Document:

exh101_5082008.htm

    
      

    

    EXHIBIT
10.1

     

    Execution
Form

    $100,000,000

     

     

    REIMBURSEMENT
AGREEMENT

     

    among

     

     

    PUBLIC
SERVICE COMPANY OF NEW MEXICO

    as
Borrower,

     

     

    THE
LENDERS IDENTIFIED HEREIN,

     

    DEUTSCHE
BANK AG NEW YORK BRANCH,

    as
Administrative Agent

     

     

    and

     

     

    RBC CAPITAL
MARKETS,

    as
Syndication Agent

     

    

     

    DATED
AS OF MAY 8, 2008

     

     

     

    DEUTSCHE
BANK SECURITIES INC.

    and

    RBC
CAPITAL MARKETS

    as Joint
Lead Arrangers and Joint Bookrunners

     

    

    
      
        
           

        

         

      

      
         

        
          

        

      

      
         

        
           

        

      

    

    TABLE OF CONTENTS

    
Page

     

    
      	
              SECTION 1

            	
              DEFINITIONS
      AND ACCOUNTING TERMS 

            	
              1

            

    

     

    
      	
               
      

            	
              1.1

            	
              Definitions 

            	
              1

            

    

     

    
      	
               
      

            	
              1.2

            	
              Computation
      of Time Periods and Other Definitional Provisions 

            	
              15

            

    

     

    
      	
               
      

            	
              1.3

            	
              Accounting
      Terms/Calculation of Financial Covenants 

            	
              16

            

    

     

    
      	
               
      

            	
              1.4

            	
              Time 

            	
              16

            

    

     

    
      	
               
      

            	
              1.5

            	
              Rounding
      of Financial Covenants 

            	
              16

            

    

     

    
      	
               
      

            	
              1.6

            	
              References
      to Agreements and Requirement of Laws 

            	
              16

            

    

     

    
      	
               
      

            	
              1.7

            	
              Letter
      of Credit Amounts 

            	
              16

            

    

     

    
      	
              SECTION
      2

            	
              CREDIT
      FACILITY 

            	
              17

            

    

     

    
      	
               
      

            	
              2.1

            	
              [Intentionally
      Omitted] 

            	
              17

            

    

     

    
      	
               
      

            	
              2.2

            	
              Letters
      of Credit Facility 

            	
              17

            

    

     

    
      	
               
      

            	
              2.3

            	
              Reductions
      of Committed Amount 

            	
              24

            

    

     

    
      	
               
      

            	
              2.4

            	
              [Intentionally
      Omitted] 

            	
              24

            

    

     

    
      	
               
      

            	
              2.5

            	
              [Intentionally
      Omitted] 

            	
              24

            

    

     

    
      	
               
      

            	
              2.6

            	
              [Intentionally
      Omitted] 

            	
              24

            

    

     

    
      	
               
      

            	
              2.7

            	
              Evidence
      of Debt 

            	
              24

            

    

     

    
      	
              SECTION
      3

            	
              GENERAL
      PROVISIONS APPLICABLE TO CREDIT EXTENSIONS 

            	
              24

            

    

     

    
      	
               
      

            	
              3.1

            	
              Interest 

            	
              25

            

    

     

    
      	
               
      

            	
              3.2

            	
              Payments
      Generally 

            	
              25

            

    

     

    
      	
               
      

            	
              3.3

            	
              Prepayments 

            	
              26

            

    

     

    
      	
               
      

            	
              3.4

            	
              Fees 

            	
              27

            

    

     

    
      	
               
      

            	
              3.5

            	
              Payment
      in full at Maturity 

            	
              28

            

    

     

    
      	
               
      

            	
              3.6

            	
              Computations
      of Interest and Fees 

            	
              28

            

    

     

    
      	
               
      

            	
              3.7

            	
              Pro
      Rata Treatment 

            	
              29

            

    

     

    
      	
               
      

            	
              3.8

            	
              Sharing
      of Payments 

            	
              29

            

    

     

    
      	
               
      

            	
              3.9

            	
              Capital
      Adequacy 

            	
              30

            

    

     

    
      	
               
      

            	
              3.10

            	
              [Intentionally
      Omitted] 

            	
              30

            

    

     

    
      	
               
      

            	
              3.11

            	
              [Intentionally
      Omitted] 

            	
              30

            

    

     

    
      	
               
      

            	
              3.12

            	
              [Intentionally
      Omitted] 

            	
              30

            

    

     

    
      	
               
      

            	
              3.13

            	
              Taxes 

            	
              30

            

    

     

     

    
      
        
        

      

      
        i

        
          

        

      

      
        
        

      

    

    
      TABLE OF CONTENTS

      (continued)

      
Page

    

     

    
      	
               
      

            	
              3.14

            	
              [Intentionally
      Omitted] 

            	
              33

            

    

     

    
      	
               
      

            	
              3.15

            	
              Determination
      and Survival of Provisions 

            	
              33

            

    

     

    
      	
              SECTION
      4

            	
              CONDITIONS
      PRECEDENT TO CLOSING 

            	
              34

            

    

     

    
      	
               
      

            	
              4.1

            	
              Closing
      Conditions 

            	
              34

            

    

     

    
      	
              SECTION
      5

            	
              CONDITIONS
      TO ALL EXTENSIONS OF CREDIT36

            

    

     

    
      	
               
      

            	
              5.1

            	
              Funding
      Requirements 

            	
              36

            

    

     

    
      	
              SECTION
      6

            	
              REPRESENTATIONS
      AND WARRANTIES 

            	
              37

            

    

     

    
      	
               
      

            	
              6.1

            	
              Organization
      and Good Standing 

            	
              37

            

    

     

    
      	
               
      

            	
              6.2

            	
              Due
      Authorization 

            	
              37

            

    

     

    
      	
               
      

            	
              6.3

            	
              No
      Conflicts 

            	
              37

            

    

     

    
      	
               
      

            	
              6.4

            	
              Consents 

            	
              37

            

    

     

    
      	
               
      

            	
              6.5

            	
              Enforceable
      Obligations 

            	
              38

            

    

     

    
      	
               
      

            	
              6.6

            	
              Financial
      Condition 

            	
              38

            

    

     

    
      	
               
      

            	
              6.7

            	
              No
      Material Change 

            	
              38

            

    

     

    
      	
               
      

            	
              6.8

            	
              No
      Default 

            	
              38

            

    

     

    
      	
               
      

            	
              6.9

            	
              Litigation 

            	
              38

            

    

     

    
      	
               
      

            	
              6.10

            	
              Taxes 

            	
              39

            

    

     

    
      	
               
      

            	
              6.11

            	
              Compliance
      with Law 

            	
              39

            

    

     

    
      	
               
      

            	
              6.12

            	
              ERISA 

            	
              39

            

    

     

    
      	
               
      

            	
              6.13

            	
              Use
      of Proceeds; Margin Stock 

            	
              40

            

    

     

    
      	
               
      

            	
              6.14

            	
              Government
      Regulation 

            	
              40

            

    

     

    
      	
               
      

            	
              6.15

            	
              Solvency 

            	
              40

            

    

     

    
      	
               
      

            	
              6.16

            	
              Disclosure 

            	
              41

            

    

     

    
      	
               
      

            	
              6.17

            	
              Environmental
      Matters 

            	
              41

            

    

     

    
      	
               
      

            	
              6.18

            	
              Material
      Leases 

            	
              41

            

    

     

    
      	
               
      

            	
              6.19

            	
              Material
      Lease Interest Payments and Discount Rate 

            	
              41

            

    

     

    
      	
              SECTION
      7

            	
              AFFIRMATIVE
      COVENANTS 

            	
              41

            

    

     

    
      	
               
      

            	
              7.1

            	
              Information
      Covenants 

            	
              41

            

    

     

    
      	
               
      

            	
              7.2

            	
              Financial
      Covenant 

            	
              44

            

    

     

    
      	
               
      

            	
              7.3

            	
              Preservation
      of Existence and Franchises 

            	
              44

            

    

     

     

    
      
        
        

      

      
        ii

        
          

        

      

      
        
        

      

    

     

    
      TABLE OF CONTENTS

      (continued)

    

     

    
      	
               
      

            	
              7.4

            	
              Books
      and Records 

            	
              45

            

    

     

    
      	
               
      

            	
              7.5

            	
              Compliance
      with Law 

            	
              45

            

    

     

    
      	
               
      

            	
              7.6

            	
              Payment
      of Taxes and Other Indebtedness 

            	
              45

            

    

     

    
      	
               
      

            	
              7.7

            	
              Insurance 

            	
              45

            

    

     

    
      	
               
      

            	
              7.8

            	
              Performance
      of Obligations 

            	
              45

            

    

     

    
      	
               
      

            	
              7.9

            	
              Use
      of Proceeds 

            	
              45

            

    

     

    
      	
               
      

            	
              7.10

            	
              Audits/Inspections 

            	
              46

            

    

     

    
      	
               
      

            	
              7.11

            	
              Security 

            	
              46

            

    

     

    
      	
              SECTION
      8

            	
              NEGATIVE
      COVENANTS 

            	
              47

            

    

     

    
      	
               
      

            	
              8.1

            	
              Nature
      of Business 

            	
              47

            

    

     

    
      	
               
      

            	
              8.2

            	
              Consolidation
      and Merger 

            	
              47

            

    

     

    
      	
               
      

            	
              8.3

            	
              Sale
      or Lease of Assets 

            	
              47

            

    

     

    
      	
               
      

            	
              8.4

            	
              Affiliate
      Transactions 

            	
              48

            

    

     

    
      	
               
      

            	
              8.5

            	
              Liens 

            	
              48

            

    

     

    
      	
               
      

            	
              8.6

            	
              Accounting
      Changes 

            	
              49

            

    

     

    
      	
              SECTION
      9

            	
              EVENTS
      OF DEFAULT 

            	
              49

            

    

     

    
      	
               
      

            	
              9.1

            	
              Events
      of Default 

            	
              49

            

    

     

    
      	
               
      

            	
              9.2

            	
              Acceleration;
      Remedies 

            	
              52

            

    

     

    
      	
               
      

            	
              9.3

            	
              Allocation
      of Payments After Event of Default 

            	
              53

            

    

     

    
      
        	
                SECTION
      10

              	
                AGENCY
      PROVISIONS

              	
                54

              

      

       

    

    
      	
               
      

            	
              10.1

            	
              Appointment
      and Authority 

            	
              54

            

    

     

    
      	
               
      

            	
              10.2

            	
              Rights
      as a Lender 

            	
              54

            

    

     

    
      	
               
      

            	
              10.3

            	
              Exculpatory
      Provisions 

            	
              54

            

    

     

    
      	
               
      

            	
              10.4

            	
              Reliance
      by Administrative Agent 

            	
              55

            

    

     

    
      	
               
      

            	
              10.5

            	
              Delegation
      of Duties 

            	
              56

            

    

     

    
      	
               
      

            	
              10.6

            	
              Resignation
      of Administrative Agent 

            	
              56

            

    

    
       

      
        	
                 
      

              	
                10.7

              	
                
                  Non
      Reliance on Administrative Agent and Other Lenders

                

              	
                57

              

      

       

    

    
    

    
      	
               
      

            	
              10.8

            	
              No
      Other Duties, Etc 

            	
              57

            

    

     

    
      	
               
      

            	
              10.9

            	
              Administrative
      Agent May File Proofs of Claim 

            	
              57

            

    

     

     

    
      
        
        

      

      
        iii

        
          

        

      

      
        
        

      

    

     

    
      
        TABLE OF CONTENTS

        (continued)

        
Page

      

      
         

        
          	
                  SECTION
      11

                	
                  MISCELLANEOUS

                	
                  58

                

        

         

      

    

    
    

    
      	
               
      

            	
              11.1

            	
              Notices;
      Effectiveness; Electronic Communication 

            	
              58

            

    

     

    
      	
               
      

            	
              11.2

            	
              Right
      of Set Off 

            	
              60

            

    

     

    
      	
               
      

            	
              11.3

            	
              Successors
      and Assigns 

            	
              61

            

    

     

    
      	
               
      

            	
              11.4

            	
              No
      Waiver; Remedies Cumulative 

            	
              64

            

    

     

    
      	
               
      

            	
              11.5

            	
              Attorney
      Costs, Expenses, Taxes and Indemnification by
    Borrower 

            	
              64

            

    

     

    
      	
               
      

            	
              11.6

            	
              Amendments,
      Etc 

            	
              66

            

    

     

    
      	
               
      

            	
              11.7

            	
              Counterparts 

            	
              67

            

    

     

    
      	
               
      

            	
              11.8

            	
              Headings 

            	
              67

            

    

     

    
      	
            	
              11.9

            	
              
                Survival
      of Indemnification and Representations and
      Warranties 

              

            	
              67

            

    

     

    
      	
            	
              11.10

            	
              Governing
      Law; Venue; Service

            	
              68

            

    

     

    
      	
            	
              11.11

            	
              Waiver
      of Jury Trial; Waiver of Consequential Damages

            	
              68

            

    

     

    
      	
            	
              11.12

            	
              Severability

            	
              68

            

    

     

    
      	
            	
              11.13

            	
              
                Further
      Assurances

              

            	
              68

            

    

     

    
      	
            	
              11.14

            	
              Confidentiality                                                                                                                                                                                                    
                                                        69

            

    

     

    
      	
            	
              11.15

            	
              Entirety

            	
              69

            

    

     

    
      	
            	
              11.16

            	
              Binding
      Effect; Continuing Agreement

            	
              69

            

    

     

    
      	
            	
              11.17

            	
              Regulatory
      Statement

            	
              70

            

    

     

    
      	
            	
              11.18

            	
              USA
      Patriot Act Notice

            	
              71

            

    

     

    
      	
            	
              11.19

            	
               Acknowledgment

            	
              71

            

    

     

    
      	
            	
              11.20

            	
               Replacement
      of Lenders

            	
              71

            

    

    
    

     

    

      
        
           

        

        
          iv

          
            

          

        

        
           

        

      

    SCHEDULES

     

    

     

    Schedule
1.1(a)                             Pro
Rata Shares

    Schedule
1.1(b)                             Illustration
of Consolidated EBITDA and Consolidated Interest Expense

    Schedule
6.18                                Material
Leases

    Schedule
6.19                                Material
Lease Interest Payments and Discount Rate

    Schedule
11.1                                Notices

    Schedule
11.3                                Processing
and Recording Fees

     

    

     

    EXHIBITS

     

     

    Exhibit
2.2(b)                                Form
of Letter of Credit Request

    Exhibit
2.7(c)                                Form
of Note

    Exhibit
7.1(c)                                Form
of Compliance Certificate

    Exhibit
11.3(b)                            
Form of Assignment and Assumption

     

    

    
      
        
           

           

        

         

      

      
        v

        
          

        

      

      
         

      

    

    REIMBURSEMENT
AGREEMENT

     

    THIS
REIMBURSEMENT AGREEMENT (this “Reimbursement
Agreement”) is entered into as of May 8, 2008 among PUBLIC SERVICE
COMPANY OF NEW MEXICO, a New Mexico corporation, as Borrower, the Lenders and
DEUTSCHE BANK AG NEW YORK BRANCH, as Administrative Agent.

     

    RECITALS

     

    WHEREAS, the Borrower has
requested the Lenders to provide a letter of credit facility to the Borrower in
an initial aggregate amount of $100,000,000; and

     

    WHEREAS, the Lenders party
hereto have agreed to make the requested letter of credit facility available to
the Borrower on the terms and conditions hereinafter set forth.

     

    NOW, THEREFORE, IN
CONSIDERATION of the premises and other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:

     

    SECTION
1                                

     

    DEFINITIONS
AND ACCOUNTING TERMS

     

    1.1 Definitions.

     

    The
following terms shall have the meanings specified herein unless the context
otherwise requires.  Defined terms herein shall include in the
singular number the plural and in the plural the singular:

     

    “Administrative Agent”
means Deutsche Bank AG New York Branch or any successor administrative agent
appointed pursuant to Section 10.6.

     

    “Administrative Agent’s
Office” means the Administrative Agent’s address and, as appropriate,
account as set forth on Schedule 11.1 or such
other address or account with as the Administrative Agent may from time to time
notify the Borrower and the Lenders.

     

    “Administrative Fees”
has the meaning set forth in Section 3.4(d).

     

    “Administrative
Questionnaire” means an Administrative Questionnaire in a form supplied
by the Administrative Agent.

     

    “Affiliate” means,
with respect to any Person, any other Person directly or indirectly controlling
(including but not limited to all directors and officers of such Person),
controlled by or under direct or indirect common control with such
Person.  A Person shall be deemed to control a corporation if such
Person possesses, directly or indirectly, the power (a) to vote 10% or more of
the securities having ordinary voting power for the election of directors of
such corporation or (b) to direct or cause direction of the management and
policies of such corporation, whether through the ownership of voting
securities, by contract or otherwise.

     

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

     

    “Agent-Related
Persons” means the Administrative Agent, together with its Affiliates and
the officers, directors, employees, agents and attorneys-in-fact of the
Administrative Agent and its Affiliates.

     

    “Applicable
Percentage” means, as of any date, for L/C Fees and Commitment Fees, the
appropriate applicable percentages, in each case (subject to the exception
indicated below), corresponding to the Debt Rating in effect as of the most
recent Calculation Date and the Utilization Percentage, in effect as of such
date, as shown below:

     

    

    
      	
              Debt
      Rating

            	
              Applicable
      Percentage for Commitment Fees

            	
              Applicable
      Percentage for L/C Fees

            
	
              Utilization
      <33%

            	
              Utilization
      ≥33% and <67%

            	
              Utilization
      ≥ 67%

            
	
              BBB-/Baa3

            	
              0.300%

            	
              1.000%

            	
              1.125%

            	
              1.250%

            
	
              BB+/Ba1

            	
              0.350%

            	
              1.500%

            	
              1.750%

            	
              2.000%

            
	
              <BB+
      or unrated/

              <Ba1
      or unrated

            	
              0.400%

            	
              1.750%

            	
              2.000%

            	
              2.500%

            

    

    

    The
Applicable Percentage shall be determined and adjusted on the date (each a
“Calculation
Date”) one Business Day after the date on which the Borrower’s Debt
Rating is upgraded or downgraded.  If at any time there is a split in
the Borrower’s Debt Ratings between S&P and Moody’s, the Applicable
Percentage shall be determined by the lower of the two Debt Ratings (i.e. the
higher pricing).  If the Borrower does not have a Debt Rating from
either S&P or Moody’s, then, with respect to the Debt Rating, “<BB+ or
unrated/<Ba1 or unrated” shall apply. Each Applicable Percentage shall be
effective from one Calculation Date until the next Calculation
Date.

     

    “Approved Fund” means
any Fund that is administered or managed by (a) a Lender, (b) an Affiliate
of a Lender or (c) an entity or an Affiliate of an entity that administers or
manages a Lender.

     

    “Arrangers” means each
of DBSI and RBC Capital Markets, together with their respective successors
and/or assigns.

     

    “Assignment and
Assumption” means an Assignment and Assumption substantially in the form
of Exhibit
11.3(b).

     

    “Authorized Officer”
means any of the president, chief executive officer, chief financial officer or
treasurer of the Borrower.

     

    “Bankruptcy Code”
means the Bankruptcy Code in Title 11 of the United States Code, as amended,
modified, succeeded or replaced from time to time.

     

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    “Base Rate” means for
any day a fluctuating rate per annum equal to the higher of (a) the Federal
Funds Rate plus 1⁄2 of 1% and (b) the rate of interest in effect for such day as
publicly announced from time to time by the Administrative Agent as its “prime
rate” (the “Prime
Rate”).  The Prime Rate is a rate set by the Administrative
Agent based upon various factors including the Administrative Agent’s costs and
desired return, general economic conditions and other factors, and is used as a
reference point for pricing some loans, which may be priced at, above, or below
such announced rate.  Any change in such rate announced by the
Administrative Agent shall take effect at the opening of business on the day
specified in the public announcement of such change.

     

    “Borrower” means
Public Service Company of New Mexico, a New Mexico corporation, together with
its successors and permitted assigns.

     

    “Borrower Obligations”
means, without duplication, all of the obligations of the Borrower to the
Lenders and the Administrative Agent, whenever arising, under this Reimbursement
Agreement, the Notes, or any of the other Credit Documents.

     

    “Business Day” means
any day other than a Saturday, a Sunday, a legal holiday or a day on which
banking institutions are authorized or required by Law or other governmental
action to close in New York, New York.

     

    “Calculation Date” has
the meaning set forth in the definition of “Applicable Percentage”.

     

    “Capital Stock” means
(a) in the case of a corporation, all classes of capital stock of such
corporation, (b) in the case of a partnership, partnership interests (whether
general or limited), (c) in the case of a limited liability company, membership
interests and (d) any other interest or participation that confers on a Person
the right to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person; including, in each case, all warrants, rights or
options to purchase any of the foregoing.

     

    “Cash Collateralize”
means to pledge and deposit with or deliver to the Administrative Agent, for the
benefit of the L/C Issuer and the Lenders, as collateral for the L/C
Obligations, cash or deposit account balances pursuant to documentation in form
and substance satisfactory to the Administrative Agent and the L/C
Issuer.

     

    “Change of Control”
means the failure of PNM Resources, Inc., a New Mexico corporation, to own and
control 100% of the Voting Stock of the Borrower.

     

    “Claims” has the
meaning set forth in the definition of “Environmental Claims”.

     

    “Closing Date” means
the date of this Reimbursement Agreement, which is the first date all the
conditions precedent in Section 4.1 are satisfied or waived in accordance with
Section 4.1.

     

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

     

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

    “Commitment” means, as
to each Lender, its obligation to fund or purchase Participation Interests in
L/C Obligations pursuant to Section 2.2, in an aggregate principal amount at any
one time outstanding not to exceed such Lender’s Pro Rata Share of the Committed
Amount as set forth opposite such Lender’s name on Schedule 1.1(a)
or in the Assignment and Assumption pursuant to which such Lender becomes a
party hereto, as applicable, as such amount may be adjusted from time to time in
accordance with this Reimbursement Agreement.

     

    “Commitment Fees” has
the meaning set forth in the Section 3.4(a).

     

    “Commitment Termination
Date” means the day that is ten (10) days prior to the Maturity Date then
in effect (or, if such day is not a Business Day, the immediately preceding
Business Day).

     

    “Committed Amount”
means One Hundred Million Dollars ($100,000,000.00), as it may be reduced from
time to time in accordance with Section 2.3

     

    “Compensation Period”
has the meaning set forth in Section 3.2(c)(ii).

     

    “Compliance
Certificate” means a fully completed and duly executed officer’s
certificate in the form of Exhibit 7.1(c),
together with a Covenant Compliance Worksheet.

     

    “Consolidated
Capitalization” means the sum of (a) all of the shareholders’ equity or
net worth of the Borrower and its Subsidiaries, as determined in accordance with
GAAP plus (b) Consolidated Indebtedness.

     

    “Consolidated EBITDA”
means, with respect to the Borrower and its Subsidiaries for any fiscal period,
the sum of (a) operating income from continuing operations and from
discontinued operations (but expressly excluding any extraordinary gains and
extraordinary losses), (b) depreciation and amortization expense,
(c) net unrealized losses under any derivatives, (d) impairments of
utility plant (to the extent such amount is included in operating income),
(e) impairments of regulatory assets and regulatory disallowances (to the
extent such amount is included in operating income), less (f) net
unrealized gains under any derivatives, in each case, determined in accordance
with GAAP and consistent with the preparation and presentation of the Borrower’s
financial statements delivered pursuant to Section 4.1(d).  For
illustrative purposes, Schedule 1.1(b) sets forth a calculation of
Consolidated EBITDA for the period ended March 31, 2008, in accordance
with the foregoing.

     

    “Consolidated
Indebtedness” means, as of any date of determination, with respect to the
Borrower and its Subsidiaries on a consolidated basis, an amount equal to all
Indebtedness of the Borrower and its Subsidiaries as of such date.

     

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

    “Consolidated Interest
Expense” means, with respect to the Borrower and its Subsidiaries for any
fiscal period, the sum of (a) total interest charges included in the calculation
of income from continuing operations and (b) total interest charges
included in the calculation of income from discontinued operations, in each
case, including all interest, premium payments, debt discount, fees, charges and
related expenses in connection with borrowed money (including capitalized
interest), the deferred purchase price of assets, and the portion of rent
expense under capitalized leases that is treated as interest, all as determined
in accordance with GAAP and consistent with the preparation and presentation of
the Borrower’s financial statements delivered pursuant to
Section 4.1(d).  For illustrative purposes, Schedule 1.1(b)
sets forth a calculation of Consolidated Interest Expense for the period ended
March 31, 2008, in accordance with the foregoing.

     

    “Contingent
Obligation” means, with respect to any Person, any direct or indirect
liability of such Person with respect to any Indebtedness, liability or other
obligation (the “primary obligation”) of another Person (the “primary obligor”),
whether or not contingent, (a) to purchase, repurchase or otherwise acquire such
primary obligation or any property constituting direct or indirect security
therefor, (b) to advance or provide funds (i) for the payment or discharge of
any such primary obligation or (ii) to maintain working capital or equity
capital of the primary obligor or otherwise to maintain the net worth or
solvency or any balance sheet item, level of income or financial condition of
the primary obligor, (c) to purchase property, securities or services primarily
for the purpose of assuring the owner of any such primary obligation of the
ability of the primary obligor in respect thereof to make payment of such
primary obligation or (d) otherwise to assure or hold harmless the owner of any
such primary obligation against loss or failure or inability to perform in
respect thereof; provided, however, that, with
respect to the Borrower and its Subsidiaries, the term Contingent Obligation
shall not include endorsements for collection or deposit in the ordinary course
of business.  The amount of any Contingent Obligation of any Person
shall be deemed to be an amount equal to the maximum amount of such Person’s
liability with respect to the stated or determinable amount of the primary
obligation for which such Contingent Obligation is incurred or, if not stated or
determinable, the maximum reasonably anticipated liability in respect thereof
(assuming such Person is required to perform thereunder).

     

    “Covenant Compliance
Worksheet” shall mean a fully completed worksheet in the form of Schedule
I to Exhibit
7.1(c).

     

    “Credit Documents”
means this Reimbursement Agreement, the Notes, any Letter of Credit Request, any
Letter of Credit, and any other document, agreement or instrument entered into
or executed in connection with the foregoing.

     

    “Credit Exposure” has
the meaning set forth in the definition of “Required Lenders”.

     

    “Credit Extension”
means, with respect to any Letter of Credit, the issuance thereof, any
Participation Interest therein, the extension of the expiry date thereof, the
renewal or increase of the amount thereof or any extension of credit resulting
from a drawing thereunder that has not been reimbursed.

     

    “Debt Rating” means
the long term unsecured senior non-credit enhanced debt rating of the Borrower
by S&P and Moody’s.

     

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

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

     

    “Default” means any
event, act or condition which with notice or lapse of time, or both, would
constitute an Event of Default.

     

    “Default Rate” means
an interest rate per annum equal to the sum of the Base Rate plus the Applicable
Percentage plus two percent (2%).

     

    “Defaulting Lender”
means, at any time, any Lender that, (a) has failed to fund a Participation
Interest (but only for so long as such Participation Interest is not purchased
or funded), (b) has failed to pay to the Administrative Agent or any Lender an
amount owed by such Lender pursuant to the terms of this Reimbursement Agreement
(but only for so long as such amount has not been repaid) or (c) has been deemed
insolvent or has become subject to a bankruptcy or insolvency proceeding or to a
receiver, trustee or similar official.

     

    “DBSI” means Deutsche
Bank Securities Inc.

     

    “Dollars” and “$” means dollars in
lawful currency of the United States of America.

     

    “Eligible Assignee”
means (a) a Lender, (b) an Affiliate of a Lender, (c) an Approved Fund and
(d) any other Person (other than a natural person) approved by the
Administrative Agent, the L/C Issuer and the Borrower (such approval not to be
unreasonably withheld or delayed); provided that (i) the
Borrower’s consent is not required during the existence and continuation of a
Default or an Event of Default, (ii) approval by the Borrower shall be
deemed given if no objection is received by the assigning Lender and the
Administrative Agent from the Borrower within five Business Days after notice of
such proposed assignment has been delivered to the Borrower and (iii) neither
the Borrower nor any Subsidiary or Affiliate of the Borrower shall qualify as an
Eligible Assignee.

     

    “Environmental Claims”
means any and all administrative, regulatory or judicial actions, suits,
demands, demand letters, claims, liens, accusations, allegations, notices of
noncompliance or violation, investigations (other than internal reports prepared
by any Person in the ordinary course of its business and not in response to any
third party action or request of any kind) or proceedings relating in any way to
any actual or alleged violation of or liability under any Environmental Law or
relating to any permit issued, or any approval given, under any such
Environmental Law (collectively, “Claims”), including,
without limitation, (a) any and all Claims by Governmental Authorities for
enforcement, cleanup, removal, response, remedial or other actions or damages
pursuant to any applicable Environmental Law and (b) any and all Claims by any
third party seeking damages, contribution, indemnification, cost recovery,
compensation or injunctive relief resulting from Hazardous Substances or arising
from alleged injury or threat of injury to human health or the
environment.

     

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

    “Environmental Laws”
shall mean any and all federal, state and local laws, statutes, ordinances,
rules, regulations, permits, licenses, approvals, rules of common law and orders
of courts or Governmental Authorities, relating to the protection of human
health or occupational safety or the environment, now or hereafter in effect and
in each case as amended from time to time, including, without limitation,
requirements pertaining to the manufacture, processing, distribution, use,
treatment, storage, disposal, transportation, handling, reporting, licensing,
permitting, investigation or remediation of Hazardous Substances.

     

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

     

    “ERISA Affiliate”
means any Person (including any trade or business, whether or not incorporated)
that would be deemed to be under “common control” with, or a member of the same
“controlled group” as, the Borrower or any of its Subsidiaries, within the
meaning of Sections 414(b), (c), (m) or (o) of the Code or Section 4001 of
ERISA.

     

    “ERISA Event” means:
(a) a Reportable Event with respect to a Plan or a Multiemployer Plan, (b) a
complete or partial withdrawal by the Borrower, any of its Subsidiaries or any
ERISA Affiliate from a Multiemployer Plan, or the receipt by the Borrower, any
of its Subsidiaries or any ERISA Affiliate of notice from a Multiemployer Plan
that it is in reorganization or insolvency pursuant to Section 4241 or 4245 of
ERISA or that it intends to terminate or has terminated under Section 4041A of
ERISA, (c) the distribution by the Borrower, any of its Subsidiaries or any
ERISA Affiliate under Section 4041 or 4041A of ERISA of a notice of intent
to terminate any Plan or the taking of any action to terminate any Plan, (d) the
commencement of proceedings by the PBGC under Section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, any Plan, or the
receipt by the Borrower, any of its Subsidiaries or any ERISA Affiliate of a
notice from any Multiemployer Plan that such action has been taken by the PBGC
with respect to such Multiemployer Plan, (e) the institution of a proceeding by
any fiduciary of any Multiemployer Plan against the Borrower, any of its
Subsidiaries or any ERISA Affiliate to enforce Section 515 of ERISA, which is
not dismissed within thirty (30) days, (f) the imposition upon the Borrower, any
of its Subsidiaries or any ERISA Affiliate of any liability under Title IV of
ERISA, other than for PBGC premiums due but not delinquent under Section 4007 of
ERISA, or the imposition or threatened imposition of any Lien upon any assets of
the Borrower, any of its Subsidiaries or any ERISA Affiliate as a result of any
alleged failure to comply with the Code or ERISA in respect of any Plan, (g) the
engaging in or otherwise becoming liable for a nonexempt Prohibited Transaction
by the Borrower, any of its Subsidiaries or any ERISA Affiliate, (h) a violation
of the applicable requirements of Section 404 or 405 of ERISA or the exclusive
benefit rule under Section 401(a) of the Code by any fiduciary of any Plan for
which the Borrower, any of its Subsidiaries or any ERISA Affiliate may be
directly or indirectly liable, (i) the adoption of an amendment to any Plan
that, pursuant to Section 401(a)(29) of the Code or Section 307 of ERISA,
would result in the loss of tax-exempt status of the trust of which such Plan is
a part if the Borrower, any of its Subsidiaries or any ERISA Affiliate fails to
timely provide security to such Plan in accordance with the provisions of such
sections or (j) the withdrawal of the Borrower, any of its Subsidiaries or any
ERISA Affiliate from a Multiple Employer Plan during a play year in which it was
a substantial employer (as such term is defined in Section 4001(a)(2) of
ERISA), or the termination of a Multiple Employer Plan.

     

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

    “Event of Default” has
the meaning set forth in Section 9.1.

     

    “Federal Funds Rate”
means, for any day, the rate per annum equal to the weighted average (rounded
upward, if necessary, to a whole multiple of 1/100 of 1%) of the rates on
overnight Federal funds transactions with members of the Federal Reserve System
arranged by Federal funds brokers on such day, as published by the Federal
Reserve Bank on the Business Day next succeeding such day; provided that (a) if
such day is not a Business Day, the Federal Funds Rate for such day shall be
such rate on such transactions on the next preceding Business Day as so
published on the next succeeding Business Day, and (b) if no such rate is so
published on such next succeeding Business Day, the Federal Funds Rate for such
day shall be the average rate (rounded upward, if necessary, to a whole multiple
of 1/100 of 1%) charged to the Administrative Agent on such day on such
transactions as determined by the Administrative Agent.

     

    “Fee Letter” means
that certain letter agreement, dated as of April 29, 2008, among the
Borrower, Deutsche Bank AG New York Branch, and Deutsche Bank Securities Inc.,
as amended, modified, supplemented or restated from time to time.

     

    “Financial Officer”
means the chief financial officer, vice president-finance, principal accounting
officer or treasurer of the Borrower.

     

    “First Mortgage Bonds”
means those first mortgage bonds issued pursuant to the FMB
Indenture.

     

    “Fiscal Quarter” means
each of the calendar quarters ending as of the last day of each March, June,
September and December.

     

    “Fiscal Year” means
the calendar year ending December 31.

     

    “FMB Indenture” means
the Indenture of Mortgage and Deed of Trust, dated as of June 1, 1947,
between the Borrower and The Bank of New York (formerly Irving Trust Company),
as trustee thereunder, as supplemented and amended.

     

    “Foreign Lender” has
the meaning set forth in Section 3.13(f).

     

    “Fund” means any
Person (other than a natural person) that is (or will be) engaged in making,
purchasing, holding or otherwise investing in commercial loans and similar
extensions of credit in the ordinary course of its business.

     

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

    “GAAP” means generally
accepted accounting principles in the United States set forth in the opinions
and pronouncements of the Accounting Principles Board and the American Institute
of Certified Public Accountants and statements and pronouncements of the
Financial Accounting Standards Board (or agencies with similar functions of
comparable stature and authority within the U.S. accounting profession) or that
are promulgated by any Governmental Authority having appropriate
jurisdiction.

     

    “Government Acts” has
the meaning set forth in Section 2.2(k)(i).

     

    “Governmental
Authority” means any domestic or foreign nation or government, any state
or other political subdivision thereof and any central bank thereof, any
municipal, local, city or county government, and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government (including, without limitation, any state dental board)
and any corporation or other entity owned or controlled, through stock or
capital ownership or otherwise, by any of the foregoing.

     

    “Hazardous Substances”
means any substances or materials (a) that are or become defined as hazardous
wastes, hazardous substances, pollutants, contaminants or toxic substances under
any Environmental Law, (b) that are defined by any Environmental Law as toxic,
explosive, corrosive, ignitable, infectious, radioactive, mutagenic or otherwise
hazardous, (c) the presence of which require investigation or response under any
Environmental Law, (d) that constitute a nuisance, trespass or health or safety
hazard to Persons or neighboring properties, (e) that consist of underground or
aboveground storage tanks, whether empty, filled or partially filled with any
substance, or (f) that contain, without limitation, asbestos, polychlorinated
biphenyls, urea formaldehyde foam insulation, petroleum hydrocarbons, petroleum
derived substances or wastes, crude oil, nuclear fuel, natural gas or synthetic
gas.

     

    “Hedging Agreements”
means, collectively, interest rate protection agreements, equity index
agreements, foreign currency exchange agreements, option agreements or other
interest or exchange rate or commodity price hedging agreements (other than
forward contracts for the delivery of power or gas written by the Borrower to
its jurisdictional and wholesale customers in the ordinary course of
business).

