Exhibit 4.1
  Execution
Copy
 
      UNS
Electric, Inc.
   UniSource
Energy Services, Inc.
   $100,000,000
   $50,000,000 6.50%
Senior Guaranteed Notes, Series A, due August 7, 2015
 $50,000,000 7.10%
Senior Guaranteed Notes, Series B, due August 7, 2023
   ______________
    Note
Purchase and Guaranty Agreement
   _____________
    Dated as of
August 5, 2008
 
 Tableof Contents
  (Not a part of the
Agreement)
  Section
              Heading
              Page
  Section 1.
              Authorization of Notes
              1Section 2.
              Sale and Purchase of Notes
              1Section 3.
              Execution Date; Closing
              2Section 4.
              Conditions to Closing
              2Section 4.1.
              Representations and Warranties
              2Section 4.2.
              Performance; No Default
              2Section 4.3.
              Compliance Certificates
              2Section 4.4.
              Opinions of Counsel
              3Section 4.5.
              Purchase Permitted by Applicable Law,
      Etc.
              3Section 4.6.
              Sale of Other Notes
              3Section 4.7.
              Payment of Special Counsel Fees
              3Section 4.8.
              Private Placement Number
              3Section 4.9.
              Changes in Corporate Structure
              4Section 4.10.
              Funding Instructions
              4Section 4.11.
              Proceedings and Documents
              4Section 4.12.
              Regulatory Approval
              4Section 4.13.
              Rating
              4Section 5.
              Representations and Warranties of the
      Obligors
              4Section 5.1.
              Organization; Power and Authority
              4Section 5.2.
              Authorization, Etc.
              4Section 5.3.
              Disclosure
              5Section 5.4.
              Organization and Ownership of Shares of Subsidiaries;
      Affiliates
              5Section 5.5.
              Financial Statements; Material
      Liabilities
              6Section 5.6.
              Compliance with Laws, Other Instruments,
      Etc.
              6Section 5.7.
              Governmental Authorization, Etc.
              6Section 5.8.
              Litigation; Observance of Agreements, Statutes and
      Orders
              6Section 5.9.
              Taxes
              7Section 5.10.
              Title to Property; Leases
              7Section 5.11.
              Licenses, Permits, Etc.
              7Section 5.12.
              Compliance with ERISA
              8Section 5.13.
              Private Offering by the Company
              8Section 5.14.
              Use of Proceeds; Margin Regulations
              9Section 5.15.
              Existing Indebtedness; Future
Liens
              9
  -i-
  Section 5.16.
              Foreign Assets Control Regulations,
      Etc.
              9Section 5.17.
              Status under Certain Statutes
              10Section 5.18.
              Notes Rank Pari Passu
              10Section 5.19.
              Environmental Matters
              10Section 6.
              Representations of the Purchasers
              11Section 6.1.
              Purchase for Investment
              11Section 6.2.
              Source of Funds
              11Section 7.
              Information as to the Obligor
              13Section 7.1.
              Financial and Business
    Information
              13Section 7.2.
              Officer’s Certificate
              15Section 7.3.
              Visitation
              16Section 8.
              Prepayment of the Notes
              16Section 8.1.
              Maturity
              16Section 8.2.
              Optional Prepayments with Make-Whole
      Amount
              16Section 8.3.
              Allocation of Partial Prepayments
              17Section 8.4.
              Maturity; Surrender, Etc.
              17Section 8.5.
              Change of Control
              17Section 8.6.
              Purchase of Notes
              18Section 8.7.
              Make-Whole Amount
              18Section 9.
              Affirmative Covenants
              19Section 9.1.
              Compliance with Law
              19Section 9.2.
              Insurance
              20Section 9.3.
              Maintenance of Properties
              20Section 9.4.
              Payment of Taxes and Claims
              20Section 9.5.
              Legal Existence, Etc.
              20Section 9.6.
              Notes to Rank Pari Passu
              21Section 9.7.
              Books and Records
              21Section 9.8.
              Corporate Separateness
              21Section 10.
              Negative Covenants
              22Section 10.1.
              Transactions with Affiliates
              22Section 10.2.
              Merger, Consolidation, etc
              22Section 10.3.
              Liens
              23Section 10.4.
              Restricted Payments
              24Section 10.5.
              Incurrence of Indebtedness
              24Section 10.6.
              Line of Business
              25Section 10.7.
              Terrorism Sanctions Regulations
              25
  -ii-
  Section 11.
              Guaranty
              25Section 11.1.
              The Guaranty
              25Section 11.2.
              Obligations Unconditional
              26Section 11.3.
              Subrogation
              28Section 11.4.
              Reinstatement
              28Section 11.5.
              Remedies Unaffected
              29Section 11.6.
              Continuing Guarantee; Liability in Respect of
      Successor
              29Section 11.7.
              Termination of Guaranty
              29Section 12.
              Events of Default
              30Section 13.
              Remedies on Default, Etc.
