<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. 2)
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
<TABLE>
<S> <C>
/ / Preliminary Proxy Statement / / Confidential, for Use of the Commission
/X/ Definitive Proxy Statement Only (as permitted by Rule 14a-6(e)(2))
/ / Definitive Additional / / Soliciting Material Pursuant to Rule 14a-11(c) or Rule
Materials 14a-12
</TABLE>
WASHINGTON ENERGY COMPANY
WASHINGTON NATURAL GAS COMPANY
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1) or 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3)
/X/ Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11
CALCULATION OF FILING FEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PER UNIT PRICE OR OTHER
UNDERLYING VALUE OF
AGGREGATE NUMBER TRANSACTION
TITLE OF EACH CLASS OF OF SECURITIES TO COMPUTED PURSUANT TO PROPOSED MAXIMUM
SECURITIES TO WHICH WHICH TRANSACTION EXCHANGE AGGREGATE VALUE OF TOTAL FEE
TRANSACTION APPLIES APPLIES(1) ACT RULE 0-11(2) TRANSACTION PAID(3)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $5 par value..... 24,071,033 $18.38 $449,501,519 $89,900
- -----------------------------------------------------------------------------------------------------------
7.45% Series II Cumulative
Preferred Stock, $25 par
value........................ 2,400,000 $25.25 $60,600,000 $12,120
- -----------------------------------------------------------------------------------------------------------
8.50% Series III Cumulative
Preferred Stock, $25 par
value........................ 1,200,000 $25.56 $30,672,000 $6,134
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Based on the number of outstanding shares of Common Stock, par value $5 per
share (the "WECo Common Stock"), of Washington Energy Company ("WECo"),
assuming exercise of all outstanding options to acquire WECo Common Stock,
and the number of outstanding shares of 7.45% Series II Preferred Stock of
Washington Natural Gas Company ("WNG"), par value $25 per share (the "WNG
Series II Preferred Stock") and of 8.50% Series III Preferred Stock of WNG,
par value $25 per share (the "WNG Series III Preferred Stock"), in each case
as of December 5, 1995.
(2) The registration fee was computed by multiplying (a) the average of the high
and low prices reported on the New York Stock Exchange per share of WECo
Common Stock, WNG Series II Preferred Stock or WNG Series III Preferred
Stock, as the case may be, as of December 5, 1995 and (b) the number of
outstanding shares of WECo Common Stock, assuming exercise of all
outstanding options to acquire WECo Common Stock, WNG Series II Preferred
Stock or WNG Series III Preferred Stock, as the case may be.
(3) Each of Puget Sound Power & Light Company and WECo has paid 50% of the total
fee.
/X/ Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
<TABLE>
<S> <C>
Amount previously paid: Filing party:
Form, schedule or
registration statement no.: Date filed:
</TABLE>
<PAGE> 2
LOGO
February 1, 1996
Dear Puget Power Shareholder:
On behalf of your Board of Directors, I cordially invite you to attend a
special shareholders meeting beginning at 10 a.m. on Wednesday, March 20, 1996,
at the Red Lion Hotel, 300 112th Avenue S.E., Bellevue, Washington. At this
important meeting, you and your fellow shareholders will be asked to formally
approve the Merger Agreement that was unanimously approved by your Board on
October 18, 1995.
On that date, the Boards of Directors of Puget Sound Power & Light Company
and Washington Energy Company announced the signing of a definitive agreement to
merge the two organizations into a single new energy company providing both
electric and natural gas distribution services.
In the merger, each share of common stock of Washington Energy Company
would be exchanged for .860 share of Puget Power common stock. Puget Power would
be the surviving corporation and its name would be changed to a name mutually
agreed upon by Puget Power and Washington Energy Company. Holders of Puget Power
stock would not need to exchange their share certificates, which would represent
shares of the combined company. Based on the capitalization of Puget Power and
Washington Energy Company on December 31, 1995 and the exchange ratio to be used
in the merger, holders of Puget Power common stock and Washington Energy Company
common stock would have held approximately 75% and 25%, respectively, of the
aggregate number of shares of common stock of the combined company that would
have been outstanding if the merger had been consummated as of such date,
assuming the exercise of outstanding options to purchase Washington Energy
Company common stock. After the merger, it is expected that the combined company
initially will follow Puget Power's dividend policy, which currently provides
for annual dividends of $1.84 per share.
As you know, Puget Power is the largest investor-owned electric utility
serving Washington State. Washington Energy Company, a holding company whose
principal subsidiary is Washington Natural Gas Company, is the largest gas
distribution utility in the Pacific Northwest. We believe the consolidation will
result in a strategic merger of equals that will enable the combined company to
provide important benefits to customers and shareholders alike as the energy
industry environment becomes increasingly more competitive. Common sense
dictates to us that this merger will not only set us apart as a total energy
company, but will become the model for others in the industry who will likely
follow our lead.
Let me enumerate a few of the reasons we believe the merger will be
beneficial to customers and shareholders:
1. The potential exists for maintenance of competitive customer rates
over the long term, and for improved financial strength and flexibility for
shareholders.
2. Because the two utilities' service territories overlap, we can take
advantage of enhanced services and customer choices. There would no longer
be a bias toward gas over electricity or vice versa, and fuel switching
would easily allow customers to achieve short-term savings.
Puget Sound Power & Light Company P.O. Box 97034 Bellevue, WA
98009-9734 (206) 454-6363
<PAGE> 3
3. We can eliminate the need for duplicate service centers or
warehouses, and thereby dramatically defer or avoid certain capital
expenditures. Joint engineering, siting and construction of facilities
should also reduce costs and minimize environmental disruption.
4. We can eliminate duplication in corporate and administrative areas,
and reduce other nonlabor expenses as well. A joint transition task force
is presently examining the best manner in which to organize the combined
company.
In the Joint Proxy Statement/Prospectus, which I encourage you to take the
time to read and understand, you will also find the proxy card with which you
will cast your vote. You have the option to revoke your proxy at any time, or to
vote your shares personally on request if you attend the special meeting. Voting
in person will constitute a revocation of any prior proxy. Your shares will be
voted in accordance with the instructions you give in your proxy. If no
instructions are indicated, your shares will be voted in favor of the merger and
the related proposed increase in the number of shares which may be awarded under
the Puget 1995 Long-Term Incentive Compensation Plan. If you do not return the
proxy card and do not vote at the special meeting, it will have the same effect
as if you had voted against the Merger Agreement.
The accompanying Joint Proxy Statement/Prospectus sets forth the voting
rights of holders of Puget Power common stock with respect to these matters, and
describes the matters to be acted upon at the special meeting. Shareholders are
urged to review carefully the attached Joint Proxy Statement/Prospectus, which
contains a detailed description of the Merger Agreement, the terms and
conditions thereof and the transactions contemplated thereby. Holders of Puget
Power common stock may exercise dissenters' rights by complying with the
procedural requirements of the Washington Business Corporation Act, including
making a written demand for payment before the date of the special meeting and
not voting in favor of the Merger Agreement.
Your management and Board of Directors believe this merger will provide
long-term benefits for the current shareholders of Puget Power. I sincerely hope
you concur and will join us in supporting this proposal with your "yes" vote.
