Document:

Exhibit 10.1

                     [LETTERHEAD OF ARIZONA PUBLIC SERVICE]

                                December 1, 1999

Docket Control
Arizona Corporation Commission
1200 West Washington
Phoenix, Arizona 85007

     Re:  APS Settlement Proceeding
          ACC Docket Nos. E-01345A-98-0473, E-01345A-97-0773, RE-00000C-94-0165

Dear Sir or Madam:

     Pursuant to the Opinion and Order, Decision No. 61973 in the above
referenced Dockets, Arizona Public Service is filing an Addendum to the
Settlement Agreement incorporating the modifications required by that Decision.
This Addendum has been reviewed and executed by all signatories to the original
APS Settlement Agreement.

     If you have any questions regarding this filing, please contact me at
(602)250-2310.

                                        Sincerely,

                                        Jana Van Ness

                                        Jana Van Ness
                                        Manager
                                        State Regulations

Attachment

Cc:  Docket Control (18 copies plus original)
     Parties of Record
<PAGE>
                        ADDENDUM TO SETTLEMENT AGREEMENT

     This Addendum is to the Settlement Agreement dated May 14, 1999 (hereafter
"Agreement") between Arizona Public Service Company ("APS" or "Company") and the
various signatories to the Agreement (collectively with APS, the "Parties"). By
signing this Addendum to Settlement Agreement ("Addendum"), the Parties intend
to revise certain provisions of the Agreement as directed by the Arizona
Corporation Commission ("Commission") in Decision No. 61973 (October 6, 1999)
("Decision"). The Decision adopted and approved the Agreement subject to certain
modifications.

                                       I.
                            INTRODUCTION AND RECITALS

     1. On May 14, 1999, the Parties entered into the Agreement;

     2. On May 17, 1999, APS filed with the Commission a Notice of Filing
Application for Approval of Settlement Agreement and Request for Procedural
Order.

     3. Commencing on July 14, 1999, and pursuant to a Procedural Order issued
by the Hearing Division of the Commission, a full public evidentiary hearing on
the Agreement was conducted.

     4. On October 6, 1999, the Commission issued its Decision No. 61973
adopting and approving the Agreement as modified in the Decision.

     5. The Parties now wish to enter into this Addendum to revise the Agreement
as directed in the Decision.

                                       II.
                               ADDENDUM AGREEMENT

     1. METERING, METER READING, AND BILLING CREDITS

          A. The Company's revised unbundled rates and charges reflecting the
metering, meter reading, and billing credits required by the Decision are
attached hereto as Revised Exhibit A.

          B. The revised unbundled rates and charges in Revised Exhibit A to
this Addendum are substituted for the corresponding tariffs in Exhibit A to the
Agreement.

          C. Schedules A through C of Exhibit A to the Agreement are not
affected by this Addendum and were adopted and approved by the Commission in the
Decision as originally proposed in the Agreement.

                                        1
<PAGE>
     2. ADVANCED NOTICE FOR LARGE CUSTOMERS. Section 2.3 of the Agreement is
replaced with and superceded by the following provision:

          2.3. Customers greater than 3 MW who choose a direct access supplier
          must either (a) give APS one year's advance notice before being
          eligible to return to Standard Offer service, or (b) pay APS for all
          additional costs incurred as a result of the customer returning to
          Standard Offer service without providing APS at least one year's
          advance notice.

     3. DEFERRAL OF TRANSFER COSTS. Section 2.6(3) of the Agreement is replaced
with and superceded by the following provision:

          (3)  compliance with the Electric Competition Rules or
               Commission-ordered programs or directives related to the
               implementation of the Electric Competition Rules, as they may be
               amended from time to time, which costs shall be recovered from
               all customers receiving services from APS, provided however, that
               no more than sixty-seven percent (67%) of the costs to transfer
               generation assets to an affiliate or affiliates shall be allowed
               to be deferred for future collection under this provision; and

     4. RATE MATTERS. Section 2.8 of the Agreement is replaced with and
superceded by the following provision:

          2.8. Neither the Commission nor APS shall be prevented from seeking or
          authorizing a change in unbundled or Standard Offer rates prior to
          July 1, 2004, in the event of (a) conditions or circumstances which
          constitute an emergency, such as an inability to finance on reasonable
          terms, or (b) material changes in APS' cost of service for
          Commission-regulated services resulting from federal, tribal, state or
          local laws, regulatory requirements, judicial decisions, actions or
          orders. Except for the changes otherwise specifically contemplated by
          this Agreement, unbundled and Standard Offer rates shall remain
          unchanged until at least July 1, 2004.

                                        2
<PAGE>
     5. GENERATION AFFILIATE. Section 4.1 of the Agreement is replaced with and
superceded by the following provisions:

          4.1. Affiliates.

          (1)  The Commission will approve the formation of an affiliate or
               affiliates of APS to acquire at book value the competitive
               services and assets as currently required by the Electric
               Competition Rules. In order to facilitate the separation of such
               assets efficiently and at the lowest possible cost, the
               Commission shall grant APS a two-year extension of time until
               December 31, 2002, to accomplish such separation. A similar
               two-year extension shall be authorized for compliance with A.A.C.
               R14-2-1606(B).

          (2)  The affiliate or affiliates formed under this Section 4.1 shall
               be direct subsidiaries of Pinnacle West Capital Corporation, and
               not APS.

          (3)  After the extensions granted in this Section 4.1 have expired,
               APS shall procure generation for Standard Offer customers from
               the competitive market as provided for in the Electric
               Competition Rules. An affiliated generation company formed
               pursuant to this Section 4.1 may competitively bid for APS'
               Standard Offer load, but enjoys no automatic privilege outside of
               the market bid on account of its affiliation with APS.

     6. STATUTORY WAIVERS. Section 4.3 of the Agreement is deleted in its
entirety.

     7. WAIVERS OF AFFILIATE INTEREST RULES. The Revised Exhibit D to this
Addendum setting forth the Affiliate Rules Waivers is substituted for the
corresponding Exhibit D to the Agreement so that the proposed waiver of
R14-2-804(A) in the Agreement is deleted.

                                        3
<PAGE>
     8. CONFLICTS WITH ELECTRIC COMPETITION RULES. In reliance upon the
Commission's directive in Decision No. 61973 (page 9) that "We want to make it
clear that the Commission does not intend to revisit the stranded cost portion
of the Agreement. It is also not the Commission's intent to undermine the
benefits that parties have bargained for," Section 7.1 is replaced with and
superseded by the following provision:

          7.1. Approval of this Agreement by the Commission shall constitute a
          waiver of any existing Commission order, rule or regulation to the
          extent necessary to permit performance of the Agreement, as approved
          by the Commission. Any future Commission order, rule or regulation
          shall be construed and administered, insofar as possible, in a manner
          so as not to conflict with the specific provisions of this Agreement,
          as approved by the Commission. In the event any of the Parties deems a
          future Commission order, rule or regulation to be inconsistent with
          the specific provisions of this Agreement, a waiver of the new
          Commission order, rule or regulation shall be sought.

               Nothing in this Agreement is intended to otherwise interfere with
          the Commission's ability to exercise its regulatory authority by the
          issuance of orders, rules or regulations. The requirements of this
          Agreement shall be performed in accordance with the Commission's
          Electric Competition Rules including any specific waivers granted by
          the Commission's order approving this Agreement, except where a
          specific provision of this Agreement would excuse compliance.

     9. INTERIM CODE OF CONDUCT. Section 7.7 of the Agreement is replaced with
and superceded by the following provision:

          7.7. Within thirty (30) days of the date of the Commission decision
          approving this Agreement pursuant to Section 6.1, APS shall file an
          initial proposed Code of Conduct to address inter-affiliate
          relationships involving APS as a utility distribution company as
          required by the Electric Competition Rules and which includes
          provisions to govern the supply of generation during the two-year
          extension provided for by Section 4.1 of this Agreement. Interested
          parties may provide APS with comments on the initial proposed Code of
          Conduct within sixty (60) days of the date of the Commission decision
          approving this Agreement. APS will file a final proposed Code of
          Conduct for Commission approval within ninety (90) days of the date of
          the Commission decision approving this Agreement. Until the Commission
          approves a Code of Conduct for APS, APS will voluntarily comply with
          the initial proposed Code of Conduct or, once filed, the final
          proposed Code of Conduct.