              32Section 13.1.
              Acceleration
              32Section 13.2.
              Other Remedies
              33Section 13.3.
              Rescission
              33Section 13.4.
              No Waivers or Election of Remedies, Expenses,
      Etc.
              33Section 14.
              Registration; Exchange; Substitution of
      Notes
              33Section 14.1.
              Registration of Notes
              33Section 14.2.
              Transfer and Exchange of Notes
              34Section 14.3.
              Replacement of Notes
              34Section 15.
              Payments on Notes
              35Section 15.1.
              Place of Payment
              35Section 15.2.
              Home Office Payment
              35Section 16.
              Expenses, Etc.
              35Section 16.1.
              Transaction Expenses
              35Section 16.2.
              Survival
              36Section 17.
              Survival of Representations and Warranties; Entire
      Agreement
              36Section 18.
              Amendment and Waiver
              36Section 18.1.
              Requirements
              36Section 18.2.
              Solicitation of Holders of Notes
              36Section 18.3.
              Binding Effect, Etc.
              37Section 18.4.
              Notes Held by Any Obligor, Etc.
              37Section 19.
              Notices
              38Section 20.
              Reproduction of Documents
              38
  -iii-
  Section 21.
              Confidential Information
              39Section 22.
              Substitution of Purchaser
              39Section 23.
              Miscellaneous
              40Section 23.1.
              Successors and Assigns
              40Section 23.2.
              Payments Due on Non-Business
Days
              40Section 23.3.
              Accounting Terms
              40Section 23.4.
              Severability
              40Section 23.5.
              Construction, Etc.
              40Section 23.6.
              Counterparts
              41Section 23.7.
              Governing Law
              41Section 23.8.
              Jurisdiction and Process; Waiver of Jury
      Trial
              41Signature
              
              43
  -iv-
  Schedule A
              —
              Information Relating to PurchasersSchedule B
              —
              Defined TermsSchedule 5.3
              —
              Disclosure MaterialsSchedule 5.4
              —
              Subsidiaries of the Company and Ownership of Subsidiary
      StockSchedule 5.5
              —
              Financial StatementsSchedule 5.15
              —
              Existing IndebtednessExhibit 1-A
              —
              Form of 6.50% Senior Guaranteed Notes, Series A, due
      August 7, 2015Exhibit 1-B
              —
              Form of 7.10% Senior Guaranteed Notes, Series B, due
      August 7, 2023
  -v-
  UNS
Electric, Inc.
 UniSource
Energy Services, Inc.
 One
South Church Avenue, Suite 1820
 Tucson,
Arizona, 85701
   $50,000,000 6.50%
Senior Guaranteed Notes, Series A, due August 7, 2015
 $50,000,000 7.10%
Senior Guaranteed Notes, Series B, due August 7, 2023
    Dated as of
August 5, 2008
  To
Each of the Purchasers Listed in
 Schedule
A Hereto:
  Ladies and
Gentlemen:
  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”),
agree with each of the purchasers whose names appear at the end hereof (each, a
“Purchaser”
and, collectively, the “Purchasers”)
as follows:
 Section 1.
                Authorizationof
    Notes.
 The Company will
authorize the issue and sale of (a) $50,000,000 aggregate principal amount of
its 6.50% Senior Guaranteed Notes, Series A, due August 7, 2015 (the “Series A
Notes”) and (b) $50,000,000 aggregate principal amount of its 7.10%
Senior Guaranteed Notes, Series B, due August 7, 2023 (the “Series B
Notes”; the Series A Notes and the Series B Notes are hereinafter
collectively referred to as 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-AandExhibit 1-B, respectively.  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 andPurchase 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 and in the series 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
      Electric, Inc.
                Note
      Purchase Agreement
  Section 3.
              ExecutionDate;
      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 August 5, 2008 (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 7, 2008 or on such other Business Day thereafter on or prior to
August 28, 2008 as may be agreed upon by the Company and the
Purchasers.  At the Closing, the Company will deliver to each
Purchaser the Notes of the series 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
4945086726 at Wells Fargo Bank, ABA Number 121000248.  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.
              Conditionsto
    Closing.
  Each Purchaser’s
obligation 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.Representationsand Warranties.  The
representations and warranties of the Obligors in this Agreement shall be
correct when made 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, 10.4and10.5 had
such Sections applied since such date.
  Section 4.3.ComplianceCertificates.
  (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
  -2-
 UNS
      Electric, Inc.
                  Note
      Purchase Agreement
  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.
  Section 4.4.Opinionsof Counsel.  Such Purchaser shall
have received opinions in form and substance satisfactory to such Purchaser,
dated the date of the Closing (a)(i) from Thelen Reid Brown Raysman &
Steiner LLP, special New York counsel for the Company, and
(ii) Raymond S. Heyman, General Counsel for the Company and the Guarantor,
covering the matters set forth in Exhibits 4.4(a)(i)and4.4(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.PurchasePermitted 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.Saleof 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.Paymentof Special Counsel
Fees.Without limiting the provisions of Section 15.1,
the Company shall have paid on or before 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 Closing.
