender Assignment with respect to such assignment) shall in no event be less than the lesser of the aggregate amount of such Lender’s Loans and $5,000,000, (iii) each such assignment shall be to an Eligible Assignee, and (iv) the parties to each such assignment shall execute and deliver to the Administrative Agent, for its acceptance and recording in the Register, a Lender Assignment, together with any Promissory Notes subject to such assignment and a

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processing and recordation fee (payable by the assigning Lender or such assignee) of $3,500; and provided further, however, that the consent of the Borrower and the Administrative Agent shall not be required for any assignments by a Lender to any of its Affiliates or to any other Lender or any of its Affiliates. Upon such execution, delivery, acceptance and recording, from and after the effective date specified in each Lender Assignment, which effective date shall be at least five Business Days after the execution thereof (or such earlier date acceptable to the Administrative Agent), (A) the assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Lender Assignment, have the rights and obligations of a Lender hereunder and (B) the Lender assignor thereunder shall, to the extent that rights and obligations hereunder have been assigned by it to an Eligible Assignee pursuant to such Lender Assignment, relinquish its rights and be released from its obligations under this Agreement (and, in the case of a Lender Assignment covering all or the remaining portion of an assigning Lender’s rights and obligations under this Agreement, such Lender shall cease to be a party hereto); provided, however, that the limitation set forth in clause (iii) above shall not apply if an Event of Default shall have occurred and be continuing and the Administrative Agent shall have declared any Loans to be, or any Loans shall have automatically become, immediately due and payable hereunder. Notwithstanding anything to the contrary contained in this Agreement, any Lender may at any time assign all or any portion of the Loans owing to it to any Affiliate of such Lender. No such assignment, other than to an Eligible Assignee in accordance with this Section 12.07, shall release the assigning Lender from its obligations hereunder.

(b) By executing and delivering a Lender Assignment, the Lender assignor thereunder and the assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (i) other than as provided in such Lender Assignment, such assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with any Loan Document or the execution, legality, validity, enforceability, genuineness, sufficiency or value of any Loan Document or any other instrument or document furnished pursuant thereto; (ii) such assigning Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of any Obligor or the performance or observance by any Obligor of any of its obligations under any Loan Document or any other instrument or document furnished pursuant thereto; (iii) such assignee confirms that it has received a copy of each Loan Document, together with copies of the financial statements referred to in Section 7.01(d) of this Agreement and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Lender Assignment; (iv) such assignee will, independently and without reliance upon the Administrative Agent, such assigning Lender or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Loan Documents; (v) such assignee confirms that it is an Eligible Assignee (unless an Event of Default shall have occurred and be continuing and the Administrative Agent shall have declared any Loans to be immediately due and payable hereunder, in which case no such confirmation is necessary); (vi) such assignee appoints and authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers under the Loan Documents as are delegated to the Administrative Agent by the terms thereof, together with such powers as are reasonably incidental thereto; and (vii) such assignee agrees that it will perform in accordance with their terms all of the obligations which by the terms of the Loan Documents are required to be performed by it as a Lender.

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(c) The Administrative Agent shall maintain at its address referred to in Section 12.02 a copy of each Lender Assignment delivered to and accepted by it and a register for the recordation of the names and addresses of the Lenders and the Commitment of, and principal amount of the Loans owing to, each Lender from time to time (the “Register”). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Obligors, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register as a Lender hereunder for all purposes of this Agreement. The Register shall be available for inspection by the Borrower or any Lender at any reasonable time and from time to time upon reasonable prior notice.

(d) Upon its receipt of a Lender Assignment executed by an assigning Lender and an assignee representing that it is an Eligible Assignee (unless an Event of Default shall have occurred and be continuing and the Administrative Agent shall have declared any Loans to be immediately due and payable hereunder, in which case no such representation is necessary), together with any Promissory Notes subject to such assignment, the processing and recordation fee referred to in subsection (a) above and any written consent to such assignment required by subsection (a) above, the Administrative Agent shall, if such Lender Assignment has been completed and is in substantially the form of Exhibit D, (i) accept such Lender Assignment, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the Borrower. New and/or replacement Promissory Notes payable to the assignee and the assigning Lender (if the assigning Lender assigned less than all of its rights and obligations hereunder) shall be issued upon request pursuant to Section 3.08 and shall be dated the effective date of such Lender Assignment.

(e) Each Lender may sell participations to one or more banks or other financial institutions (other than, for the avoidance of doubt, the Borrower or any Affiliate or Subsidiary of the Borrower) (a “Participant”) in or to all or a portion of its rights and obligations under the Loan Documents (including all or a portion of the Loans owing to it and any Promissory Notes held by it); provided, however, that (i) such Lender’s obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) such Lender shall remain the holder of any such Promissory Notes for all purposes of this Agreement, and (iv) the Obligors, the Administrative Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under this Agreement. Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and the other Loan Documents and to approve any amendment, modification or waiver of any provision of this Agreement or any other Loan Document; provided, that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, modification or waiver described in the first proviso to Section 12.01 that affects such Participant. Subject to subsection (f) below, the Obligors agree that each Participant shall be entitled to the benefits of Sections 4.04, 5.01 and 5.03 (and subject to the related obligations under such Sections) to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to subsection (a) above. To the extent permitted by law, each Participant shall also be entitled to the benefits of Section 12.05(a) as though it were a Lender, provided such Participant agrees to be subject to Section 4.03 as though it were a Lender.

