TWO NEW ISSUES BOOK-ENTRY ONLY In the opinion of Bond Counsel, under existing law, regulations, rulings, judicial decisions and other authorities, interest on the Bonds (as defined herein) is excludable from the gross income of the Owners thereof for federal income tax purposes and is not treated as an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals, corporations and other taxpayers nor is such interest includable in the adjusted current earnings for purposes of computing the corporate alternative minimum tax. No opinion is expressed as to the inclusion of interest on the Bonds for any period during which such Bond is held by a person who is a substantial user of the facilities refinanced with the proceeds of the Bonds or by a related person as those terms are used in Section 103(b)(13) of the Internal Revenue Code of 1954, as amended. Under the Act (as defined herein), the Bonds and the income therefrom are exempt from all taxation by the State of Arizona or any subdivision thereof. For a discussion of qualifications, limitations and conditions relating to the foregoing opinions, and for a description of certain other provisions of law that may affect the federal tax treatment of interest on the Bonds, see Tax Matters herein. $63,500,000 $37,100,000 Maricopa County, Arizona Maricopa County, Arizona Pollution Control Corporation Pollution Control Corporation Pollution Control Refunding Pollution Control Refunding Revenue Bonds, 2009 Series A Revenue Bonds, 2009 Series B (El Paso Electric Company Palo Verde Project) (El Paso Electric Company Palo Verde Project) Due: February 1, 2040 Due: April 1, 2040 Interest Rate: 7.25% Interest Rate: 7.25% Dated: Date of Delivery The principal of, premium, if any, and interest on each series of Bonds will be payable solely from, and secured by a pledge of, payments to be made under separate Loan Agreements (as defined herein) by El Paso Electric Company The Maricopa County, Arizona Pollution Control Corporation Pollution Control Refunding Revenue Bonds, 2009 Series A (El Paso Electric Company Palo Verde Project) (the Series A Bonds ) and the Maricopa County, Arizona Pollution Control Corporation Pollution Control Refunding Revenue Bonds, 2009 Series B (El Paso Electric Company Palo Verde Project) (the Series B Bonds and, together with the Series A Bonds, the Bonds ) are being issued by the Maricopa County, Arizona Pollution Control Corporation (the Pollution Control Corporation or the Issuer ) pursuant to separate Indentures of Trust each dated as of March 1, 2009 between the Issuer and Union Bank, N.A, as trustee (the Trustee ). The Series A Bonds are being issued to refund the Issuer s Pollution Control Refunding Revenue Bonds, 2005 Series B (El Paso Electric Company Palo Verde Project) in the aggregate principal amount of $63,500,000 (the 2005 Series B Bonds ) and the Series B Bonds are being issued to refund the Issuer s Pollution Control Refunding Revenue Bonds, 2005 Series C (El Paso Electric Company Palo Verde Project) in the aggregate principal amount of $37,100,000 (the 2005 Series C Bonds and, together with the 2005 Series B Bonds, the Prior Bonds ). Interest on the Series A Bonds will be payable on February 1 and August 1 of each year commencing August 1, 2009. Interest on the Series B Bonds will be payable on April 1 and October 1 of each year commencing October 1, 2009. The Bonds will begin to accrue interest on the date of delivery and principal on the Bonds will be payable on the maturity thereof. This cover page contains certain information regarding the Bonds for reference only. It is not a summary of each series of Bonds. Investors must read the entire Official Statement to obtain information essential to making an informed investment decision. Investing in the Bonds involves risks. See Appendix A hereto, which describes where to find additional information about the Company, including a discussion of such risks. The Bonds are subject to optional, extraordinary optional, special mandatory, and extraordinary mandatory redemption as more fully described herein. See The Bonds Redemption Provisions Optional Redemption for the Series A Bonds, Optional Redemption for the Series B Bonds, Optional Redemption for Extraordinary Events, Optional Redemption for Change of Use, Redemption Upon Mandatory Prepayment and Extraordinary Mandatory Redemption. Price: 100% Each series of Bonds is in the form of one or more fully registered bonds registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ( DTC ). DTC is acting as securities depository for the Bonds. Purchases will be made only in book-entry form through DTC participants only in denominations of $5,000 or any integral multiple thereof and no physical delivery of Bonds will be made to purchasers. Ownership interests in the Bonds will be shown on, and transfer thereof will be effected only through, records maintained by DTC and its participants. So long as DTC or its nominee is the registered Owner of the Bonds, references herein to Owners or registered Owners will mean Cede & Co., as aforesaid, and payments of principal and interest on the Bonds will be made directly to DTC by the Trustee. Disbursement of such payments to DTC participants will be the responsibility of DTC and disbursement of such payments to the beneficial Owners will be the responsibility of DTC participants. See Book-Entry Only System. The Bonds are limited obligations and will never constitute an indebtedness of Maricopa County, Arizona Pollution Control Corporation or Maricopa County, Arizona within the meaning of any constitutional or statutory provision of the State of Arizona. Each series of Bonds is offered subject to prior sale, when, as and if received by the Underwriters and subject to certain conditions, including the receipt of the approving opinion of Katten Muchin Rosenman LLP, as Bond Counsel. Certain matters will be passed upon for the Company by the General Counsel of the Company and by Davis Polk & Wardwell, Menlo Park, California. Certain matters will be passed upon for the Underwriters by Squire, Sanders & Dempsey L.L.P., as counsel to the Underwriters. It is expected that the Bonds will be available for delivery through the facilities of DTC in New York, New York on or about March 26, 2009. J.P. Morgan Dated March 19, 2009 BNY Mellon Capital Markets, LLC
