-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, H4UZcypY0l0t8RrEq1OaQSubaCvP4uLZzLV0o7pcE7jINRrpryQxlz1EVImeZqge zG1GwIiymy3ZIVGfg8rMEg== 0000950147-98-000521.txt : 19980703 0000950147-98-000521.hdr.sgml : 19980703 ACCESSION NUMBER: 0000950147-98-000521 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 11 FILED AS OF DATE: 19980702 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ARIZONA PUBLIC SERVICE CO CENTRAL INDEX KEY: 0000007286 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 860011170 STATE OF INCORPORATION: AZ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3 SEC ACT: SEC FILE NUMBER: 333-58445 FILM NUMBER: 98660173 BUSINESS ADDRESS: STREET 1: 400 N FIFTH ST STREET 2: P O BOX 53999 CITY: PHOENIX STATE: AZ ZIP: 85004 BUSINESS PHONE: 6022501000 S-3 1 FORM S-3 As filed with the Securities and Exchange Commission on July 2, 1998 Registration No. 333- ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- FORM S-3 REGISTRATION STATEMENT Under THE SECURITIES ACT OF 1933 ---------------- ARIZONA PUBLIC SERVICE COMPANY (Exact name of Registrant as specified in its charter) ARIZONA 86-0011170 (State of incorporation) (I.R.S. Employer Identification Number) 400 North Fifth Street Phoenix, Arizona 85004 (602) 250-1000 (Address, including zip code and telephone number, including area code, of registrant's principal executive offices) ---------------- MATTHEW P. FEENEY Snell & Wilmer L.L.P. One Arizona Center Phoenix, Arizona 85073 (602) 382-6239 (Name, address, including zip code and telephone number, including area code, of agent for service) ---------------- Approximate date of commencement of proposed sale to the public: From time to time after the effective date of this Registration Statement, as determined by market conditions and other factors. ---------------- If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. [ ] If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. [X] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act Registration Statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [X] ---------------- C A L C U L A T I O N O F R E G I S T R A T I O N F E E
================================================================================================== Proposed Proposed Maximum Maximum Amount Offering Aggregate Amount of Title of Each Class of to be Price Offering Registration Securities to be Registered Registered Per Unit Price Fee - -------------------------------------------------------------------------------------------------- First Mortgage Bonds ........... (1)(3) (2) (1)(2)(3) N/A - -------------------------------------------------------------------------------------------------- Senior Notes ................... (1)(4) (2) (1)(2)(4) N/A - -------------------------------------------------------------------------------------------------- Debt Securities ................ (1)(5) (2) (1)(2)(5) N/A - -------------------------------------------------------------------------------------------------- Total ......................... $350,000,000 (2) $350,000,000 $ 103,250 (6) ==================================================================================================
(1) In no event will the aggregate initial offering price of all securities issued from time to time pursuant to this Registration Statement exceed $350,000,000. If any such securities are issued at an original issue discount, then the aggregate initial offering price as so discounted shall not exceed $350,000,000, notwithstanding that the stated principal amount of such securities may exceed such amount. (2) The proposed maximum initial offering price per unit will be determined, from time to time, by the Registrant in connection with the issuance by the Registrant of the securities registered hereunder. (3) Subject to Footnote (1), there are being registered hereunder an indeterminate principal amount of First Mortgage Bonds as may be sold, from time to time, by the Registrant. (4) Subject to Footnote (1), there are being registered hereunder an indeterminate amount of Senior Notes as may be sold, from time to time, by the Registrant. (5) Subject to Footnote (1), there are being registered hereunder an indeterminate principal amount of Debt Securities as may be sold, from time to time, by the Registrant. (6) Calculated pursuant to Rule 457(o) of the rules and regulations under the Securities Act of 1933. Pursuant to Rule 429 of the rules and regulations under the Securities Act of 1933, this Registration Statement contains a combined prospectus relating to the $350,000,000 principal amount of securities registered hereby and $50,000,000 principal amount of securities registered on August 12, 1997 pursuant to Registration No. 333-27551. The previously-paid filing fees associated with the referenced securities registered under Registration No. 333-27551 totalled $15,152. The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. ================================================================================ INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION, DATED JULY 2, 1998 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 March 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 _______, 1998 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 Report for the fiscal quarter ended March 31, 1998; 3. The Company's Form 8-K Report dated January 13, 1998; and 4. The Company's Form 8-K Report dated May 19, 1998 (the "May 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 May 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 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 Supple- ment, the net proceeds of the Offered Securities will be ap- plied 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 767,000 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 March 31, 1998) ............................... Coal -- 36.9%; Nuclear -- 29.4%; Purchases -- 30.3%; Gas and Other -- 3.4%.
Financial Data (thousands of dollars):
Twelve Months Ended ----------------------------------------------------------------- December 31, March 31, ----------------------------------------------- 1998(1) 1997 1996 1995 ----------- ----------- ----------- ----------- Electric Operating Revenues ................ $ 1,879,955 $ 1,878,553 $ 1,718,272 $ 1,614,952 =========== =========== =========== =========== Net Income ................................. $ 254,784 $ 251,493 $ 243,471 $ 239,570 =========== =========== =========== =========== Ratio of Earnings to Fixed Charges ......... 3.11 3.07 2.84 2.77
Capitalization Data (thousands of dollars):
As Adjusted(2) As of --------------------------- March 31, 1998(1) Amount Percentage ----------------- ---------- ---------- Total Debt (including current maturities) ......... $2,104,316 $2,125,316 52.4% Preferred Stock ................................... 160,427 139,427 3.4 Common Stock Equity ............................... 1,793,514 1,793,514 44.2 ---------- ---------- ----- Total Capitalization ........................... $4,058,257 $4,058,257 100.0% ========== ========== =====
- ------------ (1) Financial information as of and for the twelve months ended March 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 (i) redemption, repayment, repurchase or retirement of $21 million of the Company's cumulative preferred stock; and (ii) incurring $21 million of debt. 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 long-term debt. 3 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, March 31, ---------------------------------------------------- 1998 1997 1996 1995 1994 1993 --------- ---- ---- ---- ---- ---- 3.11 3.07 2.84 2.77 2.96 2.99 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. 4 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 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 March 31, 1998, the Company estimates that the Mortgage and the articles of incorporation would have allowed the Company to issue up to approximately $2.04 billion and $1.46 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 6 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 7 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 March 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, and (v) custodian of international fixed-income assets for the Company's pension plan. 8 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 9 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). 10 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. 11 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. 12 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 13 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 or 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 otherwise 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 14 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 15 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 16 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 will cease to be effective, in each case 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 17 the case if such deposit and defeasance were 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 March 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, and (v) custodian of international fixed-income assets for the Company's pension 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. 18 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) 19 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 March 31, 1998, outstanding Senior Debt and subordinated debt of the Company aggregated approximately $1.9 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). 20 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 21 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 22 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). 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 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). 23 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 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 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 24 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). 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). 25 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 March 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 and (v) custodian of international fixed-income assets for the Company's pension 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 March 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 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. 26 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, 444 South Flower Street, Los Angeles, California 90071. 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. 27 ================================================================================ No person has been authorized to give any information or to make any representation not contained in this Prospectus and, if given or made, such information or representation must not be relied upon as having been authorized. This Prospectus does not constitute an offer to sell or a solicitation of an offer to buy any of the securities offered hereby in any jurisdiction to any person to whom it is unlawful to make such offer in such jurisdiction. Neither the delivery of this Prospectus nor any sale made hereunder shall, under any circumstances, create any implication that the information herein is correct as of any time subsequent to the date hereof or that there has been no change in the affairs of the Company since such date. --------------------------------- TABLE OF CONTENTS Page ----- Available Information ................... 2 Incorporation of Certain Documents by Reference ............................ 2 Selected Information .................... 3 The Company ............................. 4 Application of Proceeds ................. 4 Earnings Ratios ......................... 4 Securities .............................. 4 Description of New Bonds ................ 4 Description of Senior Notes ............. 9 Description of Debt Securities .......... 18 Plan of Distribution .................... 26 Experts ................................. 27 Legal Opinions .......................... 27 $400,000,000 Arizona Public Service Company First Mortgage Bonds Senior Notes Debt Securities ----- APS ----- ================================================================================ PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 14. Other Expenses of Issuance and Distribution. Securities and Exchange Commission registration fee ......... $103,250 Printing, engraving, and postage expenses ................... 60,000 Legal fees .................................................. 250,000 Accounting fees ............................................. 40,000 Rating Agency fees .......................................... 192,750 Trustee's fees and expenses ................................. 30,000 Blue Sky fees and expenses .................................. 30,000 Miscellaneous ............................................... 4,000 -------- Total .................................................... $710,000 ======== - ------------ *Estimated. Item 15. Indemnification of Directors and Officers. The law of Arizona permits extensive indemnification of present and former directors, officers, employees or agents of an Arizona corporation, whether or not authority for such indemnification is contained in the indemnifying corporation's articles of incorporation or bylaws. Specific authority for indemnification of present and former directors and officers, under certain circumstances, is contained in Article Fifth of the Company's Articles of Incorporation. In addition, Section 7.01 of the Company's bylaws provides that the Company will indemnify present and former directors and officers to the fullest extent permitted by Arizona law. Under Arizona law, in order for a corporation to provide indemnification, a disinterested majority of the corporation's board of directors, independent legal counsel, a court or the shareholders must find that the director, officer, employee or agent acted, or failed to act, in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reason to believe his conduct was unlawful. Statutory indemnification is permissive, except in the event of a successful defense, when a director, officer, employee or agent must be indemnified against expenses, including attorneys' fees, actually and reasonably incurred by him in connection therewith. Indemnification is permitted with respect to expenses, judgments, fines, and amounts paid in settlement by such persons. On January 1, 1996, the new Arizona Business Corporation Act (the "ABCA") became effective. The ABCA permits extensive indemnification of present and former directors, officers, employees, or agents of an Arizona corporation, whether or not authority for such indemnification is contained in the indemnifying corporation's articles of incorporation or bylaws. Under the ABCA, in order for a corporation to provide indemnification, a majority of the corporation's disinterested directors, independent legal counsel, or the shareholders must find that the conduct of the individual to be indemnified was in good faith and that the individual reasonably believed that the conduct was in the corporation's best interests (in the case of conduct in an "official capacity" with the corporation) or that the conduct was at least not opposed to the corporation's best interests (in all other cases). In the case of any criminal proceeding, the finding must be to the effect that the individual had no reasonable cause to believe the conduct was unlawful. Indemnification is permitted with respect to expenses, judgements, fines, and amounts paid in settlement by such individuals. Indemnification under the ABCA is permissive, except in the event of a successful defense, in which case a director, officer, employee, or agent must be indemnified against reasonable expenses, including attorneys' fees, incurred in connection with the proceeding. In addition, the ABCA requires Arizona corporations to indemnify any "outside director" (a director who is not an officer, employee, or holder of five percent or more of any class of the corporation's stock) against liability unless (i) the corporation's articles of incorporation limit such indemnification, (ii) the outside director is adjudged liable in a proceeding by or in the right of the corporation or in any other proceeding charging improper personal II-1 benefit to the director, or (iii) a court determines, before payment to the outside director, that the director failed to meet the standards of conduct described in the preceding paragraph. A court may also order that an individual be indemnified if the court finds that the individual is fairly and reasonably entitled to indemnification in light of all of the relevant circumstances, whether or not the individual has met the standards of conduct in this and the preceding paragraph. In connection with the offering made by the prospectus which is a part of this registration statement, as it may be amended or supplemented, the underwriters of the Offered Securities, pursuant to the relevant underwriting agreement, will severally agree to indemnify and hold harmless the Company, each of its directors, each of its officers who have signed this registration statement, and each person, if any, who controls the Company within the meaning of the Securities Act of 1933, as amended (the "Act"), against certain losses, claims, damages or liabilities, including liabilities under the Act, that arise out of or are based upon written information furnished by such underwriters to the Company for use in this registration statement or in such prospectus. Insurance is maintained on a regular basis (and not specifically in connection with this offering) against liabilities arising on the part of directors and officers out of their performance in such capacities or arising on the part of the Company out of its foregoing indemnification provisions, subject to certain exclusions and to the policy limits. Item 16. List of Exhibits.
Exhibit No. Description - ----------- ----------- 1.1 Form of Underwriting Agreement for New Bonds. 1.2 Form of Underwriting Agreement for Debt Securities. 1.3 Form of Distribution Agreement for Senior Notes. 4.1 Form(s) of Supplemental Indenture relating to New Bonds (to be filed as Exhibit(s) by means of Form 8-K). 4.2 Specimen(s) of New Bonds (to be filed as Exhibit(s) by means of Form 8-K). 4.3 Form(s) of Supplemental Indenture relating to Offered Debt Securities (to be filed as Exhibit(s) by means of Form 8-K). 4.4 Specimen(s) of Offered Debt Securities (to be filed as Exhibit (s) by means of Form 8-K). 4.5 Form(s) of Supplemental Indenture relating to Offered Senior Notes (to be filed as Exhibit(s) by means of Form 8-K). 4.6 Specimen(s) of Offered Senior Notes (to be filed as Exhibit(s) to Form 8-K). 5.1 Opinion of Snell & Wilmer L.L.P. 12.1 Computation of Ratio of Earnings to Fixed Charges. 23.1 Consent of Deloitte & Touche LLP. 23.2 Consent of Snell & Wilmer L.L.P. (included in Opinion filed as Exhibit No. 5.1). 24.1 Power of Attorney (see II-6). 25.1 Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939 of The Bank of New York, as Bond Trustee under the Mortgage. 25.2 Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939 of The Bank of New York, as Trustee under the Indenture relating to the subordinated Debt Securities. 25.3 Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939 of The Chase Manhattan Bank, as Trustee under the Indenture relating to the senior Debt Securities. 25.4 Form T-1 Statement of Eligibility under Trust Indenture Act of 1939 of The Bank of New York, as Trustee under the Indenture relating to the Senior Notes.
II-2 In addition to those Exhibits shown above, the Company hereby incorporates the following Exhibits pursuant to Rule 411 of Regulation C promulgated under the Securities Act of 1933 by reference to the filings set forth below:
Exhibit Previously Filed Date No. Description as Exhibit: File No. Effective --- ----------- ----------- -------- --------- 4.7 Mortgage and Deed of Trust 4.1 to September 1992 Form 1-4473 11-9-92 relating to Company's First 10-Q Report Mortgage Bonds, together with forty-eight indentures supplemental thereto. Forty-ninth Supplemental 4.1 to 1992 Form 10-K Report 1-4473 3-30-93 Indenture. Fiftieth Supplemental Indenture. 4.2 to 1993 Form 10-K Report 1-4473 3-30-94 Fifty-first Supplemental 4.1 to August 1, 1993 Form 8-K 1-4473 9-27-93 Indenture. Report Fifty-second Supplemental 4.1 to September 30, 1993 Form 1-4473 11-15-93 Indenture. 10-Q Report Fifty-third Supplemental 4.5 to Registration Statement No. 1-4473 3-1-94 Indenture. 33-61228 by means of Febru- ary 23, 1994 Form 8-K Report Fifty-fourth Supplemental 4.1 to Registration Statements 1-4473 11-22-96 Indenture. Nos. 33-61228, 33-55473, 33-64455 and 333-15379 by means of November 19, 1996 Form 8-K Report Fifty-fifth Supplemental 4.8 to Registration Statements 1-4473 4-9-97 Indenture. Nos. 33-55473, 33-64455 and 333-15379 by means of April 7, 1997 Form 8-K Report 4.8 Agreement of Resignation, 4.1 to September 29, 1995 Form 1-4473 10-24-95 Appointment, Acceptance, 8-K Report and Assignment dated as of August 18, 1995 among the Company, Bank of America National Trust and Savings Association and The Bank of New York. 4.9 Indenture dated as of January 1, 4.6 to January 1, 1995 Form 8-K 1-4473 1-11-95 1995 among the Company and Report The Bank of New York, as Trustee, relating to subordi- nated Debt Securities. 4.10 First Supplemental Indenture 4.4 to January 1, 1995 Form 8-K 1-4473 1-11-95 dated as of January 1, 1995, Report relating to the issuance of $75,000,000 of 10% Junior Subordinated Deferrable Interest Debentures, Series A, Due 2025. 4.11 Indenture dated as of November 4.5 to Registration Statements 1-4473 11-22-96 15, 1996 among the Company Nos. 33-61228, 33-55473, and The Bank of New York, as 33-64455 and 333-15379 by Trustee, relating to Senior means of November 19, 1996 Notes. Form 8-K Report
II-3
Exhibit Previously Filed Date No. Description as Exhibit: File No. Effective --- ----------- ----------- -------- --------- 4.12 First Supplemental Indenture, 4.6 to Registration Statements 1-4473 11-22-96 dated as of November 15, Nos. 33-61228, 33-55473, 1996, relating to the issuance 33-64455 and 333-15379 by of $100,000,000 of 6 3/4% Senior means of November 19, 1996 Notes Due 2006. Form 8-K Report 4.13 Second Supplemental Indenture, 4.10 to Registration Statements 1-4473 4-9-97 dated as of April 1, 1997, Nos. 33-55473, 33-64455 and relating to the issuance of 333-15379 by means of April $50,000,000 of 6.72% Senior 7, 1997 Form 8-K Report Notes due 1999. 4.14 Indenture dated as of January 4.10 to Registration Statement 1-4473 1-16-98 15, 1998 among the Company Nos. 333-15379 and 333- and The Chase Manhattan 27551 by means of January Bank, as Trustee, relating to 13, 1998 Form 8-K Report Senior Debt Securities. 4.15 First Supplemental Indenture 4.3 to Registration Statement 1-4473 1-16-98 dated as of January 15, 1998, Nos. 333-15379 and 333- relating to the issuance of 27551 by means of January $100,000,000 of 6 1/4% Notes 13, 1998 Form 8-K Report Due 2005.
Item 17. Undertakings. The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) to include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) to reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; notwithstanding the foregoing, any increase or decrease in the volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; and (iii) to include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; provided however, that paragraphs (1)(i) and (1)(ii) do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed by the registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement. (2) That, for the purpose of determining any liability under the Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (4) That, for purposes of determining any liability under the Act, each filing of the registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration II-4 statement shall be deemed to be a new registration statement relating to the securities offered herein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (5) That, insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers, and controlling persons of the registrant pursuant to the provisions referred to in Item 15 of this Registration Statement, or otherwise, the Company has been advised that, in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer, or controlling person of the registrant in the successful defense of any action, suit, or proceeding) is asserted by such director, officer, or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. (6) That, for purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (7) That, for the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-5 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Phoenix, State of Arizona, on the 2nd day of July, 1998. ARIZONA PUBLIC SERVICE COMPANY By WILLIAM J. POST ---------------------------------------- (William J. Post, President and Chief Executive Officer) Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons in the capacities and on the dates indicated. Each person whose signature appears below hereby authorizes William J. Post, George A. Schreiber, Jr., Chris N. Froggatt, and Michael V. Palmeri and each of them, as attorneys-in-fact, to sign in his or her name and behalf, individually and in each capacity designated below, and to file any amendments, including post-effective amendments, to this registration statement, and any related Rule 462(b) registration statement or amendment thereto. Signature Title Date --------- ----- ---- WILLIAM J. POST Principal Executive Officer July 2, 1998 - --------------------------- and Director (William J. Post, President and Chief Executive Officer) GEORGE A. SCHREIBER, JR. Principal Accounting and July 2, 1998 - --------------------------- Financial Officer (George A. Schreiber, Jr., and Director Executive Vice President and Chief Financial Officer) O. MARK DEMICHELE Director July 2, 1998 - --------------------------- (O. Mark DeMichele) MICHAEL L. GALLAGHER Director July 2, 1998 - --------------------------- (Michael L. Gallagher) MARTHA O. HESSE Director July 2, 1998 - --------------------------- (Martha O. Hesse) ROBERT E. KEEVER Director July 2, 1998 - --------------------------- (Robert E. Keever) MARIANNE M. JENNINGS Director July 2, 1998 - --------------------------- (Marianne M. Jennings) ROBERT G. MATLOCK Director July 2, 1998 - --------------------------- (Robert G. Matlock) BRUCE J. NORDSTROM Director July 2, 1998 - --------------------------- (Bruce J. Nordstrom) JOHN R. NORTON III Director July 2, 1998 - --------------------------- (John R. Norton III) DONALD M. RILEY Director July 2, 1998 - --------------------------- (Donald M. Riley) II-6 Signature Title Date --------- ----- ---- QUENTIN P. SMITH, JR. Director July 2, 1998 - ----------------------- (Quentin P. Smith, Jr.) RICHARD SNELL Director July 2, 1998 - ----------------------- (Richard Snell) DIANNE C. WALKER Director July 2, 1998 - ----------------------- (Dianne C. Walker) BEN F. WILLIAMS, JR. Director July 2, 1998 - ----------------------- (Ben F. Williams, Jr.) II-7 Registration No. 333- ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- EXHIBITS TO FORM S-3 REGISTRATION STATEMENT Under THE SECURITIES ACT OF 1933 ---------------- Arizona Public Service Company (Exact name of registrant as specified in its charter) ================================================================================ INDEX TO EXHIBITS
Exhibit No. Description - ----------- ----------- 1.1 Form of Underwriting Agreement for New Bonds. 1.2 Form of Underwriting Agreement for Debt Securities. 1.3 Form of Distribution Agreement for Senior Notes. 4.1 Form(s) of Supplemental Indenture relating to New Bonds (to be filed as Exhibit(s) by means of Form 8-K). 4.2 Specimen(s) of New Bonds (to be filed as Exhibit(s) by means of Form 8-K). 4.3 Form(s) of Supplemental Indenture relating to Offered Debt Securites (to be filed as Exhibit(s) by means of Form 8-K). 4.4 Specimen(s) of Offered Debt Securities (to be filed as Exhibit(s) by means of Form 8-K). 4.5 Form(s) of Supplemental Indenture relating to Offered Senior Notes (to be filed as Exhibit(s) by means of Form 8-K). 4.6 Specimen(s) of Offered Senior Notes (to be filed as Exhibit(s) to Form 8-K). 5.1 Opinion of Snell & Wilmer L.L.P. 12.1 Computation of Ratio of Earnings to Fixed Charges. 23.1 Consent of Deloitte & Touche L.L.P. 23.2 Consent of Snell & Wilmer L.L.P. (included in Opinion filed as Exhibit No. 5.1). 24.1 Power of Attorney (see II-6). 25.1 Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939 of The Bank of New York, as Bond Trustee under the Mortgage. 25.2 Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939 of The Bank of New York, as Trustee under the Indenture relating to the subordinated Debt Securities. 25.3 Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939 of The Chase Manhattan Bank, as Trustee under the Indenture relating to the senior Debt Securities. 25.4 Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939 of The Bank of New York, as Trustee under the Indenture relating to the Senior Notes.
