loan-agreement.htm


    Exhibit
4(d)

     

    
      


      
        	 
      
	 
      
	
                LOAN
      AGREEMENT

              
	
                (2008
      SERIES B)

              
	 
      
	 
      
	
                BETWEEN

              
	 
      
	 
      
	
                THE
      INDUSTRIAL DEVELOPMENT AUTHORITY

              
	
                OF
      THE COUNTY OF PIMA

              
	 
      
	 
      
	
                AND

              
	 
      
	 
      
	
                TUCSON
      ELECTRIC POWER COMPANY

              
	 
      
	 
      
	
                --------

              
	 
      
	 
      
	
                DATED
      AS OF JUNE 1, 2008

              
	
                ________

              
	 
      
	 
      
	
                RELATING
      TO

              
	 
      
	
                INDUSTRIAL
      DEVELOPMENT REVENUE BONDS,

              
	
                2008
      SERIES B

              
	
                (TUCSON
      ELECTRIC POWER COMPANY PROJECT)

              
	 
	 


      

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      TABLE
OF CONTENTS*

       

      Page

       

      
        
          	 
      	
                  ARTICLE
      I

                   

                  DEFINITIONS

                	 
      
	 
      	 
      	 
      
	
                  SECTION
      1.01.

                	
                  Definitions

                	
                  2

                
	
                  SECTION
      1.02.

                	
                  Incorporation
      of Certain Definitions by Reference

                	
                  6

                
	 
      	 
      	 
      
	 
      	
                  ARTICLE
      II

                   

                  REPRESENTATIONS
      AND WARRANTIES

                	 
      
	 
      	 
      	 
      
	
                  SECTION
      2.01.

                	
                  Representations
      and Warranties of the Authority

                	
                  6

                
	
                  SECTION
      2.02.

                	
                  Representations
      and Warranties of the Company

                	
                  6

                
	 
      	 
      	 
      
	 
      	
                  ARTICLE
      III

                   

                  THE
      FACILITIES

                	 
      
	 
      	 
      	 
      
	
                  SECTION
      3.01.

                	
                  Facilities;
      Property of the Company

                	
                  7

                
	
                  SECTION
      3.02.

                	
                  Maintenance
      of Facilities; Remodeling

                	
                  7

                
	
                  SECTION
      3.03.

                	
                  Insurance

                	
                  7

                
	
                  SECTION
      3.04.

                	
                  Condemnation

                	
                  8

                
	 
      	 
      	 
      
	 
      	
                  ARTICLE
      IV

                   

                  ISSUANCE
      OF THE BONDS; THE LOANS; DISPOSITION OF PROCEEDS OF THE
    BONDS

                	 
      
	 
      	 
      	 
      
	
                  SECTION
      4.01.

                	
                  Issuance
      of the Bonds

                	
                  8

                
	
                  SECTION
      4.02.

                	
                  Issuance
      of Other Obligations

                	
                  8

                
	
                  SECTION
      4.03.

                	
                  The
      Loan; Disposition of Bond Proceeds

                	
                  8

                
	
                  SECTION
      4.04.

                	
                  Investment
      of Moneys in Funds and Accounts

                	
                  8

                
	 
      	 
      	 
      
	 
      	
                  ARTICLE
      V

                   

                  LOAN
      PAYMENTS; PURCHASE PAYMENTS; OTHER OBLIGATIONS

                	 
      
	 
      	 
      	 
      
	
                  SECTION
      5.01.

                	
                  Loan
      Payments

                	
                  8

                
	
                  SECTION
      5.02.

                	
                  Purchase
      Payments

                	
                  9

                
	
                  SECTION
      5.03.

                	
                  Loan
      Payments Assigned; Obligation Absolute

                	
                  9

                
	
                  SECTION
      5.04.

                	
                  Payment
      of Expenses

                	
                  10

                
	
                  SECTION
      5.05.

                	
                  Indemnification

                	
                  10

                
	
                  SECTION
      5.06.

                	
                  Payment
      of Taxes; Discharge of Liens

                	
                  10

                


        

         

        
          

        

        
          *           This
table of contents is not part of the Loan Agreement, and is for convenience
only.  The captions herein are of no legal effect and do not vary the
meaning or legal effect of any part of the Loan Agreement.

        

         

        
          
            
            

          

          
            i

            
              

            

          

          
            
            

          

        

         

        
          	 
      	
                  ARTICLE
      VI

                   

                  SPECIAL
      COVENANTS

                	 
      
	 
      	 
      	 
      
	
                  SECTION
      6.01.

                	
                  Maintenance
      of Legal Existence

                	
                  11

                
	
                  SECTION
      6.02.

                	
                  Permits
      or Licenses

                	
                  12

                
	
                  SECTION
      6.03.

                	
                  Authority’s
      Access to Facilities

                	
                  12

                
	
                  SECTION
      6.04.

                	
                  Tax-Exempt
      Status of Interest on Bonds

                	
                  12

                
	
                  SECTION
      6.05.

                	
                  Use
      of Facilities

                	
                  13

                
	
                  SECTION
      6.06.

                	
                  Financing
      Statements

                	
                  13

                
	 
      	 
      	 
      
	 
      	
                  ARTICLE
      VII

                   

                  ASSIGNMENT,
      LEASING AND SELLING

                	 
      
	
                  SECTION
      7.01.

                	
                  Conditions

                	
                  14

                
	
                  SECTION
      7.02.

                	
                  Instrument
      Furnished to the Authority and Trustee

                	
                  16

                
	
                  SECTION
      7.03.

                	
                  Limitation

                	
                  16

                
	 
      	 
      	 
      
	 
      	
                  ARTICLE
      VIII

                   

                  EVENTS
      OF DEFAULT AND REMEDIES

                	 
      
	 
      	 
      	 
      
	
                  SECTION
      8.01.

                	
                  Events
      of Default

                	
                  16

                
	
                  SECTION
      8.02.

                	
                  Force
      Majeure

                	
                  17

                
	
                  SECTION
      8.03.

                	
                  Remedies

                	
                  17

                
	
                  SECTION
      8.04.

                	
                  No
      Remedy Exclusive

                	
                  18

                
	
                  SECTION
      8.05.

                	
                  Reimbursement
      of Attorneys’ and Agents’ Fees

                	
                  18

                
	
                  SECTION
      8.06.

                	
                  Waiver
      of Breach

                	
                  18

                
	 
      	 
      	 
      
	 
      	
                  ARTICLE
      IX

                   

                  REDEMPTION
      OF BONDS

                	 
      
	
                  SECTION
      9.01.

                	
                  Redemption
      of Bonds

                	
                  18

                
	
                  SECTION
      9.02.

                	
                  Compliance
      with the Indenture

                	
                  19

                
	 
      	 
      	 
      
	 
      	
                  ARTICLE
      X

                   

                  MISCELLANEOUS

                	 
      
	 
      	 
      	 
      
	
                  SECTION
      10.01.

                	
                  Term
      of Agreement

                	
                  19

                
	
                  SECTION
      10.02.

                	
                  Notices

                	
                  19

                
	
                  SECTION
      10.03.

                	
                  Parties
      in Interest

                	
                  19

                
	
                  SECTION
      10.04.

                	
                  Amendments

                	
                  20

                
	
                  SECTION
      10.05.

                	
                  Counterparts

                	
                  20

                
	
                  SECTION
      10.06.

                	
                  Severability

                	
                  20

                
	
                  SECTION
      10.07.

                	
                  Governing
      Law

                	
                  20

                
	
                  SECTION
      10.08.