                                        4
<PAGE>
     10. Effect of Addendum. Other than as specifically modified by this
Addendum, all provisions of the Agreement remain in full force and effect.

AGREED TO AS OF NOVEMBER 24, 1999:

RESIDENTIAL UTILITY                     ARIZONA PUBLIC SERVICE COMPANY
CONSUMER OFFICE

By Barbara Wytaske                      By Jack Davis
   -------------------------------         --------------------------------
Title Acting Director                   Title President Delivery & Sales
      ----------------------------            -----------------------------

ARIZONA COMMUNITY ACTION                (Party)
ASSOCIATION

By Betty Pruitt                         By
   -------------------------------         --------------------------------
Title Acting Executive Director         Title
      ----------------------------            -----------------------------

ARIZONANS FOR ELECTRIC CHOICE           (Party)
AND COMPETITION, a coalition of
companies and associations in support
of competition that includes Cable
Systems International, BHP Copper,      By
Motorola, Chemical Lime, Intel,            --------------------------------
Hughes, Honeywell, Allied Signal,       Title
Cyprus Climax Metals, Asarco, Phelps          -----------------------------
Dodge, Homebuilders of Central Arizona,
Arizona Mining Industry Gets Our
Support, Arizona Food Marketing
Alliance, Arizona Association of
Industries, Arizona Multi-housing
Association, Arizona Rock Products      (Party)
Association, Arizona Restaurant
Association, Arizona Retailers
Association, Boeing, Arizona School
Board Association, National Federation  By
of Independent Business, Arizona           --------------------------------
Hospital Association, Lockheed Martin,
Abbot Labs and Raytheon.                Title
                                              -----------------------------
By Stan Barnes
   -------------------------------
Title President
      ----------------------------

                                        5
<PAGE>
                                     Revised
                                    EXHIBIT D
                             Affiliate Rules Waivers

R14-2-801(5) and R14-2-803, such that the term "reorganization" does not
include, and no Commission approval is required for, corporate restructuring
that does not directly involve the utility distribution company ("UDC") in the
holding company. For example, the holding company may reorganize, form, buy or
sell non-UDC affiliates, acquire or divest interests in non-UDC affiliates,
etc., without Commission approval.

R14-2-805(A) shall apply only to the UDC

R14-2-805(A)(2)

R14-2-805(A)(6)

R14-2-805(A)(9), (10), and (11)

                      RECISION OF PRIOR COMMISSION ORDERS

Section X.C of the "Cogeneration and Small Power Production Policy" attached to
Decision No. 52345 (July 27, 1981) regarding reporting requirements for
cogeneration information.

Decision No. 55118 (July 24, 1986) - Page 15, Lines 5-1/2 through 13-1/2;
Finding of Fact No. 24 relating to reporting requirements under the abolished
PPFAC.

Decision No. 55818 (December 14, 1987) in its entirety. This decision related to
APS Schedule 9 (Industrial Development Rate) which was terminated by the
Commission in Decision No. 59329 (October 11, 1995).

9th and 10th Ordering Paragraphs of Decision No. 56450 (April 13, 1989)
regarding reporting requirements under the abolished PPFAC.
<PAGE>
                                                                          DA-GS1

                             ELECTRIC DELIVERY RATES

ARIZONA PUBLIC SERVICE COMPANY                     A.C.C. No. 5351
Phoenix, Arizona                                   Tariff or Schedule No. DA-GS1
Filed by:  Alan Propper                            Original Tariff
Title:  Director, Pricing and Regulation           Effective: October 1, 1999

                                  DIRECT ACCESS
                                 GENERAL SERVICE

AVAILABILITY

     This rate schedule is available in all certificated retail delivery service
territory served by Company at all points where facilities of adequate capacity
and the required phase and suitable voltage are adjacent to the premises served.

APPLICATION

     This rate schedule is applicable to customers receiving electric energy on
a direct access basis from any certificated Electric Service Provider (ESP) as
defined in A.A.C. R14-2-1603. This rate schedule is applicable to all electric
service required when such service is supplied at one point of delivery and
measured through one meter. For those customers whose electricity is delivered
through more than one meter, service for each meter shall be computed separately
under this rate unless conditions in accordance with the Company's Schedule #4
(Totalized Metering of Multiple Service Entrance Sections At a Single Premise
for Standard Offer and Direct Access Service) are met. For those service
locations where electric service has historically been measured through two
meters, when one of the meters was installed pursuant to a water heating rate
schedule no longer in effect, the electric service measured by such meters shall
be combined for billing purposes.

     This rate schedule shall become effective as defined in Company's Terms and
Conditions for Direct Access (Schedule #10).

     This rate schedule is not applicable to residential service, resale service
or direct access service which qualifies for Rate Schedule DA-GS10.

TYPE OF SERVICE

     Service shall be single or three phase, 60 Hertz, at one standard voltage
as may be selected by customer subject to availability at the customer's
premise. Three phase service is furnished under the Company's Conditions
Governing Extensions of Electric Distribution Lines and Services (Schedule #3).
Transformation equipment is included in cost of extension. Three phase service
is not furnished for motors of an individual rated capacity of less than 7-1/2
HP, except for existing facilities or where total aggregate HP of all connected
three phase motors exceed 12 HP. Three phase service is required for motors of
an individual rated capacity of more than 7-1/2 HP.

METERING REQUIREMENTS

     All customers shall comply with the terms and conditions for load profiling
or hourly metering specified in the Company's Schedule #10.

MONTHLY BILL

     The monthly bill shall be the greater of the amount computed under A. or B.
below, including the applicable Adjustments.

     A. RATE

     June - October Billing Cycles (Summer):

                                  Basic                             Competitive
                                 Delivery                 System     Transition
                                 Service   Distribution  Benefits      Charge
                                 -------   ------------  --------      ------
               $/month            $12.50

               Per kW over 5                $0.721

               Per kWh for the
               first 2,500 kWh              $0.04255

               Per kWh for the
               next 100 kWh
               per kW over 5                $0.04255

               Per kWh for the
               next 42,000 kWh              $0.02901

               Per kWh for all
               additional kWh               $0.01811

               Per all kWh                               $0.00115

               Per all kW                                              $2.43

                          (CONTINUED ON REVERSE SIDE)
<PAGE>
                                                                 DA-GS1
                                                                 A.C.C. No. 5351
                                                                 Page 2 of 3

     A. RATE (continued)

         November - May Billing Cycles (Winter):

                                  Basic                            Competitive
                                 Delivery                 System   Transition
                                 Service   Distribution  Benefits    Charge
                                 -------   ------------  --------    ------
               $/month            $12.50

               Per kW over 5                $0.652

               Per kWh for the
               first 2,500 kWh              $0.03827

               Per kWh for the
               next 100 kWh
               per kW over 5                $0.03827

               Per kWh for the              $0.02600
               next 42,000 kWh

               Per kWh for all              $0.01614
               additional  kWh

               Per all kWh                               $0.00115

               Per all kW                                             $2.43

                     PRIMARY AND TRANSMISSION LEVEL SERVICE:

     1.   For customers served at primary voltage (12.5kV to below 69kV), the
          Distribution charge will be discounted by 11.6%.

     2.   For customers served at transmission voltage (69kV or higher), the
          Distribution charge will be discounted 52.6%.

     3.   Pursuant to A.A.C. R14-2-1612.K.11, the Company shall retain ownership
          of Current Transformers (CT's) and Potential Transformers (PT's) for
          those customers taking service at voltage levels of more than 25kV.
          For customers whose metering services are provided by an ESP, a
          monthly facilities charge will be billed, in addition to all other
          applicable charges shown above, as determined in the service contract
          based upon the Company's cost of CT and PT ownership, maintenance and
          operation.

                               DETERMINATION OF KW

The kW used for billing purposes shall be the average kW supplied during the
15-minute period of maximum use during the month, as determined from readings of
the delivery meter.

     B. MINIMUM

     $12.50 plus $1.74 for each kW in excess of five of either the highest kW
     established during the 12 months ending with the current month or the
     minimum kW specified in the agreement for service, whichever is the
     greater.

