++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this preliminary prospectus supplement is not complete and +
+may be changed. This preliminary prospectus supplement is not an offer to +
+sell these securities and we are not soliciting offers to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
FILED PURSUANT TO RULE 424(b)(5)
REGISTRATION STATEMENT NO. 333-47302
Subject to Completion
Preliminary Prospectus Supplement dated May 16, 2001
PROSPECTUS SUPPLEMENT
(To prospectus dated October 30, 2000)
6,000,000 Trust Preferred Securities
[LOGO OF PUGET SOUND ENERGY]
Puget Sound Energy Capital Trust II
% Trust Originated Preferred SecuritiesSM ("TOPrSSM")
(Liquidation Amount $25 Per Preferred Security)
Fully And Unconditionally Guaranteed, As Described Herein, By
Puget Sound Energy, Inc.
-----------
The Trust:
Puget Sound Energy Capital Trust II is a Delaware business trust that will:
. sell trust preferred securities to the public;
. sell common securities to Puget Sound Energy;
. use the proceeds from these sales to buy an equal principal amount of
% subordinated debentures due , 2041 of Puget Sound Energy; and
. distribute the cash payments it receives from Puget Sound Energy on the
debentures to the holders of the trust preferred securities and the
common securities.
Quarterly Distributions:
. For each trust preferred security that you own, you will receive
cumulative cash distributions accumulating from , 2001, at an annual
rate of % of the liquidation amount of $25 per trust preferred
security, on , , and of each year, beginning , 2001.
. Puget Sound Energy may defer interest payments on the subordinated
debentures on one or more occasions for up to 20 consecutive quarterly
periods. If Puget Sound Energy does defer interest payments, the trust
will also defer payments of distributions on the trust preferred
securities to you. However, deferred distributions will themselves
accumulate distributions at an annual rate of % (to the extent
permitted by law).
Optional Redemption:
. The trust may redeem some or all of the trust preferred securities at
times discussed herein at a redemption price equal to $25 per trust
preferred security plus accumulated distributions, if any.
Puget Sound Energy:
. Puget Sound Energy will effectively guarantee, fully and unconditionally,
the payment by the trust of amounts due on the trust preferred securities
as discussed in this prospectus supplement and in the accompanying base
prospectus.
The trust plans to list the trust preferred securities on the New York Stock
Exchange under the symbol " ." Trading on the New York Stock Exchange is
expected to commence within 30 days after the trust preferred securities are
first issued.
Investing in the trust preferred securities involves certain risks which are
described in the "Risk Factors" section beginning on page S-7 of this
prospectus supplement.
Per TOPrS Total
--------- -----
Public offering price (1)............................... $ $
Underwriting commission to be paid by Puget Sound
Energy.................................................. $ $
Proceeds, before expenses, to the trust................. $ $
(1) Plus accrued distributions from , 2001, if
settlement occurs after that date
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined
whether this prospectus supplement or the accompanying base prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
The trust preferred securities will be ready for delivery in book-entry form
only through The Depository Trust Company on or about , 2001.
-----------
Merrill Lynch & Co. Morgan Stanley Dean Witter Salomon Smith Barney
JPMorgan U.S. Bancorp Piper Jaffray Wells Fargo Investments, LLC
-----------
The date of this prospectus supplement is May , 2001.
-----
SM"Trust Originated Preferred Securities" and "TOPrS" are service marks of
Merrill Lynch & Co., Inc.
TABLE OF CONTENTS
Prospectus Supplement Page
--------------------- ----
Summary Information -- Q&A............................................... S-3
Risk Factors............................................................. S-7
Special Note Regarding Forward-Looking Statements........................ S-10
Puget Sound Energy....................................................... S-10
Puget Sound Energy Capital Trust II...................................... S-11
Capitalization........................................................... S-13
Accounting Treatment..................................................... S-14
Use of Proceeds.......................................................... S-14
Ratios of Earnings to Fixed Charges and to Combined Fixed Charges and
Preferred Dividends..................................................... S-14
Selected Financial Data of Puget Sound Energy............................ S-15
Description of Securities................................................ S-16
Certain United States Federal Income Tax Consequences.................... S-24
ERISA Considerations..................................................... S-28
Underwriting............................................................. S-30
Legal Matters............................................................ S-32
Experts.................................................................. S-32
Prospectus Page
---------- ----
Where You Can Find More Information........................................ 3
Puget Sound Energy......................................................... 4
Puget Sound Energy Capital Trust II........................................ 4
Use of Proceeds............................................................ 6
Ratios of Earnings to Fixed Charges........................................ 6
Description of Securities.................................................. 7
Plan of Distribution....................................................... 27
Legal Opinions............................................................. 29
Experts.................................................................... 29
----------------
You should rely only on the information contained or incorporated by
reference in this prospectus supplement or the accompanying base prospectus. We
have not, and the underwriters have not, authorized any person to provide you
with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the
underwriters are not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus supplement and the accompanying
base prospectus is accurate as of the date on the front cover of this
prospectus supplement and the accompanying base prospectus, respectively. Puget
Sound Energy's business, financial condition, results of operations and
prospects may have changed since such dates.
The following information concerning Puget Sound Energy, the trust, the trust
preferred securities, the guarantee and the subordinated debentures adds to,
and should be read in conjunction with, the information contained in the
accompanying base prospectus.
S-2
SUMMARY INFORMATION -- Q&A
This prospectus supplement and the accompanying base prospectus should be
read together. This summary highlights selected information from this
prospectus supplement and the accompanying base prospectus to help you
understand the trust preferred securities. You should carefully read this
prospectus supplement and the accompanying base prospectus to understand fully
the terms of the trust preferred securities, as well as the tax and other
considerations that are important to you in making a decision about whether to
invest in the trust preferred securities. You should pay special attention to
the "Risk Factors" section beginning on page S-7 of this prospectus supplement
to determine whether an investment in the trust preferred securities is
appropriate for you.
For your convenience, we make reference to sections in this prospectus
supplement and the accompanying base prospectus for more detailed information
regarding some of the terms and concepts used throughout this prospectus
supplement.
What are the trust preferred securities?
Each trust preferred security represents an undivided beneficial interest in
the assets of the trust. The underwriters are offering trust preferred
securities at a public offering price of $25 for each trust preferred security.
See "Underwriting" in this prospectus supplement.
Who is the trust?
Puget Sound Energy Capital Trust II is a Delaware business trust. The trust
will sell its trust preferred securities to the public and its common
securities to Puget Sound Energy. The trust will use the proceeds from these
sales to buy a series of % subordinated debentures due , 2041 from Puget
Sound Energy with the same economic terms as the trust preferred securities.
There will be four trustees of the trust. Two of the trustees are employees
or officers of Puget Sound Energy, referred to as the "regular trustees." Bank
One Trust Company, N.A. will act as the property trustee of the trust and Bank
One Delaware, Inc. will act as the Delaware trustee, in each case until removed
or replaced by the holder of the common securities. For the purposes of
compliance with the provisions of the Trust Indenture Act, Bank One Trust
Company will also act as indenture trustee under the guarantee.
Who is Puget Sound Energy?
Puget Sound Energy is an investor-owned public utility incorporated in the
State of Washington, furnishing electric and gas service in a territory
covering approximately 6,000 square miles, principally in the Puget Sound
region of Washington State.
On January 1, 2001, Puget Sound Energy reorganized into a holding company
structure. This reorganization resulted in the creation of a new holding
company, Puget Energy, Inc. Puget Energy was incorporated in the State of
Washington and all of its operations are conducted through its subsidiaries.
Pursuant to the reorganization, Puget Energy became the owner of all Puget
Sound Energy's outstanding common stock. Holders of Puget Sound Energy's
existing common stock exchanged their stock on a one-for-one basis for common
stock of Puget Energy. Puget Energy is a public utility holding company under
the Public Utility Holding Company Act of 1935 but is exempt from registration
under such Act. In addition to its ownership of Puget Sound Energy, Puget
Energy also owns InfrastruX Group, Inc., a Washington corporation. InfrastruX
is a holding company for businesses that provide infrastructure services to the
utility industry.
At March 31, 2001, Puget Sound Energy had 2,605 aggregate full-time-
equivalent utility employees. Our executive office is located at 411-108th
Avenue NE, Bellevue, Washington 98004-5515, and our telephone number is (425)
454-6363.
S-3
When will you receive quarterly distributions on the trust preferred
securities?
If you purchase the trust preferred securities, you will be entitled to
receive cumulative cash distributions at an annual rate of % of the
liquidation amount of $25 per trust preferred security. Distributions will
accumulate from , 2001 and will be payable quarterly in arrears on , ,
, and each year, beginning , 2001.
When can payment of your distributions be deferred?
Puget Sound Energy may, on one or more occasions, defer interest payments on
the debentures for up to 20 consecutive quarterly periods unless an event of
default under the debentures has occurred and is continuing. See "Description
of Securities -- Certain terms of the debentures -- Option to extend interest
payment period" in this prospectus supplement. A deferral of interest payments
cannot extend beyond the stated maturity date of the debentures (which is ,
2041).
If Puget Sound Energy defers interest payments on the debentures, the trust
will also defer its distributions on the trust preferred securities to you.
During this deferral period, distributions will continue to accumulate on the
trust preferred securities at an annual rate of % of the liquidation amount
of $25 per trust preferred security. Also, the deferred distributions will
themselves accumulate distributions at an annual rate of % (to the extent
permitted by law). Once Puget Sound Energy makes all deferred interest payments
on the debentures, with accrued interest, it may again defer interest payments
on the debentures if no event of default under the debentures has then occurred
and is continuing.
During any period in which Puget Sound Energy defers interest payments on the
debentures, Puget Sound Energy will not, with some exceptions, be permitted to:
. pay a dividend or make any other payment or distribution on its capital
stock;
. redeem, purchase or make a liquidation payment on any of its capital
stock; or
. make a principal, premium or interest payment, or repurchase or redeem,
any of its debt securities that rank equal with or junior to the
debentures.
If Puget Sound Energy defers interest payments on the debentures, you will be
required to accrue interest income for United States federal income tax
purposes before you receive cash distributions. See "Certain United States
Federal Income Tax Consequences" and "Risk Factors -- Ability to defer
distributions has tax consequences for you and may affect the trading price of
the trust preferred securities" in this prospectus supplement.
When can the trust redeem the trust preferred securities?
The trust will redeem all the outstanding trust preferred securities when the
debentures are paid either at maturity on , 2041, or upon early redemption.
Puget Sound Energy will repay the debentures at maturity on , 2041. Puget
Sound Energy may redeem, before their maturity at a redemption price equal to
100% of the principal amount being redeemed plus accrued and unpaid interest to
the date of redemption:
. all or some of the debentures on one or more occasions anytime on or
after , 2006; or
. all but not less than all of the debentures before , 2006, if certain
changes in tax or investment company law occur or will occur within 90
days (each of which is a special event). See "Description of
Securities-- Certain terms of the trust preferred securities -- Special
event redemption" in this prospectus supplement.
S-4
If Puget Sound Energy redeems any debentures before their maturity, the trust
will use the cash it receives on the redemption of the debentures to redeem,
proportionately, trust preferred securities and common securities having a
total liquidation amount equal to the total principal amount of the debentures
redeemed, unless an event of default under the amended and restated declaration
of trust has occurred and is continuing. In such a case, the trust preferred
securities will be redeemed before any common securities. An event of default
with respect to the debentures or the guarantee constitutes an event of default
under the trust agreement. See "Description of Securities -- Trust Preferred
Securities -- Effect of Obligations Under the Debt Securities and the
Guarantees" and "The Guarantee -- Events of Default" in the accompanying base
prospectus for a description of an event of default in respect of the
debentures and the guarantee, respectively. The redemption price will be equal
to $25 per security plus any accumulated distributions.
What is the nature of Puget Sound Energy's guarantee of the trust preferred
securities?
Puget Sound Energy will fully and unconditionally guarantee the trust
preferred securities through a combination of its obligations:
. to make payments on the debentures;
. under its guarantee of the trust preferred securities; and
. under the trust agreement and its subordinated indenture.
If Puget Sound Energy does not make a required payment on the debentures, the
trust will not have sufficient funds to make the related payment on the trust
preferred securities. The guarantee does not cover payments on the trust
preferred securities when the trust does not have sufficient funds to make such
payments. Puget Sound Energy's obligations under the debentures are junior to
its obligations to make payments on its senior indebtedness, and Puget Sound
Energy's obligations under the guarantee are junior to its obligations to make
payments on its senior indebtedness in the same manner as the debentures. See
"Risk Factors -- Puget Sound Energy's obligations under the debentures and the
guarantee are subordinated" in this prospectus supplement.
When can the debentures be distributed to you?
Puget Sound Energy, as the sponsor of the trust, has the right to dissolve
the trust at any time. If Puget Sound Energy exercises this right to dissolve
the trust, the trust, after satisfying any creditors it has, will be liquidated
by distribution of the debentures to holders of the trust preferred securities
and the common securities.
What happens if the trust is dissolved and the debentures are not distributed?
The trust may also be dissolved in circumstances where the debentures will
not be distributed to you. In those situations, after satisfying any of its
creditors, the trust will be obligated to pay in cash the liquidation amount of
$25 for each trust preferred security plus accumulated distributions to the
date such payment is made. The trust will be able to make this liquidation
distribution only if the debentures are paid or redeemed by Puget Sound Energy.
Will the trust preferred securities be listed on a stock exchange?
The trust will apply to have the trust preferred securities listed on the New
York Stock Exchange under the symbol " ." If approved for listing, trading of
the trust preferred securities on the New York Stock Exchange is expected to
commence within 30 days after the trust preferred securities are first issued.
You should be aware that the listing of the trust preferred securities will not
necessarily ensure that a liquid trading market will be available for the trust
preferred securities.
S-5
If the trust distributes the debentures, Puget Sound Energy will use its best
efforts to list them on the New York Stock Exchange or any other exchange or
other organization on which the trust preferred securities are then listed.
In what form will the trust preferred securities be issued?
The trust preferred securities will be represented by one or more global
securities that will be deposited with, or on behalf of, and registered in the
name of, The Depository Trust Company, New York, New York, or its nominee. This
means that you will not receive a certificate for your trust preferred
securities. Instead, you will hold your interest through DTC's book-entry-only
system. The trust expects that the trust preferred securities will be ready for
delivery through DTC on or about , 2001.
S-6
RISK FACTORS
Your investment in the trust preferred securities will involve certain risks.
You should carefully consider the following discussion of risks, and the other
information included or incorporated by reference in this prospectus supplement
and the accompanying base prospectus, before deciding whether an investment in
the trust preferred securities is suitable for you. The risks described below
are not the only ones facing the trust and Puget Sound Energy. Additional risks
not presently known to the trust and Puget Sound Energy or that they currently
deem immaterial may also impair Puget Sound Energy's business.
Puget Sound Energy's obligations under the debentures and the guarantee are
subordinated
Puget Sound Energy's obligations under the debentures are unsecured and will
rank junior in priority of payment to Puget Sound Energy's senior indebtedness.
This means that Puget Sound Energy may not make any payments of principal or
interest on the debentures if it defaults on a payment on its senior
indebtedness. For more information on the subordination provisions, see
"Description of Securities -- Certain terms of the debentures" in this
prospectus supplement. In the event of the bankruptcy, liquidation or
dissolution of Puget Sound Energy, its assets would be available to pay
obligations under the debentures only after all payments had been made on its
senior indebtedness. If on March 31, 2001, Puget Sound Energy and the trust had
issued and sold the trust preferred securities and the debentures and applied
the estimated net proceeds thereof as described in this prospectus supplement,
the total amount of Puget Sound Energy's senior indebtedness would have been
approximately $2.41 billion. See "Capitalization" and "Use of Proceeds" in this
prospectus supplement.
Puget Sound Energy's obligations under the guarantee are unsecured and will
rank in priority of payment as follows:
. junior to all of Puget Sound Energy's senior indebtedness in the same
manner as the debentures; and
. equally with certain guarantees previously issued by Puget Sound Energy
with respect to certain trust preferred securities and with all other
guarantees of securities issued by affiliates of Puget Sound Energy
similar to the trust preferred securities issued by the trust.
This means that Puget Sound Energy cannot make any payments on the guarantee
if it defaults on a payment of any of its senior indebtedness. In the event of
the bankruptcy, liquidation or dissolution of Puget Sound Energy, its assets
would be available to pay obligations under the guarantee only after all
payments had been made on its senior indebtedness.
Neither the debentures nor the guarantee will limit the ability of Puget
Sound Energy and its subsidiaries to incur additional indebtedness, including
indebtedness that ranks senior in priority of payment to the debentures and the
guarantee.
For more information, see "Description of Securities -- Certain terms of the
debentures -- Subordination" in this prospectus supplement and "Description of
Securities -- The Guarantee" in the accompanying base prospectus.
The guarantee covers payments only if the trust has cash available
The ability of the trust to pay distributions on the trust preferred
securities, the redemption price of the trust preferred securities and the
liquidation amount of each trust preferred security is solely dependent on
Puget Sound Energy making the related payments on the debentures when due. If
Puget Sound Energy defaults on its obligation to pay principal (including
redemption payments) or interest on the debentures, the trust will not have
sufficient funds to pay distributions, the redemption price or the liquidation
amount of each trust preferred security. In those circumstances, you will not
be able to rely on the guarantee for payment of these amounts because the
guarantee covers such payment only when the trust has sufficient funds on hand
but fails to make such payment.
S-7
Instead, you may:
. seek legal redress against Puget Sound Energy directly or seek other
remedies to collect your proportionate share of payments owed; or
. rely on the property trustee to enforce the trust's rights under the
debentures.
Ability to defer distributions has tax consequences for you and may affect the
trading price of the trust preferred securities
So long as no event of default under the debentures has occurred and is
continuing, Puget Sound Energy may, on one or more occasions, defer interest
payments to the trust on the debentures as described in this prospectus
supplement. See "Description of Securities -- Certain terms of the debentures
-- Option to extend interest payment period" in this prospectus supplement. If
Puget Sound Energy defers interest payments on the debentures, the trust will
defer distributions on the trust preferred securities to you during any
deferral period. If Puget Sound Energy defers interest payments on the
debentures, you will be required to accrue interest income, as original issue
discount or "OID," in respect of the deferred stated interest allocable to your
share of the trust preferred securities for United States federal income tax
purposes. As a result, you will include such income in gross income for United
States federal income tax purposes prior to the receipt of any cash
distributions. In addition, you will not receive cash from the trust related to
such income if you dispose of your trust preferred securities prior to the
record date on which distributions of such amounts are made.
Puget Sound Energy has no current intention of deferring interest payments on
the debentures. However, if Puget Sound Energy exercises its right to do so in
the future, the trust preferred securities may trade at a price that does not
fully reflect the value of accrued but unpaid interest on the debentures. If
you sell the trust preferred securities during an interest deferral period, you
may not receive the same return on investment as someone else who continues to
hold the trust preferred securities. In addition, the existence of Puget Sound
Energy's right to defer payments of interest on the debentures may mean that
the market price for the trust preferred securities (which represent an
undivided beneficial interest in the debentures) may be more volatile than
other securities that do not have this right.
See "Certain United States Federal Income Tax Consequences" in this
prospectus supplement for more information.
Trust preferred securities may be redeemed before , 2006, if a special
event occurs
Upon the occurrence of a special event before , 2006, Puget Sound Energy
may redeem all but not less than all of the debentures. The redemption price
will equal 100% of the principal amount of the debentures plus any accrued and
unpaid interest to the redemption date. The trust will use the cash it receives
on any such redemption of the debentures to redeem an equivalent liquidation
amount of the trust preferred securities and the common securities on a
proportionate basis, unless an event of default under the trust agreement has
occurred and is continuing. In such a case, the trust preferred securities will
be redeemed before any common securities.
See "Description of Securities -- Certain terms of the trust preferred
securities -- Special event redemption" in this prospectus supplement for more
information.
Trust preferred securities may be redeemed on or after , 2006, at Puget Sound
Energy's option
At Puget Sound Energy's option, some or all of the debentures may be redeemed
at any time on or after , 2006, at a redemption price equal to 100% of the
principal amount to be redeemed plus any accrued and unpaid interest to the
redemption date. See "Description of Securities -- Certain Terms of the
Debentures-- Redemption" in this prospectus supplement. You should assume that
Puget Sound Energy will exercise its
S-8
redemption option when prevailing interest rates at the time are lower than the
interest rate on the debentures, so that the redemption proceeds generally will
not be able to be reinvested in a comparable security at as high a rate. If
Puget Sound Energy exercises such redemption option, the trust will use the
cash it receives upon the redemption of the debentures to redeem an equivalent
liquidation amount of the trust preferred securities and the common securities
on a proportionate basis, unless an event of default under the trust agreement
has occurred and is continuing. In such a case, the trust preferred securities
will be redeemed before any common securities.
