Filed Pursuant to Rule 424(b)(5)
Registration Nos. 333-94277 and
333-58445
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED JANUARY 21, 2000
$300,000,000
ARIZONA PUBLIC SERVICE COMPANY
7 5/8% NOTES DUE AUGUST 1, 2005
------------
We will pay interest on the notes each February 1 and August 1. We will
make the first interest payment on February 1, 2001. We may redeem the notes at
any time, if we pay a "make-whole premium." There is no sinking fund for the
notes. We do not intend to list the notes on any securities exchange or
quotation system.
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS
PUBLIC (1) COMMISSIONS TO APS (1)
------------ ---------- ------------
Per Note .................. 99.522% .6% 98.922%
Total ..................... $298,566,000 $1,800,000 $296,766,000
(1) Plus accrued interest from August 7, 2000.
Delivery of the notes in book-entry form only will be made on or about
August 7, 2000.
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
SALOMON SMITH BARNEY
BANC OF AMERICA SECURITIES LLC
J.P. MORGAN & Co.
The date of this Prospectus Supplement is August 2, 2000.
<PAGE>
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
PAGE
----
APPLICATION OF PROCEEDS .................................................. S-3
TERMS OF THE NOTES ....................................................... S-3
RATIO OF EARNINGS TO FIXED CHARGES ....................................... S-5
REGARDING THE TRUSTEE .................................................... S-5
UNDERWRITING ............................................................. S-5
PROSPECTUS
ABOUT THIS PROSPECTUS .................................................... 3
FORWARD-LOOKING STATEMENTS ............................................... 3
WHERE YOU CAN FIND MORE INFORMATION ...................................... 4
BUSINESS OF ARIZONA PUBLIC SERVICE COMPANY ............................... 5
RATIO OF EARNINGS TO FIXED CHARGES ....................................... 5
USE OF PROCEEDS .......................................................... 5
DESCRIPTION OF FIRST MORTGAGE BONDS ...................................... 5
DESCRIPTION OF DEBT SECURITIES ........................................... 9
GLOBAL SECURITIES ........................................................ 15
REGARDING THE TRUSTEES ................................................... 16
PLAN OF DISTRIBUTION ..................................................... 17
EXPERTS .................................................................. 17
LEGAL OPINIONS ........................................................... 17
----------
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 repay short-term borrowings (with an estimated average interest
rate of 6.5%) incurred:
* to redeem $75 million of our 10% Monthly Income Debt Securities
(MIDS) due January 31, 2025 in January 2000:
* to redeem $101.5 million of our First Mortgage Bonds, 10.25%
Series due May 15, 2020, called on May 15, 2000;
* to repay a $50 million floating-rate term loan due June 18, 2003
on June 14, 2000; and
* to repay a $10 million collateralized loan bearing interest at
5.375% at maturity on July 31, 2000; and
* to pay at maturity on September 15, 2000 a portion of the $100 million
that will become due on our First Mortgage Bonds, 5.75% Series due
2000.
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
First Mortgage Bonds, 5.75% Series due 2000 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: 7 5/8% Notes Due 2005
* TOTAL PRINCIPAL AMOUNT BEING ISSUED: $300,000,000
* DUE DATE FOR PRINCIPAL: August 1, 2005
* INTEREST RATE: 7 5/8%
* DATE INTEREST STARTS ACCRUING: August 7, 2000
* INTEREST DUE DATES: August 1 and February 1
* FIRST INTEREST DUE DATE: February 1, 2001
* REGULAR RECORD DATES FOR INTEREST: January 15 for February 1
interest; July 15 for August 1 interest
* COMPUTATION OF INTEREST: on the basis of a 360-day year of twelve
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 "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.
The notes will rank equally with all of our existing and future senior unsecured
debt and senior to all of our existing and future subordinated debt and will be
effectively subordinated to all of our secured debt. As of June
S-3
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30, 2000, we had $900 million of outstanding secured debt. The notes will not
have the benefit of the collateral that secures our First Mortgage Bonds. The
prospectus that accompanies this prospectus supplement describes our Debt
Securities and our First Mortgage Bonds under "Description of Debt Securities"
and "Description of First Mortgage Bonds."
REDEMPTION
We may redeem all or part of the notes at any time at our option at a
redemption price equal to the greater of (1) the principal amount of the notes
being redeemed plus accrued interest to the redemption date or (2) the
Make-Whole Amount for the notes being redeemed.
As used herein:
"MAKE-WHOLE AMOUNT" means 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, plus accrued interest on the principal amount of
the notes being redeemed to the redemption date.
"ADJUSTED TREASURY RATE" means, with respect to any redemption date,
(i) the yield, under the heading which represents the average for the
immediately preceding week, appearing in the most recently published
statistical release designated "H.15 (519)" or any successor publication
which is published weekly by the Board of Governors of the Federal Reserve
System and which establishes yields on actively traded United States
Treasury securities adjusted to constant maturity under the caption
"Treasury Constant Maturities," for the maturity corresponding to the
Comparable Treasury Issue (if no maturity is within three months before or
after the remaining term of the notes, yields for the two published
maturities most closely corresponding to the Comparable Treasury Issue
shall be determined and the Adjusted Treasury Rate shall be interpolated or
extrapolated from such yields on a straight line basis, rounding to the
nearest month) or (ii) if such release (or any successor release) is not
published during the week preceding the calculation date or does not
contain such yields, 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, in each case calculated on the third business day
preceding the redemption date, plus in each case 0.35%.
"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, if clause (ii) of the definition of Adjusted Treasury Rate is
applicable, 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.