                                   ADJUSTMENTS

     1.   When Metering, Meter Reading or Consolidated Billing are provided by
          the Customer's ESP, the monthly bill will be credited as follows:

                      Meter             $7.62 per month
                      Meter Reading     $1.69 per month
                      Billing           $1.33 per month

     2.   The monthly bill is also subject to the applicable proportionate part
          of any taxes, or governmental impositions which are or may in the
          future be assessed on the basis of gross revenues of the Company
          and/or the price or revenue from the electric service sold and/or the
          volume of energy delivered or purchased for sale and/or sold
          hereunder.

         SERVICES ACQUIRED FROM CERTIFICATED ELECTRIC SERVICE PROVIDERS

     Customers served under this rate schedule are responsible for acquiring
their own generation and any other required competitively supplied services from
an ESP or under the Company's Open Access Transmission Tariff. The Company will
provide and bill its transmission and ancillary services on rates approved by
the Federal Energy Regulatory Commission to the Scheduling Coordinator who
provides transmission service to the Customer's ESP. The Customer's ESP must
submit a Direct Access Service Request pursuant to the terms and conditions in
Schedule #10.

                             (CONTINUED ON PAGE 3)
<PAGE>
ON-SITE GENERATION TERMS AND CONDITIONS

     Customers served under this rate schedule who have on-site generation
connected to the Company's electrical delivery grid shall enter into an
Agreement for Interconnection with the Company which shall establish all
pertinent details related to interconnection and other required service
standards. The Customer does not have the option to sell power and energy to the
Company under this tariff.

CONTRACT PERIOD

  0 - 1,999 kW:         As provided in Company's standard agreement for service.
  2,000 kW and above:   Three (3) years, or longer, at Company's option for
                        initial period when construction is required.  One (1)
                        year, or longer, at Company's option when construction
                        is not required.

TERMS AND CONDITIONS

     This rate schedule is subject to Company's Terms and Conditions for
Standard Offer and Direct Access Service (Schedule #1) and the Company's
Schedule #10. These Schedules have provisions that may affect customer's monthly
bill.
<PAGE>
                                                                       Exhibit A
                                                                           DA-R1

                             ELECTRIC DELIVERY RATES

ARIZONA PUBLIC SERVICE COMPANY                      A.C.C. No. 5350
Phoenix, Arizona                                    Tariff or Schedule No. DA-R1
Filed by:  Alan Propper                             Original Tariff
Title: Director, Pricing and Regulation             Effective: October 1, 1999

                                  DIRECT ACCESS
                               RESIDENTIAL SERVICE

AVAILABILITY

     This rate schedule is available in all certificated retail delivery service
territory served by Company and where facilities of adequate capacity and the
required phase and suitable voltage are adjacent to the premises served.

APPLICATION

     This rate schedule is applicable to customers receiving electric energy on
a direct access basis from any certificated Electric Service Provider (ESP) as
defined in A.A.C. R14-2-1603. This rate schedule is applicable only to electric
delivery required for residential purposes in individual private dwellings and
in individually metered apartments when such service is supplied at one point of
delivery and measured through one meter. For those dwellings and apartments
where electric service has historically been measured through two meters, when
one of the meters was installed pursuant to a water heating or space heating
rate schedule no longer in effect, the electric service measured by such meters
shall be combined for billing purposes.

     This rate schedule shall become effective as defined in Company's Terms and
Conditions for Direct Access (Schedule #10.)

TYPE OF SERVICE

     Service shall be single phase, 60 Hertz, at one standard voltage (120/240
or 120/208 as may be selected by customer subject to availability at the
customer's premise). Three phase service is furnished under the Company's
Conditions Governing Extensions of Electric Distribution Lines and Services
(Schedule #3). Transformation equipment is included in cost of extension. Three
phase service is required for motors of an individual rated capacity of 7-1/2 HP
or more.

METERING REQUIREMENTS

     All customers shall comply with the terms and conditions for load profiling
or hourly metering specified in Schedule #10.

MONTHLY BILL

     The monthly bill shall be the greater of the amount computed under A. or B.
below, including the applicable Adjustments.

     A. RATE

          May - October Billing Cycles (Summer):

                               Basic                            Competitive
                             Delivery                 System    Transition
                              Service   Distribution  Benefits    Charge
                              -------   ------------  --------    ------
               $/month        $10.00

               All kWh                   $0.04158     $0.00115   $0.00930

          November - April Billing Cycles (Winter):

                               Basic                            Competitive
                             Delivery                 System    Transition
                              Service   Distribution  Benefits    Charge
                              -------   ------------  --------    ------
               $/month        $10.00

               All kWh                   $0.03518     $0.00115   $0.00930

     B. MINIMUM $ 10.00 per month

                           (CONTINUED ON REVERSE SIDE)
<PAGE>
                                                                 DA-R1
                                                                 A.C.C. No. XXXX
                                                                 Page 2 of 2

     ADJUSTMENTS

          1.   When Metering, Meter Reading or Consolidated Billing are provided
               by the Customer's ESP, the monthly bill will be credited as
               follows:

                  Meter             $4.00 per month
                  Meter Reading     $1.69 per month
                  Billing           $1.33 per month

          2.   The monthly bill is also subject to the applicable proportionate
               part of any taxes, or governmental impositions which are or may
               in the future be assessed on the basis of gross revenues of the
               Company and/or the price or revenue from the electric service
               sold and/or the volume of energy delivered or purchased for sale
               and/or sold hereunder.

SERVICES ACQUIRED FROM CERTIFICATED ELECTRIC SERVICE PROVIDERS

     Customers served under this rate schedule are responsible for acquiring
their own generation and any other required competitively supplied services from
an ESP. The Company will provide and bill its transmission and ancillary
services on rates approved by the Federal Energy Regulatory Commission to the
Scheduling Coordinator who provides transmission service to the Customer's ESP.
The Customer's ESP must submit a Direct Access Service Request pursuant to the
terms and conditions in Schedule #10.

ON-SITE GENERATION TERMS AND CONDITIONS

     Customers served under this rate schedule who have on-site generation
connected to the Company's electrical delivery grid shall enter into an
Agreement for Interconnection with the Company which shall establish all
pertinent details related to interconnection and other required service
standards. The Customer does not have the option to sell power and energy to the
Company under this tariff.

TERMS AND CONDITIONS

     This rate schedule is subject to the Company's Terms and Conditions for
Standard Offer and Direct Access Services (Schedule #1) and Schedule #10. These
schedules have provisions that may affect customer's monthly bill.
<PAGE>
                                                                       Exhibit A
                                                                         DA-GS10

                             ELECTRIC DELIVERY RATES

ARIZONA PUBLIC SERVICE COMPANY                    A.C.C. No. 5352
Phoenix, Arizona                                  Tariff or Schedule No. DA-GS10
Filed by:  Alan Propper                           Original Tariff
Title: Director, Pricing and Regulation           Effective: October 1, 1999

                                  DIRECT ACCESS
                           EXTRA LARGE GENERAL SERVICE

AVAILABILITY

     This rate schedule is available in all certificated retail delivery service
territory served by Company at all points where facilities of adequate capacity
and the required phase and suitable voltage are adjacent to the premises served.

APPLICATION

     This rate schedule is applicable to customers receiving electric energy on
a direct access basis from any certificated Electric Service Provider (ESP) as
defined in A.A.C. R14-2-1603. This rate schedule is applicable only to customers
whose monthly maximum demand is 3,000 kW or more for three (3) consecutive
months in any continuous twelve (12) month period ending with the current month.
Service must be supplied at one point of delivery and measured through one meter
unless otherwise specified by individual customer contract. For those customers
whose electricity is delivered through more than one meter, service for each
meter shall be computed separately under this rate unless conditions in
accordance with the Company's Schedule #4 (Totalized Metering of Multiple
Service Entrance Sections At a Single Premise for Standard Offer and Direct
Access Service) are met.

     This rate schedule is not applicable to resale service.

     This rate schedule shall become effective as defined in Company's Terms and
Conditions for Direct Access (Schedule #10).

TYPE OF SERVICE

     Service shall be three phase, 60 Hertz, at Company's standard voltages that
are available within the vicinity of customer's premise.

METERING REQUIREMENTS

     All customers shall comply with the terms and conditions for hourly
metering specified in Schedule #10.

MONTHLY BILL

     The monthly bill shall be the greater of the amount computed under A. or B.
below, including the applicable Adjustments.