See "Description of Securities -- Certain terms of the trust preferred
securities -- Redemption" in this prospectus supplement for more information.
Distribution of debentures may have a possible adverse effect on trading price
Puget Sound Energy has the right to dissolve the trust at any time. If Puget
Sound Energy exercises this right, the trust, after satisfying any creditors it
has, will be liquidated by distribution of the debentures to holders of the
trust preferred securities and the common securities. Under current United
States federal income tax laws, a distribution of debentures to you on the
dissolution of the trust would not be a taxable event to you. See "Certain
United States Federal Income Tax Consequences -- Receipt of debentures or cash
upon liquidation of the trust" in this prospectus supplement for more
information.
Puget Sound Energy has no current intention of causing the dissolution of the
trust and the distribution of the debentures. However, there are no
restrictions on its ability to do so at any time. Puget Sound Energy
anticipates that it would consider exercising this right in the event that
expenses associated with maintaining the trust became substantially greater
than currently expected, such as if a special event occurred. Puget Sound
Energy cannot predict the other circumstances under which this right would be
exercised.
Although Puget Sound Energy will use its best efforts to list the debentures
on the New York Stock Exchange (or any other exchange or organization on which
the trust preferred securities are then listed) if they are distributed, we
cannot assure you that the debentures will be approved for listing or that a
liquid trading market for the debentures will be available.
Puget Sound Energy cannot predict the market prices for the debentures that
may be distributed. Accordingly, the debentures that you receive upon a
distribution, or the trust preferred securities you hold pending such a
distribution, may trade at a discount to the price that you paid to purchase
the trust preferred securities.
Because you may receive debentures, you should make an investment decision
with regard to the debentures in addition to the trust preferred securities.
You should carefully review all the information regarding the debentures
contained in this prospectus supplement and the accompanying base prospectus.
See "Certain United States Federal Income Tax Consequences -- Receipt of
debentures or cash upon liquidation of the trust" in this prospectus supplement
for more information.
Limited voting rights
You will have limited voting rights. In general, unless an event of default
under the trust agreement has occurred and is continuing, only Puget Sound
Energy may elect or remove any of the trustees, and in no event may holders of
the trust preferred securities remove the regular trustees.
See "Puget Energy Company Trusts" in the accompanying base prospectus and
"Description of Securities -- Certain terms of the trust preferred securities
-- Voting rights" in this prospectus supplement for more information.
S-9
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
On one or more occasions, Puget Sound Energy may make statements regarding
Puget Sound Energy's assumptions, projections, expectations, intentions or
beliefs about future events.
Words or phrases such as "anticipates," "believes," "estimates," "expects,"
"intends," "plans," "predicts," "projects," "will likely result," "will
continue" or similar expressions identify forward-looking statements.
Forward-looking statements involve risks and uncertainties which could cause
actual results or outcomes to differ materially from those expressed. Puget
Sound Energy's expectations, beliefs and projections are expressed in good
faith and are believed by Puget Sound Energy to have a reasonable basis,
including without limitation, management's examination of historical operating
trends, data contained in records and other data available from third parties,
but there can be no assurance that Puget Sound Energy's projections will be
achieved or accomplished.
In addition to other factors and matters discussed elsewhere in Puget Sound
Energy's most recent quarterly and annual reports that it files with the SEC,
and which are incorporated by reference into the registration statement of
which this prospectus supplement forms a part, some important factors that
could cause actual results or outcomes for Puget Sound Energy to differ
materially from those discussed in forward-looking statements include:
. prevailing legislative developments, governmental policies and
regulatory actions with respect to allowed rates of return, financing,
or industry and rate structures;
. weather and hydro-electric conditions;
. wholesale energy prices;
. effect of competition;
. changes in and compliance with environmental and endangered species laws
and policies;
. population growth rates and demographic patterns;
. capital market conditions; and
. legal and regulatory proceedings.
Any forward-looking statement speaks only as of the date on which such
statement is made, and, except as required by law, Puget Sound Energy
undertakes no obligation to update any forward-looking statement to reflect
events or circumstances after the date on which such statement is made or to
reflect the occurrence of unanticipated events. New factors emerge from time to
time and it is not possible for management to predict all such factors, nor can
it assess the impact of any such factor on its business or the extent to which
any factor, or combination of factors, may cause results to differ materially
from those contained in any forward-looking statement.
PUGET SOUND ENERGY
Puget Sound Energy is an investor-owned public utility incorporated in the
State of Washington, furnishing electric and gas service in a territory
covering approximately 6,000 square miles, principally in the Puget Sound
region of Washington State.
On January 1, 2001, Puget Sound Energy reorganized into a holding company
structure. This reorganization resulted in the creation of a new holding
company, Puget Energy, Inc. Puget Energy was incorporated in the State of
Washington and all of its operations are conducted through its subsidiaries.
S-10
Pursuant to the reorganization, Puget Energy became the owner of all Puget
Sound Energy's outstanding common stock. Holders of Puget Sound Energy's
existing common stock exchanged their stock on a one-for-one basis for common
stock of Puget Energy. Puget Energy is a public utility holding company under
the Public Utility Holding Company Act of 1935 but is exempt from registration
under such Act. In addition to its ownership of Puget Sound Energy, Puget
Energy also owns InfrastruX Group, Inc., a Washington corporation. InfrastruX
is a holding company for businesses that provide infrastructure services to the
utility industry.
As of March 31, 2001, Puget Sound Energy had approximately 927,236 electric
customers, consisting of 821,533 residential, 99,981 commercial, 4,037
industrial and approximately 1,685 other electric customers, and approximately
595,027 gas customers, consisting of 545,051 residential, 47,002 commercial,
2,862 industrial and approximately 112 gas transportation customers. For the 12
months ended March 31, 2001, Puget Sound Energy added approximately 15,641
electric customers and approximately 18,126 gas customers, representing
annualized growth rates of 1.7% and 3.1%, respectively. During the 12 months
ended March 31, 2001, Puget Sound Energy's billed retail revenues from electric
utility operations were derived 19.4% from residential customers, 16.2% from
commercial customers, 12.9% from industrial customers, 49.2% from sales to
other utilities and marketers and 2.3% from other customers, and Puget Sound
Energy's billed retail revenues from gas utility operations were derived 60.8%
from residential customers, 30.5% from commercial customers, 5.6% from
industrial customers and 3.1% from other customers. During this period, the
largest customer accounted for 2.4% of Puget Sound Energy's utility operating
revenues.
Gross electric utility plant at March 31, 2001, was approximately $4.1
billion, which consisted of 48.7% distribution, 26.6% generation, 15.0%
transmission and 9.7% general plant and other. Gross gas utility plant at March
31, 2001, was approximately $1.5 billion, which consisted of 84.7%
distribution, 5.5% transmission and 9.8% general plant and other. Gross common
utility plant at March 31, 2001 was approximately $359 million, which consisted
of general plant and other.
At March 31, 2001, Puget Sound Energy had 2,605 aggregate full-time-
equivalent utility employees. Puget Sound Energy's executive office is located
at 411-108th Avenue NE, Bellevue, Washington 98004-5515, and our telephone
number is (425) 454-6363.
PUGET SOUND ENERGY CAPITAL TRUST II
General
The trust is a statutory business trust created under Delaware law pursuant
to a declaration of trust and a certificate of trust, as filed with the
Secretary of State of the State of Delaware on October 3, 2000. The declaration
of trust will be amended and restated in its entirety, referred to as the
"declaration" or the "trust agreement," substantially in the form filed with
the SEC by Puget Sound Energy and incorporated by reference into the
registration statement of which this prospectus supplement and the accompanying
base prospectus form a part. The declaration will be qualified as an indenture
under the Trust Indenture Act. Upon issuance of the trust preferred securities,
the purchasers thereof will own all the trust preferred securities. Puget Sound
Energy will directly or indirectly acquire common securities in a total
liquidation amount equal to at least 3% of the total capital of the trust and
will own all the issued and outstanding common securities. The trust exists for
the exclusive purposes of:
. issuing the trust preferred securities and the common securities
representing undivided beneficial interests in the assets of the trust;
. investing the gross proceeds of the trust preferred securities and the
common securities in the debentures; and
. engaging in only those other activities necessary, appropriate,
convenient or incidental thereto.
The trust has a term of approximately 55 years, but may be terminated earlier
as provided in the declaration.
Pursuant to the declaration, the number of trustees initially will be four.
Two of the trustees are employees or officers of Puget Sound Energy. Bank One
Trust Company, N.A. will serve as property trustee under the
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declaration and as indenture trustee for the purposes of the Trust Indenture
Act. Bank One Delaware, Inc. will act as the Delaware trustee. The property
trustee and the Delaware trustee may at any time be removed or replaced by the
holder of the common securities. For purposes of compliance with the provisions
of the Trust Indenture Act, Bank One Trust Company will also act as indenture
trustee under the guarantee. See "Description of Securities -- The Guarantee"
in the accompanying base prospectus.
The property trustee will hold title to the debentures for the benefit of the
trust and the holders of the trust preferred securities and common securities.
So long as the debentures are held by the trust, the property trustee will have
the power to exercise all rights, powers and privileges of a holder of
debentures under the indenture. In addition, the property trustee will maintain
exclusive control of a segregated non-interest bearing bank account to hold all
payments made in respect of the debentures for the benefit of the holders of
the trust preferred securities and common securities. The property trustee will
make payments of distributions and payments on liquidation, redemption and
otherwise to the holders of the trust preferred securities and common
securities out of funds from the property account. Bank One Trust Company will
hold the guarantee for the benefit of the holders of the trust preferred
securities. Puget Sound Energy, as the direct or indirect holder of all the
common securities, will have the right to appoint, remove or replace any
trustee (subject to the limitations set forth in the declaration) and to
increase or decrease the number of trustees. Puget Sound Energy will pay all
fees, expenses, debts and obligations (other than with respect to the trust
preferred securities and common securities) related to the trust and the
offering of the trust preferred securities.
The rights of the holders of the trust preferred securities, including
economic rights, rights to information and voting rights, are set forth in the
declaration, the Delaware Business Trust Act, the indenture and the Trust
Indenture Act. See "Description of Securities -- Certain terms of the trust
preferred securities" in this prospectus supplement.
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CAPITALIZATION
The following table sets forth the unaudited consolidated short-term debt and
capitalization of Puget Sound Energy as of March 31, 2001, and as adjusted to
give effect to the consummation of the offering of the trust preferred
securities and the application of the proceeds thereof. See "Use of Proceeds"
in this prospectus supplement. The following data should be read in conjunction
with the consolidated financial statements and notes thereto of Puget Sound
Energy incorporated by reference herein as described in "Where You Can Find
More Information" in the accompanying base prospectus.
At March 31,
2001
---------------
As
Actual Adjusted
------ --------
In Millions
(Unaudited)
Short-term debt (includes notes payable and current portion of
long-term debt and capital leases)........................... $ 440 $ 295
Capitalization:
Long-term debt (excluding current maturities)................ 2,161 2,161
Company-obligated mandatorily redeemable preferred securities
of:
Puget Sound Energy Capital Trust I......................... 100 100
Puget Sound Energy Capital Trust II (1).................... 0 150
Preferred stock subject to mandatory redemption.............. 51 51
Preferred stock not subject to mandatory redemption.......... 60 60
Common equity................................................ 1,685 1,685
------ ------
Total short-term debt and capitalization................... $4,497 $4,502
====== ======
--------
(1) As described in this prospectus supplement, the sole assets of the trust
will be % subordinated debentures due , 2001 of Puget Sound Energy
with a principal amount of $ , and upon redemption of such debt, the
trust preferred securities will be mandatorily redeemed.
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ACCOUNTING TREATMENT
The financial statements of the trust will be reflected in Puget Sound
Energy's consolidated financial statements, with the trust preferred securities
shown as "Company-obligated mandatorily redeemable preferred securities of
subsidiaries." In a footnote to Puget Sound Energy's audited consolidated
financial statements, there will be a statement that the trust is wholly owned
by Puget Sound Energy and that the sole assets of the trust are the debentures
(indicating the principal amount, interest rate and maturity date thereof).
USE OF PROCEEDS
The proceeds to the trust (without giving effect to expenses of the offering
payable by Puget Sound Energy or any compensation payable to the underwriters)
from the offering of the trust preferred securities will be $150 million. All
the proceeds from the sale of the trust preferred securities will be invested
by the trust in the debentures.
Puget Sound Energy expects to receive approximately $145 million in net
proceeds from the sale of the debentures, after deducting the underwriting
discount and commission and the estimated offering expenses. See
"Underwriting--General" and "Commissions and Discounts" in this prospectus
supplement. Puget Sound Energy intends to use a portion of the net proceeds
from the sale of the debentures to repay the outstanding balance of a 120-day
unsecured revolving credit facility of up to $125 million that Puget Sound
Energy entered into with Merrill Lynch Capital Corporation in February 2001.
Merrill Lynch Capital Corporation is an affiliate of Merrill Lynch, Pierce,
Fenner & Smith Incorporated, a managing underwriter for this offering. At March
31, 2001, Puget Sound Energy had $125 million of borrowings outstanding under
the facility at a weighted average interest rate of 5.95%. Puget Sound Energy
intends to use the remaining portion of the net proceeds from the sale of the
debentures to reduce other short-term debt. At March 31, 2001, the weighted
average maturity date of Puget Sound Energy's approximately $286 million of
outstanding short-term debt, other than the Merrill Lynch revolving credit
facility, was approximately 10.1 days and the weighted average interest rate
was approximately 5.96%.
RATIOS OF EARNINGS TO FIXED CHARGES AND TO
COMBINED FIXED CHARGES AND PREFERRED DIVIDENDS
The following table sets forth Puget Sound Energy's ratios of earnings to
fixed charges and to combined fixed charges and preferred dividends for the
respective periods.
Twelve Months
Ended March 31, Years Ended December 31,
--------------- ------------------------
2001 2000 2000 1999 1998 1997 1996(1)
------- ------- ---- ---- ---- ---- ----
Ratio of earnings to fixed charges
(2)(3)........................... 2.7x 2.7x 2.7x 2.7x 2.8x 2.5x 3.1x
Ratio of earnings to combined
fixed charges and preferred
dividends (2)(3)................. 2.5x 2.5x 2.5x 2.5x 2.5x 2.0x 2.5x
--------
(1) The ratios for the years ended December 31, 1997 and 1996 include charges
incurred in connection with Puget Sound Energy's merger with Washington
Energy Company and its principal subsidiary, Washington Natural Gas
Company. Had such charges been excluded from earnings, the ratio of
earnings to fixed charges for such periods would have been 2.9x and 3.2x,
respectively, and the ratio of earnings to combined fixed charges and
preferred dividends would have been 2.4x and 2.5x, respectively.
(2) As a result of the merger, each of Puget Sound Energy's ratios reflects the
combined operations of Puget Sound Energy and Washington Energy Company.
Because Washington Energy Company's fiscal year ended September 30, the
combined ratios for the year ended December 31, 1996 reflect the fiscal
year ended December 31 for Puget Sound Energy and September 30 for
Washington Energy Company.
(3) For purposes of computing the ratios, earnings represent income from
continuing operations plus applicable income taxes and fixed charges. Fixed
charges include all interest expense and the appropriate portion of rent
expense representative of the interest factor.
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SELECTED FINANCIAL DATA OF PUGET SOUND ENERGY
The following table presents selected financial data of Puget Sound Energy
for the periods indicated and is qualified in its entirety by the information
appearing elsewhere in this prospectus supplement and by the information and
financial statements incorporated in this prospectus supplement by reference.
Three Months Ended
March 31, Year Ended December 31,
------------------------ -------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ---------- ---------- -----------
(unaudited)
(in thousands, except per share data)
Income Statement Data
(1)
Operating revenues..... $1,091,324 $ 647,223 $3,441,672 $2,066,630 $1,923,856 $1,681,528 $1,652 ,265
Operating income....... 130,111 115,885 363,872 310,132 295,098 210,638 282,876
Income from continuing
operations............ 72,879 78,192 193,831 185,567 169,612 125,698 167,351
Preferred stock
dividend
requirements.......... 2,157 2,303 8,994 11,065 13,003 17,335 22,181
Income available for
common stock.......... 70,722 75,889 184,837 174,502 156,609 108,363 145,170
Earnings per share
from continuing
operations............ -- (2) 0.89 2.16 2.06 1.85 1.28 1.72
Earnings per share..... -- (2) 0.89 2.16 2.06 1.85 1.25 1.70
Balance Sheet Data
Total assets........... $5,792,637 $5,117,914 $5,556,669 $5,145,606 $4,709,687 $4,493,306 $ 4,230,855
Long-term debt (3)..... 2,160,801 1,914,783 2,170,797 1,783,139 1,475,106 1,412,153 1,166,601
Short-term debt (4).... 439,898 446,113 397,316 652,332 557,905 423,558 398,184
Preferred stock:
Not subject to
mandatory
redemption.......... 60,000 60,000 60,000 60,000 95,075 95,488 215,000
Subject to mandatory
redemption (5)...... 50,662 58,162 58,162 65,662 73,162 78,134 87,839
Common Equity.......... 1,685,403 1,426,640 1,426,640 1,379,073 1,352,680 1,358,077 1,378,377
--------
(1) Puget Sound Energy's fiscal year ends on December 31. Washington Energy
Company's fiscal year ended on September 30. The unaudited summary
financial data for the year ended December 31, 1996 reflects fiscal years
ended December 31 for Puget Sound Energy and September 30 for Washington
Energy Company.
(2) Effective January 1, 2001, Puget Sound Energy became a wholly-owned
subsidiary of Puget Energy and, accordingly, no longer reports earnings per
share information.
(3) Excludes long-term debt maturities due within one year.
(4) Includes long-term debt maturities due within one year.
(5) Includes amounts due within one year.
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DESCRIPTION OF SECURITIES
This prospectus supplement and the accompanying base prospectus contain the
material terms and conditions for these securities. However, the summaries in
this prospectus supplement are not meant to be a complete description of the
trust preferred securities, the debentures or the guarantee. For more
information, refer to the trust agreement, the indenture and the guarantee.
Prior to the closing of this offering, forms of these documents will be filed
with the SEC by Puget Sound Energy as exhibits to a Current Report on Form 8-K
and will be incorporated by reference into the registration statement of which
this prospectus supplement and the accompanying base prospectus are a part. All
terms used in this prospectus supplement and the accompanying base prospectus
that are not defined in this prospectus supplement and the accompanying base
prospectus have the meanings given to them in the trust agreement, the
indenture and the guarantee.
Certain terms of the trust preferred securities
Distributions
The trust preferred securities represent undivided beneficial interests in
the assets of the trust. The only assets of the trust will be the debentures.
Distributions on the trust preferred securities are cumulative and will
accumulate from , 2001, at the annual rate of % of the $25 liquidation
amount of each trust preferred security. Distributions will be payable
quarterly in arrears on , , and of each year, beginning ,
2001. Distributions not paid when due will themselves accumulate distributions
at the annual rate of % (to the extent permitted by law). When we refer to
any payment of distributions, any such additional distributions are included.
The amount of distributions payable for any full quarterly period will be
computed on the basis of a 360-day year of twelve 30-day months. The amount of
distributions payable for any partial period will be computed on the basis of
the actual number of days elapsed in such 90-day quarterly period.
If distributions are payable on a date that is not a business day (as defined
below), payment will be made on the next business day (and without any interest
or other payment in respect of such delay). However, if the next business day
is in the next calendar year, payment of distributions will be made on the
preceding business day. A "business day" means any day other than a Saturday or
a Sunday or a day on which banking institutions in New York, New York, are
authorized or required by law or executive order to close.
Deferral of distributions
So long as no event of default has occurred and is continuing under the
debentures, Puget Sound Energy may, on one or more occasions, defer interest
payments on the debentures to the trust for up to 20 consecutive quarterly
periods. A deferral of interest payments cannot extend beyond the stated
maturity date of the debentures on , 2041. If Puget Sound Energy defers
interest payments on the debentures, the trust will also defer quarterly
distributions on the trust preferred securities to you. During a deferral
period, the amount of distributions due to you would continue to accumulate and
such deferred distributions will themselves accumulate distributions at the
rate stated above (to the extent permitted by law).
Once Puget Sound Energy makes all deferred interest payments on the
debentures, with accrued interest, it may again defer interest payments on the
debentures if no event of default under the debentures has then occurred and is
continuing.
Puget Sound Energy has no current intention of deferring interest payments on
the debentures. If Puget Sound Energy defers interest payments on the
debentures, Puget Sound Energy will be subject to certain restrictions relating
to the payment of dividends on or redemption of its capital stock and payments
on its debt securities that rank equal with or junior to the debentures. See
"Certain terms of the debentures -- Option to extend interest payment period"
in this prospectus supplement.
