FILED PURSUANT TO RULE 424(B)(5)
(FORM S-3 REGISTRATION STATEMENT NOS.
333-27551 and 333-58445)
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED FEBRUARY 18, 1999
$125,000,000
ARIZONA PUBLIC SERVICE COMPANY
5 7/8% NOTES DUE FEBRUARY 15, 2004
----------------
We will pay interest on the notes each February 15 and August 15. We will make
the first interest payment on August 15, 1999. We may redeem the notes
at any time, if we pay a "make-whole premium." There is no sinking
fund for the notes.
Underwriting
Price to Discounts and Proceeds
Public (1) Commissions to APS (1)
------------- ------------- --------------
Per Note .............. 99.951% .600% 99.351%
Total ................. $124,938,750 $ 750,000 $ 124,188,750
(1) Plus accrued interest from February 23, 1999.
Delivery of the notes in book-entry form only will be made through The
Depository Trust Company on or about February 23, 1999, against payment in
immediately available funds.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus supplement or the related prospectus is truthful or complete.
Any representation to the contrary is a criminal offense.
CREDIT SUISSE FIRST BOSTON
PAINEWEBBER INCORPORATED
SALOMON SMITH BARNEY
Prospectus Supplement dated February 18, 1999.
<PAGE>
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT PAGE PAGE
APPLICATION OF PROCEEDS ......... S-3 THE COMPANY ..................... 4
TERMS OF THE NOTES .............. S-3 APPLICATION OF PROCEEDS ......... 4
UNDERWRITING .................... S-5 EARNINGS RATIOS ................. 4
SECURITIES ...................... 4
PROSPECTUS DESCRIPTION OF NEW BONDS ........ 4
DESCRIPTION OF SENIOR NOTES ..... 9
AVAILABLE INFORMATION ........... 2 DESCRIPTION OF DEBT SECURITIES .. 18
INCORPORATION OF CERTAIN PLAN OF DISTRIBUTION ............ 26
DOCUMENTS BY REFERENCE ......... 2 EXPERTS ......................... 27
SELECTED INFORMATION ............ 3 LEGAL OPINIONS .................. 27
----------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS
SUPPLEMENT OR TO WHICH WE HAVE REFERRED YOU IN THE ACCOMPANYING PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT.
THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL TO SELL THESE SECURITIES. THE
INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE ON THE DATE OF THIS DOCUMENT.
S-2
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APPLICATION OF PROCEEDS
We will use the net proceeds from the sale of the notes:
* to redeem on March 1, 1999 about $95 million of our preferred stock
* to pay at maturity on April 1, 1999 $50 million of our 6.72% Senior Notes
Due 1999.
Until we are able to use the proceeds for these purposes, we will invest
the proceeds temporarily in United States Government or agency obligations,
commercial paper, bank certificates of deposit, or repurchase agreements
collateralized by United States government or agency obligations, or deposit the
proceeds with banks. We will obtain the remaining amount necessary to pay our
senior notes from cash from operations or short-term borrowings.
TERMS OF THE NOTES
WE WILL ISSUE THE NOTES AS A SEPARATE SERIES OF DEBT SECURITIES UNDER THE
INDENTURE DATED AS OF JANUARY 15, 1998, BETWEEN US AND THE CHASE MANHATTAN BANK,
AS TRUSTEE. BECAUSE THIS IS A SUMMARY, IT DOES NOT CONTAIN ALL THE INFORMATION
THAT MAY BE IMPORTANT TO YOU. THE FOLLOWING DESCRIPTION OF SPECIFIC TERMS OF THE
NOTES SUPPLEMENTS THE DESCRIPTION OF THE GENERAL TERMS AND PROVISIONS OF THE
DEBT SECURITIES IN THE PROSPECTUS UNDER "DESCRIPTION OF DEBT SECURITIES."
GENERAL
The specific financial and legal terms of the notes are set forth below:
* TITLE: 5 7/8% Notes Due 2004
* TOTAL PRINCIPAL AMOUNT BEING ISSUED: $125,000,000
* DUE DATE FOR PRINCIPAL: February 15, 2004
* INTEREST RATE: 5 7/8%
* DATE INTEREST STARTS ACCRUING: February 23, 1999
* INTEREST DUE DATES: February 15 and August 15
* FIRST INTEREST DUE DATE: August 15, 1999
* REGULAR RECORD DATES FOR INTEREST: February 1 for February 15
interest; August 1 for August 15 interest
* COMPUTATION OF INTEREST: on the basis of a 360-day year of 12 30-day
months
* FORM OF NOTES: A Global Security will initially represent the notes.
We will deposit the Global Security with or on behalf of The
Depository Trust Company. See "Description of Debt Securities --
Global Securities" in the prospectus. We may allow exchange of the
Global Security for registered notes and transfer of the Global
Security to a person other than DTC in additional circumstances that
we agree to other than those described under that heading.
* SINKING FUND: The notes will not be subject to any sinking fund.
The notes will constitute a series of our unsecured senior Debt
Securities. Therefore, the notes will not have the benefit of the collateral
that secures our First Mortgage Bonds and our Senior
Notes. The prospectus that accompanies this prospectus supplement describes
these different classes of securities under "Description of Debt Securities,"
"Description of New Bonds" and "Description of Senior Notes."
REDEMPTION
We may redeem all or part of the notes at any time at our option at a
redemption price equal to the sum of (1) the principal amount of the notes being
redeemed plus accrued interest to the redemption date and (2) the Make-Whole
Amount for the notes being redeemed.
S-3
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As used herein:
"MAKE-WHOLE AMOUNT" means the excess, if any, of (1) the sum, as
determined by a Quotation Agent, of the present values of the principal
amount of the notes to be redeemed, together with scheduled payments of
interest (exclusive of interest to the redemption date) from the redemption
date to the maturity date of the notes, in each case discounted to the
redemption date on a semi-annual basis, assuming a 360-day year consisting of
twelve 30-day months, at the Adjusted Treasury Rate over (2) 100% of the
principal amount of the notes to be redeemed.
"ADJUSTED TREASURY RATE" means, with respect to any redemption date, the
rate per year equal to the semi-annual equivalent yield to maturity of the
Comparable Treasury Issue,
calculated using a price for the Comparable Treasury Issue (expressed as a
percentage of its
principal amount) equal to the Comparable Treasury Price for such
redemption date, calculated on the third business day preceding the
redemption date, plus in each case 0.125%.
"COMPARABLE TREASURY ISSUE" means the United States Treasury security
selected by the Quotation Agent as having a maturity comparable to the
remaining term from the redemption date to the maturity date of the notes
that would be utilized, at the time of selection and in accordance with
customary financial practice, in pricing new issues of corporate debt
securities of comparable maturity to the remaining term of the notes.
"QUOTATION AGENT" means the Reference Treasury Dealer selected by the
trustee after consultation with us. "Reference Treasury Dealer" means a
primary U.S. Government securities dealer selected by us.
"COMPARABLE TREASURY PRICE" means, with respect to any redemption date,
(1) the average of the bid and asked prices for the Comparable Treasury
Issue (expressed in each case as a percentage of its principal amount) on
the third business day preceding such redemption date, as set forth in the
daily statistical release (or any successor release) published by the
Federal Reserve Bank of New York and designated "Composite 3:30 p.m.
Quotations for U.S. Government
Securities" or (2) if such release (or any successor release) is not
published or does not contain such prices on such business day, the average
of three, or such lesser number as is obtained by the trustee, Reference
Treasury Dealer Quotations for such redemption date.
"REFERENCE TREASURY DEALER QUOTATIONS" means, with respect to each
Reference Treasury Dealer and any redemption date, the average, as
determined by the trustee, of the bid and asked prices for the Comparable
Treasury Issue, expressed in each case as a percentage of its principal
amount, quoted in writing to the trustee by such Reference Treasury Dealer
at 5:00 p.m., New York City time, on the third business day preceding such
redemption date.
If we elect to redeem all or any part of the notes, we will give notice
of redemption to holders of the notes. We will give notice of a redemption at
least 30 days before the redemption date. However, we will not know the exact
redemption price until 3 business days before the redemption date. Therefore,
the notice of redemption will only describe how the redemption price will be
calculated. On the redemption date, if we have paid the full redemption price
to the trustee, notes called for redemption will cease to bear interest and
the holders of such notes will only have a right to receive payment of the
redemption price.
DEFEASANCE
The provisions described in the prospectus under the caption "Description
of Debt Securities -- Defeasance and Covenant Defeasance" are applicable to the
notes.
S-4
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UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated February 18, 1999, we have agreed to sell to the underwriters
named below, for whom Credit Suisse First Boston Corporation is acting as
representative, the following respective principal amounts of the notes:
Underwriter Principal Amount
----------- ----------------
Credit Suisse First Boston Corporation .................... $ 41,666,668
PaineWebber Incorporated .................................. 41,666,666
Salomon Smith Barney Inc. ................................. 41,666,666
------------
Total ..................................................... $125,000,000
============
The underwriting agreement provides that the underwriters are obligated to
purchase all of the notes if any are purchased. The underwriting agreement
provides that if an underwriter defaults, the purchase commitments of
non-defaulting underwriters may be increased or the offering of notes may be
terminated.
The underwriters propose to offer the notes initially to the public at the
public offering price set forth on the cover page of this prospectus supplement
and to selling group members at that price less a concession of .350% of the
principal amount per note. The underwriters and selling group members may allow
a discount of .125% of such principal amount per note on sales to other
broker/dealers. After the initial public offering, the underwriters may change
the public offering price and concession and discount to broker/dealers.
The following table summarizes the compensation and estimated expenses we
will pay:
Per Note Total
-------- -----
Underwriting discounts and commissions
payable by APS ....................................... .600% $750,000
Expenses payable by APS ................................ .210% $260,000
The notes are a new issue of securities with no established trading
market. One or more of the underwriters intends to make a secondary market for
the notes. However, they are not obligated to do so and may discontinue making
a secondary market at any time without notice. No assurance can be given as to
how liquid the trading market for the notes will be.
We will indemnify the underwriters against certain liabilities, including
liabilities under the Securities Act of 1933, or contribute to payments which
the underwriters may be required to make in respect thereof.
The underwriters may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation
M under the Securities Exchange Act of 1934. Over-allotment involves syndicate
sales in excess of the offering size, which creates a syndicate short position.
Stabilizing transactions permit bids to purchase the underlying security so
long as the stabilizing bids do not exceed a specified maximum. Syndicate
covering transactions involve purchases of the notes in the open market after
the distribution has been completed in order to cover syndicate short
positions. Penalty bids permit the underwriters to reclaim a selling concession
from a syndicate member when the notes originally sold by such syndicate member
are purchased in a syndicate covering transaction to cover syndicate short
positions. Such stabilizing transactions, syndicate covering transactions and
penalty bids may cause the price of the notes to be higher than it would
otherwise be in the absence of such transactions. The underwriters may
discontinue these transactions, if commenced, at any time.
The underwriters and their affiliates engage in transactions with APS, our
affiliates and our parent or perform services for APS, our affiliates and our
parent in the ordinary course of business. Those transactions and services
include investment banking and commercial banking services, and serving as an
agent and/or lender on some of our credit agreements. The underwriters and their
affiliates received customary fees for these transactions and services.
S-5
<PAGE>
ARIZONA PUBLIC SERVICE COMPANY
FIRST MORTGAGE BONDS
SENIOR NOTES
DEBT SECURITIES
----------------
Arizona Public Service Company (the "Company") intends from time to time
to issue up to $400,000,000 aggregate principal amount of its first mortgage
bonds (the "New Bonds"), senior notes (the "Senior Notes"), or unsecured debt
securities ("Debt Securities") (collectively, the "Securities"), in one or more
series at prices and on terms to be determined at the time of sale.
Until the Release Date (see "Description of Senior Notes--Release Date"),
the Senior Notes will be secured by one or more series of New Bonds. As a
result, when the Company issues Senior Notes, the Company will issue a like
amount of New Bonds to the Senior Note Trustee (as defined herein) to secure
the newly-issued Senior Notes. See "Description of Senior Notes--Security". The
Company may also issue New Bonds directly to purchasers or through agents
designated from time to time by the Company (see "Description of New Bonds").
As of December 31, 1998 (i) the Senior Note Trustee held $150 million of first
mortgage bonds as collateral for $150 million of outstanding senior notes and
(ii) approximately $1.1 billion of additional first mortgage bonds (i.e., first
mortgage bonds that do not secure Senior Notes) were outstanding. Until the
Release Date, the Company's senior notes (including the Senior Notes issued
pursuant to this Prospectus) will effectively rank pari passu with the
Company's outstanding first mortgage bonds.
For each issue of Securities for which this Prospectus is being delivered
(the "Offered Bonds," the "Offered Senior Notes," or the "Offered Debt
Securities" and, collectively, the "Offered Securities"), there will be an
accompanying Prospectus Supplement (the "Prospectus Supplement") that sets
forth, without limitation and to the extent applicable, the specific
designation, aggregate principal amount, denomination, maturity, premium, if
any, rate of interest (which may be fixed or variable) or method of calculation
thereof, time of payment of interest, any terms for redemption, any sinking
fund provisions, any subordination provisions, the initial public offering
price, the names of any underwriters or agents, the principal amounts, if any,
to be purchased by the underwriters, the compensation of such underwriters or
agents, and any other special terms of the Offered Securities. The Prospectus
Supplement relating to any series of Offered Securities will also contain
information concerning certain United States federal income tax considerations,
if applicable to the Offered Securities.