     A. RATE

                                 Basic                             Competitive
                               Delivery                  System    Transition
                                Service   Distribution  Benefits     Charge
                                -------   ------------  --------     ------
                  $/month      $2,430.00

                  per kW                   $3.53                      $2.82

                  per kWh                  $0.00999     $0.00115

          PRIMARY AND TRANSMISSION LEVEL SERVICE:

          1.   For customers served at primary voltage (12.5kV to below 69kV),
               the Distribution charge will be discounted by 4.8%.

          2.   For customers served at transmission voltage (69kV or higher),
               the Distribution charge will be discounted 36.7%.

          3.   Pursuant to A.A.C. R14-2-1612.K.11, the Company shall retain
               ownership of Current Transformers (CT's) and Potential
               Transformers (PT's) for those customers taking service at voltage
               levels of more than 25 kV. For customers whose metering services
               are provided by an ESP, a monthly facilities charge will be
               billed, in addition to all other applicable charges shown above,
               as determined in the service contract based upon the Company's
               cost of CT and PT ownership, maintenance and operation.

          DETERMINATION OF KW

          The kW used for billing purposes shall be the greater of:

          1.   The kW used for billing purposes shall be the average kW supplied
               during the 15-minute period (or other period as specified by
               individual customer's contract) of maximum use during the month,
               as determined from readings of the delivery meter.

          2.   The minimum kW specified in the agreement for service or
               individual customer contract.

                           (CONTINUED ON REVERSE SIDE)
<PAGE>
                                                                 DA-GS10
                                                                 A.C.C. No. XXXX
                                                                 Page 2 of 2

     B. MINIMUM

          $2,430.00 per month plus $1.74 per kW per month.

         ADJUSTMENTS

          1.   When Metering, Meter Reading or Consolidated Billing are provided
               by the Customer's ESP, the monthly bill will be credited as
               follows:

                      Meter             $154.15 per month
                      Meter Reading     $  1.69 per month
                      Billing           $  1.33 per month

          2.   The monthly bill is also subject to the applicable proportionate
               part of any taxes, or governmental impositions which are or may
               in the future be assessed on the basis of gross revenues of the
               Company and/or the price or revenue from the electric service
               sold and/or the volume of energy delivered or purchased for sale
               and/or sold hereunder.

SERVICES ACQUIRED FROM CERTIFICATED ELECTRIC SERVICE PROVIDERS

     Customers served under this rate schedule are responsible for acquiring
their own generation and any other required competitively supplied services from
an ESP. T he Company will provide and bill its transmission and ancillary
services on rates approved by the Federal Energy Regulatory Commission to the
Scheduling Coordinator who provides transmission service to the Customer's ESP.
The Customer's ESP must submit a Direct Access Service Request pursuant to the
terms and conditions in Schedule #10.

ON-SITE GENERATION TERMS AND CONDITIONS

     Customers served under this rate schedule who have on-site generation
connected to the Company's electrical delivery grid shall enter into an
Agreement for Interconnection with the Company which shall establish all
pertinent details related to interconnection and other required service
standards. The Customer does not have the option to sell power and energy to the
Company under this tariff.

CONTRACT PERIOD

          For service locations in:

          a)   Isolated Areas: Ten (10) years, or longer, at Company's option,
               with standard seven (7) year termination period.

          b)   Other Areas: Three (3) years, or longer, at Company's option.

TERMS AND CONDITIONS

     This rate schedule is subject to Company's Terms and Conditions for
Standard Offer and Direct Access Service (Schedule #1) and the Company's
Schedule #10. These schedules have provisions that may affect customer's monthly
bill.
<PAGE>
                                                                       Exhibit A
                                                                         DA-GS11
                             ELECTRIC DELIVERY RATES

ARIZONA PUBLIC SERVICE COMPANY                    A.C.C. No. 5395
Phoenix, Arizona                                  Tariff or Schedule No. DA-GS11
Filed by:  Alan Propper                           Original Tariff
Title: Director, Pricing and Regulation           Effective: October 1, 1999

                                  DIRECT ACCESS
                                 RALSTON PURINA

AVAILABILITY

     This rate schedule is available in all certificated retail delivery service
territory served by Company at all points where facilities of adequate capacity
and the required phase and suitable voltage are adjacent to the premises served.

APPLICATION

     This rate schedule is applicable only to Ralston Purina (Site #863970289)
when it receives electric energy on a direct access basis from any certificated
Electric Service Provider (ESP) as defined in A.A.C. R14-2-1603. Service must be
supplied as specified by individual customer contract and the Company's Schedule
#4 (Totalized Metering of Multiple Service Entrance Sections At a Single Premise
for Standard Offer and Direct Access Service).

     This rate schedule is not applicable to resale service.

     This rate schedule shall become effective as defined in Company's Terms and
Conditions for Direct Access (Schedule #10).

TYPE OF SERVICE

     Service shall be three phase, 60 Hertz, at 12.5 kV.

METERING REQUIREMENTS

     Customer shall comply with the terms and conditions for hourly metering
specified in Schedule #10.

MONTHLY BILL

     The monthly bill shall be the greater of the amount computed under A. or B.
below, including the applicable Adjustments.

     A. RATE

                                 Basic                             Competitive
                               Delivery                  System    Transition
                                Service   Distribution  Benefits     Charge
                                -------   ------------  --------     ------
                  $/month      $2,430.00

                  per kW                   $2.58                      $1.86

                  per kWh                  $0.00732     $0.00115

          DETERMINATION OF KW

          The kW used for billing purposes shall be the greater of:

          1.   The kW used for billing purposes shall be the average kW supplied
               during the 15-minute period (or other period as specified by
               individual customer's contract) of maximum use during the month,
               as determined from readings of the delivery meter.

          2.   The minimum kW specified in the agreement for service or
               individual customer contract.

     B. MINIMUM

          $2,430.00 per month plus $1.74 per kW per month.

          ADJUSTMENTS

          1.   When Metering, Meter Reading or Consolidated Billing are provided
               by the Customer's ESP, the monthly bill will be credited as
               follows:

                      Meter             $154.15 per month
                      Meter Reading     $  1.69 per month
                      Billing           $  1.33 per month

          2.   The monthly bill is also subject to the applicable proportionate
               part of any taxes, or governmental impositions which are or may
               in the future be assessed on the basis of gross revenues of the
               Company and/or the price or revenue from the electric service
               sold and/or the volume of energy delivered or purchased for sale
               and/or sold hereunder.

                           (CONTINUED ON REVERSE SIDE)
<PAGE>
                                                                 DA-GS11
                                                                 A.C.C. No. XXXX
                                                                 Page 2 of 2

SERVICES ACQUIRED FROM CERTIFICATED ELECTRIC SERVICE PROVIDERS

     Customer is responsible for acquiring its own generation and any other
required competitively supplied services from an ESP. T he Company will provide
and bill its transmission and ancillary services on rates approved by the
Federal Energy Regulatory Commission to the Scheduling Coordinator who provides
transmission service to the Customer's ESP. The Customer's ESP must submit a
Direct Access Service Request pursuant to the terms and conditions in Schedule
#10.

ON-SITE GENERATION TERMS AND CONDITIONS

     If Customer has on-site generation connected to the Company's electrical
delivery grid, it shall enter into an Agreement for Interconnection with the
Company which shall establish all pertinent details related to interconnection
and other required service standards. The Customer does not have the option to
sell power and energy to the Company under this tariff.

TERMS AND CONDITIONS

     This rate schedule is subject to Company's Terms and Conditions for
Standard Offer and Direct Access Service (Schedule #1) and the Company's
Schedule #10. These schedules have provisions that may affect customer's monthly
bill.
<PAGE>
                                                                       Exhibit A
                                                                       DA-GS12

                             ELECTRIC DELIVERY RATES

ARIZONA PUBLIC SERVICE COMPANY                    A.C.C. No. 5396
Phoenix, Arizona                                  Tariff or Schedule No. DA-GS12
Filed by:  Alan Propper                           Original Tariff
Title: Director, Pricing and Regulation           Effective: October 1, 1999

                                  DIRECT ACCESS
                                   BHP COPPER

AVAILABILITY

     This rate schedule is available in all certificated retail delivery service
territory served by Company at all points where facilities of adequate capacity
and the required phase and suitable voltage are adjacent to the premises served.