  Section 4.8.PrivatePlacement Number.  A Private
Placement Number issued by S&P’s CUSIP Service Bureau (in cooperation with
the SVO of the National Association of Insurance Commissioners) shall have been
obtained for each series of the Notes.
  -3-
 UNS
      Electric, Inc.
                  Note
      Purchase Agreement
  Section 4.9.Changesin 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.
  Section 4.10.FundingInstructions.  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.Proceedingsand 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.RegulatoryApproval.  Prior to the Closing,
such Purchaser and its special counsel shall have received evidence that all
approvals and authorizations of the ACC, which 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.
                Representationsand Warranties of the
      Obligors.
  Each Obligor
represents and warrants to each Purchaser 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,
  -4-
 UNS
      Electric, Inc.
                  Note
      Purchase Agreement
  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).
  Section 5.3.Disclosure.  The Company, through its agents,
Union Bank of California and JP Morgan Securities, has delivered to each
Purchaser a copy of a Private Placement Memorandum, dated July, 2008 (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 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 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, 2007, 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.Organizationand Ownership of Shares of Subsidiaries;
Affiliates;.  (a) Schedule 5.4
contains (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, (ii) of each Obligor’s Affiliates,
other than Subsidiaries, and (iii) of each Obligor’s directors and senior
officers.
  (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 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 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
      Electric, Inc.
                  Note
      Purchase 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.FinancialStatements; 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 Company do not have any Material liabilities
that are not disclosed on such financial statements or otherwise disclosed in
the Disclosure Documents.
  Section 5.6.Compliancewith 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.GovernmentalAuthorization, 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.
  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.
  -6-
 UNS
      Electric, Inc.
                  Note
      Purchase Agreement
  (b)No Obligor
nor any Subsidiary of the Company 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 or the USA Patriot Act) of any
Governmental Authority, 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,
2004.
  Section 5.10.Titleto 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 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.
  (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.
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      Electric, Inc.
                  Note
      Purchase Agreement
  Section 5.12.Compliancewith 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.
  Section 5.13.PrivateOffering 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 30
other Institutional Investors, each of which has been offered the Notes at a
private sale for
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      Electric, Inc.
                  Note
      Purchase Agreement
  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.Useof Proceeds; Margin Regulations.  The
Company 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.  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.ExistingIndebtedness; 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 date of the Closing
(including a description of the obligors and obligees, principal amount
outstanding and collateral therefor, if any, and Guaranty thereof, if
any).  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.
  (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.
  (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.ForeignAssets Control Regulations,
Etc.  (a) Neither the sale of the Notes by the Company nor
the issuance, execution and delivery of the Guaranty by the Guarantor nor the
Company’s use of the proceeds from the issuance of the Notes will violate the
Trading with the Enemy Act, as amended, or any of the foreign assets control
regulations of the United States
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      Electric, Inc.
                  Note
      Purchase Agreement
  Treasury Department
(31 CFR, Subtitle B, Chapter V, as amended) or any enabling
legislation or executive order relating thereto.
  (b)Neither such
Obligor nor any Subsidiary of the Company (i) is a Person described or
designated in the Specially Designated Nationals and Blocked Persons List of the
Office of Foreign Assets Control or in Section 1 of the Anti-Terrorism
Order or (ii) engages in any dealings or transactions with any such
Person.  Each Obligor and the Subsidiaries of the Company are in
compliance, in all material respects, with the USA Patriot
Act.
  (c)No part of
the proceeds from the sale of the Notes hereunder will be used, directly or
indirectly, for any payments to any governmental official or employee, political
party, official of a political party, candidate for political office, or anyone
else acting in an official capacity, in order to obtain, retain or direct
business or obtain any improper advantage, in violation of the United States
Foreign Corrupt Practices Act of 1977, as amended, assuming in all cases that
such Act applies to the Company.
  Section 5.17.Statusunder 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.
  Section 5.18.NotesRank 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.EnvironmentalMatters.  (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
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      Electric, Inc.
                  Note
      Purchase Agreement
  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.
                Representationsof the
      Purchasers.
  Section 6.1.Purchasefor 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 or their 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.
  Section 6.2.Sourceof 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
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      Electric, Inc.
                  Note
      Purchase Agreement
  (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
  (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.
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      Electric, Inc.
                  Note
      Purchase Agreement
  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.
                Informationas to the
      Obligor.
  Section 7.1.Financialand 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,
  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 “EDGAR” and on its home page on the worldwide web and shall have given each
Purchaser prior notice of such availability on EDGAR 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
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      Electric, Inc.
                  Note
      Purchase Agreement
  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;
  (d)Notice of
Default or Event of Default — promptly, and in any event within five 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
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      Electric, Inc.
                  Note
      Purchase Agreement
  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;
  (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) 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’sCertificate.  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
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      Electric, Inc.