The Company may sell Securities directly to purchasers or through agents
designated from time to time by the Company or to or through underwriters or a
group of underwriters which may be managed by one or more underwriters. If any
agents of the Company or any underwriters are involved in the sale of
Securities in respect of which this Prospectus is being delivered, the names of
such agents or underwriters and any applicable commission or discount will be
set forth in the applicable Prospectus Supplement. The net proceeds to the
Company from the sale of Securities will be the public offering price of such
Securities less such discount, in the case of an offering through an
underwriter, or the purchase price of such Securities less such commission, in
the case of an offering through an agent, and less, in each case, other
expenses of the Company associated with the issuance and distribution of such
Securities.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
----------------
The date of this Prospectus is February 18, 1999
<PAGE>
AVAILABLE INFORMATION
Arizona Public Service Company (the "Company") is subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "1934 Act"), and in accordance therewith files reports, proxy statements,
and other information with the Securities and Exchange Commission (the
"Commission"). Such reports, proxy statements, and other information can be
obtained at prescribed rates from the Public Reference Section of the
Commission or may be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549
and at certain of its regional offices located at 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661; and Seven World Trade Center, Suite 1300,
New York, New York 10048. In addition, such material may be accessed
electronically by means of the Commission's Web Site on the Internet at
http://www.sec.gov. Certain securities of the Company are listed on the New
York Stock Exchange. Reports, proxy materials, and other information concerning
the Company can be inspected at the office of this exchange at 20 Broad Street,
7th Floor, New York, New York 10005.
------------
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed with the Commission by the
Company (File No. 1-4473) are incorporated by reference in this Prospectus:
1. The Company's Form 10-K Report for the fiscal year ended December 31,
1997 (the "1997 10-K Report");
2. The Company's Form 10-Q Reports for the fiscal quarters ended March 31,
June 30 and September 30, 1998;
3. The Company's Form 8-K Reports dated January 13, May 19, August 5,
December 1 and December 9, 1998, and January 11, 1999 (the "January 8-K
Report").
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14,
or 15(d) of the 1934 Act after the filing date of the January 8-K Report and
prior to the termination of the offering of the securities offered hereby shall
be deemed to be incorporated by reference in this Prospectus and to be a part
hereof from the date of filing of such documents.
Any statement contained in a document incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Prospectus to
the extent that a statement contained herein or in any other subsequently filed
document which is also incorporated by reference herein modifies or supersedes
such statement. Any statement so modified or superseded shall not be deemed,
except as modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, upon the oral
or written request of such person, a copy of any or all of the documents
referred to above which have been or may be incorporated in this Prospectus by
reference, other than exhibits to such documents. Request for such copies
should be directed to Arizona Public Service Company, Office of the Secretary,
Station 9068, P.O. Box 53999, Phoenix, Arizona 85072-3999, (602) 250-3252.
2
<PAGE>
SELECTED INFORMATION
THE FOLLOWING MATERIAL IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
DETAILED INFORMATION AND FINANCIAL STATEMENTS INCORPORATED BY REFERENCE IN THIS
PROSPECTUS.
THE OFFERING
Securities Offered ............ Up to $400,000,000 of any combination of First
Mortgage Bonds, Senior Notes, and Debt
Securities.
Application of Proceeds ....... Except as otherwise described in the Prospectus
Supplement, the net proceeds of the Offered
Securities will be applied primarily to the
redemption, repurchase, repayment, or
retirement of outstanding indebtedness and
preferred stock, and temporary investment
pending such application.
THE COMPANY
Business ...................... Electric utility servicing approximately
799,000 customers in an area that includes the
entire state of Arizona with the exception of
Tucson and about one-half of the Phoenix area.
Generating Fuel Mix (estimated
for the twelve months ended
December 31, 1998) .......... Coal -- 36.2%; Nuclear -- 27.5%; Purchases --
32.3%; Gas and Other -- 4.0%.
FINANCIAL DATA (THOUSANDS OF DOLLARS):
Twelve Months Ended
------------------------------------
December 31,
------------------------------------
1998 1997 1996
---------- ---------- ----------
Electric Operating Revenues ......... $2,006,398 $1,878,553 $1,718,272
========== ========== ==========
Net Income .......................... $ 255,247 $ 251,493 $ 243,471
========== ========== ==========
Ratio of Earnings to Fixed Charges .. 3.19 3.07 2.84
CAPITALIZATION DATA (THOUSANDS OF DOLLARS):
As Adjusted(2)
As of ------------------------
December 31, 1998(1) Amount Percentage
-------------------- ---------- ----------
Total Debt (including current
maturities ...................... $2,219,748 $2,314,989 54.0%
Preferred Stock .................. 95,241 0 0.0
Common Stock Equity .............. 1,975,755 1,975,755 46.0
---------- ---------- -----
Total Capitalization ............. $4,290,744 $4,290,744 100.0%
========== ========== =====
- ------------
(1) Financial information as of and for the twelve months ended December 31,
1998 is unaudited but, in the judgment of the Company's management,
contains all necessary adjustments for a fair presentation of the
financial position of the Company on such date and the results of
operations for such period.
(2) For the redemption on March 1, 1999 of approximately $95 million of the
Company's cumulative preferred stock. It is assumed that the net proceeds
from the issuance of the Offered Securities will be used for the
refinancing of a similar amount of outstanding preferred stock and
long-term debt.
3
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THE COMPANY
The Company was incorporated in 1920 under the laws of Arizona and is
principally engaged in providing electricity in the State of Arizona. The
principal executive offices of the Company are located at 400 North Fifth
Street, Phoenix, Arizona 85004 and its telephone number is (602) 250-1000.
APPLICATION OF PROCEEDS
Except as otherwise described in the Prospectus Supplement, the net
proceeds of the Offered Securities will be applied primarily to the redemption,
repurchase, repayment, or retirement of outstanding indebtedness and preferred
stock. Any proceeds not immediately so applied when received may be invested
temporarily, pending such application, in United States government or agency
obligations, commercial paper, bank certificates of deposit, or repurchase
agreements collateralized by United States government or agency obligations, or
will be deposited with banks.
EARNINGS RATIOS
The following table sets forth the Company's historical ratio of earnings
to fixed charges for each of the indicated periods:
Twelve months ended
- --------------------------------------------------------------------------------
December 31,
- --------------------------------------------------------------------------------
1998 1997 1996 1995 1994
- ---- ---- ---- ---- ----
3.19 3.07 2.84 2.77 2.96
For the purposes of these computations, "earnings" are defined as the sum
of pre-tax income plus fixed charges of the Company and its subsidiaries;
"fixed charges" consist of interest on debt, amortization of debt discount,
premium, and expense and an estimated interest factor in rentals.
SECURITIES
The Securities may be issued in one or more series as (i) first mortgage
bonds ("New Bonds"), (ii) notes secured until the Release Date by New Bonds
and, thereafter (see "Description of Senior Notes -- Release Date"), being
unsecured notes (such notes are herein referred to as "Senior Notes"), or (iii)
unsecured debt securities ("Debt Securities"). From and after the "Release
Date" (as defined below), any outstanding Senior Notes secured by New Bonds
when issued will cease to be secured and will become unsecured obligations of
the Company. The New Bonds are described below under the caption "Description
of New Bonds," the Senior Notes are described below under the caption
"Description of Senior Notes," and the Debt Securities are described below
under the caption "Description of Debt Securities."
DESCRIPTION OF NEW BONDS
GENERAL
The New Bonds may be issued in one or more new series under the Mortgage
and Deed of Trust dated as of July 1, 1946 between the Company and The Bank of
New York, as successor Trustee ("Bond Trustee"), which as heretofore amended
and supplemented is herein referred to as the "Mortgage," and which is to be
further amended and supplemented by appropriate Supplemental Indentures ("Bond
Supplemental Indentures"). The following summary does not purport to be
complete and is subject in all respects to the provisions of, and is qualified
in its entirety by reference to, the Mortgage, the New Bonds, and the Bond
Supplemental Indentures, the forms of which are filed, or will be filed, as
exhibits to the registration statement of which this Prospectus forms a part.
Whenever particular provisions or defined terms in such documents are referred
to herein or in a Prospectus Supplement, such provisions or defined terms are
incorporated by reference herein or therein, as the case may be.
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Reference is made to the Prospectus Supplement relating to any particular
issue of Offered Bonds for the following terms: (1) the aggregate principal
amount of the Offered Bonds; (2) the date on which such Offered Bonds mature;
(3) the rate per annum at which such Offered Bonds will bear interest; (4) the
times at which such interest will be payable; (5) the date, if any, after which
such Offered Bonds may be redeemed at the option of the Company and the
redemption price; (6) whether any of such Offered Bonds will be issuable in
whole or in part in the form of one or more Global Securities and, if so, the
Depositaries for such Global Securities, the form of any legend or legends to
be borne by any such Global Security, and any circumstances under which any
such Global Security may be exchanged in whole or in part for Offered Bonds,
registered in the names of persons other than the Depositary for such Global
Security or its nominee; and (7) any other special terms. Interest will be paid
to the person in whose name the Offered Bonds are registered at the close of
business on the record date, as established in the Bond Supplemental Indenture
relating thereto, preceding the interest payment date in respect thereof. The
New Bonds will be issued as fully registered bonds, without coupons, in
denominations of $1,000 and multiples thereof. The New Bonds will be
transferable at any time without any service or other charge, except transfer
taxes and other governmental charges, if any.
Except as otherwise described under the heading "Description of New Bonds
- -- Issuance of Additional Bonds" or in the Prospectus Supplement, the covenants
contained in the Mortgage and the New Bonds would not afford holders of the New
Bonds protection in the event of a highly-leveraged transaction involving the
Company.
REDEMPTION
The Offered Bonds are redeemable as set forth in the Prospectus Supplement
relating thereto and, subject to any qualifications or variations set forth in
any such Prospectus Supplement, are also subject to redemption, in each case at
the principal amount of the Offered Bonds to be redeemed together with accrued
interest to the date fixed for redemption, (i) in whole or in part with the
proceeds from mortgaged property of the Company taken under eminent domain by,
or otherwise sold to, a governmental body or agency; (ii) in whole or in part
with the Proceeds of Released Property, including proceeds from the sale or
other disposition (including a sale and leaseback) of property released from
the lien of the Mortgage as specified in section (b) of the second to the last
paragraph under the heading "Description of New Bonds -- Security" below; and
(iii) in whole, together with all other first mortgage bonds of the Company
then outstanding, within twelve months of certain mergers or other transactions
involving the transfer of substantially all of the property subject to the lien
of the Mortgage, as then amended. In addition, after the date and at the price
set forth in the Prospectus Supplement, Offered Bonds may be redeemed in whole
or in part with cash deposited in the replacement fund discussed below.
SECURITY
The New Bonds will rank pari passu, except as to any sinking fund or
similar fund provided for a particular series, with all bonds at any time
outstanding under the Mortgage. The Mortgage constitutes a first mortgage lien
on substantially all the fixed property owned by the Company (which does not
include a combined cycle plant or certain interests in Unit 2 of the Palo Verde
Nuclear Generating Station being leased), other than property specifically
excepted by the Mortgage. Such lien and the Company's title to certain of its
properties are subject to Excepted Encumbrances, to minor leases, defects,
irregularities, and deficiencies, and to the considerations discussed below
with respect to the Four Corners and Navajo Plant locations. The lien of the
Mortgage will also extend to all after-acquired property (other than the
excepted classes) located in the jurisdictions in which the necessary
recordations or filings have been accomplished, subject to Excepted
Encumbrances and to liens existing or placed on such property at the time of
its acquisition by the Company.
Both the Four Corners and the Navajo Plants are located on property held
by the plant participants under leases from the Navajo Tribe and easements from
the Secretary of the Interior. The leases extend from their respective
effective dates in 1966 and 1969 for terms of 50 years with rights of renewal
for up to 25 additional years. The easements are for 50-year terms from the
same effective dates. While the Company owns the rights conferred upon it by
the leases from the Navajo Tribe, the Company does not
5
<PAGE>
make any representation with respect to the Tribe's interest in the lands
leased (but is not aware of any assertion of a contesting claim to such lands)
or with respect to the enforceability of the leases against the Tribe.
The Mortgage requires the Company to keep the property encumbered thereby
as an operating system or systems in good repair and working order, but permits
the permanent discontinuance or reduction in capacity of any such properties
which, in the judgment of the Board of Directors of the Company, is desirable
in the conduct of its business or which is ordered by a regulatory authority or
which properties are to be sold or disposed of by the Company.
When not in default under the Mortgage, the Company may obtain the release
from the lien thereof of (a) property that has become unserviceable, obsolete,
or unnecessary for use in the Company's operations, provided that it replaces
such property with, or substitutes for the same, an equal value of other
property, and (b) other property that has been sold or otherwise disposed of,
provided that the Company deposits with the Bond Trustee cash in an amount,
waives the right to issue additional bonds on the basis of retired bonds
previously issued in an amount, or utilizes as a credit net Property Additions
acquired by the Company within the preceding five years and having a fair value
(not more than Cost), equal to the fair value of the property to be released.