Sincerely,
/s/ RICHARD R. SONSTELIE
--------------------------------------
Richard R. Sonstelie
President and Chief Executive Officer
2
<PAGE> 4
PUGET SOUND POWER & LIGHT COMPANY
411 - 108TH AVENUE N.E.
15TH FLOOR
BELLEVUE, WASHINGTON 98004-5515
(206) 454-6363
------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON MARCH 20, 1996
To the Holders of Common Stock of
Puget Sound Power & Light Company:
NOTICE IS HEREBY GIVEN that a Special Meeting of holders of Common Stock of
Puget Sound Power & Light Company, a Washington corporation ("Puget"), will be
held at the Red Lion Hotel, 300 112th Avenue S.E., Bellevue, Washington, at 10
a.m., local time, on Wednesday, March 20, 1996 for the purpose of acting on the
following matters:
1. To consider and vote upon a proposal to approve the Agreement and
Plan of Merger, dated as of October 18, 1995 (the "Merger Agreement"), by
and among Puget, Washington Energy Company, a Washington corporation
("WECo"), and Washington Natural Gas Company, a Washington corporation and
wholly owned subsidiary of WECo ("WNG"), pursuant to which WECo and WNG
will be merged with and into Puget, with Puget to be the surviving
corporation and to be renamed as of the effective time of the merger to a
name mutually chosen by the parties (the "Company"), and whereby (i) each
outstanding share of common stock, par value $5 per share, of WECo (other
than dissenting shares) will be converted into the right to receive .860
share of common stock, stated value $10 per share, of the Company and (ii)
each outstanding share of 7.45% Series II Preferred Stock of WNG, par value
$25 per share, and each outstanding share of 8.50% Series III Preferred
Stock of WNG, par value $25 per share (together, the "WNG Preferred Stock")
(other than dissenting shares), will be converted into the right to receive
one share of cumulative preferred stock, par value $25 per share, of the
Company with like rights and preferences (including par value, dividends,
redemption provisions and rights upon liquidation) as a share of such
series of WNG Preferred Stock. The Merger Agreement provides that if the
shareholders of WECo and Puget vote to approve the Merger Agreement but the
holders of either of the outstanding series of WNG Preferred Stock (each
voting separately as a class) do not approve the Merger Agreement, then
only WECo will be merged with and into Puget, WNG will become a wholly
owned subsidiary of the Company, and the WNG Preferred Stock will remain
outstanding, unchanged. The Merger Agreement (a copy of which is attached
as Annex A to the accompanying Joint Proxy Statement/Prospectus) and the
transactions contemplated thereby are described in the accompanying Joint
Proxy Statement/Prospectus.
2. To consider and vote upon a proposal to increase the number of
shares of Common Stock which may be awarded under the Puget 1995 Long-Term
Incentive Compensation Plan from 500,000 to 1,200,000.
3. To consider and vote on any and all other matters that may properly
come before the meeting and any and all adjournments or postponements
thereof.
Only shareholders of record at the close of business on January 22, 1996
will be entitled to attend and vote at the meeting. If your shares are
registered in the name of a brokerage firm or trustee and you plan to attend the
meeting, please obtain from the firm or trustee a letter, account statement or
other evidence of your beneficial ownership of those shares to facilitate your
admittance to the meeting.
Shareholders who cannot be present at the meeting are urged to complete,
sign, date and mail the enclosed form(s) of proxy to Puget in the enclosed
postage-paid envelope as promptly as practicable. If you
<PAGE> 5
are a participant in Puget's Dividend Reinvestment Plan, please note that the
enclosed proxy covers all shares in your account, including any shares which may
be held in such plan.
If you have any questions relating to the proposed merger, please call
Puget's Investor Services Department at (206) 462-3898 or 1-800-997-8438.
By Order of the Board of Directors,
/s/ JAMES W. ELDREDGE
--------------------------------------
JAMES W. ELDREDGE
Corporate Secretary
February 1, 1996
Bellevue, Washington
IMPORTANT
YOUR VOTE IS EXTREMELY IMPORTANT SINCE APPROVAL OF THE MERGER AGREEMENT
REQUIRES THE AFFIRMATIVE VOTE OF THE HOLDERS OF AT LEAST TWO-THIRDS (66 2/3%) OF
PUGET'S OUTSTANDING COMMON STOCK. BY COMPLETING, SIGNING, DATING AND MAILING
YOUR PROXY TODAY, YOU CAN HELP PUGET AVOID ADDITIONAL PROXY SOLICITATION COSTS.
2
<PAGE> 6
LOGO LOGO
February 1, 1996
P.O. BOX 1869 WILLIAM P. VITITOE
815 MERCER STREET CHAIRMAN OF THE BOARD,
SEATTLE, WASHINGTON 98111-1869 CHIEF EXECUTIVE OFFICER
(206) 622-6767 AND PRESIDENT
Dear Shareholder:
The Annual Meeting of Shareholders of Washington Energy Company ("WECo")
and a Special Meeting of the holders of preferred stock of Washington Natural
Gas Company ("WNG") will be held in conjunction with each other on Wednesday,
March 20, 1996, at The Westin Hotel, 1900 5th Avenue, Seattle, Washington. The
meeting will start at 9:30 a.m., local time.
At these important meetings, the holders of common stock of WECo and the
holders of preferred stock of WNG will be asked to approve an Agreement and Plan
of Merger dated as of October 18, 1995 (the "Merger Agreement"), pursuant to
which WECo and WNG will be merged in a strategic "merger-of-equals" with and
into Puget Sound Power & Light Company ("Puget"), which will be renamed as of
the effective date of the merger (as of such date, the "Company").
Pursuant to the Merger Agreement, each outstanding share of WECo common
stock will be converted into the right to receive .860 share (the "Ratio") of
Company common stock and each outstanding share of WNG preferred stock will be
converted into preferred stock of the Company having like rights and preferences
(including par value, dividends, redemption provisions and rights upon
liquidation). As set forth in the Merger Agreement, if the shareholders of WECo
and the shareholders of Puget approve the Merger Agreement, but the holders of
each series of outstanding WNG preferred stock do not approve the Merger
Agreement, then only WECo will be merged with and into Puget, WNG will become a
wholly owned subsidiary of the Company, and the WNG preferred stock will remain
outstanding, unchanged. Based on the capitalization of WECo and Puget on
December 31, 1995 and the Ratio, holders of WECo common stock and Puget common
stock would have held approximately 25% and 75%, respectively, of the aggregate
number of shares of common stock of the combined company that would have been
outstanding if the merger had been consummated as of such date, assuming the
exercise of outstanding options to purchase WECo common stock.
The Boards of Directors of WECo and WNG believe the merger represents a
significant opportunity to achieve enhanced earnings and dividend growth in
today's dramatically changed energy market. Federal regulations have opened the
gas utility industry to aggressive competition. New energy providers, offering a
wide range of services, now compete directly with gas utilities for the business
of major customers, as well as for gas supply and transportation capacity.
Similar change appears imminent in the electric industry as well.
The Boards of Directors believe the merger will create a stronger entity
that is better positioned to meet the challenges of the increasingly competitive
energy industry. Strategic advantages from which the combined entity will
benefit include greater size and financial flexibility, enhanced customer
service and operational efficiencies and reduced corporate and administrative
costs. These advantages should benefit not only shareholders, but also
customers, employees and the communities served by the Company.