     

    “Indebtedness” means,
with respect to any Person (without duplication), (a) all indebtedness and
obligations of such Person for borrowed money or in respect of loans or advances
of any kind, (b) all obligations of such Person evidenced by notes, bonds,
debentures or similar instruments, (c) all reimbursement obligations of such
Person with respect to surety bonds, letters of credit and bankers’ acceptances
(in each case, whether or not drawn or matured and in the stated amount
thereof), (d) all obligations of such Person to pay the deferred purchase price
of property or services, (e) all indebtedness created or arising under any
conditional sale or other title retention agreement with respect to property
acquired by such Person, (f) all obligations of such Person as lessee under
leases that are or are required to be, in accordance with GAAP, recorded as
capital leases, to the extent such obligations are required to be so recorded,
(g) the net termination obligations of such Person under any Hedging Agreements,
calculated as of any date as if such agreement or arrangement were terminated as
of such date in accordance with the applicable rules under GAAP, (h) all
Contingent Obligations of such Person, (i) all obligations and liabilities of
such Person incurred in connection with any transaction or series of
transactions providing for the financing of assets through one or more
securitizations or in connection with, or pursuant to, any synthetic lease or
similar off-balance sheet financing, (j) the aggregate amount of uncollected
accounts receivable of such Person subject at the time of determination to a
sale of receivables (or similar transaction) to the extent such transaction is
effected with recourse to such Person (whether or not such transaction would be
reflected on the balance sheet of such Person in accordance with GAAP), (k) all
obligations, contingent or otherwise, under the Material Leases and (l) all
indebtedness referred to in clauses (a) through (k) above secured by any Lien on
any property or asset owned or held by such Person regardless of whether the
indebtedness secured thereby shall have been assumed by such Person or is
nonrecourse to the credit of such Person.

     

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

    “Indemnified
Liabilities” has the meaning set forth in Section 11.5(b).

     

    “Indemnitees” has the
meaning set forth in Section 11.5(b).

     

    “Insured Series First
Mortgage Bonds” means First Mortgage Bonds in the aggregate principal
amount of $65,000,000 pledged by the Borrower to secure guarantees of
$65,000,000 principal amount of pollution control revenue bonds issued by the
City of Farmington, New Mexico, for the benefit of the Borrower, which pollution
control revenue bonds are also supported by a municipal bond insurance policy
issued by AMBAC Indemnity Corporation.

     

    “ISP” means, with
respect to any Letter of Credit, the “International Standby Practices 1998”
published by the Institute of International Banking Law & Practice (or such
later version thereof as may be in effect at the time of issuance).

     

    “Laws” means,
collectively, all international, foreign, federal, state and local statutes,
treaties, rules, guidelines, regulations, ordinances, codes and administrative
or judicial precedents or authorities, including the interpretation or
administration thereof by any Governmental Authority charged with the
enforcement, interpretation or administration thereof, and all applicable
administrative orders, directed duties, requests, licenses, authorizations and
permits of, and agreements with, any Governmental Authority, in each case
whether or not having the force of law.

     

    “L/C Fees” has the
meaning set forth in Section 3.4(c).

     

    “L/C Fronting Fee” has
the meaning set forth in Section 2.2(i).

     

    “L/C Issuer” means
Deutsche Bank AG New York Branch in its capacity as an issuer of Letters of
Credit hereunder, or any successor issuer of Letters of Credit
hereunder.

     

    “L/C Obligations”
means, as of any date of determination, the aggregate amount available to be
drawn under all outstanding Letters of Credit plus the aggregate of
all Unreimbursed Amounts.  For purposes of computing the amount
available to be drawn under any Letter of Credit, the amount of such Letter of
Credit shall be determined in accordance with Section 1.7.  For
all purposes of this Reimbursement Agreement, if on any date of determination a
Letter of Credit has expired by its terms but any amount may still be drawn
thereunder by reason of the operation of Rule 3.14 of the ISP, such Letter
of Credit shall be deemed to be “outstanding” in the amount so remaining
available to be drawn.

     

    “Lender” means any of
the Persons identified as a “Lender” on the signature pages hereto, and any
Eligible Assignee which may become a Lender by way of assignment in accordance
with the terms hereof, together with their successors and permitted
assigns.

     

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

    “Lending Office”
means, as to any Lender, the office or offices of such Lender described as such
in such Lender’s Administrative Questionnaire, or such other office or offices
as a Lender may from time to time notify the Borrower and the Administrative
Agent.

     

    “Letter of Credit”
means any letter of credit issued hereunder.

     

    “Letter of Credit
Request” means an application and agreement for the issuance or amendment
of a Letter of Credit in substantially the form attached hereto as Exhibit 2.2(b).

     

    “Lien” means any
mortgage, pledge, hypothecation, assignment, security interest, lien (statutory
or otherwise), preference, priority, charge or other encumbrance of any nature,
whether voluntary or involuntary, including, without limitation, the interest of
any vendor or lessor under any conditional sale agreement, title retention
agreement, capital lease or any other lease or arrangement having substantially
the same effect as any of the foregoing.

     

    “Lordsburg Facility”
means the 72 megawatt gas fired combustion turbine generator in Lordsburg, New
Mexico.

     

    “Luna Facility” means
the combined cycle power generation facility located near Deming, New Mexico,
33.3% of which is owned by the Borrower.

     

    “Margin Stock” has the
meaning ascribed to such term in Regulation U.

     

    “Material Adverse
Change” means a material adverse change in the condition (financial or
otherwise), operations, business, performance, properties or assets of the
Borrower and its Subsidiaries, taken as a whole.

     

    “Material Adverse
Effect” means a material adverse effect upon (a) the business, assets,
liabilities (actual or contingent), operations, condition (financial or
otherwise) or prospects of the Borrower and its Subsidiaries, taken as a whole,
(b) the ability of the Borrower to perform its obligations under this
Reimbursement Agreement or any of the other Credit Documents or (c) the
legality, validity or enforceability of this Reimbursement Agreement or any of
the other Credit Documents or the rights and remedies of the Administrative
Agent, the Issuing Bank and the Lenders hereunder and thereunder.

     

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

    “Material Lease” means
any lease to the Borrower of its leasehold interests in (i) Unit 1 or Unit 2,
and related common facilities, of the Palo Verde Nuclear Generating Station or
(ii) the electric transmission line, and related facilities, known as the
Eastern Interconnection Project, including, without limitation, any lease set
forth on Schedule 6.18
hereto.

     

    “Maturity Date” means
April 30, 2009.

     

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

     

    “Multiemployer Plan”
means any “multiemployer plan” within the meaning of Section 4001(a)(3) of
ERISA to which the Borrower, any of its Subsidiaries or any ERISA Affiliate
makes, is making or is obligated to make contributions or has made or been
obligated to make contributions.

     

    “Multiple Employer
Plan” means a Single Employer Plan to which the Borrower, any of its
Subsidiaries or any ERISA Affiliate and at least one employer other than the
Borrower, any of its Subsidiaries or any ERISA Affiliate are contributing
sponsors.

     

    “Notes” means the
promissory notes of the Borrower in favor of each of the Lenders evidencing the
L/C Obligations provided pursuant to Section 2.7(c), individually or
collectively, as appropriate, as such promissory notes may be amended, modified,
supplemented, extended, renewed or replaced from time to time and as evidenced
in the form of Exhibit
2.7(c).

     

    “Other Taxes” has the
meaning set forth in Section 3.13(b).

     

    “PBGC” means the
Pension Benefit Guaranty Corporation and any successor thereto.

     

    “Participant” has the
meaning set forth in Section 11.3(d).

     

    “Participation
Interest” means the purchase by a Lender of a participation in Letters of
Credit or L/C Obligations as provided in Section 2.2.

     

    “Permitted
Dispositions” means (i) the Sale of the Gas Assets and/or (ii) the sale,
assignment, transfer, conveyance or other disposition of the Luna Facility
and/or the Lordsburg Facility; provided that any such sale, assignment,
transfer, conveyance or other disposition does not contravene any other material
agreements or contracts to which the Borrower is a party.

     

    “Person” means any
individual, partnership, joint venture, firm, corporation, limited liability
company, association, trust or other enterprise (whether or not incorporated),
or any Governmental Authority.

     

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

    “Plan” means any
“employee benefit plan” (within the meaning of Section 3(3) of ERISA) which is
covered by ERISA and with respect to which the Borrower, any of its Subsidiaries
or any ERISA Affiliate is (or, if such plan were terminated at such time, would
under Section 4069 of ERISA be deemed to be) an “employer” within the meaning of
Section 3(5) of ERISA.

     

    “PSNM Accounts Receivable
Securization” means the electric and gas accounts receivable
securitization program that was approved by the New Mexico Public Regulation
Commission in Case 3838 and was executed by the Borrower and Bank of America,
N.A. (successor by merger to Fleet National Bank), or an Affiliate thereof, on
April 8, 2003, and any amendments, replacements or extensions thereof
(so long as such amendments, replacements or extensions are not materially less
favorable to the Borrower and its Subsidiaries).

     

    “Prime Rate” has the
meaning set forth in the definition of Base Rate in this
Section 1.1.

     

    “Pro Rata Share”
means, with respect to each Lender at any time, a fraction (expressed as a
percentage, carried out to the ninth decimal place), the numerator of which is
the amount of the Commitment of such Lender at such time and the denominator of
which is the amount of the Committed Amount at such time; provided that if the
obligation of the L/C Issuer to make Credit Extensions has been terminated
pursuant to Section 9.2 or otherwise, then the Pro Rata Share of each
Lender shall be determined based on such Lender’s percentage ownership of the
aggregate amount of outstanding L/C Obligations.  The initial Pro Rata
Share of each Lender is set forth opposite the name of such Lender on Schedule 1.1(a) or in
the Assignment and Assumption pursuant to which such Lender becomes a party
hereto, as applicable.

     

    “Prohibited
Transaction” means any transaction described in (a) Section 406 of ERISA
that is not exempt by reason of Section 408 of ERISA or by reason of a
Department of Labor prohibited transaction individual or class exemption or (b)
Section 4975(c) of the Code that is not exempt by reason of Section
4975(c)(2) or 4975(d) of the Code.

     

    “Property” means any
right, title or interest in or to any property or asset of any kind whatsoever,
whether real, personal or mixed and whether tangible or intangible.

     

    “Register” has the
meaning set forth in Section 11.3(c).

     

    “Regulations U and X”
means Regulations U and X, respectively, of the Federal Reserve Board, and any
successor regulations.

     

    “Reimbursement
Agreement” has the meaning set forth in the Preamble hereof.

     

    “Reportable Event”
means (a) any “reportable event” within the meaning of Section 4043(c) of
ERISA for which the notice under Section 4043(a) of ERISA has not been waived by
the PBGC (including any failure to meet the minimum funding standard of, or
timely make any required installment under, Section 412 of the Code or
Section 302 of ERISA, regardless of the issuance of any waivers in
accordance with Section 412(d) of the Code), (b) any such “reportable
event” subject to advance notice to the PBGC under Section 4043(b)(3) of ERISA,
(c) any application for a funding waiver or an extension of any amortization
period pursuant to Section 412 of the Code, and (d) a cessation of operations
described in Section 4062(e) of ERISA.

     

     

    
      
        
        

      

      
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    “Required Lenders”
means Lenders whose aggregate Credit Exposure (as hereinafter defined)
constitutes more than 50% of the Credit Exposure of all Lenders at such time;
provided, however, that if any
Lender shall be a Defaulting Lender at such time then the aggregate principal
amount of Credit Exposure of such Lender at such time shall be excluded for
purposes of determining the Required Lenders.  For purposes of the
preceding sentence, the term “Credit Exposure” as applied to each Lender shall
mean (a) at any time prior to the termination of the Commitments, the Pro Rata
Share of such Lender of the Committed Amount multiplied by the Committed Amount
and (b) at any time after the termination of the Commitments, such Lender’s
Participation Interests in the face amount of the outstanding Letters of
Credit.

     

    “Requirement of Law”
means, with respect to any Person, the organizational documents of such Person
and any Law applicable to or binding upon such Person or any of its property or
to which such Person or any of its property is subject or otherwise pertaining
to any or all of the transactions contemplated by this Reimbursement Agreement
and the other Credit Documents.

     

    “Responsible Officer”
means the president, the chief executive officer, the co-chief executive
officer, the chief financial officer, any executive officer, vice
president-finance, principal accounting officer or treasurer of the Borrower,
and any other officer or similar official thereof responsible for the
administration of the obligations of the Borrower in respect of this
Reimbursement Agreement and the other Credit Documents.

     

    “S&P” means
Standard & Poor’s Rating Service, a division of The McGraw-Hill Companies,
Inc. and its successors.

     

    “Sale of the Gas
Assets” means the sale of the Borrower’s natural gas transmission and
distribution systems to New Mexico Gas Company, Inc., pursuant to the terms of
that certain Asset Purchase Agreement, dated as of January 12, 2008, by and
among the Borrower, Continental Energy Systems LLC, and New Mexico Gas
Company, Inc.

     

    “Single Employer Plan”
means any Plan which is covered by Title IV of ERISA, but which is not a
Multiemployer Plan or Multiple Employer Plan.

     

    “Solvent” means, with
respect to any Person as of a particular date, that on such date (a) such Person
is able to pay its debts and other liabilities, Contingent Obligations and other
commitments as they mature in the normal course of business, (b) such Person
does not intend to, and does not believe that it will, incur debts or
liabilities beyond such Person’s ability to pay as such debts and liabilities
mature in their ordinary course, (c) such Person is not engaged in a business or
a transaction, and is not about to engage in a business or a transaction, for
which such Person’s assets would constitute unreasonably small capital after
giving due consideration to the prevailing practice in the industry in which
such Person is engaged or is to engage, (d) the fair value of the assets of such
Person is greater than the total amount of liabilities, including, without
limitation, Contingent Obligations, of such Person and (e) the present fair
saleable value of the assets of such Person is not less than the amount that
will be required to pay the probable liability of such Person on its debts as
they become absolute and matured.

     

     

    
      
        
        

      

      
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    “Subsidiary” means, as
to any Person, (a) any corporation more than 50% of whose stock of any class or
classes having by the terms thereof ordinary voting power to elect a majority of
the directors of such corporation (irrespective of whether or not at the time,
any class or classes of such corporation shall have or might have voting power
by reason of the happening of any contingency) is at the time owned by such
Person directly or indirectly through Subsidiaries, and (b) any partnership,
association, joint venture or other entity in which such person directly or
indirectly through Subsidiaries has more than a 50% equity interest at any
time.  Any reference to Subsidiary herein, unless otherwise
identified, shall mean a Subsidiary, direct or indirect, of the
Borrower.  Any reference to a Subsidiary of the Borrower herein shall
not include any Subsidiary that is inactive, has minimal or no assets and does
not generate revenues.

     

    “Taxes” has the
meaning set forth in Section 3.13(a).

     

    “Total Assets” means
all assets of the Borrower as shown on its most recent quarterly consolidated
balance sheet, as determined in accordance with GAAP.

     

    “Unreimbursed Amount”
has the meaning specified in Section 2.2(d)(i).

     

    “Unused Commitment”
means, for any date of determination, the amount by which (a) the Committed
Amount on such date exceeds (b) the aggregate principal amount of outstanding
L/C Obligations on such date.

     

    “Utilization
Percentage” means, as of any date, an amount expressed as a percentage
determined by dividing the aggregate amount of all outstanding L/C Obligations
by the Committed Amount as in effect on such date.

     

    “Voting Stock” means
the Capital Stock of a Person that is then outstanding and normally entitled to
vote in the election of directors and other securities of such Person
convertible into or exercisable for such Capital Stock (whether or not such
securities are then currently convertible or exercisable).

     

    1.2 Computation of Time Periods
and Other Definitional Provisions.

     

    For
purposes of computation of periods of time hereunder, the word “from” means
“from and including” and the words “to” and “until” each mean “to but
excluding.”  References in this Reimbursement Agreement to “Articles”,
“Sections”, “Schedules” or “Exhibits” shall be to Articles, Sections, Schedules
or Exhibits of or to this Reimbursement Agreement unless otherwise specifically
provided.

     

     

    
      
        
        

      

      
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    1.3 Accounting Terms/Calculation
of Financial Covenants.

     

    Except as
otherwise expressly provided herein, all accounting terms used herein or
incorporated herein by reference shall be interpreted, and all financial
statements and certificates and reports as to financial matters required to be
delivered to the Administrative Agent or the Lenders hereunder shall be
prepared, in accordance with GAAP applied on a consistent basis. Notwithstanding
anything to the contrary in this Reimbursement Agreement, for purposes of
calculation of the financial covenants set forth in Section 7.2, all accounting
determinations and computations thereunder shall be made in accordance with GAAP
as in effect as of the date of this Reimbursement Agreement applied on a basis
consistent with the application used in preparing the most recent financial
statements of the Borrower referred to in Section 4.1(d).  In the
event that any changes in GAAP after such date are required to be applied to the
Borrower and would affect the computation of the financial covenants contained
in Section 7.2, such changes shall be followed only from and after the date
this Reimbursement Agreement shall have been amended to take into account any
such changes.

     

    1.4 Time.

     

    All
references to time herein shall be references to Central Standard Time or
Central Daylight Time, as the case may be, unless specified
otherwise.

     

    1.5 Rounding of Financial
Covenants.

     

    Any
financial ratios required to be maintained by the Borrower pursuant to this
Reimbursement Agreement shall be calculated by dividing the appropriate
component by the other component, carrying the result to one place more than the
number of places by which such ratio is expressed herein and rounding the result
up or down to the nearest number (with a rounding-up if there is no nearest
number).

     

    1.6 References to Agreements and
Requirement of Laws.

     

    Unless
otherwise expressly provided herein: (a) references to organization documents,
agreements (including the Credit Documents) and other contractual instruments
shall be deemed to include all subsequent amendments, restatements, extensions,
supplements and other modifications thereto, but only to the extent that such
amendments, restatements, extensions, supplements and other modifications are
not prohibited by any Credit Document and (b) references to any Requirement of
Law shall include all statutory and regulatory provisions consolidating,
amending, replacing, supplementing or interpreting such Requirement of
Law.

     

    1.7 Letter of Credit
Amounts.

     

    Unless
otherwise specified herein, the amount of a Letter of Credit at any time shall
be deemed to be the stated amount of such Letter of Credit in effect at such
time (and, for the avoidance of doubt, shall not take into account the maximum
stated amount of any Letter of Credit that, by its terms or the terms of any
Letter of Credit related thereto, provides for one or more automatic increases
in the stated amount thereof, unless and until any such automatic increase shall
have become effective).

     

     

    
      
        
        

      

      
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SECTION
2                                

     

    CREDIT
FACILITY

     

    2.1 [Intentionally
Omitted].

     

    2.2 Letters of Credit
Facility.

     

    (a) The Letter of Credit
Commitment.

     

    (i) Subject
to the terms and conditions set forth herein and other terms and conditions that
the L/C Issuer may reasonably require, (A) the L/C Issuer agrees, in reliance
upon the agreements of the other Lenders set forth in this Section 2.2,
from time to time on any Business Day during the period from the Closing Date
until the Commitment Termination Date, to issue standby Letters of Credit in
Dollars for the account of the Borrower and to amend Letters of Credit
previously issued by it, in each case in accordance with subsection (b) below
and (B) the Lenders severally agree to participate in such Letters of Credit
issued for the account of the Borrower; provided, however, that after
giving effect to the issuance of any Letter of Credit (1) the aggregate
principal amount of outstanding L/C Obligations shall not exceed the Committed
Amount and (2) with respect to each individual Lender, the aggregate principal
amount of outstanding L/C Obligations of such Lender shall not exceed such
Lender’s Pro Rata Share of the Committed Amount.  Within the foregoing
limits, and subject to the terms and conditions hereof, the Borrower may, during
the foregoing period, obtain Letters of Credit to replace Letters of Credit that
have expired or that have been drawn upon and reimbursed.

     

    (ii) The L/C
Issuer shall be under no obligation to issue or amend any Letter of Credit
if:

     

    (A) any
order, judgment or decree of any Governmental Authority or arbitrator shall by
its terms purport to enjoin or restrain the L/C Issuer from issuing such Letter
of Credit, or any Requirement of Law applicable to the L/C Issuer or any request
or directive (whether or not having the force of law) from any Governmental
Authority with jurisdiction over the L/C Issuer shall prohibit, or request that
the L/C Issuer refrain from, the issuance of letters of credit generally or such
Letter of Credit in particular or shall impose upon the L/C Issuer with respect
to such Letter of Credit any restriction, reserve or capital requirement (for
which the L/C Issuer is not otherwise compensated hereunder) not in effect on
the Closing Date, or shall impose upon the L/C Issuer any unreimbursed loss,
cost or expense which was not applicable on the Closing Date and which the L/C
Issuer in good faith deems material to it;

     

     

    
      
        
        

      

      
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    (B) the
expiry date of such requested Letter of Credit would occur after the Commitment
Termination Date, unless the L/C Issuer and all the Lenders have approved such
expiry date;

     

    (C) [Intentionally
Omitted];

     

    (D) the
issuance of such Letter of Credit would violate one or more policies of the L/C
Issuer;

     

    (E) such
Letter of Credit is in an initial amount less than $100,000 (unless otherwise
agreed to by the L/C Issuer), is to be used for a purpose other than as
permitted by Section 7.9, or is denominated in a currency other than
Dollars; or

     

    (F) a default
of any Lender’s obligations to fund under Section 2.2(d) exists or any
Lender is at such time a Defaulting Lender hereunder, unless the L/C Issuer has
entered into satisfactory arrangements with the Borrower or such Lender to
eliminate the L/C Issuer’s risk with respect to such Lender.

     

    (iii) The L/C
Issuer shall be under no obligation to amend any Letter of Credit if (A) the L/C
Issuer would have no obligation at such time to issue such Letter of Credit in
its amended form under the terms hereof or (B) the beneficiary of such Letter of
Credit does not accept the proposed amendment to such Letter of
Credit.

     

    (b) Procedures for Issuance and
Amendment of Letters of Credit.

     

    (i) Each
Letter of Credit shall be issued or amended, as the case may be, upon the
request of the Borrower delivered to the L/C Issuer (with a copy to the
Administrative Agent) in the form of a Letter of Credit Request, appropriately
completed and signed by a Responsible Officer of the Borrower.  The
Letter of Credit Request must be received by the L/C Issuer and the
Administrative Agent not later than 11:00 a.m. at least two Business Days (or
such later date and time as the L/C Issuer may agree in a particular instance in
its sole discretion) prior to the proposed issuance date or date of amendment,
as applicable.  In the case of a request for an initial issuance of a
Letter of Credit, such Letter of Credit Request shall specify in form and detail
satisfactory to the L/C Issuer: (A) the proposed issuance date of the requested
Letter of Credit (which shall be a Business Day), (B) the amount thereof, (C)
the expiry date thereof, (D) the name and address of the beneficiary thereof,
(E) the documents to be presented by such beneficiary in case of any drawing
thereunder, (F) the full text of any certificate to be presented by such
beneficiary in case of any drawing thereunder and (G) such other matters as the
L/C Issuer may require.  In the case of a request for an amendment of
any outstanding Letter of Credit, such Letter of Credit Request shall specify in
form and detail satisfactory to the L/C Issuer (1) the Letter of Credit to be
amended, (2) the proposed date of amendment thereof (which shall be a
Business Day), (3) the nature of the proposed amendment and (4) such other
matters as the L/C Issuer may require.

     

     

    
      
        
        

      

      
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    (ii) Promptly
after receipt of any Letter of Credit Request, the L/C Issuer will confirm with
the Administrative Agent (by telephone or in writing) that the Administrative
Agent has received a copy of such Letter of Credit Request from the Borrower
and, if not, the L/C Issuer will provide the Administrative Agent with a copy
thereof.  Upon receipt by the L/C Issuer of confirmation from the
Administrative Agent that the requested issuance or amendment is permitted in
accordance with the terms hereof, then, subject to the terms and conditions
hereof, the L/C Issuer shall, on the requested date, issue a Letter of Credit
for the account of the Borrower or enter into the applicable amendment, as the
case may be, in each case in accordance with the L/C Issuer’s usual and
customary business practices.

     

    (iii) [Intentionally
Omitted].

     

    (iv) Promptly
after its delivery of any Letter of Credit or any amendment to a Letter of
Credit to an advising bank with respect thereto or to the beneficiary thereof,
the L/C Issuer will also deliver to the Borrower and the Administrative Agent a
true and complete copy of such Letter of Credit or amendment.

     

    (c) Participations.

     

    (i) [Intentionally
Omitted].

     

    (ii) Each
Lender, upon issuance of a Letter of Credit, shall be deemed to have purchased
without recourse a risk participation from the L/C Issuer in such Letter of
Credit and the obligations arising thereunder and any collateral relating
thereto, in each case in an amount equal to its Pro Rata Share of the
obligations under such Letter of Credit, and shall absolutely, unconditionally
and irrevocably assume, as primary obligor and not as surety, and be obligated
to pay to the L/C Issuer therefor and discharge when due, its Pro Rata Share of
the obligations arising under such Letter of Credit.

     

     

    (d) Reimbursement.

     

    (i) In the
event of any drawing under any Letter of Credit, the L/C Issuer will promptly
notify the Borrower.  The Borrower shall pay and reimburse, and hereby
promises to pay and reimburse, the L/C Issuer on the day of drawing under any
Letter of Credit in immediately available funds.  If the Borrower
shall fail to reimburse the L/C Issuer as provided hereinabove, the unreimbursed
amount of such drawing (the “Unreimbursed Amount”)
shall bear interest at a per annum rate equal to the Default Rate.

     

    (ii) Subsequent
to a drawing under any Letter of Credit, unless the Borrower shall immediately
notify the L/C Issuer of its intent to otherwise reimburse such L/C Issuer, the
Administrative Agent shall give notice to the Lenders that a drawing under a
Letter of Credit has occurred and has not been reimbursed, in which case each
Lender hereby agrees that it shall forthwith fund its Pro Rata Share of the
Unreimbursed Amount and the proceeds thereof shall be paid directly to the L/C
Issuer for application to the respective L/C Obligations.  Each Lender
hereby irrevocably agrees to fund such amount immediately upon any such request
in the amount and in the manner specified in the preceding sentence and on the
same such date notwithstanding (A)
the failure of any conditions specified in Section 5.1 to have been
satisfied, (B) the existence of a Default or an Event of Default, (C) the
failure of any such request to be made by the time otherwise required hereunder,
or (D) any reduction in the Committed Amount or any termination of the
Commitments.

     

     

    
      
        
        

      

      
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    (iii) In the
event that any Lender shall fail to fund its Pro Rata Share of an Unreimbursed
Amount on such day, then the amount of such Lender’s unfunded participation
interest therein shall bear interest payable to the L/C Issuer upon demand, at
the rate equal to, if paid within two Business Days of such date, the Federal
Funds Rate, and thereafter at a rate equal to the Base
Rate.  Simultaneously with the making of each such payment by a Lender
to the L/C Issuer, such Lender shall, automatically and without any further
action on the part of the L/C Issuer or such Lender, acquire a participation in
an amount equal to such payment (excluding the portion of such payment
constituting interest owing to the L/C Issuer) in the related unreimbursed
drawing portion of the L/C Obligations and in the interest thereon and shall
have a claim against the Borrower with respect thereto.  Any payment
by the Lenders pursuant to clauses (ii) and (iii) of this Section 2.2(d)
shall not relieve or otherwise impair the obligations of the Borrower to
reimburse the L/C Issuer under a Letter of Credit.

     

    (e) Obligations
Absolute.  The obligation of the Borrower to reimburse the L/C
Issuer for each drawing under each Letter of Credit shall be absolute,
unconditional and irrevocable, and shall be paid strictly in accordance with the
terms of this Reimbursement Agreement under all circumstances, including the
following:

     

    (i) any lack
of validity or enforceability of such Letter of Credit, this Reimbursement
Agreement, or any other agreement or instrument relating thereto;

     

    (ii) the
existence of any claim, counterclaim, set off, defense or other right that the
Borrower may have at any time against any beneficiary or any transferee of such
Letter of Credit (or any Person for whom any such beneficiary or any such
transferee may be acting), the L/C Issuer or any other Person, whether in
connection with this Reimbursement Agreement, the transactions contemplated
hereby or by such Letter of Credit or any agreement or instrument relating
thereto, or any unrelated transaction;

     

    (iii) any
draft, demand, certificate or other document presented under such Letter of
Credit proving to be forged, fraudulent, invalid or insufficient in any respect
or any statement therein being untrue or inaccurate in any respect; or any loss
or delay in the transmission or otherwise of any document required in order to
make a drawing under such Letter of Credit;

    
       

       

      
        
          
          

        

        
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    (iv) any
payment by the L/C Issuer under such Letter of Credit against presentation of a
draft or certificate that does not strictly comply with the terms of such Letter
of Credit; or any payment made by the L/C Issuer under such Letter of Credit to
any Person purporting to be a trustee in bankruptcy, debtor in possession,
assignee for the benefit of creditors, liquidator, receiver or other
representative of or successor to any beneficiary or any transferee of such
Letter of Credit, including any arising in connection with any proceeding under
any Debtor Relief Law; or

     

    (v) any other
circumstance or happening whatsoever, whether or not similar to any of the
foregoing, including any other circumstance that might otherwise constitute a
defense available to, or a discharge of, the Borrower.

     

    The
Borrower shall promptly examine a copy of each Letter of Credit and each
amendment thereto that is delivered to it and, in the event of any claim of
noncompliance with the Borrower’s instructions or other irregularity, the
Borrower will immediately notify the L/C Issuer.  The Borrower shall
be conclusively deemed to have waived any such claim against the L/C Issuer and
its correspondents unless such notice is given as aforesaid.

     

    (f) Role of the L/C
Issuer.  Each Lender and the Borrower agree that, in paying any
drawing under a Letter of Credit, the L/C Issuer shall not have any
responsibility to obtain any document (other than any sight draft, certificates
and documents expressly required by the Letter of Credit) or to ascertain or
inquire as to the validity or accuracy of any such document or the authority of
the Person executing or delivering any such document.  None of the L/C
Issuer, any Agent-Related Person or any of the respective correspondents,
participants or assignees of the L/C Issuer shall be liable to any Lender for
(i) any action taken or omitted in connection herewith at the request or with
the approval of the Lenders or the Required Lenders, as applicable, (ii) any
action taken or omitted in the absence of gross negligence or willful misconduct
as determined by a court of competent jurisdiction by a final and nonappealable
judgment or (iii) the due execution, effectiveness, validity or enforceability
of any document or instrument related to any Letter of Credit or Letter of
Credit Request.  The Borrower hereby assumes all risks of the acts or
omissions of any beneficiary or transferee with respect to its use of any Letter
of Credit; provided, however, that this
assumption is not intended to, and shall not, preclude the Borrower’s pursuing
such rights and remedies as it may have against the beneficiary or transferee at
law or under any other agreement.  None of the L/C Issuer, any
Agent-Related Person or any of the respective correspondents, participants or
assignees of the L/C Issuer, shall be liable or responsible for any of the
matters described in clauses (i) through (v) of Section 2.2(e); provided, however, that
anything in such clauses to the contrary notwithstanding, the Borrower may have
a claim against the L/C Issuer, and the L/C Issuer may be liable to the
Borrower, to the extent, but only to the extent, of any direct, as opposed to
consequential or exemplary, damages suffered by the Borrower, which the Borrower
proves were caused by the L/C Issuer’s willful misconduct or gross negligence
determined by a court of competent jurisdiction by a final and nonappealable
judgment or the L/C Issuer’s willful failure to pay under any Letter of Credit
after the presentation to it by the beneficiary of a sight draft and
certificate(s) strictly complying with the terms and conditions of a Letter of
Credit.  In furtherance and not in limitation of the foregoing, the
L/C Issuer may accept documents that appear on their face to be in order,
without responsibility for further investigation and the L/C Issuer shall not be
responsible for the validity or sufficiency of any instrument transferring or
assigning, or purporting to transfer or assign, a Letter of Credit or the rights
or benefits thereunder or proceeds thereof, in whole or in part, which may prove
to be invalid or ineffective for any reason.

     

    
      
        
        

      

      
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    (g) Cash
Collateral.  If, as of the Commitment Termination Date, any
Letter of Credit for any reason remains outstanding and partially or wholly
undrawn, the Borrower shall immediately (but in any event, within one (1)
Business Day following the Commitment Termination Date) Cash Collateralize the
then aggregate principal amount of all L/C Obligations (in an amount equal to
such aggregate principal amount determined as of the Commitment Termination
Date).  The Borrower hereby grants to the Administrative Agent, for
the benefit of the L/C Issuer and the Lenders, a security interest in all such
cash, deposit accounts and all balances therein and all proceeds of the
foregoing.  Cash collateral shall be maintained in blocked, non
interest bearing deposit accounts at the Administrative Agent or at another
financial institution selected by the Administrative Agent.

     

    (h) Applicability of
ISP.  Unless otherwise expressly agreed by the L/C Issuer and
the Borrower when a Letter of Credit is issued, the rules of the ISP shall apply
to each Letter of Credit.

     

    (i) [Intentionally
Omitted.]

     

    (j) Conflict with the Letter of
Credit Request.  In the event of any conflict between the terms
hereof and the terms of any Letter of Credit Request, the terms hereof shall
control.

     

    (k) Indemnification of the L/C
Issuer.

     

    (i) In
addition to its other obligations under this Reimbursement Agreement, the
Borrower hereby agrees to protect, indemnify, pay and hold the L/C Issuer
harmless from and against any and all claims, demands, liabilities, damages,
losses, costs, charges and expenses (including reasonable attorneys’ fees) that
the L/C Issuer may incur or be subject to as a consequence, direct or indirect,
of (A) the issuance of any Letter of Credit or (B) the failure of the L/C Issuer
to honor a drawing under a Letter of Credit as a result of any act or omission,
whether rightful or wrongful, of any present or future de jure or de facto
government or Governmental Authority (all such acts or omissions, herein called
“Government
Acts”).

     

    
      
        
        

      

      
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    (ii) As
between the Borrower and the L/C Issuer, the Borrower shall assume all risks of
the acts, omissions or misuse of any Letter of Credit by the beneficiary
thereof.  In the absence of gross negligence or willful misconduct
determined by a court of competent jurisdiction by a final and nonappealable
judgment, the L/C Issuer shall not be responsible for:  (A) the form,
validity, sufficiency, accuracy, genuineness or legal effect of any document
submitted by any party in connection with the application for and issuance of
any Letter of Credit, even if it should in fact prove to be in any or all
respects invalid, insufficient, inaccurate, fraudulent or forged; (B) the
validity or sufficiency of any instrument transferring or assigning or
purporting to transfer or assign any Letter of Credit or the rights or benefits
thereunder or proceeds thereof, in whole or in part, that may prove to be
invalid or ineffective for any reason; (C) failure of the beneficiary of a
Letter of Credit to comply fully with conditions required in order to draw upon
a Letter of Credit; (D) errors, omissions, interruptions or delays in
transmission or delivery of any messages, by mail, cable, telegraph, telex or
otherwise, whether or not they be in cipher; (E) errors in interpretation of
technical terms; (F) any loss or delay in the transmission or otherwise of any
document required in order to make a drawing under a Letter of Credit or of the
proceeds thereof; and (G) any consequences arising from causes beyond the
control of the L/C Issuer, including, without limitation, any Government
Acts.  None of the above shall affect, impair, or prevent the vesting
of the L/C Issuer’s rights or powers hereunder.

     

    (iii) In
furtherance and extension and not in limitation of the specific provisions
hereinabove set forth, any action taken or omitted by the L/C Issuer, under or
in connection with any Letter of Credit or the related certificates, if taken or
omitted in good faith, shall not put the L/C Issuer under any resulting
liability to the Borrower.  It is the intention of the parties that
this Reimbursement Agreement shall be construed and applied to protect and
indemnify the L/C Issuer against any and all risks involved in the issuance of
the Letters of Credit, all of which risks are hereby assumed by the Borrower,
including, without limitation, any and all risks of the acts or omissions,
whether rightful or wrongful, of any present or future Government
Acts.  The L/C Issuer shall not, in any way, be liable for any failure
by the L/C Issuer or anyone else to pay any drawing under any Letter of Credit
as a result of any Government Acts or any other cause beyond the control of the
L/C Issuer.

     

    (iv) Nothing
in this subsection (k) is intended to limit the reimbursement obligation of the
Borrower contained in this Section 2.2.  The obligations of the
Borrower under this subsection (k) shall survive the termination of this
Reimbursement Agreement.  No act or omission of any current or prior
beneficiary of a Letter of Credit shall in any way affect or impair the rights
of the L/C Issuer to enforce any right, power or benefit under this
Reimbursement Agreement.

     

    
      
        
        

      

      
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    (l) Letter of Credit
Amounts.  Unless otherwise specified, all references herein to
the amount of a Letter of Credit at any time shall be determined in accordance
with Section 1.7.

     

    2.3 Reductions
of Committed Amount.  Upon at least
three Business Days’ notice, the Borrower shall have the right to permanently
terminate or reduce the aggregate unused amount of the Committed Amount at any
time or from time to time; provided that (i) each partial reduction shall be in
an aggregate amount at least equal to $5,000,000 and in integral multiples of
$1,000,000 above such amount and (ii) no reduction shall be made which would
reduce the Committed Amount to an amount less than the aggregate principal
amount of outstanding L/C Obligations.  Any reduction in (or
termination of) the Committed Amount shall be permanent and may not be
reinstated.