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Payment of distributions
Distributions on the trust preferred securities will be payable to holders
named on the securities register of the trust on the relevant record date. As
long as the trust preferred securities are represented by a global security,
the record date for the payment of distributions will be one business day
before the relevant payment date. If the trust preferred securities are ever
issued in certificated form, the record date for the payment of distributions
will be the fifteenth day of the last month of each quarterly distribution
period, even if that day is not a business day.
As long as the trust preferred securities are represented by a global
security, payments on the trust preferred securities will be made in
immediately available funds to DTC, the depositary for the trust preferred
securities. If the trust preferred securities are ever issued in certificated
form, payment of distributions on the trust preferred securities will be made
by check mailed on or before the due date to the holders thereof on the
relevant record date.
Redemption
Puget Sound Energy will repay the debentures at maturity on , 2041. Puget
Sound Energy may, before their maturity, redeem:
. all or some of the debentures on one or more occasions anytime on or
after , 2006; and
. all but not less than all the debentures before , 2006, if certain
changes in tax or investment company law occur or will occur within 90
days (each of which is referred to as a "special event" and is more
fully described under "Certain terms of the trust preferred securities
-- Special event redemption" in this prospectus supplement).
When Puget Sound Energy repays some or all of the debentures, either at
maturity on , 2041 or upon early redemption, the trust will use the cash it
receives upon the redemption of the debentures to redeem a like liquidation
amount of the trust preferred securities and, unless an event of default under
the trust agreement has occurred and is continuing, the common securities. The
trust preferred securities and common securities (if applicable) will be
redeemed at a price equal to their liquidation amount of $25 per security plus
accumulated distributions. The redemption price for the debentures is 100% of
their principal amount plus accrued and unpaid interest to the date of
redemption. See "Certain terms of the debentures -- Redemption" in this
prospectus supplement.
If less than all the trust preferred securities and common securities are to
be redeemed in situations where common securities may be redeemed consistent
with the provisions described under "Subordination of common securities" in
this prospectus supplement, then the total liquidation amount of trust
preferred securities and common securities to be redeemed will be allocated
proportionately based on the liquidation amount of the trust preferred
securities and the common securities.
Special event redemption
Upon the occurrence of a tax event or an investment company event, each as
defined below, Puget Sound Energy may redeem all but not less than all the
debentures within 90 days following the occurrence of the event, which is
referred to as a special event.
"Tax event" means that the trust has received an opinion of counsel
experienced in such matters to the effect that there is more than an
insubstantial risk that:
. the trust is or, within 90 days of the date of such opinion, would be
subject to United States federal income tax with respect to interest
accrued or received on the debentures;
. interest payable by Puget Sound Energy on the debentures is not or,
within 90 days of the date of such opinion, would not be deductible by
Puget Sound Energy in whole or in part for United States federal income
tax purposes; or
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. the trust is or, within 90 days of the date of such opinion, would be
subject to more than a minimal amount of other taxes, duties,
assessments or other governmental charges.
In order to constitute a "tax event," the events listed in the bullets above
must be the result of an
. amendment to, or change (including any announced proposed change) in,
the laws or regulations of the United States or any political
subdivision or taxing authority affecting taxation where such amendment
or change becomes effective on or after the date of this prospectus
supplement; or
. official or administrative pronouncement or action, or judicial
decision, interpreting or applying such laws or regulations where such
pronouncement, action or decision is announced or occurs on or after the
date of this prospectus supplement.
"Investment company event" means that the trust has received an opinion of
counsel experienced in such matters to the effect that, as a result of the
occurrence of a change in law or regulation or a change in interpretation or
application of law or regulation by any legislative body, court, governmental
agency or regulatory authority, there is more than an insubstantial risk that
the trust is or will be considered an "investment company" under the Investment
Company Act of 1940 that is required to be registered under this law, which
change becomes effective on or after the date of this prospectus supplement.
Redemption procedures
The trust will give you at least 30 days', but not more than 60 days',
written notice before any redemption of trust preferred securities. To the
extent funds are available for payment, the trust will irrevocably deposit with
DTC sufficient funds to pay the redemption amount for the trust preferred
securities being redeemed. The trust will also give DTC irrevocable
instructions and authority to pay the redemption amount in immediately
available funds to the beneficial owners of the global securities representing
the trust preferred securities. Distributions to be paid on or before the
redemption date for any trust preferred securities called for redemption will
be payable to the holders on the record dates for the related dates of
distribution.
Once notice of redemption is given and funds are irrevocably deposited,
distributions on the trust preferred securities will cease to accumulate
immediately prior to the close of business on the redemption date and all
rights of the holders of the trust preferred securities called for redemption
will cease, except for the right to receive the redemption amount (but without
interest on such redemption amount).
If any redemption date is not a business day, then the redemption amount will
be payable on the next business day (and without any interest or other payment
in respect of any such delay).
If payment of the redemption amount for any trust preferred securities called
for redemption is improperly withheld or refused and not paid either by the
trust or by Puget Sound Energy, distributions on the trust preferred securities
will continue to accumulate at the applicable rate from the original redemption
date scheduled to the actual date of payment. In this case, the actual payment
date will be considered the redemption date for purposes of calculating the
redemption amount.
In compliance with applicable law (including the United States federal
securities laws), Puget Sound Energy or its affiliates may, at any time,
purchase outstanding trust preferred securities by tender, in the open market,
or by private agreement.
Events of default
An event of default under the indenture constitutes an event of default under
the declaration with respect to the trust preferred securities; provided,
however, that pursuant to the declaration, the holder of the common securities
will be deemed to have waived any declaration event of default with respect to
the common securities until all declaration events of default with respect to
the trust preferred securities have been cured, waived or
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otherwise eliminated. Until any declaration event of default with respect to
the trust preferred securities has been cured, waived or otherwise eliminated,
the property trustee will be deemed to be acting solely on behalf of the
holders of the trust preferred securities and only the holders of the trust
preferred securities will have the right to direct the property trustee with
respect to certain matters under the declaration, and therefore the indenture.
Upon the occurrence of a declaration event of default, the indenture trustee
or the property trustee will have the right under the indenture to declare the
principal of and interest on the debentures to be immediately due and payable.
Voting rights
Subject to the requirement of the property trustee obtaining a tax opinion in
certain circumstances set forth in the last sentence of the next paragraph, the
holders of a majority in total liquidation amount of the trust preferred
securities have the right to direct the time, method and place of conducting
any proceeding for any remedy available to the property trustee, or direct the
exercise of any trust or power conferred on the property trustee under the
declaration, including the right to direct the property trustee, as holder of
the debentures, to:
. exercise the remedies available under the indenture with respect to the
debentures,
. waive any past indenture event of default that is waivable under the
indenture, or
. exercise any right to rescind or annul a declaration that the principal
of all the debentures shall be due and payable, or consent to any
amendment, modification or termination of the indenture or the
debentures, where such consent should be required.
However, where a consent or action under the indenture would require the
consent or act of the holders of greater than a majority in principal amount of
debentures affected thereby, the property trustee may only give such consent or
take such action at the written direction of the holders of at least the
proportion in liquidation amount of the trust preferred securities that the
relevant super-majority represents of the total principal amount of the
debentures outstanding. The property trustee shall notify all holders of the
trust preferred securities of any notice of default received from the indenture
trustee with respect to the debentures. Except with respect to directing the
time, method and place of conducting a proceeding for a remedy, the property
trustee shall not take any of the actions described in the bullet points above
unless the property trustee has obtained an opinion of tax counsel to the
effect that, as a result of such action, the trust will not be classified as an
association taxable as a corporation for United States federal income tax
purposes.
In the event the consent of the property trustee, as the holder of the
debentures, is required under the indenture with respect to any amendment,
modification or termination of the indenture or the debentures, the property
trustee will request the direction of the holders of the trust preferred
securities with respect to such amendment, modification or termination. The
property trustee will then vote with respect to such amendment, modification or
termination as directed by a majority in liquidation amount of the trust
preferred securities voting together as a single class. However, where a
consent under the indenture would require the consent of a super-majority, the
property trustee may only give its consent at the direction of the holders of
at least the proportion in liquidation amount of the trust preferred securities
which the relevant super-majority represents of the total principal amount of
the debentures outstanding. The property trustee shall not take any such action
in accordance with the directions of the holders of the trust preferred
securities unless the property trustee has obtained an opinion of tax counsel
to the effect that the trust will not be classified as an association taxable
as a corporation for United States federal income tax purposes on account of
such action.
Subordination of common securities
Payment of distributions on, and the redemption and liquidation amount of,
the trust preferred securities and the common securities will be made
proportionately based on the total liquidation amounts of the trust
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preferred securities and the common securities. However, if an event of default
under the trust agreement has occurred and is continuing, no payments may be
made on the common securities unless all unpaid amounts on the trust preferred
securities have been provided for or paid in full.
If an event of default under the trust agreement has occurred and is
continuing, the common securities holder will be deemed to have waived any
right to take any action with respect to the event of default until the event
of default has been cured, waived or eliminated. Until any event of default has
been cured, waived or eliminated, the property trustee will act solely on
behalf of the holders of the trust preferred securities, and these holders will
have the right to direct the property trustee to act on their behalf.
Book-entry-only issuance -- DTC
The trust preferred securities will be represented by one or more global
securities that will be deposited with, or on behalf of, and registered in the
name of, DTC or its nominee. This means that the trust will not issue
certificates to you for the trust preferred securities. Each global security
will be issued to DTC, which will keep a computerized record of its
participants, known as direct participants, whose clients have purchased the
trust preferred securities. Direct participants include securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations. Each participant will then keep a record of its clients. Unless
a global security is exchanged in whole or in part for a certificated security,
a global security may not be transferred. However, DTC, its nominees and their
successors may transfer a global security as a whole to one another.
Beneficial interests in a global security will be shown on, and transfers of
the global security will be made only through, records maintained by DTC and
its direct participants. DTC holds securities that its direct participants
deposit with DTC. DTC also records the settlement among direct participants of
securities transactions, such as transfers and pledges, in deposited securities
through computerized records for direct participants' accounts. This eliminates
the need to exchange certificates.
DTC's book-entry system is also used by other organizations such as
securities brokers and dealers, banks and trust companies, known as indirect
participants, that work through a direct participant. The rules that apply to
DTC and its participants are on file with the Securities and Exchange
Commission. DTC is owned by a number of its direct participants and by the New
York Stock Exchange, the American Stock Exchange and the National Association
of Securities Dealers.
DTC has advised Puget Sound Energy and the trust that DTC is a limited-
purpose trust company organized under New York Banking Law, a "banking
organization" within the meaning of the New York Banking Law, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the New
York Uniform Commercial Code and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Securities Exchange Act of 1934.
Purchases under the DTC system. When you purchase trust preferred securities
through the DTC system, the purchases must be made by or through a direct
participant, who will receive credit for the trust preferred securities on
DTC's records. Because you actually own the trust preferred security, you are
the beneficial owner. Your ownership interest will be recorded only on the
direct (or indirect) participants' records. DTC has no knowledge of your
individual ownership of the trust preferred securities. DTC's records show only
the identity of the direct participants and the amount of the trust preferred
securities held by or through them. You will not receive a written confirmation
of your purchase or sale or any periodic account statement directly from DTC.
You will receive these from your direct (or indirect) participant. As a result,
the direct (or indirect) participants are responsible for keeping accurate
account of the holdings of their customers.
Payments under the DTC system. The property trustee will wire payments on the
trust preferred securities to DTC's nominee. Puget Sound Energy, the trust and
the property trustee will treat DTC's nominee as the owner and holder of each
global security representing trust preferred securities for all purposes.
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Accordingly, Puget Sound Energy, the trust and the property trustee will have
no direct responsibility or liability to pay amounts due on the global security
to you or any other beneficial owners in the global security.
Any redemption notices will be sent by Puget Sound Energy and the property
trustee directly to DTC, who will in turn inform the direct participants, who
will then contact you as a beneficial owner. If less than all the trust
preferred securities are being redeemed, DTC's practice is to choose by lot the
amount of the interest of each direct participant to be redeemed. The direct
participant will then use an appropriate method to allocate the redemption
among its beneficial owners.
It is DTC's current practice, upon receipt of any payment of distributions or
liquidation or redemption amount, to credit direct participants' accounts on
the payment date based on their holdings of beneficial interests in the global
securities as shown on DTC's records. In addition, it is DTC's current practice
to assign any consenting or voting rights to direct participants whose accounts
are credited with trust preferred securities on a record date, by using an
omnibus proxy. Payments by direct participants to owners of beneficial
interests in the global securities, and voting by direct participants, will be
based on the customary practices between the direct participants and owners of
beneficial interests, as is the case with securities held for the account of
customers registered in "street name." However, payments will be the
responsibility of the direct participants and not of DTC, the property trustee,
Puget Sound Energy or the trust.
Exchange of global securities. Trust preferred securities represented by a
global security will be exchangeable for certificated securities with the same
terms in authorized denominations only if:
. DTC is unwilling, unable or ineligible to continue as depositary and a
successor depositary is not appointed by the trust within 90 days; or
. Puget Sound Energy decides to discontinue use of the system of book-
entry transfer through DTC (or any successor depositary).
If the book-entry-only system is discontinued, the property trustee will keep
the registration books for the trust preferred securities at its corporate
office and follow the practices and procedures discussed below.
Certificated securities -- registration and transfer
If the trust issues certificated securities, they will be registered in the
name of the security holder. The trust preferred securities may be transferred
or exchanged, based on administrative procedures in the trust agreement,
without the payment of any service charge (other than any tax or other
governmental charge) by contacting the property trustee, Bank One Trust
Company, N.A., 1 Bank One Plaza, Suite IL1-0126, Chicago, Illinois 60670-0126,
Attention: Corporate Trust Administration.
Certain terms of the debentures
The debentures will be issued as a series pursuant to a supplemental
indenture or a resolution of Puget Sound Energy's board of directors or a
committee thereof as provided for in the indenture.
Subordination
The debentures are unsecured and are junior in right of payment to all of
Puget Sound Energy's senior indebtedness. Puget Sound Energy may not make any
payments of principal (including redemption payments) or interest on the
debentures if it defaults on a payment on its senior indebtedness. See
"Subordinated Debentures" in the accompanying base prospectus for more detailed
information.
On any distribution of assets of Puget Sound Energy to creditors upon any
liquidation, dissolution, winding-up, reorganization, assignment for the
benefit of creditors, marshalling of assets or liabilities or any bankruptcy,
insolvency or similar proceedings, all principal, premium, if any, and interest
due or to become due on all senior indebtedness must be paid in full before the
holders of the debentures are entitled to receive or retain any payment.
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Neither the debentures nor the guarantee will limit the ability of Puget
Sound Energy and its subsidiaries to incur additional indebtedness, including
indebtedness that ranks senior in priority of payment to the debentures and the
guarantee. At March 31, 2001, as if on that date Puget Sound Energy and the
trust had issued and sold the trust preferred securities and the debentures and
applied the estimated net proceeds thereof as described in this prospectus
supplement, the total amount of Puget Sound Energy's senior indebtedness would
have been approximately $2.41 billion. See "Capitalization" and "Use of
Proceeds" in this prospectus supplement.
Interest rate and maturity
The debentures will mature on , 2041, and will bear interest, accruing
from , 2001, at the annual rate of % of their principal amount, payable
quarterly in arrears on , , and of each year, beginning ,
2001. Interest payments not paid when due will themselves accrue additional
interest at the annual rate of % (to the extent permitted by law). When we
refer to any payment of interest, interest includes such additional interest
and any additional amounts, as defined below. The interest payment provisions
for the debentures correspond to the distribution provisions of the trust
preferred securities. The debentures do not have a sinking fund. This means
that Puget Sound Energy is not required to make any principal payments prior to
maturity.
Additional sums
If the trust is required to pay any taxes, duties, assessments or
governmental charges of whatever nature (other than withholding taxes) imposed
by the United States, or any other taxing authority, then Puget Sound Energy
will be required to pay additional amounts on the debentures so that after the
trust pays any taxes, the trust will be in the same position it would have been
if it did not have to pay such taxes.
Redemption
Puget Sound Energy may redeem, before their maturity:
. all or some of the debentures on one or more occasions anytime on or
after , 2006; or
. all but not less than all of the debentures before , 2006, upon the
occurrence of a special event.
If Puget Sound Energy decides to redeem debentures in these circumstances,
the redemption price of each debenture redeemed will be equal to 100% of the
principal amount of such debenture plus any accrued and unpaid interest on such
debenture to the date of redemption.
Distribution of debentures
If the property trustee distributes the debentures to the trust preferred
securities holders and common securities holder upon the dissolution and
liquidation of the trust, the debentures will be issued in denominations of $25
principal amount and integral multiples thereof. Puget Sound Energy anticipates
that the debentures would be distributed in the form of one or more global
securities and DTC, or any successor depositary for the trust preferred
securities, would act as depositary for the debentures. The depositary
arrangements for the debentures would be substantially similar to those in
effect for the trust preferred securities.
For a description of DTC and the terms of the depositary arrangements
relating to payments, transfers, voting rights, redemption, other notices and
other matters, see "Certain terms of the trust preferred securities-- Book-
entry-only issuance -- DTC" in this prospectus supplement.
Option to extend interest payment period
Puget Sound Energy may, on one or more occasions, defer interest payments on
the debentures for up to 20 consecutive quarterly periods, if no event of
default has occurred and is continuing with respect to the
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debentures. A deferral of interest payments cannot extend beyond the stated
maturity date of the debentures. No interest will be due and payable on the
debentures until the end of the deferral period unless the debentures are
redeemed prior to such time.
Puget Sound Energy may pay at any time all or any portion of the interest
accrued to that point during a deferral period. At the end of the deferral
period or at a redemption or maturity date, Puget Sound Energy will be
obligated to pay all accrued and unpaid interest.
Once Puget Sound Energy makes all interest payments on the debentures, with
accrued interest, it may again defer interest payments on the debentures if no
event of default under the debentures has then occurred and is continuing.
During any deferral period and subject to certain exceptions, Puget Sound
Energy will not be permitted to:
. declare or pay any dividends or distributions or redeem, purchase,
acquire or make a liquidation payment with respect to any shares of its
capital stock;
. make any payment of principal, interest or premium, if any, on or repay
or repurchase or redeem any debt securities issued by Puget Sound Energy
that rank equal with or junior to the debentures; or
. make any guarantee payments with respect to any guarantee by Puget Sound
Energy of the debt securities of Puget Sound Energy if such guarantee
ranks equal with or junior to the debentures.
Because the debentures to be issued to the trust will rank equal with all
other series of junior subordinated debt securities of Puget Sound Energy
initially issued to the other trusts referred to in the accompanying base
prospectus or to certain other trusts, partnerships or other entities
affiliated with Puget Sound Energy, during an interest deferral period, Puget
Sound Energy will not be permitted to make payments on such other series of
junior subordinated debt securities. Likewise, if Puget Sound Energy defers
interest payments on any other of such series of junior subordinated debt
securities, it is not expected that Puget Sound Energy will be permitted to
make payments on the debentures.
The restrictions described in the bullet points above will also apply if
there occurs and is continuing a default or event of default under the
indenture of which Puget Sound Energy has actual knowledge and in respect of
which Puget Sound Energy has not taken reasonable steps to cure or if Puget
Sound Energy defaults on its obligations under the guarantee.
Puget Sound Energy will give the trust, the regular trustees, the property
trustee and the indenture trustee notice if it decides to defer interest
payments on the debentures. As long as the debentures are held by the trust,
Puget Sound Energy will give that notice at least one business day before the
earlier of:
. the next date distributions on the trust preferred securities are
payable or
. the date the trust is required to give notice to the New York Stock
Exchange (or any other applicable self-regulatory organization) or to
holders of the trust preferred securities of the record date or the date
distributions are payable.
There is no limitation on the number of times that Puget Sound Energy may
elect to begin an extension period. The regular trustees will give notice to
the property trustee and the holders of trust preferred securities if Puget
Sound Energy decides to defer interest payments on the debentures.
S-23
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
General
In the opinion of Perkins Coie LLP, counsel to Puget Sound Energy and special
tax counsel to the trust, the following summary accurately describes the
material United States federal income tax consequences of purchasing, holding
and selling the trust preferred securities. Except where stated otherwise, this
summary applies only to trust preferred securities held as capital assets (as
defined in the Internal Revenue Code of 1986, as amended) by a U.S. Holder (as
defined below) who purchases the trust preferred securities upon original
issuance at their original offering price.