The WECo Board of Directors has received the opinion of its financial
advisor, Goldman, Sachs & Co., that as of the date hereof and based on the
factors and assumptions described in such opinion, the Ratio is fair to the
holders of WECo common stock.
Approval of the Merger Agreement by holders of two-thirds of the
outstanding shares of WECo common stock and by holders of two-thirds of the
outstanding shares of each of the two series of WNG preferred stock (each voting
separately as a class), as well as by holders of two-thirds of the outstanding
shares of Puget common stock, is a condition to consummation of the merger of
WECo and WNG with and into Puget. As stated above, if the holders of the WNG
preferred stock do not approve the Merger Agreement, only WECo will merge with
and into Puget. The consummation of a transaction will only happen after certain
regulatory approvals are received and other conditions are satisfied or waived.
It is presently anticipated that this will occur in the latter half of 1996.
<PAGE> 7
THE BOARDS OF DIRECTORS OF WECo AND WNG HAVE CAREFULLY REVIEWED AND
CONSIDERED THE TERMS AND CONDITIONS OF THE MERGER AGREEMENT, BELIEVE THAT THEY
ARE FAIR TO, AND IN THE BEST INTERESTS OF, WECo SHAREHOLDERS AND HOLDERS OF WNG
PREFERRED STOCK, HAVE UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND RECOMMEND A
VOTE FOR APPROVAL OF THE MERGER AGREEMENT.
At the meetings, the shareholders of WECo will also be asked to consider
and vote upon the election of three directors to Class III to serve on the WECo
Board of Directors for terms of three years or until their successors are
elected and qualified. As described in the accompanying Joint Proxy
Statement/Prospectus, at the effective time of the merger, the Board of
Directors of the Company will consist of up to 15 members, two-thirds of whom
will be directors appointed by the Puget Board of Directors and one-third of
whom will be directors appointed by the WECo Board of Directors.
THE WECo BOARD OF DIRECTORS ALSO RECOMMENDS A VOTE FOR ELECTION OF EACH OF
THE PROPOSED DIRECTORS.
The accompanying Joint Proxy Statement/Prospectus contains important
information with respect to the proposed merger and certain related matters. It
also contains information relating to the other business to be conducted at the
meetings. You are urged to review it carefully.
Your vote is important regardless of the number of shares you own. Even if
you plan to attend the meetings, you are urged to COMPLETE, SIGN, DATE AND MAIL
THE ENCLOSED PROXY CARD(S) at your earliest convenience. Your shares will be
voted in accordance with the instructions you give in your proxy. If no
instructions are indicated, your shares will be voted in favor of the merger,
and, in the case of WECo, in favor of the election of the proposed directors.
You retain the option to revoke your proxy at any time, or to vote your shares
personally if you attend the meetings in person. Voting in person will
constitute a revocation of any prior proxy. If you do not return the proxy
card(s) and do not vote at the meetings, it will have the same effect as if you
voted against the merger.
The accompanying Joint Proxy Statement/Prospectus sets forth the voting
rights of holders of WECo common stock and WNG preferred stock with respect to
these matters, and describes the matters to be acted upon at the shareholders
meetings. Shareholders are urged to review carefully the attached Joint Proxy
Statement/Prospectus, which contains a detailed description of the Merger
Agreement, the terms and conditions thereof and the transactions contemplated
thereby. Holders of WECo common stock and WNG preferred stock may exercise
dissenters' rights by complying with the procedural requirements of the
Washington Business Corporation Act, including making a written demand for
payment before the date of the shareholders meetings and not voting in favor of
the Merger Agreement.
Promptly after the merger, a letter of transmittal will be mailed to each
holder of record of WECo common stock and (subject to the approval of the Merger
Agreement by the holders of the WNG preferred stock) WNG preferred stock.
HOLDERS OF WECo COMMON STOCK AND WNG PREFERRED STOCK SHOULD NOT SEND IN THE
CERTIFICATES REPRESENTING THEIR SHARES UNTIL THEY RECEIVE A TRANSMITTAL FORM,
WHICH WILL INCLUDE INSTRUCTIONS AS TO THE PROCEDURES TO BE FOLLOWED IN SENDING
IN SUCH CERTIFICATES.
The Boards of Directors of WECo and WNG believe the merger presents not
only an exciting opportunity but also a necessary step in building for the
future. Please take part in this momentous decision by completing, signing,
dating and returning the enclosed proxy card today.
If you have any questions relating to the proposed merger, please call.
Thank you.
Sincerely,
/s/ William P. Vititoe
------------------------------------
William P. Vititoe
Chairman of the Board,
Chief Executive Officer and President
2
<PAGE> 8
WASHINGTON ENERGY COMPANY
P.O. BOX 1869
815 MERCER STREET
SEATTLE, WASHINGTON 98111-1869
(206) 622-6767
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MARCH 20, 1996
To the Shareholders of
Washington Energy Company:
Washington Energy Company is pleased to announce that its Annual Meeting of
Shareholders will be held Wednesday, March 20, 1996 at The Westin Hotel, 1900
Fifth Avenue, Seattle, Washington. The Annual Meeting will begin at 9:30 a.m.,
local time. At the Annual Meeting, shareholders will be asked to consider and
vote upon the following matters, which are more fully described in the
accompanying Joint Proxy Statement/Prospectus:
1. A proposal to approve the Agreement and Plan of Merger, dated as of
October 18, 1995 (the "Merger Agreement"), by and among Puget Sound Power &
Light Company, a Washington corporation ("Puget"), Washington Energy
Company, a Washington corporation ("WECo"), and Washington Natural Gas
Company, a Washington corporation and wholly owned subsidiary of WECo
("WNG"), pursuant to which WECo and WNG will be merged with and into Puget,
with Puget, which will be renamed as of the effective time of such merger,
being the surviving corporation (after the effective time of such merger,
the "Company") and whereby (i) each outstanding share of common stock, par
value $5 per share, of WECo ("WECo Common Stock") (except for shares held
by WECo shareholders who perfect dissenters' rights with respect thereto)
will be converted into the right to receive .860 share of common stock,
stated value $10 per share, of the Company and (ii) each outstanding share
of 7.45% Series II Preferred Stock of WNG, par value $25 per share (the
"Series II Preferred Stock"), and each outstanding share of 8.50% Series
III Preferred Stock of WNG, par value $25 per share (the "Series III
Preferred Stock"; together with the Series II Preferred Stock, the "WNG
Preferred Stock") (except for shares held by WNG shareholders who perfect
dissenters' rights with respect thereto), will be converted into the right
to receive one share of cumulative preferred stock, par value $25 per
share, of the Company with like rights and preferences (including par
value, dividends, redemption provisions and rights upon liquidation) as a
share of such series of WNG Preferred Stock. The Merger Agreement provides
that if the shareholders of WECo and Puget vote to approve the Merger
Agreement but, at the Special Meeting of holders of WNG Preferred Stock
called in connection with the merger, the holders of either of the
outstanding series of WNG Preferred Stock (each voting separately as a
class) do not approve the Merger Agreement, then only WECo will be merged
with and into Puget, WNG will become a wholly owned subsidiary of the
Company, and the WNG Preferred Stock will remain outstanding, unchanged.
The Merger Agreement (a copy of which is attached as Annex A to the
accompanying Joint Proxy Statement/Prospectus) and the transactions
contemplated thereby are described in the accompanying Joint Proxy
Statement/Prospectus.