S-4
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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.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the historical ratio of our earnings to
fixed charges for each of the indicated periods:
SIX MONTHS
ENDED TWELVE MONTHS ENDED
---------- --------------------------------------
JUNE 30, DECEMBER 31,
---------- --------------------------------------
2000 1999 1998 1997 1996 1995
---------- ------- ---- ---- ---- ----
3.43 2.05(a) 3.19 3.07 2.84 2.77
For the purposes of these computations, earnings are defined as the sum of
our pre-tax income plus our fixed charges and the fixed charges of our
subsidiaries. Fixed charges consist of interest on debt, amortization of debt
discount, premium, and expense, and an estimated interest factor in rentals.
----------
(a) The ratio for twelve months ended December, 1999 reflects an extraordinary
charge of $140 million for a regulatory disallowance.
REGARDING THE TRUSTEE
The Chase Manhattan Bank is the trustee under the indenture relating to the
notes. We maintain normal banking arrangements with The Chase Manhattan Bank.
The Chase Manhattan Bank also:
* serves as trustee for the holders of several series of bonds issued by
a party unaffiliated with us, secured by, among other things, our
payments under our Palo Verde Nuclear Generating Station leases;
* serves as an issuing and paying agent with respect to our commercial
paper program; and
* has a commitment to lend us up to $34.4 million under a revolving
credit agreement, none of which was outstanding as of June 30, 2000.
In addition, an affiliate of The Chase Manhattan Bank is the owner
participant under a trust to which we sold and leased back a portion of Unit 2
of the Palo Verde Nuclear Generating Station.
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated August 2, 2000, 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 .......... $150,000,000
Salomon Smith Barney, Inc. ...................... 90,000,000
Banc of America Securities LLC .................. 30,000,000
J.P. Morgan Securities Inc. ..................... 30,000,000
------------
Total ........................................ $300,000,000
============
S-5
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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 0.35% of the
principal amount per note. The underwriters and selling group members may allow
a discount of 0.25% 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 us .... .6% $1,800,000
Expenses payable by us .................................. .12% $ 350,000
The notes are a new issue of securities with no established trading market.
We do not intend to apply for the notes to be listed on any securities exchange
or to be quoted on any quotation system. 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 have agreed to indemnify the underwriters against 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 stabilizing transaction or 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. These
transactions, if commenced, may be discontinued at any time.
The underwriters and their affiliates engage in transactions with us, our
affiliates and our parent or perform services for us, 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. In this
regard, banking affiliates of each of Salomon Smith Barney, Inc. and Banc of
America Securities LLC are lenders to us and received a portion of the proceeds
of our short-term borrowings that will be repaid with the proceeds of sale of
the notes, and a banking affiliate of J.P. Morgan Securities Inc. is a lender to
us. In addition, Credit Suisse First Boston Corporation and Banc of America
Securities LLC are dealers under our commercial paper program, and J.P. Morgan
Securities Inc and an affiliate of Salomon Smith Barney, Inc. are remarketing
agents for certain series of pollution control bonds for which we are liable.
S-6
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Prospectus
ARIZONA PUBLIC SERVICE COMPANY
$525,000,000
First Mortgage Bonds
Debt Securities
We may offer and sell first mortgage bonds and debt securities from time to
time in one or more offerings. This prospectus provides you with a general
description of the first mortgage bonds and debt securities we may offer.
Each time we sell first mortgage bonds or debt securities, we will provide
a supplement to this prospectus that contains specific information about the
offering and the terms of the first mortgage bonds or debt securities. The
supplement may also add, update, or change information contained in this
prospectus. You should carefully read this prospectus and any supplement before
you invest in any of our first mortgage bonds or debt securities.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
----------
The date of this prospectus is January 21, 2000
<PAGE>
TABLE OF CONTENTS
Page
----
About This Prospectus ........................................... 3
Forward-Looking Statements ...................................... 3
Where You Can Find More Information ............................. 4
Business of Arizona Public Service Company ...................... 5
Ratio of Earnings to Fixed Charges .............................. 5
Use of Proceeds ................................................. 5
Description of First Mortgage Bonds ............................. 5
Description of Debt Securities .................................. 9
Global Securities ............................................... 15
Regarding the Trustees .......................................... 16
Plan of Distribution ............................................ 17
Experts ......................................................... 17
Legal Opinions .................................................. 17
2
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ABOUT THIS PROSPECTUS
This prospectus is part of a shelf registration statement that we filed
with the United States Securities and Exchange Commission, or the SEC. You
should rely only on the information contained or incorporated by reference in
this prospectus and in any supplement. We have not authorized any other person
to provide you with different information. If anyone provides you with different
or inconsistent information, you should not rely on it. We will not make an
offer to sell these securities in any jurisdiction where the offer or sale is
not permitted. You should assume that the information appearing in this
prospectus and the supplement to this prospectus is accurate as of the dates on
their covers. Our business, financial condition, results of operations, and
prospects may have changed since those dates.
FORWARD-LOOKING STATEMENTS
This prospectus, any accompanying prospectus supplement, and the additional
information described under the heading "Where You Can Find More Information"
may contain forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements are subject to risks
and uncertainties and are based on the beliefs and assumptions of our
management, based on information currently available to our management. When we
use words such as "believes," "expects," "anticipates," "intends," "plans,"
"estimates," "should," or similar expressions, we are making forward-looking
statements.
Forward-looking statements are not guarantees of performance. They involve
risks, uncertainties, and assumptions. Our future results may differ materially
from those expressed in these forward-looking statements. Many of the factors
that will determine these results are beyond our ability to control or predict.