This summary does not address all the tax consequences that may be relevant
to a U.S. Holder or, except as stated below, any of the tax consequences to
holders that may be subject to special tax treatment, including banks, thrift
institutions, real estate investment trusts, personal holding companies, tax-
exempt organizations, regulated investment companies, insurance companies, and
brokers and dealers in securities or currencies. Further, this summary does not
address:
. the United States federal income tax consequences to shareholders in, or
partners or beneficiaries of, an entity that is a holder of the trust
preferred securities;
. the United States federal estate and gift or alternative minimum tax
consequences of the purchase, ownership or sale of the trust preferred
securities;
. persons who hold the trust preferred securities in a "straddle" or as
part of a "hedging," "conversion," or "constructive sale" transaction or
whose "functional currency" is not the United States dollar; or
. any state, local or foreign tax consequences of the purchase, ownership
and sale of the trust preferred securities.
Accordingly, you should consult your tax advisor regarding the tax
consequences of purchasing, owning and selling the trust preferred securities
in light of your circumstances.
A "U.S. Holder" is a trust preferred securities holder who or which is:
. a citizen or resident of the United States;
. a corporation or partnership created or organized in or under the laws
of the United States, any state thereof or the District of Columbia
(unless, in the case of a partnership, Treasury regulations provide
otherwise);
. an estate if its income is subject to United States federal income
taxation regardless of its source; or
. a trust if (1) a United States court can exercise primary supervision
over its administration and (2) one or more United States persons have
the authority to control all of its substantial decisions.
This summary is based on the Internal Revenue Code, Treasury regulations
(proposed and final) issued under the Internal Revenue Code, and administrative
and judicial interpretations thereof, all as they currently exist as of the
date of this prospectus supplement. These income tax laws and regulations,
however, may change at any time, possibly on a retroactive basis. Any such
changes may affect this summary.
Classification of the debentures
Puget Sound Energy intends to take the position that the debentures will be
classified for United States federal income tax purposes as indebtedness of
Puget Sound Energy under current law, and, by acceptance of a trust preferred
security, each holder covenants to treat the debentures as indebtedness and the
trust preferred securities as evidence of an indirect beneficial ownership
interest in the debentures. No assurance can be given, however, that such
position of Puget Sound Energy will not be challenged by the Internal Revenue
Service or, if challenged, that such a challenge would not be successful. A
successful challenge to the classification of the
S-24
debentures as indebtedness would prevent Puget Sound Energy from deducting the
interest paid or accrued on the debentures for United States federal income tax
purposes and could constitute a tax event. Additionally, if the interest on the
debentures is not deductible it could adversely affect Puget Sound Energy's
ability to make payments on the debentures. The remainder of this discussion
assumes that the debentures will be classified as indebtedness of Puget Sound
Energy for United States federal income tax purposes.
Classification of the trust
In connection with the issuance of the trust preferred securities, Perkins
Coie LLP will render its opinion generally to the effect that, under current
law and assuming full compliance with the terms of the trust agreement, the
indenture, and certain other documents, and based on certain facts and
assumptions described in the opinion, the trust will be classified for United
States federal income tax purposes as a grantor trust and not as a partnership
or an association taxable as a corporation. Accordingly, for United States
federal income tax purposes, you will generally be treated as the owner of an
undivided interest in the assets of the trust, including the debentures. You
will be required to include in ordinary income for United States federal income
tax purposes your allocable share of interest (including OID, if any) paid or
accrued on the debentures or gain recognized for United States federal income
tax purposes with respect to its allocable share of the debentures.
Interest income and original issue discount
Under the Treasury regulations relating to OID, a debt instrument will be
deemed to be issued with OID if there is more than a "remote" contingency that
periodic stated interest payments due on the instrument will not be timely
paid. Because the exercise by Puget Sound Energy of its option to defer
payments of stated interest on the debentures would prevent Puget Sound Energy
from:
. declaring dividends, or engaging in certain other capital transactions,
with respect to its capital stock, or
. making any payment on any debt securities issued by Puget Sound Energy
which rank equal with or junior to the debentures,
Puget Sound Energy believes that the likelihood of its exercising the option is
"remote" within the meaning of the Treasury regulations. As a result, Puget
Sound Energy intends to take the position that the debentures will not be
deemed to be issued with OID. Based on this position, stated interest payments
on the debentures will be includible in your ordinary income at the time that
such payments are received or accrued in accordance with your regular method of
accounting. However, the Internal Revenue Service could take the position that
the likelihood that Puget Sound Energy would exercise its right to defer
payments of interest is not a "remote" contingency for purposes of the Treasury
regulations relating to OID, in which case the debentures would be treated as
initially issued with OID in an amount equal to the aggregate stated interest
over the term of the debentures. That OID would generally be includible in your
taxable income over the term of the debentures on an economic accrual basis.
See "Exercise of Deferral Options."
Exercise of deferral options
Under Treasury regulations, if Puget Sound Energy were to exercise its option
to defer the payment of interest on the debentures, the debentures would be
treated as redeemed and reissued for OID purposes and the sum of the remaining
interest payments on the debentures would thereafter be treated as OID, which
you would be required to accrue and include in taxable income on an economic
accrual basis (regardless of your method of accounting for income tax purposes)
over the remaining term of the debentures (including any period of interest
deferral), without regard to the timing of payments under the debentures. The
amount of interest income includible in your taxable income would be determined
on the basis of a constant yield method over the remaining term of the
debentures and the actual receipt of subsequent payments of stated interest on
the debentures would no longer be separately reported as taxable income. The
total amount of OID that would accrue during the deferred interest payment
period would be approximately equal to the amount of the cash payment due at
the end of such period. Any OID included in your income would increase your
adjusted tax basis in your trust preferred securities, and your actual receipt
of cash payments with respect to your trust preferred securities would reduce
your basis in the trust preferred securities.
S-25
Corporate U.S. Holders
Because the income underlying the trust preferred securities will not be
classified as dividends for income tax purposes, corporate U.S. Holders of the
trust preferred securities will not be entitled to a dividends-received
deduction for any income recognized with respect to the trust preferred
securities.
Sales of trust preferred securities
If you sell your trust preferred securities, you will recognize gain or loss
in an amount equal to the difference between your adjusted tax basis in the
trust preferred securities and the amount realized from the sale (generally,
your selling price less any amount received in respect of accrued but unpaid
interest not previously included in your income). Your adjusted tax basis in
the trust preferred securities generally will equal:
. the initial purchase price that you paid for the trust preferred
securities, plus
. any accrued and unpaid distributions that you were required to include
in income under your method of accounting or to treat as OID, less any
cash distributions you received in respect of accrued interest or OID.
Gain or loss on the sale of trust preferred securities generally will be
capital gain or loss. However, to the extent of any accrued interest or OID not
previously included in income, the amount realized on the sale of the trust
preferred securities will be treated as ordinary income.
The trust preferred securities may trade at a price that does not accurately
reflect the value of accrued but unpaid interest (or OID if the debentures are
treated as having been issued or reissued with OID) relating to the underlying
debentures. As noted above, if you dispose of your trust preferred securities,
you will be required to include in ordinary income for United States federal
income tax purposes any portion of the amount realized that is attributable to
accrued but unpaid interest or OID through the date of sale. This income
inclusion will increase your adjusted tax basis in the trust preferred
securities but may not be reflected in the sale price. To the extent the sale
price is less than your adjusted tax basis, you will recognize a capital loss.
Subject to certain limited exceptions, capital losses cannot be applied to
offset ordinary income for United States federal income tax purposes.
Receipt of debentures or cash upon liquidation of the trust
If Puget Sound Energy dissolves the trust and causes the trust to distribute
the debentures on a proportionate basis to you, you will not be subject to
United States federal income tax as a result of the distribution. Rather, you
would have an adjusted tax basis in the debentures received in the liquidation
equal to the adjusted tax basis in your trust preferred securities surrendered
for the debentures. Your holding period for the debentures would include the
period during which you had held the trust preferred securities. If, however,
the trust is classified for United States federal income tax purposes as an
association that is subject to tax as a corporation at the time of the
liquidation, the distribution of the debentures would constitute a taxable
event to you and you would acquire a new holding period in the debentures
received.
If the debentures are redeemed for cash and the proceeds of the redemption
are distributed to you in redemption of your trust preferred securities, the
redemption would be treated as a sale of the trust preferred securities, in
which gain or loss would be recognized, as described immediately above.
Non-U.S. Holders
Payments to a non-U.S. Holder will generally not be subject to withholding of
income tax, provided that such holder of the trust preferred securities (a)
does not (directly or indirectly, actually or constructively) own 10% or more
of the total combined voting power of all classes of stock of Puget Sound
Energy entitled to vote,
S-26
(b) is not a controlled foreign corporation that is related to Puget Sound
Energy through stock ownership and (c) is not a bank receiving interest
described in section 881(c)(3)(A) of the Internal Revenue Code. To qualify for
this exemption from withholding taxation, the last United States payor in the
chain of payment prior to payment to a non-U.S. Holder, referred to as a
withholding Agent, must have received in the year in which a payment of
interest or principal occurs prior to such payment, or in either of the two
preceding calendar years, a statement that (a) is signed by the holder of the
trust preferred securities under penalties of perjury, (b) certifies that such
holder is not a U.S. Holder and (c) provides the name and address of the
holder. The statement may be made on an Internal Revenue Service Form W-8BEN or
a substantially similar form, and the holder must inform the Withholding Agent
of any change in the information on the statement within 30 days of such
change. If the trust preferred securities are held through a securities
clearing organization or certain other financial institutions, the organization
or institution may provide a signed statement to the Withholding Agent.
However, in such case, the signed statement must be accompanied by a copy of
the Internal Revenue Service Form W-8BEN or the substitute form provided by the
holder to the organization or institution.
A non-U.S. Holder of a trust preferred security will generally not be subject
to withholding of income tax on any gain realized upon the sale or other
disposition of trust preferred securities.
A non-U.S. Holder that holds trust preferred securities in connection with
the active conduct of a United States trade or business will be subject to
United States federal income tax on all income and gains recognized with
respect to its proportionate share of the subordinated debentures.
Information reporting and backup withholding
Generally, income on the trust preferred securities will be reported to you
on Form 1099, which should be mailed to you by January 31 following each
calendar year.
Backup withholding of United States federal income tax at a rate of 31% may
apply to payments made in respect of the trust preferred securities to
registered owners who are not "exempt recipients" and who fail to provide
certain identifying information (such as the registered owner's taxpayer
identification number) in the required manner. Generally, individuals are not
exempt recipients, whereas corporations and certain other entities generally
are exempt recipients. Payments made in respect of the trust preferred
securities to a U.S. Holder must be reported to the Internal Revenue Service,
unless the U.S. Holder is an exempt recipient or establishes an exemption.
Compliance with the identification procedures described in the preceding
section would establish an exemption from backup withholding for those non-U.S.
Holders who are not exempt recipients.
In addition, upon the sale of the trust preferred securities to (or through)
a broker, the broker must withhold 31% of the entire purchase price, unless
either (i) the broker determines that the seller is a corporation or other
exempt recipient or (ii) the seller provides, in the required manner, certain
identifying information and, in the case of a non-U.S. Holder, certifies that
such seller is a non-U.S. Holder (and certain other conditions are met). Such a
sale must also be reported by the broker to the Internal Revenue Service,
unless either (i) the broker determines that the seller is an exempt recipient
or (ii) the seller certifies its non-United States status (and certain other
conditions are met). Certification of the holder's non-United States status
would be made normally on an Internal Revenue Service Form W-8BEN under
penalties of perjury, although in certain cases it may be possible to submit
other documentary evidence.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules may be refunded or credited against the non-U.S.
Holder's federal income tax liability, provided that the required information
is furnished to the Internal Revenue Service.
S-27
ERISA CONSIDERATIONS
Each fiduciary of a pension, profit-sharing or other employee benefit plan
subject to Title I of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") (a "Plan"), should consider the fiduciary standards of ERISA
in the context of the Plan's particular circumstances before authorizing an
investment in the trust preferred securities with assets of the Plan. In
particular, among other factors, the fiduciary should consider whether the
investment would satisfy the prudence and diversification requirements of
Section 404(a) of ERISA and would be consistent with the documents and
instruments governing the Plan.
Section 406 of ERISA and Section 4975 of the Internal Revenue Code of 1986,
as amended, prohibit Plans, as well as individual retirement accounts and Keogh
plans subject to Section 4975 of the Internal Revenue Code (also "Plans"), from
engaging in certain transactions involving "Plan assets" with persons who are
"parties in interest" under ERISA or "disqualified persons" under the Internal
Revenue Code ("Parties in Interest") with respect to such Plan. A violation of
these "prohibited transaction" rules may result in an excise tax and other
liabilities under ERISA and/or Section 4975 of the Internal Revenue Code for
such persons (and, in the case of individual retirement accounts, the loss of
tax-exempt status), unless exemptive relief is available under an applicable
statutory or administrative exemption.
Employee benefit plans that are governmental plans (as defined in Section
3(32) of ERISA), certain church plans (as defined in Section 3(33) of ERISA)
and foreign plans (as described in Section 4(b)(4) of ERISA) are not subject to
the requirements of ERISA or Section 4975 of the Internal Revenue Code;
however, such plans may be subject to federal, state or local laws or
regulations which affect their ability to invest in the trust preferred
securities. Any fiduciary of such a governmental, church or foreign plan
considering an investment in the trust preferred securities should determine
the need for, and, if necessary, the availability of, any exemptive relief
under such laws or regulations.
Pursuant to U. S. Department of Labor ("DOL") Regulation 29 C.F.R. (S)
2510.3-101 (the "Plan Assets Regulation"), the assets of an entity in which a
Plan acquires an equity interest will be deemed to be the assets of such Plan
under certain circumstances. An "equity interest" is defined under the Plan
Assets Regulation as any interest in an entity other than an instrument which
is treated as indebtedness under applicable local law and which has no
substantial equity features and specifically includes a beneficial interest in
a trust.
Under the Plan Assets Regulation the assets of the trust will be considered
to be the assets of the Plans investing in the trust preferred securities
unless, among other exceptions not relevant here, (a) less than 25% of the
value of each class of equity interests in the trust is held by Plans, certain
employee benefit plans not subject to ERISA or Section 4975 of the Internal
Revenue Code (such as governmental, church and foreign plans) and entities
whose underlying assets are "Plan assets" by reason of a Plan's investment in
such entities (collectively, "Benefit Plan Investors"), or (b) the trust
preferred securities are "publicly-offered securities" for purposes of the Plan
Assets Regulation. No assurance can be given that the value of the trust
preferred securities held by Benefit Plan Investors will be less than 25% of
the total value of such trust preferred securities at the completion of the
initial offering or thereafter, and no monitoring or other measures will be
taken with respect to the satisfaction of the conditions of this exception. In
addition, no assurance can be given that the trust preferred securities will be
considered to be "publicly-offered securities" under the Plan Assets
Regulation. All of the common securities will be purchased and held by Puget
Sound Energy.
If the assets of the trust are deemed to be the assets of the Plans investing
in the trust, then certain transactions involving the trust could be deemed to
constitute direct or indirect prohibited transactions under ERISA and Section
4975 of the Internal Revenue Code with respect to one or more of these Plans.
For example, if Puget Sound Energy were a Party in Interest with respect to an
investing Plan (either directly or by reason of ownership of its subsidiaries),
extensions of credit between Puget Sound Energy and the trust (as represented
by the debentures and the guarantee) would likely be prohibited by Section
406(a)(1)(B) of ERISA and Section 4975(c)(1)(B) of the Internal Revenue Code,
unless exemptive relief were available under an applicable administrative
exemption (see below). In addition, if Puget Sound Energy were considered to be
a
S-28
fiduciary with respect to the trust as a result of certain powers it holds
(such as the powers to remove and replace the property trustee and the regular
trustees), certain operations of the trust, including the optional redemption
or acceleration of the debentures, could be considered to be prohibited
transactions under Section 406(b) of ERISA and Section 4975(c)(1)(E) of the
Internal Revenue Code. To reduce the likelihood that these and other
transactions involving the trust would be characterized as prohibited
transactions, each investing Plan, by purchasing trust preferred securities,
will be deemed to have directed the trust to invest in the debentures and to
have appointed the property trustee.
The DOL has issued five prohibited transaction class exemptions that may
provide exemptive relief if required for direct or indirect prohibited
transactions that may arise from the purchase or holding of the trust preferred
securities if assets of the trust were deemed to be the assets of the Plans
investing in the trust as described above. Those class exemptions are PTCE 96-
23 (for certain transactions effected on behalf of a Plan by an in-house asset
manager), PTCE 95-60 (for certain transactions involving insurance company
general accounts), PTCE 91-38 (for certain transactions involving bank
collective investment funds), PTCE 90-1 (for certain transactions involving
insurance company separate pooled accounts), and PTCE 84-14 (for certain
transactions effected on behalf of a Plan by an independent qualified
professional asset manager).
Because Puget Sound Energy may be or become a Party in Interest with respect
to an investing Plan, the trust preferred securities may not be purchased and
should not be held by any Plan, any entity whose underlying assets include
"Plan assets" by reason of a Plan's investment in such entity (a "Plan Asset
Entity") or any person investing the assets of any Plan, unless such purchaser
or holder is eligible for the exemptive relief available under PTCE 96-23, 95-
60, 91-38, 90-1 or 84-14 or another applicable exemption regardless of whether
the assets of the trust are deemed to be the assets of the Plans investing in
the trust preferred securities. Any purchaser or holder of the trust preferred
securities or any interest therein will be deemed to have represented by its
purchase and holding thereof that it either (a) is not a Plan or a Plan Asset
Entity and is not purchasing such securities on behalf of or with the assets of
any Plan, or (b) is eligible for the exemptive relief available under PTCE 96-
23, 95-60, 91-38, 90-1 or 84-14 or another applicable exemption with respect to
such purchase or holding.
Due to the complexity of these rules and the penalties that may be imposed
upon persons involved in non-exempt prohibited transactions, it is particularly
important that fiduciaries and other persons considering purchasing the trust
preferred securities on behalf of or with the assets of any Plan consult with
their counsel regarding the potential consequences if the assets of the trust
were deemed to be "Plan assets" and the availability of exemptive relief under
PTCE 96-23, 95-60, 91-38, 90-1 or 84-14 or any other applicable exemption.
The discussion herein of ERISA is general in nature and is not intended to be
complete. Any fiduciary of a plan, governmental plan, church plan or a foreign
plan considering an investment in the trust preferred securities should consult
with its legal advisors regarding the consequences and advisability of such
investment.
Insurance companies considering an investment in the trust preferred
securities should note that the Small Business Job Protection Act of 1996 added
new Section 401(c) of ERISA relating to the status of the assets of insurance
company general accounts under ERISA and Section 4975 of the Internal Revenue
Code. Pursuant to Section 401(c), the DOL issued Regulation 29 C.F.R. (S)
2550.401c-1 (the "General Account Regulation") in January 2000 with respect to
insurance policies that are supported by an insurer's general account. The
General Account Regulation describes which assets held by the insurer in its
general account constitute assets of a Plan for purposes of the fiduciary
responsibility and prohibited transaction provisions of ERISA and the
prohibited transaction provisions of Section 4975 of the Internal Revenue Code,
and provides guidance with respect to the application of Title I of ERISA and
Section 4975 of the Internal Revenue Code to the general account assets of
insurers.
S-29
UNDERWRITING
General
Subject to the terms and conditions of an underwriting agreement, the trust
has agreed to sell to each of the underwriters named below, and each of the
underwriters, for whom Merrill Lynch, Pierce, Fenner & Smith Incorporated,
Morgan Stanley & Co. Incorporated, Salomon Smith Barney Inc., J.P. Morgan
Securities Inc., Wells Fargo Investments, LLC, and U.S. Bancorp Piper Jaffray
Inc. are acting as the representatives, has severally agreed to purchase from
the trust, the number of trust preferred securities set forth opposite its name
below:
Number of Trust
Underwriter Preferred Securities
----------- --------------------
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.......................................
Morgan Stanley & Co. Incorporated.......................
Salomon Smith Barney Inc................................
J.P. Morgan Securities Inc..............................
U.S. Bancorp Piper Jaffray Inc..........................
Wells Fargo Investments, LLC............................
Total...................................................
In the underwriting agreement the several underwriters have agreed, subject
to the terms and conditions set forth in that agreement, to purchase all the
trust preferred securities offered hereby if any of the trust preferred
securities are purchased. In the event of default by an underwriter, the
underwriting agreement provides that, in certain circumstances, the purchase
commitments of the nondefaulting underwriters may be increased or the
underwriting agreement may be terminated.
Puget Sound Energy and the trust have agreed with the underwriters to
indemnify them against certain civil liabilities, including liabilities under
the Securities Act of 1933, as amended, or to contribute with respect to
payments which the underwriters may be required to make.
Certain of the underwriters and their affiliates have in the past and may in
the future engage in transactions with, or perform services for, Puget Sound
Energy in the ordinary course of their businesses.
Puget Sound Energy will pay all expenses, estimated to be approximately
$500,000, associated with the offer and sale of the trust preferred securities.