                	
                  Notice
      Regarding Cancellation of Contracts

                	
                  20

                


        

      

      


      
        
          
          

        

        
          ii

          
            

          

        

        
          
          

        

      

      


      
        	
                Signatures

              	 
      
	
                Exhibit
      A - Description of the Facilities

              	
                A-1

              


      

      


      
        
          
          

        

        
          iii

          
            

          

        

        
          
          

        

         

      

      LOAN
AGREEMENT

       

      THIS LOAN
AGREEMENT (2008 Series B), dated as of June 1, 2008 (this “Agreement”), between
THE INDUSTRIAL DEVELOPMENT AUTHORITY OF THE COUNTY OF PIMA, an Arizona nonprofit
corporation designated by law as a political subdivision of the State of Arizona
(hereinafter called the “Authority”), and TUCSON ELECTRIC POWER COMPANY, a
corporation organized and existing under the laws of the State of Arizona
(hereinafter called the “Company”),

       

      W I T N E
S S E T H:

       

      WHEREAS,
the Authority is authorized and empowered under Title 35, Chapter 5, Arizona
Revised Statutes, as amended (the “Act”), to issue its bonds in accordance with
the Act and to make secured or unsecured loans for the purpose of financing or
refinancing the acquisition, construction, improvement or equipping of projects
consisting of land, any building or other improvement, and all real and personal
properties, including but not limited to machinery and equipment, whether or not
now in existence or under construction, whether located within or without the
State of Arizona or Pima County, which shall be suitable for, among other
things, facilities for the furnishing of electric energy, gas or water, air and
water pollution control facilities and sewage and solid waste disposal
facilities, and to charge and collect interest on such loans and pledge the
proceeds of loan agreements as security for the payment of the principal of and
interest on bonds, or designated issues of bonds, issued by the Authority and
any agreements made in connection therewith, whenever the Board of Directors of
the Authority finds such loans to further advance the interest of the Authority
or the public and in the public interest;

       

      WHEREAS,
the Authority has heretofore issued and sold $150,000,000 aggregate principal
amount of The Industrial Development Authority of the County of Pima Industrial
Development Revenue Bonds, 1997 Series B (Tucson Electric Power Company
Project), of which $130,000,000 remain outstanding (the “1997 Bonds”), the
proceeds of which were loaned to the Company to refinance, by the payment or
redemption of The Industrial Development Authority of the County of Pima
Industrial Development Revenue Bonds, 1982 Series A (Tucson Electric Power
Company General Project) (the “1982 Bonds due June 15, 2022”), and The
Industrial Development Authority of the County of Pima Industrial Development
Revenue Bonds, 1982 Series A (Tucson Electric Power Company General Project)
(the “1982 Bonds due July 1, 2022” and, together with the 1982 Bonds due June
15, 2022, the “1982 Bonds”) or provision therefor, the portion of the costs of
the acquisition, construction, improvement and equipping of certain of its
facilities for the furnishing of electric energy described in Exhibit A hereto
(“Facilities”) paid from the proceeds of the 1982 Bonds;

       

      WHEREAS,
the Authority proposes to issue and sell its revenue bonds for the purpose of
refinancing, by the payment or redemption of the 1997 Bonds, or provision
therefor, the portion of the costs of the Facilities previously refinanced from
the proceeds of the 1997 Bonds;

       

      WHEREAS,  the
Company has elected to cause and is causing to be delivered to the Trustee an
irrevocable direct pay letter of credit issued by JPMorgan Chase Bank, N.A.,
however, nothing herein shall require the Company to maintain the Letter of
Credit or any other credit facility;

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      NOW,
THEREFORE, the parties hereto, intending to be legally bound hereby and in
consideration of the premises, DO HEREBY AGREE as follows:

       

      ARTICLE
I

       

      DEFINITIONS

       

      SECTION
1.01.  Definitions.  The
terms defined in this Article I shall for all purposes of this Agreement have
the meanings herein specified, unless the context clearly requires
otherwise:

       

      Act:

       

      “Act”
shall mean Title 35, Chapter 5, Arizona Revised Statutes, and all acts
supplemental thereto or amendatory thereof.

       

      Administration
Expenses:

       

      “Administration
Expenses” shall mean the reasonable expenses incurred by the Authority with
respect to this Agreement, the Indenture and any transaction or event
contemplated by this Agreement or the Indenture, including the compensation and
reimbursement of expenses and advances payable to the Trustee, the Tender Agent,
to the paying agent, any co paying agent and the registrar under the Indenture
and a pro rata share of the Authority’s annual operating expenses in accordance
with the provisions of Section 4.02(c) of The Industrial Development Authority
of the County of Pima Procedural Pamphlet II, as more fully described in the Tax
Agreement.

       

      Agreement:

       

      “Agreement”
shall mean this Loan Agreement, dated as of June 1,  2008, between the
Authority and the Company, and any and all modifications, alterations,
amendments and supplements hereto.

       

      Authority:

       

      “Authority”
shall mean The Industrial Development Authority of the County of Pima, an
Arizona nonprofit corporation designated by law as a political subdivision of
the State of Arizona incorporated for and with the approval of Pima County,
Arizona, pursuant to the provisions of the Constitution of the State of Arizona
and the Act, its successors and their assigns.

       

      Authorized
Company Representative:

       

      “Authorized
Company Representative” shall mean each person at the time designated to act on
behalf of the Company by written certificate furnished to the Authority and the
Trustee

       

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

      

       

      containing
the specimen signature of such person and signed on behalf of the Company by its
President, any Vice President or its Treasurer, together with its Secretary or
any Assistant Secretary.

       

      Bond
Counsel:

       

      “Bond
Counsel” shall mean any firm or firms of nationally recognized bond counsel
experienced in matters pertaining to the validity of, and exclusion from gross
income for federal tax purposes of interest on bonds issued by states and
political subdivisions, selected by the Company and acceptable to the
Authority.

       

      Bond
Fund:

       

      “Bond
Fund” shall mean the fund created by Section 4.01 of the Indenture.

       

      Bonds:

       

      “Bond” or
“Bonds” shall mean The Industrial Development Authority of the County of Pima
Industrial Development Revenue Bonds, 2008 Series B (Tucson Electric Power
Company Project).

       

      Company:

       

      “Company”
shall mean Tucson Electric Power Company, a corporation organized and existing
under the laws of the State of Arizona, its successors and their assigns,
including, without limitation, any successor obligor under Section 6.01 or 7.01
to the extent of the obligations assumed thereunder.

       

      Credit
Facility:

       

      “Credit
Facility” shall have the meaning set forth in the Indenture.

       

      Credit
Facility Issuer:

       

      “Credit
Facility Issuer” shall have the meaning set forth in the Indenture.

       

      Facilities:

       

      “Facilities”
shall mean the real and personal properties, machinery and equipment currently
existing, under construction and to be constructed which are described in
Exhibit A hereto, as revised from time to time to reflect any changes therein,
additions thereto, substitutions therefor and deletions therefrom permitted by
the terms hereof, subject, however, to the provisions of Section 7.01
hereof.

       

      Indenture:

       

      “Indenture”
shall mean the Indenture of Trust, dated as of June 1, 2008, between the
Authority and the Trustee relating to the Bonds, and any and all modifications,
alterations, amendments and supplements thereto.

       

      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

      

       

      Loan
Payments:

       

      “Loan
Payments” shall mean the payments required to be made by the Company pursuant to
Section 5.01 hereof.

       

      1954
Code:

       

      “1954
Code” shall mean the Internal Revenue Code of 1954, as amended.  Each
reference to a section of the 1954 Code herein shall be deemed to include the
United States Treasury Regulations proposed or in effect thereunder and
applicable to the Bonds or the use of proceeds thereof, unless the context
clearly requires otherwise, as well as future amendments to the 1954
Code.

       

      1986 Code:

      


      “1986 Code” shall mean the Internal
Revenue Code of 1986, as amended from time to time.  Each reference to a
section of the 1986 Code herein shall be deemed to include the United States
Treasury Regulations proposed or in effect thereunder and applicable to the
Bonds or the use of proceeds thereof, unless the context clearly requires
otherwise.  References to any particular 1986 Code section shall, in the
event of a successor to the 1986 Code, be deemed to be a reference to the
successor to such 1986 Code section.

       

      1997
Bonds:

       

      “1997
Bonds” shall mean the $130,000,000 aggregate principal amount of The Industrial
Development Authority of the County of Pima Industrial Development Revenue
Bonds, 1997 Series B (Tucson Electric Power Company Project).