These factors include, but are not limited to, the ongoing restructuring of the
electric industry; the outcome of regulatory proceedings relating to the
restructuring; regulatory, tax, and environmental legislation; our ability to
successfully compete outside our traditional regulated markets; regional
economic conditions, which could affect customer growth; the cost of debt and
equity capital; weather variations affecting customer usage; technological
developments in the electric industry; Year 2000 issues; and other
uncertainties, all of which are difficult to predict and many of which are
beyond our control. You are cautioned not to put undue reliance on any
forward-looking statements. For those statements, we claim the protection of the
safe harbor for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995.
3
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WHERE YOU CAN FIND MORE INFORMATION
AVAILABLE INFORMATION
We file annual, quarterly, and special reports, and other information with
the SEC. Our SEC filings are available to the public over the Internet at the
SEC's web site: http://www.sec.gov. You may also read and copy any document we
file at the SEC's public reference rooms in Washington, D.C., New York, New
York, and Chicago, Illinois. You may call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms. Reports and other information
concerning us can also be inspected and copied at the offices of the New York
Stock Exchange at 20 Broad Street, New York, New York 10005. You can also obtain
additional information about us at our web site: http://www.apsc.com.
INCORPORATION BY REFERENCE
The SEC allows us to incorporate by reference the information we file with
them, which means that we can disclose important information to you by referring
you to those documents. The information incorporated by reference is considered
to be part of this prospectus, and later information that we file with the SEC
will automatically update and supersede this information. We incorporate by
reference the documents listed below and any future filings we make with the SEC
under Sections 13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of 1934
until all securities are sold under this prospectus.
* Annual Report on Form 10-K for the fiscal year ended December 31,
1998;
* Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31,
June 30, and September 30, 1999; and
* Current Reports on Form 8-K dated January 11, February 18, May 14,
August 26, September 21, and November 2, 1999.
You may request a copy of these filings and will receive a copy of these
filings, at no cost, by writing or telephoning us at the following address:
Arizona Public Service Company
Office of the Secretary
Station 8102
P.O. Box 53999
Phoenix, Arizona 85072-3999
(602) 379-2608
4
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BUSINESS OF ARIZONA PUBLIC SERVICE COMPANY
We were incorporated in 1920 under the laws of Arizona and are engaged
principally in serving electricity in the State of Arizona. We are Arizona's
largest electric utility. We are a wholly-owned subsidiary of Pinnacle West
Capital Corporation. Our principal executive offices are located at 400 North
Fifth Street, Phoenix, Arizona 85004, 602-250-1000.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the historical ratio of our earnings to
fixed charges for each of the indicated periods:
Nine Months
Ended Twelve Months Ended
------------- ----------------------------------------------------
September 30, December 31,
------------- ----------------------------------------------------
1999 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ----
2.02 3.19 3.07 2.84 2.77 2.96
For the purposes of these computations, earnings are defined as the sum of
our pre-tax income plus our fixed charges and the fixed charges of our
subsidiaries. Fixed charges consist of interest on debt, amortization of debt
discount, premium, and expense, and an estimated interest factor in rentals.
USE OF PROCEEDS
We will add the net proceeds from any sale of first mortgage bonds or debt
securities to our general corporate funds. We will use the net proceeds to repay
debt and for general corporate purposes. A prospectus supplement may include
other uses of the net proceeds.
DESCRIPTION OF FIRST MORTGAGE BONDS
GENERAL
The following description highlights the general terms of the first
mortgage bonds. When we offer first mortgage bonds in the future, the prospectus
supplement will explain the particular terms of those securities and the extent
to which these general provisions will not apply.
Our mortgaged property will secure the first mortgage bonds. The first
mortgage bonds will be issued under a Mortgage and Deed of Trust, dated as of
July 1, 1946, between us and The Bank of New York. The Mortgage allows us to
issue first mortgage bonds in one or more series.
We have summarized selected provisions of the Mortgage below. The summary
is not complete. We have filed the form of the Mortgage as an exhibit to the
registration statement and you should read any provisions of the Mortgage that
may be important to you.
You should refer to the prospectus supplement attached to this prospectus
for the following information about a new series of first mortgage bonds:
* the aggregate principal amount of the first mortgage bonds;
* the date on which the first mortgage bonds mature;
* the interest rate;
* when the interest on the first mortgage bonds accrues and is payable;
* whether and when we can redeem the first mortgage bonds, and at what
price;
* the record dates for the payment of interest and principal;
* whether the first mortgage bonds will be issued in the form of one or
more global securities; and
* any other terms.
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We will pay interest to the person in whose name the first mortgage bonds
are registered at the close of business on the record date that precedes the
interest payment date. The supplemental indenture to the Mortgage that contains
the terms of the first mortgage bonds will also contain the record date. We will
issue the first mortgage bonds as fully registered bonds, without coupons, in
$1,000 denominations and multiples thereof. The holders of the first mortgage
bonds may transfer them at any time without any service or other charge, except
for transfer taxes and other governmental charges, if any. We, the trustee, and
any of our agents may treat the registered holder of a debt security as the
absolute owner for the purpose of making payments, giving notices, and for all
other purposes.
Other than the protections described in this prospectus and in the
prospectus supplement, holders of first mortgage bonds would not be protected by
the covenants in the Mortgage from a highly-leveraged transaction.