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. No dealer, broker, salesman or other person has been authorized to give any information or to make representations other than those contained in this Official Statement in connection with the offers made hereby and, if given or made, such information or representations must not be relied upon as having been authorized by the Issuer, the Company or the Underwriters. This Official Statement does not constitute an offer or solicitation in any jurisdiction in which such offer or solicitation is not authorized, or in which the person making such offer or solicitation is not qualified to do so or to any person to whom it is unlawful to make such offer or solicitation. The Bonds have not been registered under the Securities Act of 1933, as amended, nor have the Indentures been qualified under the Trust Indenture Act of 1939, as amended, in reliance on exemptions contained in such acts. The registration or qualification of the Bonds in accordance with applicable provisions of securities laws of the states in which the Bonds have been registered or qualified, if any, and the exemption from registration or qualification in other states cannot be regarded as recommendations thereof. Neither these states nor any of their agencies have passed upon the merits of the Bonds or the accuracy or completeness of this Official Statement. Any representation to the contrary may be a criminal offense. The Underwriters have provided the following sentence for inclusion in this Official Statement. The Underwriters have reviewed the information in this Official Statement in accordance with, and as part of, their responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriters do not guarantee the accuracy or completeness of such information. The Trustee assumes no responsibility for this Official Statement and has not reviewed or undertaken to verify any information contained herein. The information herein is subject to change without notice and neither the delivery of this Official Statement nor any sale made hereunder will, under any circumstances, create an implication that there has been no change in the affairs of the Company since the date hereof. This Official Statement and the information contained herein and in the Appendices hereto are not to be construed to be representations by the Issuer. The Issuer neither has nor assumes any responsibility for the accuracy or completeness of any information in this Official Statement. IN MAKING AN INVESTMENT, DECISION INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS DOCUMENT ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. i
TABLE OF CONTENTS Page INTRODUCTORY STATEMENT... 1 THE ISSUER... 2 THE FACILITIES... 2 APPLICATION OF PROCEEDS... 2 THE BONDS... 2 THE INDENTURES... 7 THE LOAN AGREEMENTS... 12 BOOK-ENTRY ONLY SYSTEM... 15 CONTINUING DISCLOSURE... 16 TAX MATTERS... 17 ENFORCEABILITY OF REMEDIES... 19 RATINGS... 19 UNDERWRITING... 20 LEGAL MATTERS... 20 APPENDIX A - EL PASO ELECTRIC COMPANY APPENDIX B - PROPOSED FORM OF BOND COUNSEL OPINION APPENDIX C - PROPOSED FORM OF CONTINUING DISCLOSURE AGREEMENT ii
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$63,500,000 $37,100,000 Maricopa County, Arizona Maricopa County, Arizona Pollution Control Corporation Pollution Control Corporation Pollution Control Refunding Pollution Control Refunding Revenue Bonds, 2009 Series A Revenue Bonds, 2009 Series B (El Paso Electric Company Palo Verde Project) (El Paso Electric Company Palo Verde Project) Due: February 1, 2040 Due: April 1, 2040 INTRODUCTORY STATEMENT This Official Statement, which includes the cover page and appendices (the Official Statement ), is provided to furnish information in connection with the issuance and sale by Maricopa County, Arizona Pollution Control Corporation (the Pollution Control Corporation or the Issuer ) of its Pollution Control Refunding Revenue Bonds, 2009 Series A (El Paso Electric Company Palo Verde Project) in the aggregate principal amount of $63,500,000 (the Series A Bonds ) and its Pollution Control Refunding Revenue Bonds, 2009 Series B (El Paso Electric Company Palo Verde Project) in the aggregate principal amount of $37,100,000 (the Series B Bonds and, together with the Series A Bonds, the Bonds ). Each series of Bonds is governed by a separate Indenture of Trust each dated as of March 1, 2009 (each, an Indenture and collectively, the Indentures ), by and between the Issuer and Union Bank, N.A., as respective trustee. For purposes of this Official Statement, the trustee under each Indenture is sometimes individually referred to as a Trustee and collectively as the Trustees. The Series A Bonds are being issued by the Pollution Control Corporation to provide funds, together with other moneys available from El Paso Electric Company, a Texas corporation (the Company ), necessary to redeem (i) the Pollution Control Corporation s Pollution Control Refunding Revenue Bonds, 2005 Series B (El Paso Electric Company Palo Verde Project) in the aggregate principal amount of $63,500,000 (the 2005 Series B Bonds ) all of which are outstanding and which were used to refinance a portion of the cost to the Company of certain pollution control, solid waste disposal and sewage disposal facilities (the Facilities ) at Units 1, 2 and 3 of the Palo Verde Nuclear Generating Station, a nuclear power generating plant located in Maricopa County, Arizona (the Plant ). The Series B Bonds are being issued by the Pollution Control Corporation to provide funds, together with other moneys available from the Company, necessary to redeem the Pollution Control Corporation s Pollution Control Refunding Revenue Bonds, 2005 Series C (El Paso Electric Company Palo Verde Project) in the aggregate principal amount of $37,100,000 (the 2005 Series C Bonds and, together with the 2005 Series B Bonds, the Prior Bonds ) all of which are outstanding and which were used to refinance a portion of the cost to the Company of the Facilities at the Plant. The Company owns a 15.8% participation interest in the Plant. The other participants owning an interest in the Plant are Arizona Public Service Company, Public Service Company of New Mexico, Salt River Project Agricultural Improvement and Power District, Southern California Edison