Document:

loan-agreement.htm

     

    Exhibit
4(b)

     

    
      

      

    

    
 

    
      LOAN
AGREEMENT

      2008
SERIES A

      

       

      BETWEEN

      

       

      THE
INDUSTRIAL DEVELOPMENT AUTHORITY

      OF THE
COUNTY OF PIMA

      

       

      AND

      

       

      TUCSON
ELECTRIC POWER COMPANY

      

       

      --------

      

       

      DATED AS
OF MARCH 1, 2008

       

      ________

      

       

      RELATING
TO

       

      INDUSTRIAL
DEVELOPMENT REVENUE BONDS,

      2008
SERIES A

      (TUCSON
ELECTRIC POWER COMPANY PROJECT)

       

       

      
        

        

      

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

         

      

      TABLE OF
CONTENTS*

       

      Page

      

      
        
          
            	
                    ARTICLE
      I

                     

                    DEFINITIONS

                  
	 
      	 
      	 
      
	
                    SECTION
      1.01.

                  	
                    Definitions

                  	
                    2

                  
	
                    SECTION
      1.02.

                  	
                    Incorporation
      of Certain Definitions by Reference

                  	
                    5

                  
	 
      	 
      	 
      
	
                    ARTICLE
      II

                     

                    REPRESENTATIONS
      AND WARRANTIES

                  
	 
      	 
      	 
      
	
                    SECTION
      2.01.

                  	
                    Representations
      and Warranties of the Authority

                  	
                    5

                  
	
                    SECTION
      2.02.

                  	
                    Representations
      and Warranties of the Company

                  	
                    6

                  
	 
      	 
      	 
      
	
                    ARTICLE
      III

                     

                    THE
      FACILITIES

                  
	 
      	 
      	 
      
	
                    SECTION
      3.01.

                  	
                    Facilities;
      Property of the Company

                  	
                    7

                  
	
                    SECTION
      3.02.

                  	
                    Maintenance
      of Facilities; Remodeling

                  	
                    7

                  
	
                    SECTION
      3.03.

                  	
                    Insurance

                  	
                    7

                  
	
                    SECTION
      3.04.

                  	
                    Condemnation

                  	
                    7

                  
	 
      
	
                    ARTICLE
      IV

                     

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

                  
	 
      	 
      	 
      
	
                    SECTION
      4.01.

                  	
                    Issuance
      of the Bonds

                  	
                    7

                  
	
                    SECTION
      4.02.

                  	
                    Issuance
      of Other Obligations

                  	
                    7

                  
	
                    SECTION
      4.03.

                  	
                    The
      Loan; Disposition of Bond Proceeds

                  	
                    8

                  
	
                    SECTION
      4.04.

                  	
                    Investment
      of Moneys in Funds and Accounts

                  	
                    8

                  
	 
      	 
      	 
      
	
                    ARTICLE
      V

                     

                    LOAN
      PAYMENTS; OTHER OBLIGATIONS

                  
	 
      	 
      	 
      
	
                    SECTION
      5.01.

                  	
                    Loan
      Payments

                  	
                    8

                  
	
                    SECTION
      5.02.

                  	
                    Payments
      Assigned; Obligation Absolute

                  	
                    8

                  
	
                    SECTION
      5.03.

                  	
                    Payment
      of Expenses

                  	
                    9

                  
	
                    SECTION
      5.04.

                  	
                    Indemnification

                  	
                    9

                  
	
                    SECTION
      5.05.

                  	
                    Payment
      of Taxes; Discharge of Liens

                  	
                    10

                  

          

           

          
            

          

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

           

          
            
              
              

            

            
              i

              
                

              

            

            
              
              

            

          

           

          
            	
                    ARTICLE
      VI

                     

                    SPECIAL
      COVENANTS

                  
	 
      	 
      	 
      
	
                    SECTION
      6.01.

                  	
                    Maintenance
      of Legal Existence

                  	
                    10

                  
	
                    SECTION
      6.02.

                  	
                    Permits
      or Licenses

                  	
                    11

                  
	
                    SECTION
      6.03.

                  	
                    Authority’s
      Access to Facilities

                  	
                    11

                  
	
                    SECTION
      6.04.

                  	
                    Tax-Exempt
      Status of Interest on Bonds

                  	
                    11

                  
	
                    SECTION
      6.05.

                  	
                    Use
      of Facilities

                  	
                    12

                  
	
                    SECTION
      6.06.

                  	
                    Financing
      Statements

                  	
                    12

                  
	 
      	 
      	 
      
	
                    ARTICLE
      VII

                     

                    ASSIGNMENT,
      LEASING AND SELLING

                  
	 
      	 
      	 
      
	
                    SECTION
      7.01.

                  	
                    Conditions

                  	
                    13

                  
	
                    SECTION
      7.02.

                  	
                    Instrument
      Furnished to the Authority and Trustee

                  	
                    15

                  
	
                    SECTION
      7.03.

                  	
                    Limitation

                  	
                    15

                  
	 
      	 
      	 
      
	
                    ARTICLE
      VIII

                     

                    EVENTS
      OF DEFAULT AND REMEDIES

                  
	 
      	 
      	 
      
	
                    SECTION
      8.01.

                  	
                    Events
      of Default

                  	
                    15

                  
	
                    SECTION
      8.02.

                  	
                    Force
      Majeure

                  	
                    16

                  
	
                    SECTION
      8.03.

                  	
                    Remedies

                  	
                    16

                  
	
                    SECTION
      8.04.

                  	
                    No
      Remedy Exclusive

                  	
                    17

                  
	
                    SECTION
      8.05.

                  	
                    Reimbursement
      of Attorneys’ and Agents’ Fees

                  	
                    17

                  
	
                    SECTION
      8.06.

                  	
                    Waiver
      of Breach

                  	
                    17

                  
	 
      	 
      	 
      
	
                    ARTICLE
      IX

                     

                    REDEMPTION
      OF BONDS

                  
	 
      	 
      	 
      
	
                    SECTION
      9.01.

                  	
                    Redemption
      of Bonds

                  	
                    17

                  
	
                    SECTION
      9.02.

                  	
                    Compliance
      with the Indenture

                  	
                    18

                  
	 
      	 
      	 
      
	
                    ARTICLE
      X

                     

                    MISCELLANEOUS

                  
	 
      	 
      	 
      
	
                    SECTION
      10.01.

                  	
                    Term
      of Agreement

                  	
                    18

                  
	
                    SECTION
      10.02.

                  	
                    Notices

                  	
                    18

                  
	
                    SECTION
      10.03.

                  	
                    Parties
      in Interest

                  	
                    18

                  
	
                    SECTION
      10.04.

                  	
                    Amendments

                  	
                    18

                  
	
                    SECTION
      10.05.

                  	
                    Counterparts

                  	
                    19

                  
	
                    SECTION
      10.06.

                  	
                    Severability

                  	
                    19

                  
	
                    SECTION
      10.07.

                  	
                    Governing
      Law

                  	
                    19

                  
	
                    SECTION
      10.08.

                  	
                    Notice
      Regarding Cancellation of Contracts

                  	
                    19

                  

          

        

        

        
          
            
            

          

          
            ii

            
              

            

          

          
            
            

          

        

        

        
          	
                  Exhibit
      A - Description of the Facilities

                	
                  A-1

                

        

      

      

      
        
          
          

        

        
          iii

          
            

          

        

        
          
          

        

      

       

      LOAN
AGREEMENT

       

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

       

      W I T N E
S S E T H:

      

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

       

      WHEREAS,
the Authority has heretofore issued and sold $150,000,000 aggregate principal
amount of The Industrial Development Authority of the County of Pima Industrial
Development Revenue Bonds, 1997 Series B (Tucson Electric Power Company Project)
of which $146,415,000 in principal amount remain outstanding (the “1997 Series B
Bonds”), the proceeds of which were loaned to the Company to refinance, by the
payment or redemption of The Industrial Development Authority of the County of
Pima Industrial Development Revenue Bonds, 1982 Series A (Tucson Electric Power
Company General Project (the “1982 Bonds due June 15, 2022”), and The Industrial
Development Authority of the County of Pima Industrial Development Revenue
Bonds, 1982 Series A (Tucson Electric Power Company General Project) (the “1982
Bonds due July 1, 2022” and, together with the 1982 Bonds due June 15, 2022, the
“1982 Bonds”), or provision therefor, the portion of the costs of the
acquisition, construction, improvement and equipping of certain of its
facilities for the furnishing of electric energy described in Exhibit A hereto
(the “Facilities”) paid from the proceeds of the 1982 Bonds;

       

      WHEREAS,
the Authority has heretofore issued and sold $75,000,000 aggregate principal
amount of The Industrial Development Authority of the County of Pima Industrial
Development Revenue Bonds, 1997 Series C (Tucson Electric Power Company Project)
of which $74,330,000 in principal amount remain outstanding (the “1997 Series C
Bonds”), the proceeds of which were loaned to the Company to refinance, by the
payment or redemption of The Industrial Development Authority of the County of
Pima Industrial Development Revenue Bonds, 1983 Series A Bonds (Tucson Electric
Power Company General Project) (the “1983

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      Bonds”),
or provision therefor, the portion of the costs of the acquisition,
construction, improvement and equipping of the Facilities paid from the proceeds
of the 1983 Bonds; and

       

      WHEREAS,
the Authority proposes to issue and sell its revenue bonds for the purpose of
refinancing a portion of the costs of the Facilities previously refinanced from
the proceeds of the 1997 Series B Bonds and the 1997 Series C Bonds, by the
redemption of $16,415,000 aggregate principal amount of the 1997 Series B Bonds
and all outstanding 1997 Series C Bonds (such portion of the 1997 Series B Bonds
and all of the 1997 Series C Bonds being hereinafter referred to as the “1997
Bonds”);

       

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

       

      ARTICLE
I

       

      DEFINITIONS

       

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

       

      Act:

       

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

       

      Administration
Expenses:

       

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

       

      Agreement:

       

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

       

      Authority:

       

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

       

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

      

       

      Authorized
Company Representative:

       

      “Authorized
Company Representative” shall mean each person at the time designated to act on
behalf of the Company by written certificate furnished to the Authority and the
Trustee containing the specimen signature of such person and signed on behalf of
the Company by its President, any Vice President or its Treasurer, together with
its Secretary or any Assistant Secretary.

       

      Bond
Counsel:

       

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

       

      Bond
Fund:

       

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

       

      Bonds:

       

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

       

      Company:

       

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

       

      Facilities:

       

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

       

      Indenture:

       

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

       

      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

      

       

      Loan
Payments:

       

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

       

      1954
Code:

       

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

       

      1986 Code:

      

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

       

      1997
Bonds:

       

      “1997
Bonds” shall mean, collectively, $16,415,000 of the $146,415,000 aggregate
principal amount of The Industrial Development Authority of the County of Pima
Industrial Development Revenue Bonds, 1997 Series B (Tucson Electric Power
Company Project) which are being redeemed on the date of issuance of the Bonds
and the $74,330,000 aggregate principal amount of The Industrial Development
Authority of the County of Pima Industrial Development Revenue Bonds, 1997
Series C (Tucson Electric Power Company Project) which are being redeemed on the
date of issuance of the Bonds.