For a description of the Exhibits incorporated in this filing by reference see page II-3. EX-1.1 2 UNDERWRITING AGREEMENT Exhibit 1.1 ARIZONA PUBLIC SERVICE COMPANY First Mortgage Bonds UNDERWRITING AGREEMENT ---------------------- ------------------ Dear Sir or Madam: 1. Introduction. Arizona Public Service Company, an Arizona corporation (the "Company"), proposes to issue and sell from time to time up to $400,000,000 in aggregate principal amount of its First Mortgage Bonds (the "Bonds") registered under the registration statements referred to in Section 2(a). The Bonds will be issued under its Mortgage and Deed of Trust dated as of July 1, 1946, to The Bank of New York, as successor Trustee, as amended and supplemented by fifty-five indentures supplemental thereto (the "Mortgage"), and as further amended and supplemented by one or more additional Supplemental Indentures relating to the Bonds (the "Supplemental Indentures") (the Mortgage as amended and supplemented by such Supplemental Indentures being sometimes hereinafter referred to as the "Indenture"). The Bonds will be issued in one or more series, which series may vary as to interest rates, maturities, redemption provisions, selling prices, and other terms, with all such terms for any particular issue of the Bonds being determined at the time of sale. Particular issues of the Bonds may be sold from time to time to one or more of the firms to whom this Agreement is addressed, and to such other purchasers as the Company shall designate and as shall agree in writing to comply with the terms and conditions of this Agreement, for resale in accordance with the terms of offering determined at the time of sale. The Bonds involved in any such offering are hereinafter referred to as the "Purchased Bonds," the parties that agree to purchase the same are hereinafter referred to as the "Underwriters" of such Purchased Bonds, and the representative or representatives of the Underwriters, if any, specified in a Terms Agreement referred to in Section 3 are hereinafter referred to as the "Representatives." 2. Representations and Warranties of the Company. In connection with each offering of the Purchased Bonds, the Company represents and warrants to, and agrees with, the several Underwriters that: (a) A registration statement (No. 333-27551) relating to $50,000,000 of the Bonds, unsecured debentures, notes, or other evidences of indebtedness (the "Securities"), or the Company's senior notes (the "Senior Notes") and a registration statement (No. 333-____) relating to $350,000,000 of the Bonds, Securities or Senior Notes (including a combined prospectus relating to up to $400,000,000 of the Bonds, Securities or Senior Notes) were filed with the Securities and Exchange Commission (the "Commission") and have become effective. Such registration statements, as each is amended at the time of the Terms Agreement referred to in Section 3 relating to the Purchased Bonds, are hereinafter referred to as the "First Registration Statement" and the "Second Registration Statement," respectively, and, together with any related Rule 462(b) registration statement or amendment thereto, are hereinafter referred to collectively as the "Registration Statements," and such prospectus, as supplemented as contemplated by Section 3 to reflect the terms of the Purchased Bonds and terms of offering thereof, including all material incorporated by reference therein, is hereinafter referred to as the "Prospectus." (b) Each part of the Registration Statements relating to the Bonds, when such part became effective, conformed in all material respects to the requirements of the Securities Act of 1933 (the "Act"), the Trust Indenture Act of 1939 (the "Trust Indenture Act") and the rules and regulations (the "Rules and Regulations") of the Commission and did not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and on the date of each Prospectus Supplement referred to in Section 3, the Registration Statements and the Prospectus will conform in all material respects to the requirements of the Act, the Trust Indenture Act and the Rules and Regulations, and at such date none of such documents will include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that the foregoing does not apply to (a) statements in or omissions from any such documents based upon written information furnished to the Company by any Underwriter specifically for use therein or (b) that part of the Registration Statements that consists of the Statement of Eligibility and Qualification (Form T-1) under the Trust Indenture Act of 1939 of The Bank of New York, as successor Trustee under the Mortgage. (c) An order of the Arizona Corporation Commission shall have been granted authorizing the execution and delivery of the Supplemental Indenture relating to the Purchased Bonds and the issuance and sale of the Purchased Bonds on the terms and 2 conditions herein and in the Prospectus and the Terms Agreement referred to in Section 3 relating to the Purchased Bonds, and the approval or consent of no other public body or authority is necessary to the execution and delivery of such Supplemental Indenture or the validity of the issuance and sale of the Purchased Bonds, except as may be required under state securities or blue sky laws. (d) Except for property specifically excepted from the lien of the Indenture or released therefrom in accordance with the terms thereof, the Company has good and marketable title in fee simple, except for items described in (A), (B), and (C) below, to all of the real property purported in the Indenture to be so held, good and valid leasehold interests in all properties purported in the Indenture to be held under lease, and good and valid title to all other properties described in the Indenture as subject to the lien thereof (which property excludes (i) the combined cycle plant referred to in Note 9 of Notes to Financial Statements in the Company's Form 10-K Report for the fiscal year ended December 31, 1997 (the "1997 Form 10-K Report") incorporated by reference in the Registration Statements but includes the Company's leasehold and related interests in that plant and (ii) certain leased interests in Unit 2 of the Palo Verde Nuclear Generating Station referred to in Note 9 of Notes to Financial Statements in the 1997 Form 10-K Report), except that the transmission and distribution lines of the Company, other than those located on land owned in fee by the Company, and the property described in Section 15 of Article IV of the Forty-first Supplemental Indenture, have been installed in public streets or alleys and in highways under ordinances and permits granted by the various governmental bodies having jurisdiction, or have been constructed on leaseholds, easements or rights-of-way granted, with minor exceptions, by the apparent owners of record of the land and such leases, easements, or rights-of-way are subject to any defects in or encumbrances on the title of the respective lessors of such leases or grantors of such easements or rights-of-way; title to the aforesaid properties is subject only to: (A) the lien of the Mortgage, (B) Excepted Encumbrances as defined in the Mortgage, and (C) other liens, encumbrances or defects, none of which, individually or in the aggregate, materially interfere with the business or operations of the Company (with respect to leasehold interests on the Navajo Reservation, this representation is intended and shall be understood to mean only that the Company is the owner of the rights conferred upon it by the leases from the Navajo Tribe relating to the sites on which the Navajo Plant and the Four Corners Plant are located, and that while the Company is not aware of the assertion of any claim contesting the interest of the Navajo Tribe in the lands leased, the Company does not give any representation with respect to the interest of the Navajo Tribe in the lands leased or with respect to the enforceability of such leases against the Navajo Tribe); the 3 Mortgage, subject only as above set forth in this clause, now constitutes, and the Mortgage and the Supplemental Indentures theretofore executed, subject only as above set forth in this clause, when the latter shall have been duly recorded and filed, will constitute, together and as a single instrument, a direct and valid first mortgage lien upon said properties, which include all of the properties of the Company (other than the classes or items of property expressly excepted in the Mortgage); and all properties (other than the classes or items of property expressly excepted in the Mortgage or expressly released from the lien thereof) acquired by the Company after the date of the Supplemental Indenture relating to the Purchased Bonds in each county in the States of Arizona and New Mexico in which the Mortgage and the Supplemental Indenture shall have been duly recorded and filed (and, as to which properties, with respect to priority only, any necessary recordation and/or filing has been accomplished, including therein any necessary descriptions of after-acquired real property and real property upon which after-acquired fixtures are affixed) will, upon such acquisition, become subject to the first mortgage lien thereof, subject, however, to Excepted Encumbrances and to liens, if any, existing or placed thereon at the time of the acquisition thereof by the Company and, with respect to priority only, to liens, if any, existing prior to the time of any necessary recordation and/or filing by the Company. (e) The Company holds such valid franchises, certificates of convenience and necessity, licenses, and permits as are necessary with respect to the maintenance and operation of its property and business as now conducted, except that (A) the Company from time to time makes minor extensions of its system prior to the time a related franchise, certificate, license, or permit is procured, (B) from time to time communities already being served by the Company become incorporated and considerable time may elapse before a franchise is procured, (C) certain franchises may have expired prior to the renegotiation thereof, (D) the Company may not have obtained certain permits or variances relating to the environmental requirements described in any of its Form 10-K Report, its Form 10-Q Reports, and/or its Form 8-K Reports incorporated by reference in the Registration Statements, (E) certain minor defects and exceptions may exist which, individually and in the aggregate, are not deemed material, and (F) the Company does not make any representation regarding the geographical scope of any franchise, certificate, license, or permit that is not specific as to its geographical scope. 3. Purchase and Offering. The obligation of the Underwriters to purchase, and the obligation of the Company to sell, the Purchased Bonds will be evidenced by an exchange of facsimile transmission or other written communications (the "Terms Agreement") at the time the Company determines to sell the 4 Purchased Bonds. The Terms Agreement shall specify (by incorporation by reference or otherwise) the parties that will be Underwriters, the principal amount to be purchased by each, the purchase price to be paid by the Underwriters, any compensation or commissions to be paid to Underwriters, the offering price, and the terms of the Purchased Bonds not already specified in the Indenture, including, but not limited to, interest rates, maturity, redemption provisions, and sinking fund requirements, if any. The Terms Agreement shall also specify (by incorporation by reference or otherwise) the time and date of delivery and payment (the "Closing Date"), the place of delivery and payment, and any details of the terms of offering that should be reflected in the prospectus supplement relating to the offering of the Purchased Bonds (the "Prospectus Supplement"). It is understood that the Underwriters will offer the Purchased Bonds for sale as set forth in the Prospectus. The obligations of the Underwriters to purchase the Purchased Bonds shall be several and not joint. Except as may otherwise be set forth in the Terms Agreement, the Purchased Bonds will be in definitive form and in such denominations and registered in such names as the Underwriters may request. 4. Covenants of the Company. In connection with each offering of Purchased Bonds, the Company covenants and agrees with the several Underwriters that: (a) The Company will advise the Underwriters or the Representatives promptly of any proposed amendment or supplementation of the First Registration Statement, the Second Registration Statement, or the Prospectus. The Company will also advise the Underwriters or the Representatives of the institution by the Commission of any stop order proceedings in respect of the First Registration Statement, the Second Registration Statement, or of any part thereof, and will use its best efforts to prevent the issuance of any such stop order and to obtain as soon as possible its lifting, if issued. (b) If, at any time when a prospectus relating to the Purchased Bonds is required to be delivered under the Act, any event occurs as a result of which the Prospectus as then amended or supplemented would include an untrue statement of a material fact, or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, or if it is necessary at any time to amend or supplement the First Registration Statement, the Second Registration Statement, or the Prospectus to comply with the Act, the Company promptly will prepare and file with the Commission an amendment or supplement that will correct such statement or omission or an amendment that will effect such compliance. (c) As soon as practicable, but not later than 18 months, after the date of the Terms Agreement relating to the Purchased Bonds, the Company will make generally available to 5 its securityholders an earning statement or statements (which need not be audited) covering a period of at least 12 months beginning after the effective date of the Second Registration Statement (as defined in Rule 158(c) under the Act), which will satisfy the provisions of Section ll(a) of the Act and the rules and regulations thereunder. (d) The Company will furnish to the Underwriters or the Representatives such copies of the Registration Statements (including one copy of the Second Registration Statement for each Representative, or for each Underwriter if there are no Representatives, and for the counsel for the Underwriters, which is signed and includes all exhibits), any related preliminary prospectus supplements and the Prospectus, including all amendments or supplements to such documents, as may be reasonably requested. (e) The Company will arrange or cooperate in arrangements for the qualification of the Purchased Bonds for sale and the determination of their eligibility for investment under the laws of such jurisdictions as the Underwriters or the Representatives designate and will continue such qualifications in effect so long as required for the distribution of the Purchased Bonds, provided that the Company shall not be required to qualify as a foreign corporation in any State, to consent to service of process in any State other than with respect to claims arising out of the offering or sale of the Purchased Bonds, or to meet other requirements deemed by it to be unduly burdensome. (f) During the period of five years after the date of the Terms Agreement relating to the Purchased Bonds, the Company will furnish to the Underwriters or the Representatives thereunder, and, upon request, each of the other Underwriters, (i) as soon as practicable after the end of each fiscal year, a balance sheet and statements of income and retained earnings of the Company as at the end of and for such year, all in reasonable detail and certified by independent public accountants, and (ii) (A) as soon as practicable after the end of each quarterly fiscal period (except for the last quarterly fiscal period of each fiscal year), a balance sheet and statement of income of the Company as at the end of and for such period, all in reasonable detail and certified by a principal financial or accounting officer of the Company, (B) as soon as available, a copy of each report of the Company mailed by the Company to stockholders or filed with the Commission, and (C) from time to time, such other information concerning the Company as may reasonably be requested. So long as the Company has active subsidiaries, such financial statements will be on a consolidated basis to the extent the accounts of the Company and its subsidiaries are consolidated. 6 (g) The Company will pay all expenses incident to the performance of its obligations under this Agreement, and will reimburse the Underwriters for any reasonable expenses (including reasonable fees and disbursements of counsel) incurred by them in connection with the qualification of the Purchased Bonds with respect to which the Terms Agreement relating to the Purchased Bonds has been entered for sale, and the determination of their eligibility for investment, under the laws of such jurisdictions as the Representatives or, if there are no Representatives, the Underwriters designate, and the printing of memoranda relating thereto, and for any fees charged by investment rating agencies for the rating of the Purchased Bonds. (h) The Company will not offer or sell any of its First Mortgage Bonds for a period beginning at the time of execution of the Terms Agreement relating to the Purchased Bonds and ending on the Closing Date relating thereto without prior consent of the Underwriters or the Representatives. 5. Conditions of the Obligations of the Underwriters. The obligations of the several Underwriters to purchase and pay for the Purchased Bonds will be subject to the accuracy of the representations and warranties on the part of the Company herein, to the accuracy of the statements of Company officers made pursuant to the provisions hereof, to the performance by the Company of its obligations hereunder, and to the following additional conditions precedent: (a) The Underwriters or the Representatives shall have received a letter from DELOITTE & TOUCHE LLP, dated the date of the Terms Agreement, confirming that they are independent certified public accountants within the meaning of the Act and the applicable published Rules and Regulations thereunder, and stating in effect that (i) in their opinion the financial statements and schedules of the Company examined by them and incorporated by reference in the Registration Statements comply as to form in all material respects with the applicable accounting requirements of the Securities Exchange Act of 1934 (the "1934 Act") and the published Rules and Regulations thereunder and (ii) on the basis of a reading of the latest available interim financial statements of the Company, inquiries of officials of the Company responsible for financial and accounting matters, and other specified procedures, nothing came to their attention that caused them to believe that (A) the unaudited financial statements incorporated by reference, if any, in the Registration Statements do not comply as to form in all material respects with the applicable accounting requirements of the 1934 Act and the published Rules and Regulations thereunder or are not stated on a basis substantially consistent with that of the audited financial statements incorporated by reference in the Registration Statements, (B) at the date of the most recent available unaudited financial statements and at a specified 7 date not more than five days prior to the date of this Agreement, there was any increase in the amounts of common stock, redeemable preferred stock, or non-redeemable preferred stock of the Company or any increase, exceeding $10,000,000, in long-term debt of the Company or, at the date of the most recent available unaudited financial statements there was any decrease in net assets as compared with amounts shown in the most recent financial statements incorporated by reference in the Registration Statements, or (C) for the twelve-month period ended at the date of the most recent available unaudited financial statements there were any decreases, exceeding 3%, as compared with the twelve-month period ended at the date of the most recent financial statements incorporated by reference in the Registration Statements, in the amounts of total revenues or net income, except in all cases for increases or decreases which result from the declaration or payment of dividends, or which the Registration Statements (including any material incorporated by reference therein) disclose have occurred or may occur, or which are described in such letter. (b) No stop order suspending the effectiveness of the First Registration Statement, the Second Registration Statement, or any part thereof shall have been issued and no proceedings for that purpose shall have been instituted or, to the knowledge of the Company or the Underwriters, shall be contemplated by the Commission. (c) Subsequent to the execution of the Terms Agreement relating to the Purchased Bonds, (i) there shall not have occurred any change, or any development involving a prospective change, in or affecting particularly the business or properties of the Company or its subsidiaries which, in the judgment of a majority in interest of the Underwriters under such Terms Agreement, including any Representatives, materially impairs the investment quality of the Purchased Bonds, (ii) there shall not have occurred a suspension or material limitation in trading in securities generally on the New York Stock Exchange, (iii) there shall not have occurred a general moratorium on commercial banking activities in New York declared by either Federal or New York State authorities, (iv) no rating of any of the Company's debt securities shall have been lowered and there shall have been no public announcement that any such debt securities have been placed on CreditWatch, Watchlist, or under any similar surveillance or review, in each case with negative implications, by any recognized rating agency, and (v) there shall not have occurred any outbreak or escalation of major hostilities in which the United States is involved, any declaration of war by Congress or any other substantial national or international calamity or emergency if, in the judgment of a majority in interest of the Underwriters under such Terms Agreement, including any Representatives, the effect of any such outbreak, escalation, declaration, calamity or emergency makes 8 it impractical or inadvisable to proceed with completion of the sale of and payment for the Purchased Bonds. (d) The Underwriters or the Representatives shall have received an opinion of Snell & Wilmer L.L.P., counsel for the Company, dated the relevant Closing Date, to the effect that: (i) The Company is a corporation duly organized, validly existing, and in good standing under the laws of the State of Arizona and has full corporate power and authority to carry on its business as presently conducted; and the Company is duly qualified as a foreign corporation to do business and is in good standing in the States of New Mexico, California, Oregon, Washington, Montana and Wyoming, the only other jurisdictions in which it owns or leases substantial properties or in which the conduct of its business requires such qualification; (ii) The Purchased Bonds have been duly authorized, executed, authenticated, issued, and delivered, constitute valid and legally binding obligations of the Company entitled to the benefits and security provided by the Indenture (except as the same may be limited by (a) general principles of equity or by bankruptcy, insolvency, reorganization, arrangement, moratorium, or other laws or equitable principles relating to or affecting the enforcement of creditors' rights generally or the enforcement of the security provided by the Indenture, (b) the necessity for compliance with the statutory procedural requirements governing the exercise of remedies by a secured creditor, and (c) the qualification that certain waivers, procedures, remedies, and other provisions of the Purchased Bonds and the Indenture may be unenforceable under or limited by the law of the State of Arizona; however, such law does not in such counsel's opinion substantially prevent the practical realization of the benefits intended by such documents) and conform to the description thereof in the Prospectus; (iii) The Indenture has been duly authorized, executed, and delivered, has been duly qualified under the Trust Indenture Act, and constitutes a valid and binding instrument enforceable in accordance with its terms except as the same may be limited by (a) general principles of equity or by bankruptcy, insolvency, reorganization, arrangement, moratorium, or other laws or equitable principles relating to or affecting the enforcement of creditors' rights generally or the enforcement of the security provided by the Indenture, (b) the necessity for compliance with the statutory procedural requirements governing the exercise of remedies by a secured creditor, and (c) the qualification that certain waivers, procedures, 9 remedies, and other provisions of the Purchased Bonds and the Indenture may be unenforceable under or limited by the law of the State of Arizona; however, such law does not in such counsel's opinion substantially prevent the practical realization of the benefits intended by such documents; (iv) Except for property specifically excepted from the lien of the Indenture or released therefrom in accordance with the terms thereof, the Company has good and marketable title in fee simple, except for items described in (A), (B), and (C) below, to all of the real property and fixtures thereon purported in the Indenture to be so held and that are both located in the State of Arizona and described in those title reports covering at least the Saguaro, Yucca, Cholla, Ocotillo, West Phoenix, and Palo Verde plant sites that are listed on an exhibit to such opinion (the "Title Documents") (in giving such opinion, such counsel may rely solely upon the Title Documents and may assume the accuracy thereof and of the real property descriptions contained therein and may state that no other investigation or inquiry has been made with respect thereto), and in giving the opinions described below with respect to any liens, defects, and encumbrances on such title to such personal property, such counsel may assume that the Company has good and valid title to all of the personal property located in the State of Arizona and described in the Indenture as subject to the lien thereof (which property shall not include fixtures), and such counsel may rely solely upon, and assume the accuracy of, a search of the Uniform Commercial Code Financing Statements filed in the records of the Arizona Secretary of State and may assume that there are no liens or other encumbrances on personal property (as used in the Arizona Uniform Commercial Code) of the Company located in the State of Arizona other than liens or other encumbrances that have been perfected by filing with the Arizona Secretary of State under Arizona Revised Statutes ("A.R.S.") Section 47-9401.A; such title is subject only to: (A) the lien of the Mortgage, (B) Excepted Encumbrances as defined in the Mortgage, and (C) other liens, encumbrances, or defects, none of which, individually or in the aggregate, in the opinion of such counsel, materially interfere with the business or operations of the Company (in determining whether any such other liens, encumbrances, or defects materially interfere with the business or operations of the Company, such counsel may rely solely upon a certificate of an officer or engineer of the Company which shall be attached to such opinion and such opinion may state that no other investigation or inquiry with respect thereto has been made); the Mortgage, subject only as above set forth in this clause, now constitutes, and the Mortgage and the 10 Supplemental Indentures theretofore executed, subject only as above set forth in this clause, when the latter shall have been duly recorded and filed, will constitute, together and as a single instrument, a direct and valid first mortgage lien upon said property; and all properties (other than the classes or items of property expressly excepted in the Mortgage or expressly released from the lien thereof) acquired by the Company after the date of the Supplemental Indenture relating to the Purchased Bonds in each county in the State of Arizona in which the Mortgage and the Supplemental Indenture shall have been duly recorded and filed and, with respect to priority only, any necessary recordation and/or filing has been accomplished (including therein any necessary descriptions of after-acquired real property and real property upon which after-acquired fixtures are affixed) will, upon such acquisition, become subject to the first mortgage lien thereof, subject, however, to Excepted Encumbrances and to liens, if any, existing or placed thereon at the time of the acquisition thereof by the Company and, with respect to priority only, to liens, if any, existing prior to the time of any necessary recordation and/or filing by the Company; (v) The Company is the owner of the rights conferred upon it by the leases from the Navajo Tribe relating to the site on which the Navajo Plant is located and while such counsel is not aware of the assertion of any claim contesting the title of the Navajo Tribe to the lands leased, such counsel shall not be required to express any opinion with respect to the interest of the Navajo Tribe in the lands leased or with respect to the enforceability of such leases against the Navajo Tribe; (vi) With certain exceptions, a public service corporation is required to obtain certificates of convenience and necessity from the Arizona Corporation Commission under A.R.S. Section 40-281.A for construction of its lines, plant, services, or systems, or any extensions thereof, within the State of Arizona, and to obtain franchises or similar consents or permits from counties and incorporated municipalities under A.R.S. Section 40-283.A for the construction, operation, and maintenance of transmission lines within the State of Arizona; to the best of such counsel's knowledge after due inquiry, the Company holds such valid franchises, certificates of convenience and necessity, consents, and permits pursuant to such statutory provisions as are necessary with respect to the maintenance and operation of its property and business as now conducted, except that (A) the Company from time to time makes minor extensions of its system prior to 11 the time a related franchise, certificate, license, or permit is procured, (B) from time to time communities already being served by the Company become incorporated and considerable time may elapse before a franchise is procured, (C) certain franchises may have expired prior to the renegotiation thereof, (D) certain minor defects and exceptions may exist which, individually and in the aggregate, are not deemed material, and (E) such counsel need not be required to express any opinion regarding the geographical scope of any franchise, certificate, license, or permit that is not specific as to its geographical scope; (vii) The issuance and sale of the Purchased Bonds on the terms and conditions set forth or contemplated herein and in the Prospectus and the Terms Agreement relating to the Purchased Bonds and the execution and delivery of the Supplemental Indenture relating to the Purchased Bonds have been duly authorized by the Arizona Corporation Commission, said Commission had jurisdiction in the premises, and no further approval, authorization, or consent of any other public board or body is necessary to the validity of such issuance and sale of such Purchased Bonds or the execution and delivery of such Supplemental Indenture, except as may be required under state securities or blue sky laws, as to which laws such counsel shall not be required to express an opinion; (viii) The First Registration Statement and the Second Registration Statement have become effective under the Act, and, to the best of the knowledge of such counsel, no stop order suspending the effectiveness of the First Registration Statement or the Second Registration Statement has been issued and no proceedings for that purpose have been instituted or are pending or contemplated under the Act, and each part of the Registration Statements relating to the Bonds, when such part became effective, and the Prospectus, as of the date of the Prospectus Supplement, and each amendment or supplement thereto, as of their respective effective or issue dates, complied as to form in all material respects with the requirements of the Act, the Trust Indenture Act, and the published Rules and Regulations; such counsel has no reason to believe that any part of the Registration Statements, when such part became effective, or the Prospectus, as of the date of the Prospectus Supplement, or as of the Closing Date, or any amendment or supplement thereto, as of their respective effective or issue dates, or as of the Closing Date, contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein not misleading; the descriptions in 12 the Registration Statements and Prospectus of statutes, legal and governmental proceedings and contracts, and other documents are accurate and fairly present the information required to be shown; and to the actual knowledge of those persons in the lawyer group described in such opinion, there are no legal or governmental proceedings required to be described in the Prospectus that are not described as required, nor any contracts or documents of a character required to be described in the Registration Statements or Prospectus or to be filed as exhibits to the Registration Statements that are not described and filed as required (it being understood that such counsel need express no opinion as to the financial statements or other financial data contained in the Registration Statements or the Prospectus); and (ix) This Agreement and the Terms Agreement have been duly authorized, executed, and delivered by the Company. In giving such opinion, (a) Snell & Wilmer L.L.P. may rely solely upon certificates of the Company as to any factual matters upon which any such opinions are based and may rely upon the opinion of Keleher & McLeod, P.A., referred to below, as to all matters governed by the laws of the State of New Mexico, but the opinion of Snell & Wilmer L.L.P. shall state that, though they are members of the Arizona Bar and do not hold themselves out as experts on the laws of the State of New Mexico, they have made a study of the laws of such State insofar as such laws are involved in the conclusions stated in their opinion, other than such laws as relate to matters of title, and from such study it is their opinion that such laws support such conclusions and that, in their opinion, the Underwriters and they are justified to such extent in relying upon the opinion of Keleher & McLeod, P.A.; and (b) the lawyer group referred to in such opinion will mean those lawyers in the offices of Snell & Wilmer L.L.P. who (i) have billed any time on the particular transaction to which such opinion relates or (ii) have billed more than ten hours to any Company matter in the twelve-month period preceding the date on which the list of such lawyers was compiled for purposes of inquiry pursuant to such opinion. (e) The Underwriters or the Representatives shall have received an opinion of Keleher & McLeod, P.A., New Mexico counsel for the Company, dated the Closing Date, to the effect that: (i) The Company is duly qualified as a foreign corporation to do business and is in good standing in the State of New Mexico and has full corporate power and authority to engage in the State of New Mexico in the business now conducted by it therein; 13 (ii) The activities of the Company in the State of New Mexico to date do not constitute it a "public utility" as that term is defined in the relevant laws of the State of New Mexico, and accordingly, no public utility franchises or certificates of convenience and necessity are necessary under New Mexico law with respect to the maintenance and operation of the Company's property and business as now conducted in the State of New Mexico and no approval, authorization, or consent of the New Mexico Public Utility Commission or any other public board or body of the State of New Mexico is required for the issuance and sale of the Purchased Bonds on the terms and conditions herein and in the Prospectus set forth or contemplated or for the execution of the Supplemental Indenture relating to the Purchased Bonds, except as may be required under New Mexico state securities or blue sky laws, as to which laws such counsel shall not be required to express an opinion; (iii) Assuming that the Company has good and valid title to all of the personal property located in the State of New Mexico and described in the Indenture as subject to the lien thereof (which property shall not include fixtures) ("Personal Property"), in giving the opinions described below with respect to any liens, defects and encumbrances on such title to such Personal Property, such counsel may rely solely upon, and assume the accuracy of, a search of the Uniform Commercial Code Financing Statements filed in the records of the New Mexico Secretary of State and may assume that there are no liens or other encumbrances on personal property (as used in the New Mexico Uniform Commercial Code) of the Company located in the State of New Mexico other than liens or other encumbrances that have been perfected by filing with the New Mexico Secretary of State under Section 55-9-401, New Mexico Statutes Annotated 1978; such title to such Personal Property is subject only to: (A) the lien of the Mortgage, (B) Excepted Encumbrances as defined in the Mortgage, and (C) other liens, encumbrances, or defects, none of which, individually or in the aggregate, in the opinion of such counsel, materially interfere with the business or operations of the Company (in determining whether any such other liens, encumbrances, or defects materially interfere with the business or operations of the Company, such counsel may rely solely upon a certificate of an officer or engineer of the Company which shall be attached to such opinion and such opinion may state that no other investigation or inquiry with respect thereto has been made); the Mortgage, subject only as above set forth in this clause, now constitutes, and the Mortgage and the Supplemental Indentures theretofore executed, subject only as above set forth in this clause, when the 14 latter shall have been duly recorded and filed, will constitute, together and as a single instrument, a direct and valid first mortgage lien upon such Personal Property; and all properties (other than the classes or items of property expressly excepted in the Mortgage or expressly released from the lien thereof) acquired by the Company after the date of the Supplemental Indenture relating to the Purchased Bonds in each county in the State of New Mexico in which the Mortgage and the Supplemental Indenture shall have been duly recorded and filed and, with respect to priority only, any necessary recordation and/or filing has been accomplished (including therein any necessary descriptions of after-acquired real property and real property upon which after-acquired fixtures are affixed) will, upon such acquisition, become subject to the first mortgage lien thereof, subject, however, to Excepted Encumbrances and to liens, if any, existing or placed thereon at the time of the acquisition thereof by the Company and, with respect to priority only, to liens, if any, existing prior to the time of any necessary recordation and/or filing by the Company; and (iv) The Company is the owner of the rights conferred upon it by the leases from the Navajo Tribe relating to the site on which the Four Corners plant is located and while such counsel is not aware of the assertion of any claim contesting the interest of the Navajo Tribe in the lands leased, such counsel shall not be required to express any opinion with respect to the interest of the Navajo Tribe in the lands leased or with respect to the enforceability of such leases against the Navajo Tribe. In giving such opinion, Keleher & McLeod, P.A. may rely solely upon certificates of the Company as to any factual matters upon which any such opinions are based. (f) The Underwriters or the Representatives shall have received from counsel for the Underwriters such opinion or opinions, dated the Closing Date, with respect to the incorporation of the Company, the validity of the Purchased Bonds, the Registration Statements, the Prospectus, and other related matters as may reasonably be required, and the Company shall have furnished to such counsel such documents as they request for the purpose of enabling them to pass upon such matters. In rendering such opinion, such counsel may rely as to the incorporation of the Company and all other matters governed by the laws of the States of Arizona and New Mexico upon the opinions of Snell & Wilmer L.L.P. and Keleher & McLeod, P.A., referred to above. (g) The Underwriters or the Representatives shall have received a certificate of the President or any Vice President 15 and a principal financial or accounting officer of the Company, dated the Closing Date, in which such officers, to the best of their knowledge after reasonable investigation, shall state that the representations and warranties of the Company in this Agreement are true and correct, that the Company has complied with all agreements and satisfied all conditions on its part to be performed or satisfied at or prior to the Closing Date, that no stop order suspending the effectiveness of the First Registration Statement or the Second Registration Statement has been issued and no proceedings for that purpose have been instituted or are contemplated by the Commission, and that, subsequent to the date of the most recent financial statements in the Prospectus, there has been no material adverse change in the financial position or results of operations of the Company and its subsidiaries except as set forth or contemplated in the Prospectus or as described in such certificate. (h) The Underwriters or the Representatives shall have received a letter of DELOITTE & TOUCHE LLP, dated the Closing Date, which meets the requirements of subsection (a) of this Section, except that the specified date referred to in such subsection will be a date not more than five days prior to the Closing Date for the purposes of this subsection. The Company will furnish the Underwriters or the Representatives with such conformed copies of such opinions, certificates, letters, and documents as may be reasonably requested. 