Company, Southern California Public Power Authority and Department of Water and Power of the City of Los Angeles. The Bonds are limited obligations and will never constitute an indebtedness of the Pollution Control Corporation or Maricopa County, Arizona within the meaning of any constitutional or statutory provision of the State of Arizona. The Pollution Control Corporation will be obligated to pay the principal of, premium, if any, and interest on each series of Bonds solely out of moneys held in trust under the applicable Indenture and the receipts and revenues of the Pollution Control Corporation under separate Loan Agreements each dated as of March 1, 2009, between the Company and the Pollution Control Corporation (the Loan Agreements ). Under each Indenture, the receipts and revenues from the Company pursuant to the related Loan Agreement have been pledged to the applicable Trustee as security, equally and ratably, for the payment of the principal of, premium, if any, and interest on the related series of Bonds. The payments required to be made by the Company pursuant to each Loan Agreement are sufficient, together with other funds available for such purpose, to pay the principal of, premium, if any, and interest on the related series of Bonds. The obligations of the Company to
make payments under each Loan Agreement will not be secured by the Facilities, the Plant or a pledge of any securities or any other property of the Company. Brief descriptions of the Issuer, the Facilities, the Bonds, the Indentures and the Loan Agreements are included in this Official Statement. Appendix A to this Official Statement (including the documents incorporated by reference therein) has been furnished by the Company and contains information concerning the business of the Company. Appendix B to this Official Statement is the proposed form of the opinion of Bond Counsel to be delivered in connection with the issuance of the Bonds. Appendix C is the proposed form of the Continuing Disclosure Agreement for the Company to be delivered with respect to the Bonds on the date of issuance thereof. All references herein to the Indentures, the Loan Agreements and the defined terms therein are qualified in their entirety by reference to such documents, and all references herein to the Bonds are qualified in their entirety by reference to the form thereof included in the applicable Indenture and the information with respect thereto included in the aforesaid documents, copies of which may be obtained from the Company and at the principal office of J.P. Morgan Securities Inc., as representative of the Underwriters, or the applicable Trustee. The Pollution Control Corporation THE ISSUER The Pollution Control Corporation is a nonprofit corporation of, and, pursuant to Chapter 69, Laws of 1972 of the State of Arizona, as amended, being Arizona Revised Statutes Annotated, Title 35, Chapter 6, as amended (the Act ), is a political subdivision of, the State of Arizona. The Pollution Control Corporation was previously authorized under the provisions of the laws of the State of Arizona to issue the Bonds, to enter into the Loan Agreements and the Indentures and to secure the Bonds by a pledge of the receipts and revenues of the Pollution Control Corporation from the Company pursuant to the Loan Agreements. The Pollution Control Corporation was incorporated with the approval of the Board of Supervisors of Maricopa County, Arizona. THE FACILITIES The facilities are described in the Loan Agreements and consist of certain pollution control, solid waste disposal and sewage disposal facilities at Units 1, 2 and 3 of the Plant and related improvements and substitutions therefor. The Bonds will not be secured by a mortgage or a security interest in the facilities, the Plant or any other property of the Company. APPLICATION OF PROCEEDS The proceeds from the sale of the Series A Bonds will be applied on April 3, 2009 to the purchase and redemption of the 2005 Series B Bonds. The proceeds from the sale of the Series B Bonds will be applied on April 1, 2009 to the purchase and redemption of the 2005 Series C Bonds. General THE BONDS The Series A Bonds will be dated the date of delivery and are issued in fully registered form in the aggregate principal amount of $63,500,000 and mature on February 1, 2040. The Series A Bonds will bear interest at the rate of 7.25% per annum. Interest on the Series A Bonds will be payable on February 1 and August 1 of each year commencing August 1, 2009 (the Series A Bonds Interest Payment Date ). Interest on the Series A Bonds will be computed based on a 360-day year, consisting of twelve 30-day months. 2
The Series B Bonds will be dated the date of delivery and are issued in fully registered form in the aggregate principal amount of $37,100,000 and mature on April 1, 2040. The Series B Bonds will bear interest at the rate of 7.25% per annum. Interest on the Series B Bonds will be payable on April 1 and October 1 of each year commencing October 1, 2009 (the Series B Bonds Interest Payment Date and, together with the Series A Bonds Interest Payment Date, the Interest Payment Date ). Interest on the Series B Bonds will be computed based on a 360-day year, consisting of twelve 30-day months. facility. The Bonds are unsecured obligations of the Company and are not supported by any credit enhancement Each series of Bonds is an entirely separate issue. Except where specifically stated herein, the Indentures contain substantially similar terms and provisions. The occurrence of an event of default with respect to one series of Bonds will not, in and of itself, constitute an event of default with respect to any other series of Bonds. Redemption or purchase of the Bonds of one series may be made in the manner described below without the redemption or purchase of any other series of Bonds. In the following summary of the terms of the Bonds, references to the Bonds, the Indentures, the Trustees, the Loan Agreements, and other defined terms should be read as separately referring to each series of Bonds individually and the Indenture, the Trustee, the Loan Agreement and other capitalized terms related to such series of Bonds, except as otherwise noted or unless the context otherwise requires. Reference is made to each Indenture for the detailed provisions