     

    2.4 [Intentionally
Omitted].

     

    2.5 [Intentionally
Omitted].

     

    2.6 [Intentionally
Omitted].

     

    2.7 Evidence of
Debt.

     

    (a) The
Credit Extensions made by each Lender shall be evidenced by one or more accounts
or records maintained by such Lender and by the Administrative Agent in the
ordinary course of business.  The accounts or records maintained by
the Administrative Agent and each Lender shall be conclusive absent manifest
error of the amount of the Credit Extensions made by the Lenders to the Borrower
and the interest and payments thereon.  Any failure to so record or
any error in doing so shall not, however, limit or otherwise affect the
obligation of the Borrower hereunder to pay any amount owing with respect to its
Borrower Obligations.  In the event of any conflict between the
accounts and records maintained by any Lender and the accounts and records of
the Administrative Agent in respect of such matters, the accounts and records of
the Administrative Agent shall control in the absence of manifest
error.

     

    (b) In
addition to the accounts and records referred to in subsection (a) above, each
Lender and the Administrative Agent shall maintain in accordance with its usual
practice accounts or records evidencing the purchases and sales by such Lender
of participations in Letters of Credit.  In the event of any conflict
between the accounts and records maintained by the Administrative Agent and the
accounts and records of any Lender in respect of such matters, the accounts and
records of the Administrative Agent shall control in the absence of manifest
error.

     

    (c) At the
request of any Lender, the L/C Obligations of such Lender shall be evidenced by
a duly executed Note of the Borrower to such Lender in substantially the form of
Exhibit 2.7(c)
in the amount of such Lender’s Commitment.

     

    
      
        
        

      

      
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SECTION
3                                

     

    GENERAL
PROVISIONS APPLICABLE

     

    TO
CREDIT EXTENSIONS

     

    3.1 Interest.

     

    (a) [Intentionally
Omitted].

     

    (b) Default Rate of
Interest.

     

    (i) Any
Unreimbursed Amount shall bear interest, payable on demand, at the Default
Rate.  To the extent permitted by Law, interest on any other amounts
(other than Unreimbursed Amounts) owing hereunder or under any other Credit
Documents (including, without limitation, fees and expenses) shall bear
interest, payable on demand, at the Base Rate plus 2% per annum.

     

    (ii) After the
occurrence, and during the continuation, of an Event of Default (other than an
Event of Default pursuant to Section 9.1(a)), at the request of the Required
Lenders, to the extent permitted by Law, interest on any amounts owing hereunder
or under the other Credit Documents (including without limitation fees and
expenses) shall bear interest, payable on demand, at the Base Rate plus
2%.

     

    3.2 Payments
Generally.

     

    (a) No Deductions; Place and
Time of Payments.  All payments to be made by the Borrower
shall be made without condition or deduction for any counterclaim, defense,
recoupment or setoff.  Except as otherwise expressly provided herein,
all payments by the Borrower hereunder shall be made to the Administrative
Agent, for the account of the L/C Issuer or the respective Lenders to which such
payment is owed, at the Administrative Agent’s Office in Dollars and in
immediately available funds not later than 2:00 p.m. on the date specified
herein.  The Administrative Agent will promptly distribute to the L/C
Issuer or each Lender its Pro Rata Share (or other applicable share as provided
herein) of such payment in like funds as received by wire transfer to such
Lender’s Lending Office.  All payments received by the Administrative
Agent after 2:00 p.m. shall deemed received on the next succeeding Business Day
and any applicable interest or fee shall continue to accrue.

     

    (b) Payment
Dates.  If any payment to be made by the Borrower shall come
due on a day other than a Business Day, payment shall be made on the next
following Business Day, and such extension of time shall be reflected in
computing interest or fees, as the case may be.

     

    (c) Advances by Administrative
Agent.  Unless the Borrower or any Lender has notified the
Administrative Agent, prior to the time any payment is required to be made by it
to the Administrative Agent hereunder, that the Borrower or such Lender, as the
case may be, will not make such payment, the Administrative Agent may assume
that the Borrower or such Lender, as the case may be, has timely made such
payment and may (but shall not be so required to), in reliance thereon, make
available a corresponding amount to the Person entitled thereto.  If
and to the extent that such payment was not in fact made to the Administrative
Agent in immediately available funds, then:

     

    
      
        
        

      

      
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    (i) if the
Borrower failed to make such payment, each Lender shall forthwith on demand
repay to the Administrative Agent the portion of such assumed payment that was
made available to such Lender in immediately available funds, together with
interest thereon in respect of each day from and including the date such amount
was made available by the Administrative Agent to such Lender to the date such
amount is repaid to the Administrative Agent in immediately available funds at
the Federal Funds Rate from time to time in effect; and

     

    (ii) if any
Lender failed to make such payment, such Lender shall forthwith on demand pay to
the Administrative Agent the amount thereof in immediately available funds,
together with interest thereon for the period from the date such amount was made
available by the Administrative Agent to the Borrower to the date such amount is
recovered by the Administrative Agent (the “Compensation Period”)
at a rate per annum equal to the Federal Funds Rate from time to time in
effect.  If such Lender does not pay such amount forthwith upon the
Administrative Agent’s demand therefor, the Administrative Agent may make a
demand therefor upon the Borrower, and the Borrower shall pay such amount to the
Administrative Agent, together with interest thereon for the Compensation Period
at the Base Rate plus 2%.  Nothing herein shall be deemed to relieve
any Lender from its obligation to fulfill its Commitment or to prejudice any
rights which the Administrative Agent, the L/C Issuer or the Borrower may have
against any Lender as a result of any default by such Lender
hereunder.

     

    A notice
of the Administrative Agent to any Lender or the Borrower with respect to any
amount owing under this subsection (c) shall be conclusive, absent manifest
error.

     

    (d) Several
Obligations.  The obligations of the Lenders hereunder to fund
or purchase Participation Interests are several and not joint.  The
failure of any Lender to fund or purchase any Participation Interest on any date
required hereunder shall not relieve any other Lender of its corresponding
obligation to do so on such date, and no Lender shall be responsible for the
failure of any other Lender to so fund or purchase its Participation
Interest.

     

    (e) Funding
Offices.  Nothing herein shall be deemed to obligate any Lender
to obtain the funds for any Credit Extension in any particular place or manner
or to constitute a representation by any Lender that it has obtained or will
obtain the funds for any Credit Extension in any particular place or
manner.

     

    3.3 Prepayments.

     

    (a) [Intentionally
Omitted].

     

    (b) Mandatory
Prepayments.  If at any time the aggregate amount of L/C
Obligations outstanding exceeds the Committed Amount, the Borrower shall
immediately Cash Collateralize outstanding L/C Obligations in a manner, in an
amount and in Dollars as is necessary to be in compliance with Section 2.2, as
applicable, and as directed by the Administrative Agent.

     

    
      
        
        

      

      
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    3.4 Fees.

     

    (a) Commitment
Fees.  In consideration of the Committed Amount being made
available by the Lenders hereunder, the Borrower agrees to pay to the
Administrative Agent, for the pro rata benefit of each Lender based on its Pro
Rata Share, a per annum fee equal to the daily average sum of the Applicable
Percentage for Commitment Fees for each day during the period of determination
multiplied by the Unused Commitment for each such day (the “Commitment
Fees”).  The Commitment Fees shall commence to accrue on the
Closing Date and shall be due and payable in arrears on the last Business Day of
each Fiscal Quarter (as well as on the Maturity Date and on any date that the
Committed Amount is reduced) for the Fiscal Quarter (or portion thereof) then
ending, beginning with the first of such dates to occur after the Closing
Date.

     

    (b) Fronting Fee and Documentary
and Processing Charges Payable to The L/C Issuer.  The Borrower
shall pay directly to the L/C Issuer for its own account a fronting fee with
respect to each Letter of Credit in an amount equal to the greater of (x) 0.125%
per annum times
the daily maximum amount available to be drawn under such Letter of Credit and
(y) $500 per annum for each Letter of Credit (the “L/C Fronting
Fee”).  The L/C Fronting Fee shall be computed on a quarterly
basis in arrears and shall be due and payable on the last Business Day of each
Fiscal Quarter (as well as on the Commitment Termination Date) for the Fiscal
Quarter (or portion thereof) then ending, beginning with the first of such dates
to occur after the issuance of such Letter of Credit.  In addition,
the Borrower shall pay directly to the L/C Issuer for its own account the
customary issuance, presentation, amendment, negotiation, document examination
and other processing fees, and other standard costs and charges, of the L/C
Issuer relating to letters of credit as from time to time in
effect.  Such customary fees and standard costs and charges are due
and payable on demand and are nonrefundable.

     

    (c) L/C
Fees.  The Borrower shall pay to the Administrative Agent for
the account of each Lender in accordance with its Pro Rata Share a fee for each
Letter of Credit on the daily undrawn face amount of all outstanding Letters of
Credit calculated at the rate per annum set forth in the definition of
“Applicable Percentage” in Section 1.1 based upon (x) the lower of the
Borrower’s senior unsecured credit ratings from S&P or Moody’s and (y) the
Utilization Percentage (the “L/C
Fees”).  The L/C Fees shall be computed on a quarterly basis in
arrears and shall be due and payable on the last Business Day of each Fiscal
Quarter (as well as on the Commitment Termination Date) for the Fiscal Quarter
(or portion thereof) then ending, beginning with the first of such dates to
occur after the issuance of such Letter of Credit.

     

    (d) Administrative
Fees.  The Borrower agrees to pay to the Administrative Agent,
for its own account, an annual fee as agreed to between the Borrower and the
Administrative Agent (the “Administrative Fees”)
in the Fee Letter.

     

    
      
        
        

      

      
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    3.5 Payment in full at
Maturity.

     

    On the
Maturity Date, all accrued but unpaid interest and all fees and other sums owing
under the Credit Documents, shall be due and payable in full, unless accelerated
sooner pursuant to Section 9.2; provided that if the
Maturity Date is not a Business Day, then such interest, fees and other sums
shall be due and payable in full on the next preceding Business
Day.

     

    3.6 Computations of Interest and
Fees.

     

    (a) Calculation of Interest and
Fees.  All computations of interest and fees hereunder shall be
made on the basis of the actual number of days elapsed over a year
of  360 days.  Interest shall accrue from and including the
first date of the Unreimbursed Amount to but excluding the last day occurring in
the period for which such interest is payable.  Each determination by
the Administrative Agent of an interest rate or fee hereunder shall be
conclusive and binding for all purposes, absent manifest error.

     

    (b) Usury.  It
is the intent of the Lenders and the Borrower to conform to and contract in
strict compliance with applicable usury Law from time to time in
effect.  All agreements between the Lenders and the Borrower are
hereby limited by the provisions of this subsection which shall override and
control all such agreements, whether now existing or hereafter arising and
whether written or oral.  In no way, nor in any event or contingency
(including but not limited to prepayment or acceleration of the maturity of any
Borrower Obligation), shall the interest taken, reserved, contracted for,
charged, or received under this Reimbursement Agreement, under the Notes or
otherwise, exceed the maximum nonusurious amount permissible under applicable
Law.  If, from any possible construction of any of the Credit
Documents or any other document, interest would otherwise be payable in excess
of the maximum nonusurious amount, any such construction shall be subject to the
provisions of this subsection and such documents shall be automatically reduced
to the maximum nonusurious amount permitted under applicable Law, without the
necessity of execution of any amendment or new document.  If any
Lender shall ever receive anything of value which is characterized as interest
on its Pro Rata Share of any Unreimbursed Amount under applicable Law and which
would, apart from this provision, be in excess of the maximum nonusurious
amount, an amount equal to the amount which would have been excessive interest
shall, without penalty, be applied to the reduction of any Unreimbursed Amount,
any fees or other amounts owing to the Administrative Agent or the L/C Issuer by
the Borrower and not to the payment of interest, or refunded to the Borrower or
the other payor thereof if and to the extent such amount which would have been
excessive exceeds such unpaid principal amount of the Unreimbursed Amount, fees
or other amounts owed by the Borrower.  The right to demand payment of
any Indebtedness evidenced by any of the Credit Documents does not include the
right to accelerate the payment of any interest which has not otherwise accrued
on the date of such demand, and the Lenders do not intend to charge or receive
any unearned interest in the event of such demand.

     

    
      
        
        

      

      
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    3.7 Pro Rata
Treatment.

     

    Except to
the extent otherwise provided herein, each Unreimbursed Amount, each Credit
Extension, each payment of interest and each payment of fees (other than
administrative fees paid to the Administrative Agent and fronting, documentary
and processing fees paid to the L/C Issuer) shall be allocated pro rata among
the relevant Lenders in accordance with their Pro Rata Shares; provided that, if any
Lender shall have failed to fund or purchase its Participation Interest, then
any amount to which such Lender would otherwise be entitled pursuant to this
Section 3.7 shall instead be payable to the Administrative Agent until such
Participation Interest not funded or purchased by such Lender has been
repaid.  In the event any principal, interest, fee or other amount
paid to any Lender pursuant to this Reimbursement Agreement or any other Credit
Document is rescinded or must otherwise be returned by the Administrative Agent,
(a) such principal, interest, fee or other amount that had been satisfied by
such payment shall be revived, reinstated and continued in full force and effect
as if such payment had not occurred and (b) such Lender shall, upon the request
of the Administrative Agent, repay to the Administrative Agent the amount so
paid to such Lender, with interest for the period commencing on the date such
payment is returned by the Administrative Agent until the date the
Administrative Agent receives such repayment at a rate per annum equal to the
Federal Funds Rate if repaid within two (2) Business Days after such request and
thereafter the Base Rate.

     

    3.8 Sharing of
Payments.

     

    The
Lenders agree among themselves that, except to the extent otherwise provided
herein, in the event that any Lender shall obtain payment in respect of any L/C
Obligations or any other obligation owing to such Lender under this
Reimbursement Agreement through the exercise of a right of setoff, banker’s lien
or counterclaim, or pursuant to a secured claim under Section 506 of the
Bankruptcy Code or other security or interest arising from, or in lieu of, such
secured claim, received by such Lender under any applicable Debtor Relief Law or
other similar Law or otherwise, or by any other means, in excess of its Pro Rata
Share of such payment as provided for in this Reimbursement Agreement, such
Lender shall promptly pay in cash or purchase from the other Lenders a
participation in such L/C Obligations and other obligations in such amounts, and
make such other adjustments from time to time, as shall be equitable to the end
that all Lenders share such payment in accordance with their Pro Rata
Shares.  The Lenders further agree among themselves that if payment to
a Lender obtained by such Lender through the exercise of a right of setoff,
banker’s lien, counterclaim or other event as aforesaid shall be rescinded or
must otherwise be returned, each Lender which shall have shared the benefit of
such payment shall, by payment in cash or a repurchase of a participation
theretofore sold, return its share of that benefit (together with its share of
any accrued interest payable with respect thereto) to each Lender whose payment
shall have been rescinded or otherwise returned.  The Borrower agrees
that (a) any Lender so purchasing such a participation may, to the fullest
extent permitted by Law, exercise all rights of payment, including setoff,
banker’s lien or counterclaim, with respect to such participation as fully as if
such Lender were a holder of such L/C Obligations or other obligation in the
amount of such participation and (b) the Borrower Obligations that have been
satisfied by a payment that has been rescinded or otherwise returned shall be
revived, reinstated and continued in full force and effect as if such payment
had not occurred.  Except as otherwise expressly provided in this
Reimbursement Agreement, if any Lender or the Administrative Agent shall fail to
remit to any other Lender an amount payable by such Lender or the Administrative
Agent to such other Lender pursuant to this Reimbursement Agreement on the date
when such amount is due, such payments shall be made together with interest
thereon for each date from the date such amount is due until the date such
amount is paid to the Administrative Agent or such other Lender at a rate per
annum equal to the Federal Funds Rate.  If under any applicable Debtor
Relief Law or other similar Law, any Lender receives a secured claim in lieu of
a setoff to which this Section 3.8 applies, such Lender shall, to the
extent practicable, exercise its rights in respect of such secured claim in a
manner consistent with the rights of the Lenders under this Section 3.8 to share
in the benefits of any recovery on such secured claim.

     

    
      
        
        

      

      
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    3.9 Capital
Adequacy.

     

    If any
Lender determines that the introduction after the Closing Date of any Law, rule
or regulation or other Requirement of Law regarding capital adequacy or any
change therein or in the interpretation thereof, or compliance by such Lender
(or its Lending Office) therewith, has or would have the effect of reducing the
rate of return on the capital or assets of such Lender or any corporation
controlling such Lender as a consequence of such Lender’s obligations hereunder
(taking into consideration its policies with respect to capital adequacy and
such Lender’s desired return on capital), then from time to time upon demand of
such Lender (with a copy of such demand to the Administrative Agent), the
Borrower shall pay to such Lender such additional amounts as will compensate
such Lender for such reduction.

     

    3.10 [Intentionally
Omitted].

     

    3.11 [Intentionally
Omitted].

     

    3.12 [Intentionally
Omitted].

     

    3.13 Taxes.

     

    (a) Payment of
Taxes.  Any and all payments by the Borrower to or for the
account of the Administrative Agent, the L/C Issuer or any Lender under any
Credit Document shall be made free and clear of and without deduction for any
and all present or future income, stamp or other taxes, duties, levies, imposts,
deductions, assessments, fees, withholdings or similar charges, and all
liabilities with respect thereto, but excluding, in the case of the
Administrative Agent, the L/C Issuer and each Lender, taxes imposed on or
measured by its net income, and franchise taxes imposed on it (in lieu of net
income taxes), by the jurisdiction (or any political subdivision thereof) under
the Laws of which the Administrative Agent, the L/C Issuer or such Lender, as
the case may be, is organized or maintains its Lending Office (all such non
excluded present or future income, stamp or other taxes, duties, levies,
imposts, deductions, assessments, fees, withholdings or similar charges, and
liabilities being hereinafter referred to as “Taxes”).  If
the Borrower shall be required by any Requirement of Law to deduct any Taxes
from or in respect of any sum payable under any Credit Document to the
Administrative Agent, the L/C Issuer or any Lender, (i) the sum payable shall be
increased as necessary so that after making all required deductions (including
deductions applicable to additional sums payable under this Section 3.13(a)),
the Administrative Agent, the L/C Issuer or such Lender, as the case may be,
receives an amount equal to the sum it would have received had no such
deductions been made, (ii) the Borrower shall make such deductions, (iii) the
Borrower shall pay the full amount deducted to the relevant taxation authority
or other Governmental Authority in accordance with applicable Requirements of
Law, and (iv) within 30 days after the date of such payment, the Borrower shall
furnish to the Administrative Agent (which shall forward the same to the L/C
Issuer or such Lender, if applicable) the original or a certified copy of a
receipt evidencing payment thereof, to the extent such receipt is issued
therefor, or other written proof of payment thereof that is reasonably
satisfactory to the Administrative Agent.

     

    
      
        
        

      

      
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    (b) Additional
Taxes.  In addition, the Borrower agrees to pay any and all
present or future stamp, court or documentary taxes and any other excise or
property taxes or charges or similar levies which arise from any payment made
under any Credit Document or from the execution, delivery, performance,
enforcement or registration of, or otherwise with respect to, any Credit
Document (hereinafter referred to as “Other
Taxes”).

     

    (c) No Deduction for
Taxes.  If the Borrower shall be required to deduct or pay any
Taxes or Other Taxes from or in respect of any sum payable under any Credit
Document to the Administrative Agent, the L/C Issuer or any Lender, the Borrower
shall also pay to the Administrative Agent (for the account of the L/C Issuer or
such Lender) or to the L/C Issuer or such Lender, at the time interest is paid,
such additional amount that the L/C Issuer or such Lender specifies as necessary
to preserve the after tax yield (after factoring in all taxes, including taxes
imposed on or measured by net income) such Lender would have received if such
Taxes or Other Taxes had not been imposed.

     

    (d) Indemnification.  The
Borrower agrees to indemnify the Administrative Agent, the L/C Issuer and each
Lender for (i) the full amount of Taxes and Other Taxes (including any Taxes or
Other Taxes imposed or asserted by any jurisdiction on amounts payable under
this Section 3.13(d)) paid by the Administrative Agent, the L/C Issuer and such
Lender, and (ii) any liability (including penalties, interest and expenses)
arising therefrom or with respect thereto.

     

    (e) Exemption from
Taxes.  In the case of any payment hereunder or under any other
Credit Document by or on behalf of the Borrower through an account or branch
outside the United States, or on behalf of the Borrower by a payor that is not a
United States person, if the Borrower determines that no taxes are payable in
respect thereof, the Borrower shall furnish, or shall cause such payor to
furnish, to the Administrative Agent, an opinion of counsel reasonably
acceptable to the Administrative Agent stating that such payment is exempt from
Taxes.  For purposes of this subsection (e), the terms “United States”
and “United States person” shall have the meanings specified in Section 7701 of
the Code.

     

    
      
        
        

      

      
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    (f) Foreign
Lenders.  Each Lender that is a foreign corporation, foreign
partnership or foreign trust within the meaning of the Code (a “Foreign Lender”)
shall deliver to the Administrative Agent, prior to receipt of any payment
subject to withholding under the Code, two duly signed completed copies of
either IRS Form W-BEN or any successor thereto (relating to such Lender and
entitling it to an exemption from, or reduction of, withholding tax on all
payments to be made to such Lender by the Borrower pursuant to this
Reimbursement Agreement), as appropriate, or IRS Form W-8ECI or any successor
thereto (relating to all payments to be made to such Lender by the Borrower
pursuant to this Reimbursement Agreement) or such other evidence satisfactory to
the Borrower and the Administrative Agent that such Lender is entitled to an
exemption from, or reduction of, United States withholding tax. Thereafter and
from time to time, each such Lender shall (i) promptly submit to the
Administrative Agent such additional duly completed and signed copies of one of
such forms (or such successor forms as shall be adopted from time to time by the
relevant United States taxing authorities), as appropriate, as may reasonably be
requested by the Borrower or the Administrative Agent and then be available
under then current United States Laws and regulations to avoid, or such evidence
as is satisfactory to the Borrower and the Administrative Agent of any available
exemption from or reduction of, United States withholding taxes in respect of
all payments to be made to such Lender by the Borrower pursuant to this
Reimbursement Agreement, (ii) promptly notify the Administrative Agent of any
change in circumstances which would modify or render invalid any claimed
exemption or reduction, and (iii) take such steps as shall not be materially
disadvantageous to it, in the reasonable judgment of such Lender, and as may be
reasonably necessary (including the re designation of its Lending Office) to
avoid any Requirement of Law that the Borrower make any deduction or withholding
for taxes from amounts payable to such Lender.  If the forms or other
evidence provided by such Lender at the time such Lender first becomes a party
to this Reimbursement Agreement indicate a United States interest withholding
tax rate in excess of zero, withholding tax at such rate shall be considered
excluded from Taxes unless and until such Lender provides the appropriate forms
certifying that a lesser rate applies, whereupon withholding tax at such lesser
rate only shall be considered excluded from Taxes for periods governed by such
forms; provided, however, that, if at
the date of any assignment pursuant to which a Lender becomes a party to this
Reimbursement Agreement, the assignor Lender was entitled to payments under
Section 3.13(a) in respect of United States withholding tax with respect to
interest paid at such date, then, to such extent, the term Taxes shall include
(in addition to withholding taxes that may be imposed in the future or other
amounts otherwise includable in Taxes) United States withholding tax, if any,
applicable with respect to the assignee Lender on such date.  If such
Lender fails to deliver the above forms or other evidence, then the
Administrative Agent may withhold from any interest payment to such Lender an
amount equal to the applicable withholding tax imposed by Sections 1441 and 1442
of the Code, without reduction.  If any Governmental Authority asserts
that the Administrative Agent did not properly withhold any tax or other amount
from payments made in respect of such Lender, such Lender shall indemnify the
Administrative Agent therefor, including all penalties and interest, any taxes
imposed by any jurisdiction on the amounts payable to the Administrative Agent
under this Section 3.13(f), and costs and expenses (including the reasonable
fees and expenses of legal counsel) of the Administrative Agent.  For
any period with respect to which a Lender has failed to provide the Borrower
with the above forms or other evidence (other than if such failure is due to a
change in the applicable Law, or in the interpretation or application thereof,
occurring after the date on which such form or other evidence originally was
required to be provided or if such form or other evidence otherwise is not
required), such Lender shall not be entitled to indemnification under subsection
(a) or (c) of this Section 3.13 with respect to Taxes imposed by the United
States by reason of such failure; provided, however, that should
a Lender become subject to Taxes because of its failure to deliver such form or
other evidence required hereunder, the Borrower shall take such steps as such
Lender shall reasonably request to assist such Lender in recovering such
Taxes.  The obligation of the Lenders under this Section 3.13(f)
shall survive the payment of all Borrower Obligations and the resignation or
replacement of the Administrative Agent.

     

    
      
        
        

      

      
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    (g) Reimbursement.  In
the event that an additional payment is made under Section 3.13(a) or (c)
for the account of the L/C Issuer or any Lender and the L/C Issuer or such
Lender, as applicable, in its reasonable judgment, determines that it has
finally and irrevocably received or been granted a credit against or release or
remission for, or repayment of, any tax paid or payable by it in respect of or
calculated with reference to the deduction or withholding giving rise to such
payment, the L/C Issuer or such Lender, as applicable, shall, to the extent that
it determines that it can do so without prejudice to the retention of the amount
of such credit, relief, remission or repayment, pay to the Borrower such amount
as the L/C Issuer or such Lender, as applicable, shall, in its reasonable
judgment, have determined to be attributable to such deduction or withholding
and which will leave such Lender (after such payment) in no worse position than
it would have been in if the Borrower had not been required to make such
deduction or withholding.  Nothing herein contained shall interfere
with the right of the L/C Issuer or a Lender to arrange its tax affairs in
whatever manner it thinks fit nor oblige the L/C Issuer or any Lender to claim
any tax credit or to disclose any information relating to its tax affairs or any
computations in respect thereof or require any Lender to do anything that would
prejudice its ability to benefit from any other credits, reliefs, remissions or
repayments to which it may be entitled.

     

    3.14 [Intentionally
Omitted].

     

    3.15 Determination and Survival
of Provisions.

     

    All
determinations by the Administrative Agent, the L/C Issuer or a Lender of
amounts owing under Sections 3.9 and 3.13, shall, absent manifest error, be
conclusive and binding on the parties hereto and all amounts owing thereunder
shall be due and payable within ten  Business Days of demand
therefor.  In determining such amount, the Administrative Agent, the
L/C Issuer or such Lender may use any reasonable averaging and attribution
methods.  Sections 3.9 and 3.13, shall survive the termination of
this Reimbursement Agreement and the payment of all Borrower
Obligations.

     

    
      
        
        

      

      
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SECTION
4                                

     

    CONDITIONS
PRECEDENT TO CLOSING

     

    4.1 Closing
Conditions.

     

    The
obligation of the Lenders to enter into this Reimbursement Agreement and make
the initial Credit Extension is subject to satisfaction of the following
conditions:

     

    (a) Executed Credit
Documents.  Receipt by the Administrative Agent of duly
executed copies of:  (i) this Reimbursement Agreement, (ii) each Note
requested by a Lender, and (iii) all other Credit Documents, each in form and
substance reasonably acceptable to the Lenders in their sole
discretion.

     

    (b) Authority
Documents.  Receipt by the Administrative Agent of the
following:

     

    (i) Organizational
Documents.  Copies of the articles of incorporation of the
Borrower certified to be true and complete as of a recent date by the
appropriate Governmental Authority of the state or other jurisdiction of its
formation and copies of the bylaws of the Borrower certified by a secretary or
assistant secretary (or the equivalent) of the Borrower to be true and correct
as of the Closing Date.

     

    (ii) Resolutions.  Copies
of resolutions of the board of directors of the Borrower approving and adopting
this Reimbursement Agreement and the other Credit Documents to which it is a
party, the transactions contemplated herein and therein and authorizing
execution and delivery hereof and thereof, certified by a secretary or assistant
secretary (or the equivalent) of the Borrower to be true and correct and in full
force and effect as of the Closing Date.

     

    (iii) Good
Standing.  Copies of certificates of good standing, existence
or its equivalent with respect to the Borrower certified as of a recent date by
the appropriate Governmental Authority of the state or other jurisdiction of its
formation.

     

    (iv) Incumbency.  An
incumbency certificate of the Borrower certified by a secretary or assistant
secretary (or the equivalent) of the Borrower to be true and correct as of the
Closing Date.

     

    (c) Opinions of
Counsel.   Receipt by the Administrative Agent of opinions
of counsel from outside counsel to the Borrower, in form and substance
acceptable to the Administrative Agent, addressed to the Administrative Agent
and the Lenders and dated as of the Closing Date.

     

    
      
        
        

      

      
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    (d) Financial
Statements.  Receipt by the Administrative Agent of a copy of
(i) the annual consolidated financial statements (including balance sheets,
income statements and cash flow statements) of the Borrower and its Subsidiaries
for Fiscal Years 2006 and 2007, audited by independent public accountants of
recognized national standing, (ii) the consolidated balance sheet and income
statement of the Borrower and its Subsidiaries for the Fiscal Quarter ended
March 31, 2008, together with the related consolidated statement of income for
such Fiscal Quarter and a year to date statement of cash flows and (iii) such
other financial information regarding the Borrower as the Administrative Agent
may reasonably request.

     

    (e) Due
Diligence.  The Administrative Agent and the Lenders shall have
completed all due diligence with respect to the Borrower and its Subsidiaries
and the transactions contemplated by this Reimbursement Agreement and the other
Credit Documents, in scope and determination reasonably satisfactory to the
Administrative Agent and the Lenders.

     

    (f) Material Adverse
Effect.  Since December 31, 2007, there shall have been no
development or event relating to or affecting the Borrower or any of its
Subsidiaries that has had or could be reasonably expected to have a Material
Adverse Effect and no Material Adverse Change in the facts and information
regarding the Borrower and its Subsidiaries as represented to date.

     

    (g) Absence of Market
Disruption.  There shall not have occurred a material adverse
change in or material disruption of conditions in the financial, banking or
capital markets which the Administrative Agent and DBSI in their sole
discretion, deem material in connection with the syndication of the
Reimbursement Agreement.

     

    (h) Litigation.  There
shall not exist any material order, decree, judgment, ruling or injunction or
any material pending or threatened action, suit, investigation or proceeding
against the Borrower or any of its Subsidiaries except as represented to
date.

     

    (i) Consents.  All
necessary governmental, shareholder and third party consents and approvals, if
any, with respect to this Reimbursement Agreement and the Credit Documents and
the transactions contemplated herein and therein have been received and no
condition or Requirement of Law exists which would reasonably be likely to
restrain, prevent or impose any material adverse conditions on the transactions
contemplated hereby and by the other Credit Documents.

     

    (j) Officer’s
Certificates.  Receipt by the Administrative Agent of a
certificate or certificates executed by an Authorized Officer of the Borrower as
of the Closing Date stating that (i) the Borrower and each of its Subsidiaries
are in compliance in all material respects with all existing material financial
obligations and all material Requirements of Law, (ii) there does not exist any
material order, decree, judgment, ruling or injunction or any material pending
or threatened action, suit, investigation or proceeding against the Borrower or
any of its Subsidiaries, (iii) the financial statements and information
delivered to the Administrative Agent on or before the Closing Date were
prepared in good faith and in accordance with GAAP and (iv) immediately after
giving effect to this Reimbursement Agreement, the other Credit Documents and
all the transactions contemplated herein or therein to occur on such date, (A)
the Borrower is Solvent, (B) no Default or Event of Default exists, (C) all
representations and warranties contained herein and in the other Credit
Documents are true and correct in all material respects, (D) since
December 31, 2007, there has been no development or event relating to
or affecting the Borrower or any of its Subsidiaries that has had or could be
reasonably expected to have a Material Adverse Effect and there exists no event,
condition or state of facts that could result in or reasonably be expected to
result in a Material Adverse Change and (E) the Borrower is in compliance with
each of the financial covenants set forth in Section 7.2, as of March 31,
2008, as demonstrated in Covenant Compliance Worksheet attached to such
certificate.

     

    (k) [Intentionally
Omitted].

    
      
        
        

      

      
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    (l) [Intentionally
Omitted].

     

    (m) Fees and
Expenses.  Unless waived by the Person entitled thereto,
payment by the Borrower of all fees and expenses owed by them to the
Administrative Agent, the Arrangers and the Lenders on or before the Closing
Date, including, without limitation, as set forth in the Fee
Letter.

     

    (n) Other.  Receipt
by the Lenders of such other documents, instruments, agreements or information
as reasonably requested by any Lender.

     

                                      
SECTION
5                                

     

    CONDITIONS
TO ALL EXTENSIONS OF CREDIT

     

    5.1 Funding
Requirements.

     

    In
addition to the conditions precedent stated elsewhere herein, the L/C Issuer
shall not be obligated to issue Letters of Credit unless:

     

    (a) Notice. The Borrower
shall have delivered a Letter of Credit Request, duly executed and completed, by
the time specified in Section 2.2.

     

    (b) Representations and
Warranties.  The representations and warranties made by the
Borrower in any Credit Document (including, without limitation, the
representation and warranties in Section 6.7(a) and Section 6.9) are true and
correct in all material respects at and as if made as of such date except to the
extent they expressly and exclusively relate to an earlier date.

     

    (c) No
Default.  No Default or Event of Default shall exist and be
continuing either prior to or after giving effect to such Credit
Extension.

     

    (d) Availability.  Immediately
after giving effect to such Credit Extension, the aggregate amount of
outstanding L/C Obligations shall not exceed the Committed Amount.

     

    The
delivery of each Letter of Credit Request shall constitute a representation and
warranty by the Borrower of the correctness of the matters specified in
subsections (b), (c) and (d) above.

     

    
      
        
        

      

      
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SECTION
6                                

     

    REPRESENTATIONS
AND WARRANTIES

     

    To induce
the Administrative Agent and the Lenders to enter into this Reimbursement
Agreement and to induce the Lenders to extend the credit contemplated hereby,
the Borrower represents and warrants to the Administrative Agent, the L/C Issuer
and the Lenders as follows:

     

    6.1 Organization and Good
Standing.

     

    Each of
the Borrower and its Subsidiaries (a) is a corporation, duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization, (b) is duly qualified and in good standing as a foreign entity
authorized to do business in every other jurisdiction where the failure to so
qualify would have a Material Adverse Effect and (c) has the requisite power and
authority to own its properties and to carry on its business as now conducted
and as proposed to be conducted.

     

    6.2 Due
Authorization.

     

    The
Borrower (a) has the requisite power and authority to execute, deliver and
perform this Reimbursement Agreement and the other Credit Documents and to incur
the obligations herein and therein provided for and (b) has been authorized by
all necessary action to execute, deliver and perform this Reimbursement
Agreement and the other Credit Documents.

     

    6.3 No
Conflicts.

     

    Neither
the execution and delivery of this Reimbursement Agreement and the other Credit
Documents, nor the consummation of the transactions contemplated herein and
therein, nor performance of and compliance with the terms and provisions hereof
and thereof by the Borrower will (a) violate or conflict with any provision of
its organizational documents, (b) violate, contravene or conflict with any law
(including without limitation, the Public Utility Holding Company Act of 1935,
as amended), regulation (including without limitation, Regulation U and
Regulation X), order, writ, judgment, injunction, decree or permit applicable to
it, (c) violate, contravene or conflict with contractual provisions of, or cause
an event of default under, any indenture, loan agreement, mortgage, deed of
trust, contract or other agreement or instrument to which it is a party or by
which it may be bound, the violation of which would have or would be reasonably
expected to have a Material Adverse Effect or (d) result in or require the
creation of any Lien upon or with respect to its properties.

     

    6.4 Consents.

     

    With
respect to the Maturity Date, other than the filing of annual short-term
financing plans with the New Mexico Public Regulation Commission in the normal
course of business, and such Commission’s actions thereon, no consent, approval,
authorization or order of, or filing, registration or qualification with, any
court or Governmental Authority or third party is required in connection with
the execution, delivery or performance of this Reimbursement Agreement or any of
the other Credit Documents that has not been obtained or completed.

     

    
      
        
        

      

      
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    6.5 Enforceable
Obligations.

     

    This
Reimbursement Agreement and the other Credit Documents have been duly executed
and delivered and constitute the legal, valid and binding obligations of the
Borrower enforceable against the Borrower in accordance with their respective
terms, except as may be limited by Debtor Relief Laws or similar laws affecting
creditors’ rights generally or by general equitable principles.

     

    6.6 Financial
Condition.

     

    The
financial statements delivered to the Lenders pursuant to Section 4.1(d) and
pursuant to Sections 7.1(a) and (b): (i) have been prepared in accordance
with GAAP except that the quarterly financial statements are subject to year-end
adjustments and have fewer footnotes than annual statements and (ii) present
fairly the financial condition, results of operations and cash flows of the
Borrower and its Subsidiaries as of such date and for such
periods.  No opinion provided with respect to the Borrower’s financial
statements pursuant to Section 7.1 (or as to any prior annual financial
statements) has been withdrawn.