6. Indemnification. (a) The Company will indemnify and hold harmless each Underwriter and each person, if any, who controls such Underwriter within the meaning of the Act against any losses, claims, damages or liabilities, joint or several, to which such Underwriter or such controlling person may become subject, under the Act or otherwise, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any part of the Registration Statements relating to the Bonds, when such part became effective, any preliminary prospectus or preliminary prospectus supplement, the Prospectus, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; and will reimburse each Underwriter and each such controlling person for any legal or other expenses reasonably incurred by such Underwriter or such controlling person in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the Company will not be liable in any such case to the extent that any such loss, claim, damage, or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in any of such documents in reliance upon and in conformity with written 16 information furnished to the Company by any Underwriter specifically for use therein. This indemnity agreement will be in addition to any liability which the Company may otherwise have. (b) Each Underwriter will severally indemnify and hold harmless the Company, each of its directors, each of its officers who have signed the Registration Statements, and each person, if any, who controls the Company within the meaning of the Act, against any losses, claims, damages, or liabilities to which the Company or any such director, officer, or controlling person may become subject, under the Act or otherwise, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any part of the Registration Statements relating to the Bonds, when such part became effective, any preliminary prospectus or preliminary prospectus supplement, the Prospectus, or any amendment or supplement thereto, or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company by such Underwriter specifically for use therein; and will reimburse any legal or other expenses reasonably incurred by the Company or any such director, officer, or controlling person in connection with investigating or defending any such loss, claim, damage, liability, or action. This indemnity agreement will be in addition to any liability which such Underwriter may otherwise have. (c) Promptly after receipt by an indemnified party under this Section of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this Section, notify the indemnifying party of the commencement thereof; but the omission so to notify the indemnifying party will not relieve it from any liability that it may have to any indemnified party otherwise than under this Section. In case any such action is brought against any indemnified party, and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel satisfactory to such indemnified party (who shall not, without the consent of the indemnified party, be counsel to the indemnifying party), and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party will not be liable to such indemnified party under this Section for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation. An indemnifying party shall not be liable for any settlement of a claim or action effected without its written consent, which shall not be unreasonably withheld. 17 (d) If the indemnification provided for in this Section is unavailable or insufficient to hold harmless an indemnified party for any loss, claim, damage, liability, or action described in subsection (a) or (b) above, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of the losses, claims, damages or liabilities referred to in subsection (a) or (b) above on the following basis: (l) if such loss, claim, damage, liability, or action arises under subsection (a) above, then (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Underwriters on the other from the offering of the Bonds or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the one hand and the Underwriters on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities as well as any other relevant equitable considerations; and (2) if such loss, claim, damage, liability, or action arises under subsection (b) above, then in such proportion as is appropriate to reflect the relative fault of the Company on the one hand and the Underwriters on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities as well as any other relevant equitable considerations. For the purposes of clause (1) above, the relative benefits received by the Company on the one hand and the Underwriters on the other shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Company bear to the total underwriting discounts and commissions received by the Underwriters. For the purposes of clauses (1) and (2) above, the relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or the Underwriters and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The amount paid by an indemnified party as a result of the losses, claims, damages or liabilities referred to in the first sentence of this subsection (d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any action or claim which is the subject of this subsection (d). No person guilty of fraudulent misrepresentation (within the meaning of Section ll(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters' obligations in this subsection (d) to contribute are several in proportion to their respective underwriting obligations and not joint. 7. Default of Underwriters. If any Underwriter or Underwriters default in their obligations to purchase Purchased Bonds pursuant to this Agreement and the Terms Agreement and the 18 principal amount of Purchased Bonds that such defaulting Underwriter or Underwriters agreed but failed to purchase is ten percent (10%) or less of the principal amount of Purchased Bonds to which such Terms Agreement relates, the Underwriters or the Representatives may make arrangements satisfactory to the Company for the purchase of such Purchased Bonds by other persons, including any of the Underwriters, but if no such arrangements are made by the Closing Date the nondefaulting Underwriters shall be obligated severally, in proportion to their respective commitments hereunder and under such Terms Agreement, to purchase the Purchased Bonds that such defaulting Underwriter or Underwriters agreed but failed to purchase. If any Underwriter or Underwriters so default and the aggregate principal amount of Purchased Bonds with respect to which such default or defaults occur is more than the above-described amount and arrangements satisfactory to the remaining Underwriters and the Company for the purchase of such Purchased Bonds by other persons are not made within thirty-six hours after such default, the Terms Agreement will terminate without liability on the part of any non-defaulting Underwriter or the Company, except as provided in Section 8. As used in this Agreement, the term "Underwriter" includes any person substituted for an Underwriter under this Section. Nothing herein will relieve a defaulting Underwriter from liability for its default. 8. Survival of Certain Representations and Obligations. The respective indemnities, agreements, representations, warranties, and other statements of the Company or its officers and of the several Underwriters set forth in or made pursuant to this Agreement will remain in full force and effect regardless of any investigation, or statement as to the results thereof, made by or on behalf of any Underwriter or the Company or any of its officers or directors or any controlling person, and will survive delivery of and payment for the Purchased Bonds. If any Terms Agreement is terminated pursuant to Section 7, or if for any reason a purchase pursuant to any Terms Agreement is not consummated, the Company shall remain responsible for the expenses to be paid or reimbursed by it pursuant to Section 4 and the respective obligations of the Company and the Underwriters pursuant to Section 6 shall remain in effect. 9. Notices. All communications hereunder relating to any offering of Purchased Bonds will be in writing, and, if sent to the Underwriters, may be mailed, delivered, or telecopied and confirmed to the Representative first named in the Terms Agreement relating to such Purchased Bonds or the Underwriters at their addresses furnished to the Company in writing for the purpose of communications; provided, however, that any notice to an Underwriter pursuant to Section 6 will be mailed, delivered, or telecopied and confirmed to each such Underwriter at its own address. All communications hereunder to the Company shall be mailed to the Company, Attention: Treasurer, at P.O. Box 53999, Phoenix, Arizona 85072-3999, or delivered, or telecopied and confirmed to the Company at 400 North Fifth Street, Phoenix, Arizona 85004. 19 10. Successors. This Agreement will inure to the benefit of and be binding upon the parties hereto and such Underwriters as are named in Terms Agreements and their respective successors and the officers and directors and controlling persons referred to in Section 6, and no other person will have any right or obligation hereunder. 11. Representation of Underwriters. The Representatives, if any, may act for the several Underwriters in connection with any offering to which a Terms Agreement may relate, and any action under this Agreement or such Terms Agreement taken by the Representatives jointly or the Representative first named in such Terms Agreement in such capacity will be binding upon all the Underwriters of Purchased Bonds to which such Terms Agreement relates. 12. Execution in Counterpart. This Agreement and any Terms Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all such respective counterparts shall together constitute a single instrument. 20 If the foregoing is in accordance with your understanding of our agreement, kindly sign and return to us the enclosed duplicate hereof, whereupon it will become a binding agreement between the Company and the several Underwriters in accordance with its terms. Very truly yours, ARIZONA PUBLIC SERVICE COMPANY By ___________________________ Treasurer The foregoing Underwriting Agreement is hereby confirmed and accepted as of the date first above written. By__________________________________ 21 EX-1.2 3 UNDERWRITING AGREEMENT Exhibit 1.2 ARIZONA PUBLIC SERVICE COMPANY Securities UNDERWRITING AGREEMENT ---------------------- --------------------- Dear Sir or Madam: 1. Introduction. Arizona Public Service Company, an Arizona corporation (the "Company"), proposes to issue and sell from time to time up to $400,000,000 in aggregate principal amount of its unsecured debentures, notes or other evidences of indebtedness (the "Securities") registered under the registration statements referred to in Section 2(a). The Securities will be issued under the Indenture, dated as of January 15, 1998, between the Company and The Chase Manhattan Bank, as Trustee, (the "Indenture"), as amended and supplemented by one or more Supplemental Indentures between the Company and the Trustee (each, a "Supplemental Indenture") (the Indenture as amended and supplemented by such Supplemental Indentures being sometimes hereinafter referred to as the "Indenture"). The Securities will be issued in one or more series, which series may vary as to interest rates, maturities, redemption provisions, selling prices, and other terms, with all such terms for any particular issue of the Securities being determined at the time of sale. Particular issues of the Securities may be sold from time to time to one or more of the firms to whom this Agreement is addressed, and to such other purchasers as the Company shall designate and as shall agree in writing to comply with the terms and conditions of this Agreement, for resale in accordance with the terms of offering determined at the time of sale. The Securities involved in any such offering are hereinafter referred to as the "Purchased Securities," the party or parties that agree to purchase the same are hereinafter referred to as the "Underwriters" of such Purchased Securities, and the representative or representatives of the Underwriters, if any, specified in a Terms Agreement referred to in Section 3 are hereinafter referred to as the "Representatives." 2. Representations and Warranties of the Company. In connection with each offering of the Purchased Securities, the Company represents and warrants to, and agrees with, the Underwriters that: (a) A registration statement (No. 333-27551) relating to $50,000,000 of the Securities, the Company's first mortgage bonds (the "Bonds"), or the Company's senior notes (the "Senior Notes") and a registration statement (No. 333-____) relating to $350,000,000 of the Securities, the Bonds or the Senior Notes (including a combined prospectus relating to up to $400,000,000 of the Securities, Bonds or Senior Notes) were filed with the Securities and Exchange Commission (the "Commission") and have become effective. Such registration statements, as each is amended at the time of the Terms Agreement referred to in Section 3 relating to the Purchased Securities, are hereinafter referred to as the "First Registration Statement" and the "Second Registration Statement," respectively, and, together with any related 462(b) registration statement or amendment thereto, are hereinafter referred to collectively as the "Registration Statements" and such prospectus, as supplemented as contemplated by Section 3 to reflect the terms of the Purchased Securities and terms of offering thereof, including all material incorporated by reference therein, is hereinafter referred to as the "Prospectus." (b) Each part of the Registration Statements relating to the Securities, when such part became effective, conformed in all material respects to the requirements of the Securities Act of 1933 (the "Act"), the Trust Indenture Act of 1939 (the "Trust Indenture Act") and the rules and regulations (the "Rules and Regulations") of the Commission and did not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and on the date of each Prospectus Supplement referred to in Section 3, the Registration Statements and the Prospectus will conform in all material respects to the requirements of the Act, the Trust Indenture Act and the Rules and Regulations, and at such date none of such documents will include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that the foregoing does not apply to (a) statements in or omissions from any such documents based upon written information furnished to the Company by any Underwriter specifically for use therein or (b) that part of the Registration Statements that consists of the Statement of Eligibility and Qualification (Form T-1) under the Trust Indenture Act of 1939 of The Chase Manhattan Bank, as Trustee under the Indenture. (c) An order of the Arizona Corporation Commission shall have been granted authorizing the execution and delivery of the Supplemental Indenture relating to the Purchased Securities and the issuance and sale of the Purchased Securities on the terms and conditions herein and in the Prospectus and the Terms Agreement referred to in Section 3 relating to the Purchased Securities, and the approval or 2 consent of no other public body or authority is necessary to the execution and delivery of such Supplemental Indenture or the validity of the issuance and sale of the Purchased Securities, except as may be required under state securities or blue sky laws. (d) The Company holds such valid franchises, certificates of convenience and necessity, licenses, and permits as are necessary with respect to the maintenance and operation of its property and business as now conducted, except that (A) the Company from time to time makes minor extensions of its system prior to the time a related franchise, certificate, license, or permit is procured, (B) from time to time communities already being served by the Company become incorporated and considerable time may elapse before a franchise is procured, (C) certain franchises may have expired prior to the renegotiation thereof, (D) the Company may not have obtained certain permits or variances relating to the environmental requirements described in any of its Form 10-K Report, its Form 10-Q Reports, and/or its Form 8-K Reports incorporated by reference in the Registration Statements, (E) certain minor defects and exceptions may exist which, individually and in the aggregate, are not deemed material, and (F) the Company does not make any representation regarding the geographical scope of any franchise, certificate, license, or permit that is not specific as to its geographical scope. 3. Purchase and Offering. The obligation of the Underwriters to purchase, and the obligation of the Company to sell, the Purchased Securities will be evidenced by an exchange of facsimile transmission or other written communications (the "Terms Agreement") at the time the Company determines to sell the Purchased Securities. The Terms Agreement shall specify (by incorporation by reference or otherwise) the party or parties that will be Underwriters, the principal amount to be purchased by each, the purchase price to be paid by the Underwriters, any compensation or commissions to be paid to Underwriters, the offering price, and the terms of the Purchased Securities not already specified in the Indenture, including, but not limited to, interest rates, maturity, redemption provisions, and sinking fund requirements, if any. The Terms Agreement shall also specify (by incorporation by reference or otherwise) the time and date of delivery and payment (the "Closing Date"), the place of delivery and payment, and any details of the terms of offering that should be reflected in the prospectus supplement relating to the offering of the Purchased Securities (the "Prospectus Supplement"). It is understood that the Underwriters will offer the Purchased Securities for sale as set forth in the Prospectus. The obligations of the Underwriters to purchase the Purchased Securities shall be several and not joint. Except as may otherwise be set forth in the Terms Agreement, the Purchased Securities will be in definitive form and in such denominations and registered in such names as the Underwriters may request. 3 4. Covenants of the Company. In connection with each offering of Purchased Securities, the Company covenants and agrees with the several Underwriters that: (a) The Company will advise the Underwriters or the Representatives promptly of any proposed amendment or supplementation of the First Registration Statement, the Second Registration Statement, or the Prospectus. The Company will also advise the Underwriters or the Representatives of the institution by the Commission of any stop order proceedings in respect of the First Registration Statement, the Second Registration Statement, or of any part thereof, and will use its best efforts to prevent the issuance of any such stop order and to obtain as soon as possible its lifting, if issued. (b) If, at any time when a prospectus relating to the Purchased Securities is required to be delivered under the Act, any event occurs as a result of which the Prospectus as then amended or supplemented would include an untrue statement of a material fact, or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, or if it is necessary at any time to amend or supplement the First Registration Statement, the Second Registration Statement, or the Prospectus to comply with the Act, the Company promptly will prepare and file with the Commission an amendment or supplement that will correct such statement or omission or an amendment that will effect such compliance. (c) As soon as practicable, but not later than 18 months, after the date of the Terms Agreement relating to the Purchased Securities, the Company will make generally available to its security holders an earning statement or statements (which need not be audited) covering a period of at least 12 months beginning after the effective date of the Second Registration Statement (as defined in Rule 158(c) under the Act), which will satisfy the provisions of Section 11(a) of the Act and the rules and regulations thereunder. (d) The Company will furnish to the Underwriters or the Representatives such copies of the Registration Statements (including one copy of the Second Registration Statement for each Representative, or for each Underwriter if there are no Representatives, and for the counsel for the Underwriters, which is signed and includes all exhibits), any related preliminary prospectus supplements and the Prospectus, including all amendments or supplements to such documents, as may be reasonably requested. (e) The Company will arrange or cooperate in arrangements for the qualification of the Purchased Securities for sale and the determination of their eligibility for 4 investment under the laws of such jurisdictions as the Underwriters or the Representatives designate and will continue such qualifications in effect so long as required for the distribution of the Purchased Securities, provided that the Company shall not be required to qualify as a foreign corporation in any State, to consent to service of process in any State other than with respect to claims arising out of the offering or sale of the Purchased Securities, or to meet other requirements deemed by it to be unduly burdensome. (f) During the period of five years after the date of the Terms Agreement relating to the Purchased Securities, the Company will furnish to the Underwriters or the Representatives thereunder, and, upon request, each of the other Underwriters, (i) as soon as practicable after the end of each fiscal year, a balance sheet and statements of income and retained earnings of the Company as at the end of and for such year, all in reasonable detail and certified by independent public accountants, and (ii) (A) as soon as practicable after the end of each quarterly fiscal period (except for the last quarterly fiscal period of each fiscal year), a balance sheet and statement of income of the Company as at the end of and for such period, all in reasonable detail and certified by a principal financial or accounting officer of the Company, (B) as soon as available, a copy of each report of the Company mailed by the Company to stockholders or filed with the Commission, and (C) from time to time, such other information concerning the Company as may reasonably be requested. So long as the Company has active subsidiaries, such financial statements will be on a consolidated basis to the extent the accounts of the Company and its subsidiaries are consolidated. (g) The Company will pay all expenses incident to the performance of its obligations under this Agreement, and will reimburse the Underwriters for any reasonable expenses (including reasonable fees and disbursements of counsel) incurred by them in connection with the qualification of the Purchased Securities with respect to which the Terms Agreement relating to the Purchased Securities has been entered for sale, and the determination of their eligibility for investment, under the laws of such jurisdictions as the Representatives or, if there are no Representatives, the Underwriters designate, and the printing of memoranda relating thereto, and for any fees charged by investment rating agencies for the rating of the Purchased Securities. (h) The Company will not offer or sell any other of its Securities for a period beginning at the time of execution of the Terms Agreement relating to the Purchased Securities and ending on the Closing Date relating thereto without prior consent of the Underwriter or the Representatives. 5 5. Conditions of the Obligations of the Underwriters. The obligations of the Underwriters to purchase and pay for the Purchased Securities will be subject to the accuracy of the representations and warranties on the part of the Company herein, to the accuracy of the statements of Company officers made pursuant to the provisions hereof, to the performance by the Company of its obligations hereunder, and to the following additional conditions precedent: (a) The Underwriters or the Representatives shall have received a letter from DELOITTE & TOUCHE LLP, dated the date of the Terms Agreement, confirming that they are independent certified public accountants within the meaning of the Act and the applicable published Rules and Regulations thereunder, and stating in effect that (i) in their opinion the financial statements and schedules of the Company audited by them and incorporated by reference in the Registration Statements comply as to form in all material respects with the applicable accounting requirements of the Securities Exchange Act of 1934 (the "1934 Act") and the published Rules and Regulations thereunder and (ii) on the basis of a reading of the latest available interim financial statements of the Company, inquiries of officials of the Company responsible for financial and accounting matters, and other specified procedures, nothing came to their attention that caused them to believe that (A) the unaudited financial statements incorporated by reference, if any, in the Registration Statements do not comply as to form in all material respects with the applicable accounting requirements of the 1934 Act and the published Rules and Regulations thereunder or are not stated on a basis substantially consistent with that of the audited financial statements incorporated by reference in the Registration Statements, (B) at the date of the most recent available unaudited financial statements and at a specified date not more than five days prior to the date of this Agreement, there was any increase in the amounts of common stock, redeemable preferred stock, or non-redeemable preferred stock of the Company or any increase, exceeding $10,000,000, in long-term debt of the Company or, at the date of the most recent available unaudited financial statements there was any decrease in net assets as compared with amounts shown in the most recent financial statements incorporated by reference in the Registration Statements, or (C) for the twelve-month period ended at the date of the most recent available unaudited financial statements there were any decreases, exceeding 3%, as compared with the twelve-month period ended at the date of the most recent financial statements incorporated by reference in the Registration Statements, in the amounts of total revenues or net income, except in all cases for increases or decreases which result from the declaration or payment of dividends, or which the Registration Statements (including any material incorporated by reference therein) disclose have occurred or may occur, or which are described in such letter. 6 (b) No stop order suspending the effectiveness of the First Registration Statement, the Second Registration Statement, or any part thereof shall have been issued and no proceedings for that purpose shall have been instituted or, to the knowledge of the Company or the Underwriters, shall be contemplated by the Commission. (c) Subsequent to the execution of the Terms Agreement relating to the Purchased Securities, (i) there shall not have occurred any change, or any development involving a prospective change, in or affecting particularly the business or properties of the Company or its subsidiaries which, in the judgment of a majority in interest of the Underwriters under such Terms Agreement, including any Representatives, materially impairs the investment quality of the Purchased Securities, (ii) there shall not have occurred a suspension or material limitation in trading in securities generally on the New York Stock Exchange, (iii) there shall not have occurred a general moratorium on commercial banking activities in New York declared by either Federal or New York State authorities, (iv) no rating of any of the Company's debt securities shall have been lowered and there shall have been no public announcement that any such debt securities have been placed on CreditWatch, Watchlist, or under any similar surveillance or review, in each case with negative implications, by any recognized rating agency, and (v) there shall not have occurred any outbreak or escalation of major hostilities in which the United States is involved, any declaration of war by Congress or any other substantial national or international calamity or emergency if, in the judgment of a majority in interest of the Underwriters under such Terms Agreement, including any Representatives, the effect of any such outbreak, escalation, declaration, calamity or emergency makes it impractical or inadvisable to proceed with completion of the sale of and payment for the Purchased Securities. (d) The Underwriters or the Representatives shall have received an opinion of Snell & Wilmer L.L.P., counsel for the Company, dated the relevant Closing Date, to the effect that: (i) The Company is a corporation duly organized, validly existing, and in good standing under the laws of the State of Arizona and has full corporate power and authority to carry on its business as presently conducted; and the Company is duly qualified as a foreign corporation to do business and is in good standing in the States of New Mexico, California, Oregon, Washington, Montana and Wyoming, the only other jurisdictions in which it owns or leases substantial properties or in which the conduct of its business requires such qualification; 7 (ii) The Purchased Securities have been duly authorized, executed, authenticated, issued, and delivered, constitute valid and legally binding obligations of the Company entitled to the benefits provided by the Indenture (except as the same may be limited by (a) general principles of equity or by bankruptcy, insolvency, reorganization, arrangement, moratorium, or other laws or equitable principles relating to or affecting the enforcement of creditors' rights generally and (b) the qualification that certain waivers, procedures, remedies, and other provisions of the Purchased Securities and the Indenture may be unenforceable under or limited by the law of the State of Arizona; however, such law does not in such counsel's opinion substantially prevent the practical realization of the benefits intended by such documents) and conform to the description thereof in the Prospectus; (iii) The Indenture has been duly authorized, executed, and delivered, has been duly qualified under the Trust Indenture Act, and constitutes a valid and binding instrument enforceable in accordance with its terms except as the same may be limited by (a) general principles of equity or by bankruptcy, insolvency, reorganization, arrangement, moratorium, or other laws or equitable principles relating to or affecting the enforcement of creditors' rights generally and (b) the qualification that certain waivers, procedures, remedies, and other provisions of the Purchased Securities and the Indenture may be unenforceable under or limited by the law of the State of Arizona; however, such law does not in such counsel's opinion substantially prevent the practical realization of the benefits intended by such documents; (iv) With certain exceptions, a public service corporation is required to obtain certificates of convenience and necessity from the Arizona Corporation Commission under A.R.S. Section 40-281.A for construction of its lines, plant, services, or systems, or any extensions thereof, within the State of Arizona, and to obtain franchises or similar consents or permits from counties and incorporated municipalities under A.R.S. Section 40-283.A for the construction, operation, and maintenance of transmission lines within the State of Arizona; to the best of such counsel's knowledge after due inquiry, the Company holds such valid franchises, certificates of convenience and necessity, consents, and permits 8 pursuant to such statutory provisions as are necessary with respect to the maintenance and operation of its property and business as now conducted, except that (A) the Company from time to time makes minor extensions of its system prior to the time a related franchise, certificate, license, or permit is procured, (B) from time to time communities already being served by the Company become incorporated and considerable time may elapse before a franchise is procured, (C) certain franchises may have expired prior to the renegotiation thereof, (D) certain minor defects and exceptions may exist which, individually and in the aggregate, are not deemed material, and (E) such counsel need not be required to express any opinion regarding the geographical scope of any franchise, certificate, license, or permit that is not specific as to its geographical scope; (v) The issuance and sale of the Purchased Securities on the terms and conditions set forth or contemplated herein and in the Prospectus and the Terms Agreement relating to the Purchased Securities and the execution and delivery of the Supplemental Indenture relating to the Purchased Securities have been duly authorized by the Arizona Corporation Commission, said Commission had jurisdiction in the premises, and no further approval, authorization, or consent of any other public board or body is necessary to the validity of such issuance and sale of such Purchased Securities or the execution and delivery of such Supplemental Indenture, except as may be required under state securities or blue sky laws, as to which laws such counsel shall not be required to express an opinion; (vi) The First Registration Statement and the Second Registration Statement have become effective under the Act, and, to the best of the knowledge of such counsel, no stop order suspending the effectiveness of the First Registration Statement or the Second Registration Statement has been issued and no proceedings for that purpose have been instituted or are pending or contemplated under the Act, and each part of the Registration Statements relating to the Securities, when such part became effective, and the Prospectus, as of the date of the Prospectus Supplement, and each amendment or supplement thereto, as of their respective effective or issue dates, complied as to form in all material respects with the requirements of the Act, the Trust Indenture Act, and the published Rules and Regulations; such counsel has 9 no reason to believe that any part of the Registration Statements, when such part became effective, or the Prospectus, as of the date of the Prospectus Supplement, or as of the Closing Date, or any amendment or supplement thereto, as of their respective effective or issue dates, or as of the Closing Date, contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein not misleading; the descriptions in the Registration Statements and Prospectus of statutes, legal and governmental proceedings and contracts, and other documents are accurate and fairly present the information required to be shown; and to the actual knowledge of those persons in the lawyer group described in such opinion, there are no legal or governmental proceedings required to be described in the Prospectus that are not described as required, nor any contracts or documents of a character required to be described in the Registration Statements or Prospectus or to be filed as exhibits to the Registration Statements that are not described and filed as required (it being understood that such counsel need express no opinion as to the financial statements or other financial data contained in the Registration Statements or the Prospectus); and (vii) This Agreement and the Terms Agreement have been duly authorized, executed, and delivered by the Company. In giving such opinion, (a) Snell & Wilmer L.L.P. may rely solely upon certificates of the Company as to any factual matters upon which any such opinions are based and may rely upon the opinion of Keleher & McLeod, P.A., referred to below, as to all matters governed by the laws of the State of New Mexico, but the opinion of Snell & Wilmer L.L.P. shall state that, though they are members of the Arizona Bar and do not hold themselves out as experts on the laws of the State of New Mexico, they have made a study of the laws of such State insofar as such laws are involved in the conclusions stated in their opinion, and from such study it is their opinion that such laws support such conclusions and that, in their opinion, the Underwriters and they are justified to such extent in relying upon the opinion of Keleher & McLeod, P.A.; and (b) the lawyer group referred to in such opinion will mean those lawyers in the offices of Snell & Wilmer L.L.P. who (i) have billed any time on the particular transaction to which such opinion relates or (ii) have billed more than ten hours to any Company matter in the twelve-month period preceding the date on which the list of such lawyers was compiled for purposes of inquiry pursuant to such opinion. 