APPLICATION

     This rate schedule is applicable only to BHP Copper (Site #774932285) when
it receives electric energy on a direct access basis from any certificated
Electric Service Provider (ESP) as defined in A.A.C. R14-2-1603. Service must be
supplied as specified by individual customer contract and the Company's Schedule
#4 (Totalized Metering of Multiple Service Entrance Sections At a Single Premise
for Standard Offer and Direct Access Service).

     This rate schedule is not applicable to resale service.

     This rate schedule shall become effective as defined in Company's Terms and
Conditions for Direct Access (Schedule #10).

TYPE OF SERVICE

     Service shall be three phase, 60 Hertz, at 12.5 kV or higher.

METERING REQUIREMENTS

     Customer shall comply with the terms and conditions for hourly metering
specified in Schedule #10.

MONTHLY BILL

     The monthly bill shall be the greater of the amount computed under A. or B.
below, including the applicable Adjustments.

     A. RATE

                                            Distribution
                     Basic    Distribution       at                  Competitive
                   Delivery   at Primary    Transmission    System    Transition
                    Service     Voltage       Voltage      Benefits     Charge
                    -------     -------       -------      --------     ------
        $/month    $2,430.00

        per kW                 $2.35          $1.22                      $1.54

        per kWh                $0.00665       $0.00346     $0.00115

          PRIMARY AND TRANSMISSION LEVEL SERVICE:

               Pursuant to A.A.C. R14-2-1612.K.11, the Company shall retain
               ownership of Current Transformers (CT's) and Potential
               Transformers (PT's) for those customers taking service at voltage
               levels of more than 25 kV. For customers whose metering services
               are provided by an ESP, a monthly facilities charge will be
               billed, in addition to all other applicable charges shown above,
               as determined in the service contract based upon the Company's
               cost of CT and PT ownership, maintenance and operation.

          DETERMINATION OF KW

          The kW used for billing purposes shall be the greater of:

          1.   The kW used for billing purposes shall be the average kW supplied
               during the 30-minute period (or other period as specified by
               individual customer's contract) of maximum use during the month,
               as determined from readings of the delivery meter.

          2.   The minimum kW specified in the agreement for service or
               individual customer contract.

     B. MINIMUM

          $2,430.00 per month plus $1.74 per kW per month.

                           (CONTINUED ON REVERSE SIDE)
<PAGE>
                                                                 DA-GS12
                                                                 A.C.C. No. XXXX
                                                                 Page 2 of 2

     ADJUSTMENTS

          1.   When Metering, Meter Reading or Consolidated Billing are provided
               by the Customer's ESP, the monthly bill will be credited as
               follows:

                      Meter             $154.15 per month
                      Meter Reading     $  1.69 per month
                      Billing           $  1.33 per month

          2.   The monthly bill is also subject to the applicable proportionate
               part of any taxes, or governmental impositions which are or may
               in the future be assessed on the basis of gross revenues of the
               Company and/or the price or revenue from the electric service
               sold and/or the volume of energy delivered or purchased for sale
               and/or sold hereunder.

SERVICES ACQUIRED FROM CERTIFICATED ELECTRIC SERVICE PROVIDERS

     Customer is responsible for acquiring its own generation and any other
required competitively supplied services from an ESP. T he Company will provide
and bill its transmission and ancillary services on rates approved by the
Federal Energy Regulatory Commission to the Scheduling Coordinator who provides
transmission service to the Customer's ESP. The Customer's ESP must submit a
Direct Access Service Request pursuant to the terms and conditions in Schedule
#10.

ON-SITE GENERATION TERMS AND CONDITIONS

     If Customer has on-site generation connected to the Company's electrical
delivery grid, it shall enter into an Agreement for Interconnection with the
Company which shall establish all pertinent details related to interconnection
and other required service standards. The Customer does not have the option to
sell power and energy to the Company under this tariff.

TERMS AND CONDITIONS

     This rate schedule is subject to Company's Terms and Conditions for
Standard Offer and Direct Access Service (Schedule #1) and the Company's
Schedule #10. These schedules have provisions that may affect customer's monthly
bill.
<PAGE>
                                                                       Exhibit A
                                                                         DA-GS13
                             ELECTRIC DELIVERY RATES

ARIZONA PUBLIC SERVICE COMPANY                    A.C.C. No. 5397
Phoenix, Arizona                                  Tariff or Schedule No. DA-GS13
Filed by:  Alan Propper                           Original Tariff
Title: Director, Pricing and Regulation           Effective: October 1, 1999

                                  DIRECT ACCESS
                                  CYPRUS BAGDAD

AVAILABILITY

     This rate schedule is available in all certificated retail delivery service
territory served by Company at all points where facilities of adequate capacity
and the required phase and suitable voltage are adjacent to the premises served.

APPLICATION

     This rate schedule is applicable only to Cyprus Bagdad (Site #120932284)
when it receives electric energy on a direct access basis from any certificated
Electric Service Provider (ESP) as defined in A.A.C. R14-2-1603. Service must be
supplied as specified by individual customer contract and the Company's Schedule
#4 (Totalized Metering of Multiple Service Entrance Sections At a Single Premise
for Standard Offer and Direct Access Service).

     This rate schedule is not applicable to resale service.

     This rate schedule shall become effective as defined in Company's Terms and
Conditions for Direct Access (Schedule #10).

TYPE OF SERVICE

     Service shall be three phase, 60 Hertz, at 115 kV or higher.

METERING REQUIREMENTS

     Customer shall comply with the terms and conditions for hourly metering
specified in Schedule #10.

MONTHLY BILL

     The monthly bill shall be the greater of the amount computed under A. or B.
below, including the applicable Adjustments.

     A. RATE

                                 Basic                             Competitive
                               Delivery                  System    Transition
                                Service   Distribution  Benefits     Charge
                                -------   ------------  --------     ------
                  $/month      $2,430.00

                  per kW                   $1.05                      $1.34

                  per kWh                  $0.00298     $0.00115

          PRIMARY AND TRANSMISSION LEVEL SERVICE:

               Pursuant to A.A.C. R14-2-1612.K.11, the Company shall retain
               ownership of Current Transformers (CT's) and Potential
               Transformers (PT's) for those customers taking service at voltage
               levels of more than 25 kV. For customers whose metering services
               are provided by an ESP, a monthly facilities charge will be
               billed, in addition to all other applicable charges shown above,
               as determined in the service contract based upon the Company's
               cost of CT and PT ownership, maintenance and operation.

          DETERMINATION OF KW

          The kW used for billing purposes shall be the greater of:

          1.   The kW used for billing purposes shall be the average kW supplied
               during the 30-minute period (or other period as specified by
               individual customer's contract) of maximum use during the month,
               as determined from readings of the delivery meter.

          2.   The minimum kW specified in the agreement for service or
               individual customer contract.

     B. MINIMUM

          $2,430.00 per month plus $1.74 per kW per month, until June 30, 2004
          when this minimum will no longer be applicable.

                           (CONTINUED ON REVERSE SIDE)
<PAGE>
                                                                 DA-GS13
                                                                 A.C.C. No. XXXX
                                                                 Page 2 of 2

          ADJUSTMENTS

          1.   When Metering, Meter Reading or Consolidated Billing are provided
               by the Customer's ESP, the monthly bill will be credited as
               follows:

                      Meter             $154.15 per month
                      Meter Reading     $  1.69 per month
                      Billing           $  1.33 per month

          2.   The monthly bill is also subject to the applicable proportionate
               part of any taxes, or governmental impositions which are or may
               in the future be assessed on the basis of gross revenues of the
               Company and/or the price or revenue from the electric service
               sold and/or the volume of energy delivered or purchased for sale
               and/or sold hereunder.

SERVICES ACQUIRED FROM CERTIFICATED ELECTRIC SERVICE PROVIDERS

     Customer is responsible for acquiring its own generation and any other
required competitively supplied services from an ESP. T he Company will provide
and bill its transmission and ancillary services on rates approved by the
Federal Energy Regulatory Commission to the Scheduling Coordinator who provides
transmission service to the Customer's ESP. The Customer's ESP must submit a
Direct Access Service Request pursuant to the terms and conditions in Schedule
#10.

ON-SITE GENERATION TERMS AND CONDITIONS

     If Customer has on-site generation connected to the Company's electrical
delivery grid, it shall enter into an Agreement for Interconnection with the
Company which shall establish all pertinent details related to interconnection
and other required service standards. The Customer does not have the option to
sell power and energy to the Company under this tariff.