REDEMPTION
Unless indicated differently in a prospectus supplement, we may redeem the
first mortgage bonds at their principal amount plus accrued interest to the
redemption date in any of the following ways:
* in whole or in part using the proceeds when any of our mortgaged
property is taken under eminent domain;
* in whole or in part using the proceeds of the sale or other
disposition of property that is released from the lien of the
Mortgage;
* in whole, together with all other first mortgage bonds then
outstanding, within twelve months of a transaction involving the
transfer of substantially all of the property subject to the lien of
the Mortgage; or
* in whole or in part with cash deposited in a replacement fund.
SECURITY
The first mortgage bonds will rank on an equal basis with all first
mortgage bonds at any time outstanding under the Mortgage, except for any
sinking fund or similar fund that is provided for in a particular series. The
Mortgage creates a first mortgage lien on substantially all the property we own.
However, the lien does not cover a combined cycle plant that we lease or
interests in Unit 2 of the Palo Verde Nuclear Generating Station that we lease,
or any other property specifically excluded from the Mortgage. The Mortgage lien
and the title to some of our properties are subject to excepted encumbrances,
minor leases, defects, irregularities, and deficiencies, and are subject to the
considerations discussed below regarding the Four Corners Plant and Navajo Plant
locations. The Mortgage lien also extends to all property acquired after the
effective date of the Mortgage, other than specifically excluded property, for
which proper filings and recordings have been made. In the case of property
acquired after the effective date of the Mortgage lien, however, the Mortgage
lien is subject to encumbrances and to liens existing or placed on the property
at the time we acquire it.
Both the Four Corners Plant and the Navajo Plant are located on property
held under leases from the Navajo Tribe and easements from the Secretary of the
Interior. The leases extend from their 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. Although we own
the rights granted to us by the leases from the Navajo Tribe, we do not make any
representation about the Navajo Tribe's interest in the lands leased, but we are
not aware of any assertion of a contesting claim to the lands. We also do not
make any representations about the enforceability of the leases against the
Navajo Tribe.
The Mortgage requires us to keep our property encumbered in good repair and
working order as an operating system. However, we are permitted to permanently
discontinue or reduce the capacity of any property if:
* in the judgment of our Board of Directors, it is desirable in the
conduct of our business;
* a regulatory authority orders us to do so; or
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* we are going to sell or dispose of the property.
If we are not in default under the Mortgage, we may obtain a release from
the Mortgage lien of:
* unserviceable, obsolete, or unnecessary property, but only if we
replace the property with property of equal value; or
* other property that we have sold or otherwise disposed of, but only if
we:
* deposit with the trustee cash in an amount equal to the released
property's fair value;
* use redeemed or retired first mortgage bonds in an amount equal
to the released property's fair value; or
* use as a credit additional property we acquired within the
preceding five years that has fair value equal to the released
property's fair value.
The trustee may, and upon our request must, cancel and discharge the
Mortgage lien and all supplemental indentures to the Mortgage when we have
repaid all of the debt secured by the Mortgage.
ISSUANCE OF ADDITIONAL FIRST MORTGAGE BONDS
We may issue additional first mortgage bonds under the Mortgage in a
principal amount equal to:
* 60% of net property additions;
* the principal amount of redeemed or retired first mortgage bonds;
and/or
* deposited cash,
but only if our adjusted net earnings over the twelve-month period within
fifteen months preceding the month in which we issue the bonds are at least two
times the annual interest on all outstanding first mortgage bonds after the
issuance and on debt secured by prior liens. There are exceptions to this
earnings coverage requirement for first mortgage bonds issued on the basis of
redeemed or retired first mortgage bonds when the redeemed or retired first
mortgage bonds had a higher rate of interest and when other conditions are
satisfied.
We can support the issuance of new first mortgage bonds by using property
located on leaseholds or easements, such as the Four Corners and Navajo Plants,
if the leasehold or easement has an unexpired term of, or the term is extendable
at our option for, at least 30 years after the date of issuance, or if we may
remove the property without compensation.
As of September 30, 1999, we estimate that the Mortgage would have allowed
us to issue up to approximately $2.34 billion of additional first mortgage
bonds. In addition to complying with the Mortgage restrictions placed on the
issuance of additional first mortgage bonds, we must obtain the approval of the
Arizona Corporation Commission, which we refer to as the ACC, before incurring
long-term debt. Existing ACC orders allow us to have approximately $2.6 billion
in principal amount of long-term debt outstanding at any one time. We do not
expect these orders to limit our ability to meet our capital requirements.
REPLACEMENT FUND
So long as any of our first mortgage bonds are outstanding, the Mortgage
requires us to deposit cash with the trustee each calendar year in an amount
related to net additions to our mortgaged utility plant. However, we may satisfy
all or any part of this requirement by using redeemed or retired first mortgage
bonds, property additions, or property retirements. For 1998, our replacement
fund requirement was about $138 million. Any cash that we deposit may, upon our
request, be applied to the redemption or repurchase of first mortgage bonds. We
may withdraw the cash from the trustee by using additional property we acquire
or redeemed or retired first mortgage bonds. If we do not withdraw the cash from
the trustee within five years of deposit, the trustee must use the cash to
redeem outstanding first mortgage bonds. The prospectus supplement relating to a
particular series of first mortgage bonds may describe restrictions on our
ability to redeem the first mortgage bonds with cash we deposit with the trustee
to meet our replacement fund requirements.
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EVENTS OF DEFAULT
The following are defaults under the Mortgage:
* our failure to pay the principal of any first mortgage bond when due
and payable;
* our failure to pay interest on any first mortgage bond within 60 days
after it is due and payable;
* our failure to pay any installment of any fund required to be applied
to the purchase or redemption of first mortgage bonds within 60 days
after it is due and payable;
* bankruptcy, insolvency, and reorganization events involving us; and
* our failure to perform any other covenant of the Mortgage which
continues for 90 days after notice by the trustee or holders of 15% in
principal amount of eligible bonds.