       

      Outstanding:

       

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

       

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

       

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

       

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

       

      
        
          
          

        

        
          4

          
            

          

        

        
          
          

        

      

       

      Person:

       

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

       

      Tax
Agreement:

       

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

       

      Trustee:

       

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

       

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

       

      ARTICLE
II

       

      REPRESENTATIONS
AND WARRANTIES

       

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

       

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

       

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

       

      (c) 
The execution and delivery of this Agreement and the Indenture by the Authority
do not, and consummation of the transactions contemplated hereby and fulfillment
of the terms hereof and thereof by the Authority will not, result in a breach of
any of the terms or provisions of, or constitute a default under, any indenture,
mortgage, deed of trust or other agreement or instrument to which the Authority
is now a party or by

       

      
        
          
          

        

        
          5

          
            

          

        

        
          
          

        

      

       

      which it
is now bound, or, to the best knowledge of the Authority, any order, rule or
regulation applicable to the Authority of any court or of any regulatory body or
administrative agency or other governmental body having jurisdiction over the
Authority or over any of its properties, or the Constitution or laws of the
State of Arizona.

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

      
        
          
          

        

        
          6

          
            

          

        

        
          
          

        

      

       

      ARTICLE
III

       

      THE
FACILITIES

       

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

       

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

       

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

       

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

       

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

       

      ARTICLE
IV

       

      ISSUANCE
OF THE BONDS; THE LOANS; DISPOSITION OF PROCEEDS

      OF THE
BONDS

       

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

       

      SECTION
4.02.  Issuance of Other
Obligations.  The
Authority and the Company expressly reserve the right to enter into, to the
extent permitted by law, but shall not be obligated

       

      
        
          
          

        

        
          7

          
            

          

        

        
          
          

        

      

       

      to enter
into, an agreement or agreements other than this Agreement with respect to the
issuance by the Authority, under an indenture or indentures other than the
Indenture, of obligations to provide additional funds to pay the cost of
construction of the Facilities or obligations to refund all or any principal
amount of the Bonds, or any combination thereof.

       

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

       

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

       

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

       

      ARTICLE
V

       

      LOAN
PAYMENTS; OTHER OBLIGATIONS

       

      SECTION
5.01.  Loan
Payments.  In
consideration of the issuance of the Bonds and the disposition of the proceeds
thereof as contemplated in Section 4.03 hereof, the Company shall pay, or cause
to be paid, to the Trustee for the account of the Authority an amount equal to
the aggregate principal amount of the Bonds from time to time Outstanding and,
as interest on its obligation to pay such amount, an amount equal to premium, if
any, and interest on such Bonds, such amounts to be paid in installments due on
the dates, in the amounts and in the manner provided in the Indenture for the
Authority to cause amounts to be deposited in the Bond Fund for the payment of
the principal of and premium, if any, and interest on the Bonds whether at
stated maturity, upon redemption or acceleration or otherwise; provided,
however, that the obligation of the Company to make any such payment hereunder
shall be reduced by the amount of any reduction under the Indenture of the
amount of the corresponding payment required to be made by the Authority
thereunder.

       

      SECTION
5.02.  Payments Assigned;
Obligation Absolute.  It
is understood and agreed that all Loan Payments are, by the Indenture, to be
pledged by the Authority to the Trustee, and that all rights and interest of the
Authority hereunder (except for the Authority’s rights under Sections 5.03,
5.04, 6.03 and 8.05 hereof and any rights of the Authority to receive notices,
certificates, requests, requisitions and other communications hereunder) are to
be pledged and assigned to the Trustee.  The Company assents to such
pledge and assignment and agrees that the obligation of the Company to make the
Loan Payments shall be absolute, irrevocable and unconditional and shall not be
subject to cancellation, termination or abatement, or to any defense other than
payment or to any right of set off, counterclaim or recoupment arising out of
any breach by the Authority or the Trustee or any other party under this
Agreement, the Indenture or otherwise, or out of any obligation or liability at
any time owing to the Company by the Authority, the Trustee or any other party,
and, further, that the Loan Payments and the other payments due hereunder shall
continue to be payable at the times and in the amounts herein and therein
specified, whether or not the Facilities, or any portion thereof, shall have
been completed

       

      
        
          
          

        

        
          8

          
            

          

        

        
          
          

        

      

       

      or shall
have been destroyed by fire or other casualty, or title thereto, or the use
thereof, shall have been taken by the exercise of the power of eminent domain,
and that there shall be no abatement of or diminution in any such payments by
reason thereof, whether or not the Facilities shall be used or useful, whether
or not any applicable laws, regulations or standards shall prevent or prohibit
the use of the Facilities, or for any other reason, all of the foregoing being
subject, however, to the provisions of Sections 6.01 and 7.01
hereof.

       

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

       

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

       

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

       

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

       

      
        
          
          

        

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

       

      ARTICLE
VI

       

      SPECIAL
COVENANTS

       

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

       

      
        
          
          

        

        
          10

          
            

          

        

        
          
          

        

      

       

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

       

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

       

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

       

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

       

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

       

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

       

      Without
limiting the generality of the foregoing, the Company and the Authority agree
that there shall be paid from time to time all amounts required to be rebated to
the United States

       

      
        
          
          

        

        
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      of
America pursuant to Section 148(f) of the 1986 Code and any applicable Treasury
Regulations.  This covenant shall survive payment in full or
defeasance of the Bonds and the satisfaction and discharge of the
Indenture.  The Company specifically covenants to pay or cause to be
paid the Rebate Requirement as defined and described in the Tax
Agreement.

       

      (c) 
The Authority certifies and represents that it has not taken, and the Authority
covenants and agrees that it will not take, any action which results in interest
paid on the Bonds being included in gross income of the Owners of the Bonds for
federal tax purposes pursuant to Section 103 of the 1954 Code and Title XIII of
the Tax Reform Act of 1986, as applicable; and the Company certifies and
represents that it has not taken or (to the extent within its control) permitted
to be taken, and the Company covenants and agrees that it will not take or (to
the extent within its control) permit to be taken any action which will cause
the interest on the Bonds to become includable in gross income for federal
income tax purposes; provided, however, that neither the Company nor the
Authority shall be deemed to have violated these covenants if the interest on
any of the Bonds becomes taxable to a person solely because such person is a
“substantial user” of the Facilities or a “related person” within the meaning of
Section 103(b)(13) of the 1954 Code and provided, further, that none of the
covenants and agreements herein contained shall require either the Company or
the Authority to enter an appearance or intervene in any administrative,
legislative or judicial proceeding in connection with any changes in applicable
laws, rules or regulations or in connection with any decisions of any court or
administrative agency or other governmental body affecting the taxation of
interest on the Bonds.  The Company acknowledges having read Section
7.08 of the Indenture and agrees to perform all duties imposed on it by such
Section 7.08, by this Section and by the Tax Agreement.  Insofar as
Section 7.08 of the Indenture and the Tax Agreement impose duties and
responsibilities on the Company, they are specifically incorporated herein by
reference.

       

      (d) 
Notwithstanding any provision of this Section 6.04 and Section 7.08 of the
Indenture, if the Company shall provide to the Authority and the Trustee an
opinion of Bond Counsel to the effect that any specified action required under
this Section 6.04 and Section 7.08 of the Indenture is no longer required or
that some further or different action is required to maintain the tax-exempt
status of interest on the Bonds, the Company, the Trustee and the Authority may
conclusively rely upon such opinion in complying with the requirements of this
Section 6.04, and the covenants hereunder shall be deemed to be modified to that
extent.

       

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

       

      SECTION
6.06.  Financing
Statements.  The
Company shall file and record, or cause to be filed and recorded, all financing
statements and continuation statements referred to in Section 7.07 of the
Indenture.

       

      
        
          
          

        

        
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      ARTICLE
VII

       

      ASSIGNMENT,
LEASING AND SELLING

       

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

       

      Anything
herein to the contrary notwithstanding, the Company shall not make any
assignment, lease or sale as provided in the immediately preceding paragraph
unless it shall have furnished to the Authority and the Trustee an opinion of
Bond Counsel to the effect that the

       

      
        
          
          

        

        
          13

          
            

          

        

        
          
          

        

      

       

      proposed
assignment, lease or sale will not impair the validity under the Act of the
Bonds and will not adversely affect the exclusion of interest on the Bonds from
gross income for federal tax purposes.

       

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

       

      For
purposes of this Section 7.01:

       

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

       

      (b) 
“Fair Value” means the fair value of the interests, rights, assets and/or
properties assigned, leased, sold, transferred or otherwise disposed of (but, in
the case of a lease, only to the extent of such lease) as may be determined by
reference to (i) except in the case of a lease, the amount which would be likely
to be obtained in an arm’s-length transaction with respect to such interests,
rights, assets and/or properties between an informed and willing buyer and an
informed and willing seller, under no compulsion, respectively, to buy or sell,
(ii) in the case of a lease, the amount (discounted to present value at a rate
not lower than the taxable equivalent of the yield to maturity of the Bonds
based on prevailing market prices immediately prior to the first public
announcement of the proposed transaction) which would be likely to be obtained
in an arm’s-length transaction with respect to such interests, rights, assets
and/or properties between an informed and willing lessee and an informed and
willing lessor, neither under any compulsion to lease; (iii) the amount of
investment with respect to such interests, rights, assets and/or properties
which, together with a reasonable return thereon, would be likely to be
recovered through ordinary business operations or otherwise, (iv) the cost,
accumulated depreciation and replacement cost with respect to such interests,
rights, assets and/or properties and/or (v) any other relevant factors;
provided, however, that (x) Fair Value shall be determined without deduction for
any mortgage, deed of trust, pledge,

       

      
        
          
          

        

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

       

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

       

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

       

      ARTICLE
VIII

       

      EVENTS OF
DEFAULT AND REMEDIES

       

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

       

      (a) 
a failure by the Company to make any Loan Payment, which failure shall have
resulted in an “Event of Default” under clause (a) or (b) of Section 9.01 of the
Indenture;

       

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

       

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

       

      
        
          
          

        

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

       

      SECTION
8.02.  Force
Majeure.  The
provisions of Section 8.01 hereof are subject to the following limitations: if
by reason of acts of God; strikes, lockouts or other industrial disturbances;
acts of public enemies; orders of any kind of the government of the United
States or of the State of Arizona, or any department, agency, political
subdivision, court or official of any of them, or any civil or military
authority; insurrections; riots; epidemics; landslides; lightning; earthquakes;
volcanoes; fires; hurricanes; tornadoes; storms; floods; washouts; droughts;
arrests; restraint of government and people; civil disturbances; explosions;
breakage or accident to machinery; partial or entire failure of utilities; or
any cause or event not reasonably within the control of the Company, the Company
is unable in whole or in part to carry out any one or more of its agreements or
obligations contained herein, other than its obligations under Sections 5.01,
5.03, 5.05, and 6.01 hereof, the Company shall not be deemed in default by
reason of not carrying out said agreement or agreements or performing said
obligation or obligations during the continuance of such
inability.  The Company shall make reasonable effort to remedy with
all reasonable dispatch the cause or causes preventing it from carrying out its
agreements; provided, that the settlement of strikes, lockouts and other
industrial disturbances shall be entirely within the discretion of the Company,
and the Company shall not be required to make settlement of strikes, lockouts
and other industrial disturbances by acceding to the demands of the opposing
party or parties when such course is in the judgment of the Company unfavorable
to the Company.