Commissions and discounts
The underwriters will offer the trust preferred securities directly to the
public initially at $25 per trust preferred security. The underwriters may also
offer the trust preferred securities to certain dealers at the above-mentioned
offering price less a concession of $ per trust preferred security. The
underwriters may allow, and such dealers may reallow, a discount not in excess
of $ per trust preferred security to certain dealers. After the initial public
offering, the public offering price, concession and discount may be changed.
Because the proceeds from the sale of the trust preferred securities and the
common securities will be used to purchase the debentures, Puget Sound Energy
has agreed to pay to the underwriters an underwriting commission of $ per
trust preferred security (or a total of $ ).
New York Stock Exchange listing
Before this offering, there was no established public trading market for the
trust preferred securities. We plan to list the trust preferred securities on
the New York Stock Exchange under the symbol " ." Trading
S-30
of the trust preferred securities on the New York Stock Exchange is expected to
begin within 30 days of the issuance of the trust preferred securities. In
order to meet all the requirements for listing the trust preferred securities
on the New York Stock Exchange, the underwriters have agreed to sell the trust
preferred securities to a minimum of 400 beneficial holders. The
representatives have advised Puget Sound Energy that they intend to make a
market in the trust preferred securities prior to the commencement of trading
on the New York Stock Exchange. However, the representatives are not obligated
to do so and may discontinue market making at any time without notice. We
cannot give any assurance that a liquid trading market for the trust preferred
securities will be available.
No sales of similar securities
Puget Sound Energy and the trust have agreed that, during a period of 30 days
from the date of the pricing of the trust preferred securities, they will not
offer, sell, contract to sell or otherwise dispose of any trust preferred
securities, any other beneficial interests of the trust or any securities of
Puget Sound Energy that are substantially similar to the trust preferred
securities, including the guarantee, and including, but not limited, to any
securities that are convertible into or exchangeable for or that represent the
right to receive trust preferred securities or any such substantially similar
securities of either the trust or Puget Sound Energy (except the debentures and
the trust preferred securities offered by this prospectus supplement), without
the prior consent of the representatives.
Settlement
It is expected that delivery of the trust preferred securities will be made
against payment therefor on or about the date specified in the last paragraph
of the cover page of this prospectus supplement, which will be the fourth
business day following the date of pricing of the trust preferred securities.
Price stabilization and short positions
In connection with the sale of the trust preferred securities, SEC rules
permit the underwriters to engage in transactions that stabilize the price of
the trust preferred securities. These transactions may include purchases for
the purpose of fixing or maintaining the price of the trust preferred
securities.
The underwriters may create a short position in the trust preferred
securities in connection with this offering. That means they may sell a larger
number of the trust preferred securities than is shown on the cover page of
this prospectus supplement. If they create a short position, the underwriters
may purchase trust preferred securities in the open market to reduce the short
position.
If the underwriters purchase the trust preferred securities to stabilize the
price or to reduce their short position, the price of the trust preferred
securities could be higher than it might be if they had not made such
purchases. The underwriters make no representation or prediction about any
effect that the purchases may have on the price of the trust preferred
securities.
The underwriters may suspend any of these activities at any time.
Penalty bids
The representatives also may impose a penalty bid on certain underwriters and
selling group members. This means that, if the representatives purchase trust
preferred securities in the open market to reduce the underwriters' short
position or to stabilize the price of the trust preferred securities, they may
reclaim the amount of the selling concession from the underwriters and selling
group members who sold those trust preferred securities as part of this
offering.
S-31
LEGAL MATTERS
Certain matters of Delaware law relating to the validity of the trust
preferred securities, the enforceability of the trust agreement and the
creation of the trust will be passed upon on behalf of the trust by Skadden,
Arps, Slate, Meagher & Flom LLP, special Delaware counsel to the trust. The
validity of the senior notes, the trust preferred securities guarantee, the
debentures and certain matters relating thereto will be passed upon on behalf
of Puget Sound Energy by Perkins Coie LLP. Certain legal matters will be passed
upon on behalf of the underwriters by Skadden, Arps, Slate, Meagher & Flom LLP.
From time to time Skadden, Arps, Slate, Meagher & Flom LLP provides legal
services to Puget Energy and Puget Sound Energy. Certain United States federal
income taxation matters will be passed upon for Puget Sound Energy and the
trust by Perkins Coie LLP.
EXPERTS
The consolidated financial statements and financial statement schedule
incorporated in this prospectus supplement by reference to the Annual Report on
Form 10-K for the year ended December 31, 2000, have been so incorporated in
reliance on the report of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of said firm experts in auditing and accounting.
S-32
PROSPECTUS
PUGET SOUND ENERGY, INC.
Senior Notes
Subordinated Debentures
Guarantees
and
PUGET SOUND ENERGY CAPITAL TRUST II
Trust Preferred Securities
Guaranteed to the Extent Set Forth Herein By
Puget Sound Energy, Inc.
Offering Price: $500,000,000
----------------
Puget may offer, on one or more occasions:
. secured senior debt or unsecured subordinated debt securities consisting
of notes, debentures and other unsecured evidence of indebtedness, and
. guarantees of Puget Sound Energy with respect to trust preferred
securities of Puget Sound Energy Capital Trust II.
Puget Sound Energy Capital Trust II, which is a Delaware business trust, may
offer, on one or more occasions:
. trust preferred securities, which represent preferred undivided
beneficial interests in the assets of Puget Sound Energy Capital Trust
II.
For each type of security listed above, the amount, price and terms will be
determined at or prior to the time of sale.
Each time we offer any of these securities, we will set forth the specific
terms of these securities in one or more supplements to this prospectus. The
prospectus supplement or supplements also will set forth the names of any
underwriters, dealers or agents involved in the offering of the securities, the
compensation of these parties and any other special terms of the offering and
sale. You should read carefully this prospectus and the accompanying prospectus
supplement or supplements before you invest.
This prospectus may not be used to consummate sales of any of these
securities unless accompanied by a prospectus supplement.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is
a criminal offense.
----------------
The date of this prospectus is October 30, 2000.
TABLE OF CONTENTS
Page
----
Where You Can Find More Information........................................ 3
Puget Sound Energy......................................................... 4
Puget Sound Energy Capital Trust II........................................ 4
Use of Proceeds............................................................ 6
Ratios of Earnings to Fixed Charges........................................ 6
Description of Securities.................................................. 7
Plan of Distribution....................................................... 27
Legal Opinions............................................................. 29
Experts.................................................................... 29
----------------
In this prospectus, "Puget" refers to Puget Sound Energy, Inc. and the
"trust" refers to Puget Sound Energy Capital Trust II. "We," "us" and "our"
refer to Puget Sound Energy, Inc. and Puget Sound Energy Capital Trust II.
You should rely only on the information contained or incorporated by
reference in this prospectus or any prospectus supplement. We have not
authorized anyone to provide you with different information, and if anyone does
provide you with different or inconsistent information, you should not rely on
it. You should not assume that the information in this prospectus or any
prospectus supplement is accurate after the date on the front cover of the
applicable document. We are not making an offer to sell these securities in any
jurisdiction in which the offer or sale is not permitted.
WHERE YOU CAN FIND MORE INFORMATION
Puget files reports, proxy statements and other information with the
Securities and Exchange Commission. These SEC filings are available over the
Internet at the SEC's web site at http://www.sec.gov. You may also read and
copy any document Puget files at the SEC's public reference room at 450 Fifth
Street N.W., Room 1024, Washington, D.C. 20549. Please call the SEC at 1-800-
SEC-0330 for more information on the public reference rooms and their copy
charges. You may also inspect Puget's SEC reports and other information at the
New York Stock Exchange, 20 Broad Street, New York, New York 10005.
In connection with this offering, we have filed with the SEC a registration
statement on Form S-3 under the Securities Act of 1933. As permitted by SEC
rules, this prospectus omits certain information included in the registration
statement. For a more complete understanding of the securities we may offer,
you should refer to the registration statement, including its exhibits.
The SEC allows us to "incorporate by reference" into this prospectus the
information we file separately with it, which means we may disclose important
information by referring you to those other documents. The information we
incorporate by reference is considered to be part of this prospectus, except
for any information superseded by information in this prospectus. This
prospectus incorporates by reference the documents set forth below that Puget
has filed previously with the SEC. These documents contain important
information about Puget and its finances.
SEC Filings (File No. 1-4393) Period/Date
----------------------------- -----------
Annual Report on Form 10-K.................... Year ended December 31, 1999
Quarterly Reports on Form 10-Q................ Quarter ended March 31, 2000
Quarter ended June 30, 2000
Current Report on Form 8-K.................... Filed February 11, 2000
Filed May 25, 2000
Filed July 3, 2000
Filed July 21, 2000
The documents filed by Puget with the SEC pursuant to Sections 13(a), 13(c),
14 and 15 of the Securities Exchange Act of 1934 after the date of this
prospectus are also incorporated by reference into this prospectus.
You may request a copy of these filings at no cost by writing or telephoning
Puget at the following address:
Investor Relations
Puget Sound Energy, Inc.
411-108th Avenue N.E.
Bellevue, Washington 98004-5515
(425) 454-6363
You should rely only on the information contained or incorporated by
reference in this prospectus and the accompanying prospectus supplement. Puget
has not authorized anyone to provide you with information that is different
from this information.
Separate financial statements of the trust have not been included in this
prospectus. Puget and the trust do not consider such financial statements to be
helpful because:
. Puget beneficially owns directly or indirectly all of the undivided
beneficial interests in the assets of the trust (other than the
beneficial interests represented by the trust preferred securities). See
"Puget Sound Energy Capital Trust," "Description of Securities--Trust
Preferred Securities" and "Description of Securities--The Guarantee";
. Puget will guarantee the trust preferred securities such that the
holders of the trust preferred securities, with respect to the payment
of distributions and amounts upon liquidation, dissolution and winding-
up, are at least in the same position with regard to the assets of Puget
as a preferred shareholder of Puget;
3
. in future filings under the Securities Exchange Act of 1934, an audited
footnote to Puget's annual financial statements will state that the
trust is wholly owned by Puget, that the sole assets of the trust are
the subordinated debentures of Puget having a specified total principal
amount, and that, considered together, the back-up undertakings,
including the guarantees, constitute a full and unconditional guarantee
by Puget of the trust's obligations under the trust preferred securities
issued by the trust; and
. the trust is a newly created special purpose entity, has no operating
history, no independent operations and is not engaged in, and does not
propose to engage in, any activity other than as described under "Puget
Sound Energy Capital Trust."
PUGET SOUND ENERGY
Puget Sound Energy, Inc., a Washington corporation, is an investor-owned
public utility, furnishing electric and gas service in a territory covering
approximately 6,000 square miles, principally in the Puget Sound region of
Washington state.
As of June 30, 2000, Puget had approximately 915,000 electric customers,
consisting of 810,200 residential, 99,200 commercial, 4,100 industrial and
approximately 1,500 other electric customers and approximately 580,000 gas
customers, consisting of 532,000 residential, 45,500 commercial, 3,000
industrial and approximately 100 gas transportation customers. For the 12
months ended June 30, 2000, Puget added approximately 16,600 electric customers
and approximately 25,000 gas customers, representing annualized growth rates of
1.9% and 4.6%, respectively. During the 12 months ended June 30, 2000, Puget's
billed retail revenues from electric utility operations were derived 47% from
residential customers, 37% from commercial customers, 14% from industrial
customers and 2% from other customers, and Puget's billed retail revenues from
gas utility operations were derived 60% from residential customers, 30% from
commercial customers, 8% from industrial customers and 2% from other customers.
During this period, the largest customer accounted for 1.8% of Puget's utility
operating revenues.
Gross electric utility plant at December 31, 1999, was approximately $ 4.0
billion, which consisted of 46% distribution, 28% generation, 15% transmission
and 11% general plant and other. Gross gas utility plant at December 31, 1999,
was approximately $1.4 billion, which consisted of 83% distribution, 5%
transmission and 12% general plant and other.
At December 31, 1999, Puget had 2,869 aggregate full-time-equivalent utility
employees. Our executive office is located at 411-108th Avenue N.E., Bellevue,
Washington 98004-5515, and our telephone number is (425) 454-6363.
PUGET SOUND ENERGY CAPITAL TRUST II
Puget Sound Energy Capital Trust II is a statutory business trust created
under the Delaware Business Trust Act by way of:
. a trust agreement executed by Puget, as sponsor, and the trustee of the
trust; and
. the filing of a certificate of trust with the Secretary of State of the
State of Delaware.
At the time of public issuance of the trust preferred securities, the trust
agreement will be amended and restated in its entirety and will be qualified as
an indenture under the Trust Indenture Act of 1939. Puget will directly or
indirectly acquire common securities of the trust in a total liquidation amount
equal to approximately 3% of the total capital of the trust. The trust exists
for the exclusive purposes of:
. issuing the trust preferred securities and common securities
representing undivided beneficial interests in the assets of the trust;
4
. investing the gross proceeds of the common securities and the trust
preferred securities in the subordinated debentures; and
. engaging in only those other activities necessary or incidental thereto.
The trust has a term of approximately 55 years, but may terminate earlier as
provided in the amended and restated trust agreement.
The proceeds from the offering of the trust preferred securities and the sale
of the common securities may be used by the trust to purchase from Puget
subordinated debentures in a total principal amount equal to the total
liquidation preference of the common securities and the trust preferred
securities. The Puget debentures would bear interest at an annual rate equal to
the annual distribution rate of the common securities and the trust preferred
securities and would have certain redemption terms which correspond to the
redemption terms for the common securities and the trust preferred securities.
The subordinated debentures will rank subordinate in right of payment to all of
Puget's senior indebtedness (as defined in this prospectus). Distributions on
the common securities and the trust preferred securities may not be made unless
the trust receives corresponding interest payments on the subordinated
debentures from Puget. Puget will irrevocably guarantee, on a subordinated
basis and to the extent set forth in the guarantee, with respect to each of the
common securities and the trust preferred securities, the payment of
distributions, the redemption price, including all accrued or deferred and
unpaid distributions, and payment on liquidation, but only to the extent of
funds on hand at the trust. Each guarantee will be unsecured and will be
subordinate to all senior indebtedness of Puget. Upon the occurrence of certain
events (subject to the conditions to be described in an accompanying prospectus
supplement) the trust may be liquidated and the holders of the common
securities and the trust preferred securities could receive subordinated
debentures in lieu of any liquidating cash distribution.
Pursuant to the amended and restated trust agreement, the number of trustees
of the trust will initially be four. Two of the trustees will be persons who
are employees or officers of or who are affiliated with Puget and will be
referred to as the Puget trustees. The third trustee will be a financial
institution that is unaffiliated with Puget, which trustee will serve as
property trustee under the amended and restated trust agreement and as
indenture trustee for the purposes of compliance with the provisions of the
Trust Indenture Act of 1939. Initially, Bank One Trust Company, N.A. will be
the property trustee until removed or replaced by the holder of the common
securities. For the purpose of compliance with the provisions of the Trust
Indenture Act of 1939, Bank One Trust Company, N.A. will also act as guarantee
trustee. The fourth trustee, Bank One Delaware, Inc., will act as the Delaware
trustee for the purposes of the Delaware Business Trust Act, until removed or
replaced by the holder of the common securities. See "Description of
Securities--The Guarantee."
The property trustee will hold title to the subordinated debentures for the
benefit of the holders of the common securities and the trust preferred
securities and the property trustee will have the power to exercise all rights,
powers and privileges under the indenture as the holder of the subordinated
debentures. In addition, the property trustee will maintain exclusive control
of a segregated non-interest-bearing bank account to hold all payments made in
respect of subordinated debentures for the benefit of the holders of the common
securities and the trust preferred securities. The property trustee will make
payments of distributions and payments on liquidation, redemption and otherwise
to the holders of the common securities and the trust preferred securities out
of funds from the segregated non-interest-bearing bank account. The guarantee
trustee will hold the guarantees for the benefit of the holders of the common
securities and the trust preferred securities. Puget, as the direct or indirect
holder of all the common securities, will have the right to appoint, remove or
replace any of the trustees. Puget will also have the right to increase or
decrease the number of trustees, as long as the number of trustees shall be at
least three, a majority of which shall be Puget trustees. Puget will pay all
fees and expenses related to the trusts and the offering of the common
securities and the trust preferred securities.
The rights of the holders of the trust preferred securities, including
economic rights, rights to information and voting rights, are set forth in the
amended and restated trust agreement, the Delaware Business Trust Act and the
Trust Indenture Act of 1939.
5
The Delaware trustee for the trust in the State of Delaware is Bank One
Delaware, Inc., Three Christiana Center, 201 North Walnut Street, Wilmington,
Delaware, 19801. The principal place of business of the trust will be c/o Puget
Sound Energy, Inc. 411-108th Avenue N.E., Bellevue, Washington 98004-5515.
USE OF PROCEEDS
The proceeds received by the trust from the sale of its trust preferred
securities and the common securities will be invested in the subordinated
debentures. As will be more specifically set forth in the applicable prospectus
supplement, Puget will use those borrowed amounts and the net proceeds from the
sale of senior notes offered hereby for its general corporate purposes,
including capital expenditures, investment in subsidiaries, working capital and
repayment of debt. Any specific allocation of the proceeds to a particular
purpose that has been made at the date of any prospectus supplement will be
described in the appropriate prospectus supplement.
RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth Puget's ratios of earnings to fixed charges
for the respective periods indicated:
Twelve Months
Ended June 30, Years Ended December 31,
--------------- ------------------------------
2000 1999 1999 1998 1997(1) 1996(1) 1995
------- ------- ---- ---- ------- ------- ----
Ratio of earnings to fixed
charges (2)(3)............ 2.7x 2.9x 2.7x 2.8x 2.5x 3.1x 2.6x
--------
(1) The ratios for the years ended December 31, 1997 and 1996 include charges
incurred in connection with Puget's merger with Washington Energy Company
and its principal subsidiary, Washington Natural Gas Company. Had such
charges been excluded from earnings, the ratios of earnings to fixed
charges for such periods would have been 2.9x and 3.2x, respectively.
(2) As a result of the merger, each of Puget's ratios reflects the combined
operations of Puget and the Washington Energy Company. Because the
Washington Energy Company's fiscal year ended September 30, the combined
ratios for the two years ended December 31, 1996 reflect the fiscal years
ended December 31 for Puget and September 30 for the Washington Energy
Company.
(3) For purposes of computing the ratios of earnings to fixed charges, earnings
represent income from continuing operations before extraordinary items and
cumulative effect of changes in accounting principles plus applicable
income taxes and fixed charges. Fixed charges include all interest expense
and the proportion deemed representative of the interest factor of rent
expense.
6
DESCRIPTION OF SECURITIES
Introduction
Specific terms of the debt securities consisting of the senior notes and
subordinated debentures, or the trust preferred securities, or any combination
of these securities and the irrevocable guarantees of Puget with respect to
each of the common securities and the preferred securities of the trust, for
which this prospectus is being delivered, will be set forth in an accompanying
prospectus supplement or supplements. The prospectus supplement will set forth
with regard to the particular offered securities, without limitation, the
following:
. in the case of debt securities, the designation, total principal amount,
denomination, maturity, premium, if any, any exchange, conversion,
redemption or sinking fund provisions, interest rate (which may be fixed
or variable), the time or method of calculating interest payments, the
right of Puget, if any, to defer payment or interest on the debt
securities and the maximum length of such deferral, put options, if any,
public offering price, ranking, any listing on a securities exchange and
other specific terms of the offering; and
. in the case of trust preferred securities, the designation, number of
shares, liquidation preference per security, initial public offering
price, any listing on a securities exchange, dividend rate (or method of
calculation thereof), dates on which dividends shall be payable and
dates from which dividends shall accrue, any voting rights, any
redemption, exchange, conversion or sinking fund provisions and any
other rights, preferences, privileges, limitations or restrictions
relating to a specific series of the trust preferred securities
including a description of the Puget guarantee.
Debt Securities
Senior notes will be issued under a senior note indenture. The subordinated
debentures will be issued under a subordinated debt indenture. The senior note
indenture and the subordinated debt indenture are sometimes referred to in this
prospectus individually as an "indenture" and collectively as the "indentures."
The following briefly summarizes the material provisions of the indentures
and the debt securities. You should read the more detailed provisions of the
applicable indenture, including the defined terms, for provisions that may be
important to you. You should also read the particular terms of a series of debt
securities, which will be described in more detail in the applicable prospectus
supplement. Copies of the indentures may be obtained from Puget or the
applicable trustee.
Unless otherwise provided in the applicable prospectus supplement, the
trustee under the senior note indenture will be State Street Bank and Trust
Company and the trustee under the subordinated debt indenture will be Bank One
Trust Company, N.A.
General
The indentures provide that debt securities of Puget may be issued in one or
more series, with different terms, in each case as authorized on one or more
occasions by Puget.