10 (e) The Underwriters or the Representatives shall have received an opinion of Keleher & McLeod, P.A., New Mexico counsel for the Company, dated the Closing Date, to the effect that: (i) The Company is duly qualified as a foreign corporation to do business and is in good standing in the State of New Mexico and has full corporate power and authority to engage in the State of New Mexico in the business now conducted by it therein; and (ii) The activities of the Company in the State of New Mexico to date do not constitute it a "public utility" as that term is defined in the relevant laws of the State of New Mexico, and accordingly, no public utility franchises or certificates of convenience and necessity are necessary under New Mexico law with respect to the maintenance and operation of the Company's property and business as now conducted in the State of New Mexico and no approval, authorization, or consent of the New Mexico Public Utility Commission or any other public board or body of the State of New Mexico is required for the issuance and sale of the Purchased Securities on the terms and conditions herein and in the Prospectus set forth or contemplated or for the execution of the Supplemental Indenture relating to the Purchased Securities, except as may be required under New Mexico state securities or blue sky laws, as to which laws such counsel shall not be required to express an opinion. In giving such opinion, Keleher & McLeod, P.A. may rely solely upon certificates of the Company as to any factual matters upon which any such opinions are based. (f) The Underwriters or the Representatives shall have received from counsel for the Underwriters such opinion or opinions, dated the Closing Date, with respect to the incorporation of the Company, the validity of the Purchased Securities, the Registration Statements, the Prospectus, and other related matters as may reasonably be required, and the Company shall have furnished to such counsel such documents as they request for the purpose of enabling them to pass upon such matters. In rendering such opinion, such counsel may rely as to the incorporation of the Company and all other matters governed by the laws of the States of Arizona and New Mexico upon the opinions of Snell & Wilmer L.L.P. and Keleher & McLeod, P.A., referred to above. (g) The Underwriters or the Representatives shall have received a certificate of the President or any Vice President 11 and a principal financial or accounting officer of the Company, dated the Closing Date, in which such officers, to the best of their knowledge after reasonable investigation, shall state that the representations and warranties of the Company in this Agreement are true and correct, that the Company has complied with all agreements and satisfied all conditions on its part to be performed or satisfied at or prior to the Closing Date, that no stop order suspending the effectiveness of the First Registration Statement or the Second Registration Statement has been issued and no proceedings for that purpose have been instituted or are contemplated by the Commission, and that, subsequent to the date of the most recent financial statements in the Prospectus, there has been no material adverse change in the financial position or results of operations of the Company and its subsidiaries except as set forth or contemplated in the Prospectus or as described in such certificate. (h) The Underwriters or the Representatives shall have received a letter of DELOITTE & TOUCHE LLP, dated the Closing Date, which meets the requirements of subsection (a) of this Section, except that the specified date referred to in such subsection will be a date not more than five days prior to the Closing Date for the purposes of this subsection. The Company will furnish the Underwriters or the Representatives with such conformed copies of such opinions, certificates, letters, and documents as may be reasonably requested. 6. Indemnification. (a) The Company will indemnify and hold harmless each Underwriter and each person, if any, who controls such Underwriter within the meaning of the Act against any losses, claims, damages or liabilities, joint or several, to which such Underwriter or such controlling person may become subject, under the Act or otherwise, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any part of the Registration Statements relating to the Securities, when such part became effective, any preliminary prospectus or preliminary prospectus supplement, the Prospectus, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; and will reimburse each Underwriter and each such controlling person for any legal or other expenses reasonably incurred by such Underwriter or such controlling person in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the Company will not be liable in any such case to the extent that any such 12 loss, claim, damage, or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in any of such documents in reliance upon and in conformity with written information furnished to the Company by any Underwriter specifically for use therein. This indemnity agreement will be in addition to any liability which the Company may otherwise have. (b) Each Underwriter will severally indemnify and hold harmless the Company, each of its directors, each of its officers who have signed the Registration Statements, and each person, if any, who controls the Company within the meaning of the Act, against any losses, claims, damages, or liabilities to which the Company or any such director, officer, or controlling person may become subject, under the Act or otherwise, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any part of the Registration Statements relating to the Securities, when such part became effective, any preliminary prospectus or preliminary prospectus supplement, the Prospectus, or any amendment or supplement thereto, or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company by such Underwriter specifically for use therein; and will reimburse any legal or other expenses reasonably incurred by the Company or any such director, officer, or controlling person in connection with investigating or defending any such loss, claim, damage, liability, or action. This indemnity agreement will be in addition to any liability which such Underwriter may otherwise have. (c) Promptly after receipt by an indemnified party under this Section of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this Section, notify the indemnifying party of the commencement thereof; but the omission so to notify the indemnifying party will not relieve it from any liability that it may have to any indemnified party otherwise than under this Section. In case any such action is brought against any indemnified party, and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel satisfactory to such indemnified party (who shall not, without the consent of the indemnified party, be counsel to the 13 indemnifying party), and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party will not be liable to such indemnified party under this Section for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation. An indemnifying party shall not be liable for any settlement of a claim or action effected without its written consent, which shall not be unreasonably withheld. (d) If the indemnification provided for in this Section is unavailable or insufficient to hold harmless an indemnified party for any loss, claim, damage, liability, or action described in subsection (a) or (b) above, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of the losses, claims, damages or liabilities referred to in subsection (a) or (b) above on the following basis: (1) if such loss, claim, damage, liability, or action arises under subsection (a) above, then (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Underwriters on the other from the offering of the Securities or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the one hand and the Underwriters on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities as well as any other relevant equitable considerations; and (2) if such loss, claim, damage, liability, or action arises under subsection (b) above, then in such proportion as is appropriate to reflect the relative fault of the Company on the one hand and the Underwriter on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities as well as any other relevant equitable considerations. For the purposes of clause (1) above, the relative benefits received by the Company on the one hand and the Underwriters on the other shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Company bear to the total underwriting discounts and commissions received by the Underwriters. For the purposes of clauses (1) and (2) above, the relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or the Underwriters and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The amount paid by an indemnified party as a result of the losses, claims, damages or liabilities referred to in the first sentence of this 14 subsection (d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any action or claim which is the subject of this subsection (d). No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters' obligations in this subsection (d) to contribute are several in proportion to their respective underwriting obligations and not joint. 7. Default of Underwriters. If any Underwriter or Underwriters default in their obligations to purchase Purchased Securities pursuant to this Agreement and the Terms Agreement and the principal amount of Purchased Securities that such defaulting Underwriter or Underwriters agreed but failed to purchase is ten percent (10%) or less of the principal amount of Purchased Securities to which such Terms Agreement relates, the Underwriters or the Representatives may make arrangements satisfactory to the Company for the purchase of such Purchased Securities by other persons, including any of the Underwriters, but if no such arrangements are made by the Closing Date the nondefaulting Underwriters shall be obligated severally, in proportion to their respective commitments hereunder and under such Terms Agreement, to purchase the Purchased Securities that such defaulting Underwriter or Underwriters agreed but failed to purchase. If any Underwriter or Underwriters so default and the aggregate principal amount of Purchased Securities with respect to which such default or defaults occur is more than the above-described amount and arrangements satisfactory to the remaining Underwriters and the Company for the purchase of such Purchased Securities by other persons are not made within thirty-six hours after such default, the Terms Agreement will terminate without liability on the part of any non-defaulting Underwriter or the Company, except as provided in Section 8. As used in this Agreement, the term "Underwriter" includes any person substituted for an Underwriter under this Section. Nothing herein will relieve a defaulting Underwriter from liability for its default. 8. Survival of Certain Representations and Obligations. The respective indemnities, agreements, representations, warranties, and other statements of the Company or its officers and of the Underwriters set forth in or made pursuant to this Agreement will remain in full force and effect regardless of any investigation, or statement as to the results thereof, made by or on behalf of the Underwriters or the Company or any of its officers or directors or any controlling person, and will survive delivery of and payment for the Purchased Securities. If any Terms Agreement is terminated pursuant to Section 7, or if for any reason a purchase pursuant to any Terms Agreement is not consummated, the Company shall remain responsible for the expenses to be paid or reimbursed by it pursuant to Section 4 and the respective obligations of the Company and the Underwriters pursuant to Section 6 shall remain in effect. 15 9. Notices. All communications hereunder relating to any offering of Purchased Securities will be in writing, and, if sent to the Underwriters, may be mailed, delivered, or telecopied and confirmed to the Representative first named in the Terms Agreement relating to such Purchased Securities or the Underwriters at their addresses furnished to the Company in writing for the purpose of communications; provided, however, that any notice to an Underwriter pursuant to Section 6 will be mailed, delivered, or telecopied and confirmed to each such Underwriter at its own address. All communications hereunder to the Company shall be mailed to the Company, Attention: Treasurer, at P.O. Box 53999, Phoenix, Arizona 85O72-3999, or delivered, or telecopied and confirmed to the Company at 400 North Fifth Street, Phoenix, Arizona 85004. 10. Successors. This Agreement will inure to the benefit of and be binding upon the parties hereto and the Underwriter or Underwriters as are named in any Terms Agreement and their respective successors and the officers and directors and controlling persons referred to in Section 6, and no other person will have any right or obligation hereunder. 11. Representation of Underwriters. The Representatives, if any, may act for the Underwriters in connection with any offering to which a Terms Agreement may relate, and any action under this Agreement or such Terms Agreement taken by the Representatives jointly or the Representative first named in such Terms Agreement in such capacity will be binding upon the Underwriters of Purchased Securities to which such Terms Agreement relates. 12. Execution in Counterpart. This Agreement and any Terms Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all such respective counterparts shall together constitute a single instrument. 16 If the foregoing is in accordance with your understanding of our agreement, kindly sign and return to us the enclosed duplicate hereof, whereupon it will become a binding agreement between the Company and the Underwriters in accordance with its terms. Very truly yours, ARIZONA PUBLIC SERVICE COMPANY By____________________________ Treasurer The foregoing Underwriting Agreement is hereby confirmed and accepted as of the date first above written. By__________________________________ 17 EX-1.3 4 DISTRIBUTION AGREEMENT $400,000,000 ARIZONA PUBLIC SERVICE COMPANY Medium-Term Notes ----------------- DISTRIBUTION AGREEMENT ---------------------- (For Senior Notes) --------------- Ladies and Gentlemen: 1. Introduction. Arizona Public Service Company, an Arizona corporation (the "Company"), confirms its agreement with each of you (individually, a "Distributor" and collectively, the "Distributors") with respect to the issue and sale from time to time by the Company of its medium-term notes registered under the registration statements referred to in Section 2(a) and described in the combined prospectus relating to such registration statements as "Senior Notes" (any such medium-term notes being hereinafter referred to as the "Securities," which expression shall, if the context so admits, include any permanent global Security). Securities may be offered and sold pursuant to Section 3 of this Agreement in an aggregate amount not to exceed the amount of Registered Securities (as defined in Section 2(a) hereof) registered pursuant to such registration statements reduced by the aggregate amount of any other Registered Securities sold otherwise than pursuant to Section 3 of this Agreement. The Securities will be issued under an Indenture, dated as of November 15, 1996, between the Company and The Bank of New York, as trustee (the "Trustee"), as amended and supplemented by two indentures supplemental thereto (the "Basic Indenture"), and as further amended and supplemented by one or more additional Supplemental Indentures relating thereto (each a "Supplemental Indenture," and collectively, the "Supplemental Indentures") (the Basic Indenture, as amended and supplemented by such Supplemental Indentures, is hereinafter referred to as the "Indenture"). Subject to Article 14 of the Basic Indenture, prior to the Release Date (as defined in the Basic Indenture), the Securities will be secured by the Company's first mortgage bonds (the "Senior Note Mortgage Bonds") issued pursuant to the Mortgage and Deed of Trust dated as of July 1, 1946, to The Bank of New York, as successor Trustee, as amended and supplemented by fifty-five indentures supplemental thereto (the "Basic Mortgage"), and as further amended and supplemented by one or more additional supplemental indentures relating thereto (each a "Mortgage Supplemental Indenture" and collectively, the "Mortgage Supplemental Indentures") (the Basic Mortgage as amended and supplemented by such Mortgage Supplemental Indentures, is hereinafter referred to as the "Mortgage"). The Securities shall have the terms described in the Prospectus referred to in Section 2(a) as it may be amended or supplemented from time to time, including any supplement to the Prospectus that sets forth only the terms of a particular issue of the Securities (a "Pricing Supplement"). Securities will be issued, and the terms thereof established, from time to time by the Company in accordance with the Indenture and the Procedures (as defined in Section 3(d) hereof). 2. Representations and Warranties of the Company. The Company represents and warrants to, and agrees with, each Distributor as follows: (a) A registration statement (No. 333-27551) relating to $50,000,000 of the Company's first mortgage bonds (the "Bonds"), or unsecured debentures, notes or other evidences of indebtedness (the "Unsecured Securities"), or Securities and a registration statement (No. 333-________) relating to $350,000,000 of Bonds, Unsecured Securities or Securities (together, the "Registered Securities") (including a combined prospectus relating to up to $400,000,000 of Bonds, Unsecured Securities or Securities), were filed with the Securities and Exchange Commission (the "Commission") and have become effective. Such registration statements, as each is amended as of the Closing Date (as defined in Section 3(e) hereof), are hereinafter referred to as the "First Registration Statement" and the "Second Registration Statement," respectively, and, together with any related Rule 462(b) registration statement or amendment thereto, are hereinafter referred to collectively as the "Registration Statements," and such prospectus, as amended or as supplemented as of the Closing Date, including all material incorporated by reference therein, is hereinafter referred to as the "Prospectus." Any reference in this Agreement to amending or supplementing the Prospectus shall be deemed to include the filing of materials incorporated by reference in the Prospectus after the Closing Date and any reference in this Agreement to any amendment or supplement to the Prospectus shall be deemed to include any such materials incorporated by reference in the Prospectus after the Closing Date. (b) Each part of the Registration Statements, when such part became effective, conformed in all material respects to the requirements of the Securities Act of 1933 (the "Act"), the Trust Indenture Act of 1939 (the "Trust Indenture Act"), and the rules and regulations (the "Rules and Regulations") of the Commission and did not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and on the Closing Date and at each of the times of acceptance and of delivery referred to in Section 6(a) hereof and at each of the times of amendment or supplementing referred to in Section 6(b) hereof (the Closing Date and each such time being herein sometimes referred to as a "Representation Date"), the 2 Registration Statements and the Prospectus will conform in all material respects to the requirements of the Act, the Trust Indenture Act, and the Rules and Regulations, and at such date none of such documents will include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that the foregoing does not apply to (a) statements in or omissions from any such documents based upon written information furnished to the Company by any Distributor specifically for use therein or (b) that part of the Second Registration Statement that consists of the Statement of Eligibility and Qualification (Form T-1) under the Trust Indenture Act of 1939 of The Bank of New York, as Trustee under the Basic Indenture. (c) An order of the Arizona Corporation Commission shall have been granted authorizing (i) the execution and delivery of the Supplemental Indenture relating to any series of Securities issued and sold by the Company hereunder, (ii) the execution and delivery of the Mortgage Supplemental Indenture, pursuant to which the Senior Note Mortgage Bonds securing such Securities will be issued, and (iii) the issuance and sale of such Securities on the terms and conditions herein and in the Prospectus or in any Terms Agreement (as defined in Section 3(b)) relating to such Securities, and the approval or consent of no other public body or authority is necessary to the execution and delivery of such Supplemental Indenture or Mortgage Supplemental Indenture or the validity of the issuance and sale of such Securities, except as may be required under state securities or blue sky laws. (d) The Company holds such valid franchises, certificates of convenience and necessity, licenses, and permits as are necessary with respect to the maintenance and operation of its property and business as now conducted, except that (A) the Company from time to time makes minor extensions of its system prior to the time a related franchise, certificate, license, or permit is procured, (B) from time to time communities already being served by the Company become incorporated and considerable time may elapse before a franchise is procured, (C) certain franchises may have expired prior to the renegotiation thereof, (D) the Company may not have obtained certain permits or variances relating to the environmental requirements described in any of its Form 10-K Report, its Form 10-Q Reports, and/or its Form 8-K Reports incorporated by reference in the Registration Statements, (E) certain minor defects and exceptions may exist which, individually and in the aggregate, are not deemed material, and (F) the Company does not make any representation regarding the geographical scope of any franchise, certificate, license, or permit that is not specific as to its geographical scope. (e) The Company has been duly incorporated and is an existing corporation in good standing under the laws of the State of Arizona, with power and authority (corporate and other) to own its properties and conduct its business as described in the Prospectus; and the Company is duly qualified to do business as a foreign corporation in good standing in all other jurisdictions in which its ownership or lease of property or the conduct of its business requires such qualification. (f) Except for property specifically excepted from the lien of the Mortgage or released therefrom in accordance with the terms thereof, the Company has good and marketable title in fee simple, except for items described in (A), (B), and (C) below, to all of 3 the real property purported in the Mortgage to be so held, good and valid leasehold interests in all properties purported in the Mortgage to be held under lease, and good and valid title to all other properties described in the Mortgage as subject to the lien thereof (which property excludes (i) the combined cycle plant referred to in Note 9 of Notes to Financial Statements in the Company's Form 10-K Report for the fiscal year ended December 31, 1997 (the "1997 Form 10-K Report") incorporated by reference in the Registration Statements but includes the Company's leasehold and related interests in that plant and (ii) certain leased interests in Unit 2 of the Palo Verde Nuclear Generating Station referred to in Note 9 of Notes to Financial Statements in the 1997 Form 10-K Report), except that the transmission and distribution lines of the Company, other than those located on land owned in fee by the Company, and the property described in Section 15 of Article IV of the Forty-first Mortgage Supplemental Indenture, have been installed in public streets or alleys and in highways under ordinances and permits granted by the various governmental bodies having jurisdiction, or have been constructed on leaseholds, easements or rights-of-way granted, with minor exceptions, by the apparent owners of record of the land and such leases, easements, or rights-of-way are subject to any defects in or encumbrances on the title of the respective lessors of such leases or grantors of such easements or rights-of-way; title to the aforesaid properties is subject only to: (A) the lien of the Mortgage, (B) Excepted Encumbrances as defined in the Mortgage, and (C) other liens, encumbrances or defects, none of which, individually or in the aggregate, materially interfere with the business or operations of the Company (with respect to leasehold interests on the Navajo Reservation, this representation is intended and shall be understood to mean only that the Company is the owner of the rights conferred upon it by the leases from the Navajo Tribe relating to the sites on which the Navajo Plant and the Four Corners Plant are located, and that while the Company is not aware of the assertion of any claim contesting the interest of the Navajo Tribe in the lands leased, the Company does not give any representation with respect to the interest of the Navajo Tribe in the lands leased or with respect to the enforceability of such leases against the Navajo Tribe); the Mortgage, subject only as above set forth in this clause, now constitutes, and the Mortgage and the Mortgage Supplemental Indentures theretofore executed, subject only as above set forth in this clause, when the latter shall have been duly recorded and filed, will constitute, together and as a single instrument, a direct and valid first mortgage lien upon said properties, which include all of the properties of the Company (other than the classes or items of property expressly excepted in the Mortgage); and all properties (other than the classes or items of property expressly excepted in the Mortgage or expressly released from the lien thereof) acquired by the Company after the date hereof in each county in the States of Arizona and New Mexico in which the Mortgage and the Mortgage Supplemental Indentures shall have been duly recorded and filed (and, as to which properties, with respect to priority only, any necessary recordation and/or filing has been accomplished, including therein any necessary descriptions of after-acquired real property and real property upon which after-acquired fixtures are affixed) will, upon such acquisition, become subject to the first mortgage lien thereof, subject, however, to Excepted Encumbrances and to liens, if any, existing or placed thereon at the time of the acquisition thereof by the Company and, with respect to priority only, to liens, if any, existing prior to the time of any necessary recordation and/or filing by the Company. 4 3. Appointment as Distributors; Agreement of Distributors; Solicitations. (a) Subject to the terms and conditions stated herein, the Company hereby appoints each of the Distributors as an agent of the Company for the purpose of soliciting or receiving offers to purchase the Securities from the Company by others during any Marketing Time. For purposes of this Agreement, "Marketing Time" shall mean any time when no suspension of solicitation of offers to purchase Securities pursuant to Section 3(b) or Section 4(b) shall be in effect and any time when either any Distributor shall own any Securities with the intention of reselling them or the Company has accepted an offer to purchase Securities but the related settlement has not occurred. So long as this Agreement shall remain in effect with respect to any Distributor, the Company shall not, without the consent of any such Distributor, solicit or accept offers to purchase newly-issued Securities from the Company otherwise than through one of the Distributors; provided, however, that, subject to all of the terms and conditions of this Agreement, the foregoing shall not be construed to prevent the Company from selling at any time any Securities in a firm commitment underwriting pursuant to an underwriting agreement that does not provide for a continuous offering of such Securities; and provided, further, that the Company reserves the right from time to time (i) to purchase or sell Securities directly from or to an investor, and (ii) to accept a specific offer to purchase newly-issued Securities from the Company solicited by a dealer other than the Distributors (each an "Other Dealer"), without obtaining the prior consent of any of Distributors, provided that any Other Dealer shall agree to be bound by and subject to the terms and conditions of this Agreement binding on the Distributors (including the commission schedule set forth on Exhibit B). Each Distributor is authorized to engage the services of any other broker or dealer in connection with the offer or sale of Securities purchased by such Distributor as principal for resale to others and may reallow a portion of the commission, but such Distributor is not authorized to appoint sub-agents. (b) On the basis of the representations and warranties contained herein, but subject to the terms and conditions herein set forth, each Distributor agrees, as an agent of the Company, to use reasonable best efforts when requested by the Company to solicit offers to purchase the Securities upon the terms and conditions set forth in the Prospectus, as from time to time amended or supplemented. No Distributor shall have any responsibility for maintaining records with respect to the aggregate principal amount of Securities sold, or otherwise monitoring the availability of Securities for sale under the Registration Statements. In connection therewith, each Distributor will use the Prospectus (as amended or supplemented from time to time) in the form most recently furnished to such Distributor by the Company and will solicit offers to purchase the Securities in accordance with the Act, the Rules and Regulations, and the applicable securities laws or regulations of any other applicable jurisdiction in which such Distributor solicits offers to purchase any Securities. In placing any Securities pursuant to an offer accepted by the Company, the Distributor that solicited or received such offer (the "Presenting Distributor") may act as agent or purchase such Securities from the Company as principal for resale. Upon acceptance by the Company of an offer by the Presenting Distributor to purchase Securities as principal, 5 the Presenting Distributor may complete a Terms Agreement substantially in the form of Exhibit A hereto (a "Terms Agreement") and transmit the completed Terms Agreement to the Company by hand or by facsimile or other similar means of telecommunication. Upon acceptance by the Company of an offer to purchase Securities, unless the Company and the Presenting Distributor otherwise agree in writing, any such Terms Agreement or any other written confirmation or communication transmitted by the Presenting Distributor to the Company or, in the absence of a Terms Agreement or other written confirmation or communication from the Presenting Distributor, the oral agreement with respect to the terms of the Securities and of their offer and sale evidenced by the offer communicated by the Presenting Distributor and accepted by the Company, in each case together with the provisions of this Agreement, shall constitute an agreement between the Presenting Distributor and the Company for the sale and purchase of such Securities (whether or not any Terms Agreement or other written confirmation or communication shall have been executed by the Company or the Presenting Distributor). Upon receipt of notice from the Company as contemplated by Section 4(b) hereof, each Distributor shall suspend its solicitation of offers to purchase Securities until such time as the Company shall have furnished it with an amendment or supplement to the Registration Statements or the Prospectus, as the case may be, contemplated by Section 4(b) and shall have advised such Distributor that such solicitation may be resumed. The Company reserves the right, in its sole discretion, to suspend solicitation of offers to purchase the Securities commencing at any time for any period of time or permanently. Upon receipt of at least one Business Day's prior notice from the Company, the Distributors will forthwith suspend solicitation of offers to purchase Securities from the Company until such time as the Company has advised the Distributors that such solicitation may be resumed. For the purpose of the foregoing sentence, "Business Day" shall mean any day that is not a Saturday or Sunday, and that in The City of New York or Phoenix, Arizona is not a day on which banking institutions generally are authorized or obligated by law or executive order to close. The Distributors are authorized to solicit offers to purchase Securities as described in the Prospectus, as amended or supplemented, and only in a minimum aggregate amount of $1,000 (or the equivalent thereof in one or more currencies or currency units other than U.S. dollars). Each Distributor shall communicate to the Company, orally or in writing, each reasonable offer to purchase Securities received by it as agent. The Company shall have the sole right to accept offers to purchase the Securities and may reject any such offer, in whole or in part. Each Distributor shall have the right, in its discretion reasonably exercised, without notice to the Company, to reject any offer to purchase Securities received by it, in whole or in part, and any such rejection shall not be deemed a breach of its agreement contained herein. In connection with the solicitation of offers to purchase Securities, the Distributors are not authorized to provide to any person any written information relating to the Company other than the Prospectus and the documents incorporated by reference therein. No Security which 6 the Company has agreed to sell pursuant to this Agreement shall be deemed to have been purchased and paid for, or sold by the Company, until such Security shall have been delivered to the purchaser thereof against payment by such purchaser. (c) At the time of delivery of, and payment for, any Securities sold by the Company as a result of a solicitation made by, or offer to purchase received by, a Distributor, acting on an agency basis, the Company agrees to pay such Distributor a commission in accordance with the schedule set forth in Exhibit B hereto. The Company agrees that each Distributor that purchases Securities as principal for resale shall receive such compensation, in the form of a discount or otherwise, as shall be agreed to between such Distributor and the Company at the time the Company accepts an offer to purchase such Securities, or, if no such compensation is agreed to, a commission in accordance with Exhibit B hereto. Unless otherwise specified in a Terms Agreement, a Distributor purchasing Securities may resell such Securities to other dealers on the terms set forth in, or determined as described in, the Prospectus (including, if applicable, the Pricing Supplement). (d) Administrative procedures respecting the sale of Securities (the "Procedures") shall be agreed upon from time to time by the Distributors and the Company. The initial Procedures, which are set forth in Exhibit C hereto, shall remain in effect until changed by agreement among the Company and the Distributors. Each Distributor and the Company agree to perform the respective duties and obligations specifically provided to be performed by each of them herein and in the Procedures. The Company will furnish to the Trustee a copy of the Procedures as from time to time in effect. (e) The documents required to be delivered by Section 5 hereof shall be delivered at the office of the Company, 400 North Fifth Street, Phoenix, Arizona 85004, not later than 10:00 A.M., Arizona time, on the date of this Agreement or at such later time as may be mutually agreed by the Company and the Distributors, which in no event shall be later than the time at which the Distributors commence solicitation of purchases of Securities hereunder, such time and date being herein called the "Closing Date". 4. Covenants of the Company. In connection with each offering of Securities, the Company covenants and agrees with the Distributors that: (a) The Company will advise the Distributors promptly of any proposed amendment or supplementation of the First Registration Statement, the Second Registration Statement, or the Prospectus and will afford the Distributors a reasonable opportunity to comment on any such proposed amendment or supplement (other than any Pricing Supplement that relates to Securities not purchased through or by such Distributors). The Company will also advise the Distributors of the institution by the Commission of any stop order proceedings in respect of the First Registration Statement, the Second Registration Statement, or of any part thereof, and will use its best efforts to prevent the issuance of any such stop order and to obtain as soon as possible its lifting, if issued. 