       

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

       

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

       

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

       

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

       

      
        
          
          

        

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

       

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

       

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

       

      ARTICLE
IX

       

      REDEMPTION
OF BONDS

       

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

       

      
        
          
          

        

        
          17

          
            

          

        

        
          
          

        

      

       

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

       

      ARTICLE
X

       

      MISCELLANEOUS

       

      SECTION
10.01.  Term of
Agreement.  This
Agreement shall remain in full force and effect from the date hereof until the
right, title and interest of the Trustee in and to the Trust Estate (as defined
in the Indenture) shall have ceased, terminated and become void in accordance
with Article VIII of the Indenture and until all payments required under this
Agreement shall have been made.  Notwithstanding the foregoing, the
covenants contained in Sections 5.03, 5.04, Section 6.04 and 8.05 hereof shall
survive the termination of this Agreement.

       

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

       

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

       

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

       

      
        
          
          

        

        
          18

          
            

          

        

        
          
          

        

      

       

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

       

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

       

      SECTION
10.07.  Governing
Law.  The
laws of the State of Arizona shall govern the construction and enforcement of
this Agreement, except that the provisions of Section 13.09 of the Indenture,
construed as provided in Section 13.07 of the Indenture, shall apply to this
Agreement as if contained herein.

       

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

       

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

       

      

      [Remainder
of Page Intentionally Left Blank]

       

      
        
          
          

        

        
          19

          
            

          

        

        
          
          

        

      

       

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

       

      
        	 
      	
                THE
      INDUSTRIAL DEVELOPMENT AUTHORITY OF THE COUNTY OF PIMA

                 

                 

              
	 
      	
                By:

              	/s/
      Stanley Lehman
	 
      	 
      	
                Name:  Stanley
      Lehman

              
	 
      	 
      	
                Title:    Vice
      President

                 

                 

              
	 
      	
                By:

              	/s/
      Bernhardt Wm. Collins
	 
      	 
      	
                Name:  Bernhardt
      Wm. Collins

              
	 
      	 
      	
                Title:    Secretary

                 

                 

              
	 
      	
                TUCSON
      ELECTRIC POWER COMPANY

                 

                 

              
	 
      	
                By:

              	/s/
      Kentton C. Grant
	 
      	 
      	
                Name:  Kentton
      C. Grant

              
	 
      	 
      	
                Title:    Vice
      President, Finance and Rates

              

      

      

      
        
          
          

        

        
          Signature
Page to Loan Agreement

          
            

          

        

        
          
          

        

      

      

      EXHIBIT
A

      

      

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

       

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

       

      

      Certain
high voltage transmission facilities and related improvements used to transmit
energy from Unit No. 2 of the Springerville Generating Station located in Apache
County, Arizona to the City of Tucson and environs in Pima County and to Fort
Huachuca in adjacent Cochise County, Arizona and additions and improvements to
the Company’s low-voltage transmission and distribution facilities in the City
of Tucson and environs in Pima County and to Fort Huachuca and additions and
improvements to the Sundt Generating Station (formerly known as the Irvington
Generating Station) located in the City of Tucson, more particularly described
in the Tax Certificate and Agreement, dated March 19, 2008, between The
Industrial Development Authority of the County of Pima and Tucson Electric Power
Company.

       

      
        
          
          

        

        
          A-1EX-10.36

 

Exhibit 10.36

FX REAL ESTATE AND ENTERTAINMENT INC.

2007 LONG-TERM INCENTIVE COMPENSATION PLAN

 

 

2007 LONG-TERM INCENTIVE COMPENSATION PLAN

	 	 	 	 	 
	1. Purpose
	 	 	1	 
	 
	 	 	 	 
	2. Definitions
	 	 	1	 
	 
	 	 	 	 
	3. Administration
	 	 	6	 
	 
	 	 	 	 
	4. Shares Subject to Plan
	 	 	7	 
	 
	 	 	 	 
	5. Eligibility; Per-Person Award Limitations
	 	 	8	 
	 
	 	 	 	 
	6. Specific Terms of Awards
	 	 	8	 
	 
	 	 	 	 
	7. Certain Provisions Applicable to Awards
	 	 	14	 
	 
	 	 	 	 
	8. Code Section 162(m) Provisions
	 	 	16	 
	 
	 	 	 	 
	9. Change in Control
	 	 	17	 
	 
	 	 	 	 
	10. General Provisions
	 	 	19	 

 

 

2007 LONG-TERM INCENTIVE COMPENSATION PLAN

     1. Purpose. The purpose of this 2007 LONG-TERM INCENTIVE COMPENSATION PLAN (the “Plan”) is to
assist FX Real Estate and Entertainment Inc., a Delaware corporation (the “Company”) and its
Related Entities (as hereinafter defined) in attracting, motivating, retaining and rewarding
high-quality executives and other employees, officers, directors, consultants and other persons who
provide services to the Company or its Related Entities by enabling such persons to acquire or
increase a proprietary interest in the Company in order to strengthen the mutuality of interests
between such persons and the Company’s shareholders, and providing such persons with long term
performance incentives to expend their maximum efforts in the creation of shareholder value.

     2. Definitions. For purposes of the Plan, the following terms shall be defined as set forth
below, in addition to such terms defined in Section 1 hereof and elsewhere herein.

          (a) “Award” means any Option, Stock Appreciation Right, Restricted Stock Award, Deferred Stock
Award, Share granted as a bonus or in lieu of another Award, Dividend Equivalent, Other Stock-Based
Award or Performance Award, together with any other right or interest, granted to a Participant
under the Plan.

          (b) “Award Agreement” means any written agreement, contract or other instrument or document
evidencing any Award granted by the Committee hereunder.

          (c) “Beneficiary” and “Beneficial Ownership” means the person, persons, trust or trusts that
have been designated by a Participant in his or her most recent written beneficiary designation
filed with the Committee to receive the benefits specified under the Plan upon such Participant’s
death or to which Awards or other rights are transferred if and to the extent permitted under
Section 10(b) hereof. If, upon a Participant’s death, there is no designated Beneficiary or
surviving designated Beneficiary, then the term Beneficiary means the person, persons, trust or
trusts entitled by will or the laws of descent and distribution to receive such benefits.

          (d) “Beneficial Owner” shall have the meaning ascribed to such term in Rule 13d-3 under the
Exchange Act and any successor to such Rule.

          (e) “Board” means the Company’s Board of Directors.

          (f) “Cause” shall, with respect to any Participant, have the meaning specified in the Award
Agreement. In the absence of any definition in the Award Agreement, “Cause” shall have the
equivalent meaning or the same meaning as “cause” or “for cause” set forth in any employment,
consulting, or other agreement for the performance of services between the Participant and the
Company or a Related Entity or, in the absence of any such agreement or any such definition in such
agreement, such term shall mean (i) the failure by the Participant to perform, in a reasonable
manner, his or her duties as assigned by the Company or a Related Entity, (ii) any violation or
breach by the Participant of his or her employment, consulting or

 

 

other similar agreement with the Company or a Related Entity, if any, (iii) any violation or
breach by the Participant of any non-competition, non-solicitation, non-disclosure and/or other
similar agreement with the Company or a Related Entity, (iv) any act by the Participant of
dishonesty or bad faith with respect to the Company or a Related Entity, (v) use of alcohol, drugs
or other similar substances in a manner that adversely affects the Participant’s work performance,
or (vi) the commission by the Participant of any act, misdemeanor, or crime reflecting unfavorably
upon the Participant or the Company or any Related Entity. The good faith determination by the
Committee of whether the Participant’s Continuous Service was terminated by the Company for “Cause”
shall be final and binding for all purposes hereunder.

          (g) “Change in Control” means a Change in Control as defined in Section 9(b) of the Plan.

          (h) “Code” means the Internal Revenue Code of 1986, as amended from time to time, including
regulations thereunder and successor provisions and regulations thereto.

          (i) “Committee” means the Compensation Committee of the Board; provided, however, that if at
any time, there shall fail to be a sitting Compensation Committee or if there are no longer any
members on the Compensation Committee, then the Board shall serve as the Committee. The Committee
shall consist of at least two directors, and each member of the Committee shall be (i) a
“non-employee director” within the meaning of Rule 16b-3 (or any successor rule) under the
Exchange Act, unless administration of the Plan by “non-employee directors” is not then required in
order for exemptions under Rule 16b-3 to apply to transactions under the Plan, (ii) an “outside
director” within the meaning of Section 162(m) of the Code, and (iii) “Independent”.

          (j) “Consultant” means any person (other than an Employee or a Director, solely with respect
to rendering services in such person’s capacity as a director) who is engaged by the Company or any
Related Entity to render consulting or advisory services to the Company or such Related Entity.

          (k) “Continuous Service” means the uninterrupted provision of services to the Company or any
Related Entity in any capacity of Employee, Director, Consultant or other service provider.
Continuous Service shall not be considered to be interrupted in the case of (i) any approved leave
of absence, (ii) transfers among the Company, any Related Entities, or any successor entities, in
any capacity of Employee, Director, Consultant or other service provider, or (iii) any change in
status as long as the individual remains in the service of the Company or a Related Entity in any
capacity of Employee, Director, Consultant or other service provider (except as otherwise provided
in the Award Agreement). An approved leave of absence shall include sick leave, military leave, or
any other authorized personal leave.

          (l) “Covered Employee” means the Person who, as of the end of the taxable year, either is the
principal executive officer of the Company or is serving as the acting principal executive officer
of the Company, and each other Person whose compensation is required to be disclosed in the
Company’s filings with the Securities and Exchange Commission by reason of that person being among
the three highest compensated officers of the Company as of the end of

2

 

a taxable year, or such other person as shall be considered a “covered employee” for purposes
of Section 162(m) of the Code.

          (m) “Deferred Stock” means a right to receive Shares, including Restricted Stock, cash
measured based upon the value of Shares or a combination thereof, at the end of a specified
deferral period.

          (n) “Deferred Stock Award” means an Award of Deferred Stock granted to a Participant under
Section 6(e) hereof.

          (o) “Director” means a member of the Board or the board of directors of any Related Entity.

          (p) “Disability” means a permanent and total disability (within the meaning of Section 22(e)
of the Code), as determined by a medical doctor satisfactory to the Committee.

          (q) “Discounted Option” means any Option awarded under Section 6(b) hereof with an exercise
price that is less than the Fair Market Value of a Share on the date of grant.

          (r) “Dividend Equivalent” means a right, granted to a Participant under Section 6(g) hereof,
to receive cash, Shares, other Awards or other property equal in value to regular dividends paid
with respect to a specified number of Shares, or other periodic payments.

          (s) “Effective Date” means the effective date of the Plan, which shall be December 17, 2007,
subject to approval within twelve (12) months by the stockholders of the shares entitled to vote
thereon.

          (t) “Eligible Person” means each officer, Director, Employee, Consultant and other person who
provides services to the Company or any Related Entity. The foregoing notwithstanding, only
employees of the Company, or any parent corporation or subsidiary corporation of the Company (as
those terms are defined in Sections 424(e) and (f) of the Code, respectively), shall be Eligible
Persons for purposes of receiving any Incentive Stock Options. An Employee on leave of absence may
be considered as still in the employ of the Company or a Related Entity for purposes of eligibility
for participation in the Plan.