2. A proposal to elect three Class III directors to serve on the WECo
Board of Directors for terms of three years or until their successors are
elected and qualified.
3. Any other business that may properly come before the Annual Meeting
or any adjournment or postponement thereof.
Please read carefully the information contained in the accompanying Joint
Proxy Statement/Prospectus regarding the issues to be voted upon.
<PAGE> 9
Only holders of WECo Common Stock of record at the close of business on
January 11, 1996, will be entitled to notice of and to vote at the Annual
Meeting or any adjournment or postponement thereof, by order of the Board.
Approval of the Merger Agreement by two-thirds of the outstanding shares of
WECo Common Stock and by two-thirds of the outstanding shares of both series of
WNG Preferred Stock (each voting separately as a class), as well as by
two-thirds of the outstanding shares of common stock of Puget, is a condition to
consummation of the merger of WECo and WNG with and into Puget. As stated above,
if the holders of the WNG Preferred Stock do not approve the Merger Agreement,
only WECo will merge with and into Puget.
THE WECO BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED AND ADOPTED THE MERGER
AGREEMENT AND RECOMMENDS THAT SHAREHOLDERS VOTE FOR APPROVAL OF THE MERGER
AGREEMENT AND VOTE FOR THE ELECTION OF THE THREE CLASS III DIRECTORS STANDING
FOR RE-ELECTION.
By Order of the Board of Directors,
/s/ ROBERT J. TOMLINSON
--------------------------------------
Robert J. Tomlinson
Senior Vice President, General
Counsel and Secretary
Seattle, Washington
February 1, 1996
-- IMPORTANT --
Your vote is extremely important since approval of the Merger Agreement
requires the affirmative vote of the holders of two-thirds (66 2/3%) of the
outstanding WECo Common Stock. PLEASE COMPLETE, SIGN, DATE AND MAIL PROMPTLY THE
ENCLOSED PROXY CARD, WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING. Your
shares will be voted in accordance with the instructions you give in your proxy.
If you do attend the Annual Meeting, you may vote in person, whether or not you
have sent in your proxy. A postage-paid envelope is enclosed for your
convenience. The prompt return of proxies will save WECo additional proxy
solicitation costs.
2
<PAGE> 10
WASHINGTON NATURAL GAS COMPANY
P.O. BOX 1869
815 MERCER STREET
SEATTLE, WASHINGTON 98111-1869
(206) 622-6767
------------------------
NOTICE OF SPECIAL MEETING OF HOLDERS OF PREFERRED STOCK
TO BE HELD ON MARCH 20, 1996
To the Holders of Preferred Stock of
Washington Natural Gas Company:
A Special Meeting of holders of preferred stock of Washington Natural Gas
Company will be held Wednesday, March 20, 1996 at The Westin Hotel, 1900 Fifth
Avenue, Seattle, Washington. The Special Meeting will begin at 9:30 a.m., local
time. At the Special Meeting, shareholders will be asked to consider and vote
upon the following matters, which are more fully described in the accompanying
Joint Proxy Statement/Prospectus:
1. A proposal to approve the Agreement and Plan of Merger, dated as of
October 18, 1995 (the "Merger Agreement"), by and among Puget Sound Power &
Light Company, a Washington corporation ("Puget"), Washington Energy
Company, a Washington corporation ("WECo"), and Washington Natural Gas
Company, a Washington corporation and wholly owned subsidiary of WECo
("WNG"), pursuant to which WECo and WNG will be merged with and into Puget,
with Puget, which will be renamed as of the effective time of such merger,
being the surviving corporation (after the effective time of such merger,
the "Company") and whereby (i) each outstanding share of common stock, par
value $5 per share, of WECo ("WECo Common Stock") (except for shares held
by WECo shareholders who perfect dissenters' rights with respect thereto)
will be converted into the right to receive .860 share of common stock,
stated value $10 per share, of the Company and (ii) each outstanding share
of 7.45% Series II Preferred Stock of WNG, par value $25 per share (the
"Series II Preferred Stock"), and each outstanding share of 8.50% Series
III Preferred Stock of WNG, par value $25 per share (the "Series III
Preferred Stock"; together with the Series II Preferred Stock, the "WNG
Preferred Stock") (except for shares held by WNG shareholders who perfect
dissenters' rights with respect thereto), will be converted into the right
to receive one share of cumulative preferred stock, par value $25 per
share, of the Company with like rights and preferences (including par
value, dividends, redemption provisions and rights upon liquidation) as a
share of such series of WNG Preferred Stock. The Merger Agreement provides
that if the shareholders of WECo and Puget vote to approve the Merger
Agreement but, at the Special Meeting of holders of WNG Preferred Stock
called in connection with the merger, the holders of either of the
outstanding series of WNG Preferred Stock (each voting separately as a
class) do not approve the Merger Agreement, then only WECo will be merged
with and into Puget, WNG will become a wholly owned subsidiary of the
Company, and the WNG Preferred Stock will remain outstanding, unchanged.
The Merger Agreement (a copy of which is attached as Annex A to the
accompanying Joint Proxy Statement/Prospectus) and the transactions
contemplated thereby are described in the accompanying Joint Proxy
Statement/Prospectus.
2. Any other business that may properly come before the Special
Meeting or any adjournment or postponement thereof.
Please read carefully the information contained in the accompanying Joint
Proxy Statement/Prospectus regarding the issues to be voted upon.
<PAGE> 11
Only holders of WNG Preferred Stock of record at the close of business on
January 11, 1996, will be entitled to notice of and to vote at the Special
Meeting or any adjournment or postponement thereof, by order of the Board.
Approval of the Merger Agreement by two-thirds of the outstanding shares of
WECo Common Stock and by two-thirds of the outstanding shares of both series of
WNG Preferred Stock (each voting separately as a class), as well as by
two-thirds of the outstanding shares of common stock of Puget, is a condition to
the consummation of the merger of WECo and WNG with and into Puget. As stated
above, if the holders of the WNG Preferred Stock do not approve the Merger
Agreement, only WECo will merge with and into Puget.
THE WNG BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED AND ADOPTED THE MERGER
AGREEMENT AND RECOMMENDS THAT HOLDERS OF WNG PREFERRED STOCK VOTE FOR APPROVAL
OF THE MERGER AGREEMENT.
By Order of the Board of Directors,
/s/ ROBERT J. TOMLINSON
-------------------------------------
Robert J. Tomlinson
Senior Vice President, General
Counsel and Secretary
Seattle, Washington
February 1, 1996
-- IMPORTANT --
Your vote is extremely important since approval of the Merger Agreement
requires the affirmative vote of the holders of two-thirds (66 2/3%) of both
series of outstanding WNG Preferred Stock (each voting separately as a class).
PLEASE COMPLETE, SIGN, DATE AND MAIL PROMPTLY THE ENCLOSED PROXY CARD, WHETHER
OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. Your shares will be voted in
accordance with the instructions you give in your proxy. If you do attend the
Special Meeting, you may vote in person, whether or not you have sent in your
proxy. A postage-paid envelope is enclosed for your convenience. The prompt
return of proxies will save WNG additional proxy solicitation expense.