       

      Outstanding:

       

      “Outstanding”,
when used in reference to the Bonds, shall mean, as at any particular date, the
aggregate of all Bonds authenticated and delivered under the Indenture
except:

       

      (a)           those
canceled by the Trustee at or prior to such date or delivered to or acquired by
the Trustee at or prior to such date for cancellation;

       

      (b)           on
or after any Purchase Date for Bonds pursuant to Article V of the Indenture, all
Bonds (or portions of Bonds) which have been purchased on such date, but which
have not been delivered to the Tender Agent, provided that funds sufficient for
such purchase are on deposit with the Tender Agent in accordance with the
provisions hereof;

       

      (c)           those
deemed to be paid in accordance with Article IX of the Indenture;
and

       

      (d)           those
in lieu of or in exchange or substitution for which other Bonds shall have been
authenticated and delivered pursuant to the Indenture, unless proof satisfactory
to the Trustee and the Company is presented that such Bonds are held by a bona
fide holder in due course.

       

      
        
          
          

        

        
          4

          
            

          

        

        
          
          

        

      

       

      Person:

       

      “Person”
means (i) any corporation, limited liability company, partnership, joint
venture, association, joint stock company, business trust, or unincorporated
organization, in each case formed or organized under the laws of the United
States of America, any state thereof or the District of Columbia, or (ii) the
United States of America or any state thereof, or any political subdivision of
either thereof, or any agency, authority or other instrumentality of any of the
foregoing.

       

      Purchase
Fund:

       

      “Purchase
Fund” shall have the meaning set forth in the Indenture.

       

      Purchase
Payments:

       

      “Purchase
Payments” shall mean the amounts required to be paid by the Company pursuant to
Section 5.02 hereof.

       

      Remarketing
Agent:

       

      “Remarketing
Agent” shall have the meaning set forth in the Indenture.

       

      Remarketing
Agreement:

       

      “Remarketing
Agreement” shall mean the Remarketing Agreement between the Company and the
Remarketing Agent relating to the Bonds, as the same may be amended,
supplemented or replaced from time to time.

       

      Remarketing
Proceeds Account:

       

      “Remarketing
Proceeds Account” shall have the meaning set forth in the
Indenture.

       

      Tax
Agreement:

       

      “Tax
Agreement” shall mean that tax certificate and agreement, dated the date of the
initial authentication and delivery of the Bonds, between the Authority and the
Company, relating to the requirements of the Tax Reform Act of 1986 and the 1954
Code, and any and all modifications, alterations, amendments and supplements
thereto.

       

      Tender
Agent:

       

      “Tender
Agent” shall have the meaning set forth in the Indenture.

       

      
        
          
          

        

        
          5

          
            

          

        

        
          
          

        

      

       

      Trustee:

       

      “Trustee”
shall mean U.S. Bank Trust National Association, as trustee under the Indenture,
its successors in trust and their assigns.

       

      SECTION
1.02.  Incorporation of Certain Definitions
by Reference.  Each capitalized term used herein and not
otherwise defined herein shall have the meaning set forth in the
Indenture.

       

      ARTICLE
II

       

      REPRESENTATIONS
AND WARRANTIES

       

      SECTION
2.01.  Representations and Warranties of
the Authority.  The Authority makes the following
representations and warranties as the basis for the undertakings on the part of
the Company contained herein:

       

      (a)           The
Authority is an Arizona nonprofit corporation designated by law as a political
subdivision of the State of Arizona created and existing under the Constitution
and laws of the State of Arizona;

       

      (b)           The
Authority has the power to enter into this Agreement and the Indenture and to
perform and observe the agreements and covenants on its part contained herein
and therein, including without limitation the power to issue and sell the Bonds
as contemplated herein and in the Indenture, and by proper action has duly
authorized the execution and delivery hereof and thereof; and

       

      (c)           The
execution and delivery of this Agreement and the Indenture by the Authority do
not, and consummation of the transactions contemplated hereby and fulfillment of
the terms hereof and thereof by the Authority will not, result in a breach of
any of the terms or provisions of, or constitute a default under, any indenture,
mortgage, deed of trust or other agreement or instrument to which the Authority
is now a party or by which it is now bound, or, to the best knowledge of the
Authority, any order, rule or regulation applicable to the Authority of any
court or of any regulatory body or administrative agency or other governmental
body having jurisdiction over the Authority or over any of its properties, or
the Constitution or laws of the State of Arizona.

       

      SECTION
2.02.  Representations and Warranties of
the Company.  The Company makes the following representations
and warranties as the basis for the undertakings on the part of the Authority
contained herein:

       

      (a)           The
Company is a corporation duly organized and existing in good standing under the
laws of the State of Arizona and duly qualified as a foreign corporation in the
State of New Mexico;

       

      (b)           The
Company has power to enter into this Agreement and to perform and observe the
agreements and covenants on its part contained herein and by proper corporate
action has duly authorized the execution and delivery hereof and all other
documents hereby executed by the Company;

       

      
        
          
          

        

        
          6

          
            

          

        

        
          
          

        

      

       

      (c)           The
execution and delivery of this Agreement by the Company do not, and consummation
of transactions contemplated hereby and fulfillment of the terms hereof by the
Company will not, result in a breach of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of trust or other
agreement or instrument to which the Company is a party or by which it is now
bound, or the Restated Articles of Incorporation or by laws of the Company, or
any order, rule or regulation applicable to the Company of any court or of any
regulatory body or administrative agency or other governmental body having
jurisdiction over the Company or over any of its properties, or any statute of
any jurisdiction applicable to the Company;

       

      (d)           The
Arizona Corporation Commission has approved all matters relating to the
Company’s participation in the transactions contemplated by this Agreement which
require said approval, and no other consent, approval, authorization or other
order of any regulatory body or administrative agency or other governmental body
is legally required for the Company’s participation therein, except such as may
have been obtained or may be required under the securities laws of any
jurisdiction;

       

      (e)           The
Facilities are to be used solely for purposes contemplated by the Act and are
located within the State of Arizona and the State of New Mexico;
and

       

      (f)           All
of the proceeds of the Bonds will be expended to refinance the Facilities
through the payment or redemption of the 1997 Bonds, or provisions
therefor.

       

      ARTICLE
III

       

      THE
FACILITIES

       

      SECTION
3.01.  Facilities; Property of the
Company.  An undivided interest in the Facilities shall be the
property of the Company and the Authority shall have no right, title or interest
in the Facilities.

       

      SECTION
3.02.  Maintenance of Facilities;
Remodeling.  The Company shall at all times cause the
Facilities, and every element and unit thereof, to be maintained, preserved and
kept in thorough repair, working order and condition and cause all needful and
proper repairs and renewals thereto to be made; provided, however, that the
Company may cause the operation of the Facilities, or any element or unit
thereof, to be discontinued if, in the judgment of the Company, it is no longer
advisable to operate the same, or if the Company intends to sell or dispose of
the same and within a reasonable time shall endeavor to effectuate such sale or
disposition.

       

      The
Company may, subject to the provisions of Section 6.05 hereof, at its own
expense remodel the Facilities or make such substitutions, modifications and
improvements to the Facilities from time to time as it, in its discretion, may
deem to be desirable for its uses and purposes, which remodeling, substitutions,
modifications and improvements shall be included under the terms of this
Agreement as part of the Facilities.

       

      SECTION
3.03.  Insurance.  The
Company shall keep the Facilities insured against fire and other risks to the
extent usually insured against by companies owning and operating

       

      
        
          
          

        

        
          7

          
            

          

        

        
          
          

        

      

       

      similar
property, by reputable insurance companies or, at the Company’s election, with
respect to all or any element or unit of the Facilities, by means of an adequate
insurance fund set aside and maintained by it out of its own earnings or in
conjunction with other companies through an insurance fund, trust or other
agreement or, by means of unfunded self insurance as may be reasonable and
customary by companies owning and operating similar property.  All
proceeds of such insurance shall be for the account of the Company.

       

      SECTION
3.04.  Condemnation.  The
Company shall be entitled to the entire proceeds of any condemnation award or
portion thereof made for damages to or takings of the Facilities or other
property of the Company.