7 (b) If, at any time when a prospectus relating to the Securities is required to be delivered under the Act, any event occurs as a result of which the Prospectus as then amended or supplemented would include an untrue statement of a material fact, or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, or if it is necessary at any time to amend or supplement the First Registration Statement, the Second Registration Statement or the Prospectus to comply with the Act, the Company promptly will notify each Distributor to suspend solicitation of offers to purchase the Securities and, if the Company shall decide to amend or supplement the Registration Statements or Prospectus, the Company will promptly advise each Distributor by telephone (with confirmation in writing) and promptly will prepare and file with the Commission an amendment or supplement that will correct such statement or omission or an amendment that will effect such compliance; provided, however, that if during the period referred to above any Distributor shall own any Securities that it has purchased from the Company as principal with the intention of reselling them and the Distributor has held such Securities for fewer than 90 days or the Company has accepted an offer to purchase Securities but the related settlement has not occurred, the Company promptly will prepare and file with the Commission an amendment or supplement that will correct such statement or omission or an amendment that will effect such compliance. (c) As soon as practicable, but not later than 18 months, after the date of each acceptance by the Company of an offer to purchase Securities hereunder, the Company will make generally available to its security holders an earning statement or statements (which need not be audited) covering a period of at least 12 months beginning after the effective date of the Fourth Registration Statement (as defined in Rule 158(c) under the Act), which will satisfy the provisions of Section 11(a) of the Act and the rules and regulations thereunder. (d) The Company will furnish to the Distributors such copies of the Registration Statements (including one copy of the Second Registration Statement for the Distributors, and for the counsel for the Distributors, which is signed and includes all exhibits), any related preliminary prospectus supplements and the Prospectus, including all amendments or supplements to such documents, as may be reasonably requested. (e) The Company will arrange or cooperate in arrangements for the qualification of the Securities for sale and the determination of their eligibility for investment under the laws of such jurisdictions as the Distributors designate and will continue such qualifications in effect so long as required for the distribution of the Securities, provided that the Company shall not be required to qualify as a foreign corporation in any State, to consent to service of process in any State other than with respect to claims arising out of the offering or sale of the Securities, or to meet other requirements deemed by it to be unduly burdensome. (f) For a period expiring on the earlier of (i) five years after the applicable Representation Date and (ii) the last date on which any Security sold pursuant to this Agreement is outstanding, the Company will furnish to the Distributors thereunder (i) as soon as practicable after the end of each fiscal year, a balance sheet and statements of income and 8 retained earnings of the Company as at the end of and for such year, all in reasonable detail and certified by independent public accountants, and (ii) (A) as soon as practicable after the end of each quarterly fiscal period (except for the last quarterly fiscal period of each fiscal year), a balance sheet and statement of income of the Company as at the end of and for such period, all in reasonable detail and certified by a principal financial or accounting officer of the Company, (B) as soon as available, a copy of each report of the Company mailed by the Company to stockholders or filed with the Commission, and (C) from time to time, such other information concerning the Company as may reasonably be requested. So long as the Company has active subsidiaries, such financial statements will be on a consolidated basis to the extent the accounts of the Company and its subsidiaries are consolidated. (g) The Company will pay all expenses incident to the performance of its obligations under this Agreement, and will reimburse the Distributors for any reasonable expenses (including reasonable fees and disbursements of counsel) incurred by them in connection with the qualification of the Securities for sale and the determination of their eligibility for investment under the laws of such jurisdictions as the Distributors may designate, and for any fees charged by investment rating agencies for the rating of the Securities. (h) Between the date of a Terms Agreement and the date of delivery of Securities with respect thereto, the Company will not, without the prior written consent of each Distributor which is a party to such Terms Agreement, offer or sell, or enter into any agreement to sell, any of its debt securities which are substantially similar to the Securities other than borrowings under the Company's revolving credit agreements and lines of credit, the private placement of securities, and the issuance of commercial paper. 5. Conditions of Obligations. The obligations of each Distributor, as agent of the Company, under this Agreement at any time to solicit offers to purchase the Securities and to purchase Securities from the Company as principal is subject to the accuracy, on the date hereof and on each Representation Date, of the representations and warranties of the Company herein, to the accuracy, on each such date, of the statements of the Company's officers made pursuant to the provisions hereof, to the performance, on or prior to each such date, by the Company of its obligations hereunder, and to each of the following additional conditions precedent: (a) The Prospectus, as amended or supplemented as of any Representation Date, shall have been filed with the Commission in accordance with the Rules and Regulations and no stop order suspending the effectiveness of the Registration Statements or of any part thereof shall have been issued and no proceedings for that purpose shall have been instituted or, to the knowledge of the Company or any Distributor, shall be contemplated by the Commission. (b) Neither the Registration Statements nor the Prospectus, as amended or supplemented as of any Representation Date, shall contain any untrue statement of fact which, in the opinion of any Distributor, is material or omits to state a fact which, in the opinion of any Distributor, is material and is required to be stated therein or is necessary to make the statements therein not misleading. 9 (c) There shall not have occurred (i) any change, or any development involving a prospective change, in or affecting particularly the business or properties of the Company or its subsidiaries which, in the judgment of the Distributors materially impairs the investment quality of the Securities, (ii) a suspension or material limitation in trading in securities generally on the New York Stock Exchange, (iii) a general moratorium on commercial banking activities in New York declared by either Federal or New York State authorities, (iv) a lowering of the rating of any of the Company's debt securities or a public announcement that any such debt securities have been placed on CreditWatch, Watchlist, or under any similar surveillance or review, in each case with negative implications, by any recognized rating agency, and (v) any outbreak or escalation of major hostilities in which the United States is involved, any declaration of war by Congress or any other substantial national or international calamity or emergency if, in the judgment of the Distributors the effect of any such outbreak, escalation, declaration, calamity or emergency makes it impractical or inadvisable to proceed with completion of the sale of and payment for the Securities. (d) With respect to any Security denominated in a currency other than the U.S. dollar, more than one currency or a composite currency or any Security the principal or interest of which is indexed to such currency, currencies or composite currency, there shall not have occurred a suspension or material limitation in foreign exchange trading in such currency, currencies or composite currency by a major international bank, a general moratorium on commercial banking activities in the country or countries issuing such currency, currencies of composite currency, the outbreak or escalation of hostilities involving, the occurrence of any material adverse change in the existing financial, political or economic conditions of, or the declaration of war or a national emergency by, the country or countries issuing such currency, currencies or composite currency or the imposition or proposal of exchange controls by any governmental authority in the country or countries issuing such currency, currencies or composite currency; (e) At the Closing Date and, if specified in a Terms Agreement, if any, at the time of delivery of the Securities described in such Terms Agreement, the Distributors or the Distributor purchasing such Securities (the "Purchasing Distributor"), as the case may be, shall have received an opinion, dated the Closing Date, or such date of delivery, as the case may be, of Snell & Wilmer L.L.P., counsel for the Company, to the effect that: (i) The Company is a corporation duly organized, validly existing, and in good standing under the laws of the State of Arizona and has full corporate power and authority to carry on its business as presently conducted; and the Company is duly qualified as a foreign corporation to do business and is in good standing in the States of New Mexico, California, Wyoming, Washington, Oregon and Montana, the only other jurisdictions in which it owns or leases substantial properties or in which the conduct of its business requires such qualification; (ii) The Indenture has been duly authorized, executed, and delivered, has been duly qualified under the Trust Indenture Act, and 10 constitutes a valid and binding instrument enforceable in accordance with its terms except as the same may be limited by (a) general principles of equity or by bankruptcy, insolvency, reorganization, arrangement, moratorium, or other laws or equitable principles relating to or affecting the enforcement of creditors' rights generally or the enforcement of the security provided by the Indenture, (b) the necessity for compliance with the statutory procedural rights governing the exercise of remedies by a secured creditor, and (c) the qualification that certain waivers, procedures, remedies, and other provisions of the Securities and the Indenture may be unenforceable under or limited by the law of the State of Arizona; however, such law does not in such counsel's opinion substantially prevent the practical realization of the benefits intended by such documents; (iii) Any series of Securities established on or prior to the date of such opinion in conformity with the Indenture, and, when the terms of a particular Security and of its issuance and sale have been duly authorized and established by all necessary corporate action in conformity with the Indenture, and such Security has been duly completed, authenticated, and issued in accordance with the Indenture and delivered against payment as contemplated by this Agreement, such Security will constitute a valid and binding obligation of the Company entitled to the benefits provided by the Indenture (except as the same may be limited by (a) general principles of equity or by bankruptcy, insolvency, reorganization, arrangement, moratorium, or other laws or equitable principles relating to or affecting the enforcement of creditors' rights generally or the enforcement of the security provided by the Indenture, (b) the necessity for compliance with the statutory procedural rights governing the exercise of remedies by a secured creditor, and (c) the qualification that certain waivers, procedures, remedies, and other provisions of such Security and the Indenture may be unenforceable under or limited by the law of the State of Arizona; however, such law does not in such counsel's opinion substantially prevent the practical realization of the benefits intended by such documents), it being understood that such counsel may (A) assume that at the time of the issuance, sale and delivery of each Security the authorization of such series will not have been modified or rescinded and there will not have occurred any change in law affecting the validity, legally binding character or enforceability of such Security, (B) assume that neither the issuance, sale and delivery of any Security, nor any of the terms of such Security, nor compliance by the Company with such terms will violate any applicable law, any agreement or instrument then binding upon the Company or any restriction imposed by any court or governmental body having jurisdiction over the Company and (C) state that as of the date of such opinion a judgment for money in an action based on Securities denominated in foreign currencies or currency units in a Federal or State court in the United States ordinarily would be enforced in the United States only in United States dollars, and that the date used to determine the rate of conversion of the foreign currency unit in which a particular 11 Security is denominated into United States dollars will depend upon various factors, including which court renders the judgment; (iv) The Mortgage has been duly authorized, executed, and delivered, has been duly qualified under the Trust Indenture Act, and constitutes a valid and binding instrument enforceable in accordance with its terms, except as the same may be limited by (a) general principles of equity or by bankruptcy, insolvency, reorganization, arrangement, moratorium, or other laws or equitable principles relating to or affecting the enforcement of creditors' rights generally or the enforcement of the security provided by the Mortgage, (b) the necessity for compliance with the statutory procedural rights governing the exercise of remedies by a secured creditor, and (c) the qualification that certain waivers, procedures, remedies, and other provisions of the Senior Note Mortgage Bonds and the Mortgage may be unenforceable under or limited by the law of the State of Arizona; however, such law does not in such counsel's opinion substantially prevent the practical realization of the benefits intended by such document; (v) Any series of Senior Note Mortgage Bonds established on or prior to the date of such opinion in conformity with the Indenture and the Mortgage, and, when the terms of a particular Senior Note Mortgage Bond and of its issuance and sale have been duly authorized and established by all necessary corporate action in conformity with the Indenture and the Mortgage, and such Senior Note Mortgage Bond has been duly completed, authenticated, and issued in accordance with the Mortgage and delivered to the Trustee as security for Securities, such Senior Note Mortgage Bond will constitute a valid and binding obligation of the Company entitled to the benefits provided by the Mortgage (except as the same may be limited by (a) general principles of equity or by bankruptcy, insolvency, reorganization, arrangement, moratorium, or other laws or equitable principles relating to or affecting the enforcement of creditors' rights generally or the enforcement of the security provided by the Mortgage, (b) the necessity for compliance with the statutory procedural rights governing the exercise of remedies by a secured creditor, and (c) the qualification that certain waivers, procedures, remedies, and other provisions of such Senior Note Mortgage Bond and the Mortgage may be unenforceable under or limited by the law of the State of Arizona; however, such law does not in such counsel's opinion substantially prevent the practical realization of the benefits intended by such documents), it being understood that such counsel may (A) assume that at the time of the issuance, sale and delivery of each Senior Note Mortgage Bond the authorization of such series will not have been modified or rescinded and there will not have occurred any change in law affecting the validity, legally binding character or enforceability of such Senior Note Mortgage Bond, (B) assume that neither the issuance, sale and delivery of any Senior Note Mortgage Bond, nor any of the terms of such Senior Note Mortgage Bond, nor compliance by the Company with such terms will violate 12 any applicable law, any agreement or instrument then binding upon the Company or any restriction imposed by any court or governmental body having jurisdiction over the Company and (C) state that as of the date of such opinion a judgment for money in an action based on Senior Note Mortgage Bonds denominated in foreign currencies or currency units in a Federal or State court in the United States ordinarily would be enforced in the United States only in United States dollars, and that the date used to determine the rate of conversion of the foreign currency unit in which a particular Senior Note Mortgage Bond is denominated into United States dollars will depend upon various factors, including which court renders the judgment; (vi) Except for property specifically excepted from the lien of the Mortgage or released therefrom in accordance with the terms thereof, the Company has good and marketable title in fee simple, except for items described in (A), (B), and (C) below, to all of the real property and fixtures thereon purported in the Mortgage to be so held and that are both located in the State of Arizona and described in those title reports covering at least the Saguaro, Yucca, Cholla, Ocotillo, West Phoenix, and Palo Verde plant sites that are listed on an exhibit to such opinion (the "Title Documents") (in giving such opinion, such counsel may rely solely upon the Title Documents and may assume the accuracy thereof and of the real property descriptions contained therein and may state that no other investigation or inquiry has been made with respect thereto), and in giving the opinions described below with respect to any liens, defects, and encumbrances on such title to such personal property, such counsel may assume that the Company has good and valid title to all of the personal property located in the State of Arizona and described in the Mortgage as subject to the lien thereof (which property shall not include fixtures), and such counsel may rely solely upon, and assume the accuracy of, a search of the Uniform Commercial Code Financing Statements filed in the records of the Arizona Secretary of State and may assume that there are no liens or other encumbrances on personal property (as used in the Arizona Uniform Commercial Code) of the Company located in the State of Arizona other than liens or other encumbrances that have been perfected by filing with the Arizona Secretary of State under Arizona Revised Statutes ("A.R.S.") Section 47-9401.A; such title is subject only to: (A) the lien of the Mortgage, (B) Excepted Encumbrances as defined in the Mortgage, and (C) other liens, encumbrances, or defects, none of which, individually or in the aggregate, in the opinion of such counsel, materially interfere with the business or operations of the Company (in determining whether any such other liens, encumbrances, or defects materially interfere with the business or operations of the Company, such counsel may rely solely upon a certificate of an officer or engineer of the Company which shall be attached to such opinion and such opinion may state that no other investigation or inquiry with respect thereto has been made); the Mortgage, subject only as above set forth in this clause, now constitutes, and the Mortgage and the Mortgage Supplemental Indentures theretofore 13 executed, subject only as above set forth in this clause, when the latter shall have been duly recorded and filed, will constitute, together and as a single instrument, a direct and valid first mortgage lien upon said property; and all properties (other than the classes or items of property expressly excepted in the Mortgage or expressly released from the lien thereof) acquired by the Company after the date of such opinion in each county in the State of Arizona in which the Mortgage and the Mortgage Supplemental Indentures shall have been duly recorded and filed and, with respect to priority only, any necessary recordation and/or filing has been accomplished (including therein any necessary descriptions of after-acquired real property and real property upon which after-acquired fixtures are affixed) will, upon such acquisition, become subject to the first mortgage lien thereof, subject, however, to Excepted Encumbrances and to liens, if any, existing or placed thereon at the time of the acquisition thereof by the Company and, with respect to priority only, to liens, if any, existing prior to the time of any necessary recordation and/or filing by the Company; (vii) The Company is the owner of the rights conferred upon it by the leases from the Navajo Tribe relating to the site on which the Navajo Plant is located and while such counsel is not aware of the assertion of any claim contesting the title of the Navajo Tribe to the lands leased, such counsel shall not be required to express any opinion with respect to the interest of the Navajo Tribe in the lands leased or with respect to the enforceability of such leases against the Navajo Tribe; (viii) With certain exceptions, a public service corporation is required to obtain certificates of convenience and necessity from the Arizona Corporation Commission under A.R.S. Section 40-281.A for construction of its lines, plant, services, or systems, or any extensions thereof, within the State of Arizona, and to obtain franchises or similar consents or permits from counties and incorporated municipalities under A.R.S. Section 40-283.A for the construction, operation, and maintenance of transmission lines within the State of Arizona; to the best of such counsel's knowledge after due inquiry, the Company holds such valid franchises, certificates of convenience and necessity, consents, and permits pursuant to such statutory provisions as are necessary with respect to the maintenance and operation of its property and business as now conducted, except that (A) the Company from time to time makes minor extensions of its system prior to the time a related franchise, certificate, license, or permit is procured, (B) from time to time communities already being served by the Company become incorporated and considerable time may elapse before a franchise is procured, (C) certain franchises may have expired prior to the renegotiation thereof, (D) certain minor defects and exceptions may exist which, individually and in the aggregate, are not deemed material, and (E) such counsel need not be required to express any opinion regarding the geographical 14 scope of any franchise, certificate, license, or permit that is not specific as to its geographical scope; (ix) No consent, approval, authorization, or consent of any public board or body is required for the consummation of the transactions contemplated hereby or in any Terms Agreement, including the issuance and sale of Securities and Senior Note Mortgage Bonds and the execution and delivery of a related Supplemental Indenture and Mortgage Supplemental Indenture, except as may be required under state securities or blue sky laws, as to which laws such counsel shall not be required to express an opinion, and such other approvals (specified in such opinion) as have been obtained; (x) The First Registration Statement and the Second Registration Statement have become effective under the Act, and, to the best of the knowledge of such counsel, no stop order suspending the effectiveness of the First Registration Statement or the Second Registration Statement has been issued and no proceedings for that purpose have been instituted or are pending or contemplated under the Act, and each part of the Registration Statements, when such part became effective, and the Prospectus, as of the Closing Date, and any amendment or supplement thereto, as of its date, complied as to form in all material respects with the requirements of the Act, the Trust Indenture Act, and the published Rules and Regulations; such counsel has no reason to believe that any part of the Registration Statements, when such part became effective, or the Prospectus, as of the Closing Date, or any amendment or supplement thereto, as of its date, contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein not misleading; the descriptions in the Registration Statements and Prospectus of statutes, legal and governmental proceedings and contracts, and other documents are accurate and fairly present the information required to be shown; and to the actual knowledge of those persons in the lawyer group described in such opinion, there are no legal or governmental proceedings required to be described in the Prospectus that are not described as required, nor any contracts or documents of a character required to be described in the Registration Statements or Prospectus or to be filed as exhibits to the Registration Statements that are not described and filed as required (it being understood that such counsel need express no opinion as to the financial statements or other financial data contained in the Registration Statements or the Prospectus); and (xi) This Agreement has been duly authorized, executed, and delivered by the Company. In giving such opinion, (a) Snell & Wilmer L.L.P. may rely solely upon certificates of the Company as to any factual matters upon which any such opinions are based and may rely upon the opinion of Keleher & McLeod, P.A., referred to below, as to all matters governed by 15 the laws of the State of New Mexico, but the opinion of Snell & Wilmer L.L.P. shall state that, though they are members of the Arizona Bar and do not hold themselves out as experts on the laws of the State of New Mexico, they have made a study of the laws of such State insofar as such laws are involved in the conclusions stated in their opinion, and from such study it is their opinion that such laws support such conclusions and that, in their opinion, the Distributors and they are justified to such extent in relying upon the opinion of Keleher & McLeod, P.A.; (b) Snell & Wilmer L.L.P. may rely on the opinion delivered pursuant to Section 5(g) as to all matters governed by the laws of the State of New York; and (c) the lawyer group referred to in such opinion will mean those lawyers in the offices of Snell & Wilmer L.L.P. who (i) have billed any time on the particular transaction to which such opinion relates or (ii) have billed more than ten hours to any Company matter in the twelve-month period preceding the date on which the list of such lawyers was compiled for purposes of inquiry pursuant to such opinion. (f) At the Closing Date and, if specified in a Terms Agreement, if any, at the time of delivery of the Securities described in such Terms Agreement, the Distributors or the Purchasing Distributor, as the case may be, shall have received an opinion, dated the Closing, or such date of delivery, as the case may be, of Keleher & McLeod, P.A., New Mexico counsel for the Company, to the effect that: (i) The Company is duly qualified as a foreign corporation to do business and is in good standing in the State of New Mexico and has full corporate power and authority to engage in the State of New Mexico in the business now conducted by it therein; (ii) The activities of the Company in the State of New Mexico to date do not constitute it a "public utility" as that term is defined in the relevant laws of the State of New Mexico, and accordingly, no public utility franchises or certificates of convenience and necessity are necessary under New Mexico law with respect to the maintenance and operation of the Company's property and business as now conducted in the State of New Mexico and no approval, authorization, or consent of the New Mexico Public Utility Commission or any other public board or body of the State of New Mexico is required for the issuance and sale of the Securities or the Senior Note Mortgage Bonds on the terms and conditions herein and in the Prospectus set forth or contemplated or for the execution of the Supplemental Indenture relating to the Securities or the Mortgage Supplemental Indenture relating to the Senior Note Mortgage Bonds, except as may be required under New Mexico state securities or blue sky laws, as to which laws such counsel shall not be required to express an opinion; (iii) Assuming that the Company has good and valid title to all of the personal property located in the State of New Mexico and described in the Mortgage as subject to the lien thereof (which property shall not include fixtures) ("Personal Property"), in giving the opinions described below with respect to any liens, defects and encumbrances on such title to such Personal 16 Property, such counsel may rely solely upon, and assume the accuracy of, a search of the Uniform Commercial Code Financing Statements filed in the records of the New Mexico Secretary of State and may assume that there are no liens or other encumbrances on personal property (as used in the New Mexico Uniform Commercial Code) of the Company located in the State of New Mexico other than liens or other encumbrances that have been perfected by filing with the New Mexico Secretary of State under Section 55-9-401, New Mexico Statutes Annotated 1978; such title to such Personal Property is subject only to: (A) the lien of the Mortgage, (B) Excepted Encumbrances as defined in the Mortgage, and (C) other liens, encumbrances, or defects, none of which, individually or in the aggregate, in the opinion of such counsel, materially interfere with the business or operations of the Company (in determining whether any such other liens, encumbrances, or defects materially interfere with the business or operations of the Company, such counsel may rely solely upon a certificate of an officer or engineer of the Company which shall be attached to such opinion and such opinion may state that no other investigation or inquiry with respect thereto has been made); the Mortgage, subject only as above set forth in this clause, now constitutes, and the Mortgage and the Mortgage Supplemental Indentures theretofore executed, subject only as above set forth in this clause, when the latter shall have been duly recorded and filed, will constitute, together and as a single instrument, a direct and valid first mortgage lien upon such Personal Property; and all properties (other than the classes or items of property expressly excepted in the Mortgage or expressly released from the lien thereof) acquired by the Company after the date of this opinion in each county in the State of New Mexico in which the Mortgage and the Mortgage Supplemental Indentures shall have been duly recorded and filed and, with respect to priority only, any necessary recordation and/or filing has been accomplished (including therein any necessary descriptions of after-acquired real property and real property upon which after-acquired fixtures are affixed) will, upon such acquisition, become subject to the first mortgage lien thereof, subject, however, to Excepted Encumbrances and to liens, if any, existing or placed thereon at the time of the acquisition thereof by the Company and, with respect to priority only, to liens, if any, existing prior to the time of any necessary recordation and/or filing by the Company; and (iv) The Company is the owner of the rights conferred upon it by the leases from the Navajo Tribe relating to the site on which the Four Corners plant is located and while such counsel is not aware of the assertion of any claim contesting the interest of the Navajo Tribe in the lands leased, such counsel shall not be required to express any opinion with respect to the interest of the Navajo Tribe in the lands leased or with respect to the enforceability of such leases against the Navajo Tribe. 17 In giving such opinion, Keleher & McLeod, P.A. may rely solely upon certificates of the Company as to any factual matters upon which any such opinions are based. (g) At the Closing Date and, if specified in a Terms Agreement, if any, at the time of delivery of the Securities described in such Terms Agreement, the Distributors or the Purchasing Distributor, as the case may be, shall have received an opinion, dated the Closing Date, or such date of delivery, as the case may be, from counsel for the Distributors or the Purchasing Distributor, as the case may be, dated the Closing Date or such date of delivery, as the case may be, with respect to the incorporation of the Company, the validity of the Securities, the Senior Note Mortgage Bonds, the Registration Statements, the Prospectus, and other related matters as may reasonably be required, and the Company shall have furnished to such counsel such documents as they request for the purpose of enabling them to pass upon such matters. In rendering such opinion, such counsel may rely as to the incorporation of the Company and all other matters governed by the laws of the States of Arizona and New Mexico upon the opinions of Snell & Wilmer L.L.P. and Keleher & McLeod, P.A., referred to above. (h) At the Closing Date and, if specified in a Terms Agreement, if any, at the time of delivery of the Securities described in such Terms Agreement, the Distributors or the Purchasing Distributor, as the case may be, shall have received a certificate of the President or any Vice President and a principal financial or accounting officer of the Company, dated the Closing Date or such date of delivery, as the case may be, in which such officers, to the best of their knowledge after reasonable investigation, shall state that the representations and warranties of the Company in this Agreement are true and correct, that the Company has complied with all agreements and satisfied all conditions on its part to be performed or satisfied at or prior to the Closing Date, that no stop order suspending the effectiveness of the First Registration Statement or the Second Registration Statement has been issued and no proceedings for that purpose have been instituted or are contemplated by the Commission, and that, subsequent to the date of the most recent financial statements in the Prospectus, there has been no material adverse change in the financial position or results of operations of the Company and its subsidiaries except as set forth or contemplated in the Prospectus or as described in such certificate. (i) At the Closing Date and, if specified in a Terms Agreement, if any, at the time of delivery of the Securities described in such Terms Agreement, the Distributors or the Purchasing Distributor, as the case may be, shall have received a letter of Deloitte & Touche LLP, dated the Closing Date or such date of delivery, as the case may be, confirming that they are independent certified public accountants within the meaning of the Act and the applicable published Rules and Regulations thereunder, and stating in effect that (i) in their opinion the financial statements and schedules of the Company audited by them and incorporated by reference in the Registration Statements comply as to form in all material respects with the applicable accounting requirements of the Securities Exchange Act of 1934 (the "1934 Act") and the published Rules and Regulations thereunder and (ii) on the basis of a reading of the latest available interim financial statements of the Company, inquiries of officials of the Company responsible for financial and accounting matters, and other specified procedures, nothing came to their attention that caused them to believe that (A) the unaudited financial 18 statements incorporated by reference, if any, in the Registration Statements do not comply as to form in all material respects with the applicable accounting requirements of the 1934 Act and the published Rules and Regulations thereunder or are not stated on a basis substantially consistent with that of the audited financial statements incorporated by reference in the Registration Statements, (B) at the date of the most recent available unaudited financial statements and at a specified date not more than five days prior to the date of this Agreement, there was any increase in the amounts of common stock, redeemable preferred stock, or non-redeemable preferred stock of the Company or any increase, exceeding $10,000,000, in long-term debt of the Company or, at the date of the most recent available unaudited financial statements there was any decrease in net assets as compared with amounts shown in the most recent financial statements incorporated by reference in the Registration Statements, or (C) for the twelve-month period ended at the date of the most recent available unaudited financial statements there were any decreases, exceeding 3%, as compared with the twelve-month period ended at the date of the most recent financial statements incorporated by reference in the Registration Statements, in the amounts of total revenues or net income, except in all cases for increases or decreases which result from the declaration or payment of dividends, or which the Registration Statements (including any material incorporated by reference therein) disclose have occurred or may occur, or which are described in such letter. The Company will furnish the Distributors with such conformed copies of such opinions, certificates, letters, and documents as may be reasonably requested. 