The Mortgage allows the trustee to withhold notice of defaults if the
trustee determines in good faith that withholding the notice is in the interests
of the bondholders. The trustee may not withhold notice of any default in the
payment of principal or interest or any sinking, improvement, replacement, or
purchase fund installment.
Those holding at least a majority in principal amount of the first mortgage
bonds may direct the time, method, and place of conducting any proceeding for
any remedy available to the trustee. However, the trustee may decline to follow
any direction under some circumstances, including the trustee's good faith
determination that it will not be sufficiently indemnified for any expenditures.
We are required to file with the trustee, on or before July 1 of each year, a
certificate stating we have complied with all of the provisions of the Mortgage
and that we are not in default and, if we have not complied, stating all known
defaults.
MODIFICATION OF THE MORTGAGE
The Mortgage and the rights of bondholders may be modified if the following
parties consent to the modification:
* us;
* the trustee, if the trustee is affected by the modification;
* holders of at least 70% in principal amount of the first mortgage
bonds, if all series are affected by the modification; or
* holders of at least 70% in principal amount of any series of first
mortgage bonds affected by the modification, if all series are not
affected.
However, the holder of each first mortgage bond affected must consent to
any modification that would:
* affect the rights of the holder to receive payment of the principal,
premium, or interest on any first mortgage bonds on the dates due or
to institute suit to enforce such right;
* permit the creation of an additional lien ranking prior or equal to
the lien of the Mortgage to any of the mortgaged property;
* deprive any nonassenting bondholder of a lien upon the mortgaged
property for the security of the holder's first mortgage bonds; or
* reduce the percentage of bondholders required to consent to a
modification.
RESTRICTIONS ON DIVIDENDS
The Mortgage restricts the payment of dividends on our common stock under
conditions that have not existed in the past and do not currently exist.
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DESCRIPTION OF DEBT SECURITIES
GENERAL
The following description highlights the general terms of the debt
securities. When we offer debt securities in the future, the prospectus
supplement will explain the particular terms of those securities and the extent
to which any of these general provisions will not apply.
The debt securities will be our unsecured obligations. The debt securities
may be issued in one or more new series under:
* an Indenture, dated as of January 1, 1995, between The Bank of New
York and us, in the case of subordinated debt securities; or
* an Indenture, dated as of January 15, 1998, between The Chase
Manhattan Bank and us, in the case of senior debt securities.
We have summarized selected provisions of the Indentures below. The summary
is not complete. We have filed the forms of the Indentures as exhibits to the
registration statement and you should read any provisions of the Indentures that
may be important to you. Although separate Indentures are used for subordinated
debt securities and senior debt securities, the description of the Indenture in
this section applies to both Indentures, unless otherwise noted.
You should refer to the prospectus supplement attached to this prospectus
for the following information about a new series of debt securities:
* title of the debt securities;
* the aggregate principal amount of the debt securities or the series of
which they are a part;
* the date on which the debt securities mature;
* the interest rate;
* when the interest on the debt securities accrues and is payable;
* the record dates;
* places where principal, premium, or interest will be payable;
* periods within which, and prices at which we can redeem debt
securities at our option;
* any obligation on our part to redeem or purchase debt securities
pursuant to a sinking fund or at the option of the holder;
* denominations and multiples at which debt securities will be issued if
other than $1,000;
* any index or formula from which the amount of principal or any premium
or interest may be determined;
* any allowance for alternative currencies and determination of value;
* whether the debt securities are defeasible under the terms of the
Indenture;
* whether we are issuing the debt securities as global securities;
* any additional or different events of default and any change in the
right of the trustee or the holders to declare the principal amount
due and payable if there is any default;
* any addition to or change in the covenants in the Indenture; and
* any other terms.
We may sell the debt securities at a substantial discount below their
principal amount. The prospectus supplement may describe special federal income
tax considerations that apply to debt securities sold at an original issue
discount or to debt securities that are denominated in a currency other than
United States dollars.
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Other than the protections described in this prospectus and in the
prospectus supplement, holders of debt securities would not be protected by the
covenants in the Indenture from a highly-leveraged transaction.
SUBORDINATION
The Indenture relating to the subordinated debt securities states that,
unless otherwise provided in a supplemental indenture or a board resolution, the
debt securities will be subordinate to all senior debt. This is true whether the
senior debt is outstanding as of the date of the Indenture or is incurred
afterwards. The balance of the information under this heading assumes that a
supplemental indenture or a board resolution results in a series of debt
securities being subordinated obligations.
The Indenture states that we cannot make payments of principal, premium, or
interest on the subordinated debt if:
* the principal, premium or interest on senior debt is not paid when due
and the applicable grace period for the default has ended and the
default has not been cured or waived; or
* the maturity of any senior debt has been accelerated because of a
default.
The Indenture provides that we must pay all senior debt in full before the
holders of the subordinated debt securities may receive or retain any payment if
our assets are distributed to our creditors upon any of the following:
* dissolution;
* winding-up;
* liquidation;
* reorganization, whether voluntary or involuntary;
* bankruptcy;
* insolvency;
* receivership; or
* any other proceedings.
The Indenture provides that when all amounts owing on the senior debt are
paid in full, the holders of the subordinated debt securities will be subrogated
to the rights of the holders of senior debt to receive payments or distributions
applicable to senior debt.