2
<PAGE> 12
JOINT PROXY STATEMENT OF
PUGET SOUND POWER & LIGHT COMPANY,
WASHINGTON ENERGY COMPANY
AND
WASHINGTON NATURAL GAS COMPANY
FOR MEETINGS OF THEIR RESPECTIVE SHAREHOLDERS
TO BE HELD ON MARCH 20, 1996
------------------------
PROSPECTUS OF
PUGET SOUND POWER & LIGHT COMPANY
------------------------
This Joint Proxy Statement/Prospectus relates to (a) the proposed merger
and certain related transactions contemplated by the Agreement and Plan of
Merger dated as of October 18, 1995 (the "Merger Agreement") by and among Puget
Sound Power & Light Company, a Washington corporation ("Puget"), Washington
Energy Company, a Washington corporation ("WECo"), and Washington Natural Gas
Company, a Washington corporation and a wholly owned subsidiary of WECo ("WNG"),
and (b) in addition, in the case of WECo only, the election of WECo directors.
At the Effective Time (as hereinafter defined), WECo and WNG will merge with and
into Puget (the "WECo/WNG/Puget Merger"), which, as the surviving corporation,
will be renamed as of the Effective Time to a name mutually chosen by the
parties (after the Effective Time, the "Company"). If at the shareholders
meetings called in connection with the Merger (as defined below), the holders of
common stock of each of Puget and WECo approve the Merger Agreement, but the
holders of either series of preferred stock of WNG do not approve the Merger
Agreement, only WECo will be merged with and into Puget (the "Alternate Merger";
as used herein, the term "Merger" shall refer to the WECo/WNG/Puget Merger or
the Alternate Merger, as applicable). If the Alternate Merger is effected, WNG
will become a wholly owned subsidiary of the Company, and WNG's preferred stock
will remain outstanding and will not be converted as described below.
The Merger Agreement provides for: (a) the merger of WECo with and into
Puget, pursuant to which each outstanding share of common stock, par value $5
per share, of WECo (the "WECo Common Stock") (except for shares held by WECo
shareholders who perfect dissenters' rights with respect thereto ("WECo
Dissenting Shares")) will be converted into the right to receive .860 (the
"Ratio") share of common stock, stated value $10 per share, of the Company
(prior to the Effective Time, the "Puget Common Stock"; after the Effective
Time, the "Company Common Stock") and (b) the merger of WNG with and into Puget,
pursuant to which each outstanding share of 7.45% Series II Preferred Stock of
WNG, par value $25 per share (the "WNG Series II Preferred Stock"), and each
outstanding share of 8.50% Series III Preferred Stock of WNG, par value $25 per
share (the "WNG Series III Preferred Stock"; together with the WNG Series II
Preferred Stock, the "WNG Preferred Stock") (except for shares held by WNG
preferred shareholders who perfect dissenters' rights with respect thereto ("WNG
Dissenting Preferred Shares")) will be converted into the right to receive one
share of preferred stock of the Company (prior to the Effective Time, the "Puget
Preferred Stock"; after the Effective Time, the "Company Preferred Stock") with
like rights and preferences (including par value, dividends, redemption
provisions and rights upon liquidation) as a share of such series of WNG
Preferred Stock (the "New Company Preferred Stock"). Each issued and outstanding
share of Puget Common Stock (except for shares held by holders of Puget Common
Stock who perfect dissenters' rights with respect thereto ("Puget Dissenting
Shares")) will remain outstanding, unchanged, as one share of Company Common
Stock. Based on the capitalization of Puget and WECo on December 31, 1995 and
the Ratio, holders of Puget Common Stock and WECo Common Stock would have held
approximately 75% and 25%, respectively, of the aggregate number of shares of
Company Common Stock that would have been outstanding if the Merger had been
consummated as of such date, assuming the exercise of all outstanding options to
purchase WECo Common Stock.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------------
The date of this Joint Proxy Statement/Prospectus is February 1, 1996. This
Joint Proxy Statement/Prospectus and the accompanying forms of proxy are first
being mailed to the holders of Puget Common Stock, WECo Common Stock and WNG
Preferred Stock on or about February 5, 1996.
This Joint Proxy Statement/Prospectus is being furnished to the holders of
Puget Common Stock in connection with the solicitation of proxies by the Board
of Directors of Puget for use at the Special Meeting of holders of Puget Common
Stock (the "Puget Special Meeting") to be held at 10 a.m., local time, on
Wednesday, March 20, 1996 at the Red Lion Hotel, 300 112th Avenue S.E.,
Bellevue, Washington, and at any and all adjournments or postponements thereof.
At the Puget Special Meeting, in addition to voting on a proposal to approve and
adopt the Merger Agreement, holders of Puget
<PAGE> 13
Common Stock will also be asked to consider and vote on a proposal to increase
the number of shares of Puget Common Stock which may be awarded under the Puget
1995 Long-Term Incentive Compensation Plan (the "1995 Plan") from 500,000 to
1,200,000 to provide sufficient shares for issuance to holders of equity
interests under the WECo Stock Plans (as hereinafter defined) pursuant to the
Merger Agreement and for future grants to the Company's management employees
following the Merger.
This Joint Proxy Statement/Prospectus is also being furnished to the
holders of WECo Common Stock and WNG Preferred Stock in connection with the
solicitation of proxies by the Boards of Directors of WECo and WNG,
respectively, for use at the Annual Meeting of holders of WECo Common Stock (the
"WECo Meeting") and the Special Meeting of holders of WNG Preferred Stock (the
"WNG Special Meeting"), each to be held at 9:30 a.m., local time, on Wednesday,
March 20, 1996 at The Westin Hotel, 1900 Fifth Avenue, Seattle, Washington, and
at any and all adjournments or postponements thereof. At the WECo Meeting, in
addition to voting on a proposal to approve and adopt the Merger Agreement,
holders of WECo Common Stock will be asked to consider and vote on a proposal
with respect to the election of directors. At the WNG Special Meeting, holders
of WNG Preferred Stock will vote on a proposal to approve and adopt the Merger
Agreement.
This Joint Proxy Statement/Prospectus also constitutes a prospectus of
Puget filed as part of the Registration Statement (as hereinafter defined) with
respect to up to 21,400,000 shares of Company Common Stock, up to 2,400,000
shares of 7.45% Series II Cumulative Preferred Stock, par value $25 per share,
of the Company (the "Company Series II Preferred Stock") and up to 1,200,000
shares of 8.50% Series III Cumulative Preferred Stock, par value $25 per share,
of the Company (the "Company Series III Preferred Stock") to be issued pursuant
to or as contemplated by the Merger Agreement.
No person is authorized to give any information or to make any
representation other than those contained or incorporated by reference in this
Joint Proxy Statement/Prospectus and, if given or made, any such information or
representation should not be relied upon as having been authorized. This Joint
Proxy Statement/Prospectus constitutes neither (a) an offer to sell, or a
solicitation of an offer to purchase, any securities other than those
specifically covered hereby nor (b) an offer to sell, or a solicitation of an
offer to purchase, such securities, or the solicitation of a proxy, in any
jurisdiction to or from any person to whom or from whom it is unlawful to make
such offer, solicitation of an offer or proxy solicitation in such jurisdiction.