          (u) “Employee” means any person, including an officer or Director, who is an employee of the
Company or any Related Entity. The payment of a director’s fee by the Company or a Related Entity
shall not be sufficient to constitute “employment” by the Company.

          (v) “Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time,
including rules thereunder and successor provisions and rules thereto.

          (w) “Fair Market Value” means the fair market value of Shares, Awards or other property as
determined by the Committee, or under procedures established by the Committee. Unless otherwise
determined by the Committee, the Fair Market Value of a Share as of any given date shall be the
closing sale price per Share reported on a consolidated basis for stock listed on the principal
stock exchange or market on which Shares are traded on the date

3

 

immediately preceding the date as of which such value is being determined or, if there is no
sale on that date, then on the last previous day on which a sale was reported.

          (x) “Good Reason” shall, with respect to any Participant, have the meaning specified in the
Award Agreement. In the absence of any definition in the Award Agreement, “Good Reason” shall have
the equivalent meaning or the same meaning as “good reason” or “for good reason” set forth in any
employment, consulting or other agreement for the performance of services between the Participant
and the Company or a Related Entity or, in the absence of any such agreement or any such definition
in such agreement, such term shall mean (i) the assignment to the Participant of any duties
inconsistent in any material respect with the Participant’s position (including status, offices,
titles and reporting requirements), authority, duties or responsibilities as assigned by the
Company or a Related Entity, or any other action by the Company or a Related Entity which results
in a material diminution in such position, authority, duties or responsibilities, excluding for
this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is
remedied by the Company or a Related Entity promptly after receipt of notice thereof given by the
Participant; or (ii) any material failure by the Company or a Related Entity to comply with its
obligations to the Participant as agreed upon, other than an isolated, insubstantial and
inadvertent failure not occurring in bad faith and which is remedied by the Company or a Related
Entity promptly after receipt of notice thereof given by the Participant.

          (y) “Incentive Stock Option” means any Option intended to be designated as an incentive stock
option within the meaning of Section 422 of the Code or any successor provision thereto.

          (z) “Independent”, when referring to either the Board or members of the Committee, shall have
the same meaning as used in the rules of the NASDAQ Global Market or any national securities
exchange on which any securities of the Company are listed for trading, and if not listed for
trading, by the rules of the Nasdaq National Market.

          (aa) “Incumbent Board” means the Incumbent Board as defined in Section 9(b)(ii) of the Plan.

          (bb) “Option” means a right granted to a Participant under Section 6(b) hereof, to purchase
Shares or other Awards at a specified price during specified time periods.

          (cc) “Optionee” means a person to whom an Option is granted under this Plan or any person who
succeeds to the rights of such person under this Plan.

          (dd) “Other Stock-Based Awards” means Awards granted to a Participant under Section 6(i)
hereof.

          (ee) “Participant” means a person who has been granted an Award under the Plan which remains
outstanding, including a person who is no longer an Eligible Person.

          (ff) “Performance Award” shall mean any Award of Performance Shares or Performance Units
granted pursuant to Section 6(h).

4

 

          (gg) “Performance Period” means that period established by the Committee at the time any
Performance Award is granted or at any time thereafter during which any performance goals specified
by the Committee with respect to such Award are to be measured.

          (hh) “Performance Share” means any grant pursuant to Section 6(h) of a unit valued by
reference to a designated number of Shares, which value may be paid to the Participant by delivery
of such property as the Committee shall determine, including cash, Shares, other property, or any
combination thereof, upon achievement of such performance goals during the Performance Period as
the Committee shall establish at the time of such grant or thereafter.

          (ii) “Performance Unit” means any grant pursuant to Section 6(h) of a unit valued by reference
to a designated amount of property (including cash) other than Shares, which value may be paid to
the Participant by delivery of such property as the Committee shall determine, including cash,
Shares, other property, or any combination thereof, upon achievement of such performance goals
during the Performance Period as the Committee shall establish at the time of such grant or
thereafter.

          (jj) “Person” shall have the meaning ascribed to such term in Section 3(a)(9) of the Exchange
Act and used in Sections 13(d) and 14(d) thereof, and shall include a “group” as defined in Section
13(d) thereof.

          (kk) “Related Entity” means any Subsidiary, and any business, corporation, partnership,
limited liability company or other entity designated by the Board, in which the Company or a
Subsidiary holds a substantial ownership interest, directly or indirectly.

          (ll) “Restricted Stock” means any Share issued with the restriction that the holder may not
sell, transfer, pledge or assign such Share and with such risks of forfeiture and other
restrictions as the Committee, in its sole discretion, may impose (including any restriction on the
right to vote such Share and the right to receive any dividends), which restrictions may lapse
separately or in combination at such time or times, in installments or otherwise, as the Committee
may deem appropriate.

          (mm) “Restricted Stock Award” means an Award granted to a Participant under Section 6(d)
hereof.

          (nn) “Rule 16b-3” means Rule 16b-3, as from time to time in effect and applicable to the Plan
and Participants, promulgated by the Securities and Exchange Commission under Section 16 of the
Exchange Act.

          (oo) “Shares” means the shares of common stock of the Company, par value $.01 per share, and
such other securities as may be substituted (or resubstituted) for Shares pursuant to Section 10(c)
hereof.

          (pp) “Stock Appreciation Right” means a right granted to a Participant under Section 6(c)
hereof.

5

 

          (qq) “Subsidiary” means any corporation or other entity in which the Company has a direct or
indirect ownership interest of 50% or more of the total combined voting power of the then
outstanding securities or interests of such corporation or other entity entitled to vote generally
in the election of directors or in which the Company has the right to receive 50% or more of the
distribution of profits or 50% or more of the assets on liquidation or dissolution.

          (rr) “Substitute Awards” means Awards granted or Shares issued by the Company in assumption
of, or in substitution or exchange for, Awards previously granted, or the right or obligation to
make future Awards, by a company acquired by the Company or any Related Entity or with which the
Company or any Related Entity combines.

     3. Administration.

          (a) Authority of the Committee. The Plan shall be administered by the Committee except to the
extent the Board elects to administer the Plan, in which case the Plan shall be administered by
only those directors who are Independent Directors, in which case references herein to the
“Committee” shall be deemed to include references to the Independent members of the Board. The
Committee shall have full and final authority, subject to and consistent with the provisions of the
Plan, to select Eligible Persons to become Participants, grant Awards, determine the type, number
and other terms and conditions of, and all other matters relating to, Awards, prescribe Award
Agreements (which need not be identical for each Participant) and rules and regulations for the
administration of the Plan, construe and interpret the Plan and Award Agreements and correct
defects, supply omissions or reconcile inconsistencies therein, and to make all other decisions and
determinations as the Committee may deem necessary or advisable for the administration of the Plan.
In exercising any discretion granted to the Committee under the Plan or pursuant to any Award, the
Committee shall not be required to follow past practices, act in a manner consistent with past
practices, or treat any Eligible Person or Participant in a manner consistent with the treatment of
other Eligible Persons or Participants.

          (b) Manner of Exercise of Committee Authority.: The Committee, and not the Board, shall
exercise sole and exclusive discretion on any matter relating to a Participant then subject to
Section 16 of the Exchange Act with respect to the Company to the extent necessary in order that
transactions by such Participant shall be exempt under Rule 16b-3 under the Exchange Act. Any
action of the Committee shall be final, conclusive and binding on all persons, including the
Company, its Related Entities, Eligible Persons, Participants, Beneficiaries, transferees under
Section 10(b) hereof or other persons claiming rights from or through a Participant, and
shareholders. The express grant of any specific power to the Committee, and the taking of any
action by the Committee, shall not be construed as limiting any power or authority of the
Committee. The Committee may delegate to officers or managers of the Company or any Related
Entity, or committees thereof, the authority, subject to such terms as the Committee shall
determine, to perform such functions, including administrative functions as the Committee may
determine to the extent that such delegation will not result in the loss of an exemption under Rule
16b-3(d)(1) for Awards granted to Participants subject to Section 16 of the Exchange Act in respect
of the Company and will not cause Awards intended to qualify as “performance-based compensation”
under Code Section 162(m) to fail to so qualify. The Committee may appoint agents to assist it in
administering the Plan.

6

 

          (c) Limitation of Liability. The Committee and the Board, and each member thereof, shall be
entitled to, in good faith, rely or act upon any report or other information furnished to him or
her by any officer or Employee, the Company’s independent auditors, Consultants or any other agents
assisting in the administration of the Plan. Members of the Committee and the Board, and any
officer or Employee acting at the direction or on behalf of the Committee or the Board, shall not
be personally liable for any action or determination taken or made in good faith with respect to
the Plan, and shall, to the extent permitted by law, be fully indemnified and protected by the
Company with respect to any such action or determination.

     4. Shares Subject to Plan.

          (a) Limitation on Overall Number of Shares Available for Delivery Under Plan. Subject to
adjustment as provided in Section 10(c) hereof, the total number of Shares reserved and available
for delivery under the Plan shall be three million (3,000,000) Shares. Any Shares delivered under
the Plan may consist, in whole or in part, of authorized and unissued shares or treasury shares.

          (b) Application of Limitation to Grants of Award.. No Award may be granted if the number of
Shares to be delivered in connection with such an Award or, in the case of an Award relating to
Shares but settled only in cash (such as cash-only Stock Appreciation Rights), the number of Shares
to which such Award relates, exceeds the number of Shares remaining available for delivery under
the Plan, minus the number of Shares deliverable in settlement of or relating to then outstanding
Awards. The Committee may adopt reasonable counting procedures to ensure appropriate counting,
avoid double counting (as, for example, in the case of tandem or substitute awards) and make
adjustments if the number of Shares actually delivered differs from the number of Shares previously
counted in connection with an Award.

          (c) Availability of Shares Not Delivered under Awards and Adjustments to Limits.

               (i) If any Shares subject to an Award are forfeited, expire or otherwise terminate without
issuance of such Shares, or any Award is settled for cash or otherwise does not result in the
issuance of all or a portion of the Shares subject to such Award, the Shares shall, to the extent
of such forfeiture, expiration, termination, cash settlement or non-issuance, again be available
for Awards under the Plan, subject to Section 4(c)(v) below.

               (ii) Substitute Awards shall not reduce the Shares authorized for grant under the Plan or
authorized for grant to a Participant in any period. Additionally, in the event that a company
acquired by the Company or any Related Entity or with which the Company or any Related Entity
combines has shares available under a pre-existing plan approved by shareholders and not adopted in
contemplation of such acquisition or combination, the shares available for delivery pursuant to the
terms of such pre-existing plan (as adjusted, to the extent appropriate, using the exchange ratio
or other adjustment or valuation ratio or formula used in such acquisition or combination to
determine the consideration payable to the holders of common stock of the entities party to such
acquisition or combination) may be used for Awards under the Plan and shall not reduce the Shares
authorized for delivery under the Plan; provided that Awards using such available shares shall not
be made after the date awards or grants could

7

 

have been made under the terms of the pre-existing plan, absent the acquisition or
combination, and shall only be made to individuals who were not Employees or Directors prior to
such acquisition or combination.

               (iii) Any Share that again becomes available for delivery pursuant to this Section 4(c) shall
be added back as one (1) Share if such Shares were granted under the Plan.