of the related series of Bonds, including definitions therein of certain capitalized terms used herein but not defined. The Bonds will be issued in book-entry only form and registered in the name of DTC or its nominee, Cede & Co., held in DTC s book-entry only system. Purchases will be made only in book-entry form through DTC participants only in Authorized Denominations and no physical delivery of Bonds will be made to purchasers. Ownership interests in the Bonds will be shown on and transfer thereof will be effected only through, records maintained by DTC and its participants. So long as DTC or its nominee is the registered Owner of the Bonds, references herein to Owners or registered Owners means Cede & Co., as aforesaid, and payments of principal of, premium, if any, and interest on the Bonds will be made directly to DTC by the Trustee. Disbursement of such payments to DTC participants is the responsibility of DTC, and disbursement of such payments to the beneficial Owners is the responsibility of DTC participants. See Book-Entry Only System herein. The Issuer may discontinue use of the system of book-entry transfers through DTC for one series of Bonds without affecting any other series of Bonds. The Bonds may be transferred upon the books of the Trustee, as Registrar, or exchanged for other Bonds of the same series, all without cost, except for any tax or other governmental charge, except that the Registrar is not obligated to make any such exchange or transfer during certain periods immediately preceding the date of the first mailing of notice of any redemption. Principal of, premium, if any, and interest on each series of Bonds will be payable in such coin or currency of the United States of America as, at the respective times of payment, is legal tender for the payment of public and private debts. Security and Source of Payment for the Bonds Bonds of any one series are not entitled to the benefits of any revenue or other security pledged for the benefit of any other series of Bonds. The Bonds and the interest thereon will not constitute an indebtedness or obligation to which the full faith and credit of the Issuer is pledged. The Bonds are limited obligations of the Issuer. The Issuer will be obligated to pay the principal of, premium, if any, and interest on the Bonds issued by it solely out of moneys held in trust under the Indenture and the receipts and revenues of such Issuer payable by the Company under the Loan Agreement. The principal of, premium, if any, and interest on the Bonds will be payable solely from, and secured by a pledge of, payments to be made under the Loan Agreement by the Company. The Loan Agreement requires payments to be made at such times and in such amounts as may be necessary to cause 3
payment to be made when principal of, premium, if any, and interest on the Bonds become due. The Bonds will not be secured by a mortgage or a security interest in the Facilities, the Plant or any other property of the Company. Record Dates and Interest Payment Dates Record Dates. Interest on the Bonds will be paid (i) if such Bonds are Book-Entry Bonds, in immediately available funds on the applicable Interest Payment Date to the Owners of such Bonds at the close of business on the Record Date in respect of such interest or (ii) if such Bonds are not Book-Entry Bonds, by wire transfer to the account of such Owner or by check mailed by first-class mail to such Owner. Principal of, premium, if any, and interest on the Bonds payable at any time during which the Bonds are book-entry Bonds will be paid by wire transfer to DTC or its nominee. Record Date means the fifteenth day of the month immediately preceding such Interest Payment Date. Interest Payment Dates. Series A Interest Payment Date means each February 1 and August 1 of each year commencing August 1, 2009, and Series B Interest Payment Date means each April 1 and October 1 of each year commencing October 1, 2009, unless such date shall not be a Business Day, in which case the next succeeding Business Day. The Bonds will begin to accrue interest on the date of delivery. The term Business Day means any day other than a Saturday, Sunday or other day on which the New York Stock Exchange, Inc. or banks are authorized or required to close in New York, New York, or any city in which the principal or designated corporate trust office of the Trustee is located. Redemption Provisions Optional Redemption for the Series A Bonds. The Series A Bonds are subject to optional redemption, in whole or in part on any Business Day on or after February 1, 2019 at a redemption price equal to the principal amount being redeemed together with the accrued interest on such principal amount to the date fixed for redemption. Optional Redemption for the Series B Bonds. The Series B Bonds are subject to optional redemption, in whole or in part on any Business Day on or after April 1, 2019 at a redemption price equal to the principal amount being redeemed together with the accrued interest on such principal amount to the date fixed for redemption. Purchase in Lieu of Redemption. Any Bonds called for redemption under the events described in the preceding two paragraphs may be purchased in lieu of redemption by the Trustee on behalf of the Company in the event the Company elects to change the interest rate period to a different interest rate period or to provide, substitute or terminate a Credit Facility, if any, at a price equal to the amount payable upon the redemption of such Bonds. Optional Redemption for Extraordinary Events. The Bonds will be redeemed prior to maturity in whole or in part, and if in part by lot, at any time at a redemption price equal to the principal amount thereof plus accrued interest, if any, to the redemption date, upon receipt by the Trustee of a written notice from the Company stating that any of the following events has occurred (which determination shall be in the sole discretion of the Company) and that the Company therefore intends to exercise its option to prepay the Repayment Installments due under the Loan Agreement in whole or in part pursuant to the Loan Agreement and thereby effect the redemption of the Bonds in whole or in part to the extent of such prepayments: 4