       

      ARTICLE
IV

       

      ISSUANCE
OF THE BONDS; THE LOANS; DISPOSITION OF PROCEEDS

      OF THE
BONDS

       

      SECTION
4.01.  Issuance of the
Bonds.  The Authority shall issue the Bonds under and in
accordance with the Indenture, subject to the provisions of the bond purchase
agreement among the Authority, the initial purchaser or purchasers of the Bonds
and the Company.  The Company hereby approves the issuance of the
Bonds and all terms and conditions thereof.

       

      SECTION
4.02.  Issuance of Other
Obligations.  The Authority and the Company expressly reserve
the right to enter into, to the extent permitted by law, but shall not be
obligated to enter into, an agreement or agreements other than this Agreement
with respect to the issuance by the Authority, under an indenture or indentures
other than the Indenture, of obligations to provide additional funds to pay the
cost of construction of the Facilities or obligations to refund all or any
principal amount of the Bonds, or any combination thereof.

       

      SECTION
4.03.  The Loan; Disposition of Bond
Proceeds.  The Authority shall cause the proceeds of the Bonds
to be deposited with the trustee for the 1997 Bonds to be applied to the payment
of the 1997 Bonds upon the redemption thereof.

       

      The
Authority shall establish the Bond Fund with the Trustee in accordance with
Section 4.01 of the Indenture.

       

      SECTION
4.04.  Investment of Moneys in Funds and
Accounts.  The Company and the Authority agree that any moneys
held in any fund or account created by the Indenture shall be invested as
provided in the Indenture.

       

      ARTICLE
V

       

      LOAN
PAYMENTS; PURCHASE PAYMENTS; OTHER OBLIGATIONS

       

      SECTION
5.01.  Loan Payments.  In
consideration of the issuance of the Bonds and the disposition of the proceeds
thereof as contemplated in Section 4.03 hereof, the Company shall pay, or cause
to be paid, to the Trustee for the account of the Authority an amount equal to
the aggregate principal amount of the Bonds from time to time Outstanding and,
as interest on its obligation to pay such amount, an amount equal to premium, if
any, and interest on such Bonds,

       

      
        
          
          

        

        
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      such
amounts to be paid in installments due on the dates, in the amounts and in the
manner provided in the Indenture for the Authority to cause amounts to be
deposited in the Bond Fund for the payment of the principal of and premium, if
any, and interest on the Bonds whether at stated maturity, upon redemption or
acceleration or otherwise; provided, however, that the obligation of the Company
to make any such payment hereunder shall be reduced by the amount of any
reduction under the Indenture of the amount of the corresponding payment
required to be made by the Authority thereunder.

       

      Notwithstanding
the foregoing, while any Credit Facility is in effect with respect to the Bonds,
the Company’s obligation to make Loan Payments hereunder in respect of the
principal of, and premium, if any, and accrued interest on the Bonds shall be
deemed to have been satisfied to the extent that moneys shall have been paid by
a Credit Facility Issuer to the Trustee for such payment in respect of the
Bonds, and no Event of Default shall occur hereunder by reason of any failure of
the Company to make any such Loan Payment to the Trustee under the preceding
paragraph.

       

      SECTION
5.02.  Purchase Payments. To the
extent that moneys on deposit in the Remarketing Proceeds Account of the
Purchase Fund established under the Indenture are insufficient to pay the full
purchase price of Bonds payable pursuant to Section 5.03 of the Indenture on the
applicable Purchase Date, the Company shall promptly pay to the Trustee as
Purchase Payments for deposit in the Company Fund established under Section 5.07
of the Indenture amounts sufficient to cover such shortfalls in sufficient time
to enable the Trustee to deliver to the Tender Agent the purchase price of Bonds
payable pursuant to Section 5.03 of the Indenture; provided, however, that the
obligation of the Company to make any Purchase Payment hereunder shall be deemed
to have been satisfied to the extent that moneys shall have been paid by a
Credit Facility Issuer to the Trustee for such payment in respect of the
Bonds.

       

      SECTION
5.03.  Loan Payments Assigned; Obligation
Absolute.  It is understood and agreed that all Loan Payments
are, by the Indenture, to be pledged by the Authority to the Trustee, and that
all rights and interest of the Authority hereunder (except for the Authority’s
rights under Sections 5.04, 5.05, 6.03 and 8.05 hereof and any rights of the
Authority to receive notices, certificates, requests, requisitions and other
communications hereunder) are to be pledged and assigned to the
Trustee.  The Company assents to such pledge and assignment and agrees
that the obligation of the Company to make the Loan Payments and the Purchase
Payments shall be absolute, irrevocable and unconditional and shall not be
subject to cancellation, termination or abatement, or to any defense other than
payment or to any right of set off, counterclaim or recoupment arising out of
any breach by the Authority or the Trustee or any other party under this
Agreement, the Indenture or otherwise, or out of any obligation or liability at
any time owing to the Company by the Authority, the Trustee or any other party,
and, further, that the Loan Payments and Purchase Payments and the other
payments due hereunder shall continue to be payable at the times and in the
amounts herein and therein specified, whether or not the Facilities, or any
portion thereof, shall have been completed or shall have been destroyed by fire
or other casualty, or title thereto, or the use thereof, shall have been taken
by the exercise of the power of eminent domain, and that there shall be no
abatement of or diminution in any such payments by reason thereof, whether or
not the Facilities shall be used or useful, whether or not any applicable laws,
regulations or standards shall prevent or prohibit the use of the Facilities, or
for any other reason, all of the foregoing being subject, however, to the
provisions of Sections 6.01 and 7.01 hereof.

       

      
        
          
          

        

        
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      SECTION
5.04.  Payment of
Expenses.  The Company shall pay all Administration Expenses,
including, without limitation, Administration Expenses incurred at and
subsequent to the time the Bonds are deemed to have been paid in accordance with
Article IX of the Indenture.  The payment of the compensation and the
reimbursement of expenses and advances of the Trustee and the Tender Agent and
of the paying agent, any co paying agent and the registrar under the Indenture
shall be made directly to such entities.

       

      SECTION
5.05.  Indemnification.  The
Company releases the Authority, the Trustee, the County of Pima, Arizona, the
Tender Agent and their directors, officers, employees and agents from, agrees
that the Authority, the Trustee and the County of Pima, Arizona shall not be
liable for, and agrees to indemnify and hold the Authority, the Trustee, the
County of Pima, Arizona, the Tender Agent and their directors, officers,
employees and agents free and harmless from, any liability (including, without
limitation, attorneys’ and other agents’ fees and expenses) for any loss or
damage to property or any injury to or death of any person that may be
occasioned by any cause whatsoever pertaining to the Facilities, except (i) in
the case of the Trustee and the Tender Agent, as a result of the negligence or
bad faith or willful misconduct of the Trustee or the Tender Agent, as the case
may be, or its directors, officers, employees and agents; and (ii) in the case
of the Authority or the County of Pima, Arizona, as a result of gross negligence
or bad faith of the Authority or the County of Pima, Arizona, or their
respective directors, officers, employees and agents.

       

      The
Company will indemnify and hold the Authority, the Trustee, the County of Pima,
Arizona and the Tender Agent, free and harmless from any loss, claim, damage,
tax, penalty, liability, disbursement, litigation expenses, attorneys’ and other
agents’ fees and expenses or court costs arising out of, or in any way relating
to, the execution or performance of this Agreement, the issuance or sale of the
Bonds, actions taken under the Indenture or any other cause whatsoever
pertaining to the Facilities, except (i) in the case the Trustee and the Tender
Agent, as a result of the negligence or bad faith or willful misconduct of the
Trustee or the Tender Agent, as the case may be; and (ii) in the case of the
Authority or the County of Pima, Arizona, as a result of the gross negligence or
bad faith of the Authority or the County of Pima, Arizona.

