Exhibit 4.2






Exhibit
4.2





[Execution Version]




SECOND AMENDED AND RESTATED PLEDGE AGREEMENT




This SECOND AMENDED AND RESTATED PLEDGE AGREEMENT, dated as of November 9, 2010 (the
“Pledge Agreement”), between UNISOURCE ENERGY CORPORATION, an Arizona corporation (the
“Pledgor” or the “Borrower”), and UNION BANK, N.A. (formerly known as Union Bank of
California, N.A.), as administrative agent (in such capacity, the “Administrative Agent”)
for the lenders (the “Lenders”) and the Issuing Banks from time to time parties to the
Second Amended and Restated Credit Agreement, dated as of November 9, 2010 (as the same may be
amended, restated, supplemented or otherwise modified from time to time, the “Credit
Agreement”), among the Borrower, the Lenders, JPMorgan Chase Bank, N.A., SunTrust Bank and
Wells Fargo Bank, National Association, as Co-Syndication Agents, Bank of America, N.A. and U.S.
Bank National Association, as Co-Documentation Agents, and the Administrative Agent.



Recitals




A. The Pledgor and the Administrative Agent previously entered into that certain Amended and
Restated Pledge Agreement, dated as of August 11, 2006 (as amended, supplemented or otherwise
modified from time to time prior to the date hereof, the “Existing Pledge Agreement”).



B. Pursuant to the Credit Agreement, the Lenders have severally agreed to make Loans and other
extensions of credit (collectively, the “Extensions of Credit”) to the Borrower, and the
Issuing Banks have severally agreed to issue Letters of Credit for the account of the Borrower, in
each case upon the terms and subject to the conditions set forth therein. One or more Lenders or
affiliates of Lenders may from time to time enter into Hedging Agreements with the Borrower.



C. It is a condition precedent to the obligation of the Lenders to make their respective
Extensions of Credit to the Borrower under the Credit Agreement and to the obligation of the
Issuing Banks to issue Letters of Credit for the account of the Borrower under the Credit Agreement
that the Pledgor shall have executed and delivered this Pledge Agreement to the Administrative
Agent for its benefit and the benefit of the Lenders and the Issuing Banks.



D. The Pledgor is the legal and beneficial owner of the shares of stock, membership interests,
partnership interests or similar equity interests, as the case may be (such shares of stock,
membership interests, partnership interests or similar equity interests, as the case may be,
together with any shares of stock, membership interests, partnership interests or similar equity
interests, as the case may be, described in Section 8(b), the “Pledged Shares”), described
on Schedule I hereto, as such Schedule may be updated or amended from time to time, and issued by
the Persons named therein, which Pledged Shares constitute the percentage of all the issued and
outstanding shares of capital stock, membership interests, partnership interests or similar equity
interests, as the case may be, of such Persons identified on such Schedule I, as such Schedule may
be updated or amended from time to time. The Pledgor is the legal and
beneficial owner of the Indebtedness owed to the Pledgor from any Subsidiary (such
Indebtedness, together with any future Indebtedness at any time owed to the Pledgor from any
Subsidiary, the “Pledged Debt”) described on Schedule II hereto, as such Schedule may be
updated or amended from time to time.


 


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Agreement




NOW, THEREFORE, in consideration of the premises and to induce the Administrative Agent, the
Co-Syndication Agents, the Co-Documentation Agents and the Lenders to enter into the Credit
Agreement and to make Loans thereunder, and to induce the Issuing Banks to issue Letters of Credit
for the account of the Borrower under the Credit Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the Pledgor hereby
agrees with the Administrative Agent, for its benefit and the benefit of the Lenders and the
Issuing Banks, that the Existing Pledge Agreement is hereby amended and restated, without novation,
as follows:




1. Defined Terms.




(a) Unless otherwise defined herein, terms defined in the Credit Agreement and used
herein (including, without limitation, in the preamble and recitals hereto) shall have the
meanings given to them in the Credit Agreement.




(b) As used herein, the term “Obligations” means the collective reference to
(i) the unpaid principal of and interest on the Loans and all other obligations and
liabilities of any nature of the Borrower to the Administrative Agent, any Lender or any
Issuing Bank (including, without limitation, interest accruing at the then-applicable rate
provided in the Credit Agreement after the maturity of the Loans and interest accruing at
the then-applicable rate provided in the Credit Agreement after the filing of any petition
in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding,
relating to the Borrower, whether or not a claim for post-filing or post-petition interest
is allowed in such proceeding), whether direct or indirect, absolute or contingent, due or
to become due, now existing or hereafter incurred, that may arise under, out of, or in
connection with, the Credit Agreement, the other Loan Documents or any other documents made,
delivered or given in connection therewith, whether on account of principal, interest,
reimbursement obligations, fees, indemnities, costs, expenses or otherwise (including,
without limitation, all fees and disbursements of counsel to the Administrative Agent, any
Lender or any Issuing Bank that are required to be paid by the Borrower or any Subsidiary
pursuant to the terms of the Credit Agreement or any other Loan Document) and (ii) all
obligations and liabilities of the Borrower to any Lender or any affiliate of a Lender,
whether direct or indirect, absolute or contingent, due or to become due, now existing or
hereafter incurred, that may arise under, out of, or in connection with, any Specified Hedge
Agreement or any other document made, delivered or given in connection therewith.