Neither the delivery of this Joint Proxy Statement/Prospectus nor any
distribution of securities pursuant to this Joint Proxy Statement/Prospectus
shall, under any circumstances, create any implication that there has been no
change in the affairs of Puget, WECo or WNG or any of their respective
subsidiaries or in the information set forth or incorporated herein since the
date of this Joint Proxy Statement/Prospectus.
This Joint Proxy Statement/Prospectus does not cover any resale of the
securities to be received by shareholders of WECo and, if applicable, WNG, upon
consummation of the Merger, and no person is authorized to make any use of this
Joint Proxy Statement/Prospectus in connection with any such resale.
AVAILABLE INFORMATION
Puget, WECo and WNG are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, file reports, proxy statements and other information with
the Securities and Exchange Commission (the "SEC"). Such reports, proxy
statements and other information filed by Puget, WECo and WNG can be inspected
and copied at the public reference facilities maintained by the SEC at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, 7 World Trade Center, 13th
Floor, New York, New York 10048 and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. In addition, any such material concerning
Puget, WECo and WNG can be inspected at the New York Stock Exchange, Inc. (the
"NYSE"), 20 Broad Street, New York, New York 10005.
Puget has filed with the SEC a registration statement on Form S-4 (together
with all amendments, schedules and exhibits thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the shares of Company Common Stock and New Company Preferred
Stock issuable in or pursuant to the Merger. This Joint Proxy
Statement/Prospectus does not contain all the information set forth in the
Registration Statement, certain parts of which have been omitted in accordance
with the rules and regulations of the SEC. The Registration Statement is
available for inspection and copying as set forth above. Statements contained in
this Joint Proxy Statement/Prospectus or in any document incorporated herein by
reference as to the contents of any contract or other document are not
necessarily complete, and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference.
2
<PAGE> 14
INCORPORATION BY REFERENCE
The following documents, previously filed with the SEC by Puget (File No.
1-4393), WECo (File No. 1-11227) or WNG (File No. 1-11271) pursuant to the
Exchange Act, are hereby incorporated by reference:
1. Puget's Annual Report on Form 10-K for the year ended December 31,
1994 (the "Puget 1994 10-K");
2. Puget's Quarterly Reports on Form 10-Q for the quarters ended March
31, 1995, June 30, 1995 and September 30, 1995, as amended (the "Puget
September 1995 10-Q");
3. Puget's Current Report on Form 8-K dated October 18, 1995;
4. The Annual Report of WECo and WNG on Form 10-K for the fiscal year
ended September 30, 1995 (the "WECo 1995 10-K"); and
5. The Current Reports of WECo and WNG on Form 8-K dated October 18,
1995, October 30, 1995 and January 29, 1996.
The information relating to Puget, WECo and WNG contained in this Joint
Proxy Statement/Prospectus does not purport to be comprehensive and should be
read together with the information in the documents incorporated herein by
reference.
All documents filed by Puget, WECo and WNG pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this Joint Proxy
Statement/Prospectus and prior to the latest of the date of the Puget Special
Meeting, the WECo Meeting and the WNG Special Meeting, and any adjournment or
postponement of any thereof, shall be deemed to be incorporated herein by
reference and to be a part hereof from the date of filing of such documents.
Any statement contained in a document incorporated or deemed to be
incorporated herein by reference shall be deemed to be modified or superseded
for the purposes of this Joint Proxy Statement/Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated herein by reference modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Joint Proxy Statement/Prospectus.
Puget will provide without charge, upon the written or oral request of any
person, including any beneficial owner, to whom this Joint Proxy
Statement/Prospectus is delivered, a copy of any and all documents (excluding
certain exhibits) relating to Puget that have been or will be incorporated
herein by reference. Such requests for documents relating to Puget should be
directed to James W. Eldredge, Corporate Secretary, by mail at Puget Sound Power
& Light Company, 411 - 108th Avenue N.E., 15th Floor, Bellevue, Washington
98004-5515, or by telephone at (206) 462-3135.
WECo will provide without charge, upon the written or oral request of any
person, including any beneficial owner, to whom this Joint Proxy
Statement/Prospectus is delivered, a copy of any and all documents (excluding
certain exhibits) relating to WECo or WNG that have been or will be incorporated
herein by reference. Such requests for documents relating to WECo or WNG should
be directed to Wayne E. Hays, by mail at Washington Energy Company, P.O. Box
1869, 815 Mercer Street, Seattle, Washington 98111-1869, by telephone at (206)
224-2122 or by facsimile at (206) 521-5143.
------------------------
The information contained in this Joint Proxy Statement/Prospectus with
respect to Puget and its subsidiaries has been supplied by Puget. The
information contained herein with respect to WECo, WNG and WECo's other
subsidiaries has been supplied by WECo and WNG. The information contained herein
with respect to the Company has been supplied by Puget, WECo and WNG.
3
<PAGE> 15
PUGET SOUND POWER & LIGHT COMPANY,
WASHINGTON ENERGY COMPANY
AND
WASHINGTON NATURAL GAS COMPANY
JOINT PROXY STATEMENT/PROSPECTUS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C>
AVAILABLE INFORMATION................................................................ 2
INCORPORATION BY REFERENCE........................................................... 3
SUMMARY.............................................................................. 10
MEETINGS, VOTING AND PROXIES......................................................... 27
Puget Special Meeting........................................................... 27
WECo Meeting.................................................................... 28
WNG Special Meeting............................................................. 30
Adjournment of Shareholders Meetings............................................ 31
THE MERGER........................................................................... 32
Form of the Merger.............................................................. 32
Effective Time.................................................................. 32
Conversion of Shares; Exchange of Stock Certificates............................ 32
Background of the Merger........................................................ 33
Reasons for the Merger.......................................................... 38
Recommendations of the Boards of Directors...................................... 39
Opinions of Financial Advisors.................................................. 41
Certain Federal Income Tax Consequences......................................... 49
Accounting Treatment............................................................ 49
Operations of the Company After the Effective Time.............................. 49
Conflicts of Interest of Certain Persons in the Merger.......................... 50
Employee Benefit Plans.......................................................... 52
Resales of Company Common Stock and New Company Preferred Stock Issued in the
Merger; Affiliates............................................................. 56
Stock Exchange Listing of Company Common Stock and New Company Preferred
Stock.......................................................................... 56
Amendment of Articles of Incorporation.......................................... 56
Dissenters' Rights.............................................................. 57
REGULATORY REQUIREMENTS.............................................................. 59
HSR Premerger Notification...................................................... 59
State Approval.................................................................. 59
General......................................................................... 59
THE MERGER AGREEMENT................................................................. 60
Representations and Warranties.................................................. 60
Conduct of Business Prior to the Effective Time................................. 60
No Solicitation of Transactions................................................. 62
</TABLE>
4
<PAGE> 16
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C>
Indemnification................................................................. 62
Conditions to Consummation of the Merger........................................ 63
Termination; Fees and Expenses.................................................. 64
Amendment and Waiver............................................................ 66
Standstill Agreements........................................................... 66
THE STOCK OPTION AGREEMENTS.......................................................... 66
General......................................................................... 67
Certain Repurchases............................................................. 67
Voting.......................................................................... 68
Restrictions on Transfer........................................................ 68
DESCRIPTION OF COMPANY CAPITAL STOCK................................................. 68
Common Stock.................................................................... 69
Preferred Stock................................................................. 69
Preference Stock................................................................ 73
COMPARISON OF SHAREHOLDER RIGHTS..................................................... 74
UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION.................................. 78
SELECTED INFORMATION CONCERNING THE PARTIES.......................................... 86
Description of Puget's Business................................................. 86
Description of WECo's and WNG's Businesses...................................... 86
Business Contacts Between Puget and WNG......................................... 86
THE COMPANY FOLLOWING THE MERGER..................................................... 86
Management...................................................................... 86
Dividends....................................................................... 87
APPROVAL OF PUGET PLAN PROPOSAL...................................................... 87
Introduction.................................................................... 87
Awards.......................................................................... 87
ELECTION OF WECo DIRECTORS........................................................... 90
General......................................................................... 90
Nominees for Director........................................................... 90
Other Directors................................................................. 91
Class III:...................................................................... 91
Class I:........................................................................ 91
Class II:....................................................................... 92
WECo Board of Directors and Committees.......................................... 92
Beneficial Ownership of WECo Directors and Officers (as of December 8, 1995).... 93
WECo EXECUTIVE COMPENSATION.......................................................... 93
WECo Compensation and Benefits Committee Report on Executive Compensation....... 93
CEO Compensation................................................................ 95
Deductibility of Compensation................................................... 95
</TABLE>
5
<PAGE> 17
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C>
Shareholder Return Performance Graph............................................ 96
Summary Compensation Table...................................................... 96
1995 Stock Option Grants........................................................ 97
Aggregated Option/SAR Exercises in Fiscal 1995 and Fiscal Year End Option/SAR
Values......................................................................... 98
Long-Term Incentive Plan -- Awards in Fiscal 1995............................... 98
Future Benefits -- Pension Plans................................................ 99
Employment Agreements........................................................... 99
Compensation of Directors....................................................... 99
LEGAL MATTERS........................................................................ 100
CERTAIN EXPENSES AND FEES............................................................ 100
ACCOUNTANTS' REPRESENTATIVES......................................................... 100
EXPERTS.............................................................................. 100
OTHER MATTERS........................................................................ 101
SHAREHOLDER PROPOSALS................................................................ 101
ANNEXES
Annex A -- Agreement and Plan of Merger............................................. A-1
Annex B -- Puget Stock Option Agreement............................................. B-1
Annex C -- WECo Stock Option Agreement.............................................. C-1
Annex D -- Opinion of Morgan Stanley & Co. Incorporated............................. D-1
Annex E -- Opinion of Goldman, Sachs & Co. ......................................... E-1
Annex F -- Form of Amended and Restated Articles of Incorporation of the Company;
Forms of Statements of Relative Rights and Preferences for the Company