       

      The
Company will indemnify and hold the Authority and the County of Pima, Arizona
and their respective directors, officers, employees and agents free and harmless
from any loss, claim, damage, tax, penalty, liability, disbursement, litigation
expenses, attorney’s fees and expenses or court costs arising out of or in any
way relating to any untrue statement or alleged untrue statement of any material
fact or omission or alleged omission to state a material fact necessary to make
the statements made, in light of the circumstances under which they were made,
not misleading in any official statement or other offering material utilized in
connection with the sale of any Bonds.

       

      SECTION
5.06.  Payment of Taxes; Discharge of
Liens.  The Company shall: (a) pay, or make provision for
payment of, all lawful taxes and assessments, including income, profits,
property or excise taxes, if any, or other municipal or governmental charges,
levied or

       

      
        
          
          

        

        
          10

          
            

          

        

        
          
          

        

      

       

      assessed
by any federal, state or municipal government or political body upon the
Facilities or any part thereof or upon the Authority with respect to the Loan
Payments and Purchase Payments, when the same shall become due; and (b) pay or
cause to be satisfied and discharged or make adequate provision to satisfy and
discharge, within sixty (60) days after the same shall accrue, any lien or
charge upon the Loan Payments and Purchase Payments, and all lawful claims or
demands for labor, materials, supplies or other charges which, if unpaid, might
be or become a lien upon such amounts; provided, that, if the Company shall
first notify the Authority and the Trustee of its intention so to do, the
Company may in good faith contest any such lien or charge or claims or demands
in appropriate legal proceedings, and in such event may permit the items so
contested and identified as such by the Company to remain undischarged and
unsatisfied during the period of such contest and any appeal therefrom, unless
the Trustee shall notify the Company in writing that, in the opinion of counsel
to the Trustee, based upon material facts disclosed to the Trustee without any
duty of investigation, by nonpayment of any such items the lien of the Indenture
as to the Loan Payments will be materially endangered, in which event the
Company shall promptly pay and cause to be satisfied and discharged all such
unpaid items.  The Authority shall cooperate fully with the Company in
any such contest.

       

      ARTICLE
VI

       

      SPECIAL
COVENANTS

       

      SECTION
6.01.  Maintenance of Legal
Existence.  Except as permitted in this Section 6.01, the
Company shall maintain its legal existence, shall not sell, transfer or
otherwise dispose of all of its assets, as or substantially as an entirety, and
shall not consolidate with or merge with or into another entity.  The
Company may consolidate with or merge into another entity organized and existing
under the laws of the United States of America, any state thereof or the
District of Columbia, or sell, transfer or otherwise dispose of all of its
assets, as or substantially as an entirety, to any Person, if the surviving or
resulting Person (if other than the Company) or the transferee Person, as the
case may be, prior to or simultaneously with such merger, consolidation, sale,
transfer or disposition, assumes, by delivery to the Trustee and the Authority
of an instrument in writing satisfactory in form to the Trustee, all the
obligations of the Company under this Agreement, including, without limitation,
the obligations of the Company under Sections 5.01 and 5.02
hereof.  Upon such an assumption following any such sale, transfer or
other disposition of assets, the Company shall be released and discharged from
all liability in respect of all obligations under this
Agreement.  Notwithstanding the foregoing, in the case of any such
sale, transfer or other disposition of assets, which do not include the
Facilities, the Company shall remain liable in respect of all obligations under
this Agreement other than the obligations under Sections 5.01 and 5.02 hereof,
and the transferee shall not be required to assume any obligations hereunder
other than the obligations under Sections 5.01 and 5.02 hereof; provided,
however, that the transferee shall be required to assume all such other
obligations unless the Company shall have delivered to the Authority and the
Trustee an opinion of Bond Counsel to the effect that the non-assumption by the
transferee of such other obligations will not impair the validity under the Act
of the Bonds and will not, in and of itself, adversely affect any exclusion of
interest on the Bonds from gross income for purposes of federal income
taxation.

       

      If
consolidation, merger or sale, transfer or other disposition is made as
permitted by this Section 6.01, the provisions of this Section 6.01 shall
continue in full force and effect and no further consolidation, merger or sale
or other transfer shall be made except in compliance with the provisions of this
Section 6.01.

       

      
        
          
          

        

        
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      Anything
in this Agreement to the contrary notwithstanding, the sale, transfer or other
disposition by the Company of all of its facilities (a) for the generation of
electric energy, (b) for the transmission of electric energy or (c) for the
distribution of electric energy, in each case considered alone, or all of its
facilities described in clauses (a) and (b), considered together, or all of its
facilities described in clauses (b) and (c), considered together, shall in no
event be deemed to constitute a sale, transfer or other disposition of all the
properties of the Company, as or substantially as an entirety, unless,
immediately following such sale, transfer or other disposition, the Company
shall own no properties in the other such categories of property not so sold,
transferred or otherwise disposed of.  The character of particular
facilities shall be determined by reference to the Uniform System of Accounts
prescribed for public utilities and licensees subject to the Federal Power Act,
as amended, to the extent applicable.

       

      SECTION
6.02.  Permits or
Licenses.  In the event that it may be necessary for the proper
performance of this Agreement on the part of the Company or the Authority that
any application or applications for any permit or license to do or to perform
certain things be made to any governmental or other agency by the Company or the
Authority, the Company and the Authority each shall, upon the request of either,
execute such application or applications.

       

      SECTION
6.03.  Authority’s Access to
Facilities.  The Authority shall have the right, upon
appropriate prior notice to the Company, to have reasonable access to the
Facilities during normal business hours for the purpose of making examinations
and inspections of the same.

       

      SECTION
6.04.  Tax-Exempt Status of Interest on
Bonds.  (a)  It is the intention of the parties hereto
that interest on the Bonds shall be and remain tax-exempt, and to that end the
covenants and agreements of the Authority and the Company in this Section 6.04
and the Tax Agreement are for the benefit of the Owners from time to time of the
Bonds.

       

      (b)           Each
of the Company and the Authority covenants and agrees for the benefit of the
Owners from time to time of the Bonds that it will not directly or indirectly
use or permit the use of (to the extent within its control) the proceeds of any
of the Bonds or any other funds, or take or omit to take any action, if and to
the extent such use, or the taking or omission to take such action, would cause
any of the Bonds to be “arbitrage bonds” within the meaning of Section 148 of
the 1986 Code or otherwise subject to federal income taxation by reason of
Section 103 of the 1954 Code and Title XIII of the Tax Reform Act of 1986, as
applicable, and any applicable regulations promulgated thereunder.  To
such ends, the Authority and the Company will comply with all requirements of
such Section 148 to the extent applicable to the Bonds.  In the event
that at any time the Authority or the Company is of the opinion that for
purposes of this Section 6.04(b) it is necessary to restrict or limit the yield
on the investment of any moneys held by the Trustee under the Indenture, the
Authority or the Company shall so notify the Trustee in writing.

       

      
        
          
          

        

        
          12

          
            

          

        

        
          
          

        

      

       

      Without limiting the generality of the
foregoing, the Company and the Authority agree that there shall be paid from
time to time all amounts required to be rebated to the United States of America
pursuant to Section 148(f) of the Code and any applicable Treasury
Regulations.  This covenant shall survive payment in full or
defeasance of the Bonds and the satisfaction and discharge of the
Indenture.  The Company specifically covenants to pay or cause to be
paid the Rebate Requirement as defined and described in the Tax
Agreement.

       

      (c)           The
Authority certifies and represents that it has not taken, and the Authority
covenants and agrees that it will not take, any action which results in interest
paid on the Bonds being included in gross income of the Owners of the Bonds for
federal tax purposes pursuant to Section 103 of the 1954 Code and Title XIII of
the Tax Reform Act of 1986, as applicable; and the Company certifies and
represents that it has not taken or (to the extent within its control) permitted
to be taken, and the Company covenants and agrees that it will not take or (to
the extent within its control) permit to be taken any action which will cause
the interest on the Bonds to become includable in gross income for federal
income tax purposes; provided, however, that neither the Company nor the
Authority shall be deemed to have violated these covenants if the interest on
any of the Bonds becomes taxable to a person solely because such person is a
“substantial user” of the Facilities or a “related person” within the meaning of
Section 103(b)(13) of the 1954 Code and provided, further, that none of the
covenants and agreements herein contained shall require either the Company or
the Authority to enter an appearance or intervene in any administrative,
legislative or judicial proceeding in connection with any changes in applicable
laws, rules or regulations or in connection with any decisions of any court or
administrative agency or other governmental body affecting the taxation of
interest on the Bonds.  The Company acknowledges having read Section
8.08 of the Indenture and agrees to perform all duties imposed on it by such
Section 8.08, by this Section and by the Tax Agreement.  Insofar as
Section 8.08 of the Indenture and the Tax Agreement impose duties and
responsibilities on the Company, they are specifically incorporated herein by
reference.