The Indenture defines senior debt as the principal, premium, interest and
any other payment due under any of the following, whether outstanding at the
date of the Indenture or thereafter incurred, created or assumed:
* all of our debt evidenced by notes, debentures, bonds, or other
securities we sell for money, including all of our first mortgage
bonds;
* all debt of others of the kinds described in the preceding bullet
point that we assume or guarantee in any manner; and
* all renewals, extensions, or refundings of debt of the kinds described
in either of the two preceding bullet points.
However, the preceding will not be considered senior debt if the document
creating the debt or the assumption or guarantee of the debt states that it is
not superior to or that it is on equal footing with the subordinated debt
securities.
The Indenture does not limit the aggregate amount of senior debt that we
may issue. As of September 30, 1999, outstanding senior debt was approximately
$1 billion and subordinated debt was approximately $75 million. As of January
31, 2000, we will redeem all of our outstanding subordinated debt.
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FORM, EXCHANGE, AND TRANSFER
Each series of debt securities will be issuable only in fully registered
form and without coupons. In addition, unless otherwise specified in a
prospectus supplement, the debt securities will be issued in denominations of
$1,000 and multiples of $1,000. We, the trustee, and any of our agents may treat
the registered holder of a debt security as the absolute owner for the purpose
of making payments, giving notices, and for all other purposes.
The holders of debt securities may exchange them for any other debt
securities of the same series, in authorized denominations, like tenor, and
equal principal amount. However, this type of exchange will be subject to the
terms of the Indenture and any limitations that apply to global securities.
A holder may transfer debt securities by presenting the endorsed security
at the office of a security registrar or at the office of any transfer agent we
designate. The holder will not be charged for any exchange or registration of
transfer, but we may require payment to cover any tax or other governmental
charge in connection with the transaction. We have appointed the trustee under
each Indenture as security registrar. A prospectus supplement will name any
transfer agent we designate for any debt securities if different from the
security registrar. We may 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 at any time, except that we will maintain a
transfer agent in each place of payment for debt securities.
If the debt securities of any series and/or tenor are to be redeemed in
part, we will not be required to do any of the following:
* issue, register the transfer of, or exchange any debt securities of
that series and/or tenor beginning 15 days before the day of mailing
of a notice of redemption of any debt security that may be selected
for redemption and ending at the close of business on the day of the
mailing; or
* register the transfer of or exchange any debt security selected for
redemption, except for an unredeemed portion of a debt security that
is being redeemed in part.
PAYMENT AND PAYING AGENTS
Unless otherwise indicated in the applicable prospectus supplement, we will
pay interest on a debt security on any interest payment date to the person in
whose name the debt security is registered.
Unless otherwise indicated in the applicable prospectus supplement, the
principal, premium, and interest on the debt securities of a particular series
will be payable at the office of the paying agents that we may designate.
However, we may pay any interest by check mailed to the address, as it appears
in the security register, of the person entitled to that interest. Also, unless
otherwise indicated in the applicable prospectus supplement, the corporate trust
office of the trustee in The City of New York will be our sole paying agent for
payments with respect to debt securities of each series. Any other paying agent
that we initially designate for the debt securities of a particular series will
be named in the applicable prospectus supplement. We 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
we will maintain a paying agent in each place of payment for the debt securities
of a particular series.
All money that we pay to a paying agent for the payment of the principal,
premium, or interest on any debt securities that remains unclaimed at the end of
two years after the principal, premium, or interest has become due and payable
will be repaid to us, and the holder of the debt security may look only to us
for payment.
CONSOLIDATION, MERGER, AND SALE OF ASSETS
Unless otherwise indicated in the applicable prospectus supplement, we may
not:
* consolidate with or merge into any other entity;
* convey, transfer, or lease our properties and assets substantially as
an entirety to any entity; or
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* permit any entity to consolidate with or merge into us or convey,
transfer, or lease its properties and assets substantially as an
entirety to us,
unless the following conditions are met:
* the successor entity is a corporation, partnership, trust, or
other entity organized and validly existing under the laws of any
domestic jurisdiction and assumes our obligations on the debt
securities and under the Indenture;
* 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
* other conditions are met.
Upon any merger, consolidation, or transfer or lease of properties, the
successor person will be substituted for us under the Indenture, and,
thereafter, except in the case of a lease, we will be relieved of all
obligations and covenants under the Indenture and the debt securities.
EVENTS OF DEFAULT
Each of the following will be an event of default under the Indenture with
respect to debt securities of any series:
* our failure to pay principal of or any premium on any debt security of
that series when due;
* our failure to pay any interest on any debt securities of that series
when due, and the continuance of that failure for 30 days;
* our failure to deposit any sinking fund payment, when due, in respect
of any debt securities of that series;
* our failure to perform any of our other covenants in the Indenture
relating to that series and the continuance of that failure 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;
* bankruptcy, insolvency, or reorganization events involving us; and
* any other event of default for that series described in the applicable
prospectus supplement.
If an event of default occurs and is continuing other than an event of
default relating to bankruptcy, insolvency, or reorganization, either the
trustee or the holders of at least 25% in aggregate principal amount of the
outstanding debt securities of the affected series may declare the principal
amount of the debt securities of that series to be due and payable immediately.
In the case of any debt security that is an original issue discount security or
the principal amount of which is not then determinable, the trustee or the
holders of at least 25% in aggregate principal amount of the outstanding debt
securities of that series may declare the portion of the principal amount of the
debt security specified in the terms of such debt security to be immediately due
and payable upon an event of default.
If an event of default involving bankruptcy, insolvency, or reorganization
occurs, the principal amount of all the debt securities of the affected series
will automatically, and without any action by the trustee or any holder, become
immediately due and payable. After any 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 rescind and annul
the acceleration if all events of default, other than the non-payment of
accelerated principal, have been cured or waived as provided in the Indenture.