TERMS AND CONDITIONS

     This rate schedule is subject to Company's Terms and Conditions for
Standard Offer and Direct Access Service (Schedule #1) and the Company's
Schedule #10. These schedules have provisions that may affect customer's monthly
bill.
<PAGE>
                                                                       Exhibit A
                                                                         5/13/99
                                                                      Schedule A

                         ARIZONA PUBLIC SERVICE COMPANY

                         Competitive Transition Charges
                          By Direct Access Rate Classes

<TABLE>
<CAPTION>
                                               Competition Transition Charges Effective January 1 of
Line                                          ---------------------------------------------------------
 #           Direct Access Rate Class          1999      2000      2001      2002      2003      2004
----         ------------------------         -------   -------   -------   -------   -------   -------
<S>    <C>                                    <C>       <C>       <C>       <C>       <C>       <C>
 1     Residential, DA-R1 (per kWh)           $0.0093   $0.0084   $0.0063   $0.0056   $0.0050   $0.0036
 2     Under 3 mW, DA-GS1, (per kW/mo.)       $  2.43   $  2.20   $  1.66   $  1.46   $  1.30   $  0.94
 3     3 mW and Above, DA-GS10 (per kW/mo.)   $  2.82   $  2.55   $  1.89   $  1.72   $  1.51   $  1.09
 4     BHP Copper (per kW/mo.)                $  1.54   $  1.53   $  1.06   $  0.95   $  0.83   $  0.61
 5     Cyprus Copper (per kW/mo.)             $  1.34   $  1.46   $  1.05   $  0.94   $  0.82   $  0.61
 6     Ralston Purina (per kW/mo.)            $  1.86   $  1.98   $  1.50   $  1.34   $  1.18   $  0.87

 7     Average Retail (per kWh)               $0.0067   $0.0061   $0.0054   $0.0048   $0.0043   $0.0031
</TABLE>

Charges are based upon recovery of $350 million NPV derived from APS' Compliance
Filing of 8/21/98 as adjusted to synchronize Direct Access and Standard Offer
revenue decreases.
<PAGE>
                         ARIZONA PUBLIC SERVICE COMPANY
                              Distribution Charges
                         By Direct Access Rate Classes

<TABLE>
<CAPTION>
                                                                       Distribution Charges Effective January 1 of
Line                                                       --------------------------------------------------------------------
 #                     Direct Access Rate Class              1999        2000        2001        2002        2003       2004(a)
----                   ------------------------            --------    --------    --------    --------    --------    --------
<S>  <C>                                                   <C>         <C>         <C>         <C>         <C>         <C>
     RESIDENTIAL, DA-R1
 1          Summer per kWh                                 $0.04158    $0.04041    $0.03934    $0.03837    $0.03748    $0.03689
 2          Winter per kWh                                 $0.03518    $0.03419    $0.03329    $0.03247    $0.03172    $0.03122

     DA-GS1 (UNDER 3 MW)
        Summer Rates
 3           per kW for all kW over 5                      $  0.721    $  0.691    $  0.663    $  0.638    $  0.615    $  0.600
 4           per kWh for the first 2,500 kWh               $0.04255    $0.04075    $0.03912    $0.03763    $0.03627    $0.03537
 5           per kWh for the next 100 kWh per kW over 5    $0.04255    $0.04075    $0.03912    $0.03763    $0.03627    $0.03537
 6           per kWh for the next 42,000 kWh               $0.02901    $0.02779    $0.02667    $0.02565    $0.02473    $0.02411
 7           per kWh for all additional kWh                $0.01811    $0.01735    $0.01665    $0.01602    $0.01544    $0.01506
        Winter Rates
 8           per kW for all kW over 5                      $  0.652    $  0.624    $  0.599     $ 0.576    $  0.555    $  0.541
 9           per kWh for the first 2,500 kWh               $0.03827    $0.03666    $0.03519    $0.03385    $0.03263    $0.03182
 10          per kWh for the next 100 kWh per kW over 5    $0.03827    $0.03666    $0.03519    $0.03385    $0.03263    $0.03182
 11          per kWh for the next 42,000 kWh               $0.02600    $0.02490    $0.02390    $0.02299    $0.02216    $0.02161
 12          per kWh for all additional kWh                $0.01614    $0.01546    $0.01484    $0.01427    $0.01376    $0.01342
        Voltage Discounts
 13         Primary Voltage                                    11.6%       12.1%       12.6%       13.1%       13.6%       13.9%
 14         Transmission Voltage                               52.6%       54.9%       57.2%       59.5%       61.7%       63.3%

     DA-GS10 (3 MW AND ABOVE)
 15         per kW                                         $   3.53    $   3.33    $   3.15    $   2.98    $   2.83    $   2.73
 16         per kWh                                        $0.00999    $0.00943    $0.00892    $0.00845    $0.00802    $0.00774
        Voltage Discounts
 17         Primary Voltage Discount                            4.8%        5.1%        5.3%        5.6%        5.9%        6.2%
 18         Transmission Voltage Discount                      36.7%       38.9%       41.1%       43.4%       45.8%       47.4%

     DA-GS11 (RALSTON PURINA)
 19         per kW                                         $   2.58    $   2.71    $   2.57    $   2.44    $   2.32    $   2.25
 20         per kWh                                        $0.00732    $0.00767    $0.00727    $0.00691    $0.00657    $0.00635

     DA-GS12 (BHP COPPER)
 21     Primary Voltage Delivery - per kW                  $   2.35    $   2.30    $   2.16    $   2.07    $   1.99    $   1.93
 22                                per kWh                 $0.00665    $0.00651    $0.00611    $0.00585    $0.00561    $0.00546
 23     Transmission Voltage Delivery - per kW             $   1.22    $   1.17    $   1.03    $   0.94    $   0.85    $   0.80
 24                                     per kWh            $0.00346    $0.00332    $0.00292    $0.00266    $0.00242    $0.00227

     DA-GS13 (CYPRUS BAGDAD)
 25         per kW                                         $   1.05    $   1.21    $   1.03    $   0.94    $   0.85    $   0.80
 26         per kWh                                        $0.00297    $0.00343    $0.00292    $0.00266    $0.00242    $0.00227
</TABLE>

(a)  Transmission voltage customers will not pay Distribution Charges after June
     30, 2004
<PAGE>
                                                                       Exhibit A
                                                                         5/14/99
                                                                      Schedule C

                         ARIZONA PUBLIC SERVICE COMPANY

                     Regulatory Asset Amortization Schedule
                              (Millions of Dollars)

                                                         1/1 - 6/30
1999        2000        2001       2002        2003       2004(1)       Total(2)
----        ----        ----       ----        ----       -------       --------
164         158         145        115          86          18            686

(1)  Amortization ends 6/30/2004
(2)  Includes the disallowance from Section 3.3Exhibit 10.A

                          LEUCADIA NATIONAL CORPORATION
                              315 Park Avenue South
                             New York, NY 10010-3679

November 10, 2000

The FINOVA Group Inc.
4800 North Scottsdale Road
Scottsdale, Arizona 85251

Gentlemen:

     This letter  agreement  sets forth the  principal  terms and  conditions on
which  Leucadia  National  Corporation  or a  subsidiary  ("Leucadia")  would be
willing to invest up to $350 million in The FINOVA Group Inc. ("Finova").