                  Note
      Purchase Agreement
  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.
  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.
                Prepaymentof 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.OptionalPrepayments 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 of any series, in an amount not less than 10% of the aggregate principal
amount of the
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      Electric, Inc.
                  Note
      Purchase Agreement
  Notes of such
series 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 of the series to be prepaid written notice of each optional
prepayment under this Section 8.2
not less than 30 days and not more than 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 of the series 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 of the series to be prepaid a certificate of a Senior Financial Officer
specifying the calculation of such Make-Whole Amount as of the specified
prepayment date.
  Section 8.3.Allocationof Partial Prepayments.  In the
case of each partial prepayment of the Notes of any series pursuant to Section 8.2,
the principal amount of the Notes of such series to be prepaid shall be
allocated among all of the Notes of such series 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.
  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.Changeof 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
(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
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      Electric, Inc.
                  Note
      Purchase Agreement
  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 an rejection of such offer of prepayment in respect of such Change of
Control.
  Section 8.6.Purchaseof 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 upon the
payment or prepayment of the Notes in accordance with the terms of this
Agreement and the Notes.  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.
  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
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      Electric, Inc.
                  Note
      Purchase Agreement
  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 U.S. Treasury Security with the maturity closest
to and greater than such Remaining Average Life and (2) the applicable 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.
  “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 8.2or has become or is declared to be immediately due and payable pursuant
to Section 12.1,
as the context requires.
  Section 9.
                AffirmativeCovenants.
  Each Obligor
covenants that so long as any of the Notes are outstanding:
  Section 9.1.Compliancewith Law.  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, the USA Patriot Act and
Environmental Laws, 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
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      Electric, Inc.
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      Purchase Agreement
  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, 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.
  Section 9.3.Maintenanceof 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.Paymentof 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.LegalExistence, 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.
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      Electric, Inc.
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      Purchase Agreement
  Section 9.6.Notesto 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.
  Section 9.7.Booksand 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 9.8.CorporateSeparateness.  The Guarantor shall at
all times maintain its separate existence and, specifically, shall conduct its
affairs in accordance with the following:
  (a)the Guarantor
shall:  (i) maintain and prepare separate financial reports and
financial statements in accordance with GAAP, showing its assets and liabilities
separate and apart from those of any other Person other than its Subsidiaries,
and will not have its assets listed on the financial statement of any other
Person (provided,
that the Guarantor’s assets may be included in a consolidated financial
statement of a Person of which the Guarantor is a Subsidiary, if inclusion on
such consolidated financial statement is required to comply with the
requirements of GAAP); (ii) maintain its books, records and bank accounts
separate from those of its Affiliates and any other Person other than its
Subsidiaries; and (iii) not permit any of its Affiliates independent access
to its bank accounts;
  (b)the Guarantor
shall not commingle or pool any of its funds or other assets with those of any
of its Affiliates or any other Person other than its Subsidiaries, and it shall
hold all of its assets in its own name;
  (c)the Guarantor
shall conduct its own business in its own name and shall not operate, or purport
to operate, collectively as a single or consolidated business entity with
respect to any Person other than its Subsidiaries;
  (d)the Guarantor
shall, insofar as is consistent with commercial and business circumstances
affecting its business and financial condition, remain solvent and pay its own
debts, liabilities and expenses (including overhead expenses, if any) only out
of its own assets as the same shall become due;
  (e)the Guarantor
has done, or caused to be done, and shall do, all things necessary to observe
all corporate formalities and other organizational formalities of the
jurisdiction in which it is organized, and preserve its existence;
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      Electric, Inc.
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      Purchase Agreement
  (f)the Guarantor
shall, to the extent it utilizes stationery, invoices and checks, maintain and
utilize separate stationery, invoices and checks bearing its own
name;
  (g)the Guarantor
shall, at all times, hold itself out to the public as a legal entity separate
and distinct from any other Person other than its Subsidiaries and shall correct
any known misunderstanding regarding its separate identity;
  (h)the Guarantor
shall not identify itself as a division of any other Person;
  (i)the Guarantor
shall maintain its assets in such a manner that it will not be costly or
difficult to segregate, ascertain or identify its individual assets from those
of any Affiliate or any other Person other than its Subsidiaries;
  (j)the Guarantor
shall not use its separate existence to abuse creditors or to perpetrate a
fraud, injury, or injustice on creditors in violation of applicable
law;
  (k)the Guarantor
shall not, in connection with this Agreement or the Notes, act with an intent to
hinder, delay, or defraud any of its creditors in violation of applicable law;
and
  (l)the Guarantor
shall not pledge its assets for the benefit of any Person, except as permitted
by this Agreement.
  Section 10.
                NegativeCovenants.
  Each Obligor
covenants that so long as any of the Notes are outstanding:
  Section 10.1.Transactionswith 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:
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      Electric, Inc.
                  Note
      Purchase Agreement
  (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;
  (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
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      Electric, Inc.