(c) References to “Lenders” in this Pledge Agreement shall be deemed to include
affiliates of Lenders that may from time to time enter into Specified Hedge Agreements with
the Borrower.


 


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(d) The words “hereof,” “herein” and “hereunder” and words of similar import when used
in this Pledge Agreement shall refer to this Pledge Agreement as a whole and not to any
particular provision of this Pledge Agreement, and Section references are to Sections of
this Pledge Agreement unless otherwise specified.




(e) The meanings given to terms defined herein shall be equally applicable to both the
singular and plural forms of such terms.



2. Grant of Security. The Pledgor hereby transfers, assigns and pledges to the
Administrative Agent for its benefit and the benefit of the Lenders and the Issuing Banks, and
hereby grants to the Administrative Agent for its benefit and the benefit of the Lenders and the
Issuing Banks a security interest in, the following, whether now owned or existing or hereafter
created, acquired or existing (collectively, the “Collateral”):




(a) the Pledged Shares and the certificates representing the Pledged Shares and any
interest of the Pledgor in the entries on the books of any financial intermediary pertaining
to the Pledged Shares, and all dividends, cash, warrants, rights, instruments and other
property or proceeds from time to time received, receivable or otherwise distributed in
respect of or in exchange for any or all of the Pledged Shares;




(b) the Pledged Debt and the instruments evidencing the Pledged Debt, and all interest,
cash, instruments and other property or proceeds from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of the Pledged Debt; and




(c) to the extent not covered by clauses (a) and (b) above, respectively, all proceeds
of any or all of the foregoing Collateral. For purposes of this Pledge Agreement, the term
“proceeds” includes whatever is receivable or received when Collateral or proceeds are sold,
exchanged, collected or otherwise disposed of, whether such disposition is voluntary or
involuntary, and includes, without limitation, proceeds of any indemnity or guaranty payable
to the Pledgor or the Administrative Agent from time to time with respect to any of the
Collateral.



3. Security for Obligations. This Pledge Agreement secures, and the Collateral is
collateral security for, the payment of all Obligations. Without limiting the generality of the
foregoing, this Pledge Agreement secures the payment of all amounts that constitute part of the
Obligations and would be owed by the Pledgor to the Administrative Agent, the Lenders or the
Issuing Banks under the Loan Documents but for the fact that they are unenforceable or not
allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving the
Pledgor.



4. Delivery of the Collateral. All certificates or instruments, if any, representing
or evidencing the Collateral shall be promptly delivered to and held by or on behalf of the
Administrative Agent pursuant hereto and shall be in suitable form for transfer by delivery, or
shall be accompanied by duly executed instruments of transfer or assignment in blank, all in form
and substance reasonably satisfactory to the Administrative Agent. The Administrative Agent shall
have the right, at any time after the occurrence and during the
continuance of an Event of Default and without notice to the Pledgor, to transfer to or to
register in the name of the Administrative Agent or any of its nominees any or all of the Pledged
Shares.


 


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5. Representations and Warranties. The Pledgor represents and warrants as follows:




(a) The Pledged Shares set forth on Schedule I hereto represents the percentage of all
the issued and outstanding Capital Stock of each Subsidiary directly owned by the Pledgor as
identified on Schedule I, as such Schedule may be updated or amended from time to time.




(b) The Pledged Debt set forth on Schedule II hereto (as such Schedule may be updated
or amended from time to time) represents all Indebtedness of any Subsidiary owed to the
Pledgor.




(c) The Pledgor is the legal and beneficial owner of the Collateral, as indicated on
Schedule I and Schedule II, as such Schedules may be updated or amended from time to time,
pledged or assigned by the Pledgor hereunder free and clear of any Lien, except for the Lien
created by this Pledge Agreement or Liens permitted under Section 8 hereof.




(d) As of the date of this Pledge Agreement, the Pledged Shares pledged by the Pledgor
hereunder have been duly authorized and validly issued and are fully paid and
non-assessable.




(e) The execution and delivery by the Pledgor of this Pledge Agreement and the creation
of a security interest in the Collateral pledged by the Pledgor hereunder pursuant hereto
create a valid and perfected first priority security interest in the Collateral, prior to
any other Liens, securing the payment of the Obligations.




(f) The Pledgor has full power, authority and legal right to create a security interest
in all the Collateral pledged by the Pledgor pursuant to this Pledge Agreement and will
defend its and the Administrative Agent’s title or interest thereto or therein (and in the
proceeds thereof) against any and all Liens (other than the Lien of this Pledge Agreement),
however arising, or any and all Persons whomsoever.