               (iv) Notwithstanding anything in this Section 4(c) to the contrary but subject to adjustment
as provided in Section 10(c) hereof, the maximum aggregate number of Shares that may be issued
under the Plan as a result of the exercise of the Incentive Stock Options shall be three million
(3,000,000) Shares.

     5. Eligibility; Per-Person Award Limitations. Awards may be granted under the Plan only to
Eligible Persons. Subject to adjustment as provided in Section 10(c), in any fiscal year of the
Company during any part of which the Plan is in effect, no Participant may be granted (i) Options
or Stock Appreciation Rights with respect to more than one million (1,000,000) Shares or (ii)
Restricted Stock, Deferred Stock, Performance Shares and/or Other Stock-Based Awards with respect
to more than one million (1,000,000) Shares. The maximum number of Shares that may be granted to
any one Participant over the life of the Plan is one million (1,000,000) Shares. In addition, the
maximum dollar value payable to any one Participant with respect to Performance Units is five
million dollars ($5,000,000) with respect to any Performance Period.

     6. Specific Terms of Awards.

          (a) General. Awards may be granted on the terms and conditions set forth in this Section 6.
In addition, the Committee may impose on any Award or the exercise thereof, at the date of grant or
thereafter (subject to Section 10(e)), such additional terms and conditions, not inconsistent with
the provisions of the Plan, as the Committee shall determine, including terms requiring forfeiture
of Awards in the event of termination of the Participant’s Continuous Service and terms permitting
a Participant to make elections relating to his or her Award. The Committee shall retain full
power and discretion to accelerate, waive or modify, at any time, any term or condition of an Award
that is not mandatory under the Plan. Except in cases in which the Committee is authorized to
require other forms of consideration under the Plan, or to the extent other forms of consideration
must be paid to satisfy the requirements of Delaware law, no consideration other than services may
be required for the grant (as opposed to the exercise) of any Award.

          (b) Options. The Committee is authorized to grant Options to any Eligible Person on the
following terms and conditions:

               (i) Exercise Price. Other than in connection with Substitute Awards, the exercise price per
Share purchasable under an Option shall be determined by the Committee, provided that such exercise
price shall not be less than 100% of the Fair Market Value of a Share on the date of grant of the
Option and shall not, in any event, be less than the par value of a Share on the date of grant of
the Option. If an Employee owns or is deemed to own (by reason of the attribution rules applicable
under Section 424(d) of the Code) more than 10% of the combined

8

 

voting power of all classes of stock of the Company (or any parent corporation or subsidiary
corporation of the Company, as those terms are defined in Sections 424(e) and (f) of the Code,
respectively) and an Incentive Stock Option is granted to such employee, the exercise price of such
Incentive Stock Option (to the extent required by the Code at the time of grant) shall be no less
than 110% of the Fair Market Value of a Share on the date such Incentive Stock Option is granted.
Other than pursuant to Section 10(c), the Committee shall not be permitted to (A) lower the
exercise price per Share of an Option after it is granted, (B) cancel an Option when the exercise
price per Share exceeds the Fair Market Value of the underlying Shares in exchange for another
Award (other than in connection with Substitute Awards), or (C) take any other action with respect
to an Option that may be treated as a repricing, without approval of the Company’s shareholders.

               (ii) Time and Method of Exercise. The Committee shall determine the time or times at which or
the circumstances under which an Option may be exercised in whole or in part (including based on
achievement of performance goals and/or future service requirements), the time or times at which
Options shall cease to be or become exercisable following termination of Continuous Service or upon
other conditions, the methods by which the exercise price may be paid or deemed to be paid
(including in the discretion of the Committee a cashless exercise procedure), the form of such
payment, including, without limitation, cash, Shares (including without limitation the withholding
of Shares otherwise deliverable pursuant to the Award), other Awards or awards granted under other
plans of the Company or a Related Entity, or other property (including notes or other contractual
obligations of Participants to make payment on a deferred basis provided that such deferred
payments are not in violation of the Sarbanes-Oxley Act of 2002, or any rule or regulation adopted
thereunder or any other applicable law), and the methods by or forms in which Shares will be
delivered or deemed to be delivered to Participants.

               (iii) Incentive Stock Options. The terms of any Incentive Stock Option granted under the Plan
shall comply in all respects with the provisions of Section 422 of the Code. Anything in the Plan
to the contrary notwithstanding, no term of the Plan relating to Incentive Stock Options shall be
interpreted, amended or altered, nor shall any discretion or authority granted under the Plan be
exercised, so as to disqualify either the Plan or any Incentive Stock Option under Section 422 of
the Code, unless the Participant has first requested, or consents to, the change that will result
in such disqualification. Thus, if and to the extent required to comply with Section 422 of the
Code, Options granted as Incentive Stock Options shall be subject to the following special terms
and conditions:

                    (A) the Option shall not be exercisable for more than ten years after the date such Incentive
Stock Option is granted; provided, however, that if a Participant owns or is deemed to own (by
reason of the attribution rules of Section 424(d) of the Code) more than 10% of the combined voting
power of all classes of stock of the Company (or any parent corporation or subsidiary corporation
of the Company, as those terms are defined in Sections 424(e) and (f) of the Code, respectively)
and the Incentive Stock Option is granted to such Participant, the term of the Incentive Stock
Option shall be (to the extent required by the Code at the time of the grant) for no more than five
years from the date of grant; and

9

 

                    (B) The aggregate Fair Market Value (determined as of the date the Incentive Stock Option is
granted) of the Shares with respect to which Incentive Stock Options granted under the Plan and all
other option plans of the Company (and any parent corporation or subsidiary corporation of the
Company, as those terms are defined in Sections 424(e) and (f) of the Code, respectively) that
become exercisable for the first time by the Participant during any calendar year shall not (to the
extent required by the Code at the time of the grant) exceed $100,000.

          (c) Stock Appreciation Rights. The Committee may grant Stock Appreciation Rights to any
Eligible Person in conjunction with all or part of any Option granted under the Plan or at any
subsequent time during the term of such Option (a “Tandem Stock Appreciation Right”), or without
regard to any Option (a “Freestanding Stock Appreciation Right”), in each case upon such terms and
conditions as the Committee may establish in its sole discretion, not inconsistent with the
provisions of the Plan, including the following:

               (i) Right to Payment. A Stock Appreciation Right shall confer on the Participant to whom it
is granted a right to receive, upon exercise thereof, the excess of (A) the Fair Market Value of
one Share on the date of exercise over (B) the grant price of the Stock Appreciation Right as
determined by the Committee. The grant price of a Stock Appreciation Right shall not be less than
one hundred percent (100%) of the Fair Market Value of a Share on the date of grant, in the case of
a Freestanding Stock Appreciation Right, or less than the associated Option exercise price, in the
case of a Tandem Stock Appreciation Right. Other than pursuant to Section 10(c), the Committee
shall not be permitted to (A) lower the grant price per Share of a Stock Appreciation Right after
it is granted, (B) cancel a Stock Appreciation Right when the grant price per Share exceeds the
Fair Market Value of the underlying Shares in exchange for another Award (other than in connection
with Substitute Awards), or (C) take any other action with respect to a Stock Appreciation Right
that may be treated as a repricing, without shareholder approval.

               (ii) Other Terms. The Committee shall determine at the date of grant or thereafter, the time
or times at which and the circumstances under which a Stock Appreciation Right may be exercised in
whole or in part (including based on achievement of performance goals and/or future service
requirements), the time or times at which Stock Appreciation Rights shall cease to be or become
exercisable following termination of Continuous Service or upon other conditions, the method of
exercise, method of settlement, form of consideration payable in settlement, method by or forms in
which Shares will be delivered or deemed to be delivered to Participants, whether or not a Stock
Appreciation Right shall be in tandem or in combination with any other Award, and any other terms
and conditions of any Stock Appreciation Right.

               (iii) Tandem Stock Appreciation Rights. Any Tandem Stock Appreciation Right may be granted at
the same time as the related Option is granted or, for Options that are not Incentive Stock
Options, at any time thereafter before exercise or expiration of such Option. Any Tandem Stock
Appreciation Right related to an Option may be exercised only when the related Option would be
exercisable and the Fair Market Value of the Shares subject to the related Option exceeds the
exercise price at which Shares can be acquired pursuant to the Option. In addition, if a Tandem
Stock Appreciation Right exists with respect to less than the full number of Shares covered by a
related Option, then an exercise or termination of such

10

 

Option shall not reduce the number of Shares to which the Tandem Stock Appreciation Right
applies until the number of Shares then exercisable under such Option equals the number of Shares
to which the Tandem Stock Appreciation Right applies. Any Option related to a Tandem Stock
Appreciation Right shall no longer be exercisable to the extent the Tandem Stock Appreciation Right
has been exercised, and any Tandem Stock Appreciation Right shall no longer be exercisable to the
extent the related Option has been exercised.

          (d) Restricted Stock Awards. The Committee is authorized to grant Restricted Stock Awards to
any Eligible Person on the following terms and conditions:

               (i) Grant and Restrictions. Restricted Stock Awards shall be subject to such restrictions on
transferability, risk of forfeiture and other restrictions, if any, as the Committee may impose, or
as otherwise provided in this Plan, covering a period of time specified by the Committee (the
“Restriction Period”). The terms of any Restricted Stock Award granted under the Plan shall be set
forth in a written Award Agreement which shall contain provisions determined by the Committee and
not inconsistent with the Plan. The restrictions may lapse separately or in combination at such
times, under such circumstances (including based on achievement of performance goals and/or future
service requirements), in such installments or otherwise, as the Committee may determine at the
date of grant or thereafter. Except to the extent restricted under the terms of the Plan and any
Award Agreement relating to a Restricted Stock Award, a Participant granted Restricted Stock shall
have all of the rights of a shareholder, including the right to vote the Restricted Stock and the
right to receive dividends thereon (subject to any mandatory reinvestment or other requirement
imposed by the Committee). During the Restriction Period, subject to Section 10(b) below, the
Restricted Stock may not be sold, transferred, pledged, hypothecated, margined or otherwise
encumbered by the Participant.

               (ii) Forfeiture. Except as otherwise determined by the Committee, upon termination of a
Participant’s Continuous Service during the applicable Restriction Period, the Participant’s
Restricted Stock that is at that time subject to a risk of forfeiture that has not lapsed or
otherwise been satisfied shall be forfeited and reacquired by the Company; provided that the
Committee may provide, by rule or regulation or in any Award Agreement, or may determine in any
individual case, that forfeiture conditions relating to Restricted Stock Awards shall be waived in
whole or in part in the event of terminations resulting from specified causes.

               (iii) Certificates for Stock. Restricted Stock granted under the Plan may be evidenced in
such manner as the Committee shall determine. If certificates representing Restricted Stock are
registered in the name of the Participant, the Committee may require that such certificates bear an
appropriate legend referring to the terms, conditions and restrictions applicable to such
Restricted Stock, that the Company retain physical possession of the certificates, and that the
Participant deliver a stock power to the Company, endorsed in blank, relating to the Restricted
Stock.