(a) All or part of the Plant or the Facilities has been damaged or destroyed to such an extent that, in the opinion of the Company, (i) the Plant or the Facilities could not reasonably be restored within a period of four months to the condition thereof immediately preceding such damage or destruction, and the Company or the operator will be prevented, or is likely to be prevented, for a period of four consecutive months or more, from carrying on all or substantially all of its normal operation of the Plant or the Facilities, or (ii) the cost of restoration of the Plant or the Facilities will be substantially in excess of the net proceeds of insurance thereon. (b) Title to, or the temporary use of, all or a part of the Plant or the Facilities has been taken under the exercise of the power of eminent domain. (c) Changes in economic availability of raw materials, operating supplies or facilities necessary to operate all or a part of the Plant or the Facilities, or technological or other changes which make the continued operation of the Plant or the Facilities or such affected portion uneconomical, in the opinion of the Company, have occurred and have resulted in a cessation of all or substantially all of the Company s or the operator s normal operations of either the Plant or the Facilities. (d) Unreasonable burdens or excessive liabilities have been imposed upon the Issuer or the Company in respect of all or a part of the Plant or the Facilities including, without limitation, federal, state or other ad valorem, property, income or other taxes not being imposed on the date of the Loan Agreement, as well as any statute or regulation enacted or promulgated after the date of the Loan Agreement that prevents the Company from deducting interest in respect of the Loan Agreement for federal income tax purposes. Optional Redemption for Change of Use. The Bonds are subject to redemption at the option of the Company in whole or in part by lot on any Interest Payment Date, at a redemption price equal to 100% of the principal amount thereof, if the Company delivers to the Trustee a written notice to the effect that either: (a) the Company has determined that some or all of the interest payable under the Loan Agreement for any 60 days (which need not be consecutive) within any consecutive 24 month period is not or will not be deductible, in whole or in part, for federal income tax purposes by reason of Section 150(b) of the Internal Revenue Code of 1986, as amended (the Code ) (or would not be deductible unless some or all of the Bonds are redeemed), due to a change in use of the Plant or any portion thereof, and the Company will not claim deductions for such interest on its federal income tax returns; or (b) the Company after reasonable effort has been unable to obtain an opinion of Bond Counsel that it is more likely than not that Section 150 of the Code will not prevent interest payable under the Loan Agreement for any 60 days (which need not be consecutive) within any consecutive 24 month period from being deductible, in whole or in part, for federal income tax purposes. In either such case, (i) the Company will only cause the Trustee to redeem Bonds as described above on or after the applicable Interest Payment Date immediately preceding the date on which, due to a change in use in the Plant or any portion thereof, the period of potential interest expense disallowance described above commences, and (ii) the Company may only cause the Trustee to redeem such principal amount of Bonds as the Company determines is necessary to assure that the Company retains its right to all such deductions otherwise allowable or, if a partial redemption will not enable the Company to retain the right to deduct such interest, the Company may cause the Trustee to redeem all the Outstanding Bonds. Redemption Upon Mandatory Prepayment. The Bonds are subject to redemption upon mandatory prepayment of the amounts due under the Loan Agreement in whole at any time at a redemption price of 100% of the principal amount thereof, without premium, plus accrued interest, if any, to the redemption date, within 180 days after the date that, due to the untruth or 5
inaccuracy of any representation or warranty made by the Company in the Loan Agreement or the breach of any covenant or warranty of the Company contained in the Loan Agreement, interest on the Bonds, or any of them, is determined not to be Tax-Exempt to the holders thereof (other than any holder who is a substantial user of facilities financed with the proceeds of the Bonds or a related person within the meaning of Section 147(a) of the Code) by a final administrative determination of the Internal Revenue Service or a final judicial decision of a court of competent jurisdiction in a proceeding of which the Company received notice and in which the Company was afforded an opportunity to participate to the full extent permitted by law. A determination or decision will not be considered final for purposes of the preceding sentence unless (1) the Issuer or the holder or holders of the Bonds involved in the proceeding in which the issue is raised (A) have given the Company and the Trustee prompt written notice of the commencement thereof, and (B) have offered the Company the opportunity to control the proceeding; provided the Company agrees to pay all expenses in connection therewith and to indemnify such holder or holders against all liability for such expenses (except that any such holder may engage separate counsel, and the Company will not be liable for the fees or expenses of such counsel); and (2) such proceeding is not subject to a further right of appeal or has not been timely appealed. The Bonds shall be redeemed in whole at a redemption price equal to the principal amount thereof plus accrued interest to the redemption date in the event that as a result of any changes in the Constitution of the United States of America or the Constitution of the State of Arizona or as a result of any legislative, judicial or administrative action, the Loan Agreement shall have become void or unenforceable or impossible to perform in accordance with the intention and purposes of the parties thereto, or shall have been declared unlawful. Extraordinary Mandatory Redemption. The Bonds shall be subject to extraordinary mandatory redemption prior to the stated maturity, in whole but not in part, on any date at a