The Bond Trustee may, and upon request of the Company shall, cancel and
discharge the lien of the Mortgage and all indentures supplemental thereto
whenever all indebtedness secured by the Mortgage has been paid.
ISSUANCE OF ADDITIONAL BONDS
Additional bonds may be issued under the Mortgage in a principal amount
equal to (a) 60% of net Property Additions, (b) the principal amount of certain
redeemed or retired bonds previously issued, and/or (c) deposited cash,
provided that the Company's Adjusted Net Earnings over a twelve-month period
are at least two times the annual interest on all bonds to be outstanding under
the Mortgage after the issuance and on indebtedness secured by prior liens.
Exceptions to this earnings coverage requirement apply to bonds issued on the
basis of redeemed or retired bonds where the redeemed or retired bonds bore a
higher rate of interest and where certain other conditions are satisfied. In
addition, the Company's articles of incorporation allow the Company to issue
additional preferred stock when certain earnings coverage requirements are met.
Exceptions to this earnings coverage requirement apply to preferred stock
issued for the purpose of redeeming or retiring other preferred stock.
As of December 31, 1998, the Company estimates that the Mortgage and the
articles of incorporation would have allowed the Company to issue up to
approximately $2.08 billion and $1.48 billion of additional first mortgage
bonds and preferred stock, respectively.
In addition to the Mortgage restrictions on the Company's issuance of
additional bonds, the Company must obtain ACC approval before issuing equity
securities or incurring long-term debt. Existing ACC orders allow the Company
to have approximately $501 million in aggregate par value of preferred stock
and approximately $2.6 billion in principal amount of long-term debt
outstanding at any one time. The Company does not expect these provisions or
authorizations to limit the Company's ability to meet its capital requirements.
Property Additions, and in many instances redeemed or retired bonds, as
well as deposited cash, may be used for certain alternative purposes under the
Mortgage, including the release of property from the lien thereof or the
satisfaction of sinking or replacement fund requirements. The Mortgage contains
restrictions on the issuance of bonds, withdrawal of cash, or release of
property on the basis of property subject to prior liens. Property located on
leaseholds or easements (as, for example, the Four Corners and Navajo Plants)
will constitute fundable Property Additions if the leasehold or easement has an
unexpired term of, or the term is extendable at the Company's option for, at
least 30 years after the time of funding, or if the property may be removed by
the Company without compensation.
REPLACEMENT FUND
So long as any of the New Bonds are outstanding, the Company is required
for each calendar year to deposit with the Bond Trustee cash in a formularized
amount related to net additions to the Company's
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mortgaged utility plant; however, the Company may satisfy all or any part of
the requirement by utilizing redeemed or retired bonds, net Property Additions,
or property retirements. For 1997, such requirement amounted to approximately
$134 million. Any cash that may be deposited by the Company pursuant to the
requirement may, upon request by the Company, be applied to the redemption or
purchase of bonds and, if not withdrawn against Property Additions or retired
bonds within five years, must be so applied, subject in each case to any
restrictions on any such redemption or purchase as set forth in the Prospectus
Supplement relating to the issue of bonds to be redeemed or purchased.
EVENTS OF DEFAULT
The following are defaults under the Mortgage: (a) failure to pay the
principal of any bond outstanding under the Mortgage when due and payable; (b)
failure to pay interest on any bond outstanding under the Mortgage within 60
days after the same is due and payable; (c) failure to pay any installment of
any fund required to be applied to the purchase or redemption of bonds
outstanding under the Mortgage within 60 days after the same is due and
payable; (d) certain events in bankruptcy, insolvency, or reorganization; and
(e) failure to perform any other covenant of the Mortgage continuing for 90
days after notice by the Bond Trustee or holders of 15% in principal amount of
Eligible bonds. The Mortgage allows the Bond Trustee to withhold notice of
certain defaults, not including any default in the payment of principal of, or
interest on, any bond outstanding, or in the payment of any sinking,
improvement, replacement, or purchase fund installment, if it in good faith
determines that the withholding of such notice is in the interests of the
bondholders.
The holders of not less than a majority in principal amount of Eligible
bonds may direct the time, method, and place of conducting any proceeding for
any remedy available to the Bond Trustee under the Mortgage; provided, however,
that the Trustee may decline to follow any such direction under certain
circumstances, including a determination made in good faith by the Bond Trustee
that it will not be sufficiently indemnified for any expenditures, including
its own charges, in any action or proceeding so directed. The Company is
required to file with the Bond Trustee, on or before July 1 of each year, a
certificate to the effect that, except as otherwise stated therein, the Company
has complied with all of the provisions of the Mortgage and is not then in
default thereunder.
MODIFICATION OF THE MORTGAGE
The Mortgage and the rights of bondholders may be modified with the
consent of the Company, and of the Bond Trustee if deemed affected, and the
vote or assent of the holders of not less than 70% in principal amount of the
Eligible bonds, and of not less than 70% in principal amount of the Eligible
bonds of any one or more series (less than all) affected by any such
modification; except that the bondholders, without the consent of the holder of
each bond affected, have no power to (a) reduce the principal thereof, or the
premium, if any, or rate of interest thereon or otherwise modify the terms of
payment of principal, premium, or interest, or extend the maturity of any
bonds, (b) permit the creation of any lien ranking prior to or on a parity with
the lien of the Mortgage with respect to any of the mortgaged property, (c)
deprive any nonassenting bondholder of a lien upon the mortgaged property for
the security of his or her bonds, or (d) reduce the percentage of bondholders
authorized to effect any such modification.
GLOBAL SECURITIES
Some or all of the New Bonds of any series may be represented, in whole or
in part, by one or more "Global Securities" which will have an aggregate
principal amount equal to that of the New Bonds represented thereby. Each
Global Security will be registered in the name of a depositary or a nominee
thereof identified in the applicable Prospectus Supplement, will be deposited
with such depositary or nominee or a custodian therefor and will bear a legend
regarding the restrictions on exchanges and registration of transfer thereof
referred to below and any such other matters as may be provided for pursuant to
the applicable Bond Supplemental Indenture.
Notwithstanding any provision of the Mortgage or any New Bond described
herein, no Global Security may be exchanged in whole or in part for New Bonds
registered, and no transfer of a Global Security in whole or in part may be
registered, in the name of any person other than the depositary for
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such Global Security or any nominee of such depositary unless (i) the
depositary has notified the Company that it is unwilling or unable to continue
as depositary for such Global Security or has ceased to be qualified to act as
such as required by the Mortgage, (ii) there shall have occurred and be
continuing a default with respect to the New Bonds represented by such Global
Security, or (iii) there shall exist such circumstances, if any, in addition to
or in lieu of those described above as may be described in the applicable Bond
Supplemental Indenture and Prospectus Supplement. All securities issued in
exchange for a Global Security or any portion thereof will be registered in
such names as the depositary may direct.
As long as the depositary, or its nominee, is the registered holder of a
Global Security, the depositary or such nominee, as the case may be, will be
considered the sole owner and holder of such Global Security and the New Bonds
represented thereby for all purposes under the New Bonds and the Mortgage.
Except in the limited circumstances referred to above, owners of beneficial
interests in a Global Security will not be entitled to have such Global
Security or any New Bonds represented thereby registered in their names, will
not receive or be entitled to receive physical delivery of certificated New
Bonds in exchange therefor and will not be considered to be the owners or
holders of such Global Security or any New Bonds represented thereby for any
purpose under the New Bonds or the Mortgage. All payments of principal of and
any premium and interest on a Global Security will be made to the depositary or
its nominee, as the case may be, as the holder thereof. The laws of some
jurisdictions require that certain purchasers of securities take physical
delivery of such securities in definitive form. These laws may impair the
ability to transfer beneficial interests in a Global Security.
Ownership of beneficial interests in a Global Security will be limited to
institutions that have accounts with the depositary or its nominee
("participants") and to persons that may hold beneficial interests through
participants. In connection with the issuance of any Global Security, the
depositary will credit, on its book-entry registration and transfer system, the
respective principal amounts of New Bonds represented by the Global Security to
the accounts of its participants. Ownership of beneficial interests in a Global
Security will be shown only on, and the transfer of those ownership interests
will be effected only through, records maintained by the depositary (with
respect to participants' interests) or any such participant (with respect to
interests of persons held by such participants on their behalf). Payments,
transfers, exchanges, and other matters relating to beneficial interests in a
Global Security may be subject to various policies and procedures adopted by
the depositary from time to time. None of the Company, the Bond Trustee or any
agent of the Company or the Bond Trustee will have any responsibility or
liability for any aspect of the depositary's or any participant's records
relating to, or for payments made on account of, beneficial interests in a
Global Security, or for maintaining, supervising, or reviewing any records
relating to such beneficial interests.
OTHER
The Mortgage restricts the payment of dividends on common stock of the
Company under certain conditions which have not existed in the past and do not
currently exist.
The Bond Trustee, security registrar, and paying agent under the Mortgage
is The Bank of New York. The Company maintains normal banking arrangements with
The Bank of New York, which include (i) one commitment in the aggregate
principal amount of approximately $15.7 million by The Bank of New York
pursuant to a reimbursement agreement related to a letter of credit issued on
behalf of the Company in connection with an issuance of pollution control
bonds, the proceeds of which were made available to the Company, and (ii) a $25
million commitment by The Bank of New York pursuant to a revolving credit
agreement, approximately $7.8 million of which was outstanding at December 31,
1998. The Bank of New York also serves as (i) trustee for the holders of
several issues of pollution control bonds issued on behalf of the Company, (ii)
trustee under the Indenture relating to the subordinated Debt Securities (see
"Description of Debt Securities" below), (iii) trustee under the Senior Note
Indenture (as defined below), (iv) investment manager for the Company's
nonunion post-retirement medical fund, (v) custodian of international
fixed-income assets for the Company's pension plan, and (vi) an investment
manager for the Company's 401(k) plan.
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DESCRIPTION OF SENIOR NOTES
GENERAL
The Senior Notes may be issued in one or more new series under an
Indenture (the "Senior Note Indenture") between the Company and The Bank of New
York, or any other trustee to be named, as Trustee (the "Senior Note Trustee").
The following summary does not purport to be complete and is subject in all
respects to the provisions of, and is qualified in its entirety by reference
to, the Senior Note Indenture pursuant to which the Senior Notes are to be
issued and to the Senior Notes, the forms of which are filed, or will be filed,
as exhibits to the registration statement of which this Prospectus forms a
part. Whenever particular provisions or defined terms in the Senior Note
Indenture are referred to herein or in a Prospectus Supplement, such provisions
or terms are incorporated by reference herein or therein, as the case may be.
Until the Release Date (as defined below), the Senior Notes will be
secured by one or more series of New Bonds ("Senior Note Mortgage Bonds")
issued and delivered by the Company to the Senior Note Trustee. See
"Description of Senior Notes -- Security" and "Description of Senior Notes --
Release Date." On the Release Date, the Senior Notes will cease to be secured
by Senior Note Mortgage Bonds, will become unsecured obligations of the
Company, and will rank on a parity with other unsecured senior indebtedness of
the Company, including senior Debt Securities. The Senior Note Indenture
provides that, in addition to the Senior Notes offered hereby, additional
senior notes may be issued thereunder, without limitation as to aggregate
principal amount, provided that, prior to the Release Date, the amount of
senior notes that may be issued cannot exceed the amount of first mortgage
bonds that the Company is able to issue under its Mortgage. See "Description of
New Bonds -- Issuance of Additional Bonds."