     

    6.7 No Material
Change.

     

    (a) Since
December 31, 2007, there has been no development or event relating to or
affecting the Borrower or any of its Subsidiaries which would have or would
reasonably be expected to have a Material Adverse Effect.

     

    (b) Since
December 31, 2007, there has been no sale, transfer or other disposition by the
Borrower or any of its Subsidiaries of any material part of its business or
property, and no purchase or other acquisition by the Borrower or any of its
Subsidiaries of any business or property (including the Capital Stock of any
other Person) material in relation to the financial condition of the Borrower or
any of its Subsidiaries, in each case which is not (i) reflected in the most
recent financial statements delivered to the Lenders pursuant to Section 4.1(d)
or 7.1 or in the notes thereto or (ii) otherwise permitted by the terms of this
Reimbursement Agreement and communicated to the Lenders.

     

    6.8 No
Default.

     

    Neither
the Borrower nor any of its Subsidiaries is in default in any respect under any
contract, lease, loan agreement, indenture, mortgage, security agreement or
other agreement or obligation to which it is a party or by which any of its
properties is bound which default would have or would reasonably be expected to
have a Material Adverse Effect.  No Default or Event of Default
presently exists and is continuing.

     

    6.9 Litigation.

     

    There are
no actions, suits, investigations or legal, equitable, arbitration or
administrative proceedings, pending or, to the knowledge of the Borrower,
threatened against the Borrower or any of its Subsidiaries which would have or
would reasonably be expected to have a Material Adverse Effect.

     

    
      
        
        

      

      
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    6.10 Taxes.

     

    Each of
the Borrower and its Subsidiaries has filed, or caused to be filed, all material
tax returns (federal, state, local and foreign) required to be filed and paid
all amounts of taxes shown to be due (including interest and penalties) and has
paid all other taxes, fees, assessments and other governmental charges
(including mortgage recording taxes, documentary stamp taxes and intangibles
taxes) owed by it, except for such taxes which are not yet delinquent or that
are being contested in good faith and by proper proceedings, and against which
adequate reserves are being maintained in accordance with GAAP.

     

    6.11 Compliance with
Law.

     

    Each of
the Borrower and its Subsidiaries is in compliance with all laws, rules,
regulations, orders and decrees applicable to it or to its properties, unless
such failure to comply would not have or would not reasonably be expected to
have a Material Adverse Effect.

     

    6.12 ERISA.

     

    Except as
would not result or reasonably be expected to result in a Material Adverse
Effect:

     

    (a) During
the five-year period prior to the date on which this representation is made or
deemed made: (i) no ERISA Event has occurred, and, to the best knowledge of the
Borrower, no event or condition has occurred or exists as a result of which any
ERISA Event would be reasonably expected to occur, with respect to any Plan;
(ii) no “accumulated funding deficiency,” as such term is defined in Section 302
of ERISA and Section 412 of the Code, whether or not waived, has occurred
with respect to any Plan; (iii) each Plan has been maintained, operated, and
funded in compliance with its own terms and in material compliance with the
provisions of ERISA, the Code, and any other applicable federal or state laws;
and (iv) no Lien in favor or the PBGC or a Plan has arisen or is reasonably
likely to arise on account of any Plan.

     

    (b) The
actuarial present value of all “benefit liabilities” under each Single Employer
Plan (determined within the meaning of Section 401(a)(2) of the Code, utilizing
the actuarial assumptions used to fund such Plans), whether or not vested, did
not, as of the last annual valuation date prior to the date on which this
representation is made or deemed made, exceed the current value of the assets of
such Plan allocable to such accrued liabilities, except as disclosed in the
Borrower’s financial statements.

     

    (c) Neither
the Borrower nor any ERISA Affiliate has incurred, or, to the best knowledge of
the Borrower, is reasonably expected to incur, any withdrawal liability under
ERISA to any Multiemployer Plan or Multiple Employer Plan.  Neither
the Borrower nor any ERISA Affiliate has received any notification that any
Multiemployer Plan is in reorganization (within the meaning of Section 4241 of
ERISA), is insolvent (within the meaning of Section 4245 of ERISA), or has been
terminated (within the meaning of Title IV of ERISA), and no Multiemployer Plan
is, to the best knowledge of the Borrower, reasonably expected to be in
reorganization, insolvent, or terminated.

     

    
      
        
        

      

      
        39

        
          

        

      

      
        
        

      

    

    (d) No
prohibited transaction (within the meaning of Section 406 of ERISA or
Section 4975 of the Code) or breach of fiduciary responsibility has
occurred with respect to a Plan which has subjected or would be reasonably
likely to subject the Borrower or any ERISA Affiliate to any liability under
Sections 406, 409, 502(i), or 502(l) of ERISA or Section 4975 of the Code, or
under any agreement or other instrument pursuant to which the Borrower or any
ERISA Affiliate has agreed or is required to indemnify any person against any
such liability.

     

    (e) The
present value (determined using actuarial and other assumptions which are
reasonable with respect to the benefits provided and the employees
participating) of the liability of the Borrower and each ERISA Affiliate for
post-retirement welfare benefits to be provided to their current and former
employees under Plans which are welfare benefit plans (as defined in Section
3(1) of ERISA), net of all assets under all such Plans allocable to such
benefits, are reflected on the financial statements referenced in Section 7.1 in
accordance with FASB 106.

     

    (f) Each Plan
which is a welfare plan (as defined in Section 3(1) of ERISA) to which Sections
601-609 of ERISA and Section 4980B of the Code apply has been administered in
compliance in all material respects with such sections.

     

    6.13 Use of Proceeds; Margin
Stock.

     

    The
proceeds of the Credit Extensions hereunder will be used solely for the purposes
specified in  Section 7.9.  None of such proceeds will be
used for the purpose of (a) (i) purchasing or carrying any Margin Stock or (ii)
reducing or retiring any Indebtedness which was originally incurred to purchase
or carry Margin Stock, or (iii) for any other purpose that might constitute this
transaction a “purpose credit” within the meaning of Regulation U or (b) for the
acquisition of another Person unless the board of directors (or other comparable
governing body) or stockholders, as appropriate, of such Person has approved
such acquisition.

     

    6.14 Government
Regulation.

     

    (a) The
Borrower is not a “holding company” within the meaning of the Public Utility
Holding Company Act of 1935, as amended (“PUHCA”).  The
issuance of the Notes by the Borrower and the Credit Extensions contemplated by
this Reimbursement Agreement are not subject to regulation under
PUHCA  or subject to regulation by the Securities and Exchange
Commission

     

    (b) The
Borrower is not an “investment company” registered or required to be registered
under the Investment Company Act of 1940, as amended, or controlled by such a
company.

     

    6.15 Solvency.

     

    The
Borrower is and, after the consummation of the transactions contemplated by this
Reimbursement Agreement, will be Solvent.

     

    
      
        
        

      

      
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    6.16 Disclosure.

     

    Neither
this Reimbursement Agreement nor any financial statements delivered to the
Administrative Agent or the Lenders nor any other document, certificate or
statement furnished to the Administrative Agent or the Lenders by or on behalf
of the Borrower in connection with the transactions contemplated hereby contains
any untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements contained therein or herein, taken as
a whole, not misleading.

     

    6.17 Environmental
Matters.

     

    Except as
would not result or reasonably be expected to result in a Material Adverse
Effect:  (a) each of the properties of the Borrower and its
Subsidiaries (the “Properties”) and all
operations at the Properties are in substantial compliance with all applicable
Environmental Laws, (b) there is no undocumented or unreported violation of any
Environmental Law with respect to the Properties or the businesses operated by
the Borrower and its Subsidiaries (the “Businesses”) that the
Borrower is aware of, and (c) there are no conditions relating to the Businesses
or Properties that have given rise to or would reasonably be expected to give
rise to a liability under any applicable Environmental Laws.

     

    6.18 Material
Leases.

     

    Set forth
on Schedule
6.18 hereto is a complete and accurate list of the Material Leases on the
date hereof, showing the expiration date and annual rental cost
thereof.  The Borrower is entitled to exercise all of the rights of
lessee purported to be granted to the Borrower under each such Material
Lease.

     

    6.19 Material Lease Interest
Payments and Discount Rate.

     

    Schedule 6.19 hereto,
as most recently provided to the Administrative Agent, sets forth the same (a)
amounts with respect to the interest portion of payments under the Material
Leases and (b) discount rate used to calculate the net present value of all
amounts payable under the Material Leases as have been most recently provided
(or that the Borrower intends to provide shortly) to Moody’s and S&P or as
have otherwise been agreed to by the Required Lenders.

     

                                      
SECTION
7                                

     

    AFFIRMATIVE
COVENANTS

     

    The
Borrower covenants and agrees that, until the termination of the Commitments,
the termination or expiration of all Letters of Credit and the payment in full
of all Borrower Obligations:

     

    7.1 Information
Covenants.

     

    The
Borrower will furnish, or cause to be furnished, to the L/C Issuer and the
Lenders:

     

    
      
        
        

      

      
        41

        
          

        

      

      
        
        

      

    

    (a) Annual Financial
Statements. As soon as available, and in any event within 120 days after
the close of each Fiscal Year, a consolidated balance sheet and income statement
of the Borrower and its Subsidiaries, as of the end of such Fiscal Year,
together with the related consolidated statements of income and of cash flows
for such Fiscal Year, setting forth in comparative form figures for the
preceding Fiscal Year, all such financial information described above to be in
reasonable form and detail and, in each case, audited by independent certified
public accountants of recognized national standing reasonably acceptable to the
Required Lenders and whose opinion shall be furnished to the L/C Issuer and the
Lenders, and shall be to the effect that such financial statements have been
prepared in accordance with GAAP (except for changes with which such accountants
concur) and shall not be limited as to the scope of the audit or qualified in
any respect.

     

    (b) Quarterly Financial
Statements. As soon as available, and in any event within 60 days after
the close of each Fiscal Quarter (other than the fourth Fiscal Quarter), a
consolidated balance sheet and income statement of the Borrower and its
Subsidiaries as of the end of such Fiscal Quarter, together with the related
consolidated statement of income for such Fiscal Quarter and a year to date
statement of cash flows, in each case setting forth in comparative form figures
for the corresponding period of the preceding Fiscal Year, all such financial
information described above to be in reasonable form and detail and reasonably
acceptable to the Required Lenders, and, in each case, accompanied by a
certificate of a Financial Officer of the Borrower to the effect that such
quarterly financial statements fairly present in all material respects the
financial condition of such Person and have been prepared in accordance with
GAAP, subject to changes resulting from audit and normal year-end audit
adjustments and except that the quarterly financial statements have fewer
footnotes than annual statements.

     

    (c) Officer’s
Certificate.  At the time of delivery of the financial
statements provided for in Sections 7.1(a) and 7.1(b) above, a certificate of a
Financial Officer substantially in the form of Exhibit 7.1(c): (i)
setting forth calculations demonstrating compliance by the Borrower with the
financial covenants set forth in Section 7.2 as of the end of such fiscal period
and (ii) stating that no Default or Event of Default exists, or if any Default
or Event of Default does exist, specifying the nature and extent thereof and
what action the Borrower proposes to take with respect thereto.

     

    (d) Reports.  Notice
of the filing by the Borrower of any Form 10-Q, Form 10-K or Form 8-K with the
SEC promptly upon the filing thereof and copies of all financial statements,
proxy statements, notices and reports as the Borrower shall send to its
shareholders concurrently with the mailing of any such statements, notices or
reports to its shareholders.

     

    (e) Notices.  Upon
the Borrower obtaining knowledge thereof, the Borrower will give written notice
to the Administrative Agent within ten days of (i) the occurrence of a Default
or Event of Default, specifying the nature and extent thereof and what action
the Borrower proposes to take with respect thereto and (ii) the occurrence of
any of the following with respect to the Borrower or any of its Subsidiaries (A)
the pendency or commencement of any litigation, arbitration or governmental
proceeding against the Borrower or any of its Subsidiaries which, if adversely
determined, would have or would reasonably be expected to have a Material
Adverse Effect, (B) one or more judgments, orders, or decrees shall be entered
against the Borrower or any of its Subsidiaries involving a liability of
$5,000,000 or more, in the aggregate or (C) the institution of any proceedings
against the Borrower or any of its Subsidiaries with respect to, or the receipt
of notice by such Person of potential liability or responsibility for violation
or alleged violation of, any federal, state or local law, rule or regulation
(including, without limitation, any Environmental Law), the violation of which
would have or would reasonably be expected to have a Material Adverse
Effect.

     

    
      
        
        

      

      
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    (f) ERISA.  Upon
the Borrower or any ERISA Affiliate obtaining knowledge thereof, the Borrower
will give written notice to the Administrative Agent promptly (and in any event
within ten days) of any of the following which would result in or reasonably
would be expected to result in a Material Adverse Effect: (i) any event or
condition, including, but not limited to, any Reportable Event, that
constitutes, or would be reasonably expected to lead to, an ERISA Event; (ii)
with respect to any Multiemployer Plan, the receipt of notice as prescribed in
ERISA or otherwise of any withdrawal liability assessed against the Borrower or
any of its ERISA Affiliates, or of a determination that any Multiemployer Plan
is in reorganization or insolvent (both within the meaning of Title IV of
ERISA); (iii) the failure to make full payment on or before the due date
(including extensions) thereof of all amounts which the Borrower or any of its
Subsidiaries or ERISA Affiliates is required to contribute to each Plan pursuant
to its terms and as required to meet the minimum funding standard set forth in
ERISA and the Code with respect thereto; or (iv) a change in the funding status
of any Plan, in each case together with a description of any such event or
condition or a copy of any such notice and a statement by an officer of the
Borrower briefly setting forth the details regarding such event, condition, or
notice, and the action, if any, which has been or is being taken or is proposed
to be taken with respect thereto.  Promptly upon request, the Borrower
shall furnish the Lenders with such additional information concerning any Plan
as may be reasonably requested, including, but not limited to, copies of each
annual report/return (Form 5500 series), as well as all schedules and
attachments thereto required to be filed with the Department of Labor and/or the
Internal Revenue Service pursuant to ERISA and the Code, respectively, for each
“plan year” (within the meaning of Section 3(39) of ERISA).

     

    (g) Debt
Ratings.  Prompt notice of any change in its Debt
Ratings.

     

    (h) Other
Information.  With reasonable promptness upon any such request,
such other information regarding the business, properties or financial condition
of the Borrower as the Lenders may reasonably request.

     

    
      
        
        

      

      
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    Documents
required to be delivered pursuant to Section 7.1(a), (b) or (d) (to the extent
any such documents are included in materials otherwise filed with the Securities
and Exchange Commission) may be delivered electronically and if so delivered,
shall be deemed to have been delivered on the date (i) on which the Borrower
posts such documents, or provides a link thereto on the Borrower’s website on
the Internet at the website address listed on Schedule 11.1; or
(ii) on which such documents are posted on the Borrower’s behalf on an Internet
or intranet website, if any, to which each Lender and the Administrative Agent
have access (whether a commercial, third party website or whether sponsored by
the Administrative Agent); provided that: (A)
the Borrower shall deliver paper copies of such documents to the Administrative
Agent, the L/C Issuer or any Lender that requests the Borrower to deliver such
paper copies until a written request to cease delivering paper copies is given
by the Administrative Agent, the L/C Issuer or such Lender and (B) the Borrower
shall notify the Administrative Agent, the L/C Issuer and each Lender (by
telecopier or electronic mail) of the posting of any such documents and provide
to the Administrative Agent by electronic mail electronic versions (i.e., soft copies) of
such documents.  Notwithstanding anything contained herein, in every
instance the Borrower shall be required to provide paper copies of the Officer’s
Certificate required by Section 7.1(c) to the Administrative
Agent.  Except for such Officer’s Certificate, the Administrative
Agent shall have no obligation to request the delivery or to maintain copies of
the documents referred to above, and in any event shall have no responsibility
to monitor compliance by the Borrower with any such request for delivery, and
the L/C Issuer and each Lender shall be solely responsible for requesting
delivery to it or maintaining its copies of such documents.

     

    7.2 Financial
Covenant.

     

    (a)           At
all times the ratio of (i) Consolidated Indebtedness to (ii) Consolidated
Capitalization shall be less than or equal to 0.57 to 1.0.  For
purposes of such calculation, the portion of Consolidated Indebtedness
attributable to obligations under Material Leases shall be the net present value
(using (i) the discount rate (A) set forth in Schedule 6.19,
so long as Schedule
6.19 specifies the same relevant discount rate as is used in calculating
such net present value provided to Moody’s and S&P or (B) the discount rate
used in calculating such net present value provided to Moody’s and S&P or
(ii) any such other rate as shall be proposed by the Borrower (and agreed upon
by the Required Lenders) of all amounts payable under the Material
Leases.

     

    (b)           As
of the last day of any period of four consecutive Fiscal Quarters of the
Borrower with respect to which the financial statements required pursuant to
Section 7.1(a) and (b) are available, the ratio of (i) Consolidated
EBITDA for such period, to (ii) Consolidated Interest Expense for such
period, shall be not less than 2.2 to 1.0.

     

    7.3 Preservation of Existence
and Franchises.

     

    (a) The
Borrower will do (and will cause each of its Subsidiaries to do) all things
necessary to preserve and keep in full force and effect its existence and
rights, franchises and authority.

     

    (b) The
Borrower will maintain (and will cause each of its Subsidiaries to maintain) its
properties in good condition and not waste or otherwise permit such properties
to deteriorate, reasonable wear and tear excepted.

     

    
      
        
        

      

      
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    7.4 Books and
Records.

     

    The
Borrower will keep (and will cause each of its Subsidiaries to keep) complete
and accurate books and records of its transactions in accordance with good
accounting practices on the basis of GAAP (including the establishment and
maintenance of appropriate reserves).

     

    7.5 Compliance with
Law.

     

    The
Borrower will comply (and will cause each of its Subsidiaries to comply) with
all laws (including, without limitation, all Environmental Laws and ERISA laws),
rules, regulations and orders, and all applicable restrictions imposed by all
Governmental Authorities, applicable to it and its properties, if the failure to
comply would have or would reasonably be expected to have a Material Adverse
Effect.

     

    7.6 Payment of Taxes and Other
Indebtedness.

     

    The
Borrower will (and will cause each of its Subsidiaries to) pay, settle or
discharge (a) all taxes, assessments and governmental charges or levies imposed
upon it, or upon its income or profits, or upon any of its properties, before
they shall become delinquent, (b) all lawful claims (including claims for labor,
materials and supplies) which, if unpaid, might give rise to a Lien upon any of
its properties, and (c) all of its other Indebtedness as it shall become due (to
the extent such repayment is not otherwise prohibited by this Reimbursement
Agreement); provided, however, that the
Borrower and its Subsidiaries shall not be required to pay any such tax,
assessment, charge, levy, claim or Indebtedness which is being contested in good
faith by appropriate proceedings and as to which adequate reserves therefor have
been established in accordance with GAAP, unless the failure to make any such
payment (i) would give rise to an immediate right to foreclose or collect on a
Lien securing such amounts or (ii) would have or would be reasonably expected to
have a Material Adverse Effect.

     

    7.7 Insurance.

     

    The
Borrower will (and will cause each of its Subsidiaries to) at all times maintain
in full force and effect insurance (including worker’s compensation insurance
and general liability insurance) in such amounts, covering such risks and
liabilities and with such deductibles or self-insurance retentions as are in
accordance with normal industry practice.

     

    7.8 Performance of
Obligations.

     

    The
Borrower will perform (and will cause each of its Subsidiaries to perform) in
all material respects all of its obligations under the terms of all material
agreements, indentures, mortgages, security agreements or other debt instruments
to which it is a party or by which it is bound.

     

    7.9 Use of
Proceeds.

     

    Letters
of Credit may be used solely for general corporate purposes of the Borrower
(including, but not limited to, supporting margin requirements under Hedging
Agreements).

     

    
      
        
        

      

      
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    7.10 Audits/Inspections.

     

    Upon
reasonable notice and during normal business hours, the Borrower will permit
representatives appointed by the Administrative Agent, the L/C Issuer or the
Lenders, including, without limitation, independent accountants, agents,
attorneys, and appraisers to visit and inspect the Borrower’s property,
including its books and records, its accounts receivable and inventory, the
Borrower’s facilities and its other business assets, and to make photocopies or
photographs thereof and to write down and record any information such
representative obtains and shall permit the Administrative Agent, the L/C Issuer
or such Lender or its representatives to investigate and verify the accuracy of
information provided to it and to discuss all such matters with the officers,
employees and representatives of the Borrower; provided, that an
officer or authorized agent of the Borrower shall be present during any such
discussions between the officers,  employees or representatives of the
Borrower and the representatives of the Administrative Agent, the L/C Issuer or
any Lender.

     

    7.11 Security.

     

    (a) In the
event of the occurrence of any of (i) any downgrade of the Debt Rating of the
Borrower by S&P to a Debt Rating below the Debt Rating of the Borrower on
the Closing Date, (ii) a downgrade of the Debt Rating of the Borrower by Moody’s
below Baa3 or (iii) the failure of the Borrower to issue and sell at least
$350,000,000 of long-term debt securities during the period from
April 27, 2008 until June 13, 2008, the Borrower shall promptly (A)
take all such actions to attempt to obtain all necessary regulatory approvals
and consents and (B) use all commercially reasonable efforts to procure from the
lenders under the Borrower’s existing $400,000,000 credit agreement dated as of
August 17, 2005 (as amended) and under PNM Resources, Inc.’s revolving credit
facility in effect on the date hereof, all consents, in each case, required to
allow the Borrower to grant security interests in its Property to the
Administrative Agent or a collateral agent reasonably acceptable to the
Administrative Agent for the benefit of the L/C Issuer and the Lenders and,
after receipt of such approvals and consents, the Borrower shall promptly grant
a first priority perfected security interest, subject to the pari passu liens granted or
to be granted as provided pursuant to Section 8.5(s), in all of its
Property (other than (i) the assets being disposed of pursuant to the Sale of
the Gas Assets, (ii) the Borrower’s assets secured under the FMB Indenture, but
only to the extent of Insured Series First Mortgage Bonds, (iii) the
Borrower’s assets which would customarily be excluded from a conventional
utility mortgage and (iv) other assets as to which the Administrative Agent and
the Borrower reasonably determine that the cost of obtaining a security interest
or perfection thereof are excessive in relation to the benefit to the Lenders
and the L/C Issuer of the security afforded thereby) to the Administrative Agent
or a collateral agent reasonably acceptable to the Administrative Agent for the
benefit of the L/C Issuer and the Lenders, as security for any Borrower
Obligations.

     

    
      
        
        

      

      
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    (b) In
connection with the foregoing, the Borrower agrees, and will cause each of its
Subsidiaries to, (i) execute and deliver any and all further documents,
financing statements, agreements and instruments, including the execution and
delivery of any security agreements, mortgages, deeds of trusts or other
security documents, and take all such further actions (including the filing and
recording of financing statements, fixture filings, mortgages, deeds of trust
and other documents), which may be required under any applicable law, or which
the Administrative Agent or the Required Lenders may reasonably request, in
order to grant, preserve, protect and perfect the validity and priority of the
security interests to be created in connection with Section 7.11(a) and
(ii) to the extent that any such Liens on any such Property are to be pari passu with the Liens
granted or to be granted to any secured party, cause the holders of such secured
obligations (or a representative thereof) to have entered into an intercreditor
agreement acceptable to the Administrative Agent, on customary terms, provided
that, in any event, any such intercreditor agreement shall provide that all L/C
Obligations (including in respect of undrawn amount of Letters of Credit) shall
be repaid or Cash Collateralized, as applicable, from the proceeds of any
collateral on a pro rata basis with any repayment of any other outstanding
amounts secured by such pari
passu Liens (including the principal amount of any outstanding loans
secured thereby).

     

               SECTION
8        

                            

    NEGATIVE
COVENANTS

     

    Unless
otherwise approved in writing by the Required Lenders, the Borrower covenants
and agrees that, until the termination of the Commitments, the termination or
expiration of all Letters of Credit and the payment in full of all Borrower
Obligations:

     

    8.1 Nature of
Business.

     

    The
Borrower will not materially alter the character of its business from that
conducted as of the Closing Date, provided that the consummation of any or all
of the Permitted Dispositions shall not constitute a material alteration in the
character of the Borrower’ Business for purposes of this Section
8.1.

     

    8.2 Consolidation and
Merger.

     

    The
Borrower will not (a) enter into any transaction of merger or (b) consolidate,
liquidate, wind up or dissolve itself (or suffer any liquidation or
dissolution); provided that, so
long as no Default or Event of Default shall exist or be caused thereby, a
Person may be merged or consolidated with or into the Borrower so long as the
Borrower shall be the continuing or surviving Person.

     

    8.3 Sale or Lease of
Assets.

     

    The
Borrower will not (nor will it permit its Subsidiaries to) sell, lease, transfer
or otherwise dispose of, any of its assets (including, without limitation, all
or substantially all of its assets, whether in one transaction or a series of
related transactions) except (a) sales of accounts receivable and energy
services contract revenues in connection with the PSNM Accounts Receivable
Securitization and other sales of accounts receivable and energy services
contract revenues so long as such other sales are non-recourse to the Borrower
and are otherwise on customary market terms; (b) Permitted Dispositions; (c)
sales of assets (excluding those permitted in clause (a) or (b) hereof) for fair
value, if the aggregate value of all such transactions in any calendar year,
does not exceed 10% of the book value of Total Assets, as calculated as of the
end of the most recent Fiscal Quarter; and (d) sale, lease, transfer or other
disposition, at less than fair value, of any other assets, provided that the
aggregate book value of such assets shall not exceed $10,000,000 in any calendar
year.

     

    
      
        
        

      

      
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    8.4 Affiliate
Transactions.

     

    The
Borrower will not enter into any transaction or series of transactions, whether
or not in the ordinary course of business, with any Affiliate other than on
terms and conditions substantially as favorable as would be obtainable in a
comparable arm’s-length transaction with a Person other than an
Affiliate.

     

    8.5 Liens.

     

    The
Borrower will not (nor will it permit its Subsidiaries to) contract, create,
incur, assume or permit to exist any Lien with respect to any of its property or
assets of any kind (whether real or personal, tangible or intangible), whether
now owned or hereafter acquired, securing any Indebtedness other than the
following: (a) Liens securing Borrower Obligations, (b) Liens for taxes not yet
due or Liens for taxes being contested in good faith by appropriate proceedings
for which adequate reserves determined in accordance with GAAP have been
established (and as to which the property subject to any such Lien is not yet
subject to foreclosure, sale or loss on account thereof), (c) Liens in respect
of property imposed by law arising in the ordinary course of business such as
materialmen’s, mechanics’, warehousemen’s, carrier’s, landlords’ and other
nonconsensual statutory Liens which are not yet due and payable, which have been
in existence less than 90 days or which are being contested in good faith by
appropriate proceedings for which adequate reserves determined in accordance
with GAAP have been established (and as to which the property subject to any
such Lien is not yet subject to foreclosure, sale or loss on account thereof),
(d) pledges or deposits made in the ordinary course of business to secure
payment of worker’s compensation insurance, unemployment insurance, pensions or
social security programs, (e) Liens arising from good faith deposits in
connection with or to secure performance of tenders, bids, leases, government
contracts, performance and return of money bonds and other similar obligations
incurred in the ordinary course of business (other than obligations in respect
of the payment of borrowed money), (f) Liens arising from good faith deposits in
connection with or to secure performance of statutory obligations and surety and
appeal bonds, (g) easements, rights of way, restrictions (including zoning
restrictions), minor defects or irregularities in title and other similar
charges or encumbrances not, in any material respect, impairing the use of the
encumbered property for its intended purposes, (h) judgment Liens that would not
constitute an Event of Default, (i) Liens arising by virtue of any statutory or
common law provision relating to banker’s liens, rights of setoff or similar
rights as to deposit accounts or other funds maintained with a creditor
depository institution, (j) any Lien created or arising over any property which
is acquired, constructed or created by the Borrower or its Subsidiaries, but
only if (i) such Lien secures only principal amounts (not exceeding the cost of
such acquisition, construction or creation) raised for the purposes of such
acquisition, construction or creation, together with any costs, expenses,
interest and fees incurred in relation thereto or a guarantee given in respect
thereof, (ii) such Lien is created or arises on or before 180 days after the
completion of such acquisition, construction or creation, (iii) such Lien is
confined solely to the property so acquired, constructed or created and any
improvements thereto and (iv) the aggregate principal amount of all Indebtedness
secured by such Liens shall not exceed 

     

     

    
      
        
        

      

      
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    $25,000,000
at any one time outstanding, (k) any Lien on Margin Stock, (l) Liens with
respect to the Indebtedness evidenced by the FMB Indenture, but only to the
extent of the Insured Series First Mortgage Bonds, and the “permitted
encumbrances” under the FMB Indenture, (m) the assignment of, or Liens on,
accounts receivable in connection with PSNM Accounts Receivable Securitization
and the filing of related financing statements under the Uniform Commercial Code
of the applicable jurisdictions, (n) the assignment of, or Liens on, demand,
energy or wheeling revenues, or on capacity reservation or option fees, payable
to the Borrower with respect to any wholesale electric service or transmission
agreements, the assignment of, or Liens on, revenues from energy services
contracts, and the assignment of, or Liens on, capacity reservation or option
fees payable to the Borrower with respect to asset sales permitted herein, (o)
any extension, renewal or replacement (or successive extensions, renewals or
replacements), as a whole or in part, of any Liens referred to in the foregoing
clauses (a) through (n), for amounts not exceeding the principal amount of the
Indebtedness secured by the Lien so extended, renewed or replaced, provided that such
extension, renewal or replacement Lien is limited to all or a part of the same
property or assets that were covered by the Lien extended, renewed or replaced
(plus improvements on such property or assets), (p) Liens on Property that is
subject to a Material Lease that is classified as an operating lease as of the
Closing Date but which is subsequently converted into a capital lease, (q) Liens
securing obligations under Hedging Agreements entered into in the ordinary
course of business and not for speculative purposes, (r) Liens on Property, in
addition to those otherwise permitted by clauses (a) through (q) above,
securing, directly or indirectly, Indebtedness or obligations arising pursuant
to other agreements entered into in the ordinary course of business which do not
exceed, in the aggregate at any one time outstanding, $25,000,000, and (s) to
the extent any Liens are granted on any of the Borrower’s or any of its
Subsidiaries’ Property to secure the Borrower Obligations pursuant to the
requirements of Section 7.11, pari passu Liens on such
Property securing Indebtedness for borrowed money of the Borrower and letter of
credit related obligations of the Borrower under any credit or loan facility or
any indenture governing any debt securities in existence on the date upon which
such Liens are granted, but only to the extent that such credit or loan
facilities and indentures contain provisions requiring such pari passu Liens or other
restrictions to the grant of liens on the Borrower or its Subsidiaries
Property.

     

    8.6 Accounting
Changes.

     

    The
Borrower will not (nor will it permit any of its Subsidiaries to) make or
permit, any change in accounting policies or reporting practices, except as
required by GAAP, or as permitted by GAAP, if the amounts involved are not
material.

     

    SECTION
9   

     

    EVENTS
OF DEFAULT

     

    9.1 Events of
Default.

     

    An Event
of Default shall exist upon the occurrence of any of the following specified
events (each an “Event
of Default”):

     

    
      
        
        

      

      
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    (a) Payment.  The
Borrower shall:  (i) default in the payment when due in accordance
with Section 2.2(d)(i) of any amount drawn under a Letter of Credit; or
(ii) default, and such default shall continue for three or more Business
Days, in the payment when due of any interest on the L/C Obligations or of any
fees or other amounts owing hereunder, under any of the other Credit Documents
or in connection herewith or therewith.

     

    (b) Representations.  Any
representation, warranty or statement made or deemed to be made by the Borrower
herein, in any of the other Credit Documents, or in any statement or certificate
delivered or required to be delivered pursuant hereto or thereto shall prove
untrue in any material respect on the date as of which it was deemed to have
been made.

     

    (c) Covenants.  The
Borrower shall:

     

    (i) default
in the due performance or observance of any term, covenant or agreement
contained in Sections 7.1(e)(i), 7.2, 7.3(a) (solely with respect to the
existence of the Borrower), 7.9, 7.10, 7.11 or 8.1 through 8.6 inclusive;
or

     

    (ii) default
in the due performance or observance by it of any term, covenant or agreement
(other than those referred to in subsections (a), (b) or (c)(i) of this Section
9.1) contained in this Reimbursement Agreement or any other Credit Document and
such default shall continue unremedied for a period of at least 10 days after
the earlier of the Borrower becoming aware of such default or notice thereof
given by the Administrative Agent.

     

    (d) Credit
Documents.  Any Credit Document shall fail to be in force and
effect or the Borrower shall so assert or any Credit Document shall fail to give
the Administrative Agent or the Lenders the rights, powers, liens and privileges
purported to be created thereby.

     

    (e) Bankruptcy,
etc.  The occurrence of any of the following with respect to
the Borrower or any of its Subsidiaries (i) a court or governmental agency
having jurisdiction in the premises shall enter a decree or order for relief in
respect of the Borrower or any of its Subsidiaries in an involuntary case under
any applicable Debtor Relief Law now or hereafter in effect, or appoint a
receiver, liquidator, assignee, custodian, trustee, sequestrator or similar
official of the Borrower or any of its Subsidiaries or for any substantial part
of their property or ordering the winding up or liquidation of its affairs; or
(ii) an involuntary case under any applicable Debtor Relief Law now or hereafter
in effect is commenced against the Borrower or any of its Subsidiaries and such
petition remains unstayed and in effect for a period of 60 consecutive days; or
(iii) the Borrower or any of its Subsidiaries shall commence a voluntary case
under any applicable Debtor Relief Law now or hereafter in effect, or consent to
the entry of an order for relief in an involuntary case under any such law, or
consent to the appointment or taking possession by a receiver, liquidator,
assignee, custodian, trustee, sequestrator or similar official of such Person or
any substantial part of its property or make any general assignment for the
benefit of creditors; or (iv) the Borrower or any of its Subsidiaries admit in
writing its inability to pay its debts generally as they become due or any
action shall be taken by any Person in furtherance of any of the aforesaid
purposes.

     

    
      
        
        

      

      
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    (f) Defaults under Other
Agreements.

     

    (i) The
Borrower or any of its Subsidiaries shall default in the due performance or
observance (beyond the applicable grace period with respect thereto) of any
material obligation or condition of any contract or lease to which it is a
party, if such default would have or would reasonably be expected to have a
Material Adverse Effect.

     

    (ii) With
respect to any Indebtedness of the Borrower or any of its Subsidiaries (other
than Indebtedness outstanding under this Reimbursement Agreement) in excess of
$20,000,000 in the aggregate (A) the Borrower or such Subsidiary shall (x)
default in any payment (beyond the applicable grace period with respect thereto,
if any) with respect to such Indebtedness, or (y) default (after giving effect
to any applicable grace period) in the observance or performance of any covenant
or agreement relating to such Indebtedness or contained in any instrument or
agreement evidencing, securing or relating thereto, or any other event or
condition shall occur or condition exist, the effect of which default or other
event or condition is to cause or permit the holder or the holders of such
Indebtedness (or any trustee or agent on behalf of such holders) to cause
(determined without regard to whether any notice or lapse of time is required)
such Indebtedness to become due prior to its stated maturity; or (B) such
Indebtedness shall be declared due and payable, or required to be prepaid other
than by a regularly scheduled required prepayment prior to the stated maturity
thereof; or (C) such Indebtedness shall mature and remain unpaid.

     

    (g) Judgments.  Any
judgment, order or decree involving a liability of $20,000,000 or more, or one
or more judgments, orders, or decrees involving a liability of $40,000,000 or
more, in the aggregate, shall be entered against the Borrower or any of its
Subsidiaries and such judgments, orders or decrees shall continue unsatisfied,
undischarged and unstayed for a period ending on the first to occur of (i) the
last day on which such judgment, order or decree becomes final and unappealable
and, where applicable, with the status of a judicial lien or (ii) 60 days; provided that if such
judgment, order or decree provides for periodic payments over time then the
Borrower or such Subsidiary shall have a grace period of 30 days with respect to
each such periodic payment.