(g) No authorization, approval or other action by, and no notice to or filing with, any
Government Authority or regulatory body, other than the filing of a UCC-1 financing
statement with the Arizona Secretary of State, is required for either (i) the pledge by the
Pledgor of the Collateral pursuant to this Pledge Agreement and the grant by the Pledgor of
the security interest granted hereby, (ii) except as set forth in Section 26, the execution,
delivery or performance of this Pledge Agreement by the Pledgor or (iii) except as set forth
in Section 26, the exercise by the Administrative Agent of the voting or other rights, or
the remedies in respect of the Collateral, provided for in this Pledge Agreement (except as
may be required in connection with a disposition of Collateral by laws affecting the
offering and sale of securities generally).


 


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6. Further Assurances. The Pledgor agrees that at any time and from time to time, at
the expense of the Pledgor, it will promptly execute and deliver all further instruments and
documents, and take all further action, that may be necessary, or that the Administrative Agent may
reasonably request, in order to perfect and protect any pledge, assignment or security interest
granted or purported to be granted hereby or to enable the Administrative Agent to exercise and
enforce its rights and remedies hereunder with respect to any Collateral. The Pledgor hereby
authorizes the Administrative Agent to file one or more financing or continuation statements, and
amendments thereto, relative to all or any part of the Collateral without the signature of the
Pledgor.




7. Voting Rights, Dividends and Distributions; Etc.




(a) So long as no Event of Default shall have occurred and be continuing:




(i) the Pledgor shall be entitled to exercise any and all voting and other
consensual rights pertaining to the Collateral or any part thereof for any purpose
not prohibited by the terms of this Pledge Agreement or the other Loan Documents;
and




(ii) the Administrative Agent shall execute and deliver (or cause to be
executed and delivered) to the Pledgor all such proxies and other instruments as the
Pledgor may reasonably request for the purpose of enabling the Pledgor to exercise
the voting and other rights that it is entitled to exercise pursuant to paragraph
(i) above.




(b) Subject to paragraph (c) below, the Pledgor shall be entitled to receive and retain
and use, free and clear of the Lien of this Pledge Agreement, any and all dividends,
distributions, principal and interest made or paid in respect of the Collateral;
provided, however, that any and all dividends and other distributions in
equity securities included in the Collateral shall be, and shall be forthwith delivered to
the Administrative Agent to hold as, Collateral and shall, if received by the Pledgor, be
received in trust for the benefit of the Administrative Agent, be segregated from the other
property or funds of the Pledgor and be forthwith delivered to the Administrative Agent as
Collateral in the same form as so received (with any necessary indorsement).




(c) Upon written notice to the Pledgor by the Administrative Agent following the
occurrence and during the continuance of an Event of Default (or upon the occurrence and
during the continuance of an Event of Default under clause (h) or (i) of Article VII of the
Credit Agreement, without any requirement that written or any other notice be given), but
subject to the terms of Section 26:




(i) all rights of the Pledgor to exercise or refrain from exercising the voting
and other consensual rights that it would otherwise be entitled to exercise pursuant
to Section 7(a)(i) shall cease, and all such rights shall thereupon become vested in
the Administrative Agent, which shall thereupon
have the sole right to exercise or refrain from exercising such voting and
other consensual rights during the continuance of such Event of Default;


 


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(ii) all rights of the Pledgor to receive the dividends, distributions and
principal and interest payments that the Pledgor would otherwise be authorized to
receive and retain pursuant to Section 7(b) shall cease, and all such rights shall
thereupon become vested in the Administrative Agent, which shall thereupon have the
sole right to receive and hold as Collateral such dividends, distributions and
principal and interest payments during the continuance of such Event of Default;




(iii) all dividends, distributions and principal and interest payments that are
received by the Pledgor contrary to the provisions of Section 7(b) and Section
7(c)(ii) shall be received in trust for the benefit of the Administrative Agent,
shall be segregated from other funds of the Pledgor and shall forthwith be paid over
to the Administrative Agent as Collateral in the same form as so received (with any
necessary indorsements); and




(iv) in order to permit the Administrative Agent to receive all dividends,
distributions and principal and interest payments to which it may be entitled under
Section 7(b) above, to exercise the voting and other consensual rights that it may
be entitled to exercise pursuant to Section 7(c)(i) above, and to receive all
dividends, distributions and principal and interest payments that it may be entitled
to under Section 7(c)(ii) above, the Pledgor shall, if necessary, upon written
notice from the Administrative Agent, from time to time execute and deliver to the
Administrative Agent appropriate proxies, dividend payment orders and other
instruments as the Administrative Agent may reasonably request.




8. Transfers and Other Liens Additional Collateral; Etc.




(a) The Pledgor shall not (i) sell or otherwise dispose of, or grant any option or
warrant with respect to, any of the Collateral, (ii) create, incur, assume or suffer to
exist any consensual Lien upon or with respect to the Capital Stock of TEP, (iii) permit UES
to create, incur, assume or suffer to exist any consensual Lien upon or with respect to the
Capital Stock of UNS Gas, Inc. or UNS Electric, Inc., or (iv) create, incur, assume or
suffer to exist any consensual Lien upon or with respect to any of the Collateral, except
for the Lien under this Pledge Agreement.