redemption price equal to the principal amount thereof plus interest accrued to the redemption date prior to any merger, consolidation, reorganization or conversion of the Company, or any sale or other disposition of all or substantially all of the Company s assets if the successor to such merger, consolidation or disposition 1) is not a public utility (including a holding company) regulated by the applicable state regulatory body or the Federal Energy Regulatory Commission, and 2) does not agree to assume the obligations of the Company under the Loan Agreement. Procedure for Redemption A redemption of any Bonds may be a redemption of the whole or any part of such Bonds from any funds available for that purpose in accordance with the provisions of the Indenture. If less than all the Bonds are called for redemption under any provision of the Indenture permitting such partial redemption, the particular Bonds or portions of a series of Bonds to be redeemed will be selected by the Trustee. For the purposes of any such selection, the Trustee shall assign a separate number for each minimum Authorized Denomination of each Bond of a denomination of more than such minimum; provided that following any such selection, both the portion of such series of Bonds to be redeemed and the portion of such series of Bonds remaining shall be in Authorized Denominations. The Trustee for the Bonds will give notice of the redemption of the Bonds by first-class mail at least 30 days, but not more than 60 days, prior to the redemption date. So long as Cede & Co., as nominee of DTC, is the registered Owner of the Bonds, notice of redemption is to be sent to DTC. Any notice of redemption may state that such redemption is conditional upon the receipt by the Trustee on or prior to such redemption date of moneys sufficient to pay the principal of, premium, if any, and interest on such Bonds to be redeemed and if such moneys shall not have been so received said notice of redemption shall be of no force and effect and the Issuer shall not be required to redeem such Bonds. Any notice for redemption of any Bond mailed as provided herein shall be conclusively deemed to have been duly given whether or not such notice is received. Failure to mail the notice required to any holder of a Bond, or any defect in any notice so mailed, shall not affect the validity of the proceedings for redemption of any Bonds nor impose any liability on the Trustee. Additional Bonds The Indenture does not permit the issuance of additional series of Bonds thereunder. 6
THE INDENTURES Each Indenture is separate from and will operate independently of the other Indenture and of each obligation of the Company, and the occurrence of an event of default under one Indenture will not, in and of itself, constitute an event of default under the other Indenture or any other obligation of the Company and vice versa. Except where specifically stated herein, the Indentures contain substantially similar terms and provisions. In the following summary of the Indentures, references to the Bonds, the Indenture, the Trustee, the Loan Agreement and other defined terms and to the percentages of holders of Bonds should be read as referring separately to each series of the Bonds individually and to the related Indenture, Trustee, Loan Agreement and other defined terms related to such series of Bonds except as otherwise noted or unless the context otherwise requires. Reference is made to each Indenture for the detailed provisions thereof, including the definitions therein of certain terms. General So long as the Bonds are held under a book-entry system with DTC (or any successor securities depository), DTC or its nominee (or any such successor) will be considered the Owner of the Bonds for all purposes of the Indenture. See Book-Entry Only System herein. Pledge and Security Pursuant to the Indenture, all amounts paid pursuant to the Loan Agreement (other than amounts paid to the Issuer to reimburse it for certain of its administration and other expenses) are pledged to the Trustee under such Indenture to secure the payment of the principal of, premium, if any, and interest on the Bonds. As additional security therefor, the Issuer has pledged and assigned to the Trustee other rights and interests of the Issuer (with certain exceptions) with respect to the Company under the Loan Agreement. Application of the Bond Fund The Bond Fund, into which the amounts due by the Company under the Loan Agreement and certain other amounts specified in the Indenture are to be deposited, has been established with the Trustee under such Indenture. While any Bonds are Outstanding, except for any amounts necessary to reimburse the Trustee for certain expenses, moneys in the Bond Fund will be used solely for the payment of the principal of, premium, if any, and interest on the Bonds as the same shall become due and payable on an Interest Payment Date or at maturity, upon redemption or acceleration or otherwise. Investment of Funds The moneys in the Bond Fund for the Bonds (other than moneys in respect of the redemption price of Bonds or Bonds not presented for payment, which may not be invested) will, at the direction of the Company, be invested and reinvested in Investment Securities to the extent not prohibited by applicable law. In addition, the Trustee may, at the direction of the Company, enter into custodial agreements providing for the investment of moneys through a custodian, reverse repurchase agreements, option agreements and agreements to lend securities with respect to any Investment Securities held by it. As long as no Event of Default (as defined in the Indenture) has occurred and is continuing, the Company will have the right to designate the investments to be sold and to otherwise direct the Trustee in the sale or conversion to cash of the investments made with the moneys in Bond Fund. The term Investment Securities means any of the following obligations or securities (to the extent investment therein would not violate the laws of the State of Arizona) on which the Company (or any affiliate) is not the obligor, maturing at such time or times as to enable disbursements to be made from the Bond Fund, in accordance with the Indenture, or which will be marketable prior to the maturities thereof: (a) direct obligations of, or obligations the principal and interest of which are guaranteed as to the full and timely payment by, the United States of America, which obligations, in either case, are not subject to redemption or prepayment at less than par by anyone other than the holder; 7