     

    
      
        
        

      

      
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    (h) ERISA.  The
occurrence of any of the following events or conditions if any of the same would
have or would be reasonably expected to have a Material Adverse
Effect:  (i) any “accumulated funding deficiency,” as such term is
defined in Section 302 of ERISA and Section 412 of the Code, whether or not
waived, shall exist with respect to any Plan, or any lien shall arise on the
assets of the Borrower or any ERISA Affiliate in favor of the PBGC or a Plan;
(ii) an ERISA Event shall occur with respect to a Single Employer Plan which is,
in the reasonable opinion of the Required Lenders, likely to result in the
termination of such Plan for purposes of Title IV of ERISA; (iii) an ERISA Event
shall occur with respect to a Multiemployer Plan or Multiple Employer Plan which
is, in the reasonable opinion of the Required Lenders, likely to result in (A)
the termination of such Plan for purposes of Title IV of ERISA, or (B) the
Borrower or any ERISA Affiliate incurring any liability in connection with a
withdrawal from, reorganization of (within the meaning of Section 4241 of
ERISA), or insolvency (within the meaning of Section 4245 of ERISA) of such
Plan; or (iv) any prohibited transaction (within the meaning of Section 406 of
ERISA or Section 4975 of the Code) or breach of fiduciary responsibility shall
occur which would be reasonably expected to subject the Borrower or any ERISA
Affiliate to any liability under Sections 406, 409, 502(i), or 502(l) of ERISA
or Section 4975 of the Code, or under any agreement or other instrument pursuant
to which the Borrower or any ERISA Affiliate has agreed or is required to
indemnify any person against any such liability.

     

    (i) Change of
Control.  There shall occur a Change of Control.

     

    9.2 Acceleration;
Remedies.

     

    Upon the
occurrence and during the continuation of an Event of Default, the
Administrative Agent may or, upon the request and direction of the Required
Lenders, shall take the following actions without prejudice to the rights of the
Administrative Agent, the L/C Issuer or any Lender to enforce its claims against
the Borrower, except as otherwise specifically provided for herein:

     

    (a) Termination of
Commitments.  Declare the Commitments and the obligation of the
L/C Issuer to make Credit Extensions terminated whereupon the Commitments and
the obligation of the L/C Issuer to make Credit Extensions shall be immediately
terminated.

     

    (b) Acceleration.  Declare
the unpaid principal of and any accrued interest in respect of all L/C
Obligations and any and all other Borrower Obligations of any and every kind
owing by the Borrower to the Administrative Agent, the L/C Issuer or the Lenders
under the Credit Documents to be due, whereupon the same shall be immediately
due and payable without presentment, demand, protest or other notice of any
kind, all of which are hereby waived by the Borrower.

     

    (c) Cash
Collateral.  Direct the Borrower to Cash Collateralize (and the
Borrower agrees that upon receipt of such notice, or upon the occurrence of an
Event of Default under Section 9.1(e), it will immediately Cash Collateralize)
L/C Obligations in respect of subsequent drawings under all then outstanding
Letters of Credit in an amount equal to the then outstanding principal amount of
L/C Obligations.

     

    (d) Enforcement of
Rights.  To the extent permitted by Law enforce any and all
rights and interests created and existing under applicable Law and under the
Credit Documents, including, without limitation, all rights of set
off.

     

    
      
        
        

      

      
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    Notwithstanding
the foregoing, if an Event of Default specified in Section 9.1(e) shall occur,
then the Commitments and any obligation of the L/C Issuer to make Credit
Extensions shall automatically terminate and all L/C Obligations, all accrued
interest in respect thereof, all accrued and unpaid fees and other Borrower
Obligations owing to the Administrative Agent, the L/C Issuer and the Lenders
hereunder shall immediately become due and payable without the giving of any
notice or other action by the Administrative Agent, the L/C Issuer or the
Lenders, which notice or other action is expressly waived by the
Borrower.

     

    Notwithstanding
the fact that enforcement powers reside primarily with the Administrative Agent,
the L/C Issuer and each Lender has, to the extent permitted by Law, a separate
right of payment and shall be considered a separate “creditor” holding a
separate “claim” within the meaning of Section 101(5) of the Bankruptcy Code or
any other insolvency statute.

     

    9.3 Allocation of Payments After
Event of Default.

     

    Notwithstanding
any other provisions of this Reimbursement Agreement, after the occurrence and
during the continuation of an Event of Default, all amounts collected or
received by the Administrative Agent, the L/C Issuer or any Lender on account of
amounts outstanding under any of the Credit Documents shall be paid over or
delivered as follows:

     

    FIRST, to
the payment of all reasonable out of pocket costs and expenses (including the
reasonable fees and expenses of legal counsel) of the Administrative Agent, the
L/C Issuer or any of the Lenders in connection with enforcing the rights of the
Administrative Agent, the L/C Issuer and the Lenders under the Credit Documents,
ratably among them in proportion to the amounts described in this clause “FIRST”
payable to them;

     

    SECOND,
to payment of any fees owed to the Administrative Agent, the L/C Issuer or any
Lender, ratably among them in proportion to the amounts described in this clause
“SECOND” payable to them;

     

    THIRD, to
the payment of all accrued interest payable to the Lenders and the L/C Issuer
hereunder, ratably among them in proportion to the amounts described in this
clause “THIRD” payable to them;

     

    FOURTH,
to the payment of the outstanding L/C Obligations, ratably among them in
proportion to the amounts described in this clause “FOURTH” payable to
them;

     

    FIFTH, to
the Administrative Agent, for the account of the L/C Issuer, to Cash
Collateralize that portion of the L/C Obligations comprised of the aggregate
undrawn amount of Letters of Credit;

     

    SIXTH, to
all other Borrower Obligations which shall have become due and payable under the
Credit Documents and not repaid pursuant to clauses “FIRST” through “FIFTH”
above, ratably among the holders of such Borrower Obligations in proportion to
the amounts described in this clause “SIXTH” payable to them; and

     

    
      
        
        

      

      
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    SEVENTH,
the payment of the surplus, if any, to whomever may be lawfully entitled to
receive such surplus.

     

    Amounts
used to Cash Collateralize the aggregate undrawn amount of Letters of Credit
pursuant to clause “FIFTH” above shall be applied to satisfy drawings under such
Letters of Credit as they occur.  If any amount remains on deposit as
cash collateral after all Letters of Credit have either been fully drawn or
expired, such remaining amount shall be applied to the other Borrower
Obligations, if any, in the order set forth above.

     

    SECTION
10

     

    AGENCY
PROVISIONS

     

    10.1 Appointment and
Authority.

     

    Each of
the Lenders and the L/C Issuer hereby irrevocably appoints Deutsche Bank AG New
York Branch to act on its behalf as the Administrative Agent hereunder and under
the other Credit Documents and authorizes the Administrative Agent to take such
actions on its behalf and to exercise such powers as are delegated to the
Administrative Agent by the terms hereof or thereof, together with such actions
and powers as are reasonably incidental thereto.  The provisions of
this Section are solely for the benefit of the Administrative Agent, the Lenders
and the L/C Issuer, and the Borrower shall not have rights as a third party
beneficiary of any of such provisions.

     

    10.2 Rights as a
Lender.

     

    The
Person serving as the Administrative Agent hereunder shall have the same rights
and powers in its capacity as a Lender as any other Lender and may exercise the
same as though it were not the Administrative Agent and the term “Lender” or
“Lenders” shall, unless otherwise expressly indicated or unless the context
otherwise requires, include the Person serving as the Administrative Agent
hereunder in its individual capacity.  Such Person and its Affiliates
may accept deposits from, lend money to, act as the financial advisor or in any
other advisory capacity for and generally engage in any kind of business with
the Borrower or any Subsidiary or other Affiliate thereof as if such Person were
not the Administrative Agent hereunder and without any duty to account therefor
to the Lenders.

     

    10.3 Exculpatory
Provisions.

     

    The
Administrative Agent shall not have any duties or obligations except those
expressly set forth herein and in the other Credit Documents.  Without
limiting the generality of the foregoing, the Administrative Agent:

     

    (a) shall not
be subject to any fiduciary or other implied duties, regardless of whether a
Default has occurred and is continuing;

     

    (b) shall not
have any duty to take any discretionary action or exercise any discretionary
powers, except discretionary rights and powers expressly contemplated hereby or
by the other Credit Documents that the Administrative Agent is required to
exercise as directed in writing by the Required Lenders (or such other number or
percentage of the Lenders as shall be expressly provided for herein or in the
other Credit Documents), provided that the
Administrative Agent shall not be required to take any action that, in its
opinion or the opinion of its counsel, may expose the Administrative Agent to
liability or that is contrary to any Credit Document or applicable law;
and

     

    
      
        
        

      

      
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    (c) shall
not, except as expressly set forth herein and in the other Credit Documents,
have any duty to disclose, and shall not be liable for the failure to disclose,
any information relating to the Borrower, its Subsidiaries or any of its
Affiliates that is communicated to or obtained by the Person serving as the
Administrative Agent or any of its Affiliates in any capacity.

     

    The
Administrative Agent shall not be liable for any action taken or not taken by it
(a) with the consent or at the request of the Required Lenders (or such
other number or percentage of the Lenders as shall be necessary, or as the
Administrative Agent shall believe in good faith shall be necessary, under the
circumstances as provided in Sections 11.6 and 9.2) or (b) in the absence
of its own gross negligence or willful misconduct determined by a court of
competent jurisdiction by a final and nonappealable judgment.  The
Administrative Agent shall be deemed not to have knowledge of any Default unless
and until notice describing such Default is given to the Administrative Agent by
the Borrower, a Lender or the L/C Issuer.

     

    The
Administrative Agent shall not be responsible for or have any duty to ascertain
or inquire into (i) any statement, warranty or representation made in or in
connection with this Reimbursement Agreement or any other Credit Document, (ii)
the contents of any certificate, report or other document delivered hereunder or
thereunder or in connection herewith or therewith, (iii) the performance or
observance of any of the covenants, agreements or other terms or conditions set
forth herein or therein or the occurrence of any Default, (iv) the validity,
enforceability, effectiveness or genuineness of this Reimbursement Agreement,
any other Credit Document or any other agreement, instrument or document or (v)
the satisfaction of any condition set forth in Section 4 or Section 5 or
elsewhere herein, other than to confirm receipt of items expressly required to
be delivered to the Administrative Agent.

     

    10.4 Reliance by Administrative
Agent.

     

    The
Administrative Agent shall be entitled to rely upon, and shall not incur any
liability for relying upon, any notice, request, certificate, consent,
statement, instrument, document or other writing (including any electronic
message, Internet or intranet website posting or other distribution) believed by
it to be genuine and to have been signed, sent or otherwise authenticated by the
proper Person.  The Administrative Agent also may rely upon any
statement made to it orally or by telephone and believed by it to have been made
by the proper Person, and shall not incur any liability for relying
thereon.  In determining compliance with any condition hereunder to
the issuance of a Letter of Credit, that by its terms must be fulfilled to the
satisfaction of a Lender or the L/C Issuer, the Administrative Agent may presume
that such condition is satisfactory to such Lender or the L/C Issuer unless the
Administrative Agent shall have received notice to the contrary from such Lender
or the L/C Issuer prior to the making of the issuance of such Letter of
Credit.  The Administrative Agent may consult with legal counsel (who
may be counsel for the Borrower), independent accountants and other experts
selected by it, and shall not be liable for any action taken or not taken by it
in accordance with the advice of any such counsel, accountants or
experts.

     

    
      
        
        

      

      
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    10.5 Delegation of
Duties.

     

    The
Administrative Agent may perform any and all of its duties and exercise its
rights and powers hereunder or under any other Credit Document by or through any
one or more sub agents appointed by the Administrative Agent.  The
Administrative Agent and any such sub agent may perform any and all of its
duties and exercise its rights and powers by or through their respective
Agent-Related Parties.  The exculpatory provisions of this Section
shall apply to any such sub agent and to the Agent-Related Parties of the
Administrative Agent and any such sub agent, and shall apply to their respective
activities in connection with the syndication of the credit facilities provided
for herein as well as activities as Administrative Agent.

     

    10.6 Resignation of
Administrative Agent.

     

    The
Administrative Agent may at any time give notice of its resignation to the
Lenders, the L/C Issuer and the Borrower.  Upon receipt of any such
notice of resignation, the Required Lenders shall have the right, in
consultation with the Borrower, to appoint a successor, which shall be a bank
with an office in the United States, or an Affiliate of any such bank with an
office in the United States.  If no such successor shall have been so
appointed by the Required Lenders and shall have accepted such appointment
within 30 days after the retiring Administrative Agent gives notice of its
resignation, then the retiring Administrative Agent may on behalf of the Lenders
and the L/C Issuer, appoint a successor Administrative Agent meeting the
qualifications set forth above; provided that if the
Administrative Agent shall notify the Borrower and the Lenders that no
qualifying Person has accepted such appointment, then such resignation shall
nonetheless become effective in accordance with such notice and (a) the retiring
Administrative Agent shall be discharged from its duties and obligations
hereunder and under the other Credit Documents and (b) all payments,
communications and determinations provided to be made by, to or through the
Administrative Agent shall instead be made by or to each Lender and the L/C
Issuer directly, until such time as the Required Lenders appoint a successor
Administrative Agent as provided for above in this Section.  Upon the
acceptance of a successor’s appointment as Administrative Agent hereunder, such
successor shall succeed to and become vested with all of the rights, powers,
privileges and duties of the retiring (or retired) Administrative Agent, and the
retiring Administrative Agent shall be discharged from all of its duties and
obligations hereunder or under the other Credit Documents (if not already
discharged therefrom as provided above in this Section).  The fees
payable by the Borrower to a successor Administrative Agent shall be the same as
those payable to its predecessor unless otherwise agreed between the Borrower
and such successor.  After the retiring Administrative Agent’s
resignation hereunder and under the other Credit Documents, the provisions of
this Section and Section 11.5 shall continue in effect for the benefit of such
retiring Administrative Agent, its sub agents and their respective Agent-Related
Persons in respect of any actions taken or omitted to be taken by any of them
while the retiring Administrative Agent was acting as Administrative
Agent.

     

    
      
        
        

      

      
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    Any
resignation by Deutsche Bank AG New York Branch as Administrative Agent pursuant
to this Section shall also constitute its resignation as the L/C
Issuer.  Upon the acceptance of a successor’s appointment as
Administrative Agent hereunder, (i) such successor shall succeed to and become
vested with all of the rights, powers, privileges and duties of the retiring L/C
Issuer, (ii) the retiring L/C Issuer shall be discharged from all of their
respective duties and obligations hereunder or under the other Credit Documents,
and (iii) the successor L/C Issuer shall issue letters of credit in substitution
for the Letters of Credit, if any, outstanding at the time of such succession or
make other arrangements satisfactory to the retiring L/C Issuer to effectively
assume the obligations of the retiring L/C Issuer with respect to such Letters
of Credit.

     

    10.7 Non Reliance on
Administrative Agent and Other Lenders.

     

    Each
Lender and the L/C Issuer acknowledges that it has, independently and without
reliance upon the Administrative Agent or any other Lender or any of their
Agent-Related Persons and based on such documents and information as it has
deemed appropriate, made its own credit analysis and decision to enter into this
Reimbursement Agreement.  Each Lender and the L/C Issuer also
acknowledges that it will, independently and without reliance upon the
Administrative Agent or any other Lender or any of their Agent-Related Persons
and based on such documents and information as it shall from time to time deem
appropriate, continue to make its own decisions in taking or not taking action
under or based upon this Reimbursement Agreement, any other Credit Document or
any related agreement or any document furnished hereunder or
thereunder.

     

    10.8 No Other Duties,
Etc.

     

    Anything
herein to the contrary notwithstanding, none of the Syndication Agent, the
Bookrunners or the Arrangers listed on the cover page hereof shall have any
powers, duties or responsibilities under this Reimbursement Agreement or any of
the other Credit Documents, except in its capacity, as applicable, as the
Administrative Agent, a Lender or the L/C Issuer hereunder.

     

    10.9 Administrative Agent May
File Proofs of Claim.

     

    In case
of the pendency of any receivership, insolvency, liquidation, bankruptcy,
reorganization, arrangement, adjustment, composition or other judicial
proceeding relative to the Borrower, the Administrative Agent and the L/C Issuer
(irrespective of whether the L/C Obligation shall then be due and payable as
herein expressed or by declaration or otherwise and irrespective of whether the
Administrative Agent or the L/C Issuer shall have made any demand on the
Borrower) shall be entitled and empowered, by intervention in such proceeding or
otherwise

     

    (a) to file
and prove a claim for the whole amount of the principal and interest owing and
unpaid in respect of the L/C Obligations and all other Borrower Obligations that
are owing and unpaid and to file such other documents as may be necessary or
advisable in order to have the claims of the Lenders, the L/C Issuer and the
Administrative Agent (including any claim for the reasonable compensation,
expenses, disbursements and advances of the Lenders, the L/C Issuer and the
Administrative Agent and their respective agents and counsel and all other
amounts due the Lenders, the L/C Issuer and the Administrative Agent under
Sections 2.2(i) and (g), 3.4 and 11.5) allowed in such judicial proceeding;
and

     

    
      
        
        

      

      
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    (b) to
collect and receive any monies or other property payable or deliverable on any
such claims and to distribute the same;

     

    and any
custodian, receiver, assignee, trustee, liquidator, sequestrator or other
similar official in any such judicial proceeding is hereby authorized by each
Lender and the L/C Issuer to make such payments to the Administrative Agent and,
in the event that the Administrative Agent shall consent to the making of such
payments directly to the Lenders and the L/C Issuer, to pay to the
Administrative Agent any amount due for the reasonable compensation, expenses,
disbursements and advances of the Administrative Agent and its agents and
counsel, and any other amounts due the Administrative Agent under Sections 3.4
and 11.5.

     

    Nothing
contained herein shall be deemed to authorize the Administrative Agent to
authorize or consent to or accept or adopt on behalf of any Lender or the L/C
Issuer any plan of reorganization, arrangement, adjustment or composition
affecting the Borrower Obligations or the rights of any Lender or to authorize
the Administrative Agent to vote in respect of the claim of any Lender in any
such proceeding.

     

    SECTION
11

     

    MISCELLANEOUS

     

    11.1 Notices; Effectiveness;
Electronic Communication.

     

    (a) Notices
Generally.  Except in the case of notices and other
communications expressly permitted to be given by telephone (and except as
provided in subsection (b) below), all notices and other communications provided
for herein shall be in writing and shall be delivered by hand or overnight
courier service, mailed by certified or registered mail or sent by telecopier as
follows, and all notices and other communications expressly permitted hereunder
to be given by telephone shall be made to the applicable telephone number, as
follows:

     

    (i) if to the
Borrower, the Administrative Agent or the L/C Issuer, to the address, telecopier
number, electronic mail address or telephone number specified for such Person on
Schedule 11.1;
and

     

    (ii) if to any
other Lender, to the address, telecopier number, electronic mail address or
telephone number specified in its Administrative Questionnaire.

     

    Notices
sent by hand or overnight courier service, or mailed by certified or registered
mail, shall be deemed to have been given when received; notices sent by
telecopier shall be deemed to have been given when sent (except that, if not
given during normal business hours for the recipient, shall be deemed to have
been given at the opening of business on the next business day for the
recipient).  Notices delivered through electronic communications to
the extent provided in subsection (b) below, shall be effective as provided in
such subsection (b).

     

    
      
        
        

      

      
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    (b) Electronic
Communications.  Notices and other communications to the
Lenders and the L/C Issuer hereunder may be delivered or furnished by electronic
communication (including email and Internet or intranet websites) pursuant to
procedures approved by the Administrative Agent, provided that the
foregoing shall not apply to notices to any Lender or the L/C Issuer pursuant to
Section 2 if such Lender or the L/C Issuer, as applicable, has notified the
Administrative Agent that it is incapable of receiving notices under such
Section by electronic communication.  The Administrative Agent or the
Borrower may, in its discretion, agree to accept notices and other
communications to it hereunder by electronic communications pursuant to
procedures approved by it, provided that
approval of such procedures may be limited to particular notices or
communications.

     

    Unless
the Administrative Agent otherwise prescribes, (i) notices and other
communications sent to an email address shall be deemed received upon the
sender’s receipt of an acknowledgement from the intended recipient (such as by
the “return receipt requested” function, as available, return email or other
written acknowledgement), provided that if such
notice or other communication is not sent during the normal business hours of
the recipient, such notice or communication shall be deemed to have been sent at
the opening of business on the next business day for the recipient, and (ii)
notices or communications posted to an Internet or intranet website shall be
deemed received upon the deemed receipt by the intended recipient at its email
address as described in the foregoing clause (i) of notification that such
notice or communication is available and identifying the website address
therefor.

     

    (c) Borrower Materials/The
Platform.  The Borrower hereby acknowledges that (i) the
Administrative Agent and/or DBSI may make available to the Lenders and the L/C
Issuer materials and/or information provided by or on behalf of the Borrower
hereunder (collectively, “Borrower Materials”)
by posting the Borrower Materials on IntraLinks or another similar electronic
system (the “Platform”). THE
PLATFORM IS PROVIDED “AS IS” AND “AS AVAILABLE.”  THE AGENT PARTIES
(AS DEFINED BELOW) DO NOT WARRANT THE ACCURACY OR COMPLETENESS OF THE BORROWER
MATERIALS OR THE ADEQUACY OF THE PLATFORM, AND EXPRESSLY DISCLAIM LIABILITY FOR
ERRORS IN OR OMISSIONS FROM THE BORROWER MATERIALS.  NO WARRANTY OF
ANY KIND, EXPRESS, IMPLIED OR STATUTORY, INCLUDING ANY WARRANTY OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON INFRINGEMENT OF THIRD
PARTY RIGHTS OR FREEDOM FROM VIRUSES OR OTHER CODE DEFECTS, IS MADE BY ANY AGENT
PARTY IN CONNECTION WITH THE BORROWER MATERIALS OR THE PLATFORM.  In
no event shall the Administrative Agent or any of its Agent-Related Parties
(collectively, the “Agent Parties”) have
any liability to the Borrower, any Lender, the L/C Issuer or any other Person
for losses, claims, damages, liabilities or expenses of any kind (whether in
tort, contract or otherwise) arising out of the Borrower’s or the Administrative
Agent’s transmission of Borrower Materials through the Internet, except to the
extent that such losses, claims, damages, liabilities or expenses are determined
by a court of competent jurisdiction by a final and nonappealable judgment to
have resulted from the gross negligence or willful misconduct of such Agent
Party; provided, however, that in no
event shall any Agent Party have any liability to the Borrower, any Lender, the
L/C Issuer or any other Person for indirect, special, incidental, consequential
or punitive damages (as opposed to direct or actual damages).

     

    
      
        
        

      

      
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    (d) Change of Address,
Etc.  Each of the Borrower, the Administrative Agent and the
L/C Issuer may change its address, telecopier or telephone number for notices
and other communications hereunder by notice to the other parties
hereto.  Each other Lender may change its address, telecopier or
telephone number for notices and other communications hereunder by notice to the
Borrower, the Administrative Agent and the L/C Issuer.  In addition,
each Lender agrees to notify the Administrative Agent from time to time to
ensure that the Administrative Agent has on record (i) an effective address,
contact name, telephone number, telecopier number and electronic mail address to
which notices and other communications may be sent and (ii) accurate wire
instructions for such Lender.

     

    (e) Reliance by Administrative
Agent, The L/C Issuer and Lenders.  The Administrative Agent,
the L/C Issuer and the Lenders shall be entitled to rely and act upon any
notices (including telephonic Letter of Credit Requests) purportedly given by or
on behalf of the Borrower even if (i) such notices were not made in a manner
specified herein, were incomplete or were not preceded or followed by any other
form of notice specified herein, or (ii) the terms thereof, as understood by the
recipient, varied from any confirmation thereof.  The Borrower shall
indemnify the Administrative Agent, the L/C Issuer, each Lender and the
Agent-Related Parties of each of them from all losses, costs, expenses and
liabilities resulting from the reliance by such Person on each notice
purportedly given by or on behalf of the Borrower.  All telephonic
notices to and other telephonic communications with the Administrative Agent may
be recorded by the Administrative Agent, and each of the parties hereto hereby
consents to such recording.

     

    11.2 Right of Set
Off.

     

    In
addition to any rights now or hereafter granted under applicable Law or
otherwise, and not by way of limitation of any such rights, upon the occurrence
of an Event of Default and the commencement of remedies described in Section
9.2, the L/C Issuer and each Lender is authorized at any time and from time to
time, without presentment, demand, protest or other notice of any kind (all of
which rights being hereby expressly waived), to set off and to appropriate and
apply any and all deposits (general or special) and any other indebtedness at
any time held or owing by the L/C Issuer or such Lender (including, without
limitation, branches, agencies or Affiliates of the L/C Issuer or such Lender
wherever located) to or for the credit or the account of the Borrower against
obligations and liabilities of the Borrower to the L/C Issuer and the Lenders
hereunder, under the Notes, the other Credit Documents or otherwise,
irrespective of whether the Administrative Agent, the L/C Issuer or the Lenders
shall have made any demand hereunder and although such obligations, liabilities
or claims, or any of them, may be contingent or unmatured, and any such set off
shall be deemed to have been made immediately upon the occurrence of an Event of
Default even though such charge is made or entered on the books of the L/C
Issuer or such Lender subsequent thereto.  The Borrower hereby agrees
that any Person purchasing a participation in the Commitments hereunder pursuant
to Sections 3.8 or 11.3(d) may exercise all rights of set off with respect
to its participation interest as fully as if such Person were a Lender
hereunder.

     

    
      
        
        

      

      
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    11.3 Successors and
Assigns.

     

    (a) Successors and Assigns
Generally.  The provisions of this Reimbursement Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns permitted hereby, except that the Borrower may
not assign or otherwise transfer any of its rights or obligations hereunder
without the prior written consent of the Administrative Agent, the L/C Issuer
and each Lender and no Lender may assign or otherwise transfer any of its rights
or obligations hereunder except (i) to an Eligible Assignee in accordance with
the provisions of subsection (b) of this Section, (ii) by way of participation
in accordance with the provisions of subsection (d) of this Section, or (iii) by
way of pledge or assignment of a security interest subject to the restrictions
of subsection (f) of this Section (and any other attempted assignment or
transfer by any party hereto shall be null and void).  Nothing in this
Reimbursement Agreement, expressed or implied, shall be construed to confer upon
any Person (other than the parties hereto, their respective successors and
assigns permitted hereby, Participants to the extent provided in subsection (d)
of this Section and, to the extent expressly contemplated hereby, the
Agent-Related Parties of each of the Administrative Agent, the L/C Issuer and
the Lenders) any legal or equitable right, remedy or claim under or by reason of
this Reimbursement Agreement.

     

    (b) Assignments by
Lenders.  Any Lender may at any time assign to one or more
Eligible Assignees all or a portion of its rights and obligations under this
Reimbursement Agreement (including all or a portion of its Commitment and
participations in L/C Obligations at the time owing to it); provided
that

     

    (i) except in
the case of an assignment of the entire remaining amount of the assigning
Lender’s Commitment and participations in L/C Obligations or in the case of an
assignment to a Lender or an Affiliate of a Lender or an Approved Fund with
respect to a Lender, the aggregate amount of the Commitment (including
participations in L/C Obligations) or, if the Commitment is not then in effect,
the participations in L/C Obligations of the assigning Lender subject to each
such assignment, determined as of the date the Assignment and Assumption with
respect to such assignment is delivered to the Administrative Agent or, if
“Trade Date” is specified in the Assignment and Assumption, as of the Trade
Date, shall not be less than $5,000,000 unless each of the Administrative Agent,
L/C Issuer and, so long as no Event of Default has occurred and is continuing,
the Borrower otherwise consents (each such consent not to be unreasonably
withheld or delayed); provided, however, that
concurrent assignments to a group of assignees that are affiliated with each
other and concurrent assignments from a group of assignees that are affiliated
with each other to a single Eligible Assignee (or to an Eligible Assignee and a
group of assignees that are affiliated with each other) will be treated as a
single assignment for purposes of determining whether such minimum amount has
been met;

     

    
      
        
        

      

      
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    (ii) each
partial assignment shall be made as an assignment of a proportionate part of all
the assigning Lender’s rights and obligations under this Reimbursement Agreement
with respect to the Commitment and the participation in L/C Obligations
assigned;

     

    (iii) any
assignment of a Commitment must be approved by the Administrative Agent and the
L/C Issuer (such approval not to be unreasonably withheld or delayed) unless the
Person that is the proposed assignee is itself a Lender, an Affiliate of a
Lender or an Approved Fund (whether or not the proposed assignee would otherwise
qualify as an Eligible Assignee); and

     

    (iv) the
parties to each assignment shall execute and deliver to the Administrative Agent
an Assignment and Assumption, together with a processing and recordation fee in
the amount, if any, required as set forth in Schedule 11.3, and
the Eligible Assignee, if it shall not be a Lender, shall deliver to the
Administrative Agent an Administrative Questionnaire.

     

    Subject
to acceptance and recording thereof by the Administrative Agent pursuant to
subsection (c) of this Section, from and after the effective date specified in
each Assignment and Assumption, the Eligible Assignee thereunder shall be a
party to this Reimbursement Agreement and, to the extent of the interest
assigned by such Assignment and Assumption, have the rights and obligations of a
Lender under this Reimbursement Agreement, and the assigning Lender thereunder
shall, to the extent of the interest assigned by such Assignment and Assumption,
be released from its obligations under this Reimbursement Agreement (and, in the
case of an Assignment and Assumption covering all of the assigning Lender’s
rights and obligations under this Reimbursement Agreement, such Lender shall
cease to be a party hereto) but shall continue to be entitled to the benefits of
Sections 3.9, 3.13 and 11.5(b) with respect to facts and circumstances occurring
prior to the effective date of such assignment.  Upon request, the
Borrower (at its expense) shall execute and deliver a Note to the assignee
Lender.  Any assignment or transfer by a Lender of rights or
obligations under this Reimbursement Agreement that does not comply with this
subsection shall be treated for purposes of this Reimbursement Agreement as a
sale by such Lender of a participation in such rights and obligations in
accordance with subsection (d) of this Section.

     

    (c) Register.  The
Administrative Agent, acting solely for this purpose as an agent of the
Borrower, shall maintain at the Administrative Agent’s Lending Office a copy of
each Assignment and Assumption delivered to it and a register for the
recordation of the names and addresses of the Lenders, and the Commitments of,
and L/C Obligations owing to, each Lender pursuant to the terms hereof from time
to time (the “Register”).  The
entries in the Register shall be conclusive, and the Borrower, the
Administrative Agent, the L/C Issuer and the Lenders may treat each Person whose
name is recorded in the Register pursuant to the terms hereof as a Lender
hereunder for all purposes of this Reimbursement Agreement, notwithstanding
notice to the contrary.  The Register shall be available for
inspection by the Borrower and the L/C Issuer at any reasonable time and from
time to time upon reasonable prior notice.  In addition, at any time
that a request for a consent for a material or substantive change to the Credit
Documents is pending, any Lender may request and receive from the Administrative
Agent a copy of the Register.

     

    
      
        
        

      

      
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    (d) Participations.  Any
Lender may at any time, without the consent of, or notice to, the Borrower or
the Administrative Agent, sell participations to any Person (other than a
natural person or the Borrower or any of the Borrower’s Affiliates or
Subsidiaries) (each, a “Participant”) in all
or a portion of such Lender’s rights and/or obligations under this Reimbursement
Agreement (including all or a portion of its Commitment and/or such Lender’s
participations in L/C Obligations); provided that (i)
such Lender’s obligations under this Reimbursement Agreement shall remain
unchanged, (ii) such Lender shall remain solely responsible to the other parties
hereto for the performance of such obligations and (iii) the Borrower, the
Administrative Agent, the Lenders and the L/C Issuer shall continue to deal
solely and directly with such Lender in connection with such Lender’s rights and
obligations under this Reimbursement Agreement.

     

    Any
agreement or instrument pursuant to which a Lender sells such a participation
shall provide that such Lender shall retain the sole right to enforce this
Reimbursement Agreement and to approve any amendment, modification or waiver of
any  provision of this Reimbursement Agreement; provided that such
agreement or instrument may provide that such Lender will not, without the
consent of the Participant, agree to any amendment, waiver or other modification
described in the first proviso to Section 11.6 that affects such
Participant.  Subject to subsection (e) of this Section, the Borrower
agrees that each Participant shall be entitled to the benefits of Sections 3.9
and 3.13 to the same extent as if it were a Lender and had acquired its interest
by assignment pursuant to subsection (b) of this Section.  To the
extent permitted by Law, each Participant also shall be entitled to the benefits
of Section 3.7 as though it were a Lender, provided such
Participant agrees to be subject to Section 3.8 as though it were a
Lender.

     

    (e) Limitations upon Participant
Rights.  A Participant shall not be entitled to receive any
greater payment under Sections 3.9 or 3.13 than the applicable Lender would have
been entitled to receive with respect to the participation sold to such
Participant, unless the sale of the participation to such Participant is made
with the Borrower’s prior written consent.  A Participant that would
be a Foreign Lender if it were a Lender shall not be entitled to the benefits of
Section 3.13 unless the Borrower is notified of the participation sold to such
Participant and such Participant agrees, for the benefit of the Borrower, to
comply with Section 3.13(f) as though it were a Lender.

     

    (f) Certain
Pledges.  Any Lender may at any time pledge or assign a
security interest in all or any portion of its rights under this Reimbursement
Agreement (including under its Note, if any) to secure obligations of such
Lender, including any pledge or assignment to secure obligations to a Federal
Reserve Bank; provided that no such
pledge or assignment shall release such Lender from any of its obligations
hereunder or substitute any such pledgee or assignee for such Lender as a party
hereto.

     

    
      
        
        

      

      
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    (g) Electronic Execution of
Assignments.  The words “execution,” “signed,” “signature,” and
words of like import in any Assignment and Assumption shall be deemed to include
electronic signatures or the keeping of records in electronic form, each of
which shall be of the same legal effect, validity or enforceability as a
manually executed signature or the use of a paper based recordkeeping system, as
the case may be, to the extent and as provided for in any applicable law,
including the Federal Electronic Signatures in Global and National Commerce Act,
the New York State Electronic Signatures and Records Act, or any other similar
state laws based on the Uniform Electronic Transactions Act.

     

    11.4 No Waiver; Remedies
Cumulative.

     

    No
failure or delay on the part of the Administrative Agent, the L/C Issuer or any
Lender in exercising any right, power or privilege hereunder or under any other
Credit Document and no course of dealing between the Borrower and the
Administrative Agent, the L/C Issuer or any Lender shall operate as a waiver
thereof; nor shall any single or partial exercise of any right, power or
privilege hereunder or under any other Credit Document preclude any other or
further exercise thereof or the exercise of any other right, power or privilege
hereunder or thereunder.  The rights and remedies provided herein are
cumulative and not exclusive of any rights or remedies which the Administrative
Agent, the L/C Issuer or any Lender would otherwise have.  No notice
to or demand on the Borrower in any case shall entitle the Borrower to any other
or further notice or demand in similar or other circumstances or constitute a
waiver of the rights of the Administrative Agent, the L/C Issuer or the Lenders
to any other or further action in any circumstances without notice or
demand.

     

    11.5 Attorney Costs, Expenses,
Taxes and Indemnification by Borrower.

     

    (a) The
Borrower agrees (i) to pay or reimburse the Administrative Agent and DBSI for
all costs and expenses incurred in connection with the development, preparation,
negotiation and execution of this Reimbursement Agreement and the other Credit
Documents and any amendment, waiver, consent or other modification of the
provisions hereof and thereof (whether or not the transactions contemplated
hereby or thereby are consummated), and the consummation of the transactions
contemplated hereby and thereby, including all reasonable fees, disbursements
and expenses of legal counsel, and (ii) to pay or reimburse the Administrative
Agent and each Lender for all costs and expenses incurred in connection with the
enforcement, attempted enforcement, or preservation of any rights or remedies
under this Reimbursement Agreement or the other Credit Documents (including all
such costs and expenses incurred during any “workout” or restructuring in
respect of the Borrower Obligations and during any legal proceeding, including
any proceeding under any Debtor Relief Law), including all reasonable fees,
disbursements and expenses of legal counsel.  The foregoing costs and
expenses shall include all search, filing, recording, and appraisal charges and
fees and taxes related thereto, and other out of pocket expenses incurred by the
Administrative Agent and DBSI and the cost of independent public accountants and
other outside experts retained by the Administrative Agent, the Arrangers or any
Lender.  Other than costs and expenses payable in connection with the
closing of the transactions contemplated by this Reimbursement Agreement
pursuant to this Section 11.5(a) (which shall be payable on the Closing Date
unless otherwise agreed by the Administrative Agent and DBSI), all amounts due
under this Section 11.5 shall be payable within ten Business Days after demand
therefor.  The agreements in this Section shall survive the
termination of the Commitments and repayment of all other Borrower
Obligations.