(b) The Pledgor shall (i) cause UES, UED and Millennium not to issue any stock or other
equity securities in addition to or in substitution for the Pledged Shares issued by such
Person, except to the Pledgor; (ii) except as expressly permitted by the Credit Agreement,
cause each other issuer of Pledged Shares not to issue any stock or other securities in
addition to or in substitution for the Pledged Shares issued by such issuer, except to the
Pledgor; (iii) pledge hereunder, immediately upon its acquisition (directly or indirectly)
thereof, any and all additional shares of stock or other securities of UES, UED, Millennium
and, to the extent required by Section 5.12 of the Credit Agreement, each other direct
domestic Subsidiary, and 66-2/3% of any



 


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 and all additional shares of stock or other securities of each direct foreign Subsidiary, in existence on
the date hereof or hereafter created or acquired, and such additional shares of stock or
other securities shall thereafter constitute Pledged Shares for all purposes;
provided that the Pledgor shall not be required to pledge, and the Pledged Shares
shall not include the Capital Stock of, any Subsidiary that is subject to regulation as a
utility under the laws of any state of the United States; and (iv) pledge hereunder,
immediately upon its acquisition or funding thereof, any and all Indebtedness which pursuant
to Section 6.01(a)(v) of the Credit Agreement is required to be pledged to the
Administrative Agent for its benefit and the benefit of the Lenders and the Issuing Banks.



9. Administrative Agent Appointed Attorney-in-Fact. The Pledgor hereby irrevocably
appoints the Administrative Agent as the Pledgor’s attorney-in-fact, with full authority in the
place and stead of the Pledgor and in the name of the Pledgor or otherwise to take any action and
to execute any instrument, in each case after the occurrence and during the continuance of an Event
of Default, that the Administrative Agent may deem reasonably necessary or advisable to accomplish
the purposes of this Pledge Agreement, including, without limitation, to receive, indorse and
collect all instruments made payable to the Pledgor representing any dividend, distribution or
principal or interest payment in respect of the Collateral or any part thereof and to give full
discharge for the same.



10. The Administrative Agent’s Duties. The powers conferred on the Administrative
Agent hereunder are solely to protect its interest in the Collateral and shall not impose any duty
upon it to exercise any such powers. Except for the safe custody of any Collateral in its
possession and the accounting for moneys actually received by it hereunder, the Administrative
Agent shall have no duty as to any Collateral, as to ascertaining or taking action with respect to
calls, conversions, exchanges, maturities, tenders or other matters relative to any Pledged Shares,
whether or not the Administrative Agent, any Lender or any Issuing Bank has or is deemed to have
knowledge of such matters, or as to the taking of any necessary steps to preserve rights against
any parties or any other rights pertaining to any Collateral. The Administrative Agent shall be
deemed to have exercised reasonable care in the custody and preservation of any Collateral in its
possession if such Collateral is accorded treatment substantially equal to that which the
Administrative Agent accords its own property consisting of negotiable securities.



11. Remedies. If any Event of Default shall have occurred and be continuing, the
provisions set forth below shall apply, subject to the receipt of any required regulatory approvals
(including, without limitation, any required approvals from the ACC) with respect to the portion of
the Collateral consisting of the common stock of a Subsidiary which owns or controls a company
subject to regulation as a utility:




(a) The Administrative Agent may exercise in respect of the Collateral, in addition to
other rights and remedies provided for herein or otherwise available to it, all the rights
and remedies of a secured party upon default under the Uniform Commercial Code in effect in
the State of New York at such time (the “New York UCC”) (whether or not the New York
UCC applies to the affected Collateral) and also may without notice except as specified
below, sell the Collateral or any part thereof in


 


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one or more parcels at public or private
sale, at any exchange, broker’s board or at any
 of the Administrative Agent’s offices or elsewhere, for cash, on credit or for future
delivery, as such time or times at such price or prices and upon such other terms as are
commercially reasonable irrespective of the impact of any such sales on the market price of
the Collateral. Each purchaser at any such sale shall hold the property sold absolutely
free from any claim or right on the part of the Pledgor, and the Pledgor hereby waives (to
the extent permitted by law) all rights of redemption, stay and/or appraisal which it now
has or may at any time in the future have under any rule of law or statute now existing or
hereafter enacted. The Pledgor agrees that, to the extent notice of sale shall be required
by law, at least ten days’ notice to the Pledgor of the time and place of any public sale or
the time after which any private sale is to be made shall constitute reasonable
notification. The Administrative Agent shall not be obligated to make any sale of
Collateral regardless of notice of sale having been given. The Administrative Agent may
adjourn any public or private sale from time to time by announcement at the time and place
fixed therefor, and such sale may, without further notice, be made at the time and place to
which it was so adjourned. To the extent permitted by law, the Pledgor hereby waives any
claim against the Administrative Agent arising by reason of the fact that the price at which
any Collateral may have been sold at such a private sale was less than the price that might
have been obtained at a public sale, even if the Administrative Agent accepts the first
offer received and does not offer such Collateral to more than one offeree.