       

      (d)           Notwithstanding
any provision of this Section 6.04 and Section 8.08 of the Indenture, if the
Company shall provide to the Authority and the Trustee an opinion of Bond
Counsel to the effect that any specified action required under this Section 6.04
and Section 8.08 of the Indenture is no longer required or that some further or
different action is required to maintain the tax-exempt status of interest on
the Bonds, the Company, the Trustee and the Authority may conclusively rely upon
such opinion in complying with the requirements of this Section 6.04, and the
covenants hereunder shall be deemed to be modified to that extent.

       

      SECTION
6.05.  Use of
Facilities.  So long as any Bonds are Outstanding and the
Facilities are operated by or for the benefit of the Company, the Company shall
cause the Facilities to be used for purposes contemplated by the Act and in the
Tax Agreement.

       

      SECTION
6.06.  Financing
Statements.  The Company shall file and record, or cause to be
filed and recorded, all financing statements and continuation statements
referred to in Section 8.07 of the Indenture.

       

      
        
          
          

        

        
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      ARTICLE
VII

       

      ASSIGNMENT,
LEASING AND SELLING

       

      SECTION
7.01.  Conditions.  The
Company’s interest in this Agreement may be assigned as a whole or in part, and
its interest in the Facilities may be leased, sold, transferred or otherwise
disposed of by the Company as a whole or in part (whether an interest in a
specific element or unit or an undivided interest), to any Person; provided,
however, that no such assignment, lease, sale, transfer or other disposition (a)
shall relieve the Company from its primary liability for its obligations under
Sections 5.01 and 5.02 hereof or (b) shall be made unless the assignee, lessee,
purchaser or other transferee, as the case may be, prior to or simultaneously
with such assignment, lease, sale, transfer or other disposition, assumes, by
delivery of an instrument in writing satisfactory in form to the Trustee and the
Authority, all other obligations of the Company hereunder to the extent of the
interest assigned, leased, sold, transferred or otherwise disposed of, and the
Company shall be released of and discharged from such obligations to the extent
so assumed.  Notwithstanding the foregoing, (a) if (i) the Company’s
interest in this Agreement shall be assigned as a whole or in undivided part,
(ii) the Company’s interest in the Facilities shall be leased as a whole or in
undivided part and the term of such leasehold or the term of any extension or
extensions thereof at the option of the Company shall extend beyond the maturity
date of the Bonds or (iii) the Company’s interest in the Facilities shall be
sold, transferred or otherwise disposed of as a whole or in undivided part, and
(b) in the event that the assignee, lessee, purchaser or other transferee shall
assume the obligations of the Company under Sections 5.01 and 5.02 hereof for
the remaining term of this Agreement, to the extent of such assignment, lease,
sale, transfer or other disposition, the Company shall be released from and
discharged of all liability in respect of such obligations to the extent so
assumed (but only to such extent); provided, however, that the release and
discharge of the Company pursuant to clause (b) shall be conditioned upon the
delivery by the Company to the Authority and the Trustee of a certificate of an
Independent Expert (as hereinafter defined) describing the interests so
assigned, leased, sold, transferred or otherwise disposed of, together with all
other rights, interests, assets and/or properties assigned, leased, sold,
transferred or otherwise disposed of by the Company to the same Person in the
same or a related transaction, stating that such rights, interests, assets
and/or properties so described constitute facilities for the generation,
transmission  and/or distribution of electric energy and stating that,
in the opinion of such Independent Expert, the Fair Value (as hereinafter
defined) of such rights, interests, assets and/or properties to the Person
acquiring the same is not less than an amount equal to 10/7 of the sum of (x)
the aggregate principal amount of the Bonds then Outstanding and (y) the
outstanding principal amount of all other obligations of the Company
representing indebtedness for borrowed money or for the deferred purchase price
of property which are being assumed by such Person; provided, further, that
after any such assumption, release and discharge as aforesaid, the Company may
again assume such obligations under Section 5.01 hereof, in whole or in part, at
any time and from time to time, and, to the extent of any such assumption by the
Company (but only to such extent), the aforesaid assignee, lessee, purchaser or
other transferee shall be released from and discharged of all liability in
respect of such obligations.

       

      Anything
herein to the contrary notwithstanding, the Company shall not make any
assignment, lease or sale as provided in the immediately preceding paragraph
unless it shall have

       

      
        
          
          

        

        
          14

          
            

          

        

        
          
          

        

      

       

      furnished
to the Authority and the Trustee an opinion of Bond Counsel to the effect that
the proposed assignment, lease or sale will not impair the validity under the
Act of the Bonds and will not, in and of itself, adversely affect any exclusion
of interest on the Bonds from gross income for purposes of federal income
taxation.

       

      After any
lease, sale, transfer or other disposition of any element or unit of the
Facilities, or any interest therein, the Company may, at its option, cause such
element or unit, or interest therein, to no longer be deemed to be part of the
Facilities for the purposes of this Agreement by delivering to the Authority and
the Trustee the agreements or other documents required pursuant to Section 7.02
hereof together with an instrument signed by an Authorized Company
Representative stating that such element or unit, or interest therein, shall no
longer be deemed to be part of the Facilities for the purposes of this
Agreement.

       

      For
purposes of this Section 7.01:

       

      (a)           “Independent
Expert” means a Person which (i) is an engineer, appraiser or other expert and
which, with respect to any certificate to be delivered pursuant to this Section,
is qualified to pass upon the matter set forth in such certificate and (ii)(A)
is in fact independent, (B) does not have any direct material financial interest
in the transferee or in any obligor upon the Bonds or under this Agreement or in
any affiliate of the transferee or any such obligor, (C) is not connected with
the transferee or any such obligor as an officer, employee, promoter,
underwriter, trustee, partner, director or any person performing similar
functions and (D) is approved by the Trustee in the exercise of reasonable care;
for purposes of this definition “engineer” means a Person engaged in the
engineering profession or otherwise qualified to pass upon engineering matters
(including, but not limited to, a Person licensed as a professional engineer,
whether or not then engaged in the engineering profession); and for purposes of
this definition “appraiser” means a Person engaged in the business of appraising
property or otherwise qualified to pass upon the Fair Value or fair market value
of property.

       

      (b)           “Fair
Value” means the fair value of the interests, rights, assets and/or properties
assigned, leased, sold, transferred or otherwise disposed of (but, in the case
of a lease, only to the extent of such lease) as may be determined by reference
to (i) except in the case of a lease, the amount which would be likely to be
obtained in an arm’s-length transaction with respect to such interests, rights,
assets and/or properties between an informed and willing buyer and an informed
and willing seller, under no compulsion, respectively, to buy or sell, (ii) in
the case of a lease, the amount (discounted to present value at a rate not lower
than the taxable equivalent of the yield to maturity of the Bonds based on
prevailing market prices immediately prior to the first public announcement of
the proposed transaction) which would be likely to be obtained in an
arm’s-length transaction with respect to such interests, rights, assets and/or
properties between an informed and willing lessee and an informed and willing
lessor, neither under any compulsion to lease; (iii) the amount of investment
with respect to such interests, rights, assets and/or properties which, together
with a reasonable return thereon, would be likely to be recovered through
ordinary business operations or otherwise, (iv) the cost, accumulated
depreciation and replacement cost with respect to such interests, rights, assets
and/or properties and/or (v) any other relevant factors; provided, however,
that

       

      
        
          
          

        

        
          15

          
            

          

        

        
          
          

        

      

       

      (x) Fair
Value shall be determined without deduction for any mortgage, deed of trust,
pledge, security interest, encumbrance, lease, reservation, restriction,
servitude, charge or similar right or any other lien of any kind and (y) the
Fair Value to the transferee of any property shall not reflect any reduction
relating to the fact that such property may be of less value to a Person which
is not the owner, lessee or operator of the property or any portion thereof than
to a Person which is such owner, lessee or operator.  Fair Value may
be determined, without physical inspection, by the use of accounting and
engineering records and other data maintained by the Company or the transferee
or otherwise available to the Independent Expert certifying the
same.