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(f) A Participant shall not be entitled to receive any greater payment under Section 4.04, 5.01 or 5.03 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant. A Participant that would be a Foreign Lender if it were a Lender shall not be entitled to the benefits of Section 4.04 unless the Borrower is notified of the participation sold to such Participant and such Participant agrees, for the benefit of the Borrower, to comply with Section 4.04 as though it were a Lender.

(g) Any Lender may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section 12.07, disclose to the assignee or Participant or proposed assignee or Participant, any information relating to the Obligors furnished to such Lender by or on behalf of any Obligor; provided that prior to any such disclosure, the assignee or Participant or proposed assignee or Participant shall agree, in accordance with the terms of Section 12.08, to preserve the confidentiality of any Confidential Information received by it from such Lender.

(h) If any Lender (or any Participant to which such Lender has sold a participation) shall make any demand for payment under Section 5.01, then within 30 days after any such demand (if, but only if, such demanded payment has been made by the Borrower), the Borrower may, with the approval of the Administrative Agent (which approval shall not be unreasonably withheld) and provided that no Default or Event of Default shall then have occurred and be continuing, demand that such Lender assign, at the sole cost and expense of the Borrower, in accordance with this Section 12.07 to one or more Eligible Assignees designated by the Borrower, all (but not less than all) of the Loans owing to such Lender within the period ending on the later to occur of (x) the last day of the 30-day period described above and (y) the last day of the longest of the then current Interest Periods for such Loans. If any such Eligible Assignee designated by the Borrower shall fail to consummate such assignment on terms acceptable to such Lender, or if the Borrower shall fail to designate any such Eligible Assignees for all or part of such Lender’s Loans, then such demand by the Borrower shall become ineffective; it being understood for purposes of this subsection (h) that such assignment shall be conclusively deemed to be on terms acceptable to such Lender, and such Lender shall be compelled to consummate such assignment to an Eligible Assignee designated by the Borrower, if such Eligible Assignee (1) shall agree to such assignment by entering into a Lender Assignment with such Lender and (2) shall offer compensation to such Lender in an amount equal to all amounts then owing by the Borrower to such Lender hereunder and under any Promissory Notes held by such Lender, whether for principal, interest, fees, costs or expenses (other than the demanded payment referred to above, and payable by the Borrower as a condition to the Borrower’s right to demand such assignment) or otherwise (including, without limitation, to the extent not paid by the Borrower, any payments required pursuant to Section 5.03). Notwithstanding anything set forth above in this subsection (h) to the contrary, the Borrower shall not be entitled to compel the assignment by any Lender demanding payment under Section 5.01 of its Loans if, prior to or promptly following any such demand by the Borrower, such Lender shall have changed or shall change, as the case may be, its Applicable Lending Office for its Eurodollar Rate Loans so as to eliminate the further incurrence of such increased cost. In furtherance of the foregoing, any such Lender demanding payment or giving notice as provided above agrees to use reasonable efforts to so change its Applicable Lending Office if, to do so, would not result in the incurrence by such Lender of additional costs or expenses which it deems material or, in the sole judgment of such Lender, be inadvisable for regulatory, competitive or internal management reasons.

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(i) Anything in this Section 12.07 to the contrary notwithstanding, any Lender may assign and pledge all or any portion of the Loans owing to it to any Federal Reserve Bank (and its transferees) as collateral security pursuant to Regulation A of the Board and any Operating Circular issued by such Federal Reserve Bank. No such assignment shall release the assigning Lender from its obligations hereunder.

(j) Notwithstanding anything to the contrary contained herein, any Lender (a “Granting Lender”) may grant to a special purpose funding vehicle (an “SPC”), identified as such in writing from time to time by the Granting Lender to the Administrative Agent and the Borrower, the option to fund all or any part of any Loan that such Granting Lender would otherwise be obligated to fund pursuant to this Agreement; provided that (i) nothing herein shall constitute a commitment by any SPC to make any Loan, and (ii) nothing herein shall excuse any Granting Lender from its obligations hereunder. The funding of a Loan by an SPC hereunder shall utilize the Commitment of the Granting Lender to the same extent, and as if, such Loan were funded by such Granting Lender. Each party hereto hereby agrees that no SPC shall be liable for any indemnity or similar payment obligation under this Agreement for which a Lender would otherwise be liable for so long as, and to the extent, the Granting Lender provides such indemnity or makes such payment. In furtherance of the foregoing, each Lender hereby agrees (which agreement shall survive the termination of this Agreement) that, prior to the date that is one year and one day after the payment in full of all outstanding commercial paper or other senior indebtedness of any SPC, it will not institute against, or join any other Person in instituting against, such SPC any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings under the laws of the United States or any State thereof. In addition, notwithstanding anything to the contrary contained in this subsection (j), any SPC may, with prior notice to, but without the prior written consent of, the Borrower and the Administrative Agent and without paying any processing fee therefor, assign all or a portion of its interests in any Loans to the Granting Lender or to any financial institutions (consented to by the Borrower and the Administrative Agent) providing liquidity and/or credit support to or for the account of such SPC to support the funding or maintenance of Loans. This subsection (j) may not be amended without the prior written consent of each Granting Lender, all or any part of whose Loans are being funded by an SPC at the time of such amendment. Notwithstanding the foregoing provisions of this subsection, (1) an SPC shall not be deemed to be a Lender or a Participant and shall have no rights under this Agreement except as provided in this subsection (j), and in particular, but not by way of limitation, shall have no rights to compensation for increased costs pursuant to Section 4.04 or Section 5.01, (2) the Granting Lender’s obligations under this Agreement (including its Commitment to the Borrower hereunder) shall remain unchanged, (3) the Granting Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (4) the Granting Lender shall remain the holder of any Promissory Notes for all purposes of this Agreement, (5) the Obligors, the Administrative Agent and the other Lenders shall continue to deal solely and directly with the Granting Lender in connection with such Granting Lender’s rights and obligations under this Agreement, and (6) the Granting Lender shall indemnify and hold the Borrower harmless from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be incurred or shall arise as a result of any grant to an SPC contemplated hereunder.