(b) All cash and cash proceeds received by the Administrative Agent in respect of any
sale of, collection from, or other realization upon, all or any part of the Collateral may,
in the discretion of the Administrative Agent, be held by the Administrative Agent as
collateral for, and/or then or at any time thereafter applied (after payment of any amounts
payable to the Administrative Agent pursuant to Section 9.03 of the Credit Agreement) in
whole or in part by the Administrative Agent for its benefit and the benefit of the Lenders
and the Issuing Banks against, all or any part of the Obligations in such order as the
Administrative Agent shall elect. Any surplus of such cash or cash proceeds held by the
Administrative Agent and remaining after payment in full of all the Obligations shall be
paid over to the Pledgor or to any other Person that may be lawfully entitled to receive
such surplus.




(c) The Administrative Agent may exercise any and all rights and remedies of the
Pledgor in respect of the Collateral.




(d) All payments received by the Pledgor after the occurrence and during the
continuance of an Event of Default in respect of the Collateral shall be received in trust
for the benefit of the Administrative Agent, shall be segregated from other funds of the
Pledgor and shall be forthwith paid over to the Administrative Agent in the same form as so
received (with any necessary indorsement).



12. Amendments, etc. with Respect to the Obligations; Waiver of Rights. The Pledgor
shall remain obligated hereunder notwithstanding that, without any reservation of rights against
the Pledgor and without notice to or further assent by the Pledgor, any demand for payment of any
of the Obligations made by the Administrative Agent, any Lender or any Issuing Bank may be
rescinded by such party and any of the Obligations continued, and the Obligations,
or the liability of any other party upon or for any part


 


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 thereof, or any collateral security
or guarantee therefor or right of offset with respect thereto, may, from time to time, in whole or
in part, be renewed, extended, amended, modified, accelerated, compromised, waived, surrendered or
released by the Administrative Agent, any Lender or any Issuing Bank, and the Credit Agreement, the
other Loan Documents and any other documents executed and delivered in connection therewith and the
Specified Hedge Agreements and any other documents executed and delivered in connection therewith
may be amended, modified, supplemented or terminated, in whole or in part, as the Administrative
Agent (or the Required Lenders, as the case may be, or, in the case of any Specified Hedge
Agreement, the Lender or Lender’s affiliate party thereto) may deem advisable from time to time,
and any collateral security, guarantee or right of offset at any time held by the Administrative
Agent, any Lender or any Issuing Bank for the payment of the Obligations may be sold, exchanged,
waived, surrendered or released. None of the Administrative Agent, any Lender or any Issuing Bank
shall have any obligation to protect, secure, perfect or insure any Lien at any time held by it as
security for the Obligations or for this Pledge Agreement or any property subject thereto. When
making any demand hereunder against the Pledgor, the Administrative Agent, any Lender or any
Issuing Bank may, but shall be under no obligation to, make a similar demand on any other pledgor,
and any failure by the Administrative Agent, any Lender or any Issuing Bank to make any such demand
or to collect any payments from any other pledgor or any release of any other pledgor shall not
relieve the Pledgor of its obligations or liabilities hereunder, and shall not impair or affect the
rights and remedies, express or implied, or as a matter of law, of the Administrative Agent, any
Lender or any Issuing Bank against the Pledgor. For the purposes hereof, “demand” shall include
the commencement and continuance of any legal proceedings.




13. Continuing Security Interest, Assignments Under the Credit Agreement. This
Pledge Agreement shall create a continuing security interest in the Collateral and shall (a) remain
in full force and effect until the payment in full in cash of the Obligations, the termination,
expiration or Cash Collateralization in full of all Letters of Credit and the termination of all
Commitments under the Credit Agreement, (b) be binding upon the Pledgor, its successors and assigns
and (c) inure, together with the rights and remedies of the Administrative Agent hereunder, to the
benefit of the Administrative Agent, the Lenders, the Issuing Banks and their respective
successors, transferees and assigns.



14. Reinstatement. This Pledge Agreement shall continue to be effective, or be
reinstated, as the case may be, if at any time payment, or any part thereof, of any of the
Obligations is rescinded or must otherwise be restored or returned by the Administrative Agent, any
Lender or any Issuing Bank upon the insolvency, bankruptcy, dissolution, liquidation or
reorganization of the Pledgor, or upon or as a result of the appointment of a receiver, intervenor
or conservator of, or trustee or similar officer for, the Pledgor or any substantial part of the
property of the Pledgor, or otherwise, all as though such payments had not been made.



15. Notices. All notices, requests and demands pursuant hereto shall be made in
accordance with Section 9.01 of the Credit Agreement, provided that any such notice,
request or demand shall be addressed to the Pledgor at the notice address set forth under its
signature below.


 


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16. Counterparts. This Pledge Agreement may be executed by one or more of the parties
on any number of separate counterparts, and all of said counterparts taken together shall be deemed
to constitute one and the same instrument. A set of the counterparts of this Pledge Agreement
signed by the Pledgor and the Administrative Agent shall be lodged with the Administrative Agent
and the Pledgor.



17. Severability. Any provision of this Pledge 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 not invalidate or render
unenforceable such provision in any other jurisdiction.