               (iv) Dividends and Splits. As a condition to the grant of a Restricted Stock Award, the
Committee may require or permit a Participant to elect that any cash dividends paid on a Share of
Restricted Stock be automatically reinvested in additional Shares of Restricted Stock or applied to
the purchase of additional Awards under the Plan. Unless otherwise determined by the Committee,
Shares distributed in connection with a stock split or stock

11

 

dividend, and other property distributed as a dividend, shall be subject to restrictions and a
risk of forfeiture to the same extent as the Restricted Stock with respect to which such Shares or
other property have been distributed.

               (v) Minimum Vesting Period. Except for certain limited situations (including termination of
employment, a Change in Control referred to in Section 9, grants to new hires to replace forfeited
compensation, grants representing payment of earned Performance Awards or other incentive
compensation, or grants to Directors), Restricted Stock Awards subject solely to future service
requirements shall have a Restriction Period of not less than three years from date of grant (but
permitting pro-rata vesting over such time).

          (e) Deferred Stock Award. The Committee is authorized to grant Deferred Stock Awards to any
Eligible Person on the following terms and conditions:

               (i) Award and Restrictions. Satisfaction of a Deferred Stock Award shall occur upon
expiration of the deferral period specified for such Deferred Stock Award by the Committee (or, if
permitted by the Committee, as elected by the Participant). In addition, a Deferred Stock Award
shall be subject to such restrictions (which may include a risk of forfeiture) as the Committee may
impose, if any, which restrictions may lapse at the expiration of the deferral period or at earlier
specified times (including based on achievement of performance goals and/or future service
requirements), separately or in combination, in installments or otherwise, as the Committee may
determine. A Deferred Stock Award may be satisfied by delivery of Shares, cash equal to the Fair
Market Value of the specified number of Shares covered by the Deferred Stock, or a combination
thereof, as determined by the Committee at the date of grant or thereafter. Prior to satisfaction
of a Deferred Stock Award, a Deferred Stock Award carries no voting or dividend or other rights
associated with Share ownership.

               (ii) Forfeiture. Except as otherwise determined by the Committee, upon termination of a
Participant’s Continuous Service during the applicable deferral period or portion thereof to which
forfeiture conditions apply (as provided in the Award Agreement evidencing the Deferred Stock
Award), the Participant’s Deferred Stock Award that is at that time subject to a risk of forfeiture
that has not lapsed or otherwise been satisfied shall be forfeited; provided that the Committee may
provide, by rule or regulation or in any Award Agreement, or may determine in any individual case,
that forfeiture conditions relating to a Deferred Stock Award shall be waived in whole or in part
in the event of terminations resulting from specified causes, and the Committee may in other cases
waive in whole or in part the forfeiture of any Deferred Stock Award.

               (iii) Dividend Equivalents. Unless otherwise determined by the Committee at date of grant,
any Dividend Equivalents that are granted with respect to any Deferred Stock Award shall be either
(A) paid with respect to such Deferred Stock Award at the dividend payment date in cash or in
Shares of unrestricted stock having a Fair Market Value equal to the amount of such dividends, or
(B) deferred with respect to such Deferred Stock Award and the amount or value thereof
automatically deemed reinvested in additional Deferred Stock, other Awards or other investment
vehicles, as the Committee shall determine or permit the Participant to elect.

12

 

          (f) Bonus Stock and Awards in Lieu of Obligations. The Committee is authorized to grant
Shares to any Eligible Persons as a bonus, or to grant Shares or other Awards in lieu of
obligations to pay cash or deliver other property under the Plan or under other plans or
compensatory arrangements, provided that, in the case of Eligible Persons subject to Section 16 of
the Exchange Act, the amount of such grants remains within the discretion of the Committee to the
extent necessary to ensure that acquisitions of Shares or other Awards are exempt from liability
under Section 16(b) of the Exchange Act. Shares or Awards granted hereunder shall be subject to
such other terms as shall be determined by the Committee.

          (g) Dividend Equivalents. The Committee is authorized to grant Dividend Equivalents to any
Eligible Person entitling the Eligible Person to receive cash, Shares, other Awards, or other
property equal in value to the regular dividends paid with respect to a specified number of Shares,
or other periodic payments. Dividend Equivalents may be awarded on a free-standing basis or in
connection with another Award. The Committee may provide that Dividend Equivalents shall be paid
or distributed when accrued or shall be deemed to have been reinvested in additional Shares,
Awards, or other investment vehicles, and subject to such restrictions on transferability and risks
of forfeiture, as the Committee may specify.

          (h) Performance Awards. The Committee is authorized to grant Performance Awards to any
Eligible Person payable in cash, Shares, or other Awards, on terms and conditions established by
the Committee, subject to the provisions of Section 8 if and to the extent that the Committee
shall, in its sole discretion, determine that an Award shall be subject to those provisions. The
performance criteria to be achieved during any Performance Period and the length of the Performance
Period shall be determined by the Committee upon the grant of each Performance Award; provided,
however, that a Performance Period shall not be shorter than 12 months nor longer than five years.
Except as provided in Section 9 or as may be provided in an Award Agreement, Performance Awards
will be distributed only after the end of the relevant Performance Period. The performance goals
to be achieved for each Performance Period shall be conclusively determined by the Committee and
may be based upon the criteria set forth in Section 8(b), or in the case of an Award that the
Committee determines shall not be subject to Section 8 hereof, any other criteria that the
Committee, in its sole discretion, shall determine should be used for that purpose. The amount of
the Award to be distributed shall be conclusively determined by the Committee. Performance Awards
may be paid in a lump sum or in installments following the close of the Performance Period or, in
accordance with procedures established by the Committee, on a deferred basis.

          (i) Other Stock-Based Awards. The Committee is authorized, subject to limitations under
applicable law, to grant to any Eligible Person such other Awards that may be denominated or
payable in, valued in whole or in part by reference to, or otherwise based on, or related to,
Shares, as deemed by the Committee to be consistent with the purposes of the Plan. Other
Stock-Based Awards may be granted to Participants either alone or in addition to other Awards
granted under the Plan, and such Other Stock-Based Awards shall also be available as a form of
payment in the settlement of other Awards granted under the Plan. The Committee shall determine
the terms and conditions of such Awards. Shares delivered pursuant to an Award in the nature of a
purchase right granted under this Section 6(i) shall be purchased for such consideration,
(including without limitation loans from the Company or a Related Entity provided that such loans
are not in violation of the Sarbanes Oxley Act of 2002, or any rule or

13

 

regulation adopted thereunder or any other applicable law) paid for at such times, by such
methods, and in such forms, including, without limitation, cash, Shares, other Awards or other
property, as the Committee shall determine.

     7. Certain Provisions Applicable to Awards.

          (a) Stand-Alone, Additional, Tandem, and Substitute Awards. Awards granted under the Plan
may, in the discretion of the Committee, be granted either alone or in addition to, in tandem with,
or in substitution or exchange for, any other Award or any award granted under another plan of the
Company, any Related Entity, or any business entity to be acquired by the Company or a Related
Entity, or any other right of a Participant to receive payment from the Company or any Related
Entity. Such additional, tandem, and substitute or exchange Awards may be granted at any time. If
an Award is granted in substitution or exchange for another Award or award, the Committee shall
require the surrender of such other Award or award in consideration for the grant of the new Award.
In addition, Awards may be granted in lieu of cash compensation, including in lieu of cash amounts
payable under other plans of the Company or any Related Entity, in which the value of Stock subject
to the Award is equivalent in value to the cash compensation (for example, Deferred Stock or
Restricted Stock), or in which the exercise price, grant price or purchase price of the Award in
the nature of a right that may be exercised is equal to the Fair Market Value of the underlying
Stock minus the value of the cash compensation surrendered (for example, Options or Stock
Appreciation Right granted with an exercise price or grant price “discounted” by the amount of the
cash compensation surrendered).

          (b) Term of Awards. The term of each Award shall be for such period as may be determined by
the Committee; provided that in no event shall the term of any Option or Stock Appreciation Right
exceed a period of ten years (or in the case of an Incentive Stock Option such shorter term as may
be required under Section 422 of the Code).

          (c) Form and Timing of Payment Under Awards; Deferrals. Subject to the terms of the Plan and
any applicable Award Agreement, payments to be made by the Company or a Related Entity upon the
exercise of an Option or other Award or settlement of an Award may be made in such forms as the
Committee shall determine, including, without limitation, cash, Shares, other Awards or other
property, and may be made in a single payment or transfer, in installments, or on a deferred basis.
Any installment or deferral provided for in the preceding sentence shall, however, be subject to
the Company’s compliance with the provisions of the Sarbanes-Oxley Act of 2002, the rules and
regulations adopted by the Securities and Exchange Commission thereunder, and all applicable rules
of the NASDAQ Global Market or any national securities exchange on which the Company’s securities
are listed or quoted for trading and, if not listed or quoted for trading on either the NASDAQ
Global Market or a national securities exchange, then the rules of the Nasdaq National Market. The
settlement of any Award may be accelerated, and cash paid in lieu of Shares in connection with such
settlement, in the discretion of the Committee or upon occurrence of one or more specified events
(in addition to a Change in Control). Installment or deferred payments may be required by the
Committee (subject to Section 10(e) of the Plan, including the consent provisions thereof in the
case of any deferral of an outstanding Award not provided for in the original Award Agreement) or
permitted at the election of the Participant on terms and conditions established by the Committee.
The

14

 

Committee may, without limitation, make provision for the payment or crediting of a reasonable
interest rate on installment or deferred payments or the grant or crediting of Dividend Equivalents
or other amounts in respect of installment or deferred payments denominated in Shares.

          (d) Exemptions from Section 16(b) Liability. : It is the intent of the Company that the grant
of any Awards to or other transaction by a Participant who is subject to Section 16 of the Exchange
Act shall be exempt from Section 16 pursuant to an applicable exemption (except for transactions
acknowledged in writing to be non-exempt by such Participant). Accordingly, if any provision of
this Plan or any Award Agreement does not comply with the requirements of Rule 16b-3 then
applicable to any such transaction, such provision shall be construed or deemed amended to the
extent necessary to conform to the applicable requirements of Rule 16b-3 so that such Participant
shall avoid liability under Section 16(b).

          (e) Code Section 409A.  

               (i) If any Award constitutes a “nonqualified deferred compensation plan” under Section 409A of
the Code (a “Section 409A Plan”), then the Award shall be subject to the following additional
requirements, if and to the extent required to comply with Section 409A of the Code:

                    (A) Payments under the Section 409A Plan may not be made earlier than (u) the Participant’s
separation from service, (v) the date the Participant becomes disabled, (w) the Participant’s
death, (x) a specified time (or pursuant to a fixed schedule) specified in the Award Agreement at
the date of the deferral of such compensation, (y) a change in the ownership or effective control
of the corporation, or in the ownership of a substantial portion of the assets of the corporation,
or (z) the occurrence of an unforeseeble emergency;

                    (B) The time or schedule for any payment of the deferred compensation may not be accelerated,
except to the extent provided in applicable Treasury Regulations or other applicable guidance
issued by the Internal Revenue Service;

                    (C) Any elections with respect to the deferral of such compensation or the time and form of
distribution of such deferred compensation shall comply with the requirements of Section 409A(a)(4)
of the Code; and

                    (D) In the case of any Participant who is specified employee, a distribution on account of a
separation from service may not be made before the date which is six months after the date of the
Participant’s separation from service (or, if earlier, the date of the Participant’s death).