                  Note
      Purchase Agreement
  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 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).
  Section 10.4.RestrictedPayments.  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.Incurrenceof 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
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      Electric, Inc.
                  Note
      Purchase Agreement
  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.
  (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.Lineof 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.TerrorismSanctions Regulations.  The
Company will not and will not permit any Subsidiary to (a) become a Person
described or designated in the Specially Designated Nationals and Blocked
Persons List of the Office of Foreign Assets Control or in Section 1 of the
Anti-Terrorism Order or (b) engage in any dealings or transactions with any
such Person.
  Section
      11.
                Guaranty.
  Section 11.1.TheGuaranty.  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 “ElecCo
Guaranteed Obligations”).
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      Electric, Inc.
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      Purchase Agreement
  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
ElecCo 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 ElecCo 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 11.2.ObligationsUnconditional.  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 ElecCo Guaranteed Obligations shall
be extended, waived or renewed, or the Company shall be released from any of the
ElecCo Guaranteed Obligations, or any of the ElecCo 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 ElecCo Guaranteed Obligations shall be done or
omitted;
  (c)any of the
ElecCo Guaranteed Obligations shall be accelerated or otherwise become due prior
to their stated maturity, or any of the ElecCo 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 ElecCo Guaranteed Obligations shall be waived,
or any other guarantee of any of the ElecCo 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 ElecCo 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,
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      Electric, Inc.
                  Note
      Purchase Agreement
 (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 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 ElecCo Guaranteed Obligations to perform, willful or otherwise,
any provision hereunder or any agreement or instrument referred to herein or
otherwise in connection with the ElecCo 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 ElecCo 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
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      Electric, Inc.
                  Note
      Purchase Agreement
  agreement or
instrument referred to herein or otherwise in connection with the ElecCo
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 ElecCo 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 ElecCo Guaranteed
Obligations or the obligations of any other guarantor or obligor in respect of
any of the ElecCo Guaranteed Obligations.
  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
ElecCo 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 ElecCo 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 ElecCo 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 ElecCo 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 ElecCo 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 ElecCo Guaranteed Obligations
then owing, whether matured or unmatured.
  Section 11.4.Reinstatement.  The obligations of the
Guarantor under this Section 11shall 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 ElecCo
Guaranteed Obligations is rescinded or must be otherwise restored by any holder
of any of the ElecCo 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.
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      Electric, Inc.
                  Note
      Purchase Agreement
  Section 11.5.RemediesUnaffected.  The Guarantor agrees
that, as between the Guarantor and the Purchasers the ElecCo 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 ElecCo 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.
  Section 11.6.ContinuingGuarantee; Liability in Respect of
Successor.  (a) The guarantee in this Section 11
is a continuing guarantee, and shall apply to all ElecCo 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 ElecCo
Guaranteed Obligations, whether or not the ElecCo 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.Terminationof
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 2006 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 2006 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.
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      Electric, Inc.
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      Purchase Agreement
  (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.
  Section 12.
                Eventsof
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 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 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
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      Electric, Inc.
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      Purchase Agreement
  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
  (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
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
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      Electric, Inc.
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      Purchase Agreement
  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
  (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.
                Remedieson 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
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      Electric, Inc.
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      Purchase Agreement
  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.OtherRemedies.  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.
  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
holders of not less than 55% in principal amount of the Notes then outstanding,
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.NoWaivers 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.Registrationof 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
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      Electric, Inc.
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      Purchase Agreement
  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.
  Section
14.2.Transferand 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) of the same series 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-A
or Exhibit 1-B,
as applicable.  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.Replacementof 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
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      Electric, Inc.
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      Purchase Agreement
  (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 of the same series, 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.
                Paymentson
Notes.
  Section
15.1.Placeof 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.
  Section
15.2.HomeOffice 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.TransactionExpenses.  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
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      Electric, Inc.
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      Purchase Agreement
  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.
  Section 17.
                Survivalof 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.
                Amendmentand
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.Solicitationof Holders of Notes.
  (a)Solicitation.  The
Company will provide each holder of the Notes (irrespective of the amount or
series of Notes then owned by it) with sufficient information, sufficiently far
in
  -36-
 UNS
      Electric, Inc.
                  Note
      Purchase Agreement
  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.
  (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.BindingEffect, Etc.  Any amendment or waiver
consented to as provided in this Section 18
applies equally to all holders of each series 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.NotesHeld 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.
  -37-
 UNS
      Electric, Inc.
                  Note
      Purchase Agreement
  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.
  Notices under this
Section 19
will be deemed given only when actually received.
  Section 20.
                Reproductionof
      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.
  -38-
 UNS
      Electric, Inc.
                  Note
      Purchase Agreement
  Section
      21.
                ConfidentialInformation.
  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 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.
                Substitutionof
      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
  -39-
 UNS
      Electric, Inc.
                  Note
      Purchase Agreement
  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.Successorsand 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.