18. Integration. This Pledge Agreement represents the agreement of the Pledgor with
respect to the subject matter hereof and there are no promises or representations by the
Administrative Agent, any Lender or any Issuing Bank relative to the subject matter hereof not
reflected herein or in the other Loan Documents.




19. Amendments in Writing; No Waiver; Cumulative Remedies.




(a) None of the terms or provisions of this Pledge Agreement may be waived, amended,
supplemented or otherwise modified except by a written instrument executed by the Pledgor
and the Administrative Agent in accordance with Section 9.02 of the Credit Agreement.




(b) None of the Administrative Agent, any Lender or any Issuing Bank shall by any act
(except by a written instrument pursuant to Section 19(a)), delay, indulgence, omission or
otherwise be deemed to have waived any right or remedy hereunder or to have acquiesced in
any Default or in any breach of any of the terms and conditions hereof. No failure to
exercise, nor any delay in exercising, on the part of the Administrative Agent, any Lender
or any Issuing Bank, any right, power or privilege hereunder shall operate as a waiver
thereof. No single or partial exercise of any right, power or privilege hereunder shall
preclude any other or further exercise thereof or the exercise of any other right, power or
privilege. A waiver by the Administrative Agent, any Lender or any Issuing Bank of any
right or remedy hereunder on any one occasion shall not be construed as a bar to any right
or remedy that the Administrative Agent, such Lender or such Issuing Bank would otherwise
have on any future occasion.




(c) The rights and remedies herein provided are cumulative, may be exercised singly or
concurrently and are not exclusive of any other rights or remedies provided by law.



20. Section Headings. The Section headings used in this Pledge Agreement are for
convenience of reference only and are not to affect the construction hereof or be taken into
consideration in the interpretation hereof.



21. Successors and Assigns. This Pledge Agreement shall be binding upon the
successors and assigns of the Pledgor and shall inure to the benefit of the Administrative Agent,
the Lenders and the Issuing Banks and their successors and assigns; provided that the
Pledgor may not assign, transfer or delegate any of its rights or obligations under this
Pledge Agreement without the prior written consent of the Administrative Agent, and any such
attempted assignment, transfer or delegation shall be null and void.


 


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22. WAIVER OF JURY TRIAL. EACH OF THE PLEDGOR AND THE ADMINISTRATIVE AGENT HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO
THIS PLEDGE AGREEMENT AND FOR ANY COUNTERCLAIM THEREIN.



23. Submission to Jurisdiction; Waivers. The Pledgor hereby irrevocably and
unconditionally:




(a) submits for itself and its property in any legal action or proceeding relating to
this Pledge Agreement or any other Loan Document, or for recognition and enforcement of any
judgment in respect thereof, to the non-exclusive general jurisdiction of the Courts of the
State of New York, the courts of the United States of America for the Southern District of
New York and appellate courts from any thereof;




(b) consents that any such action or proceeding may be brought in such courts and
waives any objection that it may now or hereafter have to the venue of any such action or
proceeding in any such court or that such action or proceeding was brought in an
inconvenient court and agrees not to plead or claim the same;




(c) agrees that service of process in any such action or proceeding may be effected by
mailing a copy thereof by registered or certified mail (or any substantially similar form of
mail), postage prepaid, to the Pledgor at its address referred to in Section 15 or at such
other address of which the Administrative Agent shall have been notified pursuant thereto;




(d) agrees that nothing herein shall affect the right to effect service of process in
any other manner permitted by law or shall limit the right to sue in any other jurisdiction;
and




(e) waives, to the maximum extent not prohibited by law, any right it may have to claim
or recover in any legal action or proceeding referred to in this Section 23 any special,
exemplary, punitive or consequential damages.



24. GOVERNING LAW. THIS PLEDGE AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.




25. Obligations Absolute; Waivers and Acknowledgments; Subrogation.




(a) Obligations Absolute. The obligations of the Pledgor under or in respect
of this Agreement are independent of the Obligations or any other Obligations of the
Borrower under or in respect of the Loan Documents, and a separate action or actions may be
brought and prosecuted against the Pledgor to enforce this Agreement, irrespective of
whether any action is brought against any other Person or pursuant to any
other Loan Document or whether any other Person is joined in any such action or
actions. The liability of the Pledgor under this Agreement shall be irrevocable, absolute
and unconditional irrespective of, and the Pledgor hereby irrevocably waives any defenses it
may now have or hereafter acquire in any way relating to, any or all of the following:







 


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(i) any lack of validity or enforceability of any Loan Document or any
agreement or instrument relating thereto;




(ii) any change in the time, manner or place of payment of, or in any other
term of, all or any of the Obligations or any other Obligations of the Borrower
under or in respect of the Loan Documents, or any other amendment or waiver of or
any consent to departure from any Loan Document, including, without limitation, any
increase in the Obligations resulting from the extension of additional credit to the
Borrower or any of the Subsidiaries or otherwise;




(iii) any taking, exchange, release or non-perfection of any Collateral or any
other collateral, or any taking, release or amendment or waiver of, or consent to
departure from, any guaranty, for all or any of the Obligations;