     

    
      
        
        

      

      
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    (b) Whether
or not the transactions contemplated hereby are consummated, the Borrower shall
indemnify and hold harmless each Agent-Related Person, the L/C Issuer, the
Arrangers and each Lender and their respective Affiliates, directors, officers,
employees, counsel, agents and attorneys in fact (collectively the “Indemnitees”) from
and against any and all liabilities, obligations, losses, damages, penalties,
claims, demands, actions, judgments, suits, costs, expenses and disbursements
(including the reasonable fees and expenses of legal counsel) of any kind or
nature whatsoever which may at any time be imposed on, incurred by or asserted
against any such Indemnitee in any way relating to or arising out of or in
connection with (i) the execution, delivery, enforcement, performance or
administration of any Credit Document or any other agreement, letter or
instrument delivered in connection with the transactions contemplated thereby or
the consummation of the transactions contemplated thereby, (ii) any Commitment
or Letter of Credit or the use or proposed use of the proceeds therefrom
(including any refusal by the L/C Issuer to honor a demand for payment under a
Letter of Credit if the documents presented in connection with such demand do
not strictly comply with the terms of such Letter of Credit), or (iii) any
actual or alleged presence or release of Hazardous Substances on or from any
property currently or formerly owned or operated by the Borrower, any Subsidiary
of the Borrower, or any Environmental Claim related in any way to the Borrower
or any Subsidiary of the Borrower, (iv) any actual or prospective claim,
litigation, investigation or proceeding relating to any of the foregoing,
whether based on contract, tort or any other theory (including any investigation
of, preparation for, or defense of any pending or threatened claim,
investigation, litigation or proceeding) and regardless of whether any
Indemnitee is a party thereto or (v) any civil penalty or fine assessed by
Office of Foreign Assets Control (the “OFAC”) against, and
all reasonable costs and expenses (including counsel fees and disbursements)
incurred in connection with defense thereof, by the Administrative Agent or any
Lender as a result of conduct of the Borrower that violates a sanction enforced
by OFAC (all the foregoing, collectively, the “Indemnified
Liabilities”), in all cases, whether or not caused by or arising, in
whole or in part, out of the negligence of the Indemnitee; provided that such
indemnity shall not, as to any Indemnitee, be available to the extent that such
liabilities, obligations, losses, damages, penalties, claims, demands, actions,
judgments, suits, costs, expenses or disbursements are determined by a court of
competent jurisdiction by final and nonappealable judgment to have resulted from
the gross negligence or willful misconduct of such Indemnitee.  No
Indemnitee shall be liable for any damages arising from the use by others of any
information or other materials obtained through IntraLinks or other similar
information transmission systems in connection with this Reimbursement
Agreement, nor shall any Indemnitee have any liability for any indirect or
consequential damages relating to this Reimbursement Agreement or any other
Credit Document or arising out of its activities in connection herewith or
therewith (whether before or after the Closing Date).

     

    
      
        
        

      

      
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    (c) To the
extent that the Borrower for any reason fails to indefeasibly pay any amount
required under subsection (a) or (b) of this Section to be paid by it to the
Administrative Agent (or any sub agent thereof), the L/C Issuer or any
Agent-Related Party of any of the foregoing, each Lender severally agrees to pay
to the Administrative Agent (or any such sub agent), the L/C Issuer or such
Agent-Related Party, as the case may be, such Lender’s Pro Rata Share
(determined as of the time that the applicable unreimbursed expense or indemnity
payment is sought) of such unpaid amount, provided that the
unreimbursed expense or indemnified loss, claim, damage, liability or related
expense, as the case may be, was incurred by or asserted against the
Administrative Agent (or any such sub agent) or the L/C Issuer in its capacity
as such, or against any Agent-Related Party of any of the foregoing acting for
the Administrative Agent (or any such sub agent) or the L/C Issuer in connection
with such capacity.  The obligations of the Lenders under this
subsection (c) are subject to the provisions of Section 3.2(d).

     

    All
amounts due under this Section 11.5 shall be payable within ten Business Days
after demand therefor.  The agreements in this Section shall survive
the resignation of the Administrative Agent, the replacement of any Lender, the
termination of the Commitments and the repayment, satisfaction or discharge of
all the other Borrower Obligations.

     

    11.6 Amendments,
Etc.

     

    No
amendment or waiver of any provision of this Reimbursement Agreement or any
other Credit Document, and no consent to any departure by the Borrower
therefrom, shall be effective unless in writing signed by the Required Lenders
and the Borrower and acknowledged by the Administrative Agent, and each such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given; provided, however, that no such
amendment, waiver or consent shall:

     

    (a) waive any
condition set forth in Section 4.1 without the written consent of each
Lender;

     

    (b) extend or
increase the Commitment of any Lender (or reinstate any Commitment terminated
pursuant to Section 9.2) without the written consent of such
Lender;

     

    (c) amend or
extend the Commitment Termination Date or the Maturity Date or postpone any date
fixed by this Reimbursement Agreement or any other Credit Document for any
payment of Unreimbursed Amounts, interest, fees or other amounts due to the
Lenders (or any of them) or any scheduled or mandatory reduction of the
Committed Amount hereunder or under any other Credit Document without the
written consent of each Lender directly affected thereby;

     

    (d) reduce
the principal of, or the rate of interest specified herein on, any Unreimbursed
Amount, or (subject to clause (iii) of the second proviso to this
Section 11.6) any fees or other amounts payable hereunder or under any
other Credit Document without the written consent of each Lender directly
affected thereby;

     

    
      
        
        

      

      
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    (e) change
Section 3.8 or Section 9.3 in a manner that would alter the pro rata sharing of
payments required thereby without the written consent of each Lender;
or

     

    (f) change
any provision of this Section or the definition of “Required Lenders” or any
other provision hereof specifying the number or percentage of Lenders required
to amend, waive or otherwise modify any rights hereunder or make any
determination or grant any consent hereunder without the written consent of each
Lender;

     

    and,
provided further, that (i) no
amendment, waiver or consent shall, unless in writing and signed by the L/C
Issuer in addition to the Lenders required above, affect the rights or duties of
the L/C Issuer under this Reimbursement Agreement or any other agreement
relating to any Letter of Credit issued or to be issued by it; (ii) no
amendment, waiver or consent shall, unless in writing and signed by the
Administrative Agent in addition to the Lenders required above, affect the
rights or duties of the Administrative Agent under this Reimbursement Agreement
or any other Credit Document; and (iii) the Fee Letter may be amended, or rights
or privileges thereunder waived, in a writing executed only by the parties
thereto.  Notwithstanding anything to the contrary herein, no
Defaulting Lender shall have any right to approve or disapprove any amendment,
waiver or consent hereunder, except that the Commitment of such Lender may not
be increased or extended without the consent of such Lender.

     

    11.7 Counterparts.

     

    This
Reimbursement Agreement may be executed in any number of counterparts, each of
which when so executed and delivered shall be an original, but all of which
shall constitute one and the same instrument.

     

    11.8 Headings.

     

    The
headings of the sections and subsections hereof are provided for convenience
only and shall not in any way affect the meaning or construction of any
provision of this Reimbursement Agreement.

     

    11.9 Survival of Indemnification
and Representations and Warranties.

     

    (a) Survival of
Indemnification.  All indemnities set forth herein shall
survive the execution and delivery of this Reimbursement Agreement, the making
of any Credit Extension and the repayment of the Unreimbursed Amounts and other
Borrower Obligations and the termination of the Commitments
hereunder.

     

    (b) Survival of Representations
and Warranties.  All representations and warranties made
hereunder and in any other Credit Document or other document delivered pursuant
hereto or thereto or in connection herewith or therewith shall survive the
execution and delivery hereof and thereof.  Such representations and
warranties have been or will be relied upon by the Administrative Agent, the L/C
Issuer and each Lender, regardless of any investigation made by the
Administrative Agent, the L/C Issuer or any Lender or on their behalf and
notwithstanding that the Administrative Agent, the L/C Issuer or any Lender may
have had notice or knowledge of any Default or Event of Default at the time of
any Credit Extension, and shall continue in full force and effect as long as any
Credit Extension or any Borrower Obligation hereunder shall remain unpaid or
unsatisfied or any Letter of Credit shall remain outstanding.

     

    
      
        
        

      

      
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    11.10 Governing Law; Venue;
Service.

     

    (a) THIS
REIMBURSEMENT AGREEMENT AND THE OTHER CREDIT DOCUMENTS AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE GOVERNED BY AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK
(INCLUDING SECTIONS 5-1401 AND 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW,
BUT EXCLUDING ALL OTHER CHOICE OF LAW AND CONFLICTS OF LAW
RULES).  Any legal action or proceeding with respect to this
Reimbursement Agreement or any other Credit Document may be brought in the
courts of the State of New York or of the United States for the Southern
District of New York, and, by execution and delivery of this Reimbursement
Agreement, the Borrower hereby irrevocably accepts for itself and in respect of
its Property, generally and unconditionally, the jurisdiction of such
courts.

     

    (b) The
Borrower irrevocably consents to the service of process in any action or
proceeding with respect to this Reimbursement Agreement or any other Credit
Document by the mailing of copies thereof by registered or certified mail,
postage prepaid, to it at the address for notices pursuant to Section 11.1, such
service to become effective ten days after such mailing.  Nothing
herein shall affect the right of a Lender to serve process in any other manner
permitted by Law.

     

    11.11 Waiver of Jury Trial; Waiver
of Consequential Damages.

     

    EACH OF
THE PARTIES TO THIS REIMBURSEMENT AGREEMENT HEREBY IRREVOCABLY WAIVES ALL RIGHT
TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR
RELATING TO THIS REIMBURSEMENT AGREEMENT, ANY OF THE OTHER CREDIT DOCUMENTS OR
THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY.  Each of the parties
to this Reimbursement Agreement agrees not to assert any claim against any other
party hereto, Administrative Agent, any Lender, any of their Affiliates, or any
of their respective directors, officers, employees, attorneys or agents, on any
theory of liability, for special, indirect, consequential or punitive damages
arising out of or otherwise relating to any of the transactions contemplated
herein and in the other Credit Documents.

     

    11.12 Severability.

     

    If any
provision of any of the Credit Documents is determined to be illegal, invalid or
unenforceable, such provision shall be fully severable and the remaining
provisions shall remain in full force and effect and shall be construed without
giving effect to the illegal, invalid or unenforceable provisions.

     

    
      
        
        

      

      
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    11.13 Further
Assurances.

     

    The
Borrower agrees, upon the request of the Administrative Agent, to promptly take
such actions, as reasonably requested, as is necessary to carry out the intent
of this Reimbursement Agreement and the other Credit Documents.

     

    11.14 Confidentiality.

     

    Each of
the Administrative Agent, the Lenders and the L/C Issuer agrees to maintain the
confidentiality of the Information (as defined below), except that Information
may be disclosed (a) to its Affiliates and to its and its Affiliates’ respective
partners, directors, officers, employees, agents, advisors and representatives
(it being understood that the Persons to whom such disclosure is made will be
informed of the confidential nature of such Information and instructed to keep
such Information confidential), (b) to the extent requested by any regulatory
authority purporting to have jurisdiction over it or an Affiliate (including any
self regulatory authority, such as the National Association of Insurance
Commissioners), (c) to the extent required by applicable laws or regulations or
by any subpoena or similar legal process, (d) to any other party hereto, (e) in
connection with the exercise of any remedies hereunder or under any other Credit
Document or any action or proceeding relating to this Reimbursement Agreement or
any other Credit Document or the enforcement of rights hereunder or thereunder,
(f) subject to an agreement containing provisions substantially the same as
those of this Section, to (i) any assignee of or Participant in, or any
prospective assignee of or Participant in, any of its rights or obligations
under this Reimbursement Agreement or (ii) any actual or prospective
counterparty (or its advisors) to any swap or derivative transaction relating to
the Borrower and its obligations, (g) with the consent of the Borrower or (h) to
the extent such Information (x) becomes publicly available other than as a
result of a breach of this Section or (y) becomes available to the
Administrative Agent, any Lender, the L/C Issuer or any of their respective
Affiliates on a nonconfidential basis from a source other than the
Borrower.

     

    For
purposes of this Section, “Information” means
all information received from the Borrower or any Subsidiary or any of their
respective businesses, other than any such information that is available to the
Administrative Agent, any Lender or the L/C Issuer on a nonconfidential basis
prior to disclosure by the Borrower or any Subsidiary, provided that, in the
case of information received from the Borrower or any Subsidiary after the date
hereof, such information is clearly identified at the time of delivery as
confidential.  Any Person required to maintain the confidentiality of
Information as provided in this Section shall be considered to have complied
with its obligation to do so if such Person has exercised the same degree of
care to maintain the confidentiality of such Information as such Person would
accord to its own confidential information.

     

    11.15 Entirety.

     

    This
Reimbursement Agreement, together with the other Credit Documents and the Fee
Letter, represent the entire agreement of the parties hereto and thereto, and
supersede all prior agreements and understandings, oral or written, if any,
including any commitment letters or correspondence relating to the Credit
Documents or the transactions contemplated herein and therein.

     

    
      
        
        

      

      
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    11.16 Binding Effect; Continuing
Agreement.

     

    (a) This
Reimbursement Agreement shall become effective at such time when all of the
conditions set forth in Section 4.1 have been satisfied or waived by the Lenders
and it shall have been executed by the Borrower and the Administrative Agent,
and the Administrative Agent shall have received copies hereof (telefaxed or
otherwise) which, when taken together, bear the signatures of each Lender, and
thereafter this Reimbursement Agreement shall be binding upon and inure to the
benefit of the Borrower, the Administrative Agent and each Lender and their
respective successors and assigns.

     

    (b) This
Reimbursement Agreement shall be a continuing agreement and shall remain in full
force and effect until all L/C Obligations, outstanding interest, fees and other
Borrower Obligations have been paid in full and all Letters of Credit and
Commitments have been terminated.  Upon termination, the Borrower
shall have no further obligations (other than the indemnification provisions and
other provisions that by their terms survive) under the Credit Documents; provided that should
any payment, in whole or in part, of the Borrower Obligations be rescinded or
otherwise required to be restored or returned by the Administrative Agent or any
Lender, whether as a result of any proceedings in bankruptcy or reorganization
or otherwise, then the Credit Documents shall automatically be reinstated and
all amounts required to be restored or returned and all costs and expenses
incurred by the Administrative Agent or any Lender in connection therewith shall
be deemed included as part of the Borrower Obligations.

     

    11.17 Regulatory
Statement.

     

    Pursuant
to the terms of an order issued by the New Mexico Public Regulation Commission,
the Borrower is required to include the following separateness covenants in any
debt instrument:

     

    (a) The
Borrower and its corporate parent, PNM Resources, Inc. (“Parent”) are being
operated as separate corporate and legal entities.  In agreeing to
make credit extensions to Parent, Parent’s lenders are relying solely on the
creditworthiness of Parent based on the assets owned by Parent, and the
repayment of the credit extension will be made solely from the assets of Parent
and not from any assets of the Borrower; and the Parent’s lenders will not take
any steps for the purpose of procuring the appointment of an administrative
receiver or the making of an administrative order for instituting any
bankruptcy, reorganization, insolvency, wind up or liquidation or any like
proceeding under applicable law in respect of the Borrower.

     

    (b) Notwithstanding
any of the foregoing set forth in this Section 11.17, the Borrower and the
Lenders hereby acknowledge and agree that (i) this Reimbursement Agreement and
the Notes evidence Indebtedness of the Borrower and not of the Parent, (ii) the
Lenders are not, and shall not at any time be deemed to be, “Parent’s lenders”
under this Reimbursement Agreement and the Notes, (iii) as set forth in this
Reimbursement Agreement and the Notes, the Borrower is responsible for the
repayment of all amounts outstanding hereunder, (iv) the Lenders reserve all
rights to pursue any and all remedies available at law and otherwise (including,
without limitation, in bankruptcy), should the Borrower breach any of the its
obligations under this Reimbursement Agreement and/or the Notes.

     

    
      
        
        

      

      
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    11.18 USA Patriot Act
Notice.

     

    Each
Lender and the Administrative Agent (for itself and not on behalf of any Lender)
hereby notifies the Borrower that pursuant to the requirements of the USA
Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001))
(the “Act”), it is required to obtain, verify and record information that
identifies the Borrower, which information includes the name and address of the
Borrower and other information that will allow such Lender or the Administrative
Agent, as applicable, to identify the Borrower in accordance with the
Act.

     

    11.19 Acknowledgment.

     

    Section 7
and Section 8 of this Reimbursement Agreement contain affirmative and negative
covenants applicable to the Borrower.  Each of the parties to this
Reimbursement Agreement acknowledges and agrees that any such covenants that
require the Borrower to cause any of its Subsidiaries to take or to refrain from
taking specified actions will be enforceable unless prohibited by applicable law
or regulatory requirement.

     

    11.20 Replacement of
Lenders.

     

    If (a)
the Borrower is required to pay any additional amount to any Lender or any
Governmental Authority for the account of any Lender pursuant to Section 3.13,
(b) a Lender (a “Non-Consenting Lender”) does not consent to a proposed change,
waiver, discharge or termination with respect to any Credit Document that has
been approved by the Required Lenders as provided in Section 11.6 but requires
unanimous consent of all Lenders or all Lenders directly affected thereby (as
applicable), or (c) any Lender is a Defaulting Lender, then the Borrower may, at
its sole expense and effort, upon notice to such Lender and the Administrative
Agent, require such Lender to assign and delegate, without recourse (in
accordance with and subject to the restrictions contained in, and consents
required by, Section 11.3), all of its interests, rights and obligations under
this Reimbursement Agreement and the related Credit Documents to an assignee
that shall assume such obligations (which assignee may be another Lender, if a
Lender accepts such assignment), provided
that:

     

    (i) the
Borrower shall have paid to the Administrative Agent the assignment fee
specified in Section 11.3(b);

     

    (ii) such
Lender shall have received payment of an amount equal to its L/C Obligations,
accrued interest thereon, accrued fees and all other amounts payable to it
hereunder and under the other Credit Documents from the assignee (to the extent
of such outstanding principal and accrued interest and fees) or the Borrower (in
the case of all other amounts);

     

    (iii) in the
case of any such assignment resulting from payments required to be made pursuant
to Section 3.13, such assignment will result in a reduction in such compensation
or payments thereafter; and

     

    
      
        
        

      

      
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    (iv) such
assignment does not conflict with applicable Laws; and

     

    (v) in the
case of any such assignment resulting from a Non-Consenting Lender’s failure to
consent to a proposed change, waiver, discharge or termination with respect to
any Credit Document, the applicable replacement bank, financial institution or
Fund consents to the proposed change, waiver, discharge or termination; provided that the
failure by such Non-Consenting Lender to execute and deliver an Assignment and
Assumption shall not impair the validity of the removal of such Non-Consenting
Lender and the mandatory assignment of such Non-Consenting Lender’s Commitments
and participations in L/C Obligations pursuant to this Section shall
nevertheless be effective without the execution by such Non-Consenting Lender of
an Assignment and Assumption.

     

    A Lender
shall not be required to make any such assignment or delegation if, prior
thereto, as a result of a waiver by such Lender or otherwise, the circumstances
entitling the Borrower to require such assignment and delegation cease to
apply.

     

    [REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]

     

    

    
      
        
           

        

         

      

      
        72

        
          

        

      

      
         

        
          Signature
Page to Reimbursement Agreement

          Public
Service Company of New Mexico

        

      

    

    Each of
the parties hereto has caused a counterpart of this Reimbursement Agreement to
be duly executed and delivered as of the date first above written.

     

    BORROWER:

     

    PUBLIC SERVICE COMPANY OF NEW
MEXICO,

    a New
Mexico corporation

    

    

    

    By: 
/s/ Terry Horn

    Name:  Terry
Horn

    Title:    Vice
President and Treasurer

    

    
      
        S-1

         

      

      
         

        
          

        

      

      
         

        
          Signature
Page to Reimbursement Agreement

          Public
Service Company of New Mexico

        

      

    

    LENDERS:

    DEUTSCHE BANK AG NEW YORK BRANCH,

    individually
in its capacity as a Lender and in its capacity as Administrative Agent and the
L/C Issuer

    

    

    

    By: /s/ Marcus Tarkington

    Name:
Marcus Tarkington

    Title: 
Director

    

    And

    

    By: /s/ Ming K. Chu

    Name: 
Ming K. Chu

    Title:
Vice President

    

    

    

    

    ROYAL
BANK OF CANADA,

    individually
in its capacity as a Lender

    

    

    

    By: _________________

    Name:

    Title:

    

    

    
      
        S-2

         

      

      
         

        
          

        

      

      
         

      

    

    Schedule
1.1(a)

     

    Pro
Rata Shares

     

    

    
      	
              Lender

            	 	
              Committed
      Amount

            	 	 	
              Pro
      Rata Share

            	 
	
              Deutsche
      Bank AG New York Branch

            	 	$	35,000,000.00	 	 	 	35.000000000	%
	
              Royal
      Bank of Canada

            	 	$	65,000,000.00	 	 	 	65.000000000	%
	
              Total:

            	 	$	100,000,000.00	 	 	 	100.00000000	%

    

    

    
      
        
          Schedule 1.1(a) – Page
1

        

         

      

      
         

        
          

        

      

      
         

      

    

     

    Schedule
1.1(b)

     

    Public Service
Company of New Mexico

    Calculation of
EBITDA Coverage

    
 

    
      
        	 
      	 	
                 

              	 	 	 	 	 	
                 
      Actual

              	 	 	 	 	 	 	 
	 
      	 	 	Q1 2007	 	 	 	Q2 2007	 	 	 	Q3 2007	 	 	 	Q4 2007	 	 	 	Q1 2008	 	 	
                Rolling 12 Mos

              	 
	
                Operating
      Income

              	 	 	54,034	 	 	 	5,366	 	 	 	(1,235	)	 	 	12,794	 	 	 	7,602	 	 	 	24,527	 
	 
      	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	0	 
	
                Depreciation
      & Amortization

              	 	 	26,356	 	 	 	26,202	 	 	 	26,004	 	 	 	26,310	 	 	 	20,970	 	 	 	99,486	 
	
                Net
      Unrealized (gains)/losses on derivatives

              	 	 	(3,892	)	 	 	14,788	 	 	 	4,047	 	 	 	(6,447	)	 	 	(10,332	)	 	 	2,056	 
	
                Impairments
      of Utility Plant

              	 	 	 	 	 	 	 	 	 	 	19,500	 	 	 	 	 	 	 	 	 	 	 	19,500	 
	
                Regulatory
      write-downs

              	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	30,248	 	 	 	30,248	 
	
                EBITDA

              	 	$	76,498	 	 	$	46,356	 	 	$	48,316	 	 	$	32,657	 	 	$	48,488	 	 	 	175,817	 
	
                Interest
      Charges from Continuing Operations

              	 	$	16,092	 	 	$	15,639	 	 	$	16,890	 	 	$	16,266	 	 	$	14,103	 	 	 	62,898	 
	
                Interest
      Charges from Discontinued Operations

              	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	$	2,971	 	 	 	2,971	 
	
                GAAP
      Total Interest Charges

              	 	$	16,092	 	 	$	15,639	 	 	$	16,890	 	 	$	16,266	 	 	$	17,074	 	 	 	65,869	 
	
                Quarterly
      Coverage

              	 	 	4.8	 	 	 	3.0	 	 	 	2.9	 	 	 	2.0	 	 	 	2.8	 	 	 	2.67	 
	 
      	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                Rolling
      12 months

              	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                EBITDA

              	 	 	 	 	 	 	 	 	 	 	 	 	 	$	203,827	 	 	$	175,817	 	 	 	 	 
	
                Interest

              	 	 	 	 	 	 	 	 	 	 	 	 	 	$	64,887	 	 	$	65,869	 	 	 	 	 
	
                Coverage

              	 	 	 	 	 	 	 	 	 	 	 	 	 	 	3.14	 	 	 	2.67	 	 	 	 	 

      

      
        
          
             

          

        

        
           

          
            

          

        

        
           

        

      

      

        B.           Interest
Coverage:

        

        
          	 
      	
                  1.           Consolidated
      EBITDA of the Borrower

                   

                	 
      
	 
      	
                  (a) operating
      income from continuing operations and from discontinued operations (but
      expressly excluding any extraordinary gains and extraordinary
      losses)

                	
                   

                  $             24,527

                
	 
      	
                  (c) depreciation
      and amortization expense

                	
                  $      
            99,486

                
	 
      	
                  (c) net
      unrealized losses under any derivatives

                	
                  $      
              2,056

                
	 
      	
                  (d) impairments
      of utility plant (to the extent such amount is included in operating
      income)

                	
                  $       
           19,500

                
	 
      	
                  (e) impairments
      of regulatory assets and regulatory disallowances (to the extent such
      amount is included in operating income)

                	
                  $       
           30,248

                
	 
      	
                  Sum
      (a) through (e)

                	
                  $           175,817

                
	 
      	
                  (f) net
      unrealized gains under any derivatives

                	
                  $         
             0     

                
	 
      	
                  Consolidated
      EBITDA (Sum of (a) through (e) minus (f)):

                	
                  $           175,817

                
	 
      	
                  2.           Consolidated
      Interest Expense of the Borrower

                   

                	 
      
	 
      	
                  (a)
      total interest charges included in the calculation of income from
      continuing operations

                	
                  $       
           62,898

                
	 
      	
                  (b) total
      interest charges included in the calculation of income from discontinued
      operations, in each case, including all interest, premium payments, debt
      discount, fees, charges and related expenses in connection with borrowed
      money (including capitalized interest), the deferred purchase price of
      assets, and the portion of rent expense under capitalized leases that is
      treated as interest.

                	
                   

                   

                   

                  $               2,971

                
	 
      	
                  Sum
      of (a) and (b)

                	
                  $             65,869

                
	 
      	 
      	 
      
	 
      	
                  3.           Interest
      Coverage Ratio (Line B1 ÷ B2)

                	
                            2.67
      to 1.0

                
	 
      	
                  Minimum
      Permitted:

                	
                            2.20
      to 1.0

                

        

         

        
 
Schedule 1 to
Exhibit 7.1(c) - Page 2

        
          
             

          

          
             

            
              

            

          

          
             

          

        

      

    

    Schedule
6.18

     

    Material
Leases

    
      
 

      
        	 
      	
                Description

              	
                Expiration

              	
                                            
      Annual Rent

                 

              
	 
      	
                Palo
      Verde Unit 1

                 

              	 
      	 
      
	
                1.1

              	
                Facility
      Lease dated as of December 16, 1985, between Public Service Company
      of New Mexico (“PNM”) and U. S. Bank
      National Association (successor in interest to State Street Bank and Trust
      Company, as successor to The First National Bank of Boston) (“U. S. Bank”), as Owner
      Trustee  under a Trust Agreement dated as of December 16,
      1985, with MFS Leasing Corp. (“MFS”),
      as Owner Participant, as amended.  

                 

              	
                1/15/2015

              	
                $  5,580,122.54

              
	
                1.2

              	
                Facility
      Lease dated as of December 16, 1985, between PNM and U. S. Bank, as
      Owner Trustee under a Trust Agreement dated as of December 16, 1985,
      with Daimler Chrysler Capital Services (debis) LLC, a Delaware limited
      liability company (as successor to Daimler Chrysler Financial Services
      Americas L.L.C., successor to Daimler Chrysler Financial Services North
      America L.L.C., successor to Chrysler Financial Company
      L.L.C.,  successor to Chrysler Financial Corporation), as Owner
      Participant, as amended.

                 

              	
                1/15/2015

              	
                $
      15,693,862.76

              
	
                1.3

              	
                Facility
      Lease dated as of December 15, 1986, between PNM and U. S. Bank, as
      Owner Trustee under a Trust Agreement dated as of December 15, 1986,
      with Palo Verde 1-PNM December 75 Corporation
      (successor-in-interest to Chase), as Owner Participant, as
      amended.

                 

              	
                1/15/2015

              	
                $  4,757,769.00

              
	
                1.4

              	
                Facility
      Lease dated as of July 31, 1986, between PNM and U. S. Bank, as Owner
      Trustee under a Trust Agreement dated as of July 31, 1986, with Palo
      Verde 1-PNM August 50 Corporation (successor-in-interest to
      Chase Manhattan Realty Leasing Corporation (“Chase”)), as Owner Participant, as
      amended.  

                 

              	
                1/15/2015

              	
                $  6,974,313.00

              
	 
      	
                Total
      Unit 1

              	 
      	
                $
      33,006,067.01

                 

              

      

      

      
        
          
            
            

          

          
             

            
              

            

          

          
             

          

        

      

       

      

      

      
        	 
      	
                Description

                 

                 

              	
                Expiration

              	
                Annual Rent

                 

              
	 
      	
                Palo
      Verde Unit 2

                 

              	 
      	 
      
	
                2.1

              	
                Facility
      Lease dated as of August 12, 1986, between PNM and U. S. Bank, as
      Owner Trustee under a Trust Agreement dated as of August 12, 1986,
      with MFS, as Owner Participant, as amended.

                 

              	
                1/15/2016

              	
                $  5,742,060.00

              
	
                2.2

              	
                Facility
      Lease dated as of August 12, 1986, between PNM and U. S. Bank, as
      Owner Trustee under a Trust Agreement dated as of August 12, 1986,
      with CGI Capital, Inc., as Owner Participant, as amended.

                 

              	
                1/15/2016

              	
                $  9,958,478.04

              
	
                2.3

              	
                Facility
      Lease dated as of August 12, 1986, between PNM and U. S. Bank, as
      Owner Trustee under a Trust Agreement dated as of August 12, 1986,
      with PNMR Development and Management Corporation (as assignee of Palo
      Verde Leasing Corporation, successor-in-interest to First Chicago Lease
      Holdings, Inc.), as Owner Participant, as amended.

                 

              	
                1/15/2016

              	
                $  9,569,653.00

              
	
                2.4

              	
                Facility
      Lease dated as of August 12, 1986, between PNM and U. S. Bank, as
      Owner Trustee under a Trust Agreement dated as of August 12, 1986,
      with MFS (successor-in-interest to Beneficial Leasing Group, Inc.), as
      Owner Participant, as amended.

                 

              	
                1/15/2016

              	
                $  4,743,012.00

              
	
                2.5

              	
                Facility
      Lease dated as of December 15, 1986, between PNM and U. S. Bank, as Owner
      Trustee under a Trust Agreement dated as of December 15, 1986, with
      PV2-PNM December 35 Corporation (successor-in-interest to Chase), as
      Owner Participant, as amended.

                 

              	
                1/15/2016

              	
                $3,272,560.40

              
	 
      	
                Total
      Unit 2

              	 
      	
                $
      33,285,763.44

                 

              
	 
      	 
      	 
      	 
      
	 
      	
                Eastern
      Interconnection Project (EIP)

                 

              	 
      	 
      
	 
      	
                Amended
      and Restated Lease dated as of September 1. 1993 between PNM as Lessee and
      U.S. Bank, as Owner Trustee under a Trust Agreement dated as of January 2,
      1985 with General Foods Corporation, as Lessor.

                 

              	
                4/1/2015

              	
                $  2,675,739.30*

                $
      2,844,913.50

              
	 
      	
                Total
      EIP

              	 
      	
                $  2,675,739.30*

                 $  2,844,913.50

                 

              
	 
      	 
      	 
      	
                *1994
      Only

              

      

      

      

       

      

      
        
          
            
            

          

          
             

            
              

            

          

          
             

          

        

      

      

      SCHEDULE
6.18

      

      MATERIAL LEASE INTEREST
PAYMENTS AND DISCOUNT RATE

      

      

        
          	
                  EIP
      (12.85%)

                
	 
      	 
      	 
      	 
      	 
      
	 
      	
                   Total

                	
                  Principal

                	
                  Interest

                	
                  Loan

                
	
                  Date

                	
                   Payment

                	
                  Payment

                	
                  Payment

                	
                  Balance
      EoY

                
	
                  2002

                	 
      	 
      	 
      	
                  4,638,915

                
	
                  2003

                	
                  1,250,043

                	
                  664,042

                	
                  586,001

                	
                  3,974,873

                
	
                  2004

                	
                  1,589,597

                	
                  1,113,483

                	
                  476,114

                	
                  2,861,390

                
	
                  2005

                	
                  1,299,597

                	
                  971,162

                	
                  328,435

                	
                  1,890,229

                
	
                  2006

                	
                  608,408

                	
                  377,028

                	
                  231,380

                	
                  1,513,201

                
	
                  2007

                	
                  642,648

                	
                  462,245

                	
                  180,402

                	
                  1,050,955

                
	
                  2008

                	
                  683,422

                	
                  565,607

                	
                  117,815

                	
                  485,348

                
	
                  2009

                	
                  58,795

                	
                  -3,678

                	
                  62,474

                	
                  489,027

                
	
                  2010

                	
                  112,898

                	
                  49,936

                	
                  62,962

                	
                  439,091

                
	
                  2011

                	
                  53,990

                	
                  -2,495

                	
                  56,485

                	
                  441,586

                
	
                  2012

                	
                  498,398

                	
                  441,586

                	
                  56,811

                	
                  0

                
	
                  2013

                	 
      	 
      	 
      	 
      
	
                  2014

                	 
      	 
      	 
      	 
      
	
                  2015

                	 
      	 
      	 
      	 
      
	
                  2016

                	 
      	 
      	 
      	 
      
	
                  2017

                	 
      	 
      	 
      	 
      
	
                  2018

                	 
      	 
      	 
      	 
      
	
                  2019

                	 
      	 
      	 
      	 
      
	
                  2020

                	 
      	 
      	 
      	 
      

        

      

      

      

      
        
          
            
              Schedule 6.18 - Page
1    

            

          

          
             

            
              

            

          

          
             

          

        

      

      

      SCHEDULE
6.19

      

      MATERIAL LEASE INTEREST
PAYMENTS AND DISCOUNT RATE

       

      

        
          	
                  PVNG
      (10.25%)

                
	 
      	 
      	 
      	 
      	 
      
	 
      	
                   Total

                	
                  Interest

                	
                  Principal

                	
                  Loan

                
	
                  Date

                	
                   Payment

                	
                  Payment

                	
                  Payment

                	
                  Balance
      EoY

                
	
                  2002

                	 
      	 
      	 
      	
                  119,432,650

                
	
                  2003

                	
                  12,682,996

                	
                  12,241,847

                	
                  441,149

                	
                  118,991,501

                
	
                  2004

                	
                  12,667,756

                	
                  12,196,629

                	
                  471,127

                	
                  118,520,374

                
	
                  2005

                	
                  14,380,430

                	
                  12,148,338

                	
                  2,232,092

                	
                  116,288,282

                
	
                  2006

                	
                  15,239,058

                	
                  11,919,549

                	
                  3,319,509

                	
                  112,968,773

                
	
                  2007

                	
                  16,147,881

                	
                  11,579,299

                	
                  4,568,582

                	
                  108,400,191

                
	
                  2008

                	
                  17,117,049

                	
                  11,111,020

                	
                  6,006,029

                	
                  102,394,162

                
	
                  2009

                	
                  14,895,517

                	
                  10,495,402

                	
                  4,400,115

                	
                  97,994,046

                
	
                  2010

                	
                  13,670,429

                	
                  10,044,390

                	
                  3,626,039

                	
                  94,368,007

                
	
                  2011

                	
                  14,513,604

                	
                  9,672,721

                	
                  4,840,883

                	
                  89,527,124

                
	
                  2012

                	
                  26,655,935

                	
                  9,176,530

                	
                  17,479,405

                	
                  72,047,719

                
	
                  2013

                	
                  29,233,436

                	
                  7,384,891

                	
                  21,848,545

                	
                  50,199,174

                
	
                  2014

                	
                  34,358,781

                	
                  5,145,415

                	
                  29,213,366

                	
                  20,985,809

                
	
                  2015

                	
                  19,428,445

                	
                  2,151,045

                	
                  17,277,400

                	
                  3,708,409

                
	
                  2016

                	
                  4,088,521

                	
                  380,112

                	
                  3,708,409

                	
                  0

                
	
                  2017

                	 
      	 
      	 
      	 
      
	
                  2018

                	 
      	 
      	 
      	 
      
	
                  2019

                	 
      	 
      	 
      	 
      
	
                  2020

                	 
      	 
      	 
      	 
      

        

        
          
            
              Schedule 6.19 -
Page 2    

            

          

          
             

            
              

            

          

          
             

          

        

    

    Schedule
11.1

     

    Notices

     

    

    Borrower:

    

    Public
Service Company of New Mexico

    Alvarado
Square

    Albuquerque,
New Mexico  87158

    Attention:
Terry Horn, Vice President and Treasurer

    Telephone:         505.241.2119

    Fax:                      505.241.2369

    e-mail:                  Terry.Horn@pnmresources.com

     

    

    Administrative
Agent:

    

    Deutsche
Bank AG New York Branch

    60 Wall
Street

    New York,
New York 10005

    Attn:       Global
Loan Operations

    Standby
Letter of Credit Unit

    Mail
Stop: NYC60-0926

    Tel. No.
212-250-1014/1214

    Fax No.
212-797-0403

    

    

    L/C
Issuer:

    

    Deutsche
Bank AG New York Branch

    60 Wall
Street

    New York,
N.Y. 10005

    Attn:       Global
Loan Operations

    Standby
Letter of Credit Unit

    Mail
Stop: NYC60-0926

    Tel. No.
212-250-1014/1214

    Fax No.
212-797-0403

    
      
        
          Schedule 11.1 –
Page 1

        

         

      

      
         

        
          

        

      

      
         

      

    

    Schedule
11.3

     

    Processing
and Recording Fees

     

    The
Administrative Agent will charge a processing and recordation fee (an
“Assignment Fee”) in the amount of $3,500 for each assignment; provided,
however, that in the event of two or more concurrent assignments to members of
the same Assignee Group (which may be effected by a suballocation of an assigned
amount among members of such Assignee Group) or two or more concurrent
assignments by members of the same Assignee Group to a single Eligible Assignee
(or to an Eligible Assignee and members of its Assignee Group), the Assignment
Fee will be $3,500 plus the amount set forth below:

     

    
      	
              Transaction

            	
              Assignment
      Fee

               

            
	
              First
      four concurrent assignments or suballocations to members of an Assignee
      Group (or from members of an Assignee Group, as
applicable)

            	
              -0-

            
	 
      
	 
      
	 
      
	
              Each
      additional concurrent assignment or suballocation to a member of such
      Assignee Group (or from a member of such Assignee Group, as
      applicable)

            	
              $500

            
	 
      
	 
      
	 
      

    

    

    
      
        
          Schedule 11.3 – Page
1

        

         

      

      
         

        
          

        

      

      
         

      

    

    Exhibit
2.2(b)

     

    Form
of Letter of Credit Request

     

    Dated
      1     

     

    
      	
               
      

            	
              Deutsche
      Bank AG, New York Branch

            

    

    
      	
               
      

            	
              as
      Administrative Agent for the Lenders
party

            

    

    
      	
               
      

            	
              to
      the Reimbursement Agreement referred to
below

            

    

    
      	
            	
               
      

            	
              Global
      Loan Operations,

            

    

    
      	
            	
               
      

            	
              Standby
      Letter of Credit Unit

            

    

    
      	
            	
               
      

            	
              60
      Wall Street

            

    

    
      	
            	
               
      

            	
              MS
      NYC 60-0926

            

    

    
      	
            	
               
      

            	
              New
      York, New York 10005

            

    

    

    Attention:
______________

     

    Dear
Ladies and Gentlemen:

     

    We hereby
request that the L/C Issuer, in its individual capacity, issue a standby Letter
of Credit for the account of the undersigned on       2      
(the “Date of
Issuance”), which Letter of Credit shall be denominated in United States
Dollars and shall be in the aggregate amount of       3      .