Series II $25 Preferred Stock and Company Series III $25 Preferred
Stock.................................................................... F-1
Annex G -- Employment Agreement of Richard R. Sonstelie............................. G-1
Annex H -- Employment Agreement of William P. Vititoe............................... H-1
Annex I -- Washington Dissenters' Rights Statute.................................... I-1
Annex J -- Company Amended and Restated 1995 Long-Term Incentive Compensation
Plan..................................................................... J-1
</TABLE>
6
<PAGE> 18
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Acquiring Person...................................................................... 77
AIP................................................................................... 54
Alternate Merger...................................................................... 1
Antitrust Division.................................................................... 59
Business Combination.................................................................. 64
CEO................................................................................... 94
Change in Control..................................................................... 51
Code.................................................................................. 15
Committee............................................................................. 93
Company............................................................................... 1
Company 401(k) Plan................................................................... 55
Company $25 Preferred Stock........................................................... 68
Company $100 Preferred Stock.......................................................... 68
Company Articles...................................................................... 69
Company Benefit Plans................................................................. 53
Company Board......................................................................... 16
Company Bylaws........................................................................ 62
Company Common Stock.................................................................. 1
Company Pension Plan.................................................................. 55
Company Preference Stock.............................................................. 68
Company Preferred Stock............................................................... 1
Company Series II Preferred Stock..................................................... 2
Company Series III Preferred Stock.................................................... 2
Deferred Compensation Plan............................................................ 54
Directors Plan........................................................................ 53
Distribution Date..................................................................... 77
EBITDA................................................................................ 43
Effective Time........................................................................ 32
Electric Utilities.................................................................... 46
Electric Utility Comparables.......................................................... 43
Electric Utility Transactions......................................................... 42
EPS................................................................................... 47
Exchange Act.......................................................................... 2
Existing Vititoe Employment Agreement................................................. 51
Extended Benefit Period............................................................... 51
FERC.................................................................................. 59
FTC................................................................................... 59
GAAP.................................................................................. 42
Gas LDCs.............................................................................. 46
Goldman Sachs......................................................................... 15
GS Engagement Letter.................................................................. 48
HSR Act............................................................................... 17
Indemnified Party..................................................................... 62
Interested Stockholder................................................................ 75
Interim Plan.......................................................................... 54
IRS................................................................................... 15
Issuer................................................................................ 67
</TABLE>
7
<PAGE> 19
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
LTM................................................................................... 46
Market/Offer Price.................................................................... 68
Merger................................................................................ 1
Merger Agreement...................................................................... 1
Morgan Stanley........................................................................ 15
1935 Act.............................................................................. 61
1995 Plan............................................................................. 2
named executives...................................................................... 96
Natural Gas Comparables............................................................... 43
Natural Gas Transactions.............................................................. 42
New Company Preferred Stock........................................................... 1
Notice Date........................................................................... 67
NYSE.................................................................................. 2
Offer Price........................................................................... 68
Offset................................................................................ 55
Option Holder......................................................................... 67
Option Shares......................................................................... 67
Options............................................................................... 19
Out-of-Pocket Expenses................................................................ 65
P/E................................................................................... 46
Proposal.............................................................................. 31
PSP................................................................................... 53
Puget................................................................................. 1
Puget 1994 10-K....................................................................... 3
Puget Articles........................................................................ 18
Puget Common Stock.................................................................... 1
Puget Dissenting Shares............................................................... 1
Puget Merger Proposal................................................................. 11
Puget Option.......................................................................... 19
Puget Plan Proposal................................................................... 11
Puget Preferred Stock................................................................. 1
Puget Proposals....................................................................... 11
Puget Proxy........................................................................... 27
Puget Record Date..................................................................... 11
Puget September 1995 10-Q............................................................. 3
Puget Special Meeting................................................................. 1
Puget Stock Option Agreement.......................................................... 19
Ratio................................................................................. 1
Registration Statement................................................................ 2
Repurchase Period..................................................................... 67
Restricted Shares..................................................................... 68
Retirement Plan....................................................................... 99
Right................................................................................. 76
Rights Agreement...................................................................... 73
Rights Amendment...................................................................... 77
ROE................................................................................... 46
S&P 25................................................................................ 47
SARs.................................................................................. 51
</TABLE>
8
<PAGE> 20
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SEC................................................................................... 2
Securities Act........................................................................ 2
Series R Preference Stock............................................................. 77
SFAS.................................................................................. 22
Shareholder Disapproval............................................................... 65
Shareholders Meeting.................................................................. 31
Shares Acquisition Date............................................................... 77
SOP................................................................................... 53
Stock Option Agreements............................................................... 19
Synergies............................................................................. 45
Takeover Proposal..................................................................... 62
Target Party.......................................................................... 65
Trigger Event......................................................................... 67
Trust................................................................................. 87
Washington Energy Benefit Plans....................................................... 53
WBCA.................................................................................. 17
WECo.................................................................................. 1
WECo 1995 10-K........................................................................ 3
WECo Articles......................................................................... 29
WECo Bylaws........................................................................... 29
WECo Common Stock..................................................................... 1
WECo Dissenting Shares................................................................ 1
WECo Meeting.......................................................................... 2
WECo Option........................................................................... 19
WECo Proposal......................................................................... 11
WECo Proxy............................................................................ 28
WECo Record Date...................................................................... 11
WECo Stock Award...................................................................... 54
WECo Stock Option..................................................................... 53
WECo Stock Option Agreement........................................................... 19
WECo Stock Plans...................................................................... 53
WECo/WNG/Puget Merger................................................................. 1
WNG................................................................................... 1
WNG Articles.......................................................................... 74
WNG Bargaining Unit 401(k) Plan....................................................... 55
WNG Bylaws............................................................................ 31
WNG Common Stock...................................................................... 12
WNG Dissenting Preferred Shares....................................................... 1
WNG Nonbargaining Unit 401(k) Plan.................................................... 55
WNG Pension Plan...................................................................... 55
WNG Preferred Stock................................................................... 1
WNG Proposal.......................................................................... 12
WNG Proxy............................................................................. 30
WNG Record Date....................................................................... 12
WNG Series II Preferred Stock......................................................... 1
WNG Series III Preferred Stock........................................................ 1
WNG Special Meeting................................................................... 2
WUTC.................................................................................. 17
</TABLE>
9
<PAGE> 21
SUMMARY
The following summary, which is presented herein solely to furnish limited
introductory information regarding the proposed merger and the parties thereto,
is based on the more detailed information contained, or incorporated by
reference, in this Joint Proxy Statement/Prospectus, including the Annexes
hereto, and is qualified in its entirety by reference thereto. Shareholders are
urged to read this Joint Proxy Statement/ Prospectus and the Annexes hereto in
their entirety.