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SECTION 12.08. Confidentiality. In connection with the negotiation and administration of this Agreement and the other Loan Documents, each Obligor has furnished and will from time to time furnish to the Administrative Agent and the Lenders (each, a “Recipient”) written information which is identified to the Recipient when delivered as confidential (such information, other than any such information which (a) was publicly available, or otherwise known to the Recipient, at the time of disclosure, (b) subsequently becomes publicly available other than through any act or omission by the Recipient or (c) otherwise subsequently becomes known to the Recipient other than through a Person whom the Recipient knows to be acting in violation of his or its obligations to any Obligor, being hereinafter referred to as “Confidential Information”). The Recipient will not knowingly disclose any such Confidential Information to any third party (other than to those persons who have a confidential relationship with the Recipient), and will take all reasonable steps to restrict access to such information in a manner designed to maintain the confidential nature of such information, in each case until such time as the same ceases to be Confidential Information or as any Obligor may otherwise instruct. It is understood, however, that the foregoing will not restrict the Recipient’s ability to freely exchange such Confidential Information with its Affiliates or with prospective participants in or assignees of the Recipient’s position herein, but the Recipient’s ability to so exchange Confidential Information shall be conditioned upon any such Affiliate’s or prospective participant’s or assignee’s (as the case may be) entering into an agreement as to confidentiality similar to this Section 12.08. It is further understood that the foregoing will not prohibit the disclosure of any or all Confidential Information if and to the extent that such disclosure may be required (i) by a regulatory agency or otherwise in connection with an examination of the Recipient’s records by appropriate authorities, (ii) pursuant to court order, subpoena or other legal process, (iii) otherwise as required by law, or (iv) in order to protect such Recipient’s interests or its rights or remedies hereunder or under the other Loan Documents; in the event of any required disclosure under clause (ii), (iii) or (iv), above, the Recipient agrees to use reasonable efforts to inform the Obligors as promptly as practicable to the extent not prohibited by law.

SECTION 12.09. WAIVER OF JURY TRIAL. THE BORROWER, THE GUARANTOR, THE ADMINISTRATIVE AGENT AND THE LENDERS EACH HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY OTHER INSTRUMENT OR DOCUMENT DELIVERED HEREUNDER OR THEREUNDER.

SECTION 12.10. Governing Law; Submission to Jurisdiction. This Agreement and the other Loan Documents shall be governed by, and construed in accordance with, the laws of the State of New York. The Borrower, the Guarantor, the Lenders and the Administrative Agent each (a) irrevocably submits to the non-exclusive jurisdiction of any New York State court or Federal court sitting in New York City in any action arising out of any Loan Document, (b) agrees that all claims in such action may be decided in such court, (c) waives, to the fullest extent it may effectively do so, the defense of an inconvenient forum and (d) consents to the service of process by mail. A final judgment in any such action shall be conclusive and may be enforced in other jurisdictions. Nothing herein shall affect the right of any party to serve legal process in any manner permitted by law or affect its right to bring any action in any other court.

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SECTION 12.11. Relation of the Parties; No Beneficiary. No term, provision or requirement, whether express or implied, of any Loan Document, or actions taken or to be taken by any party thereunder, shall be construed to create a partnership, association, or joint venture between such parties or any of them. No term or provision of the Loan Documents shall be construed to confer a benefit upon, or grant a right or privilege to, any Person other than the parties hereto. The Obligors hereby acknowledge that none of the Administrative Agent or the Lenders has any fiduciary relationship with or fiduciary duty to any Obligor arising out of or in connection with this Agreement or any of the other Loan Documents, and the relationship between the Administrative Agent and the Lenders, on the one hand, and the Obligors, on the other hand, in connection herewith or therewith is solely, with respect to the Borrower, that of creditor and debtor and, with respect to the Guarantor, that of beneficiary and guarantor.

SECTION 12.12. Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same Agreement.

SECTION 12.13. Survival of Agreement. All covenants, agreements, representations and warranties made herein and in the certificates pursuant hereto shall be considered to have been relied upon by the Administrative Agent and the Lenders and shall survive the making by the Lenders of the Loans and the execution and delivery to the Lenders of any Promissory Notes evidencing the Loans and shall continue in full force and effect so long as any Promissory Note or any amount due hereunder or under any other Loan Document is outstanding and unpaid.

SECTION 12.14. Patriot Act Notice. Each Lender and the Administrative Agent (for itself and not on behalf of any other party) hereby notifies the Obligors that, pursuant to the requirements of the USA Patriot Act, Title III of Pub. L. 107-56, signed into law October 26, 2001 (the “Patriot Act”), it is required to obtain, verify and record information that identifies each Obligor, which information includes the name and address of each Obligor and other information that will allow such Lender or the Administrative Agent, as applicable, to identify each Obligor in accordance with the Patriot Act.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written.