       

      SECTION
7.02.  Instrument Furnished to the
Authority and Trustee.  The Company shall, within fifteen (15)
days after the delivery thereof, furnish to the Authority and the Trustee a true
and complete copy of the agreements or other documents effectuating any such
assignment, lease, sale, transfer or other disposition.

       

      SECTION
7.03.  Limitation.  This
Agreement shall not be assigned nor shall the Facilities be leased, sold,
transferred or otherwise disposed of, in whole or in part, except as provided in
this Article VII or in Section 6.01 or 5.02 hereof.  This Article VII
shall not apply to any sale, transfer or other disposition by the Company of all
of its assets, as or substantially as an entirety, as contemplated in Section
6.01.

       

      ARTICLE
VIII

       

      EVENTS OF
DEFAULT AND REMEDIES

       

      SECTION
8.01.  Events of
Default.  Each of the following events shall constitute and is
referred to in this Agreement as an “Event of Default”:

       

      (a)           a
failure by the Company to make any Loan Payment or Purchase Payment, which
failure shall have resulted in an “Event of Default” under clause (a), (b) or
(c) of Section 10.01 of the Indenture;

       

      (b)           a
failure by the Company to pay when due any amount required to be paid under this
Agreement or to observe and perform any covenant, condition or agreement on its
part to be observed or performed (other than a failure described in clause (a)
above), which failure shall continue for a period of sixty (60) days after
written notice, specifying such failure and requesting that it be remedied,
shall have been given to the Company by the Authority or the Trustee, unless the
Authority and the Trustee shall agree in writing to an extension of such period
prior to its expiration; provided, however, that the Authority and the Trustee
shall be deemed to have agreed to an extension of such period if corrective
action is initiated by the Company within such period and is being diligently
pursued; or

       

      (c)           the
dissolution or liquidation of the Company, or failure by the Company promptly to
lift any execution, garnishment or attachment of such consequence as will impair
its ability to make any payments under this Agreement, or the entry of an order
for relief by a court of competent jurisdiction in any proceeding for its
liquidation or

       

      
        
          
          

        

        
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      reorganization
under the provisions of any bankruptcy act or under any similar act which may be
hereafter enacted, or an assignment by the Company for the benefit of its
creditors, or the entry by the Company into an agreement of composition with its
creditors (the term “dissolution or liquidation of the Company,” as used in this
clause, shall not be construed to include the cessation of the corporate
existence of the Company resulting either from a merger or consolidation of the
Company into or with another entity or a dissolution or liquidation of the
Company following a transfer of all or substantially all its assets as an
entirety, under the conditions permitting such actions contained in Section 6.01
hereof).

       

      SECTION
8.02.  Force Majeure.  The
provisions of Section 8.01 hereof are subject to the following limitations: if
by reason of acts of God; strikes, lockouts or other industrial disturbances;
acts of public enemies; orders of any kind of the government of the United
States or of the State of Arizona, or any department, agency, political
subdivision, court or official of any of them, or any civil or military
authority; insurrections; riots; epidemics; landslides; lightning; earthquakes;
volcanoes; fires; hurricanes; tornadoes; storms; floods; washouts; droughts;
arrests; restraint of government and people; civil disturbances; explosions;
breakage or accident to machinery; partial or entire failure of utilities; or
any cause or event not reasonably within the control of the Company, the Company
is unable in whole or in part to carry out any one or more of its agreements or
obligations contained herein, other than its obligations under Sections 5.01,
5.02, 5.04, 5.06, and 6.01 hereof, the Company shall not be deemed in default by
reason of not carrying out said agreement or agreements or performing said
obligation or obligations during the continuance of such
inability.  The Company shall make reasonable effort to remedy with
all reasonable dispatch the cause or causes preventing it from carrying out its
agreements; provided, that the settlement of strikes, lockouts and other
industrial disturbances shall be entirely within the discretion of the Company,
and the Company shall not be required to make settlement of strikes, lockouts
and other industrial disturbances by acceding to the demands of the opposing
party or parties when such course is in the judgment of the Company unfavorable
to the Company.

       

      SECTION
8.03.  Remedies.  (a)  Upon
the occurrence and continuance of any Event of Default described in clause (a)
of Section 8.01 hereof, and further upon the condition that, in accordance with
the terms of the Indenture, the Bonds shall have been declared to be immediately
due and payable pursuant to any provision of the Indenture, the Loan Payments
shall, without further action, become and be immediately due and
payable.

       

      Any
waiver of any “Event of Default” under the Indenture and a rescission and
annulment of its consequences shall constitute a waiver of the corresponding
Event or Events of Default under this Agreement and a rescission and annulment
of the consequences thereof.

       

      (b)           Upon
the occurrence and continuance of any Event of Default, the Authority, or the
Trustee with respect to the rights of the Authority assigned to the Trustee by
the Indenture, may take any action at law or in equity to collect any payments
then due and thereafter to become due, or to enforce performance and observance
of any obligation, agreement or covenant of the Company hereunder.

       

      
        
          
          

        

        
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      (c)           Any
amounts collected by the Trustee from the Company pursuant to this Section 8.03
shall be applied in accordance with the Indenture.

       

      SECTION
8.04.  No Remedy
Exclusive.  No remedy conferred upon or reserved to the
Authority hereby is intended to be exclusive of any other available remedy or
remedies, but each and every such remedy shall be cumulative and shall be in
addition to every other remedy given hereunder or now or hereafter existing at
law or in equity or by statute.  No delay or omission to exercise any
right or power accruing upon any default shall impair any such right or power or
shall be construed to be a waiver thereof, but any such right or power may be
exercised from time to time and as often as may be deemed
expedient.  In order to entitle the Authority to exercise any remedy
reserved to it in this Article VIII, it shall not be necessary to give any
notice, other than such notice as may be herein expressly required.

       

      SECTION
8.05.  Reimbursement of Attorneys’ and
Agents’ Fees.  If the Company shall default under any of the
provisions hereof and the Authority or the Trustee shall employ attorneys or
agents or incur other reasonable expenses for the collection of payments due
hereunder or for the enforcement of performance or observance of any obligation
or agreement on the part of the Company contained herein, the Company will on
demand therefor reimburse the Authority or the Trustee and any predecessor
Trustee, as the case may be, for the reasonable fees of such attorneys and such
other reasonable expenses so incurred.

       

      SECTION
8.06.  Waiver of
Breach.  In the event any obligation created hereby shall be
breached by either of the parties and such breach shall thereafter be waived by
the other party, such waiver shall be limited to the particular breach so waived
and shall not be deemed to waive any other breach hereunder.  In view
of the assignment of certain of the Authority’s rights and interest hereunder to
the Trustee, the Authority shall have no power to waive any breach hereunder by
the Company in respect of such rights and interest without the consent of the
Trustee, and the Trustee may exercise any of such rights of the Authority
hereunder.