6. Additional Covenants of the Company. The Company agrees that: (a) Each acceptance by the Company of an offer for the purchase of Securities shall be deemed to be an affirmation that its representations and warranties contained in this Agreement are true and correct at the time of such acceptance and a covenant that such representations and warranties will be true and correct at the time of delivery to the purchaser of the Securities as though made at and as of each such time, it being understood that such representations and warranties shall relate to the Registration Statements and the Prospectus as amended or supplemented at each such time. Each such acceptance by the Company of an offer to purchase Securities shall be deemed to constitute an additional representation, warranty and agreement by the Company that, as of the date of delivery of such Securities to the purchaser thereof, after giving effect to the issuance of such Securities, of any other Securities to be issued on or prior to such delivery date and of any other Registered Securities to be issued and sold by the Company on or prior to such delivery date, the aggregate amount of Registered Securities (including any Securities) which have been issued and sold by the Company will not exceed the amount of Registered Securities registered pursuant to the Registration Statements. (b) Each time that the Registration Statements or the Prospectus shall be amended or supplemented (other than by a Pricing Supplement, an amendment or supplement which relates exclusively to an offering of securities other than the Securities, or an amendment or supplement that occurs through the filing an incorporated document (other than a Form 10-K or Form 10-Q) with the Commission), the Company shall, (A) concurrently 19 with such amendment or supplement, if such amendment or supplement shall occur at a Marketing Time, or (B) immediately at the next Marketing Time if such amendment or supplement shall not occur at a Marketing Time, furnish the Distributors with a certificate, dated the date of delivery thereof, of the President or any Vice President and a principal financial or accounting officer of the Company, in form satisfactory to the Distributors, to the effect that the statements contained in the certificate covering the matters set forth in Section 5(h) hereof which was last furnished to the Distributors pursuant to this Section 6(b) are true and correct at the time of such amendment or supplement, as though made at and as of such time or, in lieu of such certificate, a certificate of the same tenor as the certificate referred to in Section 5(h). (c) At each Representation Date referred to in Section 6(b), the Company shall, (A) concurrently if such Representation Date shall occur at a Marketing Time, or (B) immediately at the next Marketing Time if such Representation Date shall not occur at a Marketing Time, furnish the Distributors with a written opinion or opinions, dated the date of such Representation Date, of counsel for the Company, in form satisfactory to the Distributors, to the effect set forth in Sections 5(e) and 5(f) hereof; provided, however, that to the extent appropriate such opinion or opinions may reconfirm matters set forth in a prior opinion delivered at the Closing Date or under this Section 6(c); provided further, however, that any opinion or opinions furnished under this Section 6(c) shall relate to the Registration Statements and the Prospectus as amended or supplemented at such Representation Date. (d) At each Representation Date referred to in Section 6(b) on which the Registration Statements or the Prospectus shall be amended or supplemented to include additional financial information, the Company shall cause Deloitte & Touche LLP, (A) concurrently if such Representation Date shall occur at a Marketing Time, or (B) immediately at the next Marketing Time if such Representation Date shall not occur at a Marketing Time, to furnish the Distributors with a letter, addressed jointly to the Company and the Distributors and dated the date of such Representation Date, to the effect set forth in Section 5(i) hereof; provided, however, that to the extent appropriate such letter may reconfirm matters set forth in a prior letter delivered at the Closing Date or pursuant to this Section 6(d); provided further, however, that any letter furnished under this Section 6(d) shall relate to the Registration Statements and the Prospectus as amended or supplemented at such Representation Date, with such changes as may be necessary to reflect changes in the financial statements and other information derived from the accounting records of the Company. (e) On each date for the delivery of Securities to the purchaser thereof, the Company shall, if requested by the Distributor that solicited or received the offer to purchase any Securities being delivered on such settlement date, furnish such Distributor with a written opinion or opinions, dated the date of delivery thereof, of counsel for the Company, to the effect set forth in Sections 5(e) and 5(f) hereof; provided, however, that in lieu of each opinion, such counsel may furnish the Distributor with a letter to the effect that the Distributor may rely on such prior opinion to the same extent as though it was dated such 20 delivery date (except that statements in such prior opinion shall be deemed to relate to the Registration Statements and Prospectus as amended or supplemented to the time of delivery of such letter authorizing reliance). (f) The Company agrees that any obligation of a person who has agreed to purchase Securities, to make payment for, and take delivery of such Securities shall be subject to (i) the accuracy, on the related settlement date fixed pursuant to the Procedures, of the Company's representation and warranty deemed to be made to the Distributors pursuant to the last sentence of subsection (a) of this Section 6, and (ii) the satisfaction, on such settlement date, of each of the conditions set forth in Sections 5(a), (b) and (c), it being understood that under no circumstance shall any Distributor have any duty or obligation to exercise the judgment permitted under Section 5(b) or (c) on behalf of any such person. 7. Indemnification. (a) The Company will indemnify and hold harmless each Distributor and each person, if any, who controls such Distributor within the meaning of the Act against any losses, claims, damages or liabilities, joint or several, to which such Underwriter or such controlling person may become subject, under the Act or otherwise, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any part of the Registration Statements relating to the Securities, when such part became effective, any preliminary prospectus or preliminary prospectus supplement, the Prospectus, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; and will reimburse each Distributor and each such controlling person for any legal or other expenses reasonably incurred by such Distributor or such controlling person in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the Company will not be liable in any such case to the extent that any such loss, claim, damage, or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in any of such documents in reliance upon and in conformity with written information furnished to the Company by any Distributor specifically for use therein. This indemnity agreement will be in addition to any liability which the Company may otherwise have. (b) Each Distributor will severally indemnify and hold harmless the Company, each of its directors, each of its officers who have signed the Registration Statements, and each person, if any, who controls the Company within the meaning of the Act, against any losses, claims, damages, or liabilities to which the Company or any such director, officer, or controlling person may become subject, under the Act or otherwise, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any part of the Registration Statements relating to the Securities, when such part became effective, any preliminary prospectus or preliminary prospectus supplement, the Prospectus, or any 21 amendment or supplement thereto, or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company by such Distributor specifically for use therein; and will reimburse any legal or other expenses reasonably incurred by the Company or any such director, officer, or controlling person in connection with investigating or defending any such loss, claim, damage, liability, or action. This indemnity agreement will be in addition to any liability which such Distributor may otherwise have. (c) Promptly after receipt by an indemnified party under this Section of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this Section, notify the indemnifying party of the commencement thereof; but the omission so to notify the indemnifying party will not relieve it from any liability that it may have to any indemnified party otherwise than under this Section. In case any such action is brought against any indemnified party, and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel satisfactory to such indemnified party (who shall not, without the consent of the indemnified party, be counsel to the indemnifying party), and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party will not be liable to such indemnified party under this Section for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation. An indemnifying party shall not be liable for any settlement of a claim or action effected without its written consent, which shall not be unreasonably withheld. (d) If the indemnification provided for in this Section is unavailable or insufficient to hold harmless an indemnified party for any loss, claim, damage, liability, or action described in subsection (a) or (b) above, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of the losses, claims, damages or liabilities referred to in subsection (a) or (b) above on the following basis: (1) if such loss, claim, damage, liability, or action arises under subsection (a) above, then (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Distributor[s] on the other from the offering of the Securities or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the one hand and the Distributors on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities as well as any other relevant equitable considerations; and (2) if such loss, claim, damage, liability, or action arises under subsection (b) above, then in such proportion as is appropriate to reflect the relative fault of the Company on the one hand and the Distributors on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities as well as any other relevant equitable considerations. For the purposes of clause (1) above, the 22 relative benefits received by the Company on the one hand and the Distributors on the other shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Company bear to the total underwriting discounts and commissions received by the Distributors. For the purposes of clauses (1) and (2) above, the relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or the Distributors and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The amount paid by an indemnified party as a result of the losses, claims, damages or liabilities referred to in the first sentence of this subsection (d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any action or claim which is the subject of this subsection (d). No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Distributors' obligations in this subsection (d) to contribute are several in proportion to their respective obligations and not joint. 8. Status of Each Distributor. In soliciting offers to purchase the Securities from the Company pursuant to this Agreement and in assuming its other obligations hereunder (other than any obligation to purchase Securities pursuant to Section 3 hereof), each Distributor is acting individually and not jointly and is acting solely as agent for the Company and not as principal. In connection with the placement of any Securities by a Distributor, acting as agent, (a) each Distributor will make reasonable efforts to assist the Company in obtaining performance by each purchaser whose offer to purchase Securities from the Company has been solicited by such Distributor and accepted by the Company, but such Distributor shall have no liability to the Company in the event any such purchase is not consummated for any reason; and (b) if the Company shall default on its obligations to deliver Securities to a purchaser whose offer it has accepted, the Company (i) shall hold the Distributors harmless against any loss, claim or damage arising from or as a result of such default by the Company, and (ii) in particular, shall pay to the Distributors any commission to which they would be entitled in connection with such sale. 9. Survival of Certain Representations and Obligations. The respective indemnities, agreements, representations, warranties, and other statements of the Company or its officers and of the Distributors set forth in or made pursuant to this Agreement will remain in full force and effect regardless of any investigation, or statement as to the results thereof, made by or on behalf of the Distributors or the Company or any of its officers or directors or any controlling person, and will survive delivery of and payment for the Securities. If this Agreement is terminated pursuant to Section 10 or for any other reason or if for any reason the sale of Securities described in a confirmation or Terms Agreement referred to Section 3 by the Company to a Distributor is not consummated, the Company shall remain responsible for the expenses to be paid or reimbursed by it pursuant to Section 4(g) and the obligations of the Company under Sections 4(c) and 4(f) and the respective obligations of the Company and the Distributors pursuant to Section 7 shall remain in effect. In addition, if any such termination of this Agreement shall occur either (i) at a time when any Distributor shall own any Securities that it has purchased from the Company as principal with the intention of reselling them and the Distributor has held such Securities for fewer than 90 days or (ii) after the Company has accepted 23 an offer to purchase Securities but the related settlement has not occurred, the obligations of the Company under the proviso in Section 4(b), under Sections 4(a), 4(d), 4(e) and 4(h) and, in the case of a termination occurring as described in (ii) above, under Sections 3(c), 6(a), 6(e) and 6(f) and under the last sentence of Section 8, shall also remain in effect. 10. Termination. This Agreement may be terminated for any reason at any time by the Company as to any Distributor or, in the case of any Distributor, by such Distributor insofar as this Agreement relates to such Distributor, upon the giving of one day's written notice of such termination to the other parties hereto; provided, however, that this Agreement may not be terminated with respect to a Distributor by the giving of such notice following receipt by the Company of a confirmation or Terms Agreement referred to in Section 3 relating to the purchase of Securities by such Distributor and prior to delivery of the Securities described in such confirmation or Terms Agreement, unless the sale and purchase of Securities contemplated thereby is rejected by the Company in accordance with Section 3. Any settlement with respect to Securities placed by a Distributor on an agency basis occurring after termination of this Agreement shall be made in accordance with the Procedures and each Distributor agrees, if requested by the Company, to take the steps therein provided to be taken by such Distributor in connection with such settlement. 11. Sales of Securities Denominated in a Currency other than U.S. Dollars or of Indexed Securities. If at any time the Company and any of the Distributors shall determine to issue and sell Securities denominated in a currency other than U.S. dollars, which other currency may include a currency unit, or with respect to which an index is used to determine the amounts of payments of principal and any premium and interest, the Company and any such Distributor may execute and deliver a supplement to this Agreement for the purpose of making any appropriate additions to and modifications of the terms of this Agreement (and the Procedures) applicable to such Securities and the offer and sale thereof. The Distributors are authorized to solicit offers to purchase Securities with respect to which an index is used to determine the amounts of payments of principal and any premium and interest, and the Company shall agree to any sales of such Securities (whether offered on an agency or principal basis), only in a minimum aggregate amount of $2,500,000. The Company will not issue Securities denominated in Yen otherwise than in compliance with applicable Japanese laws, regulations and policies. In particular, the Company or its designated agent shall submit such reports or information as may be required from time to time by applicable law, regulations and guidelines promulgated by Japanese governmental and regulatory authorities in the case of the issue and purchase of the Securities and the Company shall ensure that each such Security shall have a minimum denomination of (Y)1,000,000 and a minimum maturity of one year or such other minimum denomination and maturity as may be allowed from time to time by Japanese governmental and regulatory authorities. 12. Notices. All communications hereunder relating to any offering of Securities will be in writing, and, if sent to the Distributors, may be mailed, delivered, or telecopied and confirmed at their addresses furnished to the Company in writing for the purpose of communications. All communications hereunder to the Company shall be mailed to the Company, Attention: Treasurer, at 24 P.O. Box 53999, Phoenix, Arizona 85072-3999, or delivered, or telecopied and confirmed to the Company at 400 North Fifth Street, Phoenix, Arizona 85004. 13. Successors. This Agreement will inure to the benefit of and be binding upon the parties hereto and the Distributors as are named in any Terms Agreement and their respective successors and the officers and directors and controlling persons referred to in Section 7 and, to the extent provided in Section 6(f), any person who has agreed to purchase Securities from the Company, and no other person will have any right or obligation hereunder. 14. Governing Laws; Counterparts. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. This Agreement and any Terms Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all such respective counterparts shall together constitute a single instrument. 25 If the foregoing is in accordance with your understanding of our agreement, kindly sign and return to us the enclosed duplicate hereof, whereupon it will become a binding agreement between the Company and the Underwriters in accordance with its terms. Very truly yours, ARIZONA PUBLIC SERVICE COMPANY By:___________________________ Confirmed and Accepted, as of the date first above written: [NAME OF DISTRIBUTOR] By:____________________________________ [NAME OF DISTRIBUTOR] By:____________________________________ 26 Exhibit A Arizona Public Service Company ("Company") Medium Term Notes, Series _____ Due Nine Months or More from Date of Issue TERMS AGREEMENT --------------- ___________, 199__ Arizona Public Service Company 400 North 5th Street Phoenix, AZ 85004 Attention: Treasurer Ladies and Gentlemen: We offer to purchase, on and subject to the terms and conditions of the Distribution Agreement filed as an exhibit to the Company's registration statement on Form S-3 (No. 333-_____) ("Distribution Agreement"), the following Securities ("Notes") on the following terms: Title: Currency or Currency Units: Stated Maturity: Principal Amount: Public Offering Price: [___%, subject to change by the undersigned -- The Distributor proposes to reoffer the above Notes from time to time at market prices prevailing at the time of sale, at prices related to such prevailing market prices or at negotiated prices.] Original Issue Discount Security: Yes ____ No ____ Denominations: Purchase Price (to be paid in immediately available funds): ___% [, plus accrued interest, if any, from the Trade Date to the Settlement Date] Underwriting Discount or Commission received from the Company (%): Proceeds to Company (If different from Public Offering Price) (%): In the case of Fixed Rate Notes, the interest rate and, if different from the dates set forth in the Prospectus Supplement, the Interest Payment Date or Dates and corresponding Regular Record Date or Dates: In the case of Floating Rate Notes, the interest rate formula, Initial Interest Rate, the Index Maturity, the Spread or Spread Multiplier (if any), the maximum or minimum Interest rate limitations (if any), the Interest Reset Dates, the Interest Determination Dates, the Calculation Agent, the Calculation Dates, the Interest Payment Dates and the Regular Record Dates, in each case to the extent applicable: Optional Redemption (option of the Company): Redemption Date(s): Redemption Prices(s)(%): Notice Period: Optional Redemption (option of the Holder): Redemption Date(s): Redemption Price(s)(%): Notice Period: Sinking Fund: Other Terms: Trade Date: Settlement Date (Issue Date): -2- * * * * * Details for Settlement - ---------------------- (Additional Purchase Information -- to be completed by Distributor, if desired, to the extent available): Exact name in which the Note or Notes are to be registered ("registered owner"): Exact address of registered owner and, if different, the address for delivery of notices and payment of principal and any premium and interest: Taxpayer identification number of registered owner: Principal amount of each Note in authorized denominations to be delivered to registered owner: Exchange rate applicable to purchase Foreign Currency Notes to be paid for in U.S. dollars: * * * * * Our agreement to purchase the Notes hereunder is subject to the conditions set forth in the Distribution Agreement, including the conditions set forth in paragraphs (d), (e), (f), (g), (h), and (i) of Section 5 thereof. If for any reason the purchase by the undersigned of the Notes is not consummated other than because of a default by the undersigned or a failure to satisfy a condition set forth in clause (ii), (iii) or (v) of Section 5(c) of the Distribution Agreement, the Company shall reimburse the undersigned for all out-of-pocket expenses reasonably incurred by the undersigned in connection with the offering of the Notes and not otherwise required to be reimbursed pursuant to Section 4 of the Distribution Agreement. -3- Unless the undersigned has received notification from the Company within [one Business Day (as defined in the Distribution Agreement)] that the Company does not agree to the terms set forth herein, this Terms Agreement shall constitute an agreement between the Company and the undersigned for the sale and purchase of the Notes upon the terms set forth herein and in the Distribution Agreement. Very truly yours, [NAME OF DISTRIBUTOR] By ____________________________________ Accepted and agreed to as of the date set forth above. ARIZONA PUBLIC SERVICE COMPANY By _________________________________ -4- EXHIBIT B COMMISSION SCHEDULE TO FOLLOW EXHIBIT C ADMINISTRATIVE PROCEDURES ------------------------- The medium-term notes due nine months or more from their issue date (the "Notes"), are to be offered on a continuing basis by Arizona Public Service Company (the "Company"). _______________________ and _____________________ (individually, a "Distributor" and collectively, the "Distributors"), have each agreed to use reasonable efforts to solicit offers to purchase the Notes. Each Distributor may, but will not be obligated to, purchase Notes as principal for its own account. The Notes are being sold pursuant to a Distribution Agreement, dated ______________, 19__ (the "Distribution Agreement"), between the Company and the Distributors, and will be issued pursuant to an Indenture, dated as of November 15, 1996, as amended from time to time (the "Indenture"), between the Company and The Bank of New York, as trustee (the "Trustee"). Subject to Article 14 of the Indenture, until the Release Date, the Notes will be secured by one or more series of the Company's first mortgage bonds issued and delivered by the Company to the Trustee for the Notes. On the Release Date, the Notes will cease to be secured by the Company's first mortgage bonds, will become unsecured general obligations of the Company, and will rank on a parity with other unsecured senior indebtedness of the Company. For a description of the terms of the Notes and the offering and sale thereof, see the sections entitled "Description of Senior Notes", "Special Provisions Relating to Foreign Currency Notes", "Plan of Distribution of Senior Notes" and "Glossary" in the Prospectus Supplement relating to the Notes, dated ________, 19__, attached hereto and hereinafter referred to as the "Prospectus Supplement", and the sections entitled "Description of Senior Notes" and "Plan of Distribution" in the Prospectus relating to the Notes, dated _______________, 19__, attached hereto and hereinafter referred to as the "Prospectus." Defined terms used herein but not defined herein shall have the meanings assigned to them in the Distribution Agreement, the Prorospectus Supplement. The Notes will be represented either by Global Notes delivered to The Depository Trust Company ("DTC") or its nominee and recorded in the book-entry system maintained by DTC or such nominee ("Book-Entry Notes") or by certificates issued in definitive form delivered to the Holders thereof or Persons designated by such Holders ("Certificated Notes"). Notes for which interest is calculated on the basis of a fixed interest rate are referred to herein as "Fixed Rate Notes". Notes for which interest is calculated at a rate or rates determined by reference to an interest rate formula are referred to herein as "Floating Rate Notes". Notes may be issued as Indexed Notes, with the principal amount payable at Maturity, the amount of interest payable on an Interest Payment Date, or both, to be determined by reference to currencies, currency units, commodity prices, financial or non-financial indices or other factors, as indicated in the applicable Pricing Supplement. Holders of Indexed Notes may receive a principal amount at Maturity that is greater than or less than the face amount of such Notes depending upon the fluctuation of the relative value, rate or price of the specified index. Specific information pertaining to the method for determining the principal amount payable at Maturity, a historical comparison of the relative value, rate or price of the specified index and the face amount of the Indexed Note and any additional tax considerations will be described in the applicable Pricing Supplement. Notes which are issued at a price lower than the principal amount thereof and which provide that upon redemption or acceleration of the Maturity thereof an amount less than the principal thereof shall become due and payable are referred to herein as "Original Issue Discount Notes". For special provisions relating to Original Issue Discount Notes and other Notes issued at a discount for tax purposes, see the section entitled "United States Taxation -- Original Issue Discount" in the Prospectus Supplement. Unless otherwise indicated in the applicable Pricing Supplement, the Notes will be denominated in U.S. dollars and payments of principal of and any premium and interest on the Notes will be made in U.S. dollars in the manner indicated in the Prospectus and the Prospectus Supplement. Notes denominated in one or more currencies or currency units other than U.S. dollars are referred to herein as "Foreign Currency Notes". For special provisions relating to Foreign Currency Notes, see the sections entitled "Special Provisions Relating to Foreign Currency Notes" in the Prospectus Supplement . Specific information concerning the foreign currency or currency unit in which a particular Foreign Currency Note is denominated, including historical exchange rates and a description of the currency and any exchange controls, shall be contained in a Pricing Supplement to the Prospectus Supplement reflecting the terms of such Note. Notes which provide that amounts payable by the Company in respect of principal of or any premium or interest on the Notes shall be determined by reference to the value, rate or price of one or more specified indices, are referred to herein as "Indexed Notes". Specific information pertaining to the method for determining the principal amounts payable, a historical comparison of the value, rate or price of the specified index, indices and the face amount of the Indexed Note and certain additional tax considerations will be described in the applicable Pricing Supplement. Administrative procedures and specific terms of the offering are explained below. Part I indicates procedures applicable to all Notes; Part II indicates specific procedures for Certificated Notes; and Part III indicates specific procedures for Book-Entry Notes. Administrative and record-keeping responsibilities will be handled for the Company by its Treasury Department. The Company will advise the Distributors in writing of those persons handling administrative responsibilities with whom the Distributors are to communicate regarding offers to purchase Notes and the details of their delivery. C-2 PART I: PROCEDURES APPLICABLE TO ALL NOTES - ------------------------------------------ Issue Date - ---------- Each Note will be dated the date of its authentication. Each Note will also bear an original issue date (the "Issue Date") which, with respect to any such Note (or portion thereof), shall mean the date of its original issuance and shall be specified therein. The Issue Date will remain the same for all Notes subsequently issued upon transfer, exchange or substitution of a Note, regardless of their dates of authentication. Price to Public - --------------- Except as otherwise specified in a Pricing Supplement, each Note will be issued at 100% of principal amount. Maturities; Minimum Purchase; - ----------------------------- Each Note will mature on a date, selected by the purchaser and agreed to by the Company, which will be at least nine months from its Issue Date. The minimum aggregate amount of Notes which may be offered to any purchaser will be $100,000. Interest Payments - ----------------- Interest on each interest-bearing Note will be calculated and paid in the manner described in such Note and in the Prospectus Supplement and the applicable Pricing Supplement. Unless otherwise set forth therein, interest on Fixed Rate Notes (including interest for partial periods) will be calculated on the basis of a 360-day year of twelve 30-day months and will not accrue on the 31st day of any month. Interest on Floating Rate Notes, except as otherwise set forth therein, will be calculated on the basis of actual days elapsed and a year of 360 days, except that in the case of a Floating Rate Note for which the Base Rate is the Treasury Rate, interest will be calculated on the basis of the actual number of days in the year. On the fifth Market Day immediately preceding each Interest Payment Date, the Trustee will furnish the Company with the total amount of interest payments (whether in U.S. dollars or other currencies or currency units) to be made on such Interest Payment Date. The Trustee will provide monthly, to the Company's Treasury Department, a list of the principal and any premium and interest to be paid on Notes maturing in the next succeeding month. The Trustee will assume responsibility for withholding taxes on interest paid as required by law. C-3 Redemption/Repayment - -------------------- If indicated in the applicable Pricing Supplement, the Notes of a particular tenor will be subject to redemption in whole or in part (subject to applicable minimum denominations), at the option of the Company on and after an initial redemption date as set forth in the applicable Pricing Supplement and in the applicable Note. The redemption price will be set forth in the applicable Pricing Supplement and in the applicable Note. If indicated in the applicable Pricing Supplement, the Notes of a particular tenor will be subject to repayment at the option of the Holders thereof in accordance with the terms of the Notes on a repayment date as set forth in the applicable Pricing Supplement and in the applicable Note. The repayment date or dates and repayment price will be set forth in the applicable Pricing Supplement and in the applicable Note. The applicable Pricing Supplement will also indicate whether a Note is subject to an optional extension beyond its Stated Maturity or whether the term of all or any portion of a Note may be extended beyond its initial Stated Maturity Date. Procedures for Establishing the Terms of the Notes - -------------------------------------------------- The Company and the Distributors will discuss from time to time the price of and the rates to be borne by the Notes that may be sold as a result of the solicitation of offers by the Distributors. Once any Distributor has recorded any indication of interest in Notes upon certain terms, and communicated with the Company, if the Company plans to accept an offer to purchase Notes upon such terms, it will prepare a Pricing Supplement to the Prospectus, as then amended or supplemented, reflecting the terms of such Notes and, after approval from the Distributors, will arrange to have the Pricing Supplement filed with, or transmitted by a means reasonably calculated to result in filing with, the Securities and Exchange Commission (the "Commission") via the Commission's Edgar System pursuant to Rule 424 under the Securities Act of 1933, as amended (the "Act").* The Company will supply at least 10 copies of the Prospectus, as then amended or supplemented, and bearing such Pricing Supplement, to the Distributor who presented the offer (the "Presenting Distributor"). No settlements with respect to Notes upon such terms may occur prior to such transmitting or filing and the Distributors will not, prior to such transmitting or filing, mail confirmations to customers who have offered to purchase Notes upon such terms. After such transmitting or filing, sales, mailing of confirmations and settlements may occur with respect to Notes upon such terms, subject to the provisions of "Delivery of Prospectus" below. - ------------------- * If clause (b)(3) of Rule 424 is applicable, such filing shall be made no later than the fifth business day following the earlier of the date of determination of the settlement information described below or the date such Pricing Supplement is first used. If clause (b)(2) or (b)(5) of Rule 424 is applicable, such filing shall be made no later than the second business day following the earlier of the date of determination of the settlement information or the date such Pricing Supplement is first used. C-4 Pricing Supplements delivered to the Distributors will be sent: if sent to _________________________: if sent to _________________________: If the Company decides to post rates and a decision has been reached to change interest rates, the Company will promptly notify each Distributor. Each Distributor will forthwith suspend solicitation of purchases. At that time, the Distributors will recommend and the Company will establish rates to be so "posted." Following establishment of posted rates and prior to the transmitting or filing described in the preceding paragraph, the Distributors may only record indications of interest in purchasing Notes at the posted rates. Once any Distributor has recorded any indication of interest in Notes at the posted rates and communicated with the Company, if the Company plans to accept an offer at the posted rate, it will prepare a Pricing Supplement reflecting such posted rate and, after approval from the Distributors, will arrange to have copies of the Pricing Supplement, filed with, or transmitted by means reasonably calculated to result in filing with, the Commission via the Commission's Edgar System pursuant to Rule 424(b) under the Act and will supply at least 10 copies of the Prospectus, as then amended or supplemented, and bearing such Pricing Supplement, to the Presenting Distributor. No settlements at the posted rates may occur prior to such transmitting or filing and the Distributors will not, prior to such transmitting or filing, mail confirmations to customers who have offered to purchase Notes at the posted rates. After such transmitting or filing, sales, mailing of confirmations and settlements may resume, subject to the provisions of "Delivery of Prospectus" below. Outdated Pricing Supplements, and copies of the Prospectus to which they are attached (other than those retained for files), will be destroyed. C-5 Suspension of Solicitation: Amendment or Supplement - --------------------------------------------------- As provided in the Distribution Agreement, the Company may instruct the Distributors to suspend solicitation of offers to purchase at any time, and upon receipt of at least one Market Day's prior notice from the Company, the Distributors will each forthwith suspend solicitation until such time as the Company has advised them that solicitation of offers to purchase may be resumed. If the Distributors receive the notice from the Company contemplated by Section 3(b) or 4(b) of the Distribution Agreement, they will promptly suspend solicitation and will only resume solicitation as provided in the Distribution Agreement. If the Company is required, pursuant to Section 4(b) of the Distribution Agreement, to prepare an amendment or supplement, it will promptly furnish each Distributor with the proposed amendment or supplement; if the Company decides to amend or supplement the Registration Statement or the Prospectus relating to the Notes, it will promptly advise each Distributor and will furnish each Distributor with the proposed amendment or supplement in accordance with the terms of the Distribution Agreement. The Company will promptly file such amendment or supplement with the Commission, provide the Distributors with copies of any such amendment or supplement, confirm to the Distributors that such amendment or supplement has been filed with the Commission and advise the Distributors that solicitation may be resumed. Any such suspension shall not affect the Company's obligations under the Distribution Agreement; and in the event that at the time the Company suspends solicitation of offers to purchase there shall be any offers already accepted by the Company outstanding for settlement, the Company will have the sole responsibility for fulfilling such obligations. The Company will in addition promptly advise the Distributors and the Trustee if such offers are not to be settled and if copies of the Prospectus as in effect at the time of the suspension may not be delivered in connection with the settlement of such offers. Acceptance of Offers - -------------------- Each Distributor will promptly advise the Company, at its option orally or in writing, of each reasonable offer to purchase Notes received by it, other than those rejected by such Distributor. Each Distributor may, in its discretion reasonably exercised, without notice to the Company, reject any offer received by it, in whole or in part. The Company will have the sole right to accept offers to purchase Notes and may reject any such offer, in whole or in part. If the Company accepts or rejects an offer, in whole or in part, the Company will promptly so notify the Presenting Distributor. Confirmation - ------------ For each accepted offer, the Presenting Distributor will issue a confirmation, in writing, to the purchaser, with a copy to the Company's Treasury Department, setting forth the C-6 Purchase Information (as defined under II below with respect to Certificated Notes and III below with respect to Book-Entry Notes) and delivery and payment instructions; provided, however, that, in the case of the confirmation issued to the purchaser, no confirmation shall be delivered to the purchaser prior to the delivery of the Prospectus referred to below. Determination of Settlement Date - -------------------------------- The receipt of immediately available funds by the Company in payment for a Note and (i) in the case of Certificated Notes, the authentication and issuance of such Note and (ii) in the case of Book-Entry Notes, entry by the Presenting Distributor of an SDFS deliver order through DTC's Participant