Federal income tax consequences and other special considerations applicable
to any debt securities issued by Puget at a discount will be described in the
applicable prospectus supplement.
The applicable prospectus supplement relating to any series of debt
securities will describe the following terms, where applicable:
. the title of the debt securities;
. whether the debt securities will be senior or subordinated debt;
. the total principal amount of the debt securities;
7
. the percentage of the principal amount at which the debt securities will
be sold and, if applicable, the method of determining the price;
. the maturity date or dates;
. the interest rate or the method of computing the interest rate;
. the date or dates from which any interest will accrue, or how such date
or dates will be determined, and the interest payment date or dates and
any related record dates;
. the location where payments on the debt securities will be made;
. the terms and conditions on which the debt securities may be redeemed at
the option of Puget;
. any obligation of Puget to redeem, purchase or repay the debt securities
at the option of a holder upon the happening of any event and the terms
and conditions of redemption, purchase or repayment;
. any provisions for the discharge of Puget's obligations relating to the
debt securities by deposit of funds or United States government
obligations;
. whether the debt securities are to trade in book-entry form and the
terms and any conditions for exchanging the global security in whole or
in part for paper certificates;
. any material provisions of the applicable indenture described in this
prospectus that do not apply to the debt securities;
. any additional amounts with respect to the debt securities that Puget
will pay to a non-United States person because of any tax, assessment or
governmental charge withheld or deducted and, if so, any option of Puget
to redeem the debt securities rather than paying these additional
amounts;
. any additional events of default; and
. any other specific terms of the debt securities.
Exchange and Transfer
Debt securities may be presented for exchange. Registered debt securities may
be presented for registration of transfer at the offices of the applicable
trustee and, subject to the restrictions set forth in the debt security and in
the applicable prospectus supplement, without service charge, but upon payment
of any taxes or other governmental charges due in connection with the transfer,
subject to any limitations contained in the applicable indenture.
Payment
Distributions on the debt securities in registered form will be made at the
office or agency of the applicable trustee in its designated office. However,
at the option of Puget, payment of any interest may be made by check or by wire
transfer. Payment of any interest due on debt securities in registered form
will be made to the persons in whose name the debt securities are registered at
the close of business on the record date for such interest payments. Payments
made in any other manner will be specified in the prospectus supplement.
Governing Law
Each indenture and the debt securities will be governed by, and construed in
accordance with, the laws of the State of Washington unless the laws of another
jurisdiction shall mandatorily apply. The rights, duties and obligations of the
trustees under the indentures are governed by and construed in accordance with
the laws of the State of Washington.
8
Senior Notes
General
The following summaries of some important provisions of the senior note
indenture (including its supplements) are not complete and are subject to, and
qualified in their entirety by, all of the provisions of the senior note
indenture, which is an exhibit to the registration statement of which this
prospectus forms a part. In addition, capitalized terms used in this section
and not otherwise defined in this prospectus shall have the meaning given to
them in the senior note indenture.
Security; Release Date
Until the release date (as described in the next paragraph), the senior notes
will be secured by one or more series of Puget's first mortgage bonds from
either or both of Puget's current first mortgage indentures issued and
delivered by Puget to the senior note trustee. See "Description of First
Mortgage Bonds." Upon the issuance of a series of senior notes prior to the
release date, Puget will simultaneously issue and deliver to the senior note
trustee, as security for all senior notes, a series of first mortgage bonds
that will have the same stated maturity date and corresponding redemption
provisions, and will be in the same total principal amount as the series of the
senior notes being issued. Any series of first mortgage bonds securing senior
notes may, but need not, bear interest. Any payment by Puget to the senior note
trustee of principal of, interest and/or premium, if any, on a series of first
mortgage bonds will be applied by the senior note trustee to satisfy Puget's
obligations with respect to principal of, interest and/or premium, if any, on
the corresponding senior notes.
The "release date" will be the date that all first mortgage bonds of Puget
issued and outstanding under its electric utility mortgage indenture with State
Street Bank and Trust Company as mortgage trustee and its gas utility mortgage
indenture with The Bank of New York Company, Inc. as mortgage trustee, other
than first mortgage bonds securing senior notes, have been retired (at, before
or after their maturity) through payment, redemption or otherwise. On the
release date, the senior note trustee will deliver to Puget, for cancellation,
all first mortgage bonds securing senior notes. Not later than 30 days
thereafter, the senior note trustee will provide notice to all holders of
senior notes of the occurrence of the release date. As a result, on the release
date, the first mortgage bonds securing senior notes will cease to secure the
senior notes. The senior notes will then become, at Puget's option, either:
. unsecured general obligations of Puget or
. will be secured by substitute first mortgage bonds issued under a
substitute mortgage indenture other than Puget's electric utility
mortgage or gas utility mortgage.
Each series of first mortgage bonds that secures senior notes will be secured
by a lien on certain property owned by Puget. See "Description of First
Mortgage Bonds--Priority and Security." Upon the payment or cancellation of any
outstanding senior notes, the senior note trustee will surrender to Puget for
cancellation an equal principal amount of the related series of first mortgage
bonds. Puget will not permit, at any time prior to the release date, the total
principal amount of first mortgage bonds securing senior notes held by the
senior note trustee to be less than the total principal amount of senior notes
outstanding. Following the release date, Puget will cause the mortgages to be
discharged and will not issue any additional first mortgage bonds under its
electric utility mortgage or gas utility mortgage. While Puget will be
precluded after the release date from issuing additional first mortgage bonds,
it will not be precluded under the senior note indenture or senior notes from
issuing or assuming other secured debt, or incurring liens on its property,
except to the extent indicated below under "--Certain Covenants of Puget--
Limitation on Liens."
Events of Default
The following constitute events of default under senior notes of any series:
(1) failure to pay principal of and premium, if any, on any senior note
of such series when due for five days;
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(2) failure to pay interest on any senior note of such series when due
for 30 days;
(3) failure to perform any other covenant or agreement of Puget in the
senior notes of such series for 90 days after written notice to Puget by
the senior note trustee or the holders of at least a majority in total
principal amount of the outstanding senior notes;
(4) prior to the release date, a default occurs under the gas utility
mortgage and the gas utility mortgage trustee or the holders of at least a
majority in principal amount of the outstanding senior notes give notice of
the default to the senior note trustee;
(5) prior to the release date, a default occurs under the electric
utility mortgage and the electric utility mortgage trustee or the holders
of at least a majority in total principal amount of the outstanding senior
notes give notice of the default to the senior note trustee;
(6) if any substituted mortgage bonds are outstanding, a default occurs
under the substitute mortgage and the trustee under the substitute mortgage
or the holders of at least a majority in total principal amount of the
outstanding senior notes give notice of the default to the senior note
trustee; and
(7) events of bankruptcy, insolvency or reorganization of Puget specified
in the senior note indenture.
If an event of default occurs and is continuing, either the senior note
trustee or the holders of a majority in total principal amount of the
outstanding senior notes may declare the principal amount of all senior notes
to be due and payable immediately.
The senior note trustee generally 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 of senior notes of such series unless those
holders have offered to the senior note trustee reasonable security or
indemnity. Subject to the provisions for indemnity and certain other
limitations contained in the senior note indenture, the holders of a majority
in principal amount of the outstanding senior notes of such series generally
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 of
exercising any trust or power conferred on the senior note trustee. The holders
of a majority in principal amount of the outstanding senior notes of such
series generally will have the right to waive any past default or event of
default (other than a payment default) on behalf of all holders of senior notes
of such series.
No holder of senior notes of a series may institute any action against Puget
under the senior note indenture unless:
(1) that holder gives to the senior note trustee advance written notice
of default and its continuance;
(2) the holders of not less than a majority in total principal amount of
senior notes of such series then outstanding affected by that event of
default request the senior note trustee to institute such action;
(3) that holder has offered the senior note trustee reasonable indemnity;
and
(4) the senior note trustee shall not have instituted such action within
60 days of such request.
Furthermore, no holder of senior notes will be entitled to institute any such
action if and to the extent that that action would disturb or prejudice the
rights of other holders of senior notes of such series.
Within 90 days after the occurrence of a default with respect to the senior
notes of a series, the senior note trustee must give the holders of the senior
notes of such series notice of any such default known to the senior note
trustee, unless cured or waived. The senior note trustee may withhold such
notice if it determines in good faith that it is in the interest of such
holders to do so except in the case of default in the payment of principal of,
and interest and/or premium, if any, on any senior notes of such series. Puget
is required to deliver to the senior note trustee each year a certificate as to
whether or not, to the knowledge of the officers signing such certificate,
Puget is in compliance with the conditions and covenants under the senior note
indenture.
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Modification
Except as provided in the paragraph below, Puget and the senior note trustee
cannot modify or amend the senior note indenture without the consent of the
holders of a majority in principal amount of the outstanding affected senior
notes. Puget and the senior note trustee cannot modify or amend the senior note
indenture without the consent of the holder of each outstanding senior note of
such series to:
(1) change the maturity date of any senior note of such series;
(2) reduce the rate (or change the method of calculation thereof) or
extend the time of payment of interest on any senior note of such series;
(3) reduce the principal amount of, or premium payable on, any senior
note of such series;
(4) change the coin or currency of any payment of principal of, and
interest and/or premium on any senior note of such series;
(5) change the date on which any senior note of such series may be
redeemed or repaid at the option of its holder or adversely affect the
rights of a holder to institute suit for the enforcement of any payment on
or with respect to any senior note of such series;
(6) impair the interest of the senior note trustee in the first mortgage
bonds securing the senior notes of such series held by it or, prior to the
release date, reduce the principal amount of any series of first mortgage
bond securing the senior notes of such series to an amount less than the
principal amount of the related series of senior notes or alter the payment
provisions of such first mortgage bonds in a manner adverse to the holders
of the senior notes; or
(7) modify the senior notes of such series necessary to modify or amend
the senior note indenture or to waive any past default to less than a
majority.
Puget and the senior note trustee can modify and amend the senior note
indenture without the consent of the holders in certain cases, including:
(1) to add to the covenants of Puget for the benefit of the holders or to
surrender a right conferred on Puget in the senior note indenture;
(2) to add further security for the senior notes of such series;
(3) to supply omissions, cure ambiguities or correct defects which
actions, in each case, are not prejudicial to the interests of the holders
in any material respect; or
(4) to make any other changes that are not prejudicial to the holders of
senior notes of such series.
Defeasance and Discharge
The senior note indenture provides that Puget will be discharged from any and
all obligations in respect to the senior notes of such series and the senior
note indenture (except for certain obligations such as obligations to register
the transfer or exchange of senior notes, replace stolen, lost or mutilated
senior notes and maintain paying agencies) if, among other things, Puget
irrevocably deposits with the senior note trustee, in trust for the benefit of
holders of senior notes of such series, money or certain United States
government obligations, or any combination of money or government obligations,
which through the payment of interest and principal on the deposits in
accordance with their terms must provide money in an amount sufficient, without
reinvestment, to make all payments of principal of, and any premium and
interest on, the senior notes on the dates such payments are due in accordance
with the terms of the senior note indenture and the senior notes of such
series. Unless all of the senior notes of such series are to be due within 90
days of such deposit by redemption or otherwise, Puget must also deliver to the
senior note trustee an opinion of counsel to the effect that the holders of the
senior notes of such series will not recognize income, gain or loss for federal
income tax purposes as a result of that defeasance or discharge of the senior
note indenture. Thereafter, the holders of senior notes must look only to the
deposit for payment of the principal of, and interest and any premium on, the
senior notes.
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Consolidation, Merger and Sale or Disposition of Assets
Puget may consolidate with or merge into, or sell or otherwise dispose of its
properties as or substantially as an entirety if:
(1) the successor or transferee corporation is a corporation organized
and existing under the laws of the United States of America, any state
thereof, or the District of Columbia,
(2) the new corporation assumes the due and punctual payment of the
principal of and premium and interest on all the senior notes and the
performance of every covenant of the senior note indenture to be performed
or observed by Puget,
(3) if prior to the release date, the new corporation assumes Puget's
obligations under its electric utility and gas utility mortgage with
respect to first mortgage bonds securing senior notes, and
(4) if after the release date and there are substitute first mortgage
bonds outstanding, the new corporation assumes Puget's obligations under
the substitute first mortgage with respect to substitute first mortgage
bonds securing senior notes.
The senior note indenture defines "all or substantially all" of the assets of
Puget as being 50% or more of the total assets of Puget as shown on its balance
sheet as of the end of the prior year. The senior note indenture specifically
permits any sale, transfer or other disposition during a calendar year of less
than 50% of total assets without the consent of the holders of the senior notes
and without the assumption by the transferee of Puget's obligations on the
senior notes and covenants contained in the senior note indenture.
Certain Covenants of Puget
Limitation on Liens
Puget cannot issue any first mortgage bonds other than first mortgage bonds
that secure senior notes. After the release date, Puget will be precluded from
issuing additional first mortgage bonds under its electric utility mortgage and
gas utility mortgage. Unless substitute first mortgage bonds are issued to
secure senior notes, Puget may not issue, assume, guarantee or permit to exist
after the release date any debt that is secured by any mortgage, security
interest, pledge or lien (each a "lien") of or upon any real property or other
depreciable asset used in Puget's electric and gas utility business, whether
owned at the date of the senior note indenture or thereafter acquired, without
in any such case effectively securing the senior notes (together with, if Puget
shall so determine, any other indebtedness of Puget ranking equally with the
senior notes) equally and ratably with such debt (but only so long as such debt
is so secured). The foregoing restriction will not apply to:
(1) liens on any property existing at the time of its acquisition (but
excluding any extension of or addition to such property unless the terms of
the mortgage as of the date of the acquisition of such property provide
that such mortgage shall be secured by such extensions or additions);
(2) liens to secure the payment of all or part of the purchase price of
property or to secure any debt incurred prior to, at the time of or within
180 days after the acquisition of such property for the purpose of
financing all or part of the purchase price of such property;
(3) liens secured by property used in the generation of electricity;
(4) liens existing as of the date of the senior note indenture;
(5) certain permitted encumbrances similar to the permitted encumbrances
under the electric utility mortgage;
(6) any extension, renewal or replacement (or successive extensions,
renewals or replacements), in whole or in part, of any lien referred to in
clauses (1) through (5); provided, however, that the principal amount of
debt secured thereby may not exceed the principal amount of debt (plus any
premium or fee payable in connection with such extension, renewal or
replacement) so secured at the time of such
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extension, renewal or replacement; and provided, further, that such lien
must be limited to all or such part of the property which was subject to
the mortgage so extended, renewed or replaced (plus improvements on such
property);
(7) liens in favor of the United States, any state of the United States,
any other country or any political subdivision of any of the foregoing, to
secure partial, progress, advance or other payments under any contract or
statute; or
(8) liens securing industrial development, pollution control or similar
revenue bonds.
Notwithstanding the foregoing restriction, Puget may create, assume or incur
any lien not excepted above without equally and ratably securing the senior
notes if the aggregate amount of all debt then outstanding and secured by such
lien or any other lien not excepted above, together with all net sale proceeds
from sale-leaseback transactions which are not described in clause (1) or (2)
under "--Limitations on Sale-Leaseback Transactions" below, does not exceed 15%
of Puget's total consolidated capitalization as shown on its latest audited
consolidated balance sheet.
Limitation on Sale and Lease-Back Transactions
Unless substituted first mortgage bonds are issued to secure the senior
notes, after the release date Puget may not sell or transfer any real property
interest or other depreciable asset and take back a lease of such property
unless:
(1) the sale and leaseback transaction occurs within 180 days after the
later of the date of acquisition of such property or the date of the
completion of construction or commencement of full operations on such
property, or
(2) within 120 days after the sale and leaseback transaction, Puget
applies or causes to be applied to the retirement of debt of Puget (other
than debt which is subordinate in right of payment to senior notes) an
amount not less than the net proceeds of the sale of such property.
Notwithstanding the foregoing restriction, Puget may effect any sale and
leaseback transaction not excepted above if the net sale proceeds from the sale
and leaseback transaction, together with the net sale proceeds from all other
sale and leaseback transactions not excepted above and all debt then
outstanding and secured by mortgages not described in any of clauses (1)
through (8) under "--Limitations on Liens," does not exceed 15% of Puget's
total consolidated capitalization as shown on its latest audited consolidated
balance sheet. Puget may also effect any sale and leaseback transaction
involving a lease for a period, including renewals, of not more than 36 months.
Voting of First Mortgage Bonds Held by Senior Note Trustee
The senior note trustee, as the holder of first mortgage bonds securing
senior notes, will attend any meeting of bondholders under Puget's electric
utility mortgage and gas utility mortgage, or, at its option, will deliver its
proxy in connection therewith as it relates to matters with respect to which it
is entitled to vote or consent. The senior note trustee will vote all of the
electric utility bonds or gas utility bonds held by it, or will consent with
respect thereto, as directed by holders of a majority in total principal amount
of the outstanding senior notes; provided, however, that the senior note
trustee is not required to vote the electric utility or gas utility bonds of
any particular issue in favor of, or give consent to, any action except upon
notification by the senior note trustee to the holders of the related issue of
senior notes of such proposal and consent thereto of the holders of a majority
in principal amount of the outstanding senior notes of such issue.
Concerning the Senior Note Trustee
State Street Bank and Trust Company is both the senior note trustee under the
senior note indenture and the mortgage trustee under the electric utility
mortgage indenture, which is described below. Puget and its
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affiliates do not currently maintain any other banking relationships with State
Street Bank and Trust Company in the ordinary course of business, but Puget may
choose to do so in the future.
The senior note trustee may resign at any time by giving written notice to
Puget specifying the day on which the resignation is to take effect. The
resignation will take effect immediately upon the later of the appointment of a
successor senior note trustee and the day specified by the senior note trustee.
The senior note trustee may be removed at any time by a written instrument
filed with the senior note trustee and signed by the holders of at least a
majority in total principal amount of outstanding senior notes. In addition, if
no event of default has occurred and is continuing, Puget may remove the senior
note trustee upon notice to the holder of each senior note outstanding and the
senior note trustee, and appointment of a successor senior note trustee.
Description of the First Mortgage Bonds
General
The first mortgage bonds securing the senior notes are to be issued under
Puget's electric utility mortgage indenture or its gas utility mortgage
indenture, each as amended and supplemented by various supplemental indentures.
State Street Bank and Trust Company will act as the electric utility mortgage
trustee and The Bank of New York Company, Inc. will act as the gas utility
mortgage trustee.
The statements herein concerning these mortgage indentures are outlines and
are not complete and are subject to, and qualified in their entirety by, all of
the provisions of the electric utility and gas utility mortgage indentures,
which are exhibits to the registration statement of which this prospectus forms
a part. They make use of defined terms and are qualified in their entirety by
express reference to the mortgage indentures, copies of which are available
upon request to the senior note trustee.
First mortgage bonds securing senior notes will be issued as security for
Puget's obligations under the senior note indenture and will be immediately
delivered to and registered in the name of the senior note trustee. The first
mortgage bonds securing senior notes will be issued as security for senior
notes of a series and will secure the senior notes of that series until the
release date. The senior note indenture provides that the senior note trustee
shall not transfer any first mortgage bonds securing senior notes except to a
successor trustee, to Puget (as provided in the senior note indenture) or in
compliance with a court order in connection with a bankruptcy or reorganization
proceeding of Puget.
First mortgage bonds securing senior notes will correspond to the senior
notes of its related series in respect of principal amount, interest rate,
maturity date and redemption provisions. Upon payment of the principal or
premium, if any, or interest on senior notes of a series, the related first
mortgage bonds in a principal amount equal to the principal amount of such
senior notes will, to the extent of such payment of principal, premium or
interest, be deemed fully paid and the obligation of Puget to make such payment
shall be discharged.
The Electric Utility Mortgage Bonds
Priority and Security
The electric utility mortgage bonds securing senior notes of any series will
rank equally as to security with bonds of other series now outstanding or
issued later under the electric utility mortgage. This security is a direct
first lien on Puget's electric utility property and its electric franchises and
permits (other than certain property expressly excluded from the lien (such as
cash, securities, notes, accounts receivable and similar instruments;
conditional sales, appliance rental or lease agreements; materials and
supplies; merchandise held for the purpose of sale, lease or distribution; fuel
(including fissionable material) and personal property consumable in
operations; oil, gas and other minerals and timber under or upon lands of
Puget; office furniture
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and equipment, automobiles and similar transportation equipment; nonutility
property and certain property of a successor corporation in a merger or
consolidation. This lien is subject to excepted encumbrances (and certain other
limitations) as defined and described in the electric utility mortgage
indenture. It is also subject to the lien of the gas utility mortgage with
respect to Puget's gas utility property that was acquired in connection with
the merger with Washington Energy Company on February 10, 1997. The electric
utility mortgage indenture permits the acquisition of property subject to prior
liens.