For purposes of the foregoing, the terms “separation from service”, “disabled”, and “specified
employee”, all shall be defined in the same manner as those terms are defined for purposes of
Section 409A of the Code, and the limitations set forth herein shall be applied in such manner (and
only to the extent) as shall be necessary to comply with any requirements of Section 409A of the
Code that are applicable to the Award.

15

 

               (ii) The Award Agreement for any Award that the Committee reasonably determines to constitute
a Section 409A Plan, and the provisions of the Plan applicable to that Award, shall be construed in
a manner consistent with the applicable requirements of Section 409A, and the Committee, in its
sole discretion and without the consent of any Participant, may amend any Award Agreement (and the
provisions of the Plan applicable thereto) if and to the extent that the Committee determines that
such amendment is necessary or appropriate to comply with the requirements of Section 409A of the
Code.

     8. Code Section 162(m) Provisions.

          Covered Employees. The Committee, in its discretion, may determine at the time an Award is
granted to an Eligible Person who is, or is likely to be, as of the end of the tax year in which
the Company would claim a tax deduction in connection with such Award, a Covered Employee, that the
provisions of this Section 8 shall be applicable to such Award.

          (a) Performance Criteria. If an Award is subject to this Section 8, then the lapsing of
restrictions thereon and the distribution of cash, Shares or other property pursuant thereto, as
applicable, shall be contingent upon achievement of one or more objective performance goals.
Performance goals shall be objective and shall otherwise meet the requirements of Section 162(m) of
the Code and regulations thereunder including the requirement that the level or levels of
performance targeted by the Committee result in the achievement of performance goals being
“substantially uncertain.” One or more of the following business criteria for the Company, on a
consolidated basis, and/or for Related Entities, or for business or geographical units of the
Company and/or a Related Entity (except with respect to the total shareholder return and earnings
per share criteria), shall be used by the Committee in establishing performance goals for such
Awards: (1) earnings per share; (2) revenues or margins; (3) cash flow; (4) operating margin;
(5) return on net assets, investment, capital, or equity; (6) economic value added; (7) direct
contribution; (8) net income; pretax earnings; earnings before interest and taxes; earnings before
interest, taxes, depreciation and amortization; earnings after interest expense and before
extraordinary or special items; operating income; income before interest income or expense, unusual
items and income taxes, local, state or federal and excluding budgeted and actual bonuses which
might be paid under any ongoing bonus plans of the Company; (9) working capital; (10) management of
fixed costs or variable costs; (11) identification or consummation of investment opportunities or
completion of specified projects in accordance with corporate business plans, including strategic
mergers, acquisitions or divestitures; (12) total shareholder return; (13) debt reduction; (14)
market share; (15) entry into new markets, either geographically or by business unit; (16) customer
retention and satisfaction; (17) strategic plan development and implementation, including
turnaround plans; and/or (18) the Fair Market Value of a Share. Any of the above goals may be
determined on an absolute or relative basis or as compared to the performance of a published or
special index deemed applicable by the Committee including, but not limited to, the Standard &
Poor’s 500 Stock Index or a group of companies that are comparable to the Company. The Committee
shall exclude the impact of an event or occurrence which the Committee determines should
appropriately be excluded, including without limitation (i) restructurings, discontinued
operations, extraordinary items, and other unusual or non-recurring charges, (ii) an event either
not directly related to the operations of the Company or not within the reasonable control of the

16

 

Company’s management, or (iii) a change in accounting standards required by generally accepted
accounting principles.

          (b) Performance Period; Timing For Establishing Performance Goals. Achievement of performance
goals in respect of Performance Awards shall be measured over a Performance Period no shorter than
12 months and no longer than five years, as specified by the Committee. Performance goals shall be
established not later than 90 days after the beginning of any Performance Period applicable to such
Performance Awards, or at such other date as may be required or permitted for “performance-based
compensation” under Code Section 162(m).

          (c) Adjustments. The Committee may, in its discretion, reduce the amount of a settlement
otherwise to be made in connection with Awards subject to this Section 8, but may not exercise
discretion to increase any such amount payable to a Covered Employee in respect of an Award subject
to this Section 8. The Committee shall specify the circumstances in which such Awards shall be
paid or forfeited in the event of termination of Continuous Service by the Participant prior to the
end of a Performance Period or settlement of Awards.

          (d) Committee Certification. No Participant shall receive any payment under the Plan that is
subject to this Section 8 unless the Committee has certified, by resolution or other appropriate
action in writing, that the performance criteria and any other material terms previously
established by the Committee or set forth in the Plan, have been satisfied to the extent necessary
to qualify as “performance based compensation” under Code Section 162(m).

     9. Change in Control.

          (a) Effect of “Change in Control.” Subject to Section 9(a)(iv), and if and only to the extent
provided in the Award Agreement, or to the extent otherwise determined by the Committee, upon the
occurrence of a “Change in Control,” as defined in Section 9(b):

               (i) Any Option or Stock Appreciation Right that was not previously vested and exercisable as
of the time of the Change in Control, shall become immediately vested and exercisable, subject to
applicable restrictions set forth in Section 10(a) hereof.

               (ii) Any restrictions, deferral of settlement, and forfeiture conditions applicable to a
Restricted Stock Award, Deferred Stock Award or an Other Stock-Based Award subject only to future
service requirements granted under the Plan shall lapse and such Awards shall be deemed fully
vested as of the time of the Change in Control, except to the extent of any waiver by the
Participant and subject to applicable restrictions set forth in Section 10(a) hereof.

               (iii) With respect to any outstanding Award subject to achievement of performance goals and
conditions under the Plan, the Committee may, in its discretion, deem such performance goals and
conditions as having been met as of the date of the Change in Control.

               (iv) Notwithstanding the foregoing or any provision in any Award Agreement to the contrary, if
in the event of a Change in Control the successor company assumes or substitutes for an Option,
Stock Appreciation Right, Restricted Stock Award, Deferred Stock Award or Other Stock-Based Award,
then each such outstanding Option, Stock

17

 

Appreciation Right, Restricted Stock Award, Deferred Stock Award or Other Stock-Based Award
shall not be accelerated as described in Sections 9(a)(i), (ii) and (iii). For the purposes of
this Section 9(a)(iv), an Option, Stock Appreciation Right, Restricted Stock Award, Deferred Stock
Award or Other Stock-Based Award shall be considered assumed or substituted for if following the
Change in Control the Award confers the right to purchase or receive, for each Share subject to the
Option, Stock Appreciation Right, Restricted Stock Award, Deferred Stock Award or Other Stock-Based
Award immediately prior to the Change in Control, the consideration (whether stock, cash or other
securities or property) received in the transaction constituting a Change in Control by holders of
Shares for each Share held on the effective date of such transaction (and if holders were offered a
choice of consideration, the type of consideration chosen by the holders of a majority of the
outstanding shares); provided, however, that if such consideration received in the transaction
constituting a Change in Control is not solely common stock of the successor company or its parent
or subsidiary, the Committee may, with the consent of the successor company or its parent or
subsidiary, provide that the consideration to be received upon the exercise or vesting of an
Option, Stock Appreciation Right, Restricted Stock Award, Deferred Stock Award or Other Stock-Based
Award, for each Share subject thereto, will be solely common stock of the successor company or its
parent or subsidiary substantially equal in fair market value to the per share consideration
received by holders of Shares in the transaction constituting a Change in Control. The
determination of such substantial equality of value of consideration shall be made by the Committee
in its sole discretion and its determination shall be conclusive and binding.

          (b) Definition of “Change in Control". Unless otherwise specified in an Award Agreement, a
“Change in Control” shall mean the occurrence of any of the following:

               (i) The acquisition by any Person of Beneficial Ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of more than fifty percent (50%) of either (A) the then
outstanding shares of common stock of the Company (the “Outstanding Company Common Stock”) or (B)
the combined voting power of the then outstanding voting securities of the Company entitled to vote
generally in the election of directors (the “Outstanding Company Voting Securities) (the foregoing
Beneficial Ownership hereinafter being referred to as a “Controlling Interest”); provided, however,
that for purposes of this Section 9(b), the following acquisitions shall not constitute or result
in a Change in Control: (v) any acquisition directly from the Company; (w) any acquisition by the
Company; (x) any acquisition by any Person that as of the Effective Date owns Beneficial Ownership
of a Controlling Interest; (y) any acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any Related Entity; or (z) any acquisition by any entity
pursuant to a transaction which complies with clauses (A), (B) and (C) of subsection (iii) below;
or

               (ii) During any period of two (2) consecutive years (not including any period prior to the
Effective Date) individuals who constitute the Board on the Effective Date (the “Incumbent Board”)
cease for any reason to constitute at least a majority of the Board; provided, however, that any
individual becoming a director subsequent to the Effective Date whose election, or nomination for
election by the Company’s shareholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as though such individual were a
member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial
assumption of office occurs as a result of an

18

 

actual or threatened election contest with respect to the election or removal of directors or
other actual or threatened solicitation of proxies or consents by or on behalf of a Person other
than the Board; or

               (iii) Consummation of a reorganization, merger, statutory share exchange or consolidation or
similar transaction involving the Company or any of its Related Entities, a sale or other
disposition of all or substantially all of the assets of the Company, or the acquisition of assets
or equity of another entity by the Company or any of its Related Entities (each a “Business
Combination”), in each case, unless, following such Business Combination, (A) all or substantially
all of the individuals and entities who were the Beneficial Owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to
such Business Combination beneficially own, directly or indirectly, more than fifty percent (50%)
of the value of the then outstanding equity securities and the combined voting power of the then
outstanding voting securities entitled to vote generally in the election of members of the board of
directors (or comparable governing body of an entity that does not have such a board), as the case
may be, of the entity resulting from such Business Combination (including, without limitation, an
entity which as a result of such transaction owns the Company or all or substantially all of the
Company’s assets either directly or through one or more subsidiaries) in substantially the same
proportions as their ownership, immediately prior to such Business Combination of the Outstanding
Company Common Stock and Outstanding Company Voting Securities, as the case may be, (B) no Person
(excluding any employee benefit plan (or related trust) of the Company or such entity resulting
from such Business Combination or any Person that as of the Effective Date owns Beneficial
Ownership of a Controlling Interest) beneficially owns, directly or indirectly, fifty percent (50%)
or more of the value of the then outstanding equity securities of the entity resulting from such
Business Combination or the combined voting power of the then outstanding voting securities of such
entity except to the extent that such ownership existed prior to the Business Combination and (C)
at least a majority of the members of the Board of Directors or other governing body of the entity
resulting from such Business Combination were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the Board, providing for such Business
Combination; or

               (iv) Approval by the shareholders of the Company of a complete liquidation or dissolution of
the Company.

     10. General Provisions.

          (a) Compliance With Legal and Other Requirements. The Company may, to the extent deemed
necessary or advisable by the Committee, postpone the issuance or delivery of Shares or payment of
other benefits under any Award until completion of such registration or qualification of such
Shares or other required action under any federal or state law, rule or regulation, listing or
other required action with respect to any stock exchange or automated quotation system upon which
the Shares or other Company securities are listed or quoted, or compliance with any other
obligation of the Company, as the Committee, may consider appropriate, and may require any
Participant to make such representations, furnish such information and comply with or be subject to
such other conditions as it may consider appropriate in connection with the issuance or delivery of
Shares or payment of other benefits in

19

 

compliance with applicable laws, rules, and regulations, listing requirements, or other
obligations.