UNS ELECTRIC, INC., as Borrower
By:	/s/ Kentton C. Grant
	Name:	Kentton C. Grant
	Title:	Vice President
UNISOURCE ENERGY SERVICES, INC., as Guarantor
By:	/s/ Kentton C. Grant
	Name:	Kentton C. Grant
	Title:	Vice President and Treasurer
UNION BANK, N.A., as Administrative Agent
By:	/s/ Jeffrey P. Fesenmaier
	Name:	Jeffrey P. Fesenmaier
	Title:	Vice President

Signature Page to UNS Electric, Inc. Credit Agreement

S-1

Commitment	Lender
$30,000,000.00	UNION BANK, N.A., as a Lender
	By:	/s/ Jeffrey P. Fesenmaier Name: Jeffrey P. Fesenmaier
		Title:   Vice President
	Address for Notices:
	445 South Figueroa Street, 15th Floor Los Angeles, California 90071 Attention: Kevin Zitar Telephone No.: (213) 236-5503 Telecopier No.: (213) 236-4096

Signature Page to UNS Electric, Inc. Credit Agreement

S-2

EXHIBIT A-1
to the Credit Agreement

FORM OF NOTICE OF BORROWING

[Date]

Union Bank, N.A., as Administrative Agent
445 South Figueroa Street
Los Angeles, California 90071
Attention:                     

Ladies and Gentlemen:

The undersigned, UNS Electric, Inc., an Arizona corporation (the “Borrower”), refers to the Credit Agreement, dated as of August 10, 2011 (as amended, amended and restated, supplemented or otherwise modified from time to time, the “Credit Agreement”, the terms defined therein and not otherwise defined herein being used herein as therein defined), among the Borrower, UniSource Energy Services, Inc., as Guarantor, the Lenders named therein and from time to time parties thereto (the “Lenders”), and Union Bank, N.A., as administrative agent for the Lenders (in such capacity, the “Administrative Agent”), and hereby gives you notice, irrevocably, pursuant to Section 4.01 of the Credit Agreement, that the undersigned hereby requests a Borrowing under the Credit Agreement, and in that connection sets forth below the information relating to such Borrowing (the “Proposed Borrowing”) as required by Section 4.01 of the Credit Agreement:

(i) The Business Day of the Proposed Borrowing is August  _____, 2011.

(ii) The Type of Loans comprising the Proposed Borrowing is [ABR Loans] [Eurodollar Rate Loans].

(iii) The aggregate principal amount of the Proposed Borrowing is $30,000,000.

(iv) [The initial Interest Period for each Loan made as part of the Proposed Borrowing is [one/two/three/six months.]¹

(v) The proceeds of the Loans comprising the Proposed Borrowing should be disbursed pursuant to the wire instructions set forth in Schedule 1 attached hereto.

¹. To be included for a Proposed Borrowing comprised of Eurodollar Rate Loans.

A-1-1

The undersigned hereby certifies, and acknowledges that the delivery of this Notice of Borrowing shall constitute a representation and warranty by the Borrower, that (i) the representations and warranties of each Obligor set forth in the Loan Documents are true and correct on and as of the date of the Proposed Borrowing, both before and after giving effect to the Proposed Borrowing and to the application of the proceeds thereof, and (ii) at the time of, and immediately after giving effect to, the Proposed Borrowing, no Default or Event of Default has occurred and is continuing.

Very truly yours, UNS ELECTRIC, INC.
By:
	Name:
	Title:

A-1-2

SCHEDULE 1

WIRE INSTRUCTIONS

Name of Bank:

ABA or Routing Number:

Account Number:

Name of Account:

EXHIBIT A-2
to the Credit Agreement

FORM OF NOTICE OF CONVERSION

[Date]

Union Bank, N.A., as Administrative
     Agent for the Lenders party to the
     Credit Agreement referred to below
Attention:                     

Ladies and Gentlemen:

The undersigned, UNS Electric, Inc. (the “Borrower”), refers to the Credit Agreement, dated as of August 10, 2011 (as amended, amended and restated, supplemented or otherwise modified from time to time, the “Credit Agreement”, the terms defined therein and not otherwise defined herein being used herein as therein defined), among the Borrower, UniSource Energy Services, Inc., as Guarantor, the Lenders named therein and from time to time party thereto, and Union Bank, N.A., as Administrative Agent, and hereby gives you notice, irrevocably, pursuant to Section 2.03 of the Credit Agreement that the undersigned hereby requests a Conversion under the Credit Agreement, and in that connection sets forth below the information relating to such Conversion (the “Proposed Conversion”) as required by Section 2.03 of the Credit Agreement:

(i) The Business Day of the Proposed Conversion is _____ _____,  _____.

(ii) The Type of Loans comprising the Proposed Conversion is [ABR Loans] [Eurodollar Rate Loans having an Interest Period of  _____  month(s)].

(iii) The aggregate amount of the Proposed Conversion is $________.

(iv) The Type of Loans to which such Loans are proposed to be Converted is __________ [ABR Loans] [Eurodollar Rate Loans].

[(v) The initial Interest Period for each Loan made as part of the Proposed Conversion is  _____  month(s).]¹

¹. To be included for a Proposed Conversion to Eurodollar Rate Loans only.