(b) obligations issued or guaranteed by an instrumentality of the United States of America pursuant to authority granted by the Congress of the United States of America, including obligations of the Federal National Mortgage Association, Federal Intermediate Credit Banks, Banks for Cooperatives, Federal Land Banks or Federal Home Loan Banks; (c) commercial paper rated at the time of investment in the highest short-term grade by the Rating Agencies; (d) bankers acceptances drawn on and accepted by commercial banks (including the Trustee, the Paying Agent and the Bank, if any) having at least $10,000,000 in capital stock, surplus and undivided profits the unsecured, uninsured obligations of which are rated not less than Prime - 1 or Aa2 by Moody s and A-1 or A+ by S&P; (e) certificates of deposit, deposit accounts and savings accounts fully insured by the Federal Deposit Insurance Corporation; (f) repurchase agreements with solvent banking or other financial institutions (including the Trustee, the Paying Agent and the Bank, if any) rated at the time of investment not less than the then current rating of the Bonds by each of the Rating Agencies; (g) obligations of a State, a territory, Puerto Rico, or a possession of the United States of America, or any political subdivision of the foregoing, or of the District of Columbia and which are rated at the time of investment not less than the then current rating of the Bonds by each of the Rating Agencies; (h) money market funds registered under the federal Investment Company Act of 1940, whose shares are registered under the federal Securities Act of 1933, and having a rating by S&P of AAAm-G, AAAm or Aam, and by Moody s of Aaa or Aa including funds for which the Trustee (or any affiliate of the Trustee) provides investment advice or other services; (i) custodial agreements providing for the investment of moneys through a custodian, reverse purchase agreements, option agreements and agreements to lend securities; and (j) any other obligations and securities not prohibited by law and which are rated at least Aaa or Aa by Moody s and AAA or AA by S&P. Covenant Regarding Federal Tax Matters With respect to the Bonds, the Pollution Control Corporation has covenanted in the Indenture for the benefit of the Owners from time to time of the Bonds that it will not act or fail to act in a manner reasonably within its control which would, under the Code, Regulations of the Department of the Treasury of the United States of America (including Temporary Regulations and Proposed Regulations) under the Code applicable to the Bonds, rulings and court decisions, cause the interest payable on the Bonds to be includable in the gross income of the holders thereof for Federal income tax purposes (other than a substantial user of the Facilities or a related person as those terms are used in Section 147(a) of the Code). Pursuant to such covenant, the Issuer has obligated itself to comply throughout the term of the issue of the Bonds with the requirements of Section 148 of the Code and any regulations promulgated thereunder. The Company by its execution of the Loan Agreement has covenanted to restrict the investment of money in the funds created under the Indenture in such manner and to such extent, if any, as may be necessary, so that the Bonds will not constitute arbitrage bonds under Section 148 of the Code. 8
Defaults and Remedies Events of Default. (a) Each of the following events constitutes, and is referred to in the Indenture as, an Event of Default : (i) a failure to pay the principal of or any premium on any of the Bonds when the same has become due and payable at maturity or upon redemption; (ii) a failure to pay an installment of interest on any of the Bonds after such interest has become due and payable; (iii) an Event of Default as such term is defined in the Loan Agreement; (iv) a failure by the Issuer to observe and perform any covenant, condition, agreement or provision (other than as specified in clauses (i) and (ii) above) contained in the Bonds or in the Indenture on the part of the Issuer to be observed or performed, which failure continues for a period of 60 days after written notice, specifying such failure and requesting that it be remedied, has been given to the Issuer and the Company by the Trustee, which may give such notice in its discretion and is required to give such notice at the written request of the Owners of a majority in principal amount of the Bonds then Outstanding, unless the Trustee or the Owners of the Bonds then Outstanding in principal amount not less than the principal amount of such Bonds the Owners of which requested such notice, as the case may be, agree in writing to an extension of such period prior to its expiration; provided, however, that the Trustee, or the Trustee and the Owners of such principal amount of the Bonds, as the case may be, will be deemed to have agreed to an extension of such period if corrective action is initiated by the Issuer, or the Company on behalf of the Issuer, within such period and is being diligently pursued. (b) If an Event of Default described in clauses (i), (ii) or (iii) of paragraph (a), above, has occurred and is continuing, the Trustee may, and at the written request of the Owners of a majority in principal amount of the Bonds of such series then Outstanding, the Trustee will be required to, declare the Bonds to be immediately due and payable, whereupon they will, without further action, become and be immediately due and payable, anything in the Indenture or in the Bonds to the contrary notwithstanding, and the Trustee will give notice thereof to the Owners. The Trustee is not entitled to accelerate the principal of the Bonds upon the occurrence of an Event of Default described in clause (iv) of paragraph (a) above. The provisions of (b) above, however, are subject, to the condition that if, after the principal of the Bonds has been declared due and payable, and before any judgment or decree for the payment of the moneys due has been obtained or entered as provided