Terminal System to credit such Note to the account of a Participant purchasing, or acting for the purchaser of, such Note, shall, with respect to such Note, constitute "settlement." All offers accepted by the Company will be settled on the third Market Day next succeeding the date of acceptance, unless otherwise agreed by the purchaser and the Company. The settlement date shall be specified upon receipt of an offer to purchase. Prior to 3:00 p.m., New York City time, on the Market Day prior to the settlement date, the Company will instruct the Trustee to authenticate and deliver the Notes no later than 2:15 p.m., New York City time, on the settlement date except as to Book-entry Notes described below. Delivery of Prospectus - ---------------------- A copy of the Prospectus as most recently amended or supplemented on the date of delivery thereof (except as provided below) must be delivered to a purchaser prior to or together with the earlier of the delivery of (i) the written confirmation provided for above, and (ii) any Note purchased by such purchaser. (For this purpose, entry of an SDFS deliver order through DTC's Participant Terminal System to credit a Note to the account of a Participant purchasing, or acting for the purchaser of, a Note shall be deemed to constitute delivery of such Note.) The Company shall ensure that the Presenting Distributor receives copies of the Prospectus and each amendment or supplement thereto (including appropriate Pricing Supplements) in such quantities and within such time limits as will enable the Presenting Distributor to deliver such confirmation or Note to a purchaser as contemplated by these procedures and in compliance with the first sentence of this paragraph. If, since the date of acceptance of a purchaser's offer, the Prospectus shall have been supplemented solely to reflect any sale of Notes on terms different from those agreed to between the Company and such purchaser or a change in posted rates not applicable to such purchaser, such purchaser shall not receive the Prospectus as supplemented by such new supplement, but shall receive the Prospectus as supplemented to reflect the terms of the Notes being purchased by such purchaser and otherwise as most recently amended or supplemented on the date of delivery of the Prospectus. C-7 Authenticity of Signatures - -------------------------- The Company will cause the Trustee to furnish the Distributors from time to time with the specimen signatures of each of the Trustee's officers, employees or agents who have been authorized by the Trustee to authenticate Notes, but no Distributor will have any obligation or liability to the Company or the Trustee in respect of the authenticity of the signature of any officer, employee or agent of the Company or the Trustee on any Note or the Global Note (as defined in Part III). Advertising Expenses - -------------------- The Company will determine with the Distributors the amount of advertising that may be appropriate in offering the Notes. Advertising expenses will be paid by the Company. Market Day - ---------- "Market Day" means (a) with respect to any Note (unless otherwise provided in this definition), any day that is a Business Day in The City of New York, (b) with respect to LIBOR Notes only, any Business Day in New York that is also a London Market Day, (c) with respect to Foreign Currency Notes (other than Foreign Currency Notes denominated in European Currency Units ("ECUs")) only, any day that is a Business Day both in New York and in the principal financial center in the country of the Specified Currency and (d) with respect to Foreign Currency Notes denominated in ECU, any date that is a Business Day in The City of New York that is designated as an ECU settlement day by the ECU Banking Association in Paris or otherwise generally regarded in the ECU interbank market as a day in which payments in ECU are made. Trustee Not to Risk Funds - ------------------------- Nothing herein shall be deemed to require the Trustee to risk or expend its own funds in connection with any payment made to the Company, the Distributors, DTC or any Holder of a Note, it being understood by all parties that payments made by the Trustee to the Company, the Distributors, DTC or any Holder of a Note shall be made only to the extent that funds are provided to the Trustee for such purpose. PART II: ADMINISTRATIVE PROCEDURES FOR CERTIFICATED NOTES - --------------------------------------------------------- Form and Denominations - ---------------------- The Certificated Notes shall be issued only in fully registered form in denominations of $1,000 and integral multiples of $1,000, or, in the case of Foreign Currency Notes, in such minimum denomination, not less than the equivalent of $1,000, and such greater C-8 denomination or denominations in excess thereof, as shall be set forth in the applicable Pricing Supplement. Transfers and Exchanges - ----------------------- A Certificated Note may be presented for transfer or exchange at the principal corporate trust office of the Trustee in The City of New York. Certificated Notes will be exchangeable for other Certificated Notes of any authorized denominations and of like tenor and in a like aggregate principal amount, upon surrender of the Certificated Notes to be exchanged at the corporate trust office of the Trustee. Certificated Notes will not be exchangeable for Book-Entry Notes. Payment at Maturity - ------------------- Upon presentation of each Certificated Note at Maturity, the Trustee (or a duly authorized Paying Agent) will pay the principal amount thereof, together with any premium and accrued interest due at Maturity. Such payment will be made in immediately available funds, provided that the Certificated Note is presented in time for the Paying Agent to make payment in such funds in accordance with its normal procedures. The Company will provide the Trustee (and any Paying Agent) with funds available for immediate use for such purpose. Certificated Notes presented at Maturity will be canceled by the Trustee as provided in the Indenture. For special provisions relating to Foreign Currency Notes, see the section entitled "Special Provisions Relating to Foreign Currency Notes" in the Prospectus Supplement. Details for Settlement - ---------------------- For each offer for Certificated Notes accepted by the Company, the Presenting Distributor shall communicate to the Company's Treasury Department prior to 3:00 p.m., New York City time, on the Market Day preceding the settlement date, by telephone, telex, facsimile transmission or other acceptable means, the following information (the "Purchase Information"): 1. Exact name in which the Note or Notes are to be registered ("registered owner"). 2. Exact address of registered owner and, if different, the address for delivery, notices and payment of principal and any premium and interest. 3. Taxpayer identification number of registered owner. 4. Principal amount of each Note in authorized denominations to be delivered to registered owner. C-9 5. Stated Maturity of each Note. 6. In the case of Fixed Rate Notes, the interest rate of each Note, whether such Note is an Amortizing Note and, if so, the amortization schedule; in the case of Floating Rate Notes or Indexed Notes, the interest rate formula, the Spread or Spread Multiplier (if any), the maximum or minimum interest rate limitation (if any), the Calculation or Determination Agent, the Calculation Dates, the Initial Interest Rate, the Interest Payment Dates, the Regular Record Dates, the Index Maturity, the Interest Determination Dates and the Interest Reset Dates, in each case, to the extent applicable with respect to each Note. 7. Redemption and/or repayment provisions, if any, of each Note. 8. Trade date of each Note. 9. Settlement date (Issue Date) of each Note. 10. Presenting Distributor's commission (to be paid in the form of a discount from the proceeds remitted to the Company upon settlement). 11. Price. 12. Currency or currency unit in which each Note is to be denominated and exchange rate applicable to purchase Foreign Currency Notes to be paid for in U.S. dollars. 13. Original issue discount, if any. 14. Whether the Company has the option to extend the Stated Maturity of the Note and if so, the Extension Period, the Election Dates and the Final Maturity of such Note. 15. Whether the Note is a Renewable Note, and if it is a Renewable Note, the Initial Maturity Date and the Final Maturity Date. 16. In the case of an Indexed Note, any additional information relevant to determination of the amounts of principal (and premium, if any) or interest payable. C-10 17. Any additional applicable terms of each Note. The Issue Date of, and the settlement date for, Certificated Notes will be the same. Before accepting any offer to purchase Certificated Notes to be settled in less than three Market Days, the Company shall verify that the Trustee will have adequate time to prepare and authenticate the Notes. Immediately after receiving the details for each offer for Certificated Notes from the Presenting Distributor, the Company will, after recording the details and any necessary calculations, communicate the Purchase Information by telephone, telex, facsimile transmission or other acceptable means, to the Trustee. Each such instruction given by the Company to the Trustee shall constitute a continuing representation and warranty by the Company to the Trustee and the Distributors that (i) the issuance and delivery of such Notes have been duly and validly authorized by the Company and (ii) such Notes, when completed, authenticated and delivered, shall constitute the valid and legally binding obligation of the Company. The Trustee will assign to and enter on each Note a transaction number. The Company will deliver to the Trustee a pre-printed four-ply packet for such Certificated Note, which packet will contain the following documents in forms that have been approved by the Company, the Distributors and the Trustee: 1. Certificated Note with customer confirmation. 2. Stub One - For the Trustee. 3. Stub Two - For the Presenting Distributor. 4. Stub Three - For the Company. Prior to 2:00 p.m., New York City time, on the Settlement Date, the Trustee will complete such Certificated Note and will authenticate such Certificated Note and deliver it (with the confirmation) and Stubs One and Two to such Distributor, and such Distributor will acknowledge receipt of the Note by stamping or otherwise marking Stub One and returning it to the Trustee. The Trustee will send Stub Three to the Company by first-class mail. Settlement; Note Deliveries and Cash Payment - -------------------------------------------- The Company will deliver to the Trustee at the commencement of the program and from time to time thereafter a supply of duly executed Certificated Notes with pre-printed control numbers adequate to implement the program. Upon the receipt of appropriate documentation and instructions from the Company in accordance with the applicable Officers' Certificate and verification thereof, the Trustee will cause the Certificated Notes to be completed and authenticated and hold the Certificated Notes for delivery against payment. C-11 The Trustee will deliver the Certificated Notes (with the confirmation) and Stubs One and Two, in accordance with instructions from the Company, to the Presenting Distributor. If the Distributor is placing such Certificated Notes as agent, such delivery will be made for the benefit of the purchaser only against receipt and the Presenting Distributor will acknowledge receipt of the Notes through a broker's receipt. Such delivery will be made only against such acknowledgement of receipt and evidence that instructions have been given for payment to the Company at such account of the Company as it may specify in writing, in immediately available funds, of an amount equal to the principal amount of such Notes, less the applicable commission. If the Presenting Distributor in any instance advances its own funds, the Company shall not use any of the proceeds of such sale to acquire securities. If the Distributor is placing such Certificated Notes as agent, the Presenting Distributor, as the Company's agent, will deliver the Notes (with the written confirmation provided for above) to the purchaser thereof against payment therefor by such purchaser in immediately available funds. Delivery of any confirmation or Note to a purchaser thereof by a Distributor, acting as agent or principal, will be made in compliance with "Delivery of Prospectus" in Part I above. Certificated Notes delivered to the Distributors will be sent: If sent to _________________________ If sent to _________________________ Fails (Distributor Acting as Agent) - ----------------------------------- In the event that a purchaser shall fail to accept delivery of and make payment for a Certificated Note on the settlement date, the Presenting Distributor will notify the Trustee and the C-12 Company, by telephone, confirmed in writing. If such Certificated Note has been delivered to the Presenting Distributor, as the Company's agent, the Presenting Distributor shall return such Note to the Trustee. If funds have been advanced for the purchase of such Note, the Trustee will, immediately upon receipt of such Note, debit the account of the Company for the amount so advanced and the Trustee shall refund the payment previously made by the Presenting Distributor in immediately available funds. Such payments will be made on the settlement date, if possible, and in any event not later than the Market Day following the settlement date. If the fail shall have occurred for any reason other than the failure of the Presenting Distributor to provide the Purchase Information to the Company or to provide a confirmation to the purchaser, the Company will reimburse the Presenting Distributor on an equitable basis for its loss of the use of funds during the period when the funds were credited to the account of the Company. Immediately upon receipt of the Certificated Note in respect of which the fail occurred, the Trustee will make appropriate entries in its records to reflect the fact that the Note was never issued and the Note will be canceled and disposed of as provided in the Indenture. PART III: ADMINISTRATIVE PROCEDURES FOR BOOK-ENTRY NOTES - -------------------------------------------------------- In connection with the qualification of the Book-Entry Notes for eligibility in the book-entry system maintained by DTC, the Trustee will perform the custodial, document control and administrative functions described below, in accordance with its obligations under a Letter of Representations (the "Letter") from the Company and the Trustee to DTC dated as of April 9, 1997, and a Medium-Term Note Certificate Agreement between the Trustee and DTC dated as of August 17, 1989, and its obligations as a participant in DTC, including DTC's Same-Day Funds Settlement System ("SDFS"). Form, Denominations and Registration - ------------------------------------ All Book-Entry Notes of the same tenor and having the same Issue Date, will be represented initially by a single note (a "Global Note") in fully registered form without coupons. Unless otherwise stated in the applicable Pricing Supplement, Book-Entry Notes will represent Notes denominated in U.S. dollars. Global Notes will be issued in denominations of $1,000 and integral multiples thereof. Global Notes will be denominated in principal amounts not in excess of $150,000,000. If one or more Book-Entry Notes having an aggregate principal amount in excess of $150,000,000 would, but not for the preceding sentence, be represented by a single Global Note, then one Global Note will be issued to represent each $150,000,000 principal amount of such Book-Entry Note or Notes and an additional Global Note will be issued to represent any remaining principal amount of such Book-Entry Note or Notes. In such a case, each of the Global Notes representing such Book-Entry note or Notes shall be assigned the same CUSIP number. Each Global Note will be registered in the name of Cede & Co., as nominee for DTC, on the Security Register maintained under the Indenture. The beneficial owner of a Book-Entry Note (or one or more indirect participants in DTC designated by such owner) will designate one or more participants in DTC (with respect to such Note, the "Participants") to act as agent or C-13 agents for such owner in connection with the book-entry system maintained by DTC, and DTC will record in book-entry form, in accordance with instructions provided by such Participants, a credit balance with respect to such Note in the account of such Participants. The ownership interest of such beneficial owner in such Note will be recorded through the records of such Participants or through the separate records of such Participants and one or more indirect participants in DTC. CUSIP Numbers - ------------- The Company has arranged with the CUSIP Service Bureau of Standard & Poor's Corporation (the "CUSIP Service Bureau") for the reservation of a series of CUSIP numbers (including tranche numbers), such series consisting of approximately 900 CUSIP numbers and relating to Global Notes representing Book-Entry Notes. The Company has obtained from the CUSIP Service Bureau a written list of such reserved CUSIP numbers and has delivered it to the Trustee and DTC. The Trustee will assign CUSIP numbers serially to Global Notes as described below under "Details for Settlement." DTC will notify the CUSIP Service Bureau periodically of the CUSIP numbers that the Trustee has assigned to Global Notes. The Trustee will notify the Company at the time when fewer than 100 of the reserved CUSIP numbers remain unassigned to the Global Notes; and the Company will reserve additional CUSIP numbers for assignment to Global Notes representing Book-Entry Notes. Upon obtaining such additional CUSIP numbers, the Company shall deliver a list of such additional CUSIP numbers to the Trustee and DTC. Transfers and Exchanges for the Purpose of Consolidation - -------------------------------------------------------- Transfers of a Book-Entry Note will be accomplished by book entries made by DTC and, in turn, by Participants (and, in certain cases, one or more indirect participants in DTC) acting on behalf of beneficial transferors and transferees of such Note. The Trustee may upon notice to the Company deliver to DTC and the CUSIP Service Bureau at any time a written notice (a copy of which shall be attached to the Global Note resulting from such exchange) specifying (i) the CUSIP numbers of two or more outstanding Global Notes that represent Book-Entry Notes of the same tenor and having the same Issue Date, and for which interest (if any) has been paid to the same date, (ii) a date occurring at least thirty days after such written notice is delivered and at least thirty days before the next Interest Payment Date (if any) for such Notes, on which such Global Notes shall be exchanged for a single replacement Global Note and (iii) a new CUSIP number to be assigned to such replacement Global Note. Upon receipt of such a notice, DTC will send to its Participants (including the Trustee) a written reorganization notice to the effect that such exchange will occur on such date. Prior to the specified exchange date, the Trustee will deliver to the CUSIP Service Bureau a written notice setting forth such exchange date and the new CUSIP number and stating that, as of such exchange date, the CUSIP numbers of the Global Notes to be exchanged will no longer be valid. On the specified exchange date, the Trustee will exchange such Global Notes for a single Global Note bearing the new CUSIP number and the CUSIP numbers of the exchanged Global C-14 Notes will, in accordance with CUSIP Service Bureau procedures, be canceled and not immediately reassigned. Notice of Interest Payment Dates and Regular Record Dates - --------------------------------------------------------- To the extent then known, on the first Market Day of March, June, September, and December of each year, the Trustee will deliver to the Company and DTC a written list of Record Dates and Interest Payment Dates that will occur with respect to Floating Rate Book-Entry Notes during the six-month period beginning on such first Market Day. Payments of Principal and Interest - ---------------------------------- (a) Payments of Interest Only. Promptly after each Regular Record Date, the Trustee will deliver to the Company and DTC a written notice specifying by CUSIP number the amount of interest to be paid on each Global Note on the following Interest Payment Date (other than an Interest Payment Date coinciding with Maturity) and the total of such amounts. The Company will confirm with the Trustee the amount payable on each Global Note on such Interest Payment Date. DTC will confirm the amount payable on each Global Note on such Interest Payment Date by reference to the daily or weekly bond reports published by Standard & Poor's Corporation. The Company will pay to the Trustee the total amount of interest due on such Interest Payment Date (other than at Maturity), and the Trustee will pay such amount to DTC at the times and in the manner set forth below under "Manner of Payment". (b) Payments at Stated Maturity. On or about the first Market Day of each month, the Trustee will deliver to the Company and DTC a written list of principal and interest to be paid on each Global Note maturing in the following month. The Company, the Trustee and DTC will confirm the amounts of such principal and interest payments with respect to each such Global Note on or about the fifth Market Day preceding the Stated Maturity of such Global Note. The Company will pay to the Trustee, as the paying agent, the principal amount of such Global Note, together with interest due at such Stated Maturity. Upon surrender of a Global Note, the Trustee will pay such amounts to DTC at the times and in the manner set forth below under "Manner of Payment". If any Stated Maturity of a Global Note representing Book-Entry Notes is not a Market Day, the payment due on such day shall be made on the next succeeding Market Day and no interest shall accrue on such payment for the period from and after such Stated Maturity. Promptly after payment to DTC of the principal and any interest due at the Stated Maturity of such Global Note, the Trustee will cancel such Global Note and return such Global Note to the Company in accordance with the terms of the Indenture. (c) Payment upon Redemption. The Trustee will comply with the terms of the Letter with regard to redemptions or repayments of the Book-Entry Notes. In the case of Book-Entry Notes stated by their terms to be redeemable prior to Stated Maturity, [at least 60 calendar days before the date fixed for redemption] (the "Redemption Date"), the Company shall notify the Trustee of the Company's election to redeem such Book-Entry Notes in whole or in part and the C-15 principal amount of such Book-Entry Notes to be so redeemed. At least 30 calendar days but not more than 60 calendar days prior to the Redemption Date, the Trustee shall notify DTC of the Company's election to redeem such Book-Entry Notes. The Trustee shall notify the Company and DTC of the CUSIP numbers of the particular Book-Entry Notes to be redeemed either in whole or in part. The Company, the Trustee and DTC will confirm the amounts of such principal and any premium and interest payable with respect to each such Book-Entry Note on or about the fifth Market Day preceding the Redemption Date of such Book-Entry Note. The Company will pay the Trustee, in accordance with the terms of the Indenture, the amount necessary to redeem each such Book-Entry Note or the applicable portion of each such Book-Entry Note. The Trustee will pay such amount to DTC at the times and in the manner set forth herein. Promptly after payment to DTC of the amount due on the Redemption Date for such Book-Entry Note, the Trustee shall cancel any such Book-Entry Note redeemed in whole and shall deliver it to the Company with an appropriate debit advice. If a Global Note is to be redeemed in part, the Trustee will cancel such Global Note and issue a Global Note which shall represent the remaining portion of such Global Note and shall bear the CUSIP number of the canceled Global Note. (d) Manner of Payment. The total amount of any principal and interest due on Global Notes on any Interest Payment Date or at Maturity shall be paid by the Company to the Trustee in immediately available funds on such date available for use as of 9:30 A.M. New York City time. The Company will make such payment on such Global Notes by wire transfer to the Trustee. The Company will confirm instructions regarding payment in writing to the Trustee. Prior to 1:00 p.m., New York City time, on each date of Maturity of a Book-Entry Note or as soon as possible thereafter, the Trustee will pay by separate wire transfer (using Fedwire message entry instructions in a form previously specified by DTC) to an account at the Federal Reserve Bank of New York previously specified by DTC in funds available for immediate use by DTC, each payment of principal (together with interest thereon) due at Maturity on Book-Entry Notes. On each Interest Payment Date, interest payment shall be made to DTC in same day funds in accordance with existing arrangements between the Trustee and DTC. Thereafter, on each such date, DTC will pay, in accordance with its SDFS operating procedures then in effect, such amounts in funds available for immediate use to the respective Participants in whose names the Book-Entry Notes represented by such Global Notes are recorded in the book-entry system maintained by DTC. NEITHER THE COMPANY NOR THE TRUSTEE SHALL HAVE ANY DIRECT RESPONSIBILITY OR LIABILITY FOR THE PAYMENT BY DTC TO SUCH PARTICIPANTS OF THE PRINCIPAL OF AND ANY PREMIUM AND INTEREST ON THE BOOK-ENTRY NOTES. (e) Withholding Taxes. The amount of any taxes required under applicable law to be withheld from any interest payment on a Book-Entry Note will be determined and withheld by the Participant, indirect participant in DTC or other person responsible for forwarding payments and materials directly to the beneficial owner of such Note. Details for Settlement - ---------------------- For each offer for Book-Entry Notes accepted by the Company, the Presenting Distributor shall communicate to the Company's Treasury Department prior to 11:00 a.m., New C-16 York City time, on the first Market Day after the sale date (or on the sale date if such sale is to be settled within one Market Day), by telephone, telex, facsimile transmission or other acceptable means, the following information (the "Purchase Information"): 1. Principal amount of the Notes. 2. Stated Maturity of the Notes. 3. In the case of Fixed Rate Notes, the interest rate of the Notes and whether such Note is an Amortizing Note, and, if so, the amortization schedule; in the case of Floating Rate Notes or Indexed Notes, interest rate formula, the Spread or Spread Multiplier (if any), the maximum or minimum Interest rate limitation (if any), the Calculation or Determination Agent, the Calculation Dates, the Initial Interest Rate, the Interest Payment Dates, the Regular Record Dates, the Index Maturity, the Interest Determination Dates and the Interest Reset Dates, in each case, to the extent applicable with respect to the Notes. 4. Redemption and/or repayment provisions, if any, of the Notes. 5. Trade date of the Notes. 6. Settlement date (Issue Date) of the Notes. 7. Presenting Distributor's commission (to be paid in the form of a discount from the proceeds remitted to the Company upon settlement). 8. Price. 9. Currency or currency unit in which the Notes are to be denominated and exchange rate applicable to purchase Foreign Currency Notes payable in U.S. dollars. 10. Original issue discount, if any. 11. Whether the Company has the option to extend the Stated Maturity of the Note and if so, the Extension Period, the Election Dates and the Final Maturity of such Note. C-17 12. Whether the Note is a Renewable Note, and if it is a Renewable Note, the Initial Maturity Date and the Final Maturity Date. 13. In the case of an Indexed Note, any additional information relevant to determination of the amounts of principal (and premium, if any) or interest payable. 14. Any additional applicable terms of the Notes. The Issue Date of, a-Entry Notes will be the same. Before accepting any offer to purchase Book-Entry Notes to be settled in less than three Market Days, the Company shall verify that the Trustee will have adequate time to prepare and authenticate the Global Notes. If the initial interest rate for a Floating Rate Book-Entry Note has not been determined at the time that the foregoing procedure is completed, the procedures described in the following two paragraphs shall be completed as soon as such rate has been determined but no later than 12:00 Noon and 2:00 p.m., New York City time, as the case may be, on the Market Day before the settlement date. Immediately after receiving the details for each offer for Book-Entry Notes from the Presenting Distributor and in any event no later than 12:00 Noon, New York City time, on the first Market Day after the sale date (or on the sale date if such sale is to be settled within one Market Day), the Company will, after recording the details and any necessary calculations, communicate the Purchase Information by telephone, telex, facsimile transmission or other acceptable means, to the Trustee. Each such instruction given by the Company to the Trustee shall constitute a continuing representation and warranty by the Company to the Trustee and the Distributors that (i) the issuance and delivery of such Note have been duly and validly authorized by the Company and (ii) such Note, when duly issued, shall constitute the valid and legally binding obligation of the Company. Immediately after receiving the Purchase Information from the Company and in any event no later than 2:00 P.M., New York City time, on the first Market Day after the sale date (or on the sale date if such sale is to be settled within one Market Day), the Trustee will assign a CUSIP number to the Global Note representing such Book-Entry Note and will telephone the Company and advise the Company of such CUSIP number and, as soon thereafter as practicable, the Company shall notify the Presenting Distributor of such CUSIP number. The Trustee will enter a pending deposit message through DTC's Participant Terminal System, providing settlement information to DTC (which shall route such information to Standard & Poor's Corporation). Standard & Poor's Corporation will use the information received in the pending deposit message to include the amount of any interest payable and certain other information regarding the related Global Note in the appropriate daily or weekly bond report published by Standard & Poor's Corporation. C-18 Settlement; Global Note Delivery and Cash Payment - ------------------------------------------------- The Company will deliver to the Trustee at the commencement of the program and from time to time thereafter a supply of duly executed Global Notes with pre-printed control numbers adequate to implement the program. Upon the receipt of appropriate documentation and instructions from the Company in accordance with the applicable Officers' Certificate and verification thereof, the Trustee will cause the Global Note to be completed and authenticated and hold the Global Note for delivery against payment. Prior to 10:00 a.m., New York City time, on the Settlement Date, the Trustee will enter instructions through DTC's Participant Terminal System, using the function MT II, and DTC will credit such Note to the Trustee's participant account at DTC. Prior to 2:00 p.m., New York City time, on the Settlement Date, the Trustee will enter an SDFD deliver order through DTC's Participant Terminal System instructing DTC to (i) debit such Note to the Trustee's participant account and credit such Note to the Presenting Distributor's participant account and (ii) debit the Presenting Distributor's settlement account and credit the Trustee's settlement account for an amount equal to the price of such Note less such Distributor's commission (in accordance with SDFS operating procedures in effect on the Settlement Date). The entry of such a deliver order shall constitute a representation and warranty by the Trustee to DTC that (i) the Global Note representing such Book-Entry Note has been executed, delivered and authenticated and (ii) the Trustee is holding such Global Note pursuant to the relevant Medium-Term Note Certificate Agreement between the Trustee and DTC. Prior to 2:00 p.m., New York City time, on the Settlement Date unless the Presenting Distributor is the end purchaser of such Note, the Presenting Distributor will enter an SDFS deliver order through DTC's Participant Terminal System instructing DTC (i) to debit such Note to such Distributor's participant account and credit such Note to the Participant accounts of the Participants with respect to such Note and (ii) to debit the settlement accounts of such Participants and credit the settlement account of such Distributor for an amount equal to the price of such Note (in accordance with SDFS operating procedures in effect on the settlement date). Transfers of funds are subject to extension in accordance with any extension of Fedwire closing deadlines and in the other events specified in the SDFS operating procedures in effect on the settlement date. The Trustee, upon confirming receipt of such funds, will wire transfer the amount transferred to the Trustee, in funds available for immediate use, for the account of the Company, to account no. __________ at [name of bank], [location of bank] (ABA No. __________). Unless the Presenting Distributor is the end purchaser of such Note, such Distributor will confirm the purchase of such Note to the purchaser either by transmitting to the Participants with respect to such Note a confirmation order or orders through DTC's institutional delivery system or by mailing a written confirmation to such purchaser. C-19 Fails - ----- If settlement of a Book-Entry Note is rescheduled or cancelled, the Company shall notify the Trustee, and upon receipt of such notice, the Trustee will deliver to DTC, through DTC's Participant Terminal System, a cancellation message to such effect by no later than 2:00 p.m., New York City time, on the Market Day immediately preceding the scheduled settlement date. If the Agent or Trustee has not entered an SDFS deliver order with respect to a Book-Entry Note, then upon written request (which may be evidenced by telecopy transmission) of the Company, the Trustee shall deliver to DTC, through DTC's Participant Terminal System, as soon as practicable, but no later than 2:00 p.m., New York City time, on any Market Day, a withdrawal message instructing DTC to debit such Note to the Trustee's participant account. DTC will process the withdrawal message, provided that the Trustee's participant account contains a principal amount of the Global Note representing such Note that is at least equal to the principal amount to be debited. If withdrawal messages are processed with respect to all the Book-Entry Notes represented by a Global Note, the Trustee will mark such Global Note "cancelled", make appropriate entries in the Trustee's records and send such cancelled Global Note to the Company. The CUSIP number assigned to such Global Note shall, in accordance with CUSIP Service Bureau procedures, be cancelled and not immediately reassigned. If withdrawal messages are processed with respect to one or more, but not all, of the Book-Entry Notes represented by a Global Note, the Trustee will exchange such Global Note for two Global Notes, one of which shall represent such Book-Entry Note or Notes and shall be cancelled immediately after issuance and the other of which shall represent the remaining Book-Entry Notes previously represented by the surrendered Global Note and shall bear the CUSIP number of the surrendered Global Note. If the purchase price for any Book-Entry Note is not timely paid to the Participants with respect to such Note by the beneficial purchaser thereof (or a person, including an indirect participant in DTC, acting on behalf of such purchaser), such Participants and, in turn, the Presenting Distributor may enter an SDFS deliver order through DTC's Participant Terminal System debiting such Note to such Distributor's participant account and crediting such Note free to the participant account of the Trustee and shall notify the Trustee and the Company thereof. Thereafter, the Trustee, (i) will immediately notify the Company, once the Trustee has confirmed that such Note has been credited to its participant account, and the Company shall immediately transfer by Fedwire (in immediately available funds) to the Presenting Distributor an amount equal to the price of such Note which was previously sent by wire transfer to the account of the Company maintained at _______________, and (ii) the Trustee will deliver the withdrawal message and take the related actions described in the preceding paragraph. Such debits and credits will be made on the settlement date, if possible, and in any event not later than 5:00 p.m. __________ time on the following Market Day. If the fail shall have occurred for any reason other than failure of the Presenting Distributor to provide the Purchase Information to the Company or to provide a confirmation to the purchaser, the Company will reimburse the C-20 Presenting Distributor on an equitable basis for its loss of the use of funds during the period when the funds were credited to the account of the Company. Notwithstanding the foregoing, upon any failure to settle with respect to a Book- Entry Note, DTC may take any actions in accordance with its SDFS operating procedures then in effect. In the event of a failure to settle with respect to one or more, but not all, of the Book-Entry Notes to have been represented by a Global Note, the Trustee will provide for the authentication and issuance of a Global Note representing the other Book-Entry Notes to have been represented by such Global Note and will make appropriate entries in its records. C-21 EX-5.1 5 OPINION OF SNELL & WILMER LLP July 2, 1998 Arizona Public Service Company 400 North Fifth Street Phoenix, Arizona 85004 Ladies and Gentlemen: Reference is made to (a) your proposed offering of up to $400,000,000 of your Securities (the "Securities"), as contemplated by the combined prospectus contained in the Registration Statement (the "Registration Statement") on Form S-3 to be filed by you on July 2, 1998, with the Securities and Exchange Commission under the Securities Act of 1933, as amended (the "Act"), which Securities include (i) $350,000,000 of New Bonds, Senior Notes, or Debt Securities (as such terms are defined in the Registration Statement), or any combination thereof, to be registered pursuant to the Registration Statement, (ii) $50,000,000 of New Bonds, Senior Notes, or Debt Securities, or any combination thereof, previously registered under Registration No. 333-27551; and (b) any registration statement registering additional Securities pursuant to Rule 462(b) of the Act that relates to the Registration Statement (the "Rule 462(b) Registration Statement"). We have examined originals or copies, certified or otherwise identified to our satisfaction, of such corporate records, agreements, and other instruments, certificates, orders, opinions, correspondence with public officials, certificates provided by your officers and representatives, and other documents as we have deemed necessary or advisable for the purposes of rendering the opinions set forth herein. Based on the foregoing, it is our opinion that after (i) the Registration Statement, and the Rule 462(b) Registration Statement, if applicable, shall have become effective, (ii) all required regulatory approvals have been obtained, and (iii) you shall have entered into one or more underwriting or distribution agreements with respect to the Securities then to be offered and the initial public offering price for each of such Securities and the discounts therefrom and commission therefor shall have been determined in accordance with such underwriting or distribution agreements, pursuant to the authorization of your Board of Directors and the applicable order of the Arizona Corporation Commission, then, when (i) the Securities have been issued, sold, executed, authenticated, and delivered, and (ii) the purchase price therefor has been paid to you as contemplated in the Registration Statement and the Rule 462(b) Registration Statement, if applicable Arizona Public Service Company July 2, 1998 Page 2 (including the Exhibits thereto), and in any relevant amendment thereto or in any Rule 424 supplement to the prospectus contained in the Registration Statement, the Securities will be validly issued and will constitute legal, valid, and binding obligations of you except as the same may be limited by (a) general principles of equity or by bankruptcy, insolvency, reorganization, arrangement, moratorium, or other laws or equitable principles relating to or affecting the enforcement of creditors' rights generally, or by equitable principles that limit the right to specific performance or otherwise limit remedial action or the enforcement of the security provided for the Securities, (b) the necessity for compliance with the statutory procedural requirements governing the exercise of remedies by a secured creditor, and (c) the qualification that certain waivers, procedures, remedies, and other provisions of the Securities may be unenforceable under or limited by the law of the State of Arizona; however, such law does not in our opinion substantially prevent the practical realization of the benefits thereof. In giving the above opinion, we have assumed that the law of the jurisdiction or jurisdictions that govern the Securities is substantially the same as the law of the State of Arizona. Consent is hereby given to the use of this opinion as part of the Registration Statement, and the Rule 462(b) Registration Statement, if applicable, and to the use of our name wherever it appears in said Registration Statement, the related prospectus, and the Rule 462(b) Registration Statement, if applicable. Very truly yours, Snell & Wilmer L.L.P. Snell & Wilmer L.L.P. EX-12.1 6 COMPUTATION OF RATION OF EARNINGS Exhibit 12.1 ARIZONA PUBLIC SERVICE COMPANY COMPUTATION OF EARNINGS TO FIXED CHARGES (Thousands of Dollars)