A-2-1

The undersigned hereby certifies that the Borrower’s request for the Proposed Conversion is made in compliance with Sections 2.03 of the Credit Agreement. [The undersigned hereby acknowledges that the delivery of this Notice of Conversion shall constitute a representation and warranty by the Borrower that, on the date of the Proposed Conversion, no Event of Default has occurred and is continuing (unless the Borrower informs the Administrative Agent otherwise prior to the date of the Proposed Conversion, in which case the Proposed Conversion shall not be made).]²

Very truly yours, UNS ELECTRIC, INC.
By:
	Name:
	Title:

². Include this bracketed sentence for Conversions to Eurodollar Rate Loans, and delete if Conversion is into ABR Loans.

A-2-2

EXHIBIT B
to the Credit Agreement

[FORM OF OPINION OF MORGAN, LEWIS & BOCKIUS LLP]

August 10, 2011

Union Bank, N.A.,
as Administrative Agent and a Lender
445 South Figueroa Street, 15^th Floor
Los Angeles, California 90071

Ladies and Gentlemen:

We are counsel to UNS Electric, Inc., an Arizona corporation (the “Company”), and UniSource Energy Services, Inc., an Arizona corporation (the “Guarantor”, and together with the Company, the “Obligors” and each an “Obligor”), and have acted as such in connection with the $30,000,000 Credit Agreement, dated as of August 10, 2011, among the Company, as borrower, the Guarantor, the Lenders party thereto and Union Bank, N.A., as Administrative Agent (hereinafter, the “Credit Agreement”). Unless otherwise specified herein, capitalized terms used herein have the respective meanings set forth in the Credit Agreement.

In so acting we have reviewed all corporate proceedings of the Obligors in connection with the authorization, execution and delivery of the Credit Agreement. We have also examined such other documents and satisfied ourselves as to such other matters as we have deemed necessary as a basis for the opinions set forth below. We have relied as to various questions of fact upon the representations and warranties of the Obligors contained in the Credit Agreement and in the certificates of public officials and officers of the Obligors delivered thereunder.

Based upon and subject to the foregoing, and subject also to the qualifications hereinafter set forth, we are of the opinion that:

1. Each Obligor (a) is a corporation duly organized, validly existing and in good standing under the laws of the State of Arizona and (b) has the corporate power and authority to own and operate its property and to conduct the business in which it is currently engaged.

Union Bank, N.A.
August 10, 2011
Page  _____ 

2. Each Obligor has the corporate power and authority to execute, deliver and perform the Credit Agreement and the Company has the corporate power and authority to borrow under the Credit Agreement and each Obligor has taken all necessary corporate action to authorize the execution, delivery and performance of the Credit Agreement, and the Company has taken all necessary corporate action to authorize the borrowings under the Credit Agreement.

3. The Credit Agreement has been duly and validly executed and delivered on behalf of each Obligor party thereto and constitutes the legal, valid and binding obligation of each Obligor, enforceable against each Obligor in accordance with its terms except as enforceability may be limited by bankruptcy, insolvency, reorganization, receivership, moratorium or similar laws relating to or affecting the enforcement of creditors’ rights generally, including, without limitation, laws relating to fraudulent transfers or conveyances, preferences and equitable subordination, and by general equitable principles (regardless of whether such enforceability is considered in a proceeding in equity or at law), and subject to any principles of public policy limiting the right to enforce indemnification or contribution provisions contained in the Credit Agreement with respect to liabilities under federal or state securities laws.

4. No consent or authorization of, filing with or other act by or in respect of, any Governmental Authority of the State of New York, the Federal Energy Regulatory Commission (“FERC”) or the Arizona Corporation Commission (“ACC”) is required in connection with the execution, delivery or performance by any Obligor of the Credit Agreement, or for borrowings by the Company under the Credit Agreement, except for the ACC Order (which has been obtained and is, to the best of our knowledge, in full force and effect); provided, however, that we express no opinion in this paragraph as to compliance with the securities or “blue sky” laws of any jurisdiction.

5. The execution, delivery and performance by each Obligor of the Credit Agreement, and the borrowings under the Credit Agreement, will not (i) violate any applicable law of the State of New York or any law administered by, or any rule or regulation of, the FERC or the ACC, (ii) violate the Articles of Incorporation or the Bylaws, as amended, of such Obligor, or (iii) result in, or require, the creation or imposition of any Lien on any of the properties or revenues of such Obligor other than as contemplated by the Credit Agreement.

6. Each Obligor is not an “investment company”, or a company “controlled” by an “investment company”, within the meaning of the Investment Company Act of 1940, as amended.

This opinion is limited to the laws of the States of Arizona and New York and the federal laws of the United States of America. As to all matters of Arizona law, we have, with your consent, relied upon the opinion of even date herewith rendered to you by Todd C. Hixon, Vice President and General Counsel of the Guarantor, and the opinions expressed herein upon such reliance are subject to the same assumptions, qualifications and limitations set forth therein.

Union Bank, N.A.
August 10, 2011
Page  _____ 

Todd C. Hixon is authorized to rely upon this letter as to matters of New York law, the Federal Power Act, as amended, and the Investment Company Act of 1940, as amended. This letter is not being delivered for the benefit of, nor may it be relied upon by, any person or entity to which it is not specifically addressed or by which reliance is not expressly authorized hereby. Notwithstanding the foregoing, persons who subsequently become Lenders (or participants in accordance with the terms of the Credit Agreement) may rely on this letter as of the time of its delivery on the date hereof as if this letter were addressed to them.