Reference is made to the Prospectus Supplement relating to any particular
issue of Offered Senior Notes for the following terms: (1) the title of such
Senior Notes; (2) any limit on the aggregate principal amount of such Senior
Notes or the series of which they are a part; (3) the date or dates on which
the principal of any of such Senior Notes will be payable; (4) the rate or
rates at which any of such Senior Notes will bear interest, if any, the date or
dates from which any such interest will accrue, the Interest Payment Dates on
which any such interest will be payable and the Regular Record Date for any
such interest payable on any Interest Payment Date; (5) the place or places
where the principal of and any premium and interest on any of such Senior Notes
will be payable, if other than as described under "Description of Senior Notes
- -- Payment and Paying Agents"; (6) the period or periods within which, the
price or prices at which and the terms and conditions on which any of such
Senior Notes may be redeemed, in whole or in part, at the option of the
Company; (7) the obligation, if any, of the Company to redeem or purchase any
of such Senior Notes pursuant to any sinking fund or analogous provision or at
the option of the Holder thereof, and the period or periods within which, the
price or prices at which and the terms and conditions on which any of such
Senior Notes will be redeemed or purchased, in whole or in part, pursuant to
any such obligation; (8) the denominations in which any of such Senior Notes
will be issuable, if other than denominations of $1,000 and any integral
multiple thereof; (9) if the amount of principal of or any premium or interest
on any of such Senior Notes may be determined with reference to an index or
pursuant to a formula, the manner in which such amounts will be determined;
(10) if other than the currency of the United States of America, the currency,
currencies, or currency units in which the principal of or any premium or
interest on any of such Senior Notes will be payable and the manner of
determining the equivalent thereof in the currency of the United States of
America for any purpose, including for purposes of determining the principal
amount deemed to be Outstanding at any time; (11) if the principal of or any
premium or interest on any of such Senior Notes is to be payable, at the
election of the Company or the Holder thereof, in one or more currencies, or
currency units other than those in which such Senior Notes are stated to be
payable, the currency, currencies or currency units in which payment of any
such amount as to which such election is made will be payable, the periods
within which and the terms and conditions upon which such election is to be
made and the amount so payable (or the manner in which such amount is to be
determined); (12) if other than the entire principal amount thereof, the
portion of the principal amount of any of such Senior Notes which will be
payable upon declaration of acceleration of the Maturity thereof; (13) if the
principal amount payable at the Stated Maturity of any of such Senior Notes
will not be determinable as of any one or more dates prior to the
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Stated Maturity, the amount which will be deemed to be such principal amount as
of any such date for any purpose, including the principal amount thereof which
will be due and payable upon any Maturity other than the Stated Maturity or
which will be deemed to be Outstanding as of any such date (or, in any such
case, the manner in which such deemed principal amount is to be determined);
(14) if applicable, that such Senior Notes, in whole or any specified part, are
defeasible pursuant to the provisions of the Senior Note Indenture described
under "Description of Senior Notes -- Defeasance and Covenant Defeasance"; (15)
whether any of such Senior Notes will be issuable in whole or in part in the
form of one or more Global Securities and, if so, the respective Depositaries
for such Global Securities, the form of any legend or legends to be borne by
any such Global Security in addition to or in lieu of the legend referred to
under "Description of Senior Notes -- Global Securities" and, if different from
those described under such caption, any circumstances under which any such
Global Security may be exchanged in whole or in part for Senior Notes
registered, and any transfer of such Global Security in whole or in part may be
registered, in the names of Persons other than the Depositary for such Global
Security or its nominee; (16) if any of such Senior Notes are to be issued
prior to the Release Date, the designation of the series of Senior Note
Mortgage Bonds to be delivered to the Senior Note Trustee as security for such
Senior Notes; (17) any addition to or change in the Events of Default
applicable to any of such Senior Notes and any change in the right of the
Trustee or the Holders to declare the principal amount of any of such Senior
Notes due and payable; (18) any addition to or change in the covenants in the
Senior Note Indenture; and (19) any other terms of such Senior Notes not
inconsistent with the provisions of the Senior Note Indenture. (Section 301).
Senior Notes, including Original Issue Discount Notes, may be sold at a
substantial discount below their principal amount. Certain special United
States federal income tax considerations (if any) applicable to Senior Notes
sold at an original issue discount may be described in the applicable
Prospectus Supplement. In addition, certain special United States federal
income tax or other considerations (if any) applicable to any Senior Notes
which are denominated in a currency or currency unit other than United States
dollars may be described in the applicable Prospectus Supplement.
Except as otherwise described in the Prospectus Supplement, the covenants
contained in the Senior Note Indenture would not afford holders of Senior Notes
protection in the event of a highly-leveraged transaction involving the
Company.
FORM, EXCHANGE, AND TRANSFER
The Senior Notes of each series will be issuable only in fully registered
form without coupons and, unless otherwise specified in the applicable
Prospectus Supplement, in denominations of $1,000 and any integral multiple
thereof. (Section 302).
At the option of the Holder, subject to the terms of the Senior Note
Indenture and the limitations applicable to Global Securities, Senior Notes of
any series will be exchangeable for other Senior Notes of the same series, of
any authorized denomination and of like tenor and aggregate principal amount.
(Section 305).
Subject to the terms of the Senior Note Indenture and the limitations
applicable to Global Securities, Senior Notes may be presented for exchange as
provided above or for registration of transfer (duly endorsed or with the form
of transfer endorsed thereon duly executed) at the office of the Note Registrar
or at the office of any transfer agent designated by the Company for such
purpose. No service charge will be made for any registration of transfer or
exchange of Senior Notes, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith. Such transfer or exchange will be effected upon the Note Registrar
or such transfer agent, as the case may be, being satisfied with the documents
of title and identity of the person making the request. The Company has
appointed the Senior Note Trustee as Note Registrar. Any transfer agent (in
addition to the Note Registrar) initially designated by the Company for any
Senior Notes will be named in the applicable Prospectus Supplement. (Section
305). The Company may at any time designate additional transfer agents or
rescind the designation of any transfer agent or approve a change in the office
through which any transfer agent acts, except that the Company will be required
to maintain a transfer agent in each Place of Payment for the Senior Notes of
each series. (Section 1102).
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If the Senior Notes of any series (or of any series and specified tenor)
are to be redeemed, the Company will not be required to (i) issue, register the
transfer of, or exchange any Senior Note of that series (or of that series and
specified tenor, as the case may be) during a period beginning at the opening
of business 15 days before the day of mailing of a notice of redemption of any
such Senior Note that may be selected for redemption and ending at the close of
business on the day of such mailing or (ii) register the transfer of or
exchange any Senior Note so selected for redemption, in whole or in part,
except the unredeemed portion of any such Senior Note being redeemed in part.
(Section 305).
GLOBAL NOTES
Some or all of the Senior Notes of any series may be represented, in whole
or in part, by one or more Global Notes which will have an aggregate principal
amount equal to that of the Senior Notes represented thereby. Each Global Note
will be registered in the name of a Depositary or a nominee thereof identified
in the applicable Prospectus Supplement, will be deposited with such Depositary
or nominee or a custodian therefor and will bear a legend regarding the
restrictions on exchanges and registration of transfer thereof referred to
below and any such other matters as may be provided for pursuant to the Senior
Note Indenture.
Notwithstanding any provision of the Senior Note Indenture or any Senior
Note described herein, no Global Note may be exchanged in whole or in part for
Senior Notes registered, and no transfer of a Global Note in whole or in part
may be registered, in the name of any Person other than the Depositary for such
Global Note or any nominee of such Depositary unless (i) the Depositary has
notified the Company that it is unwilling or unable to continue as Depositary
for such Global Note or has ceased to be qualified to act as such as required
by the Senior Note Indenture, (ii) there shall have occurred and be continuing
an Event of Default with respect to the Senior Notes represented by such Global
Note, or (iii) there shall exist such circumstances, if any, in addition to or
in lieu of those described above as may be described in the applicable
Prospectus Supplement. All securities issued in exchange for a Global Note or
any portion thereof will be registered in such names as the Depositary may
direct. (Sections 204 and 305).
As long as the Depositary, or its nominee, is the registered Holder of a
Global Note, the Depositary or such nominee, as the case may be, will be
considered the sole owner and Holder of such Global Note and the Senior Notes
represented thereby for all purposes under the Senior Notes and the Senior Note
Indenture. Except in the limited circumstances referred to above, owners of
beneficial interests in a Global Note will not be entitled to have such Global
Note or any Senior Notes represented thereby registered in their names, will
not receive or be entitled to receive physical delivery of certificated Senior
Notes in exchange therefor and will not be considered to be the owners or
Holders of such Global Note or any Senior Notes represented thereby for any
purpose under the Senior Notes or the Senior Note Indenture. All payments of
principal of and any premium and interest on a Global Note will be made to the
Depositary or its nominee, as the case may be, as the Holder thereof. The laws
of some jurisdictions require that certain purchasers of securities take
physical delivery of such securities in definitive form. These laws may impair
the ability to transfer beneficial interests in a Global Note.
Ownership of beneficial interests in a Global Note will be limited to
institutions that have accounts with the Depositary or its nominee
("participants") and to persons that may hold beneficial interests through
participants. In connection with the issuance of any Global Note, the
Depositary will credit, on its book-entry registration and transfer system, the
respective principal amounts of Senior Notes represented by the Global Note to
the accounts of its participants. Ownership of beneficial interests in a Global
Note will be shown only on, and the transfer of those ownership interests will
be effected only through, records maintained by the Depositary (with respect to
participants' interests) or any such participant (with respect to interests of
persons held by such participants on their behalf). Payments, transfers,
exchanges, and others matters relating to beneficial interests in a Global Note
may be subject to various policies and procedures adopted by the Depositary
from time to time. None of the Company, the Senior Note Trustee or any agent of
the Company or the Senior Note Trustee will have any responsibility or
liability for any aspect of the Depositary's or any participant's records
relating to, or for payments made on account of, beneficial interests in a
Global Note, or for maintaining, supervising, or reviewing any records relating
to such beneficial interests.
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PAYMENT AND PAYING AGENTS
Unless otherwise indicated in the applicable Prospectus Supplement,
payment of interest on a Senior Note on any Interest Payment Date will be made
to the Person in whose name such Senior Note (or one or more Predecessor Senior
Notes) is registered at the close of business on the Regular Record Date for
such interest. (Section 307).
Unless otherwise indicated in the applicable Prospectus Supplement,
principal of and any premium and interest on the Senior Notes of a particular
series will be payable at the office of such Paying Agent or Paying Agents as
the Company may designate for such purpose from time to time, except that at
the option of the Company payment of any interest may be made by check mailed
to the address of the Person entitled thereto as such address appears in the
Note Register. Unless otherwise indicated in the applicable Prospectus
Supplement, the corporate trust office of the Senior Note Trustee in The City
of New York will be designated as the Company's sole Paying Agent for payments
with respect to Senior Notes of each series. Any other Paying Agents initially
designated by the Company for the Senior Notes of a particular series will be
named in the applicable Prospectus Supplement. The Company may at any time
designate additional Paying Agents or rescind the designation of any Paying
Agent or approve a change in the office through which any Paying Agent acts,
except that the Company will be required to maintain a Paying Agent in each
Place of Payment for the Senior Notes of a particular series. (Section 1102).
All moneys paid by the Company to a Paying Agent for the payment of the
principal of or any premium or interest on any Senior Notes which remain
unclaimed at the end of two years after such principal, premium or interest has
become due and payable will be repaid to the Company, and the Holder of such
Senior Notes thereafter may look only to the Company for payment thereof.
(Section 1103).
CONSOLIDATION, MERGER, AND SALE OF ASSETS
The Company may not consolidate with or merge into any other Person or
convey, transfer or lease its properties and assets "substantially as an
entirety" to any Person, and may not permit any Person to consolidate with or
merge into the Company or convey, transfer, or lease its properties and assets
substantially as an entirety to the Company, unless (a) the successor Person
(if any) is a corporation, partnership, trust or other entity organized and
validly existing under the laws of any domestic jurisdiction and (i) assumes
the Company's obligations on the Senior Notes and under the Senior Note
Indenture, and (ii) if such consolidation, merger, conveyance, transfer, or
lease occurs prior to the Release Date, assumes the Company's obligations under
the Senior Note Mortgage Bonds and under the Mortgage; (b) immediately after
giving effect to the transaction, no Event of Default, and no event which,
after notice or lapse of time or both, would become an Event of Default, shall
have occurred and be continuing and (iii) certain other conditions are met. The
term "substantially as an entirety" means 50% or more of the total assets of
the Company as shown on the Company's consolidated balance sheet as of the end
of the calendar year immediately preceding the day of the year in which such
determination is made. (Section 901).
SECURITY
Until the Release Date (see "Release Date" below), the Senior Notes will
be secured by one or more series of New Bonds ("Senior Note Mortgage Bonds")
issued and delivered by the Company to the Senior Note Trustee (see
"Description of New Bonds"). Upon the issuance of a series of Senior Notes
prior to the Release Date, the Company will simultaneously issue and deliver to
the Senior Note Trustee, as security for such series of Senior Notes, a series
of Senior Note Mortgage Bonds that will have the same stated rate or rates of
interest (or interest calculated in the same manner), Interest Payment Dates,
Stated Maturity and redemption provisions, and will be in the same aggregate
principal amount as the series of the Senior Notes being issued. (Sections
401-403). Payments by the Company to the Senior Note Trustee of principal of,
premium and interest on, a series of Senior Notes will satisfy the Company's
obligations with respect to principal of, premium and interest on, the related
series of Senior Note Mortgage Bonds.
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Each series of Senior Note Mortgage Bonds will be a series of New Bonds,
all of which are secured by a lien on certain property owned by the Company.
See "Description of New Bonds -- Security." In certain circumstances prior to
the Release Date, the Company is permitted to reduce the aggregate principal
amount of a series of Senior Note Mortgage Bonds held by the Senior Note
Trustee, but in no event to an amount lower than the aggregate outstanding
principal amount of the series of Senior Notes initially issued
contemporaneously with such Senior Note Mortgage Bonds. (Section 409).
Following the Release Date, the Company will cause the Mortgage to be closed
and the Company will not issue any additional first mortgage bonds under the
Mortgage. (Section 403).
RELEASE DATE
ON THE RELEASE DATE, THE SENIOR NOTE MORTGAGE BONDS WILL NO LONGER SECURE
THE SENIOR NOTES, AND THE SENIOR NOTES WILL BECOME UNSECURED GENERAL
OBLIGATIONS OF THE COMPANY. (Section 407). The "Release Date" means the date
that the Company has repaid all of its first mortgage bonds, other than the
first mortgage bonds securing the senior notes.The Senior Note Trustee will
give the Senior Note Holders notice of the occurrence of the Release Date. See
"Description of Senior Notes -- Defeasance and Covenant Defeasance --
Defeasance and Discharge" for a discussion of another situation in which
outstanding Senior Notes would not be secured by Senior Note Mortgage Bonds.