(iv) any manner of application of Collateral or any other collateral, or
proceeds thereof, to all or any of the Obligations, or any manner of sale or other
disposition of any Collateral or any other collateral for all or any of the
Obligations or any other Obligations of the Borrower under the Loan Documents or any
other assets of the Borrower or any of the Subsidiaries;




(v) any change, restructuring or termination of the corporate structure or
existence of the Borrower or any of the Subsidiaries;




(vi) any failure of the Administrative Agent, any Lender or any Issuing Bank to
disclose to the Pledgor any information relating to the business, condition
(financial or otherwise), operations, performance or properties of the Borrower now
or hereafter known to the Administrative Agent, any Lender or any Issuing Bank (the
Pledgor waiving any duty on the part of Administrative Agent, the Lenders and the
Issuing Banks to disclose such information);




(vii) the failure of any other Person to execute or deliver any other agreement
or the release or reduction of liability of any other pledgor or any surety with
respect to the Obligations; or




(viii) any other circumstance (including, without limitation, any statute of
limitations) or any existence of or reliance on any representation by the
Administrative Agent, any Lender or any Issuing Bank that might otherwise constitute
a defense available to, or a discharge of, the Pledgor or any surety.


 


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(b) Waivers and Acknowledgments.




(i) The Pledgor hereby unconditionally and irrevocably waives promptness,
diligence, notice of acceptance, presentment, demand for

performance, notice of nonperformance, default, acceleration, protest or
dishonor and any other notice with respect to any of the Obligations and this
Agreement and any requirement that the Administrative Agent, any Lender or any
Issuing Bank protect, secure, perfect or insure any Lien or any property subject
thereto or exhaust any right or take any action against any other Person or any
collateral.




(ii) The Pledgor hereby unconditionally and irrevocably waives any right to
revoke this Agreement and acknowledges that this Agreement is continuing in nature
and applies to all Obligations, whether existing now or in the future.




(iii) The Pledgor hereby unconditionally and irrevocably waives (x) any defense
arising by reason of any claim or defense based upon an election of remedies by the
Administrative Agent, any Lender or any Issuing Bank that in any manner impairs,
reduces, releases or otherwise adversely affects the subrogation, reimbursement,
exoneration, contribution or indemnification rights of the Pledgor or other rights
of the Pledgor to proceed against any guarantor or any other Person or any
collateral and (y) any defense based on any right of set-off or counterclaim against
or in respect of the obligations of the Pledgor hereunder.




(iv) The Pledgor acknowledges that the Administrative Agent, any Lender or any
Issuing Bank may, without notice to or demand upon the Pledgor and without affecting
the liability of the Pledgor under this Agreement, foreclose under any mortgage by
nonjudicial sale, and the Pledgor hereby waives any defense to the recovery by the
Administrative Agent, any Lender or any Issuing Bank against the Pledgor of any
deficiency after such nonjudicial sale and any defense or benefits that may be
afforded by applicable law.




(v) The Pledgor hereby unconditionally and irrevocably waives any duty on the
part of the Administrative Agent, any Lender or any Issuing Bank to disclose to the
Pledgor any matter, fact or thing relating to the business, condition (financial or
otherwise), operations, performance, properties or prospects of the Borrower or any
of the Subsidiaries now or hereafter known by the Administrative Agent, any Lender
or any Issuing Bank.




(vi) The Pledgor acknowledges that it will receive substantial direct and
indirect benefits from the financing arrangements contemplated by the Loan Documents
and that the waivers set forth in this Section 25 are knowingly made in
contemplation of such benefits.




(c) Subrogation. The Pledgor hereby unconditionally and irrevocably agrees not
to exercise any rights that it may now have or hereafter acquire against any insider Person
that arise from the existence, payment, performance or enforcement of the Obligations under
or in respect of this Agreement or the enforcement of the security interests under this
Agreement, including, without limitation, any right of subrogation, reimbursement,
exoneration, contribution or indemnification and any right to


 


B-13









 






participate in any claim or remedy of the Administrative Agent, any Lender or any Issuing Bank
against any insider Person or any collateral, whether or not such claim, remedy or right
arises in equity or under contract, statute or common law, including, without limitation,
the right to take or receive from any insider Person, directly or indirectly, in cash or
other property or by set-off or in any other manner, payment or security on account of such
claim, remedy or right, unless and until all of the Obligations and all other amounts
payable under this Agreement shall have been paid in full in cash, all Letters of Credit
shall have expired, terminated or been Cash Collateralized in full and the Commitments shall
have expired or been terminated. If any amount shall be paid to the Pledgor in violation of
the immediately preceding sentence at any time prior to the latest of (i) the payment in
full in cash of the Obligations and all other amounts payable under this Agreement, (ii) the
expiration, termination or Cash Collateralization in full of all Letters of Credit and (iii)
the Final Maturity Date, such amount shall be received and held in trust for the benefit of
the Administrative Agent, shall be segregated from other property and funds of the Pledgor
and shall forthwith be paid or delivered to the Administrative Agent in the same form as so
received (with any necessary endorsement or assignment) to be credited and applied to the
Obligations and all other amounts payable under this Agreement, whether matured or
unmatured, in accordance with the terms of the Loan Documents, or to be held as collateral
for any Obligations or other amounts payable under this Agreement thereafter arising. If
(x) all of the Obligations and all other amounts payable under this Agreement shall have
been paid in full in cash, (y) all Letters of Credit shall have expired, terminated or been
Cash Collateralized in full and (z) the Final Maturity Date shall have occurred, the
Administrative Agent will, at the Pledgor’s request and expense, execute and deliver to the
Pledgor appropriate documents, without recourse and without representation or warranty,
necessary to evidence the transfer by subrogation to the Pledgor of an interest in the
Obligations resulting from such payment made by the Pledgor pursuant to this Agreement.