Very truly yours,

MORGAN, LEWIS & BOCKIUS LLP

EXHIBIT C
to the Credit Agreement

[FORM OF OPINION OF TODD C. HIXON]

August 10, 2011

Union Bank, N.A.,
   as Administrative Agent and a Lender
445 South Figueroa Street, 15^th Floor
Los Angeles, California 90071

Ladies and Gentlemen:

I am Vice President and General Counsel of UniSource Energy Services, Inc., an Arizona corporation (the “Guarantor”), and Vice President and Secretary of UNS Electric, Inc., an Arizona corporation (the “Company”, and together with the Guarantor, the “Obligors” and each an “Obligor”), and have acted as such in connection with the $30,000,000 Credit Agreement, dated as of August 10, 2011, among the Company, as borrower, the Guarantor, the Lenders party thereto and Union Bank, N.A., as Administrative Agent (hereinafter, the “Credit Agreement”). Unless otherwise specified herein, capitalized terms used herein have the respective meanings set forth in the Credit Agreement.

In so acting I have reviewed all corporate proceedings of the Obligors in connection with the authorization, execution and delivery of the Credit Agreement. I have also examined such other documents and satisfied myself as to such other matters as I have deemed necessary as a basis for the opinions set forth below. I have relied as to various questions of fact upon the representations and warranties of the Obligors contained in the Credit Agreement and in the certificates of public officials and officers of the Obligors delivered thereunder.

Based upon and subject to the foregoing, and subject also to the qualifications hereinafter set forth, I am of the opinion that:

1. Each Obligor (a) is a corporation duly organized, validly existing and in good standing under the laws of the State of Arizona and (b) has the corporate power and authority to own and operate its property and to conduct the business in which it is currently engaged.

2. Each Obligor has the corporate power and authority to execute, deliver and perform the Credit Agreement and the Company has the corporate power and authority to borrow under the Credit Agreement and each Obligor has taken all necessary corporate action to authorize the execution, delivery and performance of the Credit Agreement, and the Company has taken all necessary corporate action to authorize the borrowings under the Credit Agreement.

3. The Credit Agreement has been duly and validly executed and delivered on behalf of each Obligor party thereto and constitutes the legal, valid and binding obligation of each Obligor, enforceable against each Obligor in accordance with its terms except as enforceability may be limited by bankruptcy, insolvency, reorganization, receivership, moratorium or similar laws relating to or affecting the enforcement of creditors’ rights generally, including, without limitation, laws relating to fraudulent transfers or conveyances, preferences and equitable subordination, and by general equitable principles (regardless of whether such enforceability is considered in a proceeding in equity or at law), and subject to any principles of public policy limiting the right to enforce indemnification or contribution provisions contained in the Credit Agreement with respect to liabilities under federal or state securities laws.

Union Bank, N.A.
August 10, 2011
Page  _____ 

4. No consent or authorization of, filing with or other act by or in respect of, any Governmental Authority or any other Person is required in connection with the execution, delivery or performance by any Obligor of the Credit Agreement, or for borrowings by the Company under the Credit Agreement, except for the ACC Order (which has been obtained and is, to the best of my knowledge, in full force and effect); provided, however, that I express no opinion in this paragraph as to compliance with the securities or “blue sky” laws of any jurisdiction.

5. The execution, delivery and performance by each Obligor of the Credit Agreement, and the borrowings under the Credit Agreement, will not (i) violate any law, rule or regulation of any Governmental Authority, which, in my experience, is normally applicable to transactions of the type contemplated thereby or to entities similar to such Obligor, (ii) violate any order of any Governmental Authority of which I have knowledge, (iii) violate the Articles of Incorporation or the Bylaws, as amended, of such Obligor, (iv) violate or result in a default under any indenture, agreement or other instrument of which I have knowledge binding upon any Obligor or its assets, or (v) result in, or require, the creation or imposition of any Lien on any of the properties or revenues of such Obligor other than as contemplated by the Credit Agreement.

6. Except as disclosed in the Disclosure Documents, there are no actions, suits or proceedings by or before any arbitrator, referee or Governmental Authority pending against or, to my knowledge, threatened against or affecting any of the Obligors (a) as to which there is, in my judgment, a reasonable possibility of an adverse determination and that, if adversely determined, would individually or in the aggregate, in my judgment, result in a Material Adverse Effect or (b) that involves the Credit Agreement, or any transactions contemplated therein.

Except as disclosed in the Disclosure Documents, and except with respect to any other matters that, individually or in the aggregate, could not, in my judgment, reasonably be expected to result in a Material Adverse Effect, to my knowledge none of the Obligors (a) has failed to comply with any Environmental Law or to obtain, maintain or comply with any permit, license or other approval required under any Environmental Law, (b) has become subject to any Environmental Liability, (c) has received notice of any claim with respect to any Environmental Liability or (d) knows of any basis for any Environmental Liability.

Union Bank, N.A.
August 10, 2011
Page  _____ 

This opinion is limited to the laws of the States of Arizona and New York, and the federal laws of the United States of America. As to all matters of New York law, the Federal Power Act, as amended, or the Investment Company Act of 1940, as amended, I have, with your consent, relied upon the opinion of even date herewith rendered to you by Morgan, Lewis & Bockius LLP of New York, New York, and the opinions expressed herein upon such reliance are subject to the same assumptions, qualifications and limitations set forth therein.