     1. PREFERRED STOCK INVESTMENT.  Leucadia will purchase 10 million shares of
a new series of  convertible  preferred  stock of Finova at a purchase  price of
$25.00 per share (the "PIK  Preferred  Stock").  The principal  terms of the PIK
Preferred Stock will be as follows:

     (a)  FIVE YEAR PAY-IN-KIND:  Cumulative dividends will be payable quarterly
          in  additional  shares of PIK  Preferred  Stock at the rate of 14% per
          annum during the first five years after issuance.
     (b)  COUPON:  Beginning in the sixth year, at Finova's  option,  cumulative
          dividends will be payable quarterly either:  (i) in cash, in an amount
          equal to the  greater of: (x) a rate of 14% per annum or (y) ten times
          the amount of any cash  dividend  paid or payable  per share of Common
          Stock; or (ii) in additional shares of PIK Preferred Stock at the rate
          of 14% per annum.
     (c)  CONVERSION:   For  a  period  from  June  30,  2006  until  the  tenth
          anniversary of the date of issuance of the PIK Preferred  Stock,  each
          share of PIK Preferred Stock will be convertible, at the option of the
          holder, into ten shares of Common Stock at a conversion price of $2.50
          per share of Common Stock  (which  number and price will be subject to
          normal anti-dilution adjustments).
     (d)  VOTING: The PIK Preferred Stock will vote as one class with the common
          stock and will have twenty (20) votes per PIK  Preferred  Stock share,
          subject to New York Stock Exchange approval,  or such lesser number of
          votes (but not less than ten votes) per PIK  Preferred  Share,  as the
          New York Stock Exchange requires.
     (e)  PREFERENCE  RIGHTS:  The PIK  Preferred  Stock will have a liquidation
          preference  of $25.00 per share,  plus  accrued  but unpaid  dividends
          thereon.
     (f)  REGISTRATION  RIGHTS:  The PIK  Preferred  Stock will be  entitled  to
          demand and incidental registration rights.

     2. RIGHTS OFFERING.  As soon as practicable after the closing,  Finova will
conduct a rights offering  whereby  existing  shareholders  will be permitted to
purchase up to 6 million shares of PIK Preferred  Stock at a price of $25.00 per
share ($150 million aggregate).  The rights shall be transferable,  and Leucadia
shall act as standby underwriter of the offering with respect to $100 million of
the offering. As compensation for agreeing to act as standby underwriter, Finova
will pay Leucadia $ 5 million upon distribution of the rights.
<PAGE>
The FINOVA Group Inc.
November 10, 2000
Page 2

     3. LEUCADIA  WARRANT.  Leucadia will receive a ten-year warrant to purchase
for an aggregate  exercise price of $125 million such number of shares of Common
Stock  that  will  represent  20% of the  outstanding  shares  of  Common  Stock
immediately  after exercise,  assuming for the purposes of such  calculation the
conversion  and  exercise  of all  outstanding  securities  which are or will be
convertible  or  exercisable  into  shares  of  Common  Stock  (other  than  any
securities  issued or issuable in a merger,  acquisition or public  offering for
cash at fair value, in respect of "out of the money" employee and director stock
options,  in respect of trust originated  preferred  securities issued by FINOVA
Finance  Trust  ("TOPrS"),  or as may  otherwise  be agreed to by  Leucadia  and
Finova), and taking into account the exercise of the Leucadia Warrant itself.

     4. SHARING OF "UPSIDE" AND  "DOWNSIDE" OF CERTAIN  COLLECTIONS.  The Common
Stockholders,  on the one hand,  and holders of PIK  Preferred  Stock and of the
Leucadia  Warrant  (collectively,  the "Other  Equity") on the other hand,  will
share in the collection,  based on a December 31, 2005 measurement  date, of the
(i) gross Investment in Financing Transactions as reflected on Finova's June 30,
2000 consolidated balance sheet (the "June 30 Balance Sheet"),  (ii) Investments
as reflected on the June 30 Balance Sheet,  (iii) Offlease Aircraft as reflected
in the  June  30,  2000  Balance  Sheet  and (iv)  the  amount  of any  unfunded
commitments  existing  as of June 30, 2000 to the extent  such  commitments  are
ultimately funded (collectively, the "Portfolio") in such amount that will yield
50% of the Sharing  Amount (as defined  below)  being  attributed  to the Common
Stockholders and 50% of the Sharing Amount being attributed to the Other Equity.
The amount to be shared (the  "Sharing  Amount")  will be $780  million PLUS the
after tax gain, if any, or MINUS the after tax loss, if any, (in each case using
a 40% tax rate) actually  realized in the  collection of the  Portfolio.  If the
Sharing Amount is negative, it will be grossed-up by dividing the Sharing Amount
by 60%. For purposes of determining  the Sharing  Amount,  unrealized  gains and
unrealized  losses on the  balance of the  Portfolio  remaining  outstanding  at
December  31, 2005 will be  estimated  by the Board of  Directors  of Finova and
approved by a majority of the directors unaffiliated with Leucadia. The Board of
Directors will determine the form of the distribution to securityholders,  which
will be payable by May 31, 2006 to Common Stockholders, if the Sharing Amount is
a positive  number,  or to the Other Equity holders,  if the Sharing Amount is a
negative number.

     Once the Sharing Amount has been  determined,  if it is a positive  number,
the  Sharing  Amount  to be  distributed  (the  "Distribution")  to  the  Common
Stockholders   shall  be  in  an  amount,   which,   together  with  the  Common
Stockholders'  equity  interest in the Company  MULTIPLIED by the  undistributed
portion of the Sharing  Amount  remaining in the Company,  will equal 50% of the
Sharing Amount. A recipient's equity interest in the Company shall be determined
on a common stock equivalent basis.

     If the Sharing Amount is a negative  number,  the Distribution to the Other
Equity holders shall be in an amount which,  when the Distribution is subtracted
from the product of (x) the Other Equity holders' equity interest in the Company
MULTIPLIED  BY (y) the sum of (i) the Sharing  Amount  (expressed  as a positive
number)  PLUS  (ii) the  Distribution,  will  equal  50% of the  Sharing  Amount
(expressed as a positive number).
<PAGE>
The FINOVA Group Inc.
November 10, 2000
Page 3

     Any  Distribution  Amount to be paid to the Other  Equity  holders  will be
allocated  pro rata to the relative  equity  interests in the Company of the PIK
Preferred Stockholders and the Leucadia Warrant holder.

     5.  REFINANCING  OF  EXISTING  BANK  DEBT.  Leucadia's  offer and  Finova's
acceptance is contingent upon Leucadia and the Company  completing a refinancing
or  restructuring  with the  Company's  lenders of the existing  $4.7 billion in
outstanding bank debt (the  "Refinancing") upon terms acceptable to Leucadia and
the Company. Promptly following execution of this agreement,  Finova will notify
the Banks of this agreement and request the Banks to commence such  negotiation.
Simultaneously  with the Bank  negotiations,  Leucadia and Finova will  commence
negotiations of a mutually acceptable  definitive  agreement with respect to the
Preferred  Stock  Investment and the other matters  outlined in this  agreement,
which shall contain normal and customary representations,  covenants, conditions
and indemnities.

     6. ADDITIONAL CONDITIONS TO CONSUMMATION OF THE PREFERRED STOCK INVESTMENT.
The  obligation  of  Leucadia  and  Finova to  consummate  the  Preferred  Stock
Investment,  in addition to  customary  closing  conditions,  will be subject to
receipt  of  required   regulatory   approvals   (including  the  expiration  or
termination  of any  waiting  periods  under  the  Hart-Scott-Rodino  Anti-trust
Improvements  Act of 1976,  as  amended),  exemption of Leucadia  from  Finova's
existing  rights  plan,  approval  by the Board of  Directors  of Finova of each
element of the transaction  with Leucadia for purposes of Article IX of Finova's
Certificate  of  Incorporation,  and  the  absence  of  any  applicable  law  or
regulation and no judgment, injunction, order or decree prohibiting consummation
of the  Preferred  Stock  Investment  and the  other  transactions  contemplated
hereby.

     The parties hereto agree to fully  cooperate to promptly make all requisite
regulatory filings and to work together to obtain required regulatory approvals.