       

      ARTICLE
IX

       

      REDEMPTION
OF BONDS

       

      SECTION
9.01.  Redemption of
Bonds.  The Authority shall take, or cause to be taken, the
actions required by the Indenture to discharge the lien created thereby through
the redemption, or provision for payment or redemption, of all Bonds then
Outstanding, or to effect the redemption, or provision for payment or
redemption, of less than all the Bonds then Outstanding, upon receipt by the
Authority and the Trustee from the Company of a notice designating the principal
amount of the Bonds to be redeemed, or for the payment or redemption of which
provision is to be made, and, in the case of redemption of Bonds, or provision
therefor, specifying the date of redemption and the applicable redemption
provision of the Indenture.  Such redemption date shall not be less
than thirty (30) days (forty-five (45) days if the Interest Rate Mode for such
Bonds is the Term Rate (as such terms are defined in the Indenture)) from the
date such notice is given (unless a shorter notice is satisfactory to the
Trustee).  Unless otherwise stated therein, such notice shall be
revocable by the Company at any time prior to the time at which the Bonds to be
redeemed, or for the payment or redemption of which provision is to be made, are
first deemed to be paid in accordance with Article IX of the
Indenture.  The

       

      
        
          
          

        

        
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      Company
shall furnish any moneys or Government Obligations (as defined in the Indenture)
required by the Indenture to be deposited with the Trustee or otherwise paid by
the Authority in connection with any of the foregoing purposes.

       

      SECTION
9.02.  Compliance with the
Indenture.  Anything in this Agreement to the contrary
notwithstanding, the Authority and the Company shall take all actions required
by this Agreement and the Indenture in order to comply with any provisions of
the Indenture requiring the mandatory redemption of Bonds.

       

      ARTICLE
X

       

      MISCELLANEOUS

       

      SECTION
10.01.  Term of
Agreement.  This Agreement shall remain in full force and
effect from the date hereof until the right, title and interest of the Trustee
in and to the Trust Estate (as defined in the Indenture) shall have ceased,
terminated and become void in accordance with Article IX of the Indenture and
until all payments required under this Agreement shall have been
made.  Notwithstanding the foregoing, the covenants contained in
Sections 5.04, 5.05, Section 6.04 and 8.05 hereof shall survive the termination
of this Agreement.

       

      SECTION
10.02.  Notices.  Except as
otherwise provided in this Agreement, all notices, certificates, requests,
requisitions and other communications hereunder shall be in writing and shall be
sufficiently given and shall be deemed given when mailed by registered mail,
postage prepaid, addressed as follows: if to the Authority, c/o Russo, Russo
& Slania, P.C., 6700 North Oracle Road, Suite 100, Tucson, Arizona 85704; if
to the Company, at One South Church Avenue, Suite 100, Tucson, Arizona 85701,
Attention: Treasurer; and if to the Trustee, at such address as shall be
designated by it in the Indenture.  A copy of each notice,
certificate, request or other communication given hereunder to the Authority,
the Company, or the Trustee shall also be given to the others.  The
Authority, the Company, and the Trustee may, by notice given hereunder,
designate any further or different addresses to which subsequent notices,
certificates, requests or other communications shall be sent.

       

      SECTION
10.03.  Parties in
Interest.  This Agreement shall inure to the benefit of and
shall be binding upon the Authority, the Company and their respective successors
and assigns, and no other person, firm or corporation shall have any right,
remedy or claim under or by reason of this Agreement; provided, however, that
the rights and remedies granted to the Authority in Article VIII hereof, shall
inure to the benefit of the Trustee, on behalf of the Owners from time to time
of the Bonds, and shall be enforceable by the Trustee as a third party
beneficiary or as assignee of the Authority; and provided, further, that neither
Pima County, Arizona nor the State of Arizona shall in any event be liable for
the payment of the principal of or premium, if any, or interest on the Bonds or
for the performance of any pledge, mortgage, obligation or agreement created by
or arising out of this Agreement or the issuance of the Bonds, and further that
neither the Bonds nor any such obligation or agreement of the Authority shall be
construed to constitute an indebtedness of Pima County, Arizona or the State of
Arizona within the meaning of any constitutional or statutory provisions
whatsoever, but shall be limited obligations of the Authority payable solely out
of the revenues derived from this Agreement, or from the sale of the Bonds, or
from the investment or reinvestment of any of the foregoing, as provided herein
and in the Indenture.

       

      
        
          
          

        

        
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      SECTION
10.04.  Amendments.  This
Agreement may be amended only by written agreement of the parties hereto,
subject to the limitations set forth herein and in the Indenture.

       

      SECTION
10.05.  Counterparts.  This
Agreement may be executed in any number of counterparts, each of which, when so
executed and delivered, shall be an original; but such counterparts shall
together constitute but one and the same Agreement.

       

      SECTION
10.06.  Severability.  If
any clause, provision or section of this Agreement shall, for any reason, be
held illegal or invalid by any court, the illegality or invalidity of such
clause, provision or section shall not affect any of the remaining clauses,
provisions or sections hereof, and this Agreement shall be construed and
enforced as if such illegal or invalid clause, provision or section had not been
contained herein.  In case any agreement or obligation contained in
this Agreement be held to be in violation of law, then such agreement or
obligation shall be deemed to be the agreement or obligation of the Authority or
the Company, as the case may be, to the full extent permitted by
law.

       

      SECTION
10.07.  Governing Law.  The
laws of the State of Arizona shall govern the construction and enforcement of
this Agreement, except that the provisions of Section 15.09 of the Indenture,
construed as provided in Section 15.07 of the Indenture, shall apply to this
Agreement as if contained herein.

       

      SECTION
10.08.  Notice Regarding Cancellation of
Contracts.  As required by the provisions of Section 38-511,
Arizona Revised Statutes, as amended, notice is hereby given that political
subdivisions of the State of Arizona or any of their departments or agencies
may, within three (3) years of its execution, cancel any contract, without
penalty or further obligation, made by the political subdivisions or any of
their departments or agencies on or after September 30, 1988, if any person
significantly involved in initiating, negotiating, securing, drafting or
creating the contract on behalf of the political subdivisions or any of their
departments or agencies is, at any time while the contract or any extension of
the contract is in effect, an employee or agent of any other party to the
contract in any capacity or a consultant to any other party of the contract with
respect to the subject matter of the contract.  The cancellation shall
be effective when written notice from the chief executive officer or governing
body of the political subdivision is received by all other parties to the
contract unless the notice specifies a later time.

       

      The
Company covenants and agrees not to employ as an employee, agent or, with
respect to the subject matter of this Agreement, a consultant, any person
significantly involved in initiating, negotiating, securing, drafting or
creating such Agreement on behalf of the Authority within three (3) years from
the execution hereof, unless a waiver is provided by the Authority.

       

      [Remainder
of Page Intentionally Left Blank]

      


      
        
          
          

        

        
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      IN
WITNESS WHEREOF, the parties hereto have caused this Loan Agreement to be duly
executed as of the day and year first above written.

       

      
        	 
      	
                THE
      INDUSTRIAL DEVELOPMENT AUTHORITY

                OF
      THE COUNTY OF PIMA

                 

              
	 
      	
                By:

              	/s/
      Cecilia Cruz
	 
      	 
      	
                Name: 
      Cecilia Cruz

                Title:   
      President

              
	 
      	 
      	
                 
      

                 

              
	 
      	
                By:

              	/s/
      Stanley Lehman
	 
      	 
      	
                Name: 
      Stanley Lehman

                Title:   
      Vice President

              
	 
      	 
      	
                 
      

                 

              
	 
      	
                TUCSON
      ELECTRIC POWER COMPANY

                 

              
	 
      	
                By:

              	/s/
      Kevin P. Larson
	 
      	 
      	
                Name: 
      Kevin P. Larson

                Title:   
      Senior Vice President

              


      

      


      
        
          
          

        

        
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                EXHIBIT
      A

              


      

      


      A portion
of the costs of the construction, improvement or equipping of the following
Facilities will be refinanced with the proceeds of the Industrial Development
Revenue Bonds, 2008 Series B (Tucson Electric Power Company Project) issued by
The Industrial Development Authority of the County of Pima and referred to in
the foregoing Loan Agreement.

       

      --------------------

       

      Certain
additions and improvements to the Company’s low-voltage transmission and
distribution facilities in the City of Tucson and environs in Pima County,
Arizona and providing service to Fort Huachuca in Cochise County, Arizona;
certain additions and improvements to the Sundt Generating Station located in
the City of Tucson, and certain additions and improvements to Unit 2 of the
Springerville Generating Station and related facilities located in Apache
County, Arizona.