Unless otherwise specified in the applicable Prospectus Supplement, from
and after the Release Date and so long as Senior Notes of a particular series
are outstanding, the Company may not issue, assume or guarantee any debt
evidenced by notes, debentures, bonds or other securities for money borrowed
that is secured by any mortgage, security interest, pledge or lien of or upon
any operating property of the Company, and will not permit to exist any such
debt secured by any such lien created on or prior to the Release Date, without
effectively securing such Senior Notes equally and ratably therewith, subject
to certain exceptions as described below. See "Limitations on Liens and Sale
and Lease-back Transactions." The intention of these provisions is that before
the Release Date the Senior Notes will have the benefit of being secured by
Senior Note Mortgage Bonds, and after the Release Date the Senior Notes will
have the benefit of the same security as other secured debt of the Company, if
any, subject to specified exceptions.
LIMITATIONS ON LIENS AND SALE AND LEASE-BACK TRANSACTIONS
LIMITATIONS ON LIENS. Unless otherwise specified in the applicable
Prospectus Supplement, from and after the Release Date and so long as Senior
Notes of a particular series are outstanding, the Company may not issue,
assume, or guarantee any debt evidenced by notes, debentures, bonds, or other
securities for money borrowed ("Debt") that is secured by any mortgage,
security interest, pledge, or lien ("lien") of or upon any Operating Property
of the Company, and will not permit to exist any such Debt secured by any such
mortgage created on or prior to the Release Date, without effectively securing
such Senior Notes equally and ratably with such Debt. This restriction does not
apply to (1) liens on any property existing at the time of its acquisition; (2)
liens on property of a corporation existing at the time the corporation is
merged into or consolidated with, or disposes of substantially all of its
properties (or those of a division) to, the Company; (3) subject to certain
conditions, liens securing Debt incurred to acquire, construct, develop, or
substantially repair, alter, or improve property or to reimburse the Company
for funds spent for any such purpose; (4) liens in favor of the United States
of America or any State thereof, or for the benefit of holders of securities
issued by any such entity, or any department, agency, or instrumentality or
political subdivision of the United States of America or any State thereof, to
secure any Debt incurred for the purpose of financing all or any part of the
purchase price or the cost of constructing, developing or substantially
repairing, altering, or improving the property subject to such liens; or (5)
any extension, renewal, or replacement, in whole or in part, of any lien
referred to in clauses (1) through (4). However, the foregoing restriction does
not apply to the issuance, assumption, or guarantee by the Company of Debt
secured by a lien which would otherwise be subject to the foregoing
restrictions up to an aggregate amount which, together with all other secured
Debt of the Company (not including secured Debt permitted under the foregoing
exceptions) and the Value (as defined below) of
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all Sale and Lease-Back Transactions (as defined below) existing at such time
(other than Sale and Lease-Back Transaction proceeds which have been applied to
the retirement of certain indebtedness, Sale and Lease-Back Transactions in
which the property involved would have been permitted to be mortgaged under the
foregoing exceptions and Sale and Lease-Back Transactions that are permitted by
the first sentence of "-- Limitations on Sale and Lease-Back Transactions"
below), does not exceed the greater of 10% of Net Tangible Assets (as defined
below) or 10% of Capitalization (as defined below).
LIMITATIONS ON SALE AND LEASE-BACK TRANSACTIONS. Unless otherwise
specified in the applicable Prospectus Supplement, after the Release Date, so
long as any Senior Notes are outstanding, the Company may not enter into any
Sale and Lease-Back Transaction with respect to any Operating Property and will
not permit to remain in effect any Sale and Lease-Back transaction with respect
to any Operating Property entered into on or prior to the Release Date (except
in each case, for transactions involving leases for a term, including any
renewal thereof, of not more than 48 months), if the purchaser's commitment is
or was obtained more than 18 months after the later of the completion of the
acquisition, construction or development or the placing in operation of such
Operating Property or of such Operating Property as constructed, being
developed or substantially repaired, altered or improved. This restriction will
not apply if (a) the Company would be entitled pursuant to the provisions
described in the second sentence under "-- Limitations on Liens" above to
issue, assume or guarantee Debt secured by a lien on such Operating Property
without equally and ratably securing such Senior Notes, (b) after giving effect
to such Sale and Lease-Back Transaction, the Company could incur pursuant to
the provisions described in the third sentence under "-- Limitation on Liens,"
additional debt secured by liens, or (c) the Company applies within 180 days an
amount equal to, in the case of a sale or transfer for cash, the net proceeds
(not exceeding the net book value), and, otherwise, an amount equal to the fair
value (as determined by its Board of Directors) of the Operating Property so
leased to the retirement of Senior Notes or other Debt of the Company ranking
senior to, or equally with, the Senior Notes, subject to reduction, as set
forth in the Supplemental Indenture, in respect of Senior Notes and such Debt
retired during such 180-day period other than pursuant to mandatory sinking
fund or prepayment provisions and payments at Stated Maturity.
DEFINITIONS. The term "Capitalization" shall mean the total of all the
following items appearing on, or included in, the balance sheet of the Company:
(i) liabilities for indebtedness maturing more than 12 months from the date of
determination; and (ii) common stock, preferred stock, premium on capital
stock, capital surplus, capital in excess of par value, and retained earnings,
less, to the extent not otherwise deducted, the cost of shares of capital stock
of the Company held in its treasury.
The term "Net Tangible Assets" shall mean the amount shown as total assets
on the consolidated balance sheet of the Company, less the following: (i)
intangible assets including, but without limitation, such items as goodwill,
trademarks, tradenames, patents and unamortized debt discount and expense and
other regulatory assets carried as an asset on said balance sheet; and (ii)
appropriate adjustments, if any, on account of minority interests.
The term "Operating Property" shall mean (i) any interest in real property
owned by the Company and (ii) any asset owned by the Company that is
depreciable in accordance with generally accepted accounting principles.
The term "Sale and Lease-Back Transaction" shall mean any arrangement with
any person providing for the leasing to the Company of any Operating Property
(except for leases for a term, including any renewal thereof, of not more than
48 months), which Operating Property has been or is to be sold or transferred
by the Company to such person.
The term "Value" shall mean, with respect to a Sale and Lease-Back
Transaction, as of any particular time, the amount equal to the greater of (i)
the net proceeds to the Company from the sale or transfer of the property
leased pursuant to such Sale and Lease-Back Transaction or (ii) the net book
value of such property, as determined in accordance with generally accepted
accounting principles by the Company at the time of entering into such Sale and
Lease-Back Transaction, in each case multiplied by a fraction, the numerator of
which shall be equal to the number of full years of the term of the lease that
is part of such Sale and Lease-Back Transaction remaining at the time of
determination and the
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denominator of which shall be equal to the number of full years of such term,
without regard, in any case, to any renewal or extension options contained in
such lease.
EVENTS OF DEFAULT
Each of the following will constitute an Event of Default under the Senior
Note Indenture with respect to Senior Notes of any series: (a) failure to pay
principal of or any premium on any Senior Note of that series when due,
continued for five days; (b) failure to pay any interest on any Senior Notes of
that series when due, continued for sixty days; (c) failure to deposit any
sinking fund payment, when due, in respect of any Senior Note of that series;
(d) failure to perform any other covenant of the Company in the Senior Note
Indenture (other than a covenant included in the Senior Note Indenture solely
for the benefit of a series other than that series), continued for 90 days
after written notice has been given by the Senior Note Trustee, or the Holders
of a majority in principal amount of the Outstanding Senior Notes of that
series, as provided in the Senior Note Indenture; (e) prior to the Release
Date, the occurrence of a Default under the Mortgage (see "Description of the
Bonds -- Events of Default"), of which the Trustee under the Mortgage, the
Company or the Holders of at least 25% in aggregate principal amount of the
outstanding senior notes have given written notice thereof to the Senior Note
Trustee; and (f) certain events in bankruptcy, insolvency or reorganization.
(Section 601).
If an Event of Default (other than an Event of Default described in clause
(f) above) with respect to the Senior Notes of any series at the time
Outstanding shall occur and be continuing, either the Senior Note Trustee or
the Holders of a majority in principal amount of the Outstanding Senior Notes
of that series by notice as provided in the Senior Note Indenture may declare
the principal amount of the Senior Notes of that series (or, in the case of any
Senior Note that is an Original Issue Discount Note or the principal amount of
which is not then determinable, such portion of the principal amount of such
Senior Note, or such other amount in lieu of such principal amount, as may be
specified in the terms of such Senior Note) to be due and payable immediately.
If an Event of Default described in clause (f) above with respect to the Senior
Notes of any series at the time Outstanding shall occur, the principal amount
of all the Senior Notes of that series (or, in the case of any such Original
Issue Discount Note or other Senior Note, such specified amount) will
automatically, and without any action by the Senior Note Trustee or any Holder,
become immediately due and payable. After any such acceleration, but before (i)
a judgment or decree based on acceleration or (ii) the Senior Note Trustee's
receipt from the Trustee under the Mortgage of a notice of acceleration of
Senior Note First Mortgage Bonds, such acceleration will be automatically
waived and rescinded if all Events of Default, other than the non-payment of
accelerated principal (or other specified amount), have been cured or waived as
provided in the Indenture. (Section 602). For information as to waiver of
defaults, see "Modification and Waiver."
Subject to the provisions of the Senior Note Indenture relating to the
duties of the Senior Note Trustee in case an Event of Default shall occur and
be continuing, the Senior Note Trustee will be under no obligation to exercise
any of its rights or powers under the Senior Note Indenture at the request or
direction of any of the Holders, unless such Holders shall have offered to the
Senior Note Trustee reasonable indemnity. (Section 703). Subject to such
provisions for the indemnification of the Senior Note Trustee, the Holders of a
majority in principal amount of the Outstanding Senior Notes of any series will
have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Senior Note Trustee, or exercising
any trust or power conferred on the Senior Note Trustee, with respect to the
Senior Notes of that series. (Section 612).
No Holder of a Senior Note of any series will have any right to institute
any proceeding with respect to the Senior Note Indenture, or for the
appointment of a receiver or a trustee, or for any other remedy thereunder,
unless (i) such Holder has previously given to the Senior Note Trustee written
notice of a continuing Event of Default with respect to the Senior Notes of
that series, (ii) the Holders of at least 25% in aggregate principal amount of
the Outstanding Senior Notes of that series have made written request, and such
Holder or Holders have offered reasonable indemnity, to the Senior Note Trustee
to institute such proceeding as trustee, and (iii) the Senior Note Trustee has
failed to institute such proceeding, and has not received from the Holders of a
majority in aggregate principal amount of the Outstanding Senior Notes of that
series a direction inconsistent with such request, within 60 days after such
notice, request
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and offer. (Section 607). However, such limitations do not apply to a suit
instituted by a Holder of a Senior Note for the enforcement of payment of the
principal of or any premium or interest on such Senior Note on or after the
applicable due date specified in such Senior Note. (Section 608).
The Company will be required to furnish to the Trustee annually a
statement by certain of its officers as to whether or not the Company, to their
knowledge, is in default in the performance or observance of any of the terms,
provisions and conditions of the Indenture and, if so, specifying all such
known defaults. (Section 1104).
MODIFICATION AND WAIVER
Modifications and amendments of the Senior Note Indenture may be made by
the Company and the Senior Note Trustee with the consent of the Holders of a
majority in principal amount of the Outstanding Senior Notes of each series
affected by such modification or amendment; provided, however, that no such
modification or amendment may, without the consent of the Holder of each
Outstanding Senior Note affected thereby, (a) change the Stated Maturity of the
principal of, or any instalment of principal of or interest on, any Senior
Note, (b) reduce the principal amount of, or any premium or interest on, any
Senior Note, (c) reduce the amount of principal of an Original Issue Discount
Note or any other Senior Note payable upon acceleration of the Maturity
thereof, (d) change the place or currency of payment of principal of, or any
premium or interest on, any Senior Note, (e) impair the right to institute suit
for the enforcement of any payment on or with respect to any Senior Note, (f)
prior to the Release Date, (i) impair the interest of the Senior Note Trustee
in the Senior Note Mortgage Bonds, (ii) reduce the principal amount of any
series of Senior Note Mortgage Bonds to an amount less than the principal
amount of the related Series of Notes, or (iii) alter the payment provisions of
the Senior Note Mortgage Bonds in a manner adverse to the Holders of the Notes,
or (g) reduce the percentage in principal amount of Outstanding Senior Notes of
any series, the consent of whose Holders is required for modification or
amendment of the Senior Note Indenture, reduce the percentage in principal
amount of Outstanding Senior Notes of any series necessary for waiver of
compliance with certain provisions of the Senior Note Indenture or for waiver
of certain defaults or modify such provisions with respect to modification and
waiver. (Section 1002).
The Holders of a majority in principal amount of the Outstanding Senior
Notes of any series may waive compliance by the Company with certain
restrictive provisions of the Senior Note Indenture. (Section 1108). The
Holders of a majority in principal amount of the Outstanding Senior Notes of
any series may waive any past default under the Senior Note Indenture, except a
default in the payment of principal, premium, or interest and certain covenants
and provisions of the Senior Note Indenture which cannot be amended without the
consent of the Holder of each Outstanding Senior Note of such series affected.
(Section 613).