     

    For the
purposes of this Letter of Credit Request, unless otherwise defined herein, all
capitalized terms used herein and defined in the Reimbursement Agreement dated
as of May 8, 2008, among Public Service Company of New Mexico, as
borrower, Deutsche Bank AG New York Branch, as administrative agent and L/C
Issuer, and the other financial institutions party thereto from time to time (as
amended, supplemented or otherwise modified from time to time, the “Reimbursement
Agreement”) shall have the respective meaning provided such terms in the
Reimbursement Agreement.

     

    The
beneficiary of the requested Letter of Credit will be       4      ,
and such Letter of Credit will be in support of       5      
and will have a stated expiration date of       6      .

     

    We hereby
certify that:

     

    (1)           the
representations and warranties contained in the Reimbursement Agreement and in
the other Credit Documents are and will be true and correct in all material
respects, both before and after giving effect to the issuance of the Letter of
Credit requested hereby, on the Date of Issuance (it being understood and agreed
that any representation or warranty which by its terms is made as of a specified
date shall be required to be true and correct in all material respects only as
of such specified date); and

     

    (2)           no
Default or Event of Default has occurred and is continuing nor, after giving
effect to the issuance of the Letter of Credit requested hereby, would such a
Default or an Event of Default occur.

     

    PUBLIC SERVICE COMPANY OF NEW
MEXICO, a New Mexico corporation

    

    By
____________________________

     

          Name:

     

          Title:

     

    

    

    

      

    

      
      
        	
                1

              	
                Date
      of Letter of Credit Request.  Must be prior to the Commitment
      Termination Date.

              

      

    

      
      
        	
                2

              	
                Date
      of Issuance, which shall be at least two (2) Business Days from the date
      hereof (or such shorter period as is reasonably acceptable to the L/C
      Issuer).

              

      

    

      
      
        	
                3

              	
                Aggregate
      initial amount of the Letter of
Credit.

              

      

    

      
      
        	
                4

              	
                Insert
      name and address of
beneficiary.

              

      

    

      
      
        	
                5

              	
                Insert
      brief description of supportable
obligations.

              

      

    

      
      
        	
                6

              	
                Insert
      the last date upon which drafts may be presented which may not be later
      than Commitment Termination
Date.

              

      

    

    
      
        
          Exhibit 2.2(b) –
Page 1

        

         

      

      
         

        
          

        

      

      
         

      

    

    Exhibit
2.7(c)

     

    Form
of Note

     

    Lender:
_________________ ______________, 2008

     

    FOR VALUE
RECEIVED, PUBLIC SERVICE COMPANY OF NEW MEXICO, a New Mexico corporation (the
“Borrower”),
hereby promises to pay to the order of the Lender referenced above (the “Lender”), at the
Administrative Agent's Office set forth in that certain Reimbursement Agreement
dated as of May 8, 2008 (as amended, modified, extended or restated from
time to time, the “Reimbursement
Agreement”) among the Borrower, the Lenders party thereto (including the
Lender) and Deutsche Bank AG New York Branch, as Administrative Agent (the
“Administrative
Agent”) (or at such other place or places as the holder of this Note may
designate), the aggregate unpaid amount of any Unreimbursed Amounts extended by
the Lender for the benefit of the Borrower under the Reimbursement Agreement, in
lawful money and in immediately available funds, on demand and in the amounts
provided in the Reimbursement Agreement, and to pay interest on the unpaid
amount of each Unreimbursed Amount extended by the Lender, at such office, in
like money and funds, for the period commencing on the date of each Unreimbursed
Amount until each Unreimbursed Amount shall be paid in full, at the rates per
annum and on the dates provided in the Reimbursement Agreement.

     

    This Note
is one of the Notes referred to in the Reimbursement Agreement and evidences
Unreimbursed Amount extended by the Lender to the Borrower
thereunder.  Capitalized terms used in this Note have the respective
meanings assigned to them in the Reimbursement Agreement and the terms and
conditions of the Reimbursement Agreement are expressly incorporated herein and
made a part hereof.

     

    In the
event this Note is not paid when due, the Borrower agrees to pay, in addition to
Unreimbursed Amount and interest thereon, all costs of collection, including
reasonable attorney fees.

     

    The date,
amount and interest rate of each L/C Obligation extended by the Lender for the
account of the Borrower, and each payment made on account of any L/C Obligation,
shall be recorded by the Lender on its books; provided that the
failure of the Lender to make any such recordation or endorsement shall not
affect the obligations of the Borrower to make a payment when due of any amount
owing under the Reimbursement Agreement or under this Note in respect of the L/C
Obligations to be evidenced by this Note, and each such recordation or
endorsement shall be prima facie evidence of such information, absent manifest
error.

     

    Except as
permitted by Section 11.3(b) of the Reimbursement Agreement, this Note may not
be assigned by the Lender to any other Person.

     

    THIS
NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF NEW YORK.

     

    

    IN
WITNESS WHEREOF, the Borrower has caused this Note to be executed as of the date
first above written.

     

    PUBLIC
SERVICE COMPANY OF NEW MEXICO,

    a New
Mexico corporation

    

    

    By:                                                                                     

    Name:

    Title:

    

    
      
        
          Exhibit 2.7(c) –
Page 1

        

         

      

      
         

        
          

        

      

      
         

      

    

    Exhibit
7.1(c)

     

    Form
of Compliance Certificate

     

    
      	
              TO:

            	
              DEUTSCHE
      BANK AG NEW YORK BRANCH, as Administrative
Agent

            

    

     

    
      	
              RE:

            	
              Reimbursement
      Agreement dated as of May 8, 2008, among Public Service Company of New
      Mexico (the “Borrower”),
      Deutsche Bank AG New York Branch (the “Administrative
      Agent”), and the Lenders identified therein (as the same may be
      amended, modified, extended or restated from time to time, the “Reimbursement
      Agreement”)

            

    

     

    
      	
              DATE:

            	
              ______________,
      200_

            

    

     

    

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Pursuant
to the terms of the Reimbursement Agreement, I, ___________, Chief Financial
Officer of Public Service Company of New Mexico, hereby certify on behalf of the
Borrower that, as of the quarter ending ______________, 200_, the statements
below are accurate and complete in all respects (all capitalized terms used
below shall have the meanings set forth in the Reimbursement
Agreement):

     

    a. Attached
hereto as Schedule
1 are calculations (calculated as of the date of the financial statements
referred to in paragraph c. below) demonstrating compliance by the Borrower with
the financial covenants contained in Section 7.2 of the Reimbursement
Agreement.

     

    b. No
Default or Event of Default exists under the Reimbursement Agreement, except as
indicated on a separate page attached hereto, together with an explanation of
the action taken or proposed to be taken by the Borrower with respect
thereto.

     

    c. The
quarterly/annual financial statements for the fiscal quarter/year ended
_______________, 200_ which accompany this certificate fairly present in all
material respects the financial condition of the Borrower and its Subsidiaries
and have been prepared in accordance with GAAP, subject to changes resulting
from normal year-end audit adjustments and except that the quarterly financial
statements have fewer footnotes than annual statements.

     

    PUBLIC
SERVICE COMPANY OF NEW MEXICO,

    a New
Mexico corporation

    

    

    By:                                                                                     

    Name:

    Title:

    
      
        
          Exhibit 7.1(c) – Page
1

        

         

      

      
         

        
          

        

      

      
         

      

    

    Schedule
1 to

     

    Exhibit
7.1(c)

     

    

     

    Financial Covenant
Calculations

     

    

     

    A.           Debt
Capitalization

     

    
      	
              1.           Consolidated
      Indebtedness of the Borrower*

            	
              $                                

            
	
              2.           Consolidated
      Capitalization of the Borrower

            	
              $                                

            
	
              3.           Debt
      to Capitalization Ratio (Line A1 ÷ A2)

            	
              ____________
      to 1.0

            
	
              Maximum
      Permitted

            	
              .57
      to 1.0

            

    

    

    

    

    

    

    * For
purposes of such calculation, the portion of Consolidated Indebtedness
attributable to obligations under Material Leases shall be the net present value
(using (i) the discount rate (A) set forth in Schedule 6.19 of the Reimbursement
Agreement, so long as such Schedule 6.19 specifies the same relevant discount
rate as is used in calculating such net present value provided to Moody's and
S&P or (B) the discount rate used in calculating such net present value
provided to Moody's and S&P or (ii) any such other rate as shall be proposed
by the Company (and agreed upon by the Required Lenders) of all amounts payable
under the Material Leases.

    

    
      
        
          

          Schedule
1 to Exhibit 7.1(c) – Page 1

        

         

      

      
         

        
          

        

      

      
         

      

    

    
 

    
      B.           Interest
Coverage:

      

      
        	 
      	
                1.           Consolidated
      EBITDA of the Borrower

                 

              	 
      
	 
      	
                (a) operating
      income from continuing operations and from discontinued operations (but
      expressly excluding any extraordinary gains and extraordinary
      losses)

              	
                $                                

              
	 
      	
                (c) depreciation
      and amortization expense

              	
                $                                

              
	 
      	
                (c) net
      unrealized losses under any derivatives

              	
                $                                

              
	 
      	
                (d) impairments
      of utility plant (to the extent such amount is included in operating
      income)

              	
                $                                

              
	 
      	
                (e) impairments
      of regulatory assets and regulatory disallowances (to the extent such
      amount is included in operating income)

              	
                $                                

              
	 
      	
                Sum
      (a) through (e)

              	
                $                                

              
	 
      	
                (f) net
      unrealized gains under any derivatives

              	
                $                                

              
	 
      	
                Consolidated
      EBITDA (Sum of (a) through (e) minus (f)):

              	
                $                                

              
	 
      	
                2.           Consolidated
      Interest Expense of the Borrower

                 

              	 
      
	 
      	
                (a)
      total interest charges included in the calculation of income from
      continuing operations

              	
                $                                

              
	 
      	
                (b) total
      interest charges included in the calculation of income from discontinued
      operations, in each case, including all interest, premium payments, debt
      discount, fees, charges and related expenses in connection with borrowed
      money (including capitalized interest), the deferred purchase price of
      assets, and the portion of rent expense under capitalized leases that is
      treated as interest.

              	
                $                                

              
	 
      	
                Sum
      of (a) and (b)

              	
                $                                

              
	 
      	 
      	 
      
	 
      	
                3.           Interest
      Coverage Ratio (Line B1 ÷ B2)

              	
                ____________
      to 1.0

              
	 
      	
                Minimum
      Permitted:

              	
                2.20
      to 1.0

              

      

      

      

Schedule 1 to Exhibit
7.1(c) - Page 2

      
        
           

        

        
           

          
            

          

        

        
           

        

      

     

     

    Exhibit
11.3(b)

     

    Form
of Assignment and Assumption

     

    This
Assignment and Assumption (the “Assignment and
Assumption”) is dated as of the Effective Date set forth below and is
entered into by and between _______________ (the “Assignor”) and
__________________ (the “Assignee”).  Capitalized
terms used but not defined herein shall have the meanings given to them in the
Reimbursement Agreement identified below (as amended, the “Reimbursement
Agreement”), receipt of a copy of which is hereby acknowledged by the
Assignee.  The Standard Terms and Conditions set forth in
Schedule 1 attached hereto (the “Standard Terms and
Conditions”) are hereby agreed to and incorporated herein by reference
and made a part of this Assignment and Assumption as if set forth herein in
full.

     

    For an
agreed consideration, the Assignor hereby irrevocably sells and assigns to the
Assignee, and the Assignee hereby irrevocably purchases and assumes from the
Assignor, subject to and in accordance with the Standard Terms and Conditions
and the Reimbursement Agreement, as of the Effective Date inserted by the
Administrative Agent as contemplated below (a) all of the Assignor's rights and
obligations in its capacity as a Lender under the Reimbursement Agreement and
any other documents or instruments delivered pursuant thereto to the extent
related to the amount and percentage interest identified below of all of such
outstanding rights and obligations of the Assignor under the respective
facilities identified below (including without limitation any Letters of Credit,
Participation Interests, L/C Obligations, Unreimbursed Amounts and guarantees
included in such facilities) and (b) to the extent permitted to be assigned
under applicable law, all claims, suits, causes of action and any other right of
the Assignor (in its capacity as a Lender) against any Person, whether known or
unknown, arising under or in connection with the Reimbursement Agreement, any
other documents or instruments delivered pursuant thereto or the transactions
governed thereby or in any way based on or related to any of the foregoing,
including, but not limited to, contract claims, tort claims, malpractice claims,
statutory claims and all other claims at law or in equity related to the rights
and obligations sold and assigned pursuant to clause (a) above (the rights and
obligations sold and assigned pursuant to clauses (a) and (b) above being
referred to herein collectively as, the “Assigned Interest”).  Such
sale and assignment is without recourse to the Assignor and, except as expressly
provided in this Assignment and Assumption, without representation or warranty
by the Assignor.

     

    
      	
              1.

            	
              Assignor:

            	
              ________________________

            
	
              2.

            	
              Assignee:

            	
              ________________________

              and
      is an Affiliate/Approved Fund of

            
	
              3.

            	
              Borrower:

            	
              Public
      Service Company of New Mexico

            
	
              4.

            	
              Administrative
      Agent

            	
              Deutsche
      Bank AG New York Branch, as the Administrative Agent under the
      Reimbursement Agreement

            
	
              5.

            	
              Reimbursement
      Agreement

            	
              Reimbursement
      Agreement dated as of May 8, 2008, among the Borrower, the
      Administrative Agent, and the Lenders identified
  therein.

            
	
              6.

            	
              Assigned
      Interest

            	 
      

    

    

    
      	
              Aggregate
      Amount of Commitment/Participation Interests/L/C Obligations for all
      Lenders

            	
              Amount
      of Commitment/Participation Interests/L/C Obligations
    Assigned

            	
              Percentage
      Assigned of Commitment/Participation Interests/L/C
    Obligations

            
	
              $

            	
              $

            	
              $

            

    

    

    
      
        
          Exhibit 11.3(b) – Page 1

        

         

      

      
         

        
          

        

      

      
         

      

    

    

    
      	
              7.

            	
              After
      giving effect to the foregoing assignment, the Assignor and the Assignee
      shall have the following Commitments, Pro Rata Shares and outstanding
      Participation Interests and L/C Obligations:

            
	 
      	 
      
	 
      	 
      	 
      	
              Commitments

            	
              Pro
      Rata Share

            	
              Participation
      Interests in Letters of Credit

            	 
      
	 
      	 
      	
              Assignor

            	 
      	 
      	 
      	 
      
	 
      	 
      	
              Assignee

            	 
      	 
      	 
      	 
      

    

    

    
      	
              8.

            	
              Trade
      Date:

            	
              ____________________

            

    

    

    Effective
Date:  ______________, 200_

     

    The terms
set forth in this Assignment and Assumption are hereby agreed to:

     

    ASSIGNOR

    

    [NAME OF
ASSIGNOR]

    

    

    By:                                                                                     

    Name:                                                                                     

    Title:                                                                                     

    

    

    ASSIGNEE

    

    [NAME OF
ASSIGNEE]

    

    

    By:                                                                                     

    Name:                                                                                     

    Title:                                                                                     

    

    
      
        
          Exhibit 11.3(b) – Page
2

        

         

      

      
         

        
          

        

      

      
         

      

    

    Consented
to and Accepted if applicable:

     

    

     

    DEUTSCHE
BANK AG NEW YORK BRANCH,

     

    as
Administrative Agent and L/C Issuer

     

    

     

    By:   _____________________                                                             

    Name:

    Title:

     

    

     

    and

     

    By:   _____________________                                                              

    Name:

    Title:

     

    

     

    Consented
to if applicable:

     

    

     

    PUBLIC
SERVICE COMPANY OF NEW MEXICO

     

     

     

    By:  _____________________                                                               

    Name:                                                                           

    Title:                                                                           

     

    

     

    
      
        
          Exhibit 11.3(b) – Page
3

        

         

      

      
         

        
          

        

      

      
         

      

    

    Schedule
1 to

    Exhibit
11.3(b)

     

    

     

    Terms
and Conditions for

    Assignment and
Assumption

     

    

     

    1. Representations and
Warranties.

     

    1.1 Assignor.  The
Assignor (a) represents and warrants that (i) it is the legal and beneficial
owner of the Assigned Interest, (ii) the Assigned Interest is free and clear of
any lien, encumbrance or other adverse claim and (iii) it has full power and
authority, and has taken all action necessary, to execute and deliver this
Assignment and Assumption and to consummate the transactions contemplated
hereby; and (b) assumes no responsibility with respect to (i) any statements,
warranties or representations made in or in connection with the Reimbursement
Agreement or any other Credit Document, (ii) the execution, legality, validity,
enforceability, genuineness, sufficiency or value of the Credit Documents or any
collateral thereunder, (iii) the financial condition of the Borrower, any of its
Subsidiaries or Affiliates or any other Person obligated in respect of any
Credit Document or (iv) the performance or observance by the Borrower, any of
its Subsidiaries or Affiliates or any other Person of any of their respective
obligations under any Credit Document.

     

    1.2 Assignee.  The
Assignee (a) represents and warrants that (i) it has full power and authority,
and has taken all action necessary, to execute and deliver this Assignment and
Assumption and to consummate the transactions contemplated hereby and to become
a Lender under the Reimbursement Agreement, (ii) it meets all requirements of an
Eligible Assignee under the Reimbursement Agreement (subject to receipt of such
consents as may be required under the Reimbursement Agreement), (iii) from and
after the Effective Date, it shall be bound by the provisions of the
Reimbursement Agreement as a Lender thereunder and, to the extent of the
Assigned Interest, shall have the obligations of a Lender thereunder, (iv) it
has received a copy of the Reimbursement Agreement, together with copies of the
most recent financial statements delivered pursuant to Section 7.1 thereof, as
applicable, and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into this
Assignment and Assumption and to purchase the Assigned Interest on the basis of
which it has made such analysis and decision independently and without reliance
on the Administrative Agent or any other Lender, and (v) if it is a foreign
lender, attached to the Assignment and Assumption is any documentation required
to be delivered by it pursuant to the terms of the Reimbursement Agreement, duly
completed and executed by the Assignee; and (b) agrees that (i) it will,
independently and without reliance on the Administrative Agent, the Assignor or
any other Lender, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under the Credit Documents, and (ii) it will perform in
accordance with their terms all of the obligations which by the terms of the
Credit Documents are required to be performed by it as a Lender.

     

    2. Payments.  From
and after the Effective Date, the Administrative Agent shall make all payments
in respect of the Assigned Interest (including payments of Unreimbursed Amounts,
interest, fees and other amounts) to the Assignor for amounts which have accrued
to but excluding the Effective Date and to the Assignee for amounts which have
accrued from and after the Effective Date.

     

    
      
        
          Schedule 1 to Exhibit 11.3(b) –
Page 1

        

      

      
        
        

        
          

        

      

      
        
        

      

    

    3. General
Provisions.  This Assignment and Assumption shall be binding
upon, and inure to the benefit of, the parties hereto and their respective
successors and assigns.  This Assignment and Assumption may be
executed in any number of counterparts, which together shall constitute one
instrument. Delivery of an executed counterpart of a signature page of this
Assignment and Assumption by telecopy shall be effective as delivery of a
manually executed counterpart of this Assignment and Assumption.  This
Assignment and Assumption shall be governed by, and construed in accordance
with, the law of the State of New York.

     

    
      
        
          Schedule 1 to Exhibit 11.3(b) –
Page 2Untitled Page

		
			

			

			

		

		
			EXHIBIT 10.1

					

					2008 INCENTIVE AND NONSTATUTORY STOCK OPTION PLAN,

					

					DATED APRIL 22, 2008

					

					

					MATERIAL TECHNOLOGIES, INC.

					

					2008 INCENTIVE AND NONSTATUTORY STOCK OPTION PLAN

					

				

		

		
			1.         Purpose

					

				            This Incentive and Nonstatutory Stock Option Plan (the “Plan”) is intended to further the growth and financial success of Material Technologies, Inc., a Delaware corporation (the “Corporation”) by providing additional incentives to selected employees, directors, and consultants to the Corporation or parent corporation or subsidiary corporation of the Corporation as those terms are defined in Sections 424(e) and 424(f) of the Internal Revenue Code of 1986, as amended (the “Code”) (such parent corporations and subsidiary corporations hereinafter collectively referred to as “Affiliates”) so that such employees and consultants may acquire or increase their proprietary interest in the Corporation.  Stock options granted under the Plan (hereinafter “Options”) may be either “Incentive Stock Options,” as defined in Section 422 of the Code and any regulations promulgated under said Section, or “Nonstatutory Options” at the discretion of the Board of Directors of the Corporation (the “Board”) and as reflected in the respective written stock option agreements granted pursuant hereto.

				

				2.         Administration

					

				            The Plan shall be administered by the Board of Directors of the Corporation; provided however, that the Board may delegate such administration to a committee of not fewer than three  members (the “Committee”), at least two of whom are members of the Board and all of whom are disinterested administrators, as contemplated by Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended (“Rule 16b-3”); and provided further, that the foregoing requirement for disinterested administrators shall not apply prior to the date of the first registration of any of the securities of the Corporation under the Securities Act of 1933, as amended (the “Act”).

				

				            Subject to the provisions of the Plan, the Board and/or the Committee shall have authority to (a) grant, in its discretion, Incentive Stock Options in accordance with Section 422 of the Code or Nonstatutory Options; (b) determine in good faith the fair market value of the stock covered by an Option; (c) determine which eligible persons shall be granted Options and the number of shares to be covered thereby and the term thereof; (d) construe and interpret the Plan; (e) promulgate, amend and rescind rules and regulations relating to its administration, and correct defects, omissions, and inconsistencies in the Plan or any Option; (f) consistent with the Plan and with the consent of the optionee, as appropriate, amend any outstanding Option or amend the exercise date or dates thereof; (g) determine the duration and purpose of leaves of absence which may be granted to optionholders without constituting termination of their employment for the purpose of the Plan; and (h) make all other determinations necessary or advisable for the Plan's administration.  The interpretation and construction by the Board of any provisions of the Plan or of any Option it shall be conclusive and final.  No member of the Board or the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any Option.

				

				

				

			

		

		
			
				

			

		

		
			
				1

			

		

		
			
				

				

				

				

				

				3.         Eligibility

					

				            The persons who shall be eligible to receive Options shall be employees, directors, or consultants of the Corporation or any of its Affiliates (“Optionees”).  The term consultant shall mean any person who is engaged by the Corporation to render services and is compensated for such services, and any director of the Corporation whether or not compensated for such services; provided that, if the Corporation registers any of its securities pursuant to the Act, the term consultant shall thereafter not include directors who are not compensated for their services or are paid only a director fee by the Corporation.

				

				                        (a)        Incentive Stock Options.  Incentive Stock Options may only be issued to employees of the Corporation or its Affiliates.  Incentive Stock Options may be granted to officers, whether or not they are directors, but a director shall not be granted an Incentive Stock Option unless such director is also an employee of the Corporation.  Payment of a director’s fee shall not be sufficient to constitute employment by the Corporation.  Any grant of option to an officer or director of the Corporation subsequent to the first registration of any of the securities of the Corporation under the Act shall comply with the requirements of Rule 16b-3.  An optionee may hold more than one Option.

				

				                        The Corporation shall not grant an Incentive Stock Option under the Plan to any employee if such grant would result in such employee holding the right to exercise for the first time in any one calendar year, under all options granted to such employee under the Plan or any other stock option plan maintained by the Corporation or any Affiliate, with respect to shares of stock having an aggregate fair market value, determined as of the date of the Option is granted, in excess of $100,000.  Should it be determined that an Incentive Stock Option granted under the Plan exceeds such maximum for any reason other than a failure in good faith to value the stock subject to such option, the excess portion of such option shall be considered a Nonstatutory Option.  If, for any reason, an entire option does not qualify as an Incentive Stock Option by reason of exceeding such maximum, such option shall be considered a Nonstatutory Option.

				

				                        (b)        Nonstatutory Option.  The provisions of the foregoing Section 3(a) shall not apply to any option designated as a “Nonstatutory Stock Option Agreement” or which sets forth the intention of the parties that the option be a Nonstatutory Option.

				

				4.         Stock

					

				            The stock subject to Options shall be the shares of the Corporation’s authorized but unissued or reacquired Common Stock (the “Stock”).

				

				                        (a)        Number of Shares.  Subject to adjustment as provided in Paragraph 5(h) of this Plan, the total number of shares of Stock which may be purchased through exercise of Options granted under this Plan shall not exceed 100,000,000 shares.  If any Option shall for any reason terminate or expire, any shares allocated thereto but remaining unpurchased upon such expiration or termination shall again be available for the grant of Options with respect thereto under this Plan as though no Option had been granted with respect to such shares.

				

				

			

		

		
			
				2

			

		

		
			
				

				

				

				

				

				                        (b)        Reservation of Shares.  The Corporation shall reserve and keep available at all times during the term of the Plan such number of shares as shall be sufficient to satisfy the requirements of the Plan.  If, after reasonable efforts, which efforts shall not include the registration of the Plan or Options under the Act, the Corporation is unable to obtain authority from any applicable regulatory body, which authorization is deemed necessary by legal counsel for the Corporation for the lawful issuance of shares hereunder, the Corporation shall be relieved of any liability with respect to its failure to issue and sell the shares for which such requisite authority was so deemed necessary unless and until such authority is obtained.

				

				5.         Terms and Conditions of Options

					

				            Options granted hereunder shall be evidenced by agreements between the Corporation and the respective Optionees, in such form and substance as the Board or Committee shall from time to time approve.  Such agreements need not be identical, and in each case may include such provisions as the Board or Committee may determine, but all such agreements shall be subject to and limited by the following terms and conditions:

				

				                        (a)        Number of Shares:  Each Option shall state the number of shares to which it pertains.

				

				                        (b)        Option Price:  Each Option shall state the Option Price, which shall be determined as follows:

				

				                                    (i)         Any Option granted to a person who at the time the Option is granted owns (or is deemed to own pursuant to Section 424(d) of the Code) stock possessing more than 10% of the total combined voting power of value of all classes of stock of the Corporation, or of any Affiliate, (“10% Holder”) shall have an Option Price of no less than 110% of the fair market value of the common stock as of the date of grant; and

				

				                                    (ii)        Incentive Stock Options granted to a person who at the time the Option is granted is not a 10% Holder shall have an Option price of no less than 100% of the fair market value of the common stock as of the date of grant.

				

				                                    (iii)       Nonstatutory Options granted to a person who at the time the Option is granted is not a 10% Holder shall have an Option Price determined by the Board as of the date of grant.

				

				                        For the purposes of this paragraph 5(b), the fair market value shall be as determined by the Board, in good faith, which determination shall be conclusive and binding; provided however, that if there is a public market for such stock, the fair market value per share shall be the average of the bid and asked prices on the date of grant of the Option, or if listed on a stock exchange, the closing price on such exchange on such date of grant.

				

				

				

			

		

		
			
				3

			

		

		
			
				

				

				

				

				

				                        (c)        Medium and Time of Payment:  To the extent permissible by applicable law, the Option price shall be paid, at the discretion of the Board, at either the time of grant or the time of exercise of the Option (i) in cash or by check, (ii) by delivery of other common stock of the Corporation, provided such tendered stock was not acquired directly or indirectly from the Corporation, or, if acquired from the Corporation, has been held by the Optionee for more than six months, (iii) by the Optionee's promissory note in a form satisfactory to the Corporation and bearing interest at a rate determined by the Board, in its sole discretion, but in no event less than 6% per annum, or (iv) such other form of legal consideration permitted by State law as may be acceptable to the Board.

				

				                        (d)        Term and Exercise of Options:  Any Option granted to an Employee of the Corporation shall become exercisable over a period of no longer than ten years, and no less than 20% of the shares covered thereby shall become exercisable annually.  No Option shall be exercisable, in whole or in part, prior to one year from the date it is granted unless the Board shall specifically determine otherwise, as provided herein.  In no event shall any Option be exercisable after the expiration of ten years from the date it is granted.  Unless otherwise specified by the Board or the Committee in the resolution authorizing such option, the date of grant of an Option shall be deemed to be the date upon which the Board or the Committee authorizes the granting of such Option.

				

				                        Each Option shall be exercisable to the nearest whole share, in installments or otherwise, as the respective option agreements may provide.  During the lifetime of an Optionee, the Option shall be exercisable only by the Optionee and shall not be assignable or transferable by the Optionee, and no other person shall acquire any rights therein.  To the extent not exercised, installments (if more than one) shall accumulate, but shall be exercisable, in whole or in part, only during the period for exercise as stated in the option agreement, whether or not other installments are then exercisable.

				

				                        (e)        Termination of Status as Employee, Director, or Consultant:  If Optionee's status as an employee, director, or consultant shall terminate for any reason, then the Optionee (or if the Optionee shall die after such termination, but prior to exercise, Optionee's personal representative or the person entitled to succeed to the Option) shall have the right to exercise any vested Options, in whole or in part, at any time after such termination during the remaining term of the Option; provided, however, that the Board may specify a shorter period for exercise following termination as the Board deems reasonable and appropriate, but not shorter than six months in the event Optionee’s termination was caused by permanent disability within the meaning of Section 22(e)(3) of the Code.  The Option may be exercised only with respect to installments that the Optionee could have exercised at the date of termination of employment.  Nothing contained herein or in any Option granted pursuant hereto shall be construed to affect or restrict in any way the right of the Corporation to terminate the employment of an Optionee with or without cause.

				

				                        (f)         Death of Optionee: If an Optionee dies while employed or engaged as a director or consultant by the Corporation or an Affiliate, the portion of such Optionee's Option or Options which were exercisable at the date of death may be exercised, in whole or in part, by the estate of the decedent or by a person succeeding to the right to exercise such Option or Options, at any time within the remaining term of the Option, but only to the extent, that Optionee could have exercised the Option as of the date of Optionee’s death; provided, in any case, that the Option may be so exercised only to the extent that the Option has not previously been exercised by Optionee.

				

				

				

			

			
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				                        (g)        Nontransferability of Option:  No Option shall be transferable by the Optionee, except by will or by the laws of descent and distribution.

				

				                        (h)        Recapitalization:  Subject to any required action by the stockholders, the number of shares of common stock covered by each outstanding Option, and the price per share thereof set forth in each such Option, shall be proportionately adjusted for any increase in the number of issued shares of common stock of the Corporation resulting from a forward split of shares or the payment of a stock dividend, or any other increase in the number of such shares affected, without receipt of consideration by the Corporation.  However, the price per share set forth in each Option shall not be affected or adjusted for any decrease in the number of issued shares of common stock of the Corporation resulting from a reverse split of shares, or any other decrease in the number of such shares affected.

				

				                        Subject to any required action by the stockholders, if the Corporation shall be the surviving entity in any merger or consolidation, each outstanding Option thereafter shall pertain to and apply to the securities to which a holder of shares of common stock equal to the shares subject to the Option would have been entitled by reason of such merger or consolidation.  A dissolution or liquidation of the Corporation or a merger or consolidation in which the Corporation is not the surviving entity shall cause each outstanding Option to terminate on the effective date of such dissolution, liquidation, merger or consolidation.  In such event, if the entity which shall be the surviving entity does not tender to Optionee an offer, for which it has no obligation to do so, to substitute for any unexercised Option a stock option or capital stock of such surviving entity, as applicable, which on an equitable basis shall provide the Optionee with substantially the same economic benefit as such unexercised Option, then the Board may grant to such Optionee, but shall not be obligated to do so, the right for a period commencing 30 days prior to and ending immediately prior to such dissolution, liquidation, merger or consolidation or during the remaining term of the Option, whichever is the lesser, to exercise any unexpired Option or Options, without regard to the installment provisions of Paragraph 5(d) of this Plan; provided, that any such right granted shall be granted to all Optionees not receiving an offer to substitute on a consistent basis, and provided further, that any such exercise shall be subject to the consummation of such dissolution, liquidation, merger or consolidation.

				

				                        In the event of a change in the common stock of the Corporation as presently constituted, which is limited to a change of all of its authorized shares without par value into the same number of shares with a par value, the shares resulting from any such change shall be deemed to be the common stock within the meaning of this Plan.

				

				                        To the extent that the foregoing adjustments relate to stock or securities of the Corporation , such adjustments shall be made by the Board, whose determination in that respect shall be final, binding and conclusive.  Except as expressly provided in this Paragraph 5(h), the Optionee shall have no rights by reason of any subdivision or consolidation of shares of stock or any class or the payment of any stock dividend or any other increase or decrease in the number of shares of stock of any class, and the number or price of shares of common stock subject to any Option shall not be affected by, and no adjustment shall be made by reason of, any dissolution, liquidation, merger or

				

				

				

			

		

		
			
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				consolidation, or any issue by the Corporation of shares of stock of any class or securities convertible into shares of stock of any class.

				

				                        The grant of an Option pursuant to the Plan shall not affect in any way the right or power of the Corporation to make any adjustments, reclassifications, reorganizations or changes in its capital or business structure or to merge, consolidate, dissolve, or liquidate or to sell or transfer all or any part of its business or assets.

				

				                        (i)         Rights as a Stockholder:  An Optionee shall have no rights as a stockholder with respect to any shares covered by an Option until the date of the issuance of a stock certificate to Optionee for such shares.  No adjustment shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property) or distributions or other rights for which the record date is prior to the date such stock certificate is issued, except as expressly provided in Paragraph 5(h) hereof.

				

				                        (j)         Modification, Acceleration, Extension, and Renewal of Options:  Subject to the terms and conditions and within the limitations of the Plan, the Board may modify an Option, or once an Option is exercisable, accelerate the rate at which it may be exercised, and may extend or renew outstanding Options granted under the Plan or accept the surrender of outstanding Options (to the extent not theretofore exercised) and authorize the granting of new Options in substitution for such Options, provided such action is permissible under Section 422 of the Code and state law.

				

				                        Notwithstanding the foregoing provisions of this Paragraph 5(j), however, no modification of an Option shall, without the consent of the Optionee, alter to the Optionee's detriment or impair any rights or obligations under any Option theretofore granted under the Plan.

				

				                        (k)        Investment Intent:  Unless and until the issuance and sale of the shares subject to the Plan are registered under the Act, each Option under the Plan shall provide that the purchases of stock thereunder shall be for investment purposes and not with a view to, or for resale in connection with, any distribution thereof.  Further, unless the issuance and sale of the stock have been registered under the Act, each Option shall provide that no shares shall be purchased upon the exercise of such Option unless and until (i) any then applicable requirements of state and federal laws and regulatory agencies shall have been fully complied with to the satisfaction of the Corporation and its counsel, and (ii) if requested to do so by the Corporation, the person exercising the Option shall (i) give written assurances as to knowledge and experience of such person (or a representative employed by such person) in financial and business matters and the ability of such person (or representative) to evaluate the merits and risks of exercising the Option, and (ii) execute and deliver to the Corporation a letter of investment intent, all in such form and substance as the Corporation may require.  If shares are issued upon exercise of an Option without registration under the Act, subsequent registration of such shares shall relieve the purchaser thereof of any investment restrictions or representations made upon the exercise of such Options.