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 the holders have offered the trustee reasonable indemnity. Subject to
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.
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No holder of a debt security of any series will have any right to institute
any proceeding under the Indenture, or for the appointment of a receiver or a
trustee, or for any other remedy under the Indenture, unless:
* the holder has previously given the trustee written notice of a
continuing event of default with respect to the debt securities of
that series;
* the holders of at least 25% in aggregate principal amount of the
outstanding debt securities of that series have made written request,
and the holder or holders have offered reasonable indemnity, to the
trustee to institute the proceeding as trustee; and
* the trustee has failed to institute the 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 the request within 60 days after the notice,
request, and offer.
The limitations provided above do not apply to a suit instituted by a
holder of a debt security for the enforcement of payment of the principal,
premium, or interest on the debt security on or after the applicable due date.
We are required to furnish to the trustee annually a certificate of various
officers stating whether or not we are in default in the performance or
observance of any of the terms, provisions, and conditions of the Indenture and,
if so, specifying all known defaults.
MODIFICATION AND WAIVER
In limited cases the trustee, as well as us, may make modifications and
amendments to the Indenture without the consent of the holders of any series of
debt securities. The trustee may make modifications and amendments to the
Indenture 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
the modification or amendment. However, without the consent of the holder of
each outstanding debt security affected, no modification or amendment may:
* change the stated maturity of the principal of, or any installment of
principal of or interest on, any debt security;
* reduce the principal amount of, or any premium or interest on, any
debt security;
* reduce the amount of principal of an original issue discount security
or any other debt security payable upon acceleration of the maturity
of the security;
* change the place or currency of payment of principal of, or any
premium or interest on, any debt security;
* impair the right to institute suit for the enforcement of any payment
on or with respect to any debt security; or
* 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 necessary for waiver of
compliance with certain provisions of the Indenture or of certain
defaults, or modify the provisions of the Indenture relating to
modification and waiver.
Compliance with certain restrictive provisions of the Indenture may be
waived by the holders of not less than 66 2/3% in aggregate principal amount of
the outstanding debt securities of any series. 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
* a default under covenants and provisions of the Indenture which cannot
be amended without the consent of the holder of each outstanding debt
security of the affected series.
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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:
* the principal amount of an outstanding original issue discount
security will be the amount of the principal that would be due and
payable upon acceleration of the maturity on that date,
* if the principal amount payable at the stated maturity of a debt
security is not determinable, the principal amount of the outstanding
debt security will be an amount determined in the manner prescribed
for the debt security; and
* the principal amount of an outstanding debt security denominated in
one or more foreign currencies will be the U.S. dollar equivalent of
the principal amount of the debt security or, in the case of a debt
security described in the previous clause above, the amount described
in that clause.
If debt securities have been fully defeased or if we have deposited money
with the trustee to redeem debt securities, they will not be considered
outstanding.
Except in limited circumstances, we 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 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 holders of a particular series,
the action may be taken only by persons who are holders of outstanding debt
securities of that series on the record date. To be effective, the action must
be taken by holders of the requisite principal amount of the debt securities
within a specified period following the record date. For any particular record
date, this period will be 180 days or any other shorter period as we may
specify. The period may be shortened or lengthened, but not beyond 180 days.
DEFEASANCE AND COVENANT DEFEASANCE
We may elect to have the provisions of the Indenture relating to defeasance
and discharge of indebtedness, or defeasance of restrictive covenants in the
Indenture, applied to the debt securities of any series, or to any specified
part of a series. The prospectus supplement describing a series of debt
securities will state whether we can make these elections for that series.
DEFEASANCE AND DISCHARGE
We will be discharged from all of our obligations with respect to the debt
securities of a series if we deposit with the trustee money in an amount
sufficient to pay the principal, premium, and interest on the debt securities of
that series when due in accordance with the terms of the Indenture and the debt
securities. We can also deposit securities that will provide the necessary
monies. However, we will not be discharged from the 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. The defeasance or discharge may occur only if we deliver to the trustee
an opinion of counsel stating that we have 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 the 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 the
deposit, defeasance, and discharge were not to occur.
DEFEASANCE OF COVENANTS
We may elect to omit compliance with restrictive covenants in the Indenture
and any additional covenants that may be described in the applicable prospectus
supplement for a series of debt securities. This election will preclude some
actions from being considered defaults under the Indenture for the applicable
series. In order to exercise this option, we will be required to deposit, in
trust for the benefit of the holders of debt securities, funds in an amount
sufficient to pay the principal, premium and interest
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on the debt securities of the applicable series. We may also deposit securities
that will provide the necessary monies. We will also be required to deliver to
the trustee an opinion of counsel to the effect that holders of the 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 the deposit and defeasance were not to
occur. If we exercise this option with respect to any debt securities and the
debt securities are declared due and payable because of the occurrence of any
event of default, the amount of funds deposited in trust would be sufficient to
pay amounts due on the debt securities at the time of their respective stated
maturities but may not be sufficient to pay amounts due on the debt securities
on any acceleration resulting from an event of default. In that case, we would
remain liable for the additional payments.
GOVERNING LAW
The law of the State of New York will govern the Indenture and the debt
securities.
GLOBAL SECURITIES
Some or all of the first mortgage bonds or 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 first mortgage
bonds or debt securities they represent. We will register each global security
in the name of a depositary or nominee identified in a prospectus supplement and
deposit the global security with the depositary or nominee. Each global security
will bear a legend regarding the restrictions on exchanges and registration of
transfer referred to below and other matters specified in a supplemental
indenture to the Mortgage or the Indenture.