  Section
23.2.PaymentsDue 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.AccountingTerms.  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.
  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
  -40-
 UNS
      Electric, Inc.
                  Note
      Purchase Agreement
  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.
  Section
23.7.GoverningLaw.  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.Jurisdictionand 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.
  -41-
 UNS
      Electric, Inc.
                  Note
      Purchase Agreement
  (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.
  *     *     *     *     *
  -42-
 UNS
      Electric, Inc.
                  Note
      Purchase Agreement
  If you arein 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
      Electric, Inc.
  
 By
                  /s/
      Kevin P. LarsonName:
                  Kevin P.
      LarsonTitle:
                  Vice
      President and Treasurer
  UniSource
      Energy Services, Inc.
    By
                    /s/ Kevin P.
      LarsonName:
                    Kevin P.
      LarsonTitle:
                    Vice
      President and Treasurer
  -43-
 This Agreement is
hereby accepted and agreed to as of the date thereof.
  CoBank,
      ACB
    By
                    /s/ Brent R.
      KnightName:
                    Brent R.
      KnightTitle:
                    Vice
      President
 -44-
  This Agreement is
hereby accepted and agreed to as of the date thereof.
  Great-West
      Life & Annuity Insurance
Company
    By
                        /s/ J.G.
      LoweryName:
                        J.G.
      LoweryTitle:
                        Assistant
      Vice President, Investments,
GWL&A
 By
                          /s/ E.A.
      HamptonName:
                          E.A.
      HamptonTitle:
                          Vice
      President, Investments, GWL&A
  -45-
 This Agreement is
hereby accepted and agreed to as of the date thereof.
  Hartford
      Life Insurance CompanyBy: 
      Hartford Investment Management CompanyIts: 
      Agent and Attorney-in-Fact
    By
                        /s/ Matthew
      J. PoznarName:
                        Matthew J.
      PoznarTitle:
                        Senior Vice
      President
  -46-
 This Agreement is
hereby accepted and agreed to as of the date thereof.
  John
      Hancock Life Insurance Company
    By
                        /s/ John C.S.
      AndersonName:
                        John C.S.
      AndersonTitle:
                        Senior
      Managing Director
 John
      Hancock Variable Life Insurance
Company
  By
                              /s/ John C.S.
      AndersonName:
                              John C.S.
      AndersonTitle:
                              Authorized
      Signatory
 John
      Hancock Life Insurance Company
(U.S.A.)
  By
                                    /s/ John C.S.
      AndersonName:
                                    John C.S.
      AndersonTitle:
                                    Authorized
      Signatory
   JPMorgan
      Chase Bank, not
      individuallybut
      solely in its capacity as Directed Trusteeof
      the SBC Master Pension Trust
 By
                          /s/ Amy L.
      SchneebergerName:
                          Amy L.
      SchneebergerTitle:
                          Vice
      President
 -47-
 Metropolitan
      Life Insurance Company of
                              ConnecticutBy:  Metropolitan Life Insurance
      Company,its
      Investment Manager
  
 By
                                /s/ John A.
      TanyeriName:
                                John A.
      TanyeriTitle:
                                Director
 -48-
  DefinedTerms
  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-Terrorism
Order”means
Executive Order No. 13,224 of September 24, 2001, Blocking Property
and Prohibiting Transactions with Persons Who Commit, Threaten to Commit or
Support Terrorism, 66 U.S. Fed. Reg. 49,079 (2001), as
amended.
  “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
  (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
  Schedule
B
 (to Note
Purchase Agreement)
  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 Electric, 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.
  “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
  B-2
  (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.
  “ElecCo
Guaranteed Obligations” is defined in Section 11.1.
  “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.
  B-4
  “Execution
Date” is defined in Section 3.
  “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.
  “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-5
  (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”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;
  B-6
  (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 itsSubsidiaries
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).
  B-7
  “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.
  “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.
  B-8
  “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
  (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
  B-9
  (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.
  “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.
  B-10
  “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.
  “Securities”orSecurity” 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, treasurer or comptroller of an Obligor.
  “Series A
Notes” is defined in Section 1of this Agreement.
  “Series B
Notes” is defined in Section 1of this Agreement.
  “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
  B-11
  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 $60,000,000 aggregate principal amount 7.61% Guaranteed Senior
Notes due August 11, 2008, as the same may be supplemented or amended.
  “2006 Credit
Agreement” means that certain Amended and Restated Credit Agreement dated
as of August 11, 2006 between and among the Company, UNS Gas, Inc., an
Arizona corporation, as borrowers, the Guarantor, as guarantor, the banks listed
on the signature pages thereof and Union Banc of California, 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).
  B-12
  “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
  DisclosureMaterials
  1.Note Purchase and Guaranty
Agreement dated August 5, 2008.
  2.UNS Electric, Inc. Investor
Presentation dated July 2008.
  3.UNS Electric, Inc. Private
Placement Memorandum dated July 8, 2008.