Dividend Restriction
So long as any of the electric utility mortgage bonds are outstanding, Puget
shall not do either of the following, except out of net income available for
dividends on its common stock, accumulated after December 31, 1957, plus the
sum of $7,500,000:
. declare or pay any dividends (other than dividends payable in Puget's
common stock) or make any other distribution on any shares of its common
stock, or
. purchase, redeem or otherwise retire for consideration any shares of
stock.
Issuance of Electric Utility Mortgage Bonds and Withdrawal of Cash Deposited
Against Such Issuance
The principal amount of electric utility mortgage bonds that Puget may issue
under the electric utility mortgage is not limited, provided that the issuance
tests in the electric utility mortgage are satisfied. Electric utility mortgage
bonds may be issued from time to time against one or more of the following:
. 60% of unfunded net property additions;
. deposit of cash with the electric utility mortgage trustee; and
. 100% of unfunded electric utility mortgage bond credits.
The issuance of electric utility mortgage bonds against unfunded net
additions, with certain exceptions, is subject to net earnings available for
interest being at least two times the annual interest requirement on all
electric utility mortgage bonds and prior lien debt to be outstanding. Cash
deposited is withdrawable against 60% of unfunded net additions and 100% of
unfunded electric utility mortgage bond credits.
Depreciation Fund
Puget will pay cash or deliver electric utility mortgage bonds of any series
to the electric utility mortgage trustee by May 31 of each year in an amount
equal to the minimum provision for depreciation for the preceding year (i.e.,
an amount by which 15% of gross utility operating revenues of Puget, after
deducting cost of electricity purchased and rental and lease payments, exceeds
maintenance, repairs and renewals). Cash held in the depreciation fund may be
applied to the retirement of the electric utility mortgage bonds of certain of
the Secured Medium-Term Notes, Series A, certain of the Secured Medium-Term
Notes, Series B, certain of the Secured Medium-Term Notes, Series C, the 7.05%
Series due 2021, the 7.25% Series due 2021 and the 6.80% Series due 2022 (the
last three series were issued as collateral for City of Forsyth, Rosebud
County, Montana, Pollution Control Revenue Refunding Bonds) at a price not
exceeding the applicable regular redemption price thereof, or other electric
utility mortgage bonds at a price not exceeding the applicable special
redemption price thereof. In lieu of paying cash or delivering electric utility
mortgage bonds, Puget will have the option of satisfying this obligation
through the use of unfunded property additions or unfunded electric utility
mortgage bond credits, or both. Cash and electric utility mortgage bonds held
in such fund may also be withdrawn by using either of the aforesaid credits.
Modification of Mortgage
The rights of the bondholders under the electric utility mortgage may be
modified by Puget with the consent of the holders of 66 2/3% in total principal
amount of the electric utility bonds, and of not less than
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66 2/3% of the principal amount of each series affected. In general, however,
no modification of the terms of payment of principal or interest and no
modification affecting the lien or reducing the percentage required for
modification is effective against any bondholder without the bondholder's
consent.
Puget anticipates that its fuel costs may increase in the future, causing an
increase in revenue that may escalate the minimum provision for depreciation
out of proportion with Puget's reasonable maintenance and replacement needs. If
such an event occurs, Puget would propose to modify the electric utility
mortgage by reducing the amount of operating revenues used in determining the
minimum provision for depreciation by the amount of fuel costs. Thus, each
supplemental indenture for a new series of electric utility mortgage bonds will
provide that each holder consents to this anticipated modification. When Puget
obtains consents from the holders of 66 2/3% of each series of electric utility
mortgage bonds then outstanding, the modification will become effective.
Concerning the Mortgage Trustee
The State Street Bank and Trust Company is the mortgage trustee under the
electric utility mortgage indenture. Puget and its affiliates do not currently
maintain any other banking relationships with State Street Bank and Trust
Company in the ordinary course of business, but Puget may choose to do so in
the future.
The holders of a majority in total principal amount of the electric utility
mortgage bonds have the right to require the electric utility mortgage trustee
to enforce the electric utility mortgage, but the electric utility mortgage
trustee is entitled to receive reasonable indemnity and is not required to act
under certain circumstances.
Defaults
The electric utility mortgage defines the following as "defaults":
. failure to pay principal and premium when due;
. failure to pay interest for 30 days after becoming due;
. failure to pay any installment of any sinking or other purchase fund for
60 days;
. an unstayed continuance for 90 days after an entry of an order for
reorganization or an appointment of a trustee;
. certain events in bankruptcy, insolvency or reorganization;
. an unsatisfied continuance for 90 days after entry of a judgment in
excess of $100,000; and
. failure for 90 days after notice to observe other covenants or
conditions.
The electric utility mortgage indenture does not contain a provision
requiring any periodic evidence to be furnished as to the absence of default or
as to compliance with the terms thereof.
Gas Utility Mortgage Bonds
Priority and Security
The gas utility mortgage bonds securing senior notes of any series will rank
equally as to security with gas utility mortgage bonds of other series now
outstanding or issued later under the gas utility mortgage indenture. This
security is a direct first lien on all of Puget's gas utility property, on its
gas utility franchises and permits and on its gas purchase contracts (other
than certain property expressly excluded from the lien (such as cash,
securities, notes, accounts receivable and similar instruments; conditional
sales, appliance rental or lease agreements; material and supplies; merchandise
held for the purpose of sale, lease or distribution; gas or liquid hydrocarbons
in pipe lines and in storage; fuel and personal property consumable in
operations; oil, gas and
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other minerals and timber under or upon lands of Puget; office furniture and
equipment, automobiles and similar transportation equipment; nonutility
property and certain property of a successor corporation in a merger or
consolidation)). All property owned by Puget immediately prior to its merger
with Washington Energy Company on February 10, 1997 is excepted from the lien
of the gas utility mortgage . All property acquired by Puget after the merger
is also excepted from the lien, unless the property improves or replaces the
gas utility property owned by Washington Energy Company at the time of the
merger. This lien is subject to excepted encumbrances (and certain other
limitations) as defined and described in the gas utility mortgage indenture.
The mortgage indenture permits the acquisition of property subject to prior
liens, but this property will not be considered as additional property under
the gas utility mortgage until the prior lien is paid.
Dividend Restriction
If the aggregate amount of all the dividends, distributions and expenditures
listed below made since September 30, 1994 would exceed the aggregate amount of
the net income of Puget accumulated after September 30, 1994 plus the sum of
$20,000,000, Puget shall not do any of the following so long as any of Puget's
Secured Medium Term Notes, Series C, issued under the gas utility mortgage, are
outstanding:
. declare or pay any dividends (other than dividends payable in Puget's
common stock) or make any other distribution on any shares of its common
stock, or
. purchase, redeem or otherwise retire for consideration any shares of
stock (other than in exchange for, or from the net cash proceeds of,
other new shares of capital stock of Puget and other than any shares of
any class of stock ranking as to dividends or assets prior to Puget's
common stock required to be purchased, redeemed or otherwise retired for
any sinking fund or purchase fund for such class of stock).
Renewal Fund
Puget will pay cash and/or deliver gas utility mortgage bonds (taken at the
principal amount thereof) to the gas utility mortgage trustee for deposit into
a renewal fund on or before May 1 of each year in an amount equal to the
greater of:
(a) the aggregate amount of the minimum provision for depreciation (i.e.,
an amount computed at the rate of 2% per annum, or such other rate as may
be permitted or required by the Washington Utilities and Transportation
Commission, of the book value of depreciable gas utility property subject
to the lien of the gas utility mortgage and not to prior liens) from March
1, 1957 to the end of the next preceding calendar year; or
(b) the aggregate amount of retirements for the same period;
in excess of the greater of:
(A) the aggregate amounts for the minimum provision for depreciation or
retirements, whichever is greater, shown in the next preceding renewal fund
certificate filed with the gas utility mortgage trustee pursuant to the
requirements of Section 4.04 of the gas utility mortgage; or
(B) the aggregate amounts for the minimum provision for depreciation or
retirements, whichever is greater, shown in the latest certificate of
available net additions delivered to the gas utility mortgage trustee
pursuant to Section 2.01 of the gas utility mortgage;
less the aggregate amount of gas utility mortgage bonds retired by sinking fund
operations, not theretofore used as a credit on account of the renewal fund in
previous renewal fund certificates. The renewal fund obligation may be
satisfied in whole or in part by credits consisting of unfunded property
additions and/or unfunded gas utility mortgage bonds credits.
Any cash deposited in the renewal fund, if and to the extent that Puget at
the time does not have property additions available for use as a credit to
satisfy such renewal fund obligation, may, upon the written order of
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Puget, be applied by the gas utility mortgage trustee to the redemption of
certain gas utility mortgage bonds or, if not so applied pursuant to the
provisions of the gas utility mortgage, to the retirement of gas utility
mortgage bonds.
Issuance of Gas Bonds and Withdrawal of Cash Deposited Against Such Issuance
The principal amount of gas utility mortgage bonds issuable under the gas
utility mortgage is not limited, provided that the issuance tests in the gas
utility mortgage are satisfied. Gas utility mortgage bonds may be issued from
time to time against one or more of the following:
. 60% of unfunded net property additions;
. deposit of cash with the gas utility mortgage trustee; and
. 100% of unfunded gas utility mortgage bond credits.
With certain exceptions, the issuance of gas utility mortgage bonds is
subject to net earnings available for interest being at least:
(1) two times the annual interest requirements on all Gas Bonds and prior
lien debt to be outstanding; and
(2) 1.75 times the annual interest charges on all indebtedness of Puget
to be outstanding immediately after such issuance.
Cash deposited is withdrawable against 60% of unfunded net property additions
in the case of moneys on deposit with the gas utility mortgage trustee for the
purpose described above, 100% of the amount of unfunded net additions in the
case of any other trust moneys and 100% of unfunded gas utility mortgage bond
credits.
Modification of Mortgage
The rights of the bondholders under the gas utility mortgage may be modified
by Puget with the consent of the holders of 66 2/3% in total principal amount
of the gas utility mortgage bonds and of not less than 66 2/3% of the principal
amount of each series affected. In general, however, no modification of the
terms of payment of principal or interest and no modification affecting the
lien or reducing the percentage required for modification is effective against
any bondholder without the bondholder's consent.
Concerning the Mortgage Trustee
The Bank of New York Company, Inc. is the gas utility mortgage trustee under
the mortgage indenture. The Bank of New York Company, Inc. is one of the
lenders under Puget's revolving credit facility.
The holders of a majority in total principal amount of the electric utility
mortgage bonds have the right to require the gas utility mortgage trustee to
enforce the gas utility mortgage, but the electric utility mortgage trustee is
entitled to receive reasonable indemnity and is not required to act under
certain circumstances.
Defaults
The gas utility mortgage defines the following as "defaults":
. failure to pay principal and premium when due;
. failure to pay interest for ten days after becoming due;
. failure to pay any installment of any sinking or other purchase fund for
30 days after becoming due;
. certain events in bankruptcy, insolvency or reorganization;
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. failure to pay money due under any indebtedness other than gas utility
mortgage bonds in an amount of $500,000 or more or the failure to
perform any other agreement evidencing the indebtedness if Puget's
failure causes any payments to become due prior to the due date;
. an unsatisfied continuance for 90 days after entry of a judgment in
excess of $100,000;
. an unstayed continuance for 60 days after an entry of an order for
reorganization or an appointment of a trustee; and
. failure for 30 days after notice to observe other covenants and
conditions after notice.
The gas utility mortgage indenture does not contain a provision requiring any
periodic evidence to be furnished as to the absence of default or as to
compliance with the terms thereof.
Subordinated Debentures
The subordinated debentures will be issued under the subordinated debt
indenture and will rank subordinated and junior in right of payment, to the
extent set forth in the subordinated debt indenture, to all "senior
indebtedness" (as defined below) of Puget.
If Puget defaults in the payment of any distributions on any senior
indebtedness when it becomes due and payable after any applicable grace period,
then, unless and until the default is cured or waived or ceases to exist, Puget
cannot make a payment on account of or redeem or otherwise acquire the
subordinated debentures. The subordinated debt indenture provisions described
in this paragraph, however, do not prevent Puget from making sinking fund
payments in subordinated debentures acquired prior to the maturity of senior
indebtedness or, in the case of default, prior to such default and notice
thereof. If there is any insolvency, bankruptcy, liquidation or other similar
proceeding relating to Puget, its creditors or its property, then all senior
indebtedness must be paid in full before any payment may be made to any holders
of subordinated debentures. Holders of subordinated debentures must return and
deliver any payments received by them, other than in a plan of reorganization
or through a defeasance trust as described above, directly to the holders of
senior indebtedness until all senior indebtedness is paid in full.
"Senior indebtedness" means distributions on the following, whether
outstanding on the date of execution of the subordinated debt indenture or
thereafter incurred, created or assumed:
. indebtedness of Puget for money borrowed by Puget or evidenced by
debentures (other than the subordinated debentures), notes, bankers'
acceptances or other corporate debt securities or similar instruments
issued by Puget;
. capital lease obligations of Puget;
. obligations of Puget incurred for deferring the purchase price of
property, with respect to conditional sales, and under any title
retention agreement (but excluding trade accounts payable arising in the
ordinary course of business);
. obligations of Puget with respect to letters of credit;
. all indebtedness of others of the type referred to in the four preceding
clauses assumed by or guaranteed in any manner by Puget or in effect
guaranteed by Puget; or
. renewals, extensions or refundings of any of the indebtedness referred
to in the preceding five clauses unless, in the case of any particular
indebtedness, renewal, extension or refunding, under the express
provisions of the instrument creating or evidencing the same or the
assumption or guarantee of the same, or pursuant to which the same is
outstanding, such indebtedness or such renewal, extension or refunding
thereof is not superior in right of payment to the subordinated debt
securities.
The subordinated debt indenture does not limit the total amount of senior
indebtedness that may be issued. As of June 30, 2000, senior indebtedness of
Puget totaled approximately $1,939,860,000.
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Certain Covenants
If trust debt securities are issued to the trust or the trustee of the trust
in connection with the issuance of trust preferred securities of the trust,
Puget will covenant that it will not:
(1) declare or pay any dividends or distributions on, or redeem,
purchase, acquire, or make a liquidation payment with respect to, any of
Puget's capital stock; or
(2) make any payment of principal, interest or premium, if any, on, or
repay or repurchase or redeem any debt securities (including guarantees of
indebtedness for money borrowed) of Puget that rank equal with or junior
to, that trust debt security (other than (a) any dividend, redemption,
liquidation, interest, principal or guarantee payment by Puget where the
payment is made by way of securities (including capital stock) that rank
equal with or junior to the securities on which such dividend, redemption,
interest, principal or guarantee payment is being made, and (b) payments
under Puget's guarantees of trust securities);
if at such time (A) there shall have occurred any event of which Puget has
actual knowledge that (i) with the giving of notice or the lapse of time,
or both, would constitute an event of default under the indentures and (ii)
in respect of which Puget shall not have taken reasonable steps to cure,
(B) Puget shall be in default with respect to its payment of any
obligations under the guarantees or (C) Puget will have given notice of its
selection of an extension period as provided in the indentures with respect
to the trust debt securities and will not have rescinded such notice, or
such extension period, or any extension thereof, shall be continuing.
Puget also covenants:
(1) to maintain directly or indirectly 100% ownership of the trust common
securities, provided that certain successors that are permitted pursuant to
the indentures may succeed to Puget's ownership of the common securities;
(2) not to voluntarily dissolve, wind-up or liquidate the trust, except:
(a) in connection with a distribution of the debt securities to the
holders of the trust preferred securities in liquidation of such trust,
or
(b) in connection with certain mergers, consolidations or
amalgamations permitted by the amended and restated trust agreement;
and
(3) to use its reasonable efforts, consistent with the terms and
provisions of the amended and restated trust agreement, to cause such trust
to remain classified as a grantor trust and not as an association taxable
as a corporation for United States federal income tax purposes.
Events of Default
The subordinated debt indenture provides that events of default regarding any
series of subordinated debentures include:
. failure to pay required interest on any subordinated debentures of such
series for 30 days;
. failure to pay principal other than a scheduled installment payment or
premium, if any, on any subordinated note of such series when due;
. failure to make any required scheduled installment payment on
subordinated notes of such series;
. failure to perform for 60 days after notice any other covenant in the
relevant indenture other than a covenant included in the relevant
indenture solely for the benefit of a series of subordinated debentures
other than such series;
. certain events of bankruptcy or insolvency, whether voluntary or not;
and
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. such trust is voluntarily or involuntarily dissolved, wound-up or
terminated, except in connection with the distribution of subordinated
debentures to the holders of the common securities and the trust
preferred securities in liquidation of the trust, the redemption of all
outstanding trust securities of the trust and certain mergers,
consolidation or amalgamations permitted by the declaration of that
trust.
If an event of default regarding subordinated debentures of any series issued
should occur and be continuing, either the subordinated debenture trustee or
the holders of 25% in the principal amount of outstanding subordinated
debentures of such series may declare each subordinated debenture of that
series due and payable.
Holders of a majority in principal amount of the outstanding subordinated
debentures of any series will be entitled to control certain actions of the
subordinated debenture trustee and to waive past defaults regarding such
series. The trustee generally will not be requested, ordered or directed by any
of the holders of subordinated debentures, unless one or more of such holders
shall have offered to the trustee reasonable security or indemnity.
Before any holder of any series of subordinated debentures may institute
action for any remedy, except payment on such holder's subordinated debentures
when due, the holders of not less than 25% in principal amount of the
subordinated debentures of that series outstanding must request the
subordinated note trustee to take action. Holders must also offer and give the
satisfactory security and indemnity against liabilities incurred by the trustee
for taking such action.
Puget is required to annually furnish the subordinated debenture trustee a
statement as to Puget's compliance with all conditions and covenants under the
subordinated debt indenture. The subordinated debenture trustee is required,
within 90 days after the occurrence of a default with respect to a series of
subordinated debentures, to give notice of all defaults affecting such series
of subordinated debentures to each holder of such series of debentures.
However, the subordinated debt indenture provides that the subordinated
debenture trustee may withhold notice to the holders of the subordinated
debentures of any series of any default affecting such series, except payment
on holders' subordinated debentures when due, if it considers withholding
notice to be in the interests of the holders of the subordinated debentures of
such series.
Consolidation, Merger or Sale of Assets
The subordinated debt indenture provides that Puget may consolidate with or
merge into, or sell, lease or convey its property as an entirety or
substantially as an entirety to, any other corporation if the successor
corporation assumes the obligations of Puget under the subordinated debentures
and the subordinated debt indenture and is organized and existing under the
laws of the United States of America, any U.S. state or the District of
Columbia.
Modification of the Indenture
The subordinated debt indenture permits Puget and the subordinated debenture
trustee to enter into supplemental indentures without the consent of the
holders of the subordinated debentures to:
. establish the form and terms of any series of securities under the
subordinated debt indenture;
. secure the subordinated debentures with property or assets;
. add covenants of Puget for the benefit of the holders of the
subordinated debentures;
. cure any ambiguity or correct or supplement any provision in the
indenture or any supplement to the indenture, provided that no such
action adversely affects the interests of the holders of the
subordinated debentures; and
. evidence and provide for the acceptance of a successor trustee.
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The subordinated debt indenture also permits Puget and the subordinated
debenture trustee, with the consent of the holders of at least a majority in
total principal amount of the subordinated debentures of all series then
outstanding and affected (voting as one class), to change in any manner the
provisions of the subordinated debt indenture or modify in any manner the
rights of the holders of the subordinated debentures of each such affected
series. Puget and the relevant trustee may not, without the consent of the
holder of each subordinated debenture affected, enter into any supplemental
indenture to:
. change the time of payment of the principal;
. reduce the principal amount of such subordinated debentures;
. reduce the rate or change the time of payment of interest on such
subordinated debentures; or
. impair the right to institute suit for the enforcement of any payment on
any subordinated debentures when due.
In addition, no such modification may reduce the percentage in principal
amount of the subordinated debentures of the affected series, the consent of
whose holders is required for any such modification or for any waiver provided
for in the subordinated debt indenture.
Prior to the acceleration of the maturity of any subordinated debentures, the
holders, voting as one class, of a majority in total principal amount of the
subordinated debentures with respect to which a default or event of default has
occurred and is continuing, may, on behalf of the holders of all such affected
subordinated debentures, waive any past default or event of default and its
consequences, except a default or an event of default in respect of a covenant
or provision of the applicable indenture or of any subordinated debenture that
cannot be modified or amended without the consent of the holder of each
subordinated debenture affected.