Twelve Months Ended ------------------------------------------------------------------------- March 31, December 31, --------- ------------------------------------------------------------ 1998 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- ---- Earnings: Net Income ..................... $ 254,784 $ 251,493 $ 243,471 $ 239,570 $ 243,486 $ 250,386 Income taxes (1) ............... 155,381 153,324 132,961 141,267 177,244 188,907 Fixed Charges .................. 193,856 195,055 203,855 214,768 213,581 220,590 --------- --------- --------- --------- --------- --------- Total ....................... $ 604,021 $ 599,872 $ 580,287 $ 595,605 $ 634,311 $ 659,883 ========= ========= ========= ========= ========= ========= Fixed Charges: Interest expense ............... $ 149,445 $ 150,335 $ 158,287 $ 168,175 $ 166,045 $ 171,272 Amortization of debt discount, premium and expense ......... 7,738 7,791 8,176 8,622 8,854 9,203 Estimated interest portion of annual rents (2) ............ 36,673 36,929 37,392 37,971 38,682 40,115 --------- --------- --------- --------- --------- --------- Total ....................... $ 193,856 $ 195,055 $ 203,855 $ 214,768 $ 213,581 $ 220,590 ========= ========= ========= ========= ========= ========= Ratio of Earnings to Fixed Charges (rounded down) ................. 3.11 3.07 2.84 2.77 2.96 2.99 ========= ========= ========= ========= ========= ========= (1) Income Taxes: Charged to operations .......... $ 186,909 $ 184,737 $ 178,513 $ 178,865 $ 168,202 $ 168,056 Charged (credited) to other accounts .................... (31,528) (31,413) (45,552) (37,598) 9,042 20,851 --------- --------- --------- --------- --------- --------- Total ....................... $ 155,381 $ 153,324 $ 132,961 $ 141,267 $ 177,244 $ 188,907 ========= ========= ========= ========= ========= ========= (2) Estimated interest portion of Unit 2 lease payments included in estimated interest portion of annual rentals ................. $ 34,621 $ 34,720 $ 35,083 $ 35,422 $ 35,710 $ 37,407 ========= ========= ========= ========= ========= =========
EX-23.1 7 CONSENT OF DELOITTE & TOUCHE LLP Exhibit 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in this Registration Statement of Arizona Public Service Company on Form S-3 of our report dated March 4, 1998, appearing in the Annual Report on Form 10-K of Arizona Public Service Company for the year ended December 31, 1997 and to the reference to us under the heading "Experts" in the Prospectus, which is part of this Registration Statement. DELOITTE & TOUCHE LLP DELOITTE & TOUCHE LLP Phoenix, Arizona July 2, 1998 EX-25.1 8 FORM T-1 ================================================================================ FORM T-1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(b)(2) |__| ----------------------------- THE BANK OF NEW YORK (Exact name of trustee as specified in its charter) New York 13-5160382 (State of incorporation (I.R.S. employer if not a U.S. national bank) identification no.) 48 Wall Street, New York, N.Y. 10286 (Address of principal executive offices) (Zip code) ----------------------------- ARIZONA PUBLIC SERVICE COMPANY (Exact name of obligor as specified in its charter) Arizona 86-0011170 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) 400 North Fifth Street, P.O. Box 53999 Phoenix, Arizona 85072-3999 (Address of principal executive offices) (Zip code) ----------------------------- First Mortgage Bonds (Title of the indenture securities) ================================================================================ 1. General information. Furnish the following information as to the Trustee: (a) Name and address of each examining or supervising authority to which it is subject. - -------------------------------------------------------------------------------- Name Address - -------------------------------------------------------------------------------- Superintendent of Banks of the State of 2 Rector Street, New York, New York N.Y. 10006, and Albany, N.Y. 12203 Federal Reserve Bank of New York 33 Liberty Plaza, New York, N.Y. 10045 Federal Deposit Insurance Corporation Washington, D.C. 20429 New York Clearing House Association New York, New York 10005 (b) Whether it is authorized to exercise corporate trust powers. Yes. 2. Affiliations with Obligor. If the obligor is an affiliate of the trustee, describe each such affiliation. None. 16. List of Exhibits. Exhibits identified in parentheses below, on file with the Commission, are incorporated herein by reference as an exhibit hereto, pursuant to Rule 7a-29 under the Trust Indenture Act of 1939 (the "Act") and 17 C.F.R. 229.10(d). 1. A copy of the Organization Certificate of The Bank of New York (formerly Irving Trust Company) as now in effect, which contains the authority to commence business and a grant of powers to exercise corporate trust powers. (Exhibit 1 to Amendment No. 1 to Form T-1 filed with Registration Statement No. 33-6215, Exhibits 1a and 1b to Form T-1 filed with Registration Statement No. 33-21672 and Exhibit 1 to Form T-1 filed with Registration Statement No. 33-29637.) 4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form T-1 filed with Registration Statement No. 33-31019.) -2- 6. The consent of the Trustee required by Section 321(b) of the Act. (Exhibit 6 to Form T-1 filed with Registration Statement No. 33-44051.) 7. A copy of the latest report of condition of the Trustee published pursuant to law or to the requirements of its supervising or examining authority. -3- SIGNATURE Pursuant to the requirements of the Act, the Trustee, The Bank of New York, a corporation organized and existing under the laws of the State of New York, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in The City of New York, and State of New York, on the 29th day of June, 1998. THE BANK OF NEW YORK By: VAN K. BROWN -------------------------------- Name: VAN K. BROWN Title: ASSISTANT VICE PRESIDENT -4- Exhibit 7 --------- ----------------------------------- Consolidated Report of Condition of THE BANK OF NEW YORK of 48 Wall Street, New York, N.Y. 10286 And Foreign and Domestic Subsidiaries, a member of the Federal Reserve System, at the close of business December 31, 1997, published in accordance with a call made by the Federal Reserve Bank of this District pursuant to the provisions of the Federal Reserve Act. Dollar Amounts ASSETS in Thousands Cash and balances due from depos- itory institutions: Noninterest-bearing balances and currency and coin ..................................... $ 5,742,986 Interest-bearing balances .............................. 1,342,769 Securities: Held-to-maturity securities ............................ 1,099,736 Available-for-sale securities .......................... 3,882,686 Federal funds sold and Securities pur- chased under agreements to resell ...................... 2,568,530 Loans and lease financing receivables: Loans and leases, net of unearned income ............................................... 35,019,608 LESS: Allowance for loan and lease losses ......................................... 627,350 LESS: Allocated transfer risk reserve .............................................. 0 Loans and leases, net of unearned income, allowance, and reserve ....................... 34,392,258 Assets held in trading accounts .......................... 2,521,451 Premises and fixed assets (including capitalized leases) .................................... 659,209 Other real estate owned .................................. 11,992 Investments in unconsolidated subsidiaries and associated companies .............................................. 226,263 Customers' liability to this bank on acceptances outstanding ................................ 1,187,449 Intangible assets ........................................ 781,684 Other assets ............................................. 1,736,574 ------------ Total assets ............................................. $ 56,153,587 ============ LIABILITIES Deposits: In domestic offices .................................... $ 27,031,362 Noninterest-bearing .................................... 11,899,507 Interest-bearing ....................................... 15,131,855 In foreign offices, Edge and Agreement subsidiaries, and IBFs ....................... 13,794,449 Noninterest-bearing .................................... 590,999 Interest-bearing ....................................... 13,203,450 Federal funds purchased and Securities sold under agreements to repurchase .................... 2,338,881 Demand notes issued to the U.S. .......................... Treasury ............................................... 173,851 Trading liabilities ...................................... 1,695,216 Other borrowed money: With remaining maturity of one year or less .............................................. 1,905,330 With remaining maturity of more than one year through three years ......................... 0 With remaining maturity of more than three years .......................................... 25,664 Bank's liability on acceptances exe- cuted and outstanding .................................. 1,195,923 Subordinated notes and debentures ........................ 1,012,940 Other liabilities ........................................ 2,018,960 ------------ Total liabilities ........................................ 51,192,576 ------------ EQUITY CAPITAL Common stock ............................................. 1,135,284 Surplus .................................................. 731,319 Undivided profits and capital reserves ............................................... 3,093,726 Net unrealized holding gains (losses) on available-for-sale securities ............................................. 36,866 Cumulative foreign currency transla- tion adjustments ....................................... (36,184) ------------ Total equity capital ..................................... 4,961,011 ------------ Total liabilities and equity capital ................................................ $ 56,153,587 ============ I, Robert E. Keilman, Senior Vice President and Comptroller of the above-named bank do hereby declare that this Report of Condition has been prepared in conformance with the instructions issued by the Board of Governors of the Federal Reserve System and is true to the best of my knowledge and belief. Robert E. Keilman We, the undersigned directors, attest to the correctness of this Report of Condition and declare that it has been examined by us and to the best of our knowledge and belief has been prepared in conformance with the instructions issued by the Board of Governors of the Federal Reserve System and is true and correct. Thomas A. Renyi ) Alan R. Griffith ) Directors J. Carter Bacot ) EX-25.2 9 FORM T-1 ================================================================================ FORM T-1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(b)(2) |__| ------------------------ THE BANK OF NEW YORK (Exact name of trustee as specified in its charter) New York 13-5160382 (State of incorporation (I.R.S. employer if not a U.S. national bank) identification no.) 48 Wall Street, New York, N.Y. 10286 (Address of principal executive offices) (Zip code) ------------------------ ARIZONA PUBLIC SERVICE COMPANY (Exact name of obligor as specified in its charter) Arizona 86-0011170 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) 400 North Fifth Street, P.O. Box 53999 Phoenix, Arizona 85072-3999 (Address of principal executive offices) (Zip code) ------------------------ Debt Securities (Title of the indenture securities) ================================================================================ 1. General information. Furnish the following information as to the Trustee: (a) Name and address of each examining or supervising authority to which it is subject. - -------------------------------------------------------------------------------- Name Address - -------------------------------------------------------------------------------- Superintendent of Banks of the State of 2 Rector Street, New York, New York N.Y. 10006, and Albany, N.Y. 12203 Federal Reserve Bank of New York 33 Liberty Plaza, New York, N.Y. 10045 Federal Deposit Insurance Corporation Washington, D.C. 20429 New York Clearing House Association New York, New York 10005 (b) Whether it is authorized to exercise corporate trust powers. Yes. 2. Affiliations with Obligor. If the obligor is an affiliate of the trustee, describe each such affiliation. None. 16. List of Exhibits. Exhibits identified in parentheses below, on file with the Commission, are incorporated herein by reference as an exhibit hereto, pursuant to Rule 7a-29 under the Trust Indenture Act of 1939 (the "Act") and 17 C.F.R. 229.10(d). 1. A copy of the Organization Certificate of The Bank of New York (formerly Irving Trust Company) as now in effect, which contains the authority to commence business and a grant of powers to exercise corporate trust powers. (Exhibit 1 to Amendment No. 1 to Form T-1 filed with Registration Statement No. 33-6215, Exhibits 1a and 1b to Form T-1 filed with Registration Statement No. 33-21672 and Exhibit 1 to Form T-1 filed with Registration Statement No. 33-29637.) 4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form T-1 filed with Registration Statement No. 33-31019.) -2- 6. The consent of the Trustee required by Section 321(b) of the Act. (Exhibit 6 to Form T-1 filed with Registration Statement No. 33-44051.) 7. A copy of the latest report of condition of the Trustee published pursuant to law or to the requirements of its supervising or examining authority. -3- SIGNATURE Pursuant to the requirements of the Act, the Trustee, The Bank of New York, a corporation organized and existing under the laws of the State of New York, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in The City of New York, and State of New York, on the 29th day of June, 1998. THE BANK OF NEW YORK By: VAN K. BROWN ------------------------------------ Name: VAN K. BROWN Title: ASSISTANT VICE PRESIDENT -4- Exhibit 7 --------- ----------------------------------- Consolidated Report of Condition of THE BANK OF NEW YORK of 48 Wall Street, New York, N.Y. 10286 And Foreign and Domestic Subsidiaries, a member of the Federal Reserve System, at the close of business December 31, 1997, published in accordance with a call made by the Federal Reserve Bank of this District pursuant to the provisions of the Federal Reserve Act. Dollar Amounts ASSETS in Thousands Cash and balances due from depos- itory institutions: Noninterest-bearing balances and currency and coin ..................................... $ 5,742,986 Interest-bearing balances .............................. 1,342,769 Securities: Held-to-maturity securities ............................ 1,099,736 Available-for-sale securities .......................... 3,882,686 Federal funds sold and Securities pur- chased under agreements to resell ...................... 2,568,530 Loans and lease financing receivables: Loans and leases, net of unearned income ............................................... 35,019,608 LESS: Allowance for loan and lease losses ......................................... 627,350 LESS: Allocated transfer risk reserve .............................................. 0 Loans and leases, net of unearned income, allowance, and reserve ....................... 34,392,258 Assets held in trading accounts .......................... 2,521,451 Premises and fixed assets (including capitalized leases) .................................... 659,209 Other real estate owned .................................. 11,992 Investments in unconsolidated subsidiaries and associated companies .............................................. 226,263 Customers' liability to this bank on acceptances outstanding ................................ 1,187,449 Intangible assets ........................................ 781,684 Other assets ............................................. 1,736,574 ------------ Total assets ............................................. $ 56,153,587 ============ LIABILITIES Deposits: In domestic offices .................................... $ 27,031,362 Noninterest-bearing .................................... 11,899,507 Interest-bearing ....................................... 15,131,855 In foreign offices, Edge and Agreement subsidiaries, and IBFs ....................... 13,794,449 Noninterest-bearing .................................... 590,999 Interest-bearing ....................................... 13,203,450 Federal funds purchased and Securities sold under agreements to repurchase .................... 2,338,881 Demand notes issued to the U.S. .......................... Treasury ............................................... 173,851 Trading liabilities ...................................... 1,695,216 Other borrowed money: With remaining maturity of one year or less .............................................. 1,905,330 With remaining maturity of more than one year through three years ......................... 0 With remaining maturity of more than three years .......................................... 25,664 Bank's liability on acceptances exe- cuted and outstanding .................................. 1,195,923 Subordinated notes and debentures ........................ 1,012,940 Other liabilities ........................................ 2,018,960 ------------ Total liabilities ........................................ 51,192,576 ------------ EQUITY CAPITAL Common stock ............................................. 1,135,284 Surplus .................................................. 731,319 Undivided profits and capital reserves ............................................... 3,093,726 Net unrealized holding gains (losses) on available-for-sale securities ............................................. 36,866 Cumulative foreign currency transla- tion adjustments ....................................... (36,184) ------------ Total equity capital ..................................... 4,961,011 ------------ Total liabilities and equity capital ................................................ $ 56,153,587 ============ I, Robert E. Keilman, Senior Vice President and Comptroller of the above-named bank do hereby declare that this Report of Condition has been prepared in conformance with the instructions issued by the Board of Governors of the Federal Reserve System and is true to the best of my knowledge and belief. Robert E. Keilman We, the undersigned directors, attest to the correctness of this Report of Condition and declare that it has been examined by us and to the best of our knowledge and belief has been prepared in conformance with the instructions issued by the Board of Governors of the Federal Reserve System and is true and correct. Thomas A. Renyi ) Alan R. Griffith ) Directors J. Carter Bacot ) EX-25.3 10 FORM T-1 SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 ------------------------- FORM T-1 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE ------------------------------------------- CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(b)(2) ________ ---------------------------------------- THE CHASE MANHATTAN BANK (Exact name of trustee as specified in its charter) New York 13-4994650 (State of incorporation (I.R.S. employer if not a national bank) identification No.) 270 Park Avenue New York, New York 10017 (Address of principal executive offices) (Zip Code) William H. McDavid General Counsel 270 Park Avenue New York, New York 10017 Tel: (212) 270-2611 (Name, address and telephone number of agent for service) -------------------------------------------- Arizona Public Service Company (Exact name of obligor as specified in its charter) Arizona 86-0011170 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification No.) 400 North Fifth Street Phoenix, Arizona 85004 (Address of principal executive offices) (Zip Code) -------------------------------------------- Debt Securities (Title of the indenture securities) --------------------------------------------------------- GENERAL Item 1. General Information. Furnish the following information as to the trustee: (a) Name and address of each examining or supervising authority to which it is subject. New York State Banking Department, State House, Albany, New York 12110. Board of Governors of the Federal Reserve System, Washington, D.C., 20551 Federal Reserve Bank of New York, District No. 2, 33 Liberty Street, New York, N.Y. Federal Deposit Insurance Corporation, Washington, D.C., 20429. (b) Whether it is authorized to exercise corporate trust powers. Yes. Item 2. Affiliations with the Obligor. If the obligor is an affiliate of the trustee, describe each such affiliation. None. Item 16. List of Exhibits List below all exhibits filed as a part of this Statement of Eligibility. 1. A copy of the Articles of Association of the Trustee as now in effect, including the Organization Certificate and the Certificates of Amendment dated February 17, 1969, August 31, 1977, December 31, 1980, September 9, 1982, February 28, 1985, December 2, 1991 and July 10, 1996 (see Exhibit 1 to Form T-1 filed in connection with Registration Statement No. 333-06249, which is incorporated by reference). 2. A copy of the Certificate of Authority of the Trustee to Commence Business (see Exhibit 2 to Form T-1 filed in connection with Registration Statement No. 33-50010, which is incorporated by reference. On July 14, 1996, in connection with the merger of Chemical Bank and The Chase Manhattan Bank (National Association), Chemical Bank, the surviving corporation, was renamed The Chase Manhattan Bank). 3. None, authorization to exercise corporate trust powers being contained in the documents identified above as Exhibits 1 and 2. 4. A copy of the existing By-Laws of the Trustee (see Exhibit 4 to Form T-1 filed in connection with Registration Statement No. 333-06249, which is incorporated by reference). 5. Not applicable. 6. The consent of the Trustee required by Section 321(b) of the Act (see Exhibit 6 to Form T-1 filed in connection with Registration Statement No. 33-50010, which is incorporated by reference. On July 14, 1996, in connection with the merger of Chemical Bank and The Chase Manhattan Bank (National Association), Chemical Bank, the surviving corporation, was renamed The Chase Manhattan Bank). 7. A copy of the latest report of condition of the Trustee, published pursuant to law or the requirements of its supervising or examining authority. 8. Not applicable. 9. Not applicable. SIGNATURE Pursuant to the requirements of the Trust Indenture Act of 1939 the Trustee, The Chase Manhattan Bank, a corporation organized and existing under the laws of the State of New York, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of New York and State of New York, on the 26th day of June, 1998. THE CHASE MANHATTAN BANK By T.J. Foley ---------------------------- T.J. Foley Vice President - 3 - Exhibit 7 to Form T-1 Bank Call Notice RESERVE DISTRICT NO. 2 CONSOLIDATED REPORT OF CONDITION OF The Chase Manhattan Bank of 270 Park Avenue, New York, New York 10017 and Foreign and Domestic Subsidiaries, a member of the Federal Reserve System, at the close of business March 31, 1998, in accordance with a call made by the Federal Reserve Bank of this District pursuant to the provisions of the Federal Reserve Act. Dollar Amounts ASSETS in Millions Cash and balances due from depository institutions: Noninterest-bearing balances and currency and coin ...................................... $ 12,037 Interest-bearing balances .............................. 4,054 Securities: Held to maturity securities .................................................. 2,340 Available for sale securities ............................... 50,134 Federal funds sold and securities purchased under agreements to resell ................................... 24,982 Loans and lease financing receivables: Loans and leases, net of unearned income .... $127,958 Less: Allowance for loan and lease losses ... 2,797 Less: Allocated transfer risk reserve ....... 0 -------- Loans and leases, net of unearned income, allowance, and reserve ................................. 125,161 Trading Assets .............................................. 61,820 Premises and fixed assets (including capitalized leases) ..................................................... 2,961 Other real estate owned ..................................... 347 Investments in unconsolidated subsidiaries and associated companies ................................... 242 Customers' liability to this bank on acceptances outstanding ............................................ 1,380 Intangible assets............................................ 1,549 Other assets ................................................ 11,727 -------- TOTAL ASSETS ................................................ $298,734 ======== - 4 - LIABILITIES Deposits In domestic offices .................................... $ 96,682 Noninterest-bearing ......................... $ 38,074 Interest-bearing ............................ 58,608 --------- In foreign offices, Edge and Agreement, subsidiaries and IBF's . ........................................................... 72,630 Noninterest-bearing .............................. $ 3,289 Interest-bearing ............................ 69,341 Federal funds purchased and securities sold under agree- ments to repurchase ......................................... 42,735 Demand notes issued to the U.S. Treasury .................... 872 Trading liabilities ......................................... 45,545 Other borrowed money (includes mortgage indebtedness and obligations under capitalized leases): With a remaining maturity of one year or less .......... 4,454 With a remaining maturity of more than one year through three years ............................. 231 With a remaining maturity of more than three years .... 106 Bank's liability on acceptances executed and outstanding .... 1,380 Subordinated notes and debentures ........................... 5,708 Other liabilities ........................................... 11,295 TOTAL LIABILITIES ........................................... 281,638 --------- EQUITY CAPITAL Perpetual preferred stock and related surplus ............... 0 Common stock ................................................ 1,211 Surplus (exclude all surplus related to preferred stock) ... 10,291 Undivided profits and capital reserves ...................... 5,579 Net unrealized holding gains (losses) on available-for-sale securities ............................ (1) Cumulative foreign currency translation adjustments ......... 16 TOTAL EQUITY CAPITAL ........................................ 17,096 --------- TOTAL LIABILITIES AND EQUITY CAPITAL ........................ $ 298,734 ========= I, Joseph L. Sclafani, E.V.P. & Controller of the above-named bank, do hereby declare that this Report of Condition has been prepared in conformance with the instructions issued by the appropriate Federal regulatory authority and is true to the best of my knowledge and belief. JOSEPH L. SCLAFANI We, the undersigned directors, attest to the correctness of this Report of Condition and declare that it has been examined by us, and to the best of our knowledge and belief has been prepared in conformance with the instructions issued by the appropriate Federal regulatory authority and is true and correct. WALTER V. SHIPLEY ) THOMAS G. LABRECQUE ) DIRECTORS WILLIAM B. HARRISON, JR.) -5- EX-25.4 11 FORM T-1 ================================================================================ FORM T-1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(b)(2) |__| --------------------------- THE BANK OF NEW YORK (Exact name of trustee as specified in its charter) New York 13-5160382 (State of incorporation (I.R.S. employer if not a U.S. national bank) identification no.) 48 Wall Street, New York, N.Y. 10286 (Address of principal executive offices) (Zip code) --------------------------- ARIZONA PUBLIC SERVICE COMPANY (Exact name of obligor as specified in its charter) Arizona 86-0011170 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) 400 North Fifth Street, P.O. Box 53999 Phoenix, Arizona 85072-3999 (Address of principal executive offices) (Zip code) --------------------------- Senior Notes (Title of the indenture securities) ================================================================================ 1. General information. Furnish the following information as to the Trustee: (a) Name and address of each examining or supervising authority to which it is subject. - -------------------------------------------------------------------------------- Name Address - -------------------------------------------------------------------------------- Superintendent of Banks of the State of 2 Rector Street, New York, New York N.Y. 10006, and Albany, N.Y. 12203 Federal Reserve Bank of New York 33 Liberty Plaza, New York, N.Y. 10045 Federal Deposit Insurance Corporation Washington, D.C. 20429 New York Clearing House Association New York, New York 10005 (b) Whether it is authorized to exercise corporate trust powers. Yes. 2. Affiliations with Obligor. If the obligor is an affiliate of the trustee, describe each such affiliation. None. 16. List of Exhibits. Exhibits identified in parentheses below, on file with the Commission, are incorporated herein by reference as an exhibit hereto, pursuant to Rule 7a-29 under the Trust Indenture Act of 1939 (the "Act") and 17 C.F.R. 229.10(d). 1. A copy of the Organization Certificate of The Bank of New York (formerly Irving Trust Company) as now in effect, which contains the authority to commence business and a grant of powers to exercise corporate trust powers. (Exhibit 1 to Amendment No. 1 to Form T-1 filed with Registration Statement No. 33-6215, Exhibits 1a and 1b to Form T-1 filed with Registration Statement No. 33-21672 and Exhibit 1 to Form T-1 filed with Registration Statement No. 33-29637.) 4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form T-1 filed with Registration Statement No. 33-31019.) -2- 6. The consent of the Trustee required by Section 321(b) of the Act. (Exhibit 6 to Form T-1 filed with Registration Statement No. 33-44051.) 7. A copy of the latest report of condition of the Trustee published pursuant to law or to the requirements of its supervising or examining authority. -3- SIGNATURE Pursuant to the requirements of the Act, the Trustee, The Bank of New York, a corporation organized and existing under the laws of the State of New York, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in The City of New York, and State of New York, on the 29th day of June, 1998. THE BANK OF NEW YORK By: VAN K. BROWN ----------------------------------- Name: VAN K. BROWN Title: ASSISTANT VICE PRESIDENT -4- Exhibit 7 --------- ----------------------------------- Consolidated Report of Condition of THE BANK OF NEW YORK of 48 Wall Street, New York, N.Y. 10286 And Foreign and Domestic Subsidiaries, a member of the Federal Reserve System, at the close of business December 31, 1997, published in accordance with a call made by the Federal Reserve Bank of this District pursuant to the provisions of the Federal Reserve Act. Dollar Amounts ASSETS in Thousands Cash and balances due from depos- itory institutions: Noninterest-bearing balances and currency and coin ..................................... $ 5,742,986 Interest-bearing balances .............................. 1,342,769 Securities: Held-to-maturity securities ............................ 1,099,736 Available-for-sale securities .......................... 3,882,686 Federal funds sold and Securities pur- chased under agreements to resell ...................... 2,568,530 Loans and lease financing receivables: Loans and leases, net of unearned income ............................................... 35,019,608 LESS: Allowance for loan and lease losses ......................................... 627,350 LESS: Allocated transfer risk reserve .............................................. 0 Loans and leases, net of unearned income, allowance, and reserve ....................... 34,392,258 Assets held in trading accounts .......................... 2,521,451 Premises and fixed assets (including capitalized leases) .................................... 659,209 Other real estate owned .................................. 11,992 Investments in unconsolidated subsidiaries and associated companies .............................................. 226,263 Customers' liability to this bank on acceptances outstanding ................................ 1,187,449 Intangible assets ........................................ 781,684 Other assets ............................................. 1,736,574 ------------ Total assets ............................................. $ 56,153,587 ============ LIABILITIES Deposits: In domestic offices .................................... $ 27,031,362 Noninterest-bearing .................................... 11,899,507 Interest-bearing ....................................... 15,131,855 In foreign offices, Edge and Agreement subsidiaries, and IBFs ....................... 13,794,449 Noninterest-bearing .................................... 590,999 Interest-bearing ....................................... 13,203,450 Federal funds purchased and Securities sold under agreements to repurchase .................... 2,338,881 Demand notes issued to the U.S. .......................... Treasury ............................................... 173,851 Trading liabilities ...................................... 1,695,216 Other borrowed money: With remaining maturity of one year or less .............................................. 1,905,330 With remaining maturity of more than one year through three years ......................... 0 With remaining maturity of more than three years .......................................... 25,664 Bank's liability on acceptances exe- cuted and outstanding .................................. 1,195,923 Subordinated notes and debentures ........................ 1,012,940 Other liabilities ........................................ 2,018,960 ------------ Total liabilities ........................................ 51,192,576 ------------ EQUITY CAPITAL Common stock ............................................. 1,135,284 Surplus .................................................. 731,319 Undivided profits and capital reserves ............................................... 3,093,726 Net unrealized holding gains (losses) on available-for-sale securities ............................................. 36,866 Cumulative foreign currency transla- tion adjustments ....................................... (36,184) ------------ Total equity capital ..................................... 4,961,011 ------------ Total liabilities and equity capital ................................................ $ 56,153,587 ============ I, Robert E. Keilman, Senior Vice President and Comptroller of the above-named bank do hereby declare that this Report of Condition has been prepared in conformance with the instructions issued by the Board of Governors of the Federal Reserve System and is true to the best of my knowledge and belief. Robert E. Keilman We, the undersigned directors, attest to the correctness of this Report of Condition and declare that it has been examined by us and to the best of our knowledge and belief has been prepared in conformance with the instructions issued by the Board of Governors of the Federal Reserve System and is true and correct. Thomas A. Renyi ) Alan R. Griffith ) Directors J. Carter Bacot ) -----END PRIVACY-ENHANCED MESSAGE-----