Morgan, Lewis & Bockius LLP of New York, New York is authorized to rely upon this letter as to matters of Arizona law. This letter is not being delivered for the benefit of, nor may it be relied upon by, any person or entity to which it is not specifically addressed or by which reliance is not expressly authorized hereby. Notwithstanding the foregoing, persons who subsequently become Lenders (or participants in accordance with the terms of the Credit Agreement) may rely on this letter as of the time of its delivery on the date hereof as if this letter was addressed to them.

Very truly yours,

Todd C. Hixon

Vice President and General Counsel

EXHIBIT D
to the Credit Agreement

FORM OF LENDER ASSIGNMENT

UNS ELECTRIC, INC.

Reference is made to the Credit Agreement, dated as of August 10, 2011 (the “Credit Agreement”), among UNS Electric, Inc., an Arizona corporation (the “Company”), UniSource Energy Services, Inc., as Guarantor, the Lenders named therein and from time to time parties thereto (the “Lenders”), and Union Bank, N.A., as administrative agent for the Lenders (the “Administrative Agent”). Terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Credit Agreement. The Terms and Conditions set forth in Annex 1 attached hereto are hereby agreed to and incorporated herein by reference and made a part of this Assignment as if set forth herein in full.

SECTION 1. The Assignor hereby sells and assigns, without recourse, to the Assignee, and the Assignee hereby purchases and assumes, without recourse, from the Assignor, subject to and in accordance with the Terms and Conditions set forth in Annex 1 attached hereto, effective as of the Effective Date set forth below, the interests set forth below (the “Assigned Interest”) in the Assignor’s rights and obligations under the Credit Agreement and the other Loan Documents, including, without limitation, the amounts and percentages set forth below of the Loans owing to the Assignor which are outstanding on the Effective Date. From and after the Effective Date (i) the Assignee shall be a party to and be bound by the provisions of the Credit Agreement and, to the extent of the interests assigned by this Assignment, have the rights and obligations of a Lender thereunder and under the other Loan Documents and (ii) the Assignor shall, to the extent of the interests assigned by this Assignment, relinquish its rights and be released from its obligations under the Credit Agreement and the other Loan Documents.

SECTION 2. This Assignment is being delivered to the Administrative Agent together with, if the Assignee is organized under the laws of a jurisdiction outside the United States, any documentation referred to in Section 4.06(a) of the Credit Agreement, duly completed and executed by such Assignee.

D-1

SECTION 3. THIS ASSIGNMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.

Date of Assignment:

Legal Name of Assignor:

Legal Name of Assignee:

Assignee’s Address for Notices:

Effective Date of Assignment:

	Percentage of outstanding
	principal amount of Loans
Principal Amount of Loans	assigned (set forth, to at least
Assigned1	8 decimal points)
Loans $		%

[Remainder of page intentionally left blank]

¹ Shall not be less than the lesser of (i) the aggregate amount of the Assignor’s Loans and (ii) $5,000,000.

D-2

The terms set forth on the foregoing
pages are hereby agreed to:

		,
as Assignor
By:	Name:
	Title:
		,
as Assignee
By:
	Name:
	Title:

(Signatures continue on next page)

[Lender Assignment]

D-3

Accepted: ²

UNION BANK, N.A.,
as Administrative Agent

By:	Name:
	Title:
Accepted:3
UNS ELECTRIC, INC.
By:	Name:
	Title:

2	Consent of Administrative Agent is not required if the Assignee is an existing Lender, an Affiliate of an existing Lender or an Affiliate of the Assignor.
3	Consent of Borrower is not required if (i) the Assignee is an existing Lender, an Affiliate of an existing Lender or an Affiliate of the Assignor, or (ii) if an Event of Default has occurred and is continuing.

[Lender Assignment]

D-4

ANNEX 1

TERMS AND CONDITIONS FOR
ASSIGNMENT

1. Representations and Warranties.

1.1. Assignor. The Assignor (a) represents and warrants that (i) it is the legal and beneficial owner of the Assigned Interest, (ii) the Assigned Interest is free and clear of any lien, encumbrance or other adverse claim and (iii) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and to consummate the transactions contemplated hereby; and (b) assumes no responsibility with respect to (i) any statements, warranties or representations made in or in connection with the Credit Agreement or any other Loan Document, (ii) the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Loan Documents, (iii) the financial condition of any Obligor, any of its Subsidiaries or Affiliates or any other Person obligated in respect of any Loan Document or (iv) the performance or observance by any Obligor, any of its Subsidiaries or Affiliates or any other Person of any of their respective obligations under any Loan Document.

1.2. Assignee. The Assignee (a) represents and warrants that (i) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and to consummate the transactions contemplated hereby and to become a Lender under the Credit Agreement, (ii) it meets all requirements of an Eligible Assignee (subject to receipt of such consents as may be required under the Credit Agreement), (iii) from and after the Effective Date, it shall be bound by the provisions of the Credit Agreement as a Lender thereunder and, to the extent of the Assigned Interest, shall have the obligations of a Lender thereunder, (iv) it has received a copy of the Credit Agreement, together with copies of the most recent financial statements delivered pursuant to Section 8.01(a)(i) or 8.01(a)(ii) thereof, as applicable, and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and to purchase the Assigned Interest on the basis of which it has made such analysis and decision independently and without reliance on the Administrative Agent or any other Lender, and (v) if it is a Lender organized outside the United States, attached to this Assignment is any documentation required to be delivered by it pursuant to the terms of the Credit Agreement, duly completed and executed by the Assignee; (b) appoints and authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers under the Loan Documents as are delegated to the Administrative Agent by the terms thereof, together with such powers as are reasonably incidental thereto; and (c) agrees that (i) it will, independently and without reliance on the Administrative Agent, the Assignor or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Loan Documents, and (ii) it will perform in accordance with their terms all of the obligations which by the terms of the Loan Documents are required to be performed by it as a Lender.