26. Actions Requiring Approval.




(a) If an Event of Default shall have occurred and be continuing, the Pledgor shall
take any action which the Administrative Agent may request in the exercise of its rights and
remedies under this Pledge Agreement in order to transfer or assign the Collateral to the
Administrative Agent or to such one or more third parties as the Administrative Agent may
designate, or to a combination of the foregoing. The parties hereto acknowledge that, in
connection with the exercise of remedies hereunder with respect to any portion of the
Collateral consisting of the common stock of a Subsidiary that owns or controls a company
subject to regulation as a utility, the receipt of consent or approval from certain
Governmental Authorities (including, without limitation, the ACC) may be required. To
enforce the provisions of this Section 26, the Administrative Agent is empowered to seek
from any Governmental Authority (including, without limitation, the ACC), to the extent
required, consent to or approval of any involuntary transfer of control of any entity whose
Collateral is subject to this Pledge Agreement for the purpose of seeking a bona fide
purchaser to whom control will ultimately be transferred. The Pledgor agrees to cooperate
with any such purchaser and with the Administrative Agent in the preparation, execution and
filing of any forms and providing any information that may


 


B-14









 






be necessary or helpful in
obtaining any applicable
 Governmental Authority’s consent to the assignment to such purchaser of the Collateral.
The Pledgor hereby agrees to consent to any such involuntary transfer of control upon the
request of the Administrative Agent after and during the continuation of an Event of Default
and, without limiting any rights of the Administrative Agent under this Pledge Agreement, to
authorize the Administrative Agent to nominate a trustee or receiver to assume control of
the Collateral, subject only to required judicial or other consent required by Governmental
Authorities, in order to effectuate the transactions contemplated in this Section 26. Such
trustee or receiver shall have all the rights and powers as provided to it by law or court
order, or to the Administrative Agent under this Pledge Agreement. The Pledgor shall
cooperate fully in obtaining the approval or consent of each Governmental Authority required
to effectuate the foregoing.




(b) If an Event of Default shall have occurred and be continuing, the Pledgor shall use
its best efforts to assist in obtaining consent or approval of any Governmental Authority
(including, without limitation, the ACC), if required, for any action or transactions
contemplated by this Pledge Agreement, including, without limitation, the preparation,
execution and filing of the transferor’s or assignor’s portion of any application or
applications for consent to the transfer of control or assignment necessary or appropriate
under applicable rules and regulations for approval of the transfer or assignment of any
portion of the Collateral.



[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]



 


B-15









 







IN WITNESS WHEREOF, each of the undersigned has caused this Pledge Agreement to be duly
executed and delivered by its duly authorized officer as of the day and year first above written.



	 	 	 	 	 
	Address for Notices: 	 UNISOURCE ENERGY CORPORATION

 	 
	One South Church Avenue    	By:  	/s/ Kentton C. Grant
 	 
	Tucson, Arizona  85701 	 	Name:  	Kentton C. Grant 	 
	Attention:  Chief Financial Officer 	 	Title:  	Vice President, Finance & Rates 	 
	Telecopy No.:  (520) 884-3612 



	 	 	 	 	 
	 	UNION BANK OF CALIFORNIA, N.A., as

Administrative Agent

 	 
	 	By:  	/s/ Jeffery P. Fesenmaier
 	 
	 	 	Name:  	Jeffery P. Fesenmaier 	 
	 	 	Title:  	Vice President 	 


 


 









 









	 	 	 	 	 



SCHEDULE I




List of Pledged Shares




	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Class of	 	 	Stock	 	 	Number	 	 	Percentage of	 
	 	 	Stock/Par	 	 	Certificate	 	 	of	 	 	Outstanding	 
	Issuer	 	Value	 	 	No(s)	 	 	Shares	 	 	Shares/Interests	 
	UniSource Energy Services, Inc.
	 	Common/No Par Value	 	 	1	 	 	 	1000	 	 	 	100	%
	Millennium Energy Holdings, Inc.
	 	Common/$1.00	 	 	3	 	 	 	1	 	 	 	100	%
	UniSource Energy Development
Company
	 	Common/$1.00	 	 	2	 	 	 	1	 	 	 	100	%





 


17









 





SCHEDULE II



List of Pledged Debt




	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Principal Original	 
	Maker	 	Date	 	 	Amount