     7. EXCLUSIVITY. To allow time for negotiation of the Refinancing,  from and
after the date hereof until the termination of exclusivity pursuant to the terms
of this agreement and except as expressly permitted by the following  provisions
of this  paragraph,  Finova  shall not,  directly  or  indirectly,  through  any
representative or otherwise, solicit or entertain offers from, negotiate with or
in any manner encourage,  discuss,  accept or consider (including furnishing any
information  to any other  party)  any  proposal  of any other  person or entity
relating to (i) any merger,  consolidation,  share  exchange,  recapitalization,
business  combination  or other  similar  transaction,  (ii) any sale,  lease or
exchange,  mortgage, pledge, transfer or other disposition of 20% or more of the
assets of Finova,  in a single  transaction  or in a series of  transactions  or
(iii) any tender offer,  exchange offer for securities of Finova or any purchase
or other  acquisition  of  beneficial  ownership of 20% or more of the equity of
Finova (or securities  convertible into 20% or more of the equity of Finova) (an
"Acquisition  Proposal");  provided,  however,  that  nothing  contained in this
paragraph shall prohibit Finova's Board of Directors from furnishing information
to, or entering into discussions or negotiations  with, any person that makes an
unsolicited  bona fide,  fully  financed,  written  Acquisition  Proposal  which
relates to the  acquisition  by  another  entity of all of the equity of Finova,
<PAGE>
The FINOVA Group Inc.
November 10, 2000
Page 4

whether by merger, tender offer or otherwise, if and only to the extent that (A)
Finova's Board of Directors,  after consultation with independent legal counsel,
determines  in good faith that such action is necessary  for  Finova's  Board of
Directors to comply with its  fiduciary  duties to Finova's  stockholders  under
applicable  law, (B) Finova's Board of Directors  determines in good faith after
consultation  with a nationally  recognized expert with experience in appraising
the terms and conditions of such  unsolicited  Acquisition  Proposal,  that such
unsolicited  Acquisition  Proposal  after  taking  into  account  the  strategic
benefits to be derived from the  transaction  with  Leucadia  and the  long-term
prospects  of  Finova,  would,  if  consummated,  result in a  transaction  more
favorable to Finova's stockholders from a financial point of view (any such more
favorable  bona fide  unsolicited  Acquisition  Proposal  being referred to as a
"Superior Proposal"),  (C) the meeting of Finova's stockholders,  if required to
consummate the transaction with Leucadia,  shall not have occurred and (D) prior
to taking such action,  Finova (i) notifies Leucadia of any Acquisition Proposal
(including,  without  limitation,  the material terms and conditions thereof and
the  identity  of the person  making the  Acquisition  Proposal)  as promptly as
practicable  (but in no case later than 24 hours) after  receipt  thereof,  (ii)
provides  Leucadia  with  a copy  of any  written  Acquisition  Proposal,  (iii)
thereafter informs Leucadia on a prompt basis of the status of any discussion or
negotiations  with such a third party and any material  changes to the terms and
conditions of such Acquisition Proposal,  (iv) promptly gives Leucadia a copy of
any  information  delivered  to such person which has not been  previously  been
reviewed  by   Leucadia   and  (v)   receives   from  such  person  an  executed
confidentiality  agreement  in  reasonably  customary  form  and  in  any  event
containing terms at least as stringent as those contained in the confidentiality
agreement to which  Leucadia is a party.  Finova agrees to notify any investment
banker  or other  representative  of the  substance  of this  agreement  for the
purpose of terminating any solicitation efforts that previously took place.

     The  exclusivity  provision  of this  agreement  (but not the  break up fee
provision of this  agreement)  shall expire (i) if a definitive  agreement  with
respect to the Preferred Stock Investment is not executed by Finova and Leucadia
by December 8, 2000; (ii) if a term sheet for the Refinancing  (which shall have
been agreed to by Finova and  Leucadia)  (the "Term  Sheet") is not presented to
the agent  banks for  Finova's  outstanding  bank debt (the  "Agent  Banks")  by
December 20, 2000; and (iii) if the Agent Banks do not recommend approval of the
Term  Sheet  (as such  Term  Sheet  may be  amended  from  time to time with the
approval of Finova and Leucadia) to the lenders by February 27, 2001.

     8.  BREAK UP FEE.  If Finova  accepts  an offer  from any party  other than
Leucadia relating to an Acquisition  Proposal whether through direct purchase of
stock or assets,  merger,  consolidation or otherwise,  within one year from the
date of this  agreement,  then  Finova  shall  pay to  Leucadia  in  immediately
available funds, at Leucadia's option,  either (i) $15 million or (ii) an amount
equal to the  product  of 3  million  multiplied  by the  excess of (x) the fair
market value of the  consideration  to be paid for each share of Common Stock of
Finova pursuant to such Acquisition Proposal over (y) $2.50.

     9.  STOCKHOLDER  APPROVAL.  If Finova  stockholder  approval is required in
order to implement  the actions  contemplated  by this  agreement,  the Board of
Directors of Finova shall  recommend  that  stockholders  approve the  Preferred
Stock Investment;  provided,  however, that the Board of Directors of Finova may
withdraw  such  recommendation  if  Finova  enters  into  an  agreement  for  an
Acquisition  Proposal  which complies with the provisions of paragraph 7 of this
Agreement. If such stockholder approval is not received,  Leucadia shall receive
the break-up fee.
<PAGE>
The FINOVA Group Inc.
November 10, 2000
Page 5

     10.  ACCESS TO  INFORMATION.  From and  after  the date of this  agreement,
Finova will provide Leucadia with complete access to Finova's facilities,  books
and records,  and personnel.  The parties shall make their respective  personnel
available  to each other in  Phoenix,  Arizona  or New York,  New York and shall
cause their  personnel to cooperate  with the other in  establishing  a mutually
acceptable plan for the Refinancing.

     11.  NO  EXTRAORDINARY  TRANSACTIONS.  During  the term of the  exclusivity
period of this agreement,  Finova agrees that,  without the consent of Leucadia,
except  in the  ordinary  course of  business,  Finova  will not enter  into any
agreement for or take any action related to (i) the sale of assets,(ii) the sale
of securities,  (iii) any financings or refinancings,  (iv) any  reorganization,
recapitalization,  dissolution  or  liquidation  of  Finova,  (v)  the  material
amendment to any existing,  or entering into any new,  employment,  severance or
other employee benefit  arrangements or (vi) other material  matters;  PROVIDED,
HOWEVER,  that Finova may enter into an agreement  for an  Acquisition  Proposal
which complies with the provisions of paragraph 7 of this agreement.

     12.  BOARD  REPRESENTATION.   Upon  consummation  of  the  Preferred  Stock
Investment,  designees  of Leucadia  shall have six seats out of the  ten-member
Board of Directors,  which designees shall be distributed evenly among the three
classes of members of the Board of  Directors.  Finova  will take all  necessary
corporate  action to  increase  the size of its Board of  Directors  to ten (10)
members and obtain all necessary  resignations for existing  directors to enable
the Leucadia designees to be appointed to the Board of Directors.

     13.  MANAGEMENT FEE. Upon  consummation of the Preferred Stock  Investment,
Leucadia  will  receive  a  management  fee  of $5  million  per  year,  payable
quarterly,  for a period of five years from  consummation of the Preferred Stock
Investment.

     14. NO PUBLIC  DISCLOSURE.  Except as may be required  by law,  without the
prior  consent of the other  party,  neither  Leucadia nor Finova shall make any
public  announcement  with respect to, or otherwise  disclose,  the existence of
this letter or the terms of the possible transaction.

     15. COSTS AND EXPENSES. All costs and expenses (including legal, accounting
and other  advisory fees and  disbursements)  incurred in  connection  with this
Agreement,  the  conduct of any due  diligence  review and the  preparation  and
delivery of the definitive  agreements and related  documentation shall be borne
by Leucadia to the extent incurred by it and by Finova to the extent incurred by
it.

     16. GOVERNING LAW; MISCELLANEOUS.  This Agreement shall be governed by, and
construed in accordance  with the laws of the State of New York.  This Agreement
supercedes  all prior  discussions  and  correspondence  between the parties and
their affiliates in respect of the transactions described herein. This Agreement
may  only be  amended  by a  written  instrument  signed  by the  parties.  This
Agreement  may not be assigned by the parties  without the prior  consent of the
other parties.
<PAGE>
The FINOVA Group Inc.
November 10, 2000
Page 6

     17. SPECIFIC  PERFORMANCE;  EQUITABLE RELIEF.  The parties agree that their
remedies for any breach of this Agreement include, without limitation,  specific
performance and injunctive relief.
<PAGE>
The FINOVA Group Inc.
November 10, 2000
Page 7

     Please  acknowledge  by your  signature  below  that you wish to proceed in
accordance with the terms of this proposal and that you agree to be bound by the
terms of this agreement.

                                          Very truly yours,

                                          LEUCADIA NATIONAL CORPORATION

                                          By: /s/ Joseph S. Steinberg
                                             -----------------------------------
                                             Name: Joseph S. Steinberg
                                             Title: President

Accepted and Agreed To:

THE FINOVA GROUP INC.

By: /s/ Matthew M. Breyne
   -----------------------------------
   Name: Matthew M. Breyne
   Title: President and Chief Executive Officer

Date: November 10, 2000
     ---------------------------------

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