Defeasance, Covenant Defeasance and Discharge
The subordinated debt indenture provides that, at the option of Puget, Puget
will be discharged from all obligations in respect of the subordinated
debentures of a particular series then outstanding (except for certain
obligations to register the transfer of or exchange the subordinated debentures
of such series, to replace stolen, lost or mutilated subordinated debentures of
such series, to maintain paying agencies and to maintain the trust described
below) if Puget in each case irrevocably deposits in trust with the relevant
trustee money, and/or securities backed by the full faith and credit of the
United States which, through the payment of the principal thereof and the
interest thereon in accordance with their terms, will provide money in an
amount sufficient to pay all the principal and interest on the subordinated
debentures of such series on the stated maturities of such subordinated
debentures in accordance with the terms thereof.
To exercise this option, Puget is required to deliver to the relevant trustee
an opinion of independent counsel to the effect that the exercise of such
option would not cause the holders of the subordinated debentures of such
series to recognize income, gain or loss for United States federal income tax
purposes as a result of such defeasance, and such holders will be subject to
United States federal income tax on the same amounts, in the same manner and at
the same times as would have been the case if such defeasance had not occurred.
Trust Preferred Securities
General
The trust may issue, on one or more occasion, trust preferred securities
having terms described in the prospectus supplement relating thereto. The
amended and restated trust agreement of the trust will authorize the
establishment of no more than one series of trust preferred securities, having
such terms, including distributions, redemption, voting, liquidation rights and
such other preferred, deferred or other special rights or such rights or
restrictions as shall be set forth therein or otherwise established by the
trustees pursuant thereto.
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You should read the prospectus supplement relating to the trust preferred
securities for specific terms, including:
. the distinctive designation and the number of trust preferred securities
to be offered, which will represent undivided beneficial interests in
the assets of the trust;
. the annual distribution rate and the dates or date upon which such
distributions will be paid, provided, however, distributions on the
trust preferred securities will be paid quarterly in arrears to holders
of trust preferred securities as of a record date on which the trust
preferred securities are outstanding;
. whether distributions on trust preferred securities would be deferred
during any deferral of interest payments on the debt securities,
provided, however, that no such deferral, including extensions, if any,
may exceed 20 consecutive quarters nor extend beyond the stated maturity
date of the trust debt securities, and at the end of any such deferrals,
Puget will make all interest payments then accrued or deferred and
unpaid (including any compounded interest);
. the amount of any liquidation preference;
. the obligation, if any, of the trust to redeem trust preferred
securities as a result of the exercise by Puget of an option on the
corresponding debt securities and the price or prices at which, the
period or periods within which and the terms and conditions upon which
trust preferred securities will be purchased or redeemed, in whole or in
part, under such obligation;
. the period or periods within which and the terms and conditions, if any,
including the price or prices or the rate or rates of conversion or
exchange and the terms and conditions of any adjustments, upon which the
trust preferred securities shall be convertible or exchangeable at the
option of the holder of the trust preferred securities of other property
or cash;
. the voting rights, if any, of the trust preferred securities in addition
to those required by law and in the amended and restated trust
agreement, or set forth under a Puget's guarantee (as defined below);
. the additional payments, if any, that the trust will pay as a
distribution as necessary so that the net amounts received by the trust
and distributable to the holders of the trust preferred securities,
after all taxes, duties, assessments or governmental charges of whatever
nature (other than withholding taxes) have been paid will not be less
than the amount that would have been received and distributed by the
trust, and the amount the holders of the trust preferred securities
would have received, had no such taxes, duties, assessments or
governmental charges been imposed;
. the terms and conditions, if any, upon which the trust debt securities
may be distributed to holders of trust preferred securities; and
. any other relative rights, powers, preferences, privileges, limitations
or restrictions of the trust preferred securities not inconsistent with
the amended and restated trust agreement or applicable law.
All trust preferred securities offered hereby will be irrevocably guaranteed
by Puget, on a subordinated basis and to the extent set forth below under "The
Guarantee." Any applicable federal income tax considerations applicable to any
offering of the trust preferred securities will be described in the prospectus
supplement relating thereto. The total number of trust preferred securities
that the trust shall have authority to issue will be determined pursuant to the
terms of the amended and restated trust agreement.
Effect of Obligations Under the Debt Securities and the Guarantees
As will be set forth in the amended and restated trust agreement, the sole
purpose of the trust is to issue the common securities and the trust preferred
securities evidencing undivided beneficial interests in the assets of the
trust, and to invest the proceeds from such issuance and sale to acquire
directly the debt securities from Puget.
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As long as payments of interest and other payments are made when due on the
debt securities, such payments will be sufficient to cover distributions and
payments due on the common securities and the trust preferred securities
because of the following factors:
. the total principal amount of debt securities will be equal to the sums
of the total stated liquidation amount of the common securities and the
trust preferred securities;
. the interest rate and the interest and other payment dates on the debt
securities will match the distribution rate and distribution and other
payment dates for the common securities and the trust preferred
securities;
. Puget will pay all, and the trust shall not be obligated to pay,
directly or indirectly, its costs, expenses, debt and obligations (other
than with respect to the common securities and the trust preferred
securities); and
. the amended and restated trust agreement will further provide that the
Puget trustees will not take or cause or permit the trust to, among
other things, engage in any activity that is not consistent with the
purposes of the trust.
Payments of distributions (to the extent funds for distributions are
available) and other payments due on the trust preferred securities (to the
extent funds for other payments are available) are guaranteed by Puget as and
to the extent discussed under "The Guarantee" below. If Puget does not make
interest payments on the debt securities purchased by the trust, it is expected
that the trust will not have sufficient funds to pay distributions on the trust
preferred securities. The Puget guarantee, which is for purpose of ensuring
that the trust performs its obligations to pay distributions on the trust
preferred securities, does not apply to any payment of distributions unless and
until the trust has sufficient funds for the payment of distributions and other
payments on the trust preferred securities. The trust will have sufficient
funds only if and to the extent that Puget has made a payment of interest or
principal on the debt securities held by the trust as its sole asset. The Puget
guarantee, when taken together with Puget's obligations under the debt
securities and the related indenture and its obligations under the amended and
restated trust agreement, including its obligations to pay costs, expenses,
debts and liabilities of the trust (other than with respect to the common
securities and the trust preferred securities), provides a full and
unconditional guarantee of amounts on the trust preferred securities.
If Puget fails to make interest or other payments on the debt securities when
due (taking account of any extension period), the amended and restated trust
agreement will provide a mechanism whereby the holders of the trust preferred
securities may direct a property trustee to enforce its rights under the debt
securities. If a property trustee fails to enforce its rights under the debt
securities, a holder of trust preferred securities may, to the fullest extent
permitted by applicable law, institute a legal proceeding against Puget to
enforce a property trustee's rights under the debt securities without first
instituting any legal proceeding against a property trustee or any other person
or entity. Notwithstanding the foregoing, if an event of default has occurred
and is continuing under the amended and restated trust agreement, and such
event is attributable to the failure of Puget to pay interest or principal on
the debt securities on the date such interest or principal is otherwise payable
(or in the case of redemption on the redemption date), then a holder of trust
preferred securities may institute legal proceedings directly against Puget to
obtain payment. If Puget fails to make payments under the guarantee, the
guarantee provides a mechanism whereby the holders of the trust preferred
securities may direct the guarantee trustee to enforce its rights thereunder.
Any holder of trust preferred securities may institute a legal proceeding
directly against Puget to enforce the guarantee trustee's rights under the
guarantee without first instituting a legal proceeding against the trust, the
guarantee trustee, or any other person or entity.
The Guarantee
Set forth below is a summary of information concerning the guarantee that
will be executed and delivered by Puget for the benefit of the holders, from
time to time, of the trust preferred securities. The guarantee will be
qualified as an indenture under the Trust Indenture Act of 1939. Bank One Trust
Company, N.A will act as
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indenture trustee under the guarantee for the purpose of compliance with the
provisions of the Trust Indenture Act of 1939. This summary is not complete and
is subject in all respects to the provisions of, and is qualified in its
entirety by reference to, the guarantee, which is filed as an exhibit to the
Registration Statement of which this prospectus forms a part.
General
Puget will irrevocably agree to pay in full, on a subordinated basis to the
extent set forth herein, the guarantee payments (as described below) to the
holders of the trust preferred securities, as and when due, regardless of any
defense, right of set-off or counterclaim that the trust may have or assert
other than the defense of payment. The following payments with respect to the
trust preferred securities, to the extent not paid by or on behalf of the
trust, will be subject to a guarantee by Puget of:
(1) any accumulated and unpaid distributions required to be paid on the
trust preferred securities, to the extent that the trust has funds on hand
available therefor at such time;
(2) the redemption price with respect to any trust preferred securities
called for redemption to the extent that the trust has funds on hand
available therefor at such time; or
(3) upon a voluntary or involuntary dissolution, winding up or
liquidation of the trust (unless the debt securities are distributed to
holders of the trust preferred securities), the lesser of (a) the
liquidation distribution, to the extent that the trust has funds on hand
available for distribution at such time, and (b) the amount of assets of
the trust remaining available for distribution to holders of trust
preferred securities.
Puget's obligation to make a guarantee payment may be satisfied by direct
payment of the required amounts by Puget to the holders of the trust preferred
securities or by causing the trust to pay such amount to such holders.
The Puget guarantee will be an irrevocable guarantee on a subordinated basis
of the trust's obligations under the trust preferred securities, but will apply
only to the extent that the trust has funds sufficient to make such payments,
and is not a guarantee of collection. If Puget does not make interest payments
on the debt securities held by the trust, the trust will not be able to pay
distributions on the trust preferred securities and will not have funds legally
available therefor.
Puget has, through the guarantee, the amended and restated trust agreement,
the subordinated debentures and the indentures, taken together, fully,
irrevocably and unconditionally guaranteed all of the trust's obligations under
the trust preferred securities. No single document standing alone or operating
in conjunction with fewer than all of the other documents constitutes such
guarantee. It is only the combined operation of these documents that has the
effect of providing a full, irrevocable and unconditional guarantee of the
trust's obligations under the trust preferred securities.
Puget has also agreed separately to irrevocably and unconditionally guarantee
the obligations of the trust with respect to the common securities to the same
extent as the guarantee of the preferred securities, except that upon the
occurrence and during the continuation of an amended and restated trust
agreement event of default, holders of trust preferred securities shall have
priority over holders of common securities with respect to distributions and
payments on liquidation, redemption or otherwise.
Certain Covenants of Puget
Puget also will covenant that it will not:
(1) declare or pay any dividends or distributions on, or redeem,
purchase, acquire or make a liquidation payment with respect to, any of
Puget's capital stock; or
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(2) make any payment of principal, interest or premium, if any, on or
repay or repurchase or redeem any debt securities (including guarantees of
indebtedness for money borrowed) of Puget that rank equal with or junior to
the trust debt securities (other than (a) any dividend, redemption,
liquidation, interest, principal or guarantee payment by Puget where the
payment is made by way of securities (including capital stock) that rank
equal with or junior to the securities on which such dividend, redemption,
interest, principal or guarantee payment is being made, (b) payments under
the Puget guarantee of the trust securities, (c) as a result of a
reclassification of Puget's capital stock or the exchange or conversion of
one series or class of Puget's capital stock for another series or class of
Puget's capital stock and (d) the purchase of fractional interests in
shares of Puget's capital stock pursuant to the conversion or exchange
provisions of such capital stock or the security being converted or
exchanged);
if at such time (A) there shall have occurred any event of which Puget has
actual knowledge that (i) with the giving of notice or the lapse of time,
or both, would constitute a event of default under the indenture and (ii)
in respect of which Puget shall not have taken reasonable steps to cure,
(B) Puget shall be in default with respect to its payment of any
obligations under the guarantee; or (C) Puget shall have given notice of
its selection of an extension period as provided in the indenture with
respect to the debt securities and shall not have rescinded such notice, or
such extension period, or any extension thereof, shall be continuing.
Puget also will covenant to:
(1) maintain directly or indirectly 100% ownership of the trust common
securities, provided that certain successors that are permitted pursuant to
the indenture may succeed to Puget's ownership of the common securities,
(2) not voluntarily dissolve, wind up or liquidate the trust, except:
. in connection with a distribution of the debt securities to the
holders of the trust preferred securities in liquidation of the
trust, or
. in connection with certain mergers, consolidations or
amalgamations permitted by the amended and restated trust
agreement, and
(3) use its reasonable efforts, consistent with the terms and provisions
of the applicable amended and restated trust agreement, to cause the trust
to remain classified as a grantor trust and not as an association taxable
as a corporation for United States federal income tax purposes.
Amendments and Assignment
Except with respect to any changes that do not materially adversely affect
the rights of holders of the trust preferred securities (in which case no vote
will be required), the Puget guarantee of the trust preferred securities may
not be amended without the prior approval of the holders of not less than a
majority in total liquidation amount of such outstanding trust preferred
securities. All guarantees and agreements contained in the guarantee shall bind
the successors, assigns, receivers, trustees and representatives of Puget and
shall inure to the benefit of the holders of the trust preferred securities
then outstanding.
Termination of the Guarantee
Puget's guarantee of the trust preferred securities will terminate and be of
no further force and effect upon full payment of the redemption price of the
trust preferred securities, upon full payment of the amounts payable upon
liquidation of the trust or upon distribution of the debt securities to the
holders of the trust preferred securities in exchange for all of the trust
preferred securities. The guarantee will continue to be effective or will be
reinstated, as the case may be, if at any time any holder of trust preferred
securities must restore payment of any sums paid under such trust preferred
securities or the guarantee.
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Events of Default
An event of default under Puget's guarantee of the trust preferred securities
will occur upon the failure of Puget to perform any of its payment or other
obligations thereunder. The holders of a majority in total liquidation amount
of the trust preferred securities have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the guarantee
trustee in respect of the guarantee or to direct the exercise of any trust or
power conferred upon the guarantee trustee under the guarantee.
If the guarantee trustee fails to enforce Puget's guarantee of the trust
preferred securities, any holder of the trust preferred securities may
institute a legal proceeding directly against Puget to enforce its rights under
the guarantee without first instituting a legal proceeding against the trust,
the guarantee trustee or any other person or entity. In addition, any record
holder of trust preferred securities shall have the right, which is absolute
and unconditional, to proceed directly against Puget to obtain guarantee
payments, without first waiting to determine if the guarantee trustee has
enforced the guarantee or instituting a legal proceeding against the trust, the
guarantee trustee or any other person or entity. Puget has waived any right or
remedy to require that any action be brought just against the trust, or any
other person or entity before proceeding directly against Puget.
Status of the Guarantee
The Puget guarantee of the trust preferred securities will constitute an
unsecured obligation of Puget and will rank:
(1) equal to or subordinate and junior in right of payment to all other
liabilities of Puget, as applicable,
(2) equal with the most senior preferred stock now or hereafter issued by
Puget and with any guarantee now or hereafter entered into by Puget in
respect of any preferred or preference stock of any affiliate of Puget, and
(3) senior to Puget's common stock.
Puget's guarantee of the trust preferred securities will constitute a
guarantee of payment and not of collection (i.e., the guaranteed party may
institute a legal proceeding directly against the guarantor to enforce its
rights under the guarantee without first instituting a legal proceeding against
any other person or entity). The guarantee will be held for the benefit of the
holders of the trust preferred securities. The guarantee will not be discharged
except by payment of the guaranteed payments in full to the extent not paid by
the trust or upon distribution of the debt securities to the holders of the
trust preferred securities. The guarantee does not place a limitation on the
amount of additional indebtedness that may be incurred by Puget.
PLAN OF DISTRIBUTION
Puget and/or the trust may sell the offered securities (1) through the
solicitation of proposals of underwriters or dealers to purchase the offered
securities; (2) through underwriters or dealers on a negotiated basis; (3)
through agents; or (4) directly to a limited number of purchasers or to a
single purchaser.
The prospectus supplement with respect to any offered securities will set
forth the terms of such offering, including:
. the name or names of any underwriters, dealers or agents;
. the purchase price of the offered securities and the proceeds to Puget
and/or the trust from their sale;
. any underwriting discounts and commissions and other items constituting
underwriters' compensation;
. any initial public offering price and any discounts or concessions
allowed or reallowed or paid to dealers; and
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. any securities exchange on which such offered securities may be listed.
Any initial public offering price, discounts or concessions allowed or
reallowed or paid to dealers may be changed from time to time.
If underwriters are used in the sale, they will acquire the offered
securities for their own account and may resell them on one or more occasions
in one or more transactions, including negotiated transactions, at a fixed
public offering price or at varying prices determined at the time of sale. The
offered securities may be offered to the public either through underwriting
syndicates represented by one or more managing underwriters or directly by one
or more firms acting as underwriters. The underwriter or underwriters with
respect to a particular underwritten offering of securities will be named in
the prospectus supplement relating to such offering and, if an underwriting
syndicate is used, the managing underwriter or underwriters will be set forth
on the cover of such prospectus supplement. Unless otherwise set forth in the
prospectus supplement relating thereto, the obligations of the underwriters to
purchase the offered securities will be subject to certain conditions
precedent, and the underwriters will be obligated to purchase all the offered
securities if any are purchased.
If dealers are utilized in the sale of offered securities, Puget and/or the
trust will sell such offered securities to the dealers as principals. The
dealers may then resell such offered securities to the public at varying prices
to be determined by such dealers at the time of resale. The names of the
dealers and the terms of the transaction will be set forth in the prospectus
supplement relating thereto.
The offered securities may be sold directly by Puget and/or the trust or
through agents designated by Puget and/or the trust from time to time. Any
agent involved in the offer or sale of the offered securities in respect to
which this prospectus is delivered will be named, and any commissions payable
by Puget and/or the trust to such agent will be set forth, in the prospectus
supplement relating thereto. Unless otherwise indicated in the prospectus
supplement, any such agent will be acting on a best-efforts basis for the
period of its appointment.
The offered securities may be sold directly by Puget and/or the trust to
institutional investors or others, who may be deemed to be underwriters within
the meaning of the Securities Act with respect to any resale thereof. The terms
of any such sales will be described in the prospectus supplement relating
thereto.
Agents, dealers and underwriters may be entitled under agreements with Puget
and/or the trust to indemnification by Puget and/or the trust against certain
civil liabilities, including liabilities under the Securities Act, or to
contribution with respect to payments which such agents, dealers or
underwriters may be required to make in respect thereof. Agents, dealers and
underwriters may be customers of, engage in transactions with, or perform
services for Puget and/or the trust in the ordinary course of business.
The offered securities may also be offered and sold, if so indicated in the
applicable prospectus supplement, in connection with a remarketing upon their
purchase, in accordance with a redemption or repayment pursuant to their terms,
or otherwise, by one or more firms ("remarketing firms"), acting as principals
for their own accounts or as agents for Puget and/or the trust. Any remarketing
firm will be identified and the terms of its agreement, if any, with its
compensation will be described in the applicable prospectus supplement.
Remarketing firms may be deemed to be underwriters, as such term is defined in
the Securities Act, in connection with the offered securities remarketed
thereby. Remarketing firms may be entitled under agreements that may be entered
into with Puget and/or the trust to indemnification or contribution by Puget
and/or the trust against certain civil liabilities, including liabilities under
the Securities Act, and may be customers of, engage in transactions or perform
services for Puget and its subsidiaries in the ordinary course of business.
The offered securities may or may not be listed on a national securities
exchange. You should read the prospectus supplement for a discussion of this
matter. We cannot assure you there will be a market for any of the offered
securities.
28
LEGAL OPINIONS
Opinions as to the legality of certain of the offered securities will be
rendered for Puget by Perkins Coie LLP, Seattle, Washington. Certain matters of
Delaware law relating to the validity of the trust preferred securities will be
passed upon on behalf of the trust by Skadden, Arps, Slate, Meagher & Flom LLP,
special Delaware counsel to the trust. Certain United States federal income
taxation matters may be passed upon for Puget and the trust by either Perkins
Coie LLP, tax counsel for Puget, or by special tax counsel to Puget and to the
trust, who will be named in the prospectus supplement. Certain legal matters
with respect to the offered securities will be passed upon by counsel for any
underwriters, dealers or agents, each of whom will be named in the related
prospectus supplement.
EXPERTS
The financial statements and financial statement schedule incorporated in
this prospectus by reference to Puget's Annual Report on Form 10-K for the year
ended December 31, 1999 have been so incorporated in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
29
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[LOGO OF PUGET SOUND ENERGY]
6,000,000 Trust Preferred Securities
Puget Sound Energy Capital Trust II
% Trust Originated Preferred SecuritiesSM ("TOPrSSM")
(Liquidation Amount $25 Per Preferred Security)
Fully And Unconditionally Guaranteed By
Puget Sound Energy, Inc.
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PROSPECTUS SUPPLEMENT
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Merrill Lynch & Co.
Morgan Stanley Dean Witter
Salomon Smith Barney
JPMorgan
U.S. Bancorp Piper Jaffray
Wells Fargo Investments, LLC
May , 2001
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