in the Indenture, the Issuer causes to be deposited with the Trustee a sum sufficient to pay all matured installments of interest upon all Bonds, premium, if any, and the principal of any and all Bonds which have become due otherwise than by reason of such declaration (with interest upon such principal and, to the extent permissible by law, on overdue installments of interest, at the rate per annum borne by such Bonds on the date of such declaration) and such amounts as are sufficient to cover reasonable compensation and reimbursement of expenses payable to the Trustee, all Events of Default, other than nonpayment of the principal of Bonds, which shall become due by such declaration, have been remedied or waived, then, in every such case, such Event of Default will be deemed waived and such declaration and its consequences rescinded and annulled, and the Trustee will promptly give written notice of such waiver, rescission and annulment to the Issuer, the Company and, if notice of the acceleration of the Bonds has been given to the Owners, will give notice thereof to the Owners. Remedies. In addition to the rights conferred, or obligations imposed, upon the Trustee as set forth above, the Trustee in its discretion may, or the Owners of a majority in principal amount of the Bonds then Outstanding, and receipt of indemnity to its satisfaction must, (a) by mandamus, or other suit, action or proceeding at law or in equity, enforce 9
all rights of the Owners of the Bonds, and require the Issuer, and the Company to carry out any agreements with or for the benefit of the Owners and to perform their duties under the Act, the Loan Agreement, and the Indenture; (b) bring suit upon such Bonds; or (c) by action or suit in equity enjoin any acts or things which may be unlawful or in violation of the rights of the Owners of the Bonds. Limitation on Owner s Right to Institute Proceedings. No Owner has any right to institute any suit, action or proceedings in equity or at law for the execution of any trust or power under the Indenture, or on the Bonds, unless (i) such Owner previously has given to the Trustee written notice of an Event of Default, (ii) the Owners of a majority in principal amount of the Bonds then Outstanding have made written request of the Trustee to do so, after the right to institute said suit, action or proceeding has accrued, and have afforded the Trustee a reasonable opportunity to proceed to institute the same in either its or their name, (iii) there also has been offered to such Trustee security and indemnity satisfactory to it, and (iv) the Trustee has not complied with such request. Waivers of Events of Default. The Trustee may waive any Event of Default under the Indenture and its consequences and must in any event do so upon the written request of the Owners of a majority in principal amount of all Bonds then Outstanding; provided, however, that there may not be waived any Event of Default pertaining to the payment of the interest when due or principal of any Bond at the Maturity Date or redemption date prior to maturity, unless, prior to such waiver (A) all arrears of principal (due otherwise than by declaration) and interest, with interest (to the extent permitted by law) at the rate per annum borne by the Bonds in respect of which such Event of Default occurred on overdue installments of principal (due otherwise than by declaration) have been paid or provided for and (B) all expenses of such Trustee in connection with such Event of Default have been paid or provided for to the satisfaction of the Trustee. Defeasance If the Issuer pays or causes to be paid to the Owner of any outstanding Bond secured by the Indenture the principal of and interest and any premium due and payable, and thereafter to become due and payable, on such Bond, or any portion of such Bond in an Authorized Denomination, such Bond or portion thereof will cease to be entitled to any lien, benefit or security under the Indenture (except as set forth therein). If the Issuer pays or causes to be paid to the Owners of all the Bonds of any series the principal thereof and interest and any premium due and payable and thereafter to become due and payable thereon, and pays or causes to be paid all other sums payable under the Indenture by the Issuer, or payable under the Loan Agreement by the Company, then the right, title and interest of the Trustee in and to the Trust Estate will thereupon cease, terminate and become void. All Outstanding Bonds will, prior to the maturity or redemption date thereof, be deemed to have been paid within the meaning of the Indenture when (i) in the event the Bonds are to be redeemed, the Trustee has given, or the Company has given to the Trustee, irrevocable instruction to give notice of redemption of the Bonds, (ii) there has been deposited with the Trustee either moneys in an amount sufficient, or fixed rate Government Obligations (a) which do not contain provisions permitting the redemption or prepayment thereof at the option of the issuer thereof, (b) which mature no later than the earlier of (A) the date fixed for the redemption of the Bonds and (B) the Maturity Date, and (c) the principal of and the interest on which, when due, and without any regard to reinvestment thereof, will provide moneys which, together with the moneys, if any, deposited with or held by the Trustee, will be sufficient, based on the written opinion of a firm of certified public accountants, reasonably acceptable to the Trustee, delivered to the Trustee, to pay when due the principal of and interest and any premium due and to become due on the Bonds on and prior to the redemption date or Maturity Date, as the case may be; and (iii) in the event the Bonds do not mature and are not to be redeemed within the next succeeding 60 days, the Company has given the Trustee, in form satisfactory to it, irrevocable instructions to give, as soon as practicable in the same manner as a notice of redemption is given, a notice to the Owners that the deposit required by clause (ii) above has been made with the Trustee and that such Bonds are deemed to have been paid in accordance with the Indenture and stating the maturity or redemption date upon which moneys are to be available for the payment of the principal of and interest and any premium on such Bonds. 10