  4.The financial statements for UNS
Electric, Inc. included in Schedule 5.5.
  5.The financial statements for
UniSource Energy Services, Inc. included in
Schedule 5.5.
  Schedule5.3
 (to Note Purchase
Agreement)
  Subsidiariesand Affiliates
  Section1.
                The
      Company:  UNS Electric,
Inc.
  Section 1.1.Subsidiaries.  None
  Section 1.2.Directors and
Officers.
  Directors:
  James S.
      PignatelliMichael J.
      DeConciniRaymond S.
      Heyman
  Officers:
  James S.
      Pignatelli
                PresidentRaymond S.
      Heyman
                Vice
      President and SecretaryKevin P.
      Larson
                Vice
      President and TreasurerKaren G.
      Kissinger
                Vice
      President and ControllerPhilip J.
      Dion
                Vice
      PresidentThomas A.
      McKenna
                Vice
      PresidentDavid G.
      Hutchens
                Vice
      PresidentLinda H.
      Kennedy
                Assistant
      SecretaryRoxana
      Ashurst
                Assistant
      SecretaryCarl W.
      Dabelstein
                Assistant
      TreasurerGail K.
      Boswell
                Assistant
      Treasurer
  Section 2.
                The
      Guarantor:  UniSource Energy Services,
  Inc.
  Section 2.1.Subsidiaries.The
Guarantor has two subsidiaries:  UNS Electric, Inc., an Arizona
corporation, and UNS Gas, Inc., an Arizona corporation.  The Guarantor
owns 100% of the common stock of each subsidiary.  UNS Electric, Inc.
and UNS Gas, Inc. have not issued any other class of capital stock or similar
equity interest.  UNS Electric, Inc. and UNS Gas, Inc. have no
subsidiaries.
  Schedule5.4
 (to Note Purchase
Agreement)
  Section2.2.Directors and
Officers.
  Directors:
  James S.
      Pignatelli
                John L.
      CarterKenneth
      Handy
                Robert A.
      ElliottLawrence J.
      Aldrich
                Daniel W. L.
      FesslerBarbara M.
      Baumann
                Warren Y.
      JobeLarry W.
      Bickle
                Ramiro G.
      PeruElizabeth T.
      Bilby
                Gregory A.
      PivirottoHarold W.
      Burlingame
                Joaquin
      Ruiz
  Officers:
  James S.
      Pignatelli
                PresidentRaymond S.
      Heyman
                Senior Vice
      President and General CounselKevin P.
      Larson
                Vice
      President and TreasurerKaren G.
      Kissinger
                Vice
      President and ControllerPhilip J.
      Dion
                Vice
      President, Legal and Environmental ServicesThomas A.
      McKenna
                Vice
      President (Electric)David G.
      Hutchens
                Vice
      President (Gas)Gary A.
      Smith
                Vice
      President and General ManagerMichelle D.
      Livengood
                SecretaryLinda H.
      Kennedy
                Assistant
      SecretaryRoxana
      Ashurst
                Assistant
      SecretaryCarl W.
      Dabelstein
                Assistant
      TreasurerGail K.
      Boswell
                Assistant
      Treasurer
  Section3.
                Affiliates
      of the Obligors
  UniSource Energy Corporation
 UniSource Energy Services, Inc.
 UNS
Electric, Inc.
 UNS
Gas, Inc.
 Millennium Energy Holdings, Inc.
 Advanced Energy Technologies,
Inc.
 Carboelectrica Sabinas S. de R.L. de C.V.
(50%)
 Minerales Monclova S.A. de C.V.
(19.5%)
 MEH
Equities Management Company
 Haddington Energy Partners II LP
(31.59%)
 Millennium Environmental Group,
Inc.
 Nations Energy Corporation
 Nations International Ltd.
 Corporacion Panama de Energia S.A.
(32%)
 PowertrusionInternational, Inc. (77.6%)
  5.4-2
  Southwest Energy
Solutions, Inc.
 Tucson
Electric Power Company
 Escavada Company
 Luna
Power Company, LLC (33%)
 San
Carlos Resources Inc.
 Tucsonel Inc.
 UniSource Energy Development
Company
 Springerville Power, LLC
  Additional
Affiliates (minority interests)
  Infinite Power
Solutions, Inc. (minority interest held by Advanced Energy Technologies,
Inc.)
  Private Power, LLC
(minority interest held by Millennium Energy Holdings, Inc. [equity in Metrogen
Enterprises LLC transferred to Private Power, LLC])
  Valley Ventures
III, L.P. (minority interest held by Millennium Energy Holdings,
Inc.)
  5.4-3
  FinancialStatements
  1.  The
      Company:
                UNS
      Electric, Inc.
  (a)Financial Statements for the Year
ended December 31, 2004 and the Period April 14, 2003 (Date of Inception) to
December 31, 2003.
  (b)Financial Statements for the
Years ended December 31, 2005 and 2004.