The Senior Note Indenture provides that in determining whether the Holders
of the requisite principal amount of the Outstanding Senior Notes have given or
taken any direction, notice, consent, waiver, or other action under the Senior
Note Indenture as of any date, (i) the principal amount of an Original Issue
Discount Note that will be deemed to be Outstanding will be the amount of the
principal thereof that would be due and payable as of such date upon
acceleration of the Maturity thereof to such date, (ii) if, as of such date,
the principal amount payable at the Stated Maturity of a Senior Note is not
determinable (for example, because it is based on an index), the principal
amount of such Senior Note deemed to be Outstanding as of such date will be an
amount determined in the manner prescribed for such Senior Note and (iii) the
principal amount of a Senior Note denominated in one or more foreign currencies
or currency units that will be deemed to be Outstanding will be the U.S. dollar
equivalent, determined as of such date in the manner prescribed for such Senior
Note, of the principal amount of such Senior Note (or, in the case of a Senior
Note described in clause (i) or (ii) above, of the amount described in such
clause). Certain Senior Notes, including those for whose payment or redemption
money has been deposited or set aside in trust for the Holders and those that
have been fully defeased pursuant to Section 1402, will not be deemed to be
Outstanding. (Section 101).
Except in certain limited circumstances, the Company will be entitled to
set any day as a record date for the purpose of determining the Holders of
Outstanding Senior Notes of any series entitled to give or
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take any direction, notice, consent, waiver, or other action under the Senior
Note Indenture, in the manner and subject to the limitations provided in the
Senior Note Indenture. In certain limited circumstances, the Senior Note
Trustee will be entitled to set a record date for action by Holders. If a
record date is set for any action to be taken by Holders of a particular
series, such action may be taken only by persons who are Holders of Outstanding
Senior Notes of that series on the record date. To be effective, such action
must be taken by Holders of the requisite principal amount of such Senior Notes
within a specified period following the record date. For any particular record
date, this period will be 180 days or such other shorter period as may be
specified by the Company (or the Senior Note Trustee, if it set the record
date), and may be shortened or lengthened (but not beyond 180 days) from time
to time. (Section 104).
DEFEASANCE AND COVENANT DEFEASANCE
If and to the extent indicated in the applicable Prospectus Supplement,
the Company may elect, at its option at any time, to have the provisions of
Section 1402, relating to defeasance and discharge of indebtedness, or Section
1403, relating to defeasance of certain restrictive covenants in the Senior
Note Indenture, applied to the Senior Notes of any series, or to any specified
part of a series. (Section 1401).
DEFEASANCE AND DISCHARGE. The Senior Note Indenture provides that, upon
the Company's exercise of its option (if any) to have Section 1402 applied to
any Senior Notes, the Company will be discharged from all its obligations with
respect to such Senior Notes (except for certain obligations to exchange or
register the transfer of Senior Notes, to replace stolen, lost or mutilated
Senior Notes, to maintain paying agencies and to hold moneys for payment in
trust) upon the deposit in trust for the benefit of the Holders of such Senior
Notes of money or U.S. Government Obligations, or both, which, through the
payment of principal and interest in respect thereof in accordance with their
terms, will provide money in an amount sufficient to pay the principal of and
any premium and interest on such Senior Notes on the respective Stated
Maturities in accordance with the terms of the Senior Note Indenture and such
Senior Notes. UPON SUCH DEFEASANCE AND DISCHARGE, THE SENIOR NOTE TRUSTEE WILL
DELIVER TO THE COMPANY FOR CANCELLATION ALL SENIOR NOTE MORTGAGE BONDS SECURING
SUCH SENIOR NOTES, AFTER WHICH TIME SUCH SENIOR NOTES WILL NO LONGER BE SECURED
BY SENIOR NOTE MORTGAGE BONDS. Such defeasance and discharge may occur only if,
among other things, the Company has delivered to the Senior Note Trustee an
Opinion of Counsel to the effect that the Company has received from, or there
has been published by, the United States Internal Revenue Service a ruling, or
there has been a change in tax law, in either case to the effect that Holders
of such Senior Notes will not recognize gain or loss for federal income tax
purposes as a result of such deposit, defeasance, and discharge and will be
subject to federal income tax on the same amount, in the same manner and at the
same times as would have been the case if such deposit, defeasance and
discharge were not to occur. (Sections 1402 and 1404).
DEFEASANCE OF CERTAIN COVENANTS. The Senior Note Indenture provides that,
upon the Com-pany's exercise of its option (if any) to have Section 1403
applied to any Senior Notes, the Company may omit to comply with certain
restrictive covenants that may be described in the applicable Prospectus
Supplement, and the occurrence of certain Events of Default, which are
described above in clause (d) (with respect to such restrictive covenants)
under "Description of Senior Notes -- Events of Default" and any that may be
described in the applicable Prospectus Supplement, will be deemed not to be or
result in an Event of Default with respect to such Senior Notes. The Company,
in order to exercise such option, will be required to deposit, in trust for the
benefit of the Holders of such Senior Notes, money or U.S. Government
Obligations, or both, which, through the payment of principal and interest in
respect thereof in accordance with their terms, will provide money in an amount
sufficient to pay the principal of and any premium and interest on such Senior
Notes on the respective Stated Maturities in accordance with the terms of the
Senior Note Indenture and such Senior Notes. The Company will also be required,
among other things, to deliver to the Trustee an Opinion of Counsel to the
effect that Holders of such Senior Notes will not recognize gain or loss for
federal income tax purposes as a result of such deposit and defeasance of
certain obligations and will be subject to federal income tax on the same
amount, in the same manner and at the same times as would have been the case if
such deposit and defeasance were
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not to occur. In the event the Company exercised this option with respect to
any Senior Notes and such Senior Notes were declared due and payable because of
the occurrence of any Event of Default, the amount of money and U.S. Government
Obligations so deposited in trust would be sufficient to pay amounts due on
such Senior Notes at the time of their respective Stated Maturities but may not
be sufficient to pay amounts due on such Senior Notes upon any acceleration
resulting from such Event of Default. In such case, the Company would remain
liable for such payments. (Sections 1403 and 1404).
NOTICES
Notices to Holders of Senior Notes will be given by mail to the addresses
of such Holders as they may appear in the Note Register. (Sections 101 and
106).
TITLE
The Company, the Senior Note Trustee, and any agent of the Company or the
Senior Note Trustee may treat the Person in whose name a Senior Note is
registered as the absolute owner thereof (whether or not such Senior Note may
be overdue) for the purpose of making payment and for all other purposes.
(Section 308).
GOVERNING LAW
The Senior Note Indenture and the Senior Notes will be governed by, and
construed in accordance with, the law of the State of New York. (Section 112).
REGARDING THE SENIOR NOTE TRUSTEE
The Senior Note Trustee is The Bank of New York. The Company maintains
normal banking arrangements with The Bank of New York, which include (i) one
commitment in the aggregate principal amount of approximately $15.7 million by
The Bank of New York pursuant to a reimbursement agreement related to a letter
of credit issued on behalf of the Company in connection with an issuance of
pollution control bonds, the proceeds of which were made available to the
Company, and (ii) a $25 million commitment by The Bank of New York pursuant to
a revolving credit agreement, approximately $7.8 million of which was
outstanding at December 31, 1998. The Bank of New York also serves as (i)
trustee under the Mortgage, (ii) trustee for the holders of several issues of
pollution control bonds issued on behalf of the Company, (iii) trustee under
the Company's Indenture relating to subordinated Debt Securities (see below),
(iv) investment manager for the Company's nonunion post-retirement medical
fund, (v) custodian of international fixed-income assets for the Company's
pension plan, and (vi) an investment manager for the Company's 401(k) plan.
DESCRIPTION OF DEBT SECURITIES
GENERAL
The Debt Securities may be issued in one or more new series under an
Indenture between the Company and (i) The Bank of New York, in the case of
subordinated Debt Securities, and (ii) The Chase Manhattan Bank, in the case of
senior Debt Securities, or any other trustees to be named, as Trustee (each, a
"Trustee"). The following summary does not purport to be complete and is
subject in all respects to the provisions of, and is qualified in its entirety
by reference to, the Indentures pursuant to which the subordinated and senior
Debt Securities are to be issued and to the Debt Securities, the forms of which
are filed, or will be filed, as exhibits to the registration statement of which
this Prospectus forms a part. Whenever particular provisions or defined terms
in such documents are referred to herein or in a Prospectus Supplement, such
provisions or terms are incorporated by reference herein or therein, as the
case may be. The term "Debt Securities" does not include Senior Notes, which
are issued under the Senior Note Indenture. See "Description of Senior Notes."
The Debt Securities will be unsecured obligations of the Company. Separate
Indentures will be used for senior Debt Securities and subordinated Debt
Securities, respectively, although the description of the Indenture herein,
except as specifically stated otherwise, applies to both Indentures.
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Reference is made to the Prospectus Supplement relating to any particular
issue of Offered Debt Securities for the following terms: (1) the title of such
Debt Securities; (2) any limit on the aggregate principal amount of such Debt
Securities or the series of which they are a part; (3) the date or dates on
which the principal of any of such Debt Securities will be payable; (4) the
rate or rates at which any of such Debt Securities will bear interest, if any,
the date or dates from which any such interest will accrue, the Interest
Payment Dates on which any such interest will be payable and the Regular Record
Date for any such interest payable on any Interest Payment Date; (5) the place
or places where the principal of and any premium and interest on any of such
Debt Securities will be payable, if other than as described under "Description
of Debt Securities -- Payment and Paying Agents"; (6) the period or periods
within which, the price or prices at which and the terms and conditions on
which any of such Debt Securities may be redeemed, in whole or in part, at the
option of the Company; (7) the obligation, if any, of the Company to redeem or
purchase any of such Debt Securities pursuant to any sinking fund or analogous
provision or at the option of the Holder thereof, and the period or periods
within which, the price or prices at which and the terms and conditions on
which any of such Debt Securities will be redeemed or purchased, in whole or in
part, pursuant to any such obligation; (8) the denominations in which any of
such Debt Securities will be issuable, if other than denominations of $1,000
and any integral multiple thereof; (9) if the amount of principal of or any
premium or interest on any of such Debt Securities may be determined with
reference to an index or pursuant to a formula, the manner in which such
amounts will be determined; (10) if other than the currency of the United
States of America, the currency, currencies, or currency units in which the
principal of or any premium or interest on any of such Debt Securities will be
payable and the manner of determining the equivalent thereof in the currency of
the United States of America for any purpose, including for purposes of
determining the principal amount deemed to be Outstanding at any time; (11) if
the principal of or any premium or interest on any of such Debt Securities is
to be payable, at the election of the Company or the Holder thereof, in one or
more currencies, or currency units other than those in which such Debt
Securities are stated to be payable, the currency, currencies or currency units
in which payment of any such amount as to which such election is made will be
payable, the periods within which and the terms and conditions upon which such
election is to be made and the amount so payable (or the manner in which such
amount is to be determined); (12) if other than the entire principal amount
thereof, the portion of the principal amount of any of such Debt Securities
which will be payable upon declaration of acceleration of the Maturity thereof;
(13) if the principal amount payable at the Stated Maturity of any of such Debt
Securities will not be determinable as of any one or more dates prior to the
Stated Maturity, the amount which will be deemed to be such principal amount as
of any such date for any purpose, including the principal amount thereof which
will be due and payable upon any Maturity other than the Stated Maturity or
which will be deemed to be Outstanding as of any such date (or, in any such
case, the manner in which such deemed principal amount is to be determined);
(14) if applicable, that such Debt Securities, in whole or any specified part,
are defeasible pursuant to the provisions of the Indenture described under
"Description of Debt Securities -- Defeasance and Covenant Defeasance --
Defeasance and Discharge" or "Description of Debt Securities -- Defeasance and
Covenant Defeasance -- Covenant Defeasance," or under both such captions; (15)
whether any of such Debt Securities will be issuable in whole or in part in the
form of one or more Global Securities and, if so, the respective Depositaries
for such Global Securities, the form of any legend or legends to be borne by
any such Global Security in addition to or in lieu of the legend referred to
under "Description of Debt Securities -- Global Securities" and, if different
from those described under such caption, any circumstances under which any such
Global Security may be exchanged in whole or in part for Debt Securities
registered, and any transfer of such Global Security in whole or in part may be
registered, in the names of Persons other than the Depositary for such Global
Security or its nominee; (16) any addition to or change in the Events of
Default applicable to any of such Debt Securities and any change in the right
of the Trustee or the Holders to declare the principal amount of any of such
Debt Securities due and payable; (17) any addition to or change in the
covenants in the Indenture; and (18) any other terms of such Debt Securities
not inconsistent with the provisions of the Indenture. (Section 301).
Debt Securities, including Original Issue Discount Securities, may be sold
at a substantial discount below their principal amount. Certain special United
States federal income tax considerations (if any)
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applicable to Debt Securities sold at an original issue discount may be
described in the applicable Prospectus Supplement. In addition, certain special
United States federal income tax or other considerations (if any) applicable to
any Debt Securities which are denominated in a currency or currency unit other
than United States dollars may be described in the applicable Prospectus
Supplement.
Except as otherwise described in the Prospectus Supplement, the covenants
contained in the Indenture would not afford holders of Debt Securities
protection in the event of a highly-leveraged transaction involving the
Company.