No global security may be exchanged for first mortgage bonds or debt
securities registered, and no transfer of a global security may be registered,
in the name of any person other than the depositary for the global security or
any nominee of the depositary, unless:
* the depositary has notified us that it is unwilling or unable to
continue as depositary for the global security or has ceased to be
qualified to act as depositary;
* a default has occurred and is continuing with respect to the first
mortgage bonds or debt securities represented by the global security;
or
* any other circumstances exist that may be described in the applicable
supplemental indenture and prospectus supplement.
We will register all securities issued in exchange for a global security or
any portion of a global security in the names specified by the depositary.
As long as the depositary or its nominee is the registered holder of a
global security, the depositary or nominee will be considered the sole owner and
holder of the global security and the first mortgage bonds or debt securities
that it represents. Except in the limited circumstances referred to above,
owners of beneficial interests in a global security will not:
* be entitled to have the global security or first mortgage bonds or
debt securities registered in their names;
* receive or be entitled to receive physical delivery of certificated
first mortgage bonds or debt securities in exchange for a global
security; and
* be considered to be the owners or holders of the global security or
any first mortgage bonds or debt securities for any purpose under the
Mortgage or the Indenture.
We will make all payments of principal, premium, and interest on a global
security to the depositary or its nominee. The laws of some jurisdictions
require that purchasers of securities take physical delivery of securities in
definitive form. These laws make it difficult to transfer beneficial interests
in a global security.
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Ownership of beneficial interests in a global security will be limited to
institutions that have accounts with the depositary or its nominee, referred to
as 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 first mortgage bonds or debt securities
represented by the global security to the accounts of its Participants.
Ownership of beneficial interests in a global security will only be shown on
records maintained by the depositary or the Participant. Likewise, the transfer
of ownership interests will be effected only through the same records. 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. Neither we, the trustee, nor any of our agents
will have 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 the beneficial interests.
REGARDING THE TRUSTEES
The Bank of New York is the trustee under the Mortgage and trustee under
the Indenture relating to the subordinated debt securities. We maintain normal
banking arrangements with The Bank of New York, which include:
* a commitment in the aggregate principal amount of approximately $15.8
million by The Bank of New York pursuant to a reimbursement agreement
related to a letter of credit issued on our behalf in connection with
an issuance of pollution control bonds, the proceeds of which were
made available to us; and
* a $26.6 million commitment by The Bank of New York pursuant to a
revolving credit agreement, approximately $6.3 million of which was
outstanding at September 30, 1999.
The Bank of New York also serves as:
* trustee for the holders of several issues of pollution control bonds
issued on our behalf;
* trustee under our senior note indenture;
* investment manager for our nonunion post-retirement medical fund; and
* custodian of international fixed-income assets for our pension plan.
An affiliate of The Bank of New York is the remarketing agent for a series
of our pollution control bonds.
The Chase Manhattan Bank is the trustee under the Indenture relating to the
senior debt securities. We maintain normal banking arrangements with The Chase
Manhattan Bank. The Chase Manhattan Bank also:
* serves as trustee for the holders of several series of bonds issued by
a party unaffiliated with us, secured by, among other things, our
payments under our Palo Verde Nuclear Generating Station leases;
* serves as an issuing and paying agent with respect to our commercial
paper program; and
* has a commitment to lend us up to $49.4 million under a revolving
credit agreement, approximately $13.8 million of which was outstanding
as of September 30, 1999.
In addition, an affiliate of The Chase Manhattan Bank is the owner
participant under a trust to which we sold and leased back a portion of Unit 2
of the Palo Verde Nuclear Generating Station.
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PLAN OF DISTRIBUTION
We intend to sell up to $525,000,000 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 first mortgage bonds or
debt securities.
We may distribute the offered securities 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 prevailing market
prices, or at negotiated prices.
In connection with the sale of the offered securities, underwriters may
receive compensation from us or from purchasers of offered securities for whom
they act as agents in the form of discounts, concessions, or commissions.
Underwriters may sell offered securities to or through dealers, and the dealers
may receive compensation in the form of discounts, concessions, or commissions
from the underwriters and/or commissions from the purchasers for whom they act
as agents. Underwriters, dealers, and agents, who participate in the
distribution of offered securities, may be considered to be underwriters, and
any discounts or commissions received by them from us and any profit on the
resale of offered securities by them may be considered to be underwriting
discounts and commissions under the Securities Act of 1933. We will identify any
person considered to be an underwriter, and we will describe any compensation
received from us in the prospectus supplement.
We may agree to indemnify underwriters, dealers, and agents who participate
in the distribution of the offered securities against liabilities, including
liabilities under the Securities Act of 1933.
EXPERTS
The financial statements incorporated in this prospectus by reference from
APS' 1998 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
Snell & Wilmer L.L.P., One Arizona Center, Phoenix, Arizona 85004 will
opine on the validity of the offered securities. We currently anticipate that
Sullivan and Cromwell, 1888 Century Park East, Los Angeles, California 90067
will opine on the validity of the offered securities for any underwriters of
securities. 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., Albuquerque Plaza, 201 Third NW, 12th Floor, Albuquerque, New
Mexico 87102. Snell & Wilmer L.L.P. may rely as to all matters of New York law
upon the opinion of Sullivan & Cromwell. Sullivan & Cromwell may rely as to all
matters of Arizona law upon the opinion of Snell & Wilmer L.L.P.
17
<PAGE>
APS
Arizona Public Service
Company