          (b) Limits on Transferability; Beneficiaries. No Award or other right or interest granted
under the Plan shall be pledged, hypothecated or otherwise encumbered or subject to any lien,
obligation or liability of such Participant to any party, or assigned or transferred by such
Participant otherwise than by will or the laws of descent and distribution or to a Beneficiary upon
the death of a Participant, and such Awards or rights that may be exercisable shall be exercised
during the lifetime of the Participant only by the Participant or his or her guardian or legal
representative, except that Awards and other rights (other than Incentive Stock Options and Stock
Appreciation Rights in tandem therewith) may be transferred to one or more Beneficiaries or other
transferees during the lifetime of the Participant, and may be exercised by such transferees in
accordance with the terms of such Award, but only if and to the extent such transfers are permitted
by the Committee pursuant to the express terms of an Award Agreement (subject to any terms and
conditions which the Committee may impose thereon). A Beneficiary, transferee, or other person
claiming any rights under the Plan from or through any Participant shall be subject to all terms
and conditions of the Plan and any Award Agreement applicable to such Participant, except as
otherwise determined by the Committee, and to any additional terms and conditions deemed necessary
or appropriate by the Committee.

          (c) Adjustments.

               (i) Adjustments to Awards. In the event that any extraordinary dividend or other distribution
(whether in the form of cash, Shares, or other property), recapitalization, forward or reverse
split, reorganization, merger, consolidation, spin-off, combination, repurchase, share exchange,
liquidation, dissolution or other similar corporate transaction or event affects the Shares and/or
such other securities of the Company or any other issuer such that a substitution, exchange, or
adjustment is determined by the Committee to be appropriate, then the Committee shall, in such
manner as it may deem equitable, substitute, exchange or adjust any or all of (A) the number and
kind of Shares which may be delivered in connection with Awards granted thereafter, (B) the number
and kind of Shares by which annual per-person Award limitations are measured under Section 5
hereof, (C) the number and kind of Shares subject to or deliverable in respect of outstanding
Awards, (D) the exercise price, grant price or purchase price relating to any Award and/or make
provision for payment of cash or other property in respect of any outstanding Award, and (E) any
other aspect of any Award that the Committee determines to be appropriate.

               (ii) Adjustments in Case of Certain Transactions. In the event of any merger, consolidation
or other reorganization in which the Company does not survive, or in the event of any Change in
Control, any outstanding Awards may be dealt with in accordance with any of the following
approaches, as determined by the agreement effectuating the transaction or, if and to the extent
not so determined, as determined by the Committee: (a) the continuation of the outstanding Awards
by the Company, if the Company is a surviving entity, (b) the assumption or substitution for, as
those terms are defined in Section 9(b)(iv) hereof, the outstanding Awards by the surviving entity
or its parent or subsidiary, (c) full exercisability or vesting and accelerated expiration of the
outstanding Awards, or (d) settlement of the value of the outstanding Awards in cash or cash
equivalents or other property followed by cancellation of

20

 

such Awards (which value, in the case of Options or Stock Appreciation Rights, shall be
measured by the amount, if any, by which the Fair Market Value of a Share exceeds the exercise or
grant price of the Option or Stock Appreciation Right as of the effective date of the transaction).
The Committee shall give written notice of any proposed transaction referred to in this Section
10(c)(ii) a reasonable period of time prior to the closing date for such transaction (which notice
may be given either before or after the approval of such transaction), in order that Participants
may have a reasonable period of time prior to the closing date of such transaction within which to
exercise any Awards that are then exercisable (including any Awards that may become exercisable
upon the closing date of such transaction). A Participant may condition his exercise of any Awards
upon the consummation of the transaction.

               (iii) Other Adjustments. The Committee (and the Board if and only to the extent such
authority is not required to be exercised by the Committee to comply with Section 162(m) of the
Code) is authorized to make adjustments in the terms and conditions of, and the criteria included
in, Awards (including Performance Awards, or performance goals relating thereto) in recognition of
unusual or nonrecurring events (including, without limitation, acquisitions and dispositions of
businesses and assets) affecting the Company, any Related Entity or any business unit, or the
financial statements of the Company or any Related Entity, or in response to changes in applicable
laws, regulations, accounting principles, tax rates and regulations or business conditions or in
view of the Committee’s assessment of the business strategy of the Company, any Related Entity or
business unit thereof, performance of comparable organizations, economic and business conditions,
personal performance of a Participant, and any other circumstances deemed relevant; provided that
no such adjustment shall be authorized or made if and to the extent that such authority or the
making of such adjustment would cause Options, Stock Appreciation Rights and Performance Awards
granted pursuant to Section 8(b) hereof to Participants designated by the Committee as Covered
Employees and intended to qualify as “performance-based compensation” under Code Section 162(m) and
the regulations thereunder to otherwise fail to qualify as “performance-based compensation” under
Code Section 162(m) and regulations thereunder.

          (d) Taxes. The Company and any Related Entity are authorized to withhold from any Award
granted, any payment relating to an Award under the Plan, including from a distribution of Shares,
or any payroll or other payment to a Participant, amounts of withholding and other taxes due or
potentially payable in connection with any transaction involving an Award, and to take such other
action as the Committee may deem advisable to enable the Company or any Related Entity and
Participants to satisfy obligations for the payment of withholding taxes and other tax obligations
relating to any Award. This authority shall include authority to withhold or receive Shares or
other property and to make cash payments in respect thereof in satisfaction of a Participant’s tax
obligations, either on a mandatory or elective basis in the discretion of the Committee.

          (e) Changes to the Plan and Awards. The Board may amend, alter, suspend, discontinue or
terminate the Plan, or the Committee’s authority to grant Awards under the Plan, without the
consent of shareholders or Participants, except that any amendment or alteration to the Plan shall
be subject to the approval of the Company’s shareholders not later than the annual meeting next
following such Board action if such shareholder approval is required by any federal or state law or
regulation (including, without limitation, Rule 16b-3 or Code Section 162(m)) or

21

 

the rules of any stock exchange or automated quotation system on which the Shares may then be
listed or quoted, and the Board may otherwise, in its discretion, determine to submit other such
changes to the Plan to shareholders for approval; provided that, without the consent of an affected
Participant, no such Board action may materially and adversely affect the rights of such
Participant under any previously granted and outstanding Award. The Committee may waive any
conditions or rights under, or amend, alter, suspend, discontinue or terminate any Award
theretofore granted and any Award Agreement relating thereto, except as otherwise provided in the
Plan; provided that, without the consent of an affected Participant, no such Committee or the Board
action may materially and adversely affect the rights of such Participant under such Award.

          (f) Limitation on Rights Conferred Under Plan. Neither the Plan nor any action taken
hereunder or under any Award shall be construed as (i) giving any Eligible Person or Participant
the right to continue as an Eligible Person or Participant or in the employ or service of the
Company or a Related Entity; (ii) interfering in any way with the right of the Company or a Related
Entity to terminate any Eligible Person’s or Participant’s Continuous Service at any time,
(iii) giving an Eligible Person or Participant any claim to be granted any Award under the Plan or
to be treated uniformly with other Participants and Employees, or (iv) conferring on a Participant
any of the rights of a shareholder of the Company including, without limitation, any right to
receive dividends or distributions, any right to vote or act by written consent, any right to
attend meetings of shareholders or any right to receive any information concerning the Company’s
business, financial condition, results of operation or prospects, unless and until such time as the
Participant is duly issued Shares on the stock books of the Company in accordance with the terms of
an Award. None of the Company, its officers or its directors shall have any fiduciary obligation
to the Participant with respect to any Awards unless and until the Participant is duly issued
Shares pursuant to the Award on the stock books of the Company in accordance with the terms of an
Award. Neither the Company nor any of the Company’s officers, directors, representatives or agents
are granting any rights under the Plan to the Participant whatsoever, oral or written, express or
implied, other than those rights expressly set forth in this Plan or the Award Agreement.

          (g) Unfunded Status of Awards; Creation of Trusts. The Plan is intended to constitute an
“unfunded” plan for incentive and deferred compensation. With respect to any payments not yet made
to a Participant or obligation to deliver Shares pursuant to an Award, nothing contained in the
Plan or any Award shall give any such Participant any rights that are greater than those of a
general creditor of the Company; provided that the Committee may authorize the creation of trusts
and deposit therein cash, Shares, other Awards or other property, or make other arrangements to
meet the Company’s obligations under the Plan. Such trusts or other arrangements shall be
consistent with the “unfunded” status of the Plan unless the Committee otherwise determines with
the consent of each affected Participant. The trustee of such trusts may be authorized to dispose
of trust assets and reinvest the proceeds in alternative investments, subject to such terms and
conditions as the Committee may specify and in accordance with applicable law.

          (h) Nonexclusivity of the Plan. Neither the adoption of the Plan by the Board nor its
submission to the shareholders of the Company for approval shall be construed as creating any
limitations on the power of the Board or a committee thereof to adopt such other incentive

22

 

arrangements as it may deem desirable including incentive arrangements and awards which do not
qualify under Section 162(m) of the Code.

          (i) Payments in the Event of Forfeitures; Fractional Shares. Unless otherwise determined by
the Committee, in the event of a forfeiture of an Award with respect to which a Participant paid
cash or other consideration, the Participant shall be repaid the amount of such cash or other
consideration. No fractional Shares shall be issued or delivered pursuant to the Plan or any
Award. The Committee shall determine whether cash, other Awards or other property shall be issued
or paid in lieu of such fractional shares or whether such fractional shares or any rights thereto
shall be forfeited or otherwise eliminated.

          (j) Governing Law. The validity, construction and effect of the Plan, any rules and
regulations under the Plan, and any Award Agreement shall be determined in accordance with the laws
of the State of Delaware without giving effect to principles of conflict of laws, and applicable
federal law.

          (k) Non-U.S. Laws. The Committee shall have the authority to adopt such modifications,
procedures, and subplans as may be necessary or desirable to comply with provisions of the laws of
foreign countries in which the Company or its Related Entities may operate to assure the viability
of the benefits from Awards granted to Participants performing services in such countries and to
meet the objectives of the Plan.

          (l) Plan Effective Date and Shareholder Approval; Termination of Plan. The Plan shall become
effective on the Effective Date, subject to subsequent approval, within 12 months of its adoption
by the Board, by shareholders of the Company eligible to vote in the election of directors, by a
vote sufficient to meet the requirements of Code Sections 162(m) (if applicable) and 422, Rule
16b-3 under the Exchange Act (if applicable), applicable requirements under the rules of any stock
exchange or automated quotation system on which the Shares may be listed or quoted, and other laws,
regulations, and obligations of the Company applicable to the Plan. Awards may be granted subject
to shareholder approval, but may not be exercised or otherwise settled in the event the shareholder
approval is not obtained. The Plan shall terminate at the earliest of (a) such time as no Shares
remain available for issuance under the Plan, (b) termination of this Plan by the Board, or (c) the
tenth anniversary of the Effective Date. Awards outstanding upon expiration of the Plan shall
remain in effect until they have been exercised or terminated, or have expired.

23

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