SUBORDINATION
The Indenture relating to the subordinated Debt Securities provides that,
unless otherwise provided in a supplemental indenture or a Board Resolution,
the Debt Securities will be subordinate and subject in right of payment to the
prior payment in full of all Senior Debt of the Company, whether outstanding as
of the date of the Indenture or thereafter incurred. (Section 1401). The
balance of the information under this "Subordination" heading assumes that the
relevant supplemental indenture or Board Resolution results in the
corresponding series of Debt Securities being subordinated obligations of the
Company.
No payment of principal of (including redemption and sinking fund
payments), premium, if any, or interest on, the subordinated Debt Securities
may be made if any Senior Debt is not paid when due, any applicable grace
period with respect to such default has ended and such default has not been
cured or waived, or if the maturity of any Senior Debt has been accelerated
because of a default. (Section 1402). Upon any distribution of assets of the
Company to creditors upon any dissolution, winding-up, liquidation or
reorganization, whether voluntary or involuntary or in bankruptcy, insolvency,
receivership or other proceedings, all principal of, and premium, if any, and
interest due or to become due on, all Senior Debt must be paid in full before
the holders of the subordinated Debt Securities are entitled to receive or
retain any payment. (Section 1403). The rights of the holders of the
subordinated Debt Securities will be subordinated to the rights of the holders
of Senior Debt to receive payments or distributions applicable to Senior Debt
until all amounts owing on the Debt Securities are paid in full. (Section
1404).
The term "Senior Debt" shall mean the principal of, premium, if any,
interest on and any other payment due pursuant to any of the following, whether
outstanding at the date of execution of the Indenture or thereafter incurred,
created or assumed:
(a) all indebtedness of the Company evidenced by notes, debentures,
bonds, or other securities sold by the Company for money, including all
first mortgage bonds of the Company outstanding from time to time;
(b) all indebtedness of others of the kinds described in the preceding
clause (a) assumed by or guaranteed in any manner by the Company; and
(c) all renewals, extensions, or refundings of indebtedness of the
kinds described in any of the preceding clauses (a) and (b);
unless, in the case of any particular indebtedness, renewal, extension or
refunding, the instrument creating or evidencing the same or the assumption or
guarantee of the same expressly provides that such indebtedness, renewal,
extension or refunding is not superior in right of payment to or is pari passu
with the Debt Securities. (Section 101).
The Indenture does not limit the aggregate amount of Senior Debt that the
Company may issue. As of December 31, 1998, outstanding Senior Debt and
subordinated debt of the Company aggregated approximately $2.0 billion and $75
million, respectively. Any Senior Notes issued by the Company would constitute
Senior Debt, whether before or after the Release Date. See "Description of
Senior Notes -- Release Date."
FORM, EXCHANGE, AND TRANSFER
The Debt Securities of each series will be issuable only in fully
registered form without coupons and, unless otherwise specified in the
applicable Prospectus Supplement, in denominations of $1,000 and any integral
multiple thereof. (Section 302).
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At the option of the Holder, subject to the terms of the Indenture and the
limitations applicable to Global Securities, Debt Securities of any series will
be exchangeable for other Debt Securities of the same series, of any authorized
denomination and of like tenor and aggregate principal amount. (Section 305).
Subject to the terms of the Indenture and the limitations applicable to
Global Securities, Debt Securities may be presented for exchange as provided
above or for registration of transfer (duly endorsed or with the form of
transfer endorsed thereon duly executed) at the office of the Security
Registrar or at the office of any transfer agent designated by the Company for
such purpose. No service charge will be made for any registration of transfer
or exchange of Debt Securities, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith. Such transfer or exchange will be effected upon the Security
Registrar or such transfer agent, as the case may be, being satisfied with the
documents of title and identity of the person making the request. The Company
has appointed the Trustee as Security Registrar. Any transfer agent (in
addition to the Security Registrar) initially designated by the Company for any
Debt Securities will be named in the applicable Prospectus Supplement. (Section
305). The Company may at any time designate additional transfer agents or
rescind the designation of any transfer agent or approve a change in the office
through which any transfer agent acts, except that the Company will be required
to maintain a transfer agent in each Place of Payment for the Debt Securities
of each series. (Section 1002).
If the Debt Securities of any series (or of any series and specified
tenor) are to be redeemed, the Company will not be required to (i) issue,
register the transfer of, or exchange any Debt Security of that series (or of
that series and specified tenor, as the case may be) during a period beginning
at the opening of business 15 days before the day of mailing of a notice of
redemption of any such Debt Security that may be selected for redemption and
ending at the close of business on the day of such mailing or (ii) register the
transfer of or exchange any Debt Security so selected for redemption, in whole
or in part, except the unredeemed portion of any such Debt Security being
redeemed in part. (Section 305).
GLOBAL SECURITIES
Some or all of the Debt Securities of any series may be represented, in
whole or in part, by one or more Global Securities which will have an aggregate
principal amount equal to that of the Debt Securities represented thereby. Each
Global Security will be registered in the name of a Depositary or a nominee
thereof identified in the applicable Prospectus Supplement, will be deposited
with such Depositary or nominee or a custodian therefor and will bear a legend
regarding the restrictions on exchanges and registration of transfer thereof
referred to below and any such other matters as may be provided for pursuant to
the Indenture.
Notwithstanding any provision of the Indenture or any Debt Security
described herein, no Global Security may be exchanged in whole or in part for
Debt Securities registered, and no transfer of a Global Security in whole or in
part may be registered, in the name of any Person other than the Depositary for
such Global Security or any nominee of such Depositary unless (i) the
Depositary has notified the Company that it is unwilling or unable to continue
as Depositary for such Global Security or has ceased to be qualified to act as
such as required by the Indenture, (ii) there shall have occurred and be
continuing an Event of Default with respect to the Debt Securities represented
by such Global Security or (iii) there shall exist such circumstances, if any,
in addition to or in lieu of those described above as may be described in the
applicable Prospectus Supplement. All securities issued in exchange for a
Global Security or any portion thereof will be registered in such names as the
Depositary may direct. (Sections 204 and 305).
As long as the Depositary, or its nominee, is the registered Holder of a
Global Security, the Depositary or such nominee, as the case may be, will be
considered the sole owner and Holder of such Global Security and the Debt
Securities represented thereby for all purposes under the Debt Securities and
the Indenture. Except in the limited circumstances referred to above, owners of
beneficial interests in a Global Security will not be entitled to have such
Global Security or any Debt Securities represented thereby registered in their
names, will not receive or be entitled to receive physical delivery of
certificated
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Debt Securities in exchange therefor and will not be considered to be the
owners or Holders of such Global Security or any Debt Securities represented
thereby for any purpose under the Debt Securities or the Indenture. All
payments of principal of and any premium and interest on a Global Security will
be made to the Depositary or its nominee, as the case may be, as the Holder
thereof. The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of such securities in definitive form. These
laws may impair the ability to transfer beneficial interests in a Global
Security.
Ownership of beneficial interests in a Global Security will be limited to
institutions that have accounts with the Depositary or its nominee
("participants") and to persons that may hold beneficial interests through
participants. In connection with the issuance of any Global Security, the
Depositary will credit, on its book-entry registration and transfer system, the
respective principal amounts of Debt Securities represented by the Global
Security to the accounts of its participants. Ownership of beneficial interests
in a Global Security will be shown only on, and the transfer of those ownership
interests will be effected only through, records maintained by the Depositary
(with respect to participants' interests) or any such participant (with respect
to interests of persons held by such participants on their behalf). Payments,
transfers, exchanges, and others matters relating to beneficial interests in a
Global Security may be subject to various policies and procedures adopted by
the Depositary from time to time. None of the Company, the Trustee or any agent
of the Company or the Trustee will have any responsibility or liability for any
aspect of the Depositary's or any participant's records relating to, or for
payments made on account of, beneficial interests in a Global Security, or for
maintaining, supervising, or reviewing any records relating to such beneficial
interests.
PAYMENT AND PAYING AGENTS
Unless otherwise indicated in the applicable Prospectus Supplement,
payment of interest on a Debt Security on any Interest Payment Date will be
made to the Person in whose name such Debt Security (or one or more Predecessor
Debt Securities) is registered at the close of business on the Regular Record
Date for such interest. (Section 307).
Unless otherwise indicated in the applicable Prospectus Supplement,
principal of and any premium and interest on the Debt Securities of a
particular series will be payable at the office of such Paying Agent or Paying
Agents as the Company may designate for such purpose from time to time, except
that at the option of the Company payment of any interest may be made by check
mailed to the address of the Person entitled thereto as such address appears in
the Security Register. Unless otherwise indicated in the applicable Prospectus
Supplement, the corporate trust office of the Trustee in The City of New York
will be designated as the Company's sole Paying Agent for payments with respect
to Debt Securities of each series. Any other Paying Agents initially designated
by the Company for the Debt Securities of a particular series will be named in
the applicable Prospectus Supplement. The Company may at any time designate
additional Paying Agents or rescind the designation of any Paying Agent or
approve a change in the office through which any Paying Agent acts, except that
the Company will be required to maintain a Paying Agent in each Place of
Payment for the Debt Securities of a particular series. (Section 1002).
All moneys paid by the Company to a Paying Agent for the payment of the
principal of or any premium or interest on any Debt Security which remain
unclaimed at the end of two years after such principal, premium or interest has
become due and payable will be repaid to the Company, and the Holder of such
Debt Security thereafter may look only to the Company for payment thereof.
(Section 1003).
CONSOLIDATION, MERGER, AND SALE OF ASSETS
Unless otherwise indicated in the applicable Prospectus Supplement, the
Company may not consolidate with or merge into any other Person or convey,
transfer or lease its properties and assets substantially as an entirety to any
Person, and may not permit any Person to consolidate with or merge into the
Company or convey, transfer, or lease its properties and assets substantially
as an entirety to the Company, unless (i) the successor Person (if any) is a
corporation, partnership, trust or other entity organized and validly existing
under the laws of any domestic jurisdiction and assumes the Company's
obligations on the Debt Securities and under the Indenture, (ii) immediately
after giving effect to the
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transaction, no Event of Default, and no event which, after notice or lapse of
time or both, would become an Event of Default, shall have occurred and be
continuing and (iii) certain other conditions are met. (Section 801). Upon any
such merger, consolidation or transfer or lease of properties, the successor
person will be substituted for the Company under the Indenture and thereafter,
except in the case of a lease, the predecessor person will be relieved of all
obligations and covenants under the Indenture and the Debt Securities (Section
802).
EVENTS OF DEFAULT
Each of the following will constitute an Event of Default under the
Indenture with respect to Debt Securities of any series: (a) failure to pay
principal of or any premium on any Debt Security of that series when due; (b)
failure to pay any interest on any Debt Securities of that series when due,
continued for 30 days; (c) failure to deposit any sinking fund payment, when
due, in respect of any Debt Security of that series; (d) failure to perform any
other covenant of the Company in the Indenture (other than a covenant included
in the Indenture solely for the benefit of a series other than that series),
continued for 90 days after written notice has been given by the Trustee, or
the Holders of at least 25% in principal amount of the Outstanding Debt
Securities of that series, as provided in the Indenture; and (e) certain events
in bankruptcy, insolvency or reorganization. (Section 501).
If an Event of Default (other than an Event of Default described in clause
(e) above) with respect to the Debt Securities of any series at the time
Outstanding shall occur and be continuing, either the Trustee or the Holders of
at least 25% in aggregate principal amount of the Outstanding Debt Securities
of that series by notice as provided in the Indenture may declare the principal
amount of the Debt Securities of that series (or, in the case of any Debt
Security that is an Original Issue Discount Security or the principal amount of
which is not then determinable, such portion of the principal amount of such
Debt Security, or such other amount in lieu of such principal amount, as may be
specified in the terms of such Debt Security) to be due and payable
immediately. If an Event of Default described in clause (e) above with respect
to the Debt Securities of any series at the time Outstanding shall occur, the
principal amount of all the Debt Securities of that series (or, in the case of
any such Original Issue Discount Security or other Debt Security, such
specified amount) will automatically, and without any action by the Trustee or
any Holder, become immediately due and payable. After any such acceleration,
but before a judgment or decree based on acceleration, the Holders of a
majority in aggregate principal amount of the Outstanding Debt Securities of
that series may, under certain circumstances, rescind and annul such
acceleration if all Events of Default, other than the non-payment of
accelerated principal (or other specified amount), have been cured or waived as
provided in the Indenture. (Section 502). For information as to waiver of
defaults, see "Modification and Waiver."
Subject to the provisions of the Indenture relating to the duties of the
Trustee in case an Event of Default shall occur and be continuing, the Trustee
will be under no obligation to exercise any of its rights or powers under the
Indenture at the request or direction of any of the Holders, unless such
Holders shall have offered to the Trustee reasonable indemnity. (Section 603).
Subject to such provisions for the indemnification of the Trustee, the Holders
of a majority in principal amount of the Outstanding Debt Securities of any
series will have the right to direct the time, method and place of conducting
any proceeding for any remedy available to the Trustee, or exercising any trust
or power conferred on the Trustee, with respect to the Debt Securities of that
series. (Section 512).