2. Payments. From and after the Effective Date, the Administrative Agent shall make all payments in respect of the Assigned Interest (including payments of principal, interest, fees and other amounts) to the Assignor for amounts which have accrued to but excluding the Effective Date and to the Assignee for amounts which have accrued from and after the Effective Date.

3. General Provisions. This Assignment shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and assigns. This Assignment may be executed in any number of counterparts, which together shall constitute one instrument. Delivery of an executed counterpart of a signature page of this Assignment by telecopy shall be effective as delivery of a manually executed counterpart of this Assignment.

SCHEDULE 1.01

PRICING SCHEDULE

The “Applicable Margin” for Eurodollar Rate Loans and ABR Loans for any day are the respective annual percentage rates set forth below in the applicable row under the column corresponding to the Status that exists on such day for the Borrower, which Status shall be determined based on the applicable ratings of the Index Debt on such day:

	Level 1			Level 2			Level 3
	≥ BBB/Baa2			BBB-/Baa3			≦ BB+/Ba1
Applicable Margin — Eurodollar Rate Loans		1.125	%		1.25	%		1.75	%
Applicable Margin — ABR Loans		0.125	%		0.25	%		0.75	%

For purposes of this Pricing Schedule, the following terms have the following meanings:

“Level 1 Status” exists at any date if, at such date, the Index Debt is rated either BBB or higher by S&P or Baa2 or higher by Moody’s.

“Level 2 Status” exists at any date if, at such date (i) the Index Debt is rated either BBB- or higher by S&P or Baa3 or higher by Moody’s and (ii) Level 1 Status does not exist.

“Level 3 Status” exists at any date if, at such date, no other Status exists.

“Status” refers to the determination of which of Level 1 Status, Level 2 Status or Level 3 Status exists at any date.

Notwithstanding the foregoing, if the Index Debt is split-rated and the ratings differential is two or more ratings levels, the Status shall be determined assuming that (a) the higher rating is equal to the midpoint of the two ratings (e.g., for a split rating of BBB+/Baa3, BBB is the midpoint and will be deemed to be the higher rating, and for a split rating of BB/Baa1, Baa3 is the midpoint and will be deemed to be the higher rating) or (b) if there is no exact midpoint, the higher rating is equal to the higher of the two middle intermediate ratings (e.g., for a split rating of BBB+/Ba1, BBB is the higher of the two middle intermediate ratings and will be deemed to be the higher rating, and for a split rating of BB/Baa2, Baa3 is the higher of the two middle intermediate ratings and will be deemed to be the higher rating).

If at any time the Index Debt is unrated by both Moody’s and S&P, Level 3 Status shall exist; provided that if the reason that there is no such Moody’s rating or S&P rating results from Moody’s or S&P, as the case may be, ceasing to issue debt ratings generally, then the Borrower and the Administrative Agent may select another nationally-recognized rating agency to substitute for Moody’s or S&P, as applicable, for purposes of this Pricing Schedule (and all references herein to Moody’s or S&P, as applicable, shall refer to such substitute rating agency), and until a substitute nationally-recognized rating agency is so selected the Status shall be determined by reference to the rating most recently in effect prior to such cessation; and provided, further, that if the Index Debt is rated by only one of Moody’s or S&P, the Status shall be determined by reference to the rating of such Rating Agency.

The Applicable Margin (and, accordingly, the Status of the Borrower at any date) shall be based on the applicable ratings in effect from time to time on the Index Debt. The Applicable Margin shall be increased or decreased in accordance with the foregoing Pricing Schedule upon any change in the applicable ratings of the Index Debt. The ratings of the Index Debt in effect at any date is that in effect at the close of business on such date.

SCHEDULE 1.02

Applicable Lending Offices

Bank	ABR Lending Office	Eurodollar Lending Office
Union Bank, N.A.	445 South Figueroa Street, 15th Floor	same
	Los Angeles, CA 90071
	Attention: Kevin Zitar
	Telephone: (213) 236-5503
	Fax: (213) 236-4096

Schedule 7.01(e)

Subsidiaries

A. UNS Gas, Inc.

1.	Subsidiaries: None
2.	Jurisdiction of Organization: Arizona

B. UNS Electric, Inc.

1.	Subsidiaries: None
2.	Jurisdiction of Organization: Arizona

C. UniSource Energy Services, Inc.

1.	Subsidiaries: UniSource Energy Services, Inc. (the Guarantor) has two subsidiaries: UNS Gas, Inc. and UNS Electric, Inc. The Guarantor owns 100 percent of the common stock of each subsidiary. UNS Gas, Inc. and UNS Electric, Inc. have not issued any other class of capital stock or similar equity interest. UNS Gas, Inc. and UNS Electric, Inc. have no subsidiaries.
2.	Jurisdiction of Organization: Arizona