				

				                        (l)         Exercise Before Exercise Date:  At the discretion of the Board, the Option may, but need not, include a provision whereby the Optionee may elect to exercise all or any portion of the Option prior to the stated exercise date of the Option or any installment thereof.  Any shares so purchased prior to the stated exercise date shall be subject to repurchase by the Corporation upon

				

				

				

			

			
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				termination of Optionee's employment as contemplated by Paragraphs 5(e) and 5(f) hereof prior to the exercise date stated in the Option and such other restrictions and conditions as the Board or Committee may deem advisable.

				

				                        (m)       Other Provisions:  The Option agreements authorized under this Plan shall contain such other provisions, including, without limitation, restrictions upon the exercise of the Options, as the Board or the Committee shall deem advisable.  Shares shall not be issued pursuant to the exercise of an Option, if the exercise of such Option or the issuance of shares thereunder would violate, in the opinion of legal counsel for the Corporation, the provisions of any applicable law or the rules or regulations of any applicable governmental or administrative agency or body, such as the Act, the Securities Exchange Act of 1934, the rules promulgated under the foregoing or the rules and regulations of any exchange upon which the shares of the Corporation are listed.

				

				6.         Availability of Information

					

				            During the term of the Plan and any additional period during which an Option granted pursuant to the Plan shall be exercisable, the Corporation shall make available, not later than 120 days following the close of each of its fiscal years, such financial and other information regarding the Corporation as is required by the bylaws of the Corporation and applicable law to be furnished in an annual report to the stockholders of the Corporation.

				

				7.         Effectiveness of Plan; Expiration

					

				            Subject to approval by the stockholders of the Corporation, this Plan shall be deemed effective as of the date it is adopted by the Board.  The Plan shall expire on April 22, 2018, but such expiration shall not affect the validity of outstanding Options.

				

				8.         Amendment and Termination of the Plan

					

				            The Board may, insofar as permitted by law, from time to time, with respect to any shares at the time not subject to Options, suspend or terminate the Plan or revise or amend it in any respect whatsoever, except that without the approval of the stockholders of the Corporation, no such revision or amendment shall (i) increase the number of shares subject to the Plan, (ii) decrease the price at which Options may be granted, (iii) materially increase the benefits to Optionees, or (iv) change the class of persons eligible to receive Options under this Plan; provided, however, no such action shall alter or impair the rights and obligations under any Option outstanding as of the date thereof without the written consent of the Optionee thereunder.  No Option may be granted while the Plan is suspended or after it is terminated, but the rights and obligations under any Option granted while the Plan is in effect shall not be impaired by suspension or termination of the Plan.

				

				9.         Indemnification of Board

					

				            In addition to such other rights or indemnifications as they may have as directors or otherwise, and to the extent allowed by applicable law, the members of the Board and the Committee shall be indemnified by the Corporation against the reasonable expenses, including attorneys' fees, actually and necessarily incurred in connection with the defense of any claim, action, suit or 

				

				

				

			

			
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				proceeding, or in connection with any appeal thereof, to which they or any of them may be a party by reason of any action taken, or failure to act, under or in connection with the Plan or any Option granted thereunder, and against all amounts paid by them in settlement thereof (provided such settlement is approved by independent legal counsel selected by the Corporation) or paid by them in satisfaction of a judgment in any such claim, action, suit or proceeding, except in any case in relation to matters as to which it shall be adjudged in such claim, action, suit or proceeding that such Board member is liable for negligence or misconduct in the performance of  his or her duties; provided that within 60 days after institution of any such action, suit or Board proceeding the member involved shall offer the Corporation, in writing, the opportunity, at its own expense, to handle and defend the same.

				

				10.       Application of Funds

					

				            The proceeds received by the Corporation from the sale of common stock pursuant to the exercise of Options will be used for general corporate purposes.

				

				11.       No Obligation to Exercise Option

					

				            The granting of an Option shall impose no obligation upon the Optionee to exercise such Option.

				

				12.       Notices

					

				            All notice, requests, demand, and other communications pursuant this Plan shall be in writing and shall be deemed to have been duly given on the date of service if served personally on the party to whom notice is to be given, or on the third day following the mailing thereof to the party to whom notice is to be given, by first class mail, registered or certified, postage prepaid.

				

				13.       Financial Statements

					

				            Optionees under this Plan have the right to receive, upon request, annual financial statements regarding the Corporation during the period the options are outstanding.

				

				            The foregoing Incentive and Nonstatutory Stock Option Plan was duly adopted and approved by the Board of Directors on April 22, 2008, and approved by the shareholders of the Corporation on April 22, 2008, subject to the requirements to file with the United States Securities and Exchange Commission and mail a Definitive Information Statement to all shareholders.

				

				

				                                                                                     /s/ Joel R. Freedman                            

				                                                                                    Joel R. Freedman, Secretary    

				

				

				

				

				

			

		

		
			
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				MATERIAL TECHNOLOGIES, INC.

						

					NONSTATUTORY STOCK OPTION AGREEMENT

						

					

			

		

		
			            THIS STOCK OPTION AGREEMENT is made and entered into as of this ____ day of ______________, ____, by and between Material Technologies, Inc., a Delaware corporation (“Company”), and ________________________________ (referred to herein as the “Optionee”), with reference to the following recitals of facts:

				

				            WHEREAS, the Board has authorized the granting to Optionee of a nonstatutory stock option (“Option”) to purchase shares of common stock of the Company (the “Shares”) upon the terms and conditions hereinafter stated; and

				

				            WHEREAS, the Board and stockholders of the Company have heretofore adopted a 2008 Incentive and Nonstatutory Stock Option Plan (the “Plan”), pursuant to which this Option is being granted;

				

				            WHEREAS, it is the intention of the parties that this Option be a Nonstatutory Stock Option;

				

				            NOW, THEREFORE, in consideration of the covenants herein set forth, the parties hereto agree as follows:

				

				            1.         Shares; Price.  The Company hereby grants to Optionee the right to purchase, upon and subject to the terms and conditions herein stated, ___________ Shares for cash (or other consideration acceptable to the Board of Directors of the Company, in their sole and absolute discretion) at the price of $____ per Share, such price being determined in accordance with the Plan.

				

				            2.         Term of Option; Continuation of Employment.  This Option shall expire, and all rights hereunder to purchase the Shares shall terminate, ten years from the date hereof.  This Option shall earlier terminate as set forth in Paragraphs 5 and 6 hereof.  Nothing contained herein shall be construed to interfere in any way with the right of the Company to terminate the employment or engagement, as applicable, of Optionee or to increase or decrease the compensation of Optionee from the rate in existence at the date hereof.

				

				            3.         Vesting of Option.  Subject to the provisions of Paragraphs 5 and 6 hereof, this Option shall vest and become exercisable during the term of Optionee's employment or engagement in whole or in part beginning on the date of this Agreement.

				

				            4.         Exercise.  In order to exercise this Option with respect to all or any part of the Shares for which this Option is at the time exercisable, Optionee must take the following actions:

				

				                        (a)        Execute and deliver to the Company a written notice of exercise stating the number of Shares being purchased (in whole shares only) and such other information set forth on the form of Notice of Exercise attached hereto as Appendix A; and

				

				                        (b)        Pay the aggregate price for the purchased Shares (the “Exercise Price”) in one or more of the following forms:

				

				

				

			

		

		
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				                                    (i)       Cash or check made payable to the Company; or

				

				                                    (ii)      A promissory note payable to the Company, but only to the extent authorized by the Company.

				

				                                    Should the Common Stock be registered under Section 12 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) at the time the Option is exercised, then the Exercise Price may also be paid as follows:

				

				                                    (iii)      In shares of Common Stock held by Optionee for the requisite period necessary to avoid a charge to the Company’s earnings for financial reporting purposes and valued at Fair Market Value on the Exercise Date; or

				

				                                    (iv)      To the extent the Option is exercised for vested Shares, through a special sale and remittance procedure pursuant to which Optionee shall concurrently provide irrevocable instructions (a) to a Company-approved brokerage firm to effect the immediate sale of the purchased shares and remit to the Company, out of the sale proceeds available on the settlement date, sufficient funds to cover the aggregate Exercise Price payable for the purchased shares plus all applicable Federal, State and local income and employment taxes required to be withheld by the Company by reason of such exercise; and (b) to the Company to deliver the certificates for the purchased shares directly to such brokerage firm in order to complete the sale (a “cashless exercise transaction”).

				

				                                    (v)       Notwithstanding any provisions herein to the contrary, if the Fair Market Value of one share of the Company’s Common Stock is greater than the Exercise Price (at the date of calculation as set forth below), in lieu of exercising this Option by payment of cash, the Optionee may elect to receive shares equal to the value (as determined below) of this Option (or the portion thereof being canceled) by surrender of this Option at the principal office of the Company together with the properly endorsed Notice of Exercise in which event the Company shall issue to the Optionee a number of shares of Common Stock computed using the following formula (a “net issuance transaction”):

				

				                                    X = Y (A-B)

				                                                A

					            	Where  X =	the number of shares of Common Stock to be issued to the Optionee
	  		
	  	            Y =	the number of shares of Common Stock purchasable under the Option or, if only a portion of the Option is being exercised, the portion of the Option being canceled (at the date of such calculation)
	  		
		            A =	the Fair Market Value of one share of the Company’s Common Stock (at the date of such calculation)
	  		
		            B =	Exercise Price (as adjusted to the date of such calculation)

				

				

				

			

			
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				                                    For purposes of Rule 144 and sub-section (d)(3)(ii) thereof, it is intended, understood and acknowledged that the Common Stock issuable upon exercise of this Option in a net issuance transaction shall be deemed to have been acquired at the time this Option was issued.  Moreover, it is intended, understood and acknowledged that the holding period for the Common Stock issuable upon exercise of this Option in a net issuance transaction shall be deemed to have commenced on the date this Option was issued.

				

				                        (c)        Execute and deliver to the Company such written representations as may be requested by the Company in order for it to comply with the applicable requirements of Federal and state securities laws.

				

				                        (d)        Make appropriate arrangements with the Company (or Parent or Subsidiary employing or retaining Optionee) for the satisfaction of all Federal, State and local income and employment tax withholding requirements applicable to the Option exercise, if any.

				

				                        (e)        If requested, execute and deliver to the Company a written statement as provided for in Paragraph 11 hereof.

				

				            5.         Termination of Employment or Engagement.  If Optionee shall cease to serve as an employee, director, or consultant of the Company for any reason, whether voluntarily or involuntarily, Optionee shall have the right, during the remaining term of the Option, to exercise in whole or in part this Option to the extent, but only to the extent, that this Option was exercisable as of the last day of employment or engagement, as applicable, and had not previously been exercised.  The Option may be exercised only with respect to installments that the Optionee could have exercised at the date of termination of employment or engagement. 

				

				                        Notwithstanding anything herein to the contrary, all rights under this Option shall expire in any event on the date specified in Paragraph 2 hereof.

				

				            6.         Death of Optionee.  If the Optionee shall die while an employee, director, or consultant of the Company, Optionee’s personal representative or the person entitled to Optionee’s rights hereunder may at any time during the remaining term of this Option, exercise this Option and purchase Shares to the extent, but only to the extent, that Optionee could have exercised this Option as of the date of Optionee’s death; provided, in any case, that this Option may be so exercised only to the extent that this Option has not previously been exercised by Optionee.

				

				            7.         No Rights as Stockholder.  Optionee shall have no rights as a stockholder with respect to the Shares covered by any installment of this Option until the date of the issuance of a stock certificate to Optionee, and no adjustment will be made for dividends or other rights for which the record date is prior to the date such stock certificate or certificates are issued except as provided in Paragraph 8 hereof.

				

				            8.         Recapitalization.  Subject to any required action by the stockholders of the Company, the number of Shares covered by this Option, and the price per Share thereof, shall be proportionately adjusted for any increase in the number of issued Shares resulting from a forward split of shares or the payment of a stock dividend, or any other increase in the number of such shares affected without receipt of consideration by the Company; provided however that the conversion of any convertible securities of the Company shall not be deemed having been “effected without receipt of consideration

				

				

			

			
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				by the Company.”  The number of Shares covered by this Option, and the price per Share thereof, shall not be affected or adjusted for any decrease in the number of issued shares of common stock of the Company resulting from a reverse split of shares, or any other decrease in the number of such shares affected.

				

				            In the event of a proposed dissolution or liquidation of the Company, a merger or consolidation in which the Company is not the surviving entity, or a sale of all or substantially all of the assets of the Company, this Option shall terminate immediately prior to the consummation of such proposed action, unless otherwise provided by the Board.  The Board may, at its sole and absolute discretion and without obligation, declare that this Option shall terminate as of a date fixed by the Board and grant Optionee the right for a period commencing 30 days prior to and ending immediately prior to such date, or during the remaining term of this Option, whichever occurs sooner, to exercise this Option as to all or any part of the Shares, without regard to the vesting provision of Paragraph 3; provided, however, that such exercise shall be subject to the consummation of such dissolution, liquidation, merger, consolidation or sale.

				

				            Subject to any required action by the stockholders of the Company, if the Company shall be the surviving entity in any merger or consolidation, this Option thereafter shall pertain to and apply to the securities to which a holder of Shares equal to the Shares subject to this Option would have been entitled by reason of such merger or consolidation, and the vesting provisions of Section 3 shall continue to apply.

				

				            In the event of a change in the Shares of the Company as presently constituted, which is limited to a change of all of its authorized Shares without par value into the same number of Shares with a par value, the Shares resulting from any such change shall be deemed to be the Shares within the meaning of this Agreement.

				

				            To the extent that the foregoing adjustments relate to shares or securities of the Company, such adjustments shall be made by the Board, whose determination in that respect shall be final, binding and conclusive.  Except as hereinbefore expressly provided, Optionee shall have no rights by reason of any subdivision or consolidation of share of stock of any class or the payment of any stock dividend or any other increase or decrease in the number of shares of stock of any class, and the number and price of shares subject to this Option shall not be affected by, and no adjustments shall be made by reason of, any dissolution, liquidation, merger or consolidation, or any issue by the Company of shares of stock of any class or securities convertible into shares of stock of any class.

				

				            The grant of this Option shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes in its capital or business structure or to merge, consolidate, dissolve or liquidate or to sell or transfer all or any part of its business or assets.

				

				            9.         Taxation upon Exercise of Option.  Optionee understands that, upon exercise of this Option, Optionee may recognize income, for federal and state income tax purposes, in an amount equal to the amount by which the fair market value of the Shares, determined as of the date of exercise, exceeds the exercise price.  The acceptance of the Shares by Optionee shall constitute an agreement by Optionee to report such income in accordance with then applicable law and to cooperate with Company in establishing the amount of such income and corresponding deduction to the Company for its income tax purposes.  Withholding for federal or state income and employment tax purposes will be made, if and as required by law, from Optionee's then current compensation, or, if such current compensation is insufficient to satisfy withholding tax liability, the Company may require Optionee to make  cash payment to cover such liability as a condition of the exercise of this Option.

				

				

			

		

		
			
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				           10.        Modification, Extension and Renewal of Options.  The Board may modify, extend or renew this Option or accept the surrender thereof (to the extent not theretofore exercised) and authorize the granting of a new option in substitution therefore (to the extent not theretofore exercised), subject at all times to the Plan.  Notwithstanding the foregoing provisions of this Paragraph 10, no modification shall, without the consent of the Optionee, alter to the Optionee's detriment or impair any rights of Optionee hereunder.

				

				           11.        Investment Intent; Restrictions on Transfer.  Optionee represents and agrees that if Optionee exercises this Option in whole or in part, Optionee will in each case acquire the Shares upon such exercise for the purpose of investment and not with a view to, or for resale in connection with, any distribution thereof; and that upon such exercise of this Option in whole or in part, Optionee (or any person or persons entitled to exercise this Option under the provisions of Paragraphs 5 and 6 hereof) shall furnish to the Company a written statement to such effect, satisfactory to the Company in form and substance.  The Company, at its option, may include a legend on each certificate representing Shares issued pursuant to any exercise of this Option, stating in effect that such Shares have not been registered under the Securities Act of 1933, as amended (the “Act”), and that the transferability thereof is restricted.  If the Shares represented by this Option are registered under the Act, either before or after the exercise of this Option in whole or in part, the Optionee shall be relieved of the foregoing investment representation and agreement and shall not be required to furnish the Company with the foregoing written statement.

				

				            Optionee further represents that Optionee has had access to the financial statements or books and records of the Company, has had the opportunity to ask questions of the Company concerning its business, operations and financial condition, and to obtain additional information reasonably necessary to verify the accuracy of such information, and further represents that Optionee has either such experience and knowledge in investment, financial and business matters or has investments similar to the stock of the Company such that Optionee is capable of evaluating the merits and risks thereof and has the capacity to protect his or her own interest in connection therewith.

				

				           12.        Notices.  Any notice required to be given pursuant to this Option or the Plan shall be in writing and shall be deemed to be delivered upon receipt or, in the case of notices by the Company, five days after deposit in the US. mail, postage prepaid, addressed to Optionee at the address last provided to the Company by Optionee for his or her employee records.

				

				           13.        Agreement Subject to Plan; Applicable Law.  This Agreement is made pursuant to the Plan and shall be interpreted to comply therewith.  A copy of such Plan is available to Optionee, at no charge, at the principal office of the Company.  Any provision of this Agreement inconsistent with the Plan shall be considered void and replaced with the applicable provision of the Plan.  This Agreement has been granted, executed and delivered in the State of Delaware, and the interpretation and enforcement shall be governed by the laws thereof and subject to the exclusive jurisdiction of the courts therein.

				

				

			

		

		
			
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				            IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.

				

				                                                                                                Material Technologies, Inc.

				

				

				

				                                                                                                ________________________________

				                                                                                                BY:  Robert M. Bernstein

				                                                                                                ITS: Chief Executive Officer, President,

				                                                                                                and Chief Financial Officer

				

				

				

				                                                                                                ________________________________

				                                                                                                                                              , Optionee

				

				

				

				

				

				

				

				

				

				

				

				

				

			

			
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				Appendix A

					

					NOTICE OF EXERCISE

						

					

			

		

		
			Material Technologies, Inc.

				11661 San Vicente Boulevard, Suite 707

				Los Angeles, CA  90049

				

				

				            (1)       ▣        The undersigned hereby elects to purchase ________ shares of the Common Stock of Material Technologies, Inc., Inc. (the “Company”) pursuant to the terms of the attached Option and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.

		

		
			
				                       ▣         The undersigned hereby elects to purchase ________ shares of the Common Stock of the Company pursuant to the terms of the cashless exercise provisions set forth in Section 4(b)(iv) of the attached Option, and shall tender payment of all applicable transfer taxes, if any.

					

					            (2)      Please issue a certificate or certificates representing said shares of Common Stock in the name of the undersigned or in such other name as is specified below:

				

			

			
				________________________

					(Name)

					

					________________________

					________________________

					(Address)

			

			
				
				            (3)       The undersigned represents that (i) the aforesaid shares of Common Stock are being acquired for the account of the undersigned for investment and not with a view to, or for resale in connection with, the distribution thereof and that the undersigned has no present intention of distributing or reselling such shares; (ii) the undersigned is aware of the Company’s business affairs and financial condition and has acquired sufficient information about the Company to reach an informed and knowledgeable decision regarding its investment in the Company; (iii) the undersigned is experienced in making investments of this type and has such knowledge and background in financial and business matters that the undersigned is capable of evaluating the merits and risks of this investment and protecting the undersigned’s own interests; (iv) the undersigned understands that the shares of Common Stock issuable upon exercise of this Option have not been registered under the Securities Act of 1933, as amended (the “Act”), by reason of a specific exemption from the registration provisions of the Act, which exemption depends upon, among other things, the bona fide nature of the investment intent as expressed herein, and, because such securities have not been registered under the Act, they must be held indefinitely unless subsequently registered under the Act or an exemption from such registration is available; (v) the undersigned is aware that the aforesaid shares of Common Stock may not be sold pursuant to Rule 144 adopted under the Act unless certain conditions are met and until the 

					

					

				

			

			
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				undersigned has held the shares for the number of years prescribed by Rule 144, that among the conditions for use of the Rule is the availability of current information to the public about the Company and the Company has not made such information available and has no present plans to do so; and (vi) the undersigned agrees not to make any disposition of all or any part of the aforesaid shares of Common Stock unless and until there is then in effect a registration statement under the Act covering such proposed disposition and such disposition is made in accordance with said registration statement, or the undersigned has provided the Company with an opinion of counsel satisfactory to the Company, stating that such registration is not required.

				

					
							                                                                        

								(Date)

							
							                                                                        

								(Signature)

								

								                                                                        

								(Print name)

						

				

				

				

				

				

				

				

				

				

				

				

				

				

				

				

				

				

				

				

				

			

			
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				MATERIAL TECHNOLOGIES, INC.

						

					INCENTIVE STOCK OPTION AGREEMENT

						

					

			

		

		
			             THIS INCENTIVE STOCK OPTION AGREEMENT is made and entered into as of this ____ day of ______________, ____, by and between Material Technologies, Inc., a Delaware corporation (“Company”), and _____________________________ (referred to herein as the “Optionee”), with reference to the following recitals of facts:

				

				             WHEREAS, the Board has authorized the granting to Optionee of an incentive stock option (“Option”) to purchase shares of common stock of the Company (the “Shares”) upon the terms and conditions hereinafter stated; and

				

				             WHEREAS, the Board and stockholders of the Company have heretofore adopted a 2008 Incentive and Nonstatutory Stock Option Plan (the “Plan”), pursuant to which this Option is being granted;

				

				             WHEREAS, it is the intention of the parties that this Option be an Incentive Stock Option (a “Qualified Stock Option”);

				

				             NOW, THEREFORE, in consideration of the covenants herein set forth, the parties hereto agree as follows:

				

				             1.         Shares; Price.  The Company hereby grants to Optionee the right to purchase, upon and subject to the terms and conditions herein stated, _______ Shares for cash (or other consideration acceptable to the Board of Directors of the Company, in their sole and absolute discretion) at the price of $____ per Share, such price being not less than the fair market value per share of the Shares covered by these Options as of the date hereof and as determined by the Board of Directors of the Company.

				

				             2.         Term of Option; Continuation of Employment.  This Option shall expire, and all rights hereunder to purchase the Shares shall terminate, ten years from the date hereof.  This Option shall earlier terminate as set forth in Paragraphs 5 and 6 hereof.  Nothing contained herein shall be construed to interfere in any way with the right of the Company to terminate the employment or engagement, as applicable, of Optionee or to increase or decrease the compensation of Optionee from the rate in existence at the date hereof.

				

				             3.         Vesting of Option.  Subject to the provisions of Paragraphs 5 and 6 hereof, this Option shall vest and become exercisable during the term of Optionee's employment or engagement in whole or in part beginning on the date of this Agreement.

				

				             4.         Exercise.  In order to exercise this Option with respect to all or any part of the Shares for which this Option is at the time exercisable, Optionee must take the following actions:

				

				

				

			

		

		
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			                         (a)         Execute and deliver to the Company a written notice of exercise stating the number of Shares being purchased (in whole shares only) and such other information set forth on the form of Notice of Exercise attached hereto as Appendix A; and

			

			                         (b)         Pay the aggregate Exercise Price for the purchased shares in one or more of the following forms:

			

			                                      (i)         Cash or check made payable to the Company; or

			

			                                      (ii)        A promissory note payable to the Company, but only to the extent authorized by the Company.

			

			                         Should the Common Stock be registered under Section 12 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) at the time the Option is exercised, then the Exercise Price may also be paid as follows:

			

			                                      (iii)       In shares of Common Stock held by Optionee for the requisite period necessary to avoid a charge to the Company’s earnings for financial reporting purposes and valued at Fair Market Value on the Exercise Date; or

			

			                                      (iv)       To the extent the Option is exercised for vested Shares, through a special sale and remittance procedure pursuant to which Optionee shall concurrently provide irrevocable instructions (a) to a Company-approved brokerage firm to effect the immediate sale of the purchased shares and remit to the Company, out of the sale proceeds available on the settlement date, sufficient funds to cover the aggregate Exercise Price payable for the purchased shares plus all applicable Federal, State and local income and employment taxes required to be withheld by the Company by reason of such exercise; and (b) to the Company to deliver the certificates for the purchased shares directly to such brokerage firm in order to complete the sale (a “cashless exercise transaction”).

			

			                                      (v)        Notwithstanding any provisions herein to the contrary, if the Fair Market Value of one share of the Company’s Common Stock is greater than the Exercise Price (at the date of calculation as set forth below), in lieu of exercising this Option by payment of cash, the Optionee may elect to receive shares equal to the value (as determined below) of this Option (or the portion thereof being canceled) by surrender of this Option at the principal office of the Company together with the properly endorsed Notice of Exercise in which event the Company shall issue to the Optionee a number of shares of Common Stock computed using the following formula (a “net issuance transaction”):

			

			                                      X = Y (A-B)

			                                                   A

		
			

			
					            	Where  X =   	the number of shares of Common Stock to be issued to the Optionee
	  		
		            Y =	the number of shares of Common Stock purchasable under the Option or, if only a portion of the Option is being exercised, the portion of the Option being canceled (at the date of such calculation)

				

				

			

			
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						             A =	the Fair Market Value of one share of the Company’s Common Stock (at the date of such calculation)
	  		
		             B =	Exercise Price (as adjusted to the date of such calculation)

				

				                                   For purposes of Rule 144 and sub-section (d)(3)(ii) thereof, it is intended, understood and acknowledged that the Common Stock issuable upon exercise of this Option in a net issuance transaction shall be deemed to have been acquired at the time this Option was issued.  Moreover, it is intended, understood and acknowledged that the holding period for the Common Stock issuable upon exercise of this Option in a net issuance transaction shall be deemed to have commenced on the date this Option was issued.

				

				                        (c)        Execute and deliver to the Company such written representations as may be requested by the Company in order for it to comply with the applicable requirements of Federal and State securities laws.

				

				                        (d)        Make appropriate arrangements with the Company (or Parent or Subsidiary   employing or retaining Optionee) for the satisfaction of all Federal, State and local income and employment tax withholding requirements applicable to the Option exercise, if any.

				

				                        (e)        If requested, execute and deliver to the Company a written statement as provided for in Paragraph 11 hereof.

				

				            5.         Termination of Employment or Engagement.  If Optionee shall cease to serve as an employee of the Company for any reason, whether voluntarily or involuntarily, Optionee shall have the right, during the remaining term of the Option, to exercise in whole or in part this Option to the extent, but only to the extent, that this Option was exercisable as of the last day of employment, and had not previously been exercised.  The Option may be exercised only with respect to installments that the Optionee could have exercised at the date of termination of employment.

				

				            Notwithstanding anything herein to the contrary, all rights under this Option shall expire in any event on the date specified in Paragraph 2 hereof.

				

				            6.         Death of Optionee.  If the Optionee shall die while an employee of the Company, Optionee’s personal representative or the person entitled to Optionee’s rights hereunder may at any time during the remaining term of this Option, exercise this Option and purchase Shares to the extent, but only to the extent, that Optionee could have exercised this Option as of the date of Optionee’s death; provided, in any case, that this Option may be so exercised only to the extent that this option has not previously been exercised by Optionee.
				

				

				            7.         No Rights as Stockholder.  Optionee shall have no rights as a stockholder with respect to the Shares covered by any installment of this Option until the date of the issuance of a stock certificate to Optionee, and no adjustment will be made for dividends or other rights for which the record date is prior to the date such stock certificate or certificates are issued except as provided in Paragraph 8 hereof.

				

				

			

			
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				            8.         Recapitalization.  Subject to any required action by the stockholders of the Company, the number of Shares covered by this Option, and the price per Share thereof, shall be proportionately adjusted for any increase in the number of issued Shares resulting from a forward split of shares or the payment of a stock dividend, or any other increase in the number of such shares affected without receipt of consideration by the Company; provided however that the conversion of any convertible securities of the Company shall not be deemed having been “effected without receipt of consideration by the Company.”  The number of Shares covered by this Option, and the price per Share thereof, shall not be affected or adjusted for any decrease in the number of issued shares of common stock of the Company resulting from a reverse split of shares, or any other decrease in the number of such shares affected.

				

				            In the event of a proposed dissolution or liquidation of the Company, a merger or consolidation in which the Company is not the surviving entity, or a sale of all or substantially all of the assets of the Company, this Option shall terminate immediately prior to the consummation of such proposed action, unless otherwise provided by the Board.  The Board may, at its sole and absolute discretion and without obligation, declare that this Option shall terminate as of a date fixed by the Board and grant Optionee the right for a period commencing 30 days prior to and ending immediately prior to such date, or during the remaining term of this Option, whichever occurs sooner, to exercise this Option as to all or any part of the Shares, without regard to the installment provision of Paragraph 3; provided, however, that such exercise shall be subject to the consummation of such dissolution, liquidation, merger, consolidation or sale.

				

				            Subject to any required action by the stockholders of the Company, if the Company shall be the surviving entity in any merger or consolidation, this Option thereafter shall pertain to and apply to the securities to which a holder of Shares equal to the Shares subject to this Option would have been entitled by reason of such merger or consolidation, and the vesting provisions of Section 3 shall continue to apply.

				

				            In the event of a change in the Shares of the Company as presently constituted, which is limited to a change of all of its authorized Shares without par value into the same number of Shares with a par value, the Shares resulting from any such change shall be deemed to be the Shares within the meaning of this Agreement.

				

				            To the extent that the foregoing adjustments relate to shares or securities of the Company, such adjustments shall be made by the Board, whose determination in that respect shall be final, binding and conclusive.  Except as hereinbefore expressly provided, Optionee shall have no rights by reason of any subdivision or consolidation of share of stock of any class or the payment of any stock dividend or any other increase or decrease in the number of shares of stock of any class, and the number and price of shares subject to this Option shall not be affected by, and no adjustments shall be made by reason of, any dissolution, liquidation, merger or consolidation, or any issue by the Company of shares of stock of any class or securities convertible into shares of stock of any class.

				

				            The grant of this Option shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes in its capital or business structure or

				

				

			

			
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				to merge, consolidate, dissolve or liquidate or to sell or transfer all or any part of its business or assets.

				

				            9.         Taxation upon Exercise of Option.  Optionee understands that, upon exercise of this Option, Optionee may recognize income, for federal and state income tax purposes, in an amount equal to the amount by which the fair market value of the Shares, determined as of the date of exercise, exceeds the exercise price.  The acceptance of the Shares by Optionee shall constitute an agreement by Optionee to report such income in accordance with then applicable law and to cooperate with Company in establishing the amount of such income and corresponding deduction to the Company for its income tax purposes.  Withholding for federal or state income and employment tax purposes will be made, if and as required by law, from Optionee's then current compensation, or, if such current compensation is insufficient to satisfy withholding tax liability, the Company may require Optionee to make  cash payment to cover such liability as a condition of the exercise of this Option.

				

				

				

				

				

				

				

				

				

				

				

				

				

				

				

				

				

				

				

			

		

		
			
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				           10.       Modification, Extension and Renewal of Options.  The Board may modify, extend or renew this Option or accept the surrender thereof (to the extent not theretofore exercised) and authorize the granting of a new option in substitution therefore (to the extent not theretofore exercised), subject at all times to the Plan.  Notwithstanding the foregoing provisions of this Paragraph 10, no modification shall, without the consent of the Optionee, alter to the Optionee's detriment or impair any rights of Optionee hereunder.

				

				           11.       Investment Intent; Restrictions on Transfer.  Optionee represents and agrees that if Optionee exercises this Option in whole or in part, Optionee will in each case acquire the Shares upon such exercise for the purpose of investment and not with a view to, or for resale in connection with, any distribution thereof; and that upon such exercise of this Option in whole or in part, Optionee (or any person or persons entitled to exercise this Option under the provisions of Paragraphs 5 and 6 hereof) shall furnish to the Company a written statement to such effect, satisfactory to the Company in form and substance.  The Company, at its option, may include a legend on each certificate representing Shares issued pursuant to any exercise of this Option, stating in effect that such Shares have not been registered under the Securities Act of 1933, as amended (the “Act”), and that the transferability thereof is restricted.  If the Shares represented by this Option are registered under the Act, either before or after the exercise of this Option in whole or in part, the Optionee shall be relieved of the foregoing investment representation and agreement and shall not be required to furnish the Company with the foregoing written statement.

				

				            Optionee further represents that optionee has had access to the financial statements or books and records of the Company, has had the opportunity to ask questions of the Company concerning its business, operations and financial condition, and to obtain additional information reasonably necessary to verify the accuracy of such information, and further represents that Optionee has (either such experience and knowledge in investment, financial and business matters in investments similar to the stock of the Company that Optionee is capable of evaluating the merits and risks thereof and has the capacity to protect his or her own interest in connection therewith.

				

				           12.       Notices.  Any notice required to be given pursuant to this Option or the Plan shall be in writing and shall be deemed to be delivered upon receipt or, in the case of notices by the Company, five days after deposit in the US. mail, postage prepaid, addressed to Optionee at the address last provided to the Company by Optionee for his or her employee records.

				

				           13.       Agreement Subject to Plan; Applicable Law.  This Agreement is made pursuant to the Plan and shall be interpreted to comply therewith.  A copy of such Plan is available to Optionee, at no charge, at the principal office of the Company.  Any provision of this Agreement inconsistent with the Plan shall be considered void and replaced with the applicable provision of the Plan.  This Agreement has been granted, executed and delivered in the State of Delaware, and the interpretation and enforcement shall be governed by the laws thereof and subject to the exclusive jurisdiction of the courts therein.

				

				

				

			

		

		
			
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			            IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.

			

			                                                                                                Material Technologies, Inc.

				

				

			                                                                                                ________________________________

			                                                                                                BY: Robert M. Bernstein

			                                                                                                ITS: Chief Executive Officer, President

			                                                                                                and Chief Financial Officer

			

			

			

			                                                                                                ________________________________

			                                                                                                                                              , Optionee

			

			

			

			

			

			

			

			

			

			

			

			

			

			

		

		
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			Appendix A

				

				NOTICE OF EXERCISE

					

				

		

		
			Material Technologies, Inc.

				11661 San Vicente Boulevard, Suite 707

				Los Angeles, CA  90049

				

				            (1)        ▣         The undersigned hereby elects to purchase ________ shares of the Common Stock of Material Technologies, Inc. (the “Company”) pursuant to the terms of the attached Option and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.

				

				                        ▣         The undersigned hereby elects to purchase ________ shares of the Common Stock of the Company pursuant to the terms of the cashless exercise provisions set forth in Section 4(b)(iv) of the attached Option, and shall tender payment of all applicable transfer taxes, if any.

				

				            (2)       Please issue a certificate or certificates representing said shares of Common Stock in the name of the undersigned or in such other name as is specified below:

				

			

		

		
			________________________

				(Name)

				

				________________________

				________________________

				(Address)

		

		
			            (3)       The undersigned represents that (i) the aforesaid shares of Common Stock are being acquired for the account of the undersigned for investment and not with a view to, or for resale in connection with, the distribution thereof and that the undersigned has no present intention of distributing or reselling such shares; (ii) the undersigned is aware of the Company’s business affairs and financial condition and has acquired sufficient information about the Company to reach an informed and knowledgeable decision regarding its investment in the Company; (iii) the undersigned is experienced in making investments of this type and has such knowledge and background in financial and business matters that the undersigned is capable of evaluating the merits and risks of this investment and protecting the undersigned’s own interests; (iv) the undersigned understands that the shares of Common Stock issuable upon exercise of this Option have not been registered under the Securities Act of 1933, as amended (the “Act”), by reason of a specific exemption from the registration provisions of the Act, which exemption depends upon, among other things, the bona fide nature of the investment intent as expressed herein, and, because such securities have not been registered under the Act, they must be held indefinitely unless subsequently registered under the Act or an exemption from such registration is available; (v) the undersigned is aware that the aforesaid shares of Common Stock may not be sold pursuant to Rule 144 adopted under the Act unless certain conditions are met and until the undersigned has held the shares for the number of years prescribed by Rule 144, that among the conditions for use of the Rule is the availability of current information to the public about the Company and the Company has not made such information available and has no present plans to 

				

				

			

		

		
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			do so; and (vi) the undersigned agrees not to make any disposition of all or any part of the aforesaid shares of Common Stock unless and until there is then in effect a registration statement under the Act covering such proposed disposition and such disposition is made in accordance with said registration statement, or the undersigned has provided the Company with an opinion of counsel satisfactory to the Company, stating that such registration is not required.

			

				
						                                                                        

							(Date)

						
						                                                                        

							(Signature)

							

							                                                                        

							(Print name)

					

			

			

			

			

			

			

			

			

			

			

			

			

			

			

			

			

			

			

			

			

		

		
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