  (c)Financial Statements for the
Years ended December 31, 2006 and 2005.
  (d)Financial Statements for the
Years ended December 31, 2007 and 2006.
  (e)Financial Statements for the
Three Months ended March 31, 2007 and 2006.
  (f)Financial Statements for the
Three Months ended March 31, 2008 and 2007.
  2.  The
      Guarantor:
                UniSource
      Energy Services, Inc.
  (a)Consolidated Financial Statements
for the Year ended December 31, 2004 and the Period January 15, 2003
(Date of Inception) to December 31, 2003.
  (b)Consolidated Financial Statements
for the Years ended December 31, 2005 and 2004.
  (c)Consolidated Financial Statements
for the Years ended December 31, 2006 and 2005.
  (d)Consolidated Financial Statements
for the Years ended December 31, 2007 and 2006.
  (e)Consolidated Financial Statements
for the Three Months ended March 31, 2007 and 2006.
  (f)Consolidated Financial Statements
for the Three Months ended March 31, 2008 and 2007.
  Schedule5.5
  ExistingIndebtedness
  I. 5.15
      (a)
  (A)Note Purchase and Guaranty
Agreement dated August 11, 2003 among UNS Gas, Inc., UniSource Energy
Services, Inc., and certain institutional investors. Total indebtedness is $100
million (two series of $50 million each), full amount
outstanding.
  (B)Note Purchase and Guaranty
Agreement dated August 11, 2003 among UNS Electric, Inc., UniSource Energy
Services, Inc., and certain institutional investors.
Total    indebtedness is $60 million, full amount
outstanding.
  (C)Amended and Restated Credit
Agreement dated August 11, 2006 among UNS Electric, Inc. and UNS Gas, Inc.,
each as Borrower, UniSource Energy Services, Inc., as Guarantor, the Banks and
other Lenders party thereto, and Union Bank of California, N.A., as
Administrative Agent.  $60 million Revolving Credit Facility, UNS
Electric had $32 million in revolving borrowings and $5.5 million in letters of
credit outstanding at August 5, 2008.  UNS Gas had no outstanding
borrowings or letters of credit at August 5, 2008.
  (D)UNS Electric Equipment Capital
Lease #1; the total capitalized lease obligation is $0.15
million.  Lease Agreement, dated March 13, 2003, between UNS
Electric, as Lessee and Altec Capital Services, L.L.C. as
Lessor.
  (E)UNS Electric Equipment Capital
Lease #2; the total capitalized lease obligation is $0.15
million.  Lease Agreement, dated May 27, 2003, between UNS Electric,
as Lessee and Altec Capital Services, L.L.C. as Lessor.
  II. 5.15
      (b)
  None.
  III. 5.15
      (c)
  (A)Section 10.5 of the Note Purchase
and Guaranty Agreement dated August 11, 2003 among UNS Gas, Inc., UniSource
Energy Services, Inc., and certain institutional investors.
  (B)Section 10.5 of the Note Purchase
and Guaranty Agreement dated August 11, 2003 among UNS Electric, Inc.,
UniSource Energy Services, Inc., and certain institutional
investors.
  (C)Section 8.03 of the Amended and
Restated Credit Agreement dated August 11, 2006 among UNS Electric, Inc.
and UNS Gas, Inc., each as Borrower, UniSource Energy Services, Inc., as
Guarantor, the Banks and other Lenders party thereto, and Union Bank of
California, N.A., as Administrative Agent.
  Schedule5.15
  [Formof Series A Note]
  UNS
Electric, Inc.
  6.50%
Senior Guaranteed Note, Series A, due August 7, 2015
  No.
      [_________]
                  [Date]$[____________]
                  PPN90312#
      AC4
  For Value Received,
the undersigned, UNS Electric, 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 7, 2015, 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) 6.50% per annum from the date hereof, payable semiannually, on
the seventh day of February and August in each year, commencing with the
February 7 or August 7 next succeeding the date hereof, 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) 8.50% 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, Series A, (herein called the “Notes”)
issued pursuant to the Note Purchase and Guaranty Agreement, dated as of
August 5, 2008 (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
  Exhibit1-A
  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.
  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
      Electric, Inc.
  
 By[Title]
 E-1-A-2
  [Formof Series B Note]
  UNS
Electric, Inc.
  7.10%
Senior Guaranteed Note, Series B, due August 7, 2023
  No.
      [_________]
                    [Date]$[____________]
                    PPN90312#
      AD2
  For Value Received,
the undersigned, UNS Electric, 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 7, 2023, 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) 7.10% per annum from the date hereof, payable semiannually, on
the seventh day of February and August in each year, commencing with the
February 7 or August 7 next succeeding the date hereof, 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) 9.10% 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, Series B, (herein called the “Notes”)
issued pursuant to the Note Purchase and Guaranty Agreement, dated as of
August 5, 2008 (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
  Exhibit1-B
  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.
  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
      Electric, Inc.
  
 By[Title]
  E-1-B-2