No Holder of a Debt Security of any series will have any right to
institute any proceeding with respect to the Indenture, or for the appointment
of a receiver or a trustee, or for any other remedy thereunder, unless (i) such
Holder has previously given to the Trustee written notice of a continuing Event
of Default with respect to the Debt Securities of that series, (ii) the Holders
of at least 25% in aggregate principal amount of the Outstanding Debt
Securities of that series have made written request, and such Holder or Holders
have offered reasonable indemnity, to the Trustee to institute such proceeding
as trustee and (iii) the Trustee has failed to institute such proceeding, and
has not received from the Holders of a majority in aggregate principal amount
of the Outstanding Debt Securities of that series a direction inconsistent with
such request, within 60 days after such notice, request and offer. (Section
507). However, such
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limitations do not apply to a suit instituted by a Holder of a Debt Security
for the enforcement of payment of the principal of or any premium or interest
on such Debt Security on or after the applicable due date specified in such
Debt Security. (Section 508).
The Company will be required to furnish to the Trustee annually a
statement by certain of its officers as to whether or not the Company, to their
knowledge, is in default in the performance or observance of any of the terms,
provisions and conditions of the Indenture and, if so, specifying all such
known defaults. (Section 1004).
MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by the Company
and the Trustee without the consent of the Holders of any series of Debt
Securities in certain limited cases. Modifications and amendments of the
Indenture may also be made by the Company and the Trustee with the consent of
the Holders of not less than 66 2/3% in aggregate principal amount of the
Outstanding Debt Securities of each series affected by such modification or
amendment; provided, however, that no such modification or amendment may,
without the consent of the Holder of each Outstanding Debt Security affected
thereby, (a) change the Stated Maturity of the principal of, or any instalment
of principal of or interest on, any Debt Security, (b) reduce the principal
amount of, or any premium or interest on, any Debt Security, (c) reduce the
amount of principal of an Original Issue Discount Security or any other Debt
Security payable upon acceleration of the Maturity thereof, (d) change the
place or currency of payment of principal of, or any premium or interest on,
any Debt Security, (e) impair the right to institute suit for the enforcement
of any payment on or with respect to any Debt Security, (f) reduce the
percentage in principal amount of Outstanding Debt Securities of any series,
the consent of whose Holders is required for modification or amendment of the
Indenture, reduce the percentage in principal amount of Outstanding Debt
Securities of any series necessary for waiver of compliance with certain
provisions of the Indenture or for waiver of certain defaults or modify such
provisions with respect to modification and waiver. (Section 902).
The Holders of not less than 66 2/3% in aggregate principal amount of the
Outstanding Debt Securities of any series may waive compliance by the Company
with certain restrictive provisions of the Indenture. (Section 1008). The
Holders of a majority in principal amount of the Outstanding Debt Securities of
any series may waive any past default under the Indenture, except a default in
the payment of principal, premium, or interest and certain covenants and
provisions of the Indenture which cannot be amended without the consent of the
Holder of each Outstanding Debt Security of such series affected. (Section
513).
The Indenture provides that in determining whether the Holders of the
requisite principal amount of the Outstanding Debt Securities have given or
taken any direction, notice, consent, waiver, or other action under the
Indenture as of any date, (i) the principal amount of an Original Issue
Discount Security that will be deemed to be Outstanding will be the amount of
the principal thereof that would be due and payable as of such date upon
acceleration of the Maturity thereof to such date, (ii) if, as of such date,
the principal amount payable at the Stated Maturity of a Debt Security is not
determinable (for example, because it is based on an index), the principal
amount of such Debt Security deemed to be Outstanding as of such date will be
an amount determined in the manner prescribed for such Debt Security and (iii)
the principal amount of a Debt Security denominated in one or more foreign
currencies or currency units that will be deemed to be Outstanding will be the
U.S. dollar equivalent, determined as of such date in the manner prescribed for
such Debt Security, of the principal amount of such Debt Security (or, in the
case of a Debt Security described in clause (i) or (ii) above, of the amount
described in such clause). Certain Debt Securities, including those for whose
payment or redemption money has been deposited or set aside in trust for the
Holders and those that have been fully defeased pursuant to Section 1302, will
not be deemed to be Outstanding. (Section 101).
Except in certain limited circumstances, the Company will be entitled to
set any day as a record date for the purpose of determining the Holders of
Outstanding Debt Securities of any series entitled to give or take any
direction, notice, consent, waiver, or other action under the Indenture, in the
manner and subject to the limitations provided in the Indenture. In certain
limited circumstances, the Trustee will be entitled to set a record date for
action by Holders. If a record date is set for any action to be taken by
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Holders of a particular series, such action may be taken only by persons who
are Holders of Outstanding Debt Securities of that series on the record date.
To be effective, such action must be taken by Holders of the requisite
principal amount of such Debt Securities within a specified period following
the record date. For any particular record date, this period will be 180 days
or such other shorter period as may be specified by the Company (or the
Trustee, if it set the record date), and may be shortened or lengthened (but
not beyond 180 days) from time to time. (Section 104).
DEFEASANCE AND COVENANT DEFEASANCE
If and to the extent indicated in the applicable Prospectus Supplement,
the Company may elect, at its option at any time, to have the provisions of
Section 1302, relating to defeasance and discharge of indebtedness, or Section
1303, relating to defeasance of certain restrictive covenants in the Indenture,
applied to the Debt Securities of any series, or to any specified part of a
series. (Section 1301).
DEFEASANCE AND DISCHARGE. The Indenture provides that, upon the Company's
exercise of its option (if any) to have Section 1302 applied to any Debt
Securities, the Company will be discharged from all its obligations with
respect to such Debt Securities (except for certain obligations to exchange or
register the transfer of Debt Securities, to replace stolen, lost or mutilated
Debt Securities, to maintain paying agencies and to hold moneys for payment in
trust) upon the deposit in trust for the benefit of the Holders of such Debt
Securities of money or U.S. Government Obligations, or both, which, through the
payment of principal and interest in respect thereof in accordance with their
terms, will provide money in an amount sufficient to pay the principal of and
any premium and interest on such Debt Securities on the respective Stated
Maturities in accordance with the terms of the Indenture and such Debt
Securities. Such defeasance or discharge may occur only if, among other things,
the Company has delivered to the Trustee an Opinion of Counsel to the effect
that the Company has received from, or there has been published by, the United
States Internal Revenue Service a ruling, or there has been a change in tax
law, in either case to the effect that Holders of such Debt Securities will not
recognize gain or loss for federal income tax purposes as a result of such
deposit, defeasance, and discharge and will be subject to federal income tax on
the same amount, in the same manner and at the same times as would have been
the case if such deposit, defeasance and discharge were not to occur. (Sections
1302 and 1304).
DEFEASANCE OF CERTAIN COVENANTS. The Indenture provides that, upon the
Company's exercise of its option (if any) to have Section 1303 applied to any
Debt Securities, the Company may omit to comply with certain restrictive
covenants that may be described in the applicable Prospectus Supplement, and
the occurrence of certain Events of Default, which are described above in
clause (d) (with respect to such restrictive covenants) under "Events of
Default" and any that may be described in the applicable Prospectus Supplement,
will be deemed not to be or result in an Event of Default and the provisions of
Article Fourteen relating to subordination (included in the Indenture relating
to subordinated Debt Securities) will cease to be effective, in each case with
respect to such Debt Securities. The Company, in order to exercise such option,
will be required to deposit, in trust for the benefit of the Holders of such
Debt Securities, money or U.S. Government Obligations, or both, which, through
the payment of principal and interest in respect thereof in accordance with
their terms, will provide money in an amount sufficient to pay the principal of
and any premium and interest on such Debt Securities on the respective Stated
Maturities in accordance with the terms of the Indenture and such Debt
Securities. The Company will also be required, among other things, to deliver
to the Trustee an Opinion of Counsel to the effect that Holders of such Debt
Securities will not recognize gain or loss for federal income tax purposes as a
result of such deposit and defeasance of certain obligations and will be
subject to federal income tax on the same amount, in the same manner and at the
same times as would have been the case if such deposit and defeasance were not
to occur. In the event the Company exercised this option with respect to any
Debt Securities and such Debt Securities were declared due and payable because
of the occurrence of any Event of Default, the amount of money and U.S.
Government Obligations so deposited in trust would be sufficient to pay amounts
due on such Debt Securities at the time of their respective Stated Maturities
but may not be sufficient to pay amounts due on such Debt Securities upon any
acceleration resulting from such Event of Default. In such case, the Company
would remain liable for such payments. (Sections 1303 and 1304).
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NOTICES
Notices to Holders of Debt Securities will be given by mail to the
addresses of such Holders as they may appear in the Security Register.
(Sections 101 and 106).
TITLE
The Company, the Trustee, and any agent of the Company or the Trustee may
treat the Person in whose name a Debt Security is registered as the absolute
owner thereof (whether or not such Debt Security may be overdue) for the
purpose of making payment and for all other purposes. (Section 308).
GOVERNING LAW
The Indenture and the Debt Securities will be governed by, and construed
in accordance with, the law of the State of New York. (Section 112).
REGARDING THE TRUSTEES
The Trustee under the Indenture relating to the subordinated Debt
Securities is The Bank of New York. The Company maintains normal banking
arrangements with The Bank of New York, which include (i) one commitment in the
aggregate principal amount of approximately $15.7 million by The Bank of New
York pursuant to a reimbursement agreement related to a letter of credit issued
on behalf of the Company in connection with an issuance of pollution control
bonds, the proceeds of which were made available to the Company, and (ii) a $25
million commitment by The Bank of New York pursuant to a revolving credit
agreement, approximately $7.8 million of which was outstanding at December 31,
1998. The Bank of New York also serves as (i) trustee under the Mortgage (see
"Description of New Bonds"), (ii) trustee for the holders of several issues of
pollution control bonds issued on behalf of the Company, (iii) trustee under
the Senior Note Indenture (see "Description of Senior Notes"), (iv) investment
manager for the Company's nonunion post-retirement medical fund, (v) custodian
of international fixed-income assets for the Company's pension plan, and (vi)
an investment manager for the Company's 401(k) plan. The Trustee under the
Indenture relating to the senior Debt Securities is The Chase Manhattan Bank.
The Company maintains normal banking arrangements with The Chase Manhattan
Bank. The Chase Manhattan Bank also (i) serves as trustee for the holders of
several series of bonds secured by, among other things, the Company's payments
under its Palo Verde Nuclear Generating Station leases (these bonds were issued
by a party unaffiliated with the Company), (ii) serves as an issuing and paying
agent with respect to the Company's commercial paper program, and (iii) has a
commitment to lend the Company up to $55 million under a revolving credit
agreement, approximately $17.2 million of which was outstanding as of December
31, 1998. In addition, an affiliate of The Chase Manhattan Bank is the lessor
with respect to a lease with the Company relating to the sale and leaseback of
a portion of Unit 2 of the Palo Verde Nuclear Generating Station.
PLAN OF DISTRIBUTION
The Company intends to sell up to $400 million in aggregate principal
amount of the Offered Securities to or through underwriters or dealers, and may
also sell the Offered Securities directly to other purchasers or through
agents, as described in the Prospectus Supplement relating to an issue of
Offered Securities.
The distribution of the Offered Securities may be effected from time to
time in one or more transactions at a fixed price or prices, which may be
changed, or at market prices prevailing at the time of sale, at prices related
to such prevailing market prices, or at negotiated prices.
In connection with the sale of the Offered Securities, underwriters may
receive compensation from the Company or from purchasers of Offered Securities
for whom they may act as agents in the form of discounts, concessions, or
commissions. Underwriters may sell Offered Securities to or through dealers,
and such dealers may receive compensation in the form of discounts,
concessions, or commissions from the underwriters and/or commissions from the
purchasers for whom they may act as agents. Underwriters, dealers, and agents
that participate in the distribution of Offered Securities may be deemed to
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be underwriters, and any discounts or commissions received by them from the
Company and any profit on the resale of Offered Securities by them may be
deemed to be underwriting discounts and commissions under the Securities Act of
1933 (the "1933 Act"). Any such person who may be deemed to be an underwriter
will be identified, and any such compensation received from the Company will be
described, in the Prospectus Supplement.
Under agreements which may be entered into by the Company, underwriters,
dealers, and agents who participate in the distribution of the Offered
Securities may be entitled to indemnification by the Company against certain
liabilities, including liabilities under the 1933 Act.
EXPERTS
The financial statements incorporated in this Prospectus by reference to
the Company's 1997 Annual Report on Form 10-K have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report, which is
incorporated herein by reference, and have been so incorporated in reliance
upon the report of such firm given upon their authority as experts in
accounting and auditing.
LEGAL OPINIONS
The validity of the Securities offered hereby will be passed upon for the
Company by Snell & Wilmer L.L.P., One Arizona Center, Phoenix, Arizona 85004,
and, it is currently anticipated, for any underwriters of Securities by
Sullivan & Cromwell, 1888 Century Park East, Los Angeles, California 90067. In
giving their opinions, Sullivan & Cromwell and Snell & Wilmer L.L.P. may rely
as to matters of New Mexico law upon the opinion of Keleher & McLeod, P.A.,
1200 Public Service Building, Albuquerque, New Mexico 87102, Sullivan &
Cromwell may rely as to all matters of Arizona law upon the opinion of Snell &
Wilmer L.L.P., and Snell & Wilmer L.L.P. may rely as to all matters of New York
law upon the opinion of Sullivan & Cromwell.
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[GRAPHIC OMITTED]
Arizona Public Service
Company