PARTIES
PUGET
Puget is an investor-owned utility furnishing electric service in a
territory covering approximately 4,500 square miles, principally in the Puget
Sound region of Washington State. The mailing address and telephone number of
Puget's principal executive offices are 411 -- 108th Avenue N.E., 15th Floor,
Bellevue, Washington 98004-5515, (206) 454-6363. See "Selected Information
Concerning the Parties -- Description of Puget's Business."
WECo
WECo is a utility holding company with operating subsidiaries that are
primarily engaged in energy and utility businesses. WECo's principal subsidiary,
WNG, represented 90% of WECo's consolidated assets and 95% of its consolidated
revenues as of and for the fiscal year ended September 30, 1995. The mailing
address and telephone number of WECo's principal executive offices are P.O. Box
1869, 815 Mercer Street, Seattle, Washington 98111-1869, (206) 622-6767. See
"Selected Information Concerning the Parties -- Description of WECo's and WNG's
Businesses."
WNG
WNG, a wholly owned subsidiary of WECo, is a utility engaged principally in
the retail distribution and sale of natural gas in western Washington. The
mailing address and telephone number of WNG's principal executive offices are
P.O. Box 1869, 815 Mercer Street, Seattle, Washington 98111-1869, (206)
622-6767. See "Selected Information Concerning the Parties -- Description of
WECo's and WNG's Businesses."
THE COMPANY
At the Effective Time, WECo and WNG will be merged with and into Puget, the
separate corporate existence of WECo and WNG will cease, and Puget's corporate
name will be changed to a name to be mutually chosen by the parties. If, at the
shareholders meetings called in connection with the Merger, the holders of Puget
Common Stock and WECo Common Stock approve the Merger Agreement, but the holders
of either outstanding series of WNG Preferred Stock do not approve the Merger
Agreement, then, at the Effective Time, only WECo will be merged with and into
Puget, WNG will become a wholly owned subsidiary of the Company, and the WNG
Preferred Stock will not be converted into New Company Preferred Stock but will
remain outstanding, unchanged. The mailing address and telephone number of the
Company's principal executive offices will be 411 -- 108th Avenue N.E., 15th
Floor, Bellevue, Washington 98004-5515, (206) 454-6363.
THE MEETINGS
PUGET SPECIAL MEETING
Date, Place and Time. The Puget Special Meeting will be held on Wednesday,
March 20, 1996 at the Red Lion Hotel, 300 112th Avenue S.E., Bellevue,
Washington commencing at 10 a.m., local time, and at
10
<PAGE> 22
such other date, place and time as may be specified in the case of any
adjournment or postponement thereof. See "Meetings, Voting and Proxies -- Puget
Special Meeting."
Matters to Be Considered. At the Puget Special Meeting, holders of shares
of Puget Common Stock will consider and vote on proposals to approve (a) the
Merger Agreement and the transactions contemplated thereby (the "Puget Merger
Proposal") and (b) the increase in the number of shares of Puget Common Stock
which may be awarded under the 1995 Plan from 500,000 to 1,200,000 in order to
provide sufficient shares for issuance to holders of equity interests under the
WECo Stock Plans pursuant to the Merger Agreement and for future grants to the
Company's management employees following the Merger (the "Puget Plan Proposal";
together with the Puget Merger Proposal, the "Puget Proposals"). Holders of
Puget Common Stock will also be asked to consider and vote on any matters
incidental to the conduct of the Puget Special Meeting that may properly arise.
See "Meetings, Voting and Proxies -- Puget Special Meeting."
Record Date. The holders of record of Puget Common Stock at the close of
business on January 22, 1996 (the "Puget Record Date") are entitled to notice
of, and to vote at, the Puget Special Meeting. See "Meetings, Voting and
Proxies -- Puget Special Meeting."
Vote Required. Approval of the Puget Merger Proposal will require the
affirmative vote of holders of Puget Common Stock representing not less than
two-thirds of all votes entitled to be cast by all holders of Puget Common
Stock. Approval of the Puget Plan Proposal will require the affirmative vote of
holders of Puget Common Stock representing not less than a majority of all
shares present, in person or by proxy, and entitled to vote thereon at the Puget
Special Meeting. Holders of Puget Common Stock outstanding at the close of
business on the Puget Record Date will be entitled to one vote per share.
Puget's directors, executive officers and affiliates hold in the aggregate less
than 1% of the issued and outstanding shares of Puget Common Stock entitled to
vote at the Puget Special Meeting. See "Meetings, Voting and Proxies -- Puget
Special Meeting."
APPROVAL OF BOTH OF THE PUGET PROPOSALS BY THE HOLDERS OF PUGET COMMON
STOCK IS A CONDITION TO, AND REQUIRED FOR, CONSUMMATION OF THE MERGER. See "The
Merger Agreement -- Conditions to Consummation of the Merger."
PUGET'S BOARD OF DIRECTORS, BY UNANIMOUS VOTE, HAS APPROVED AND ADOPTED THE
MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY AND THE INCREASE IN
THE NUMBER OF SHARES OF PUGET COMMON STOCK WHICH MAY BE AWARDED UNDER THE 1995
PLAN, AND RECOMMENDS THAT THE HOLDERS OF PUGET COMMON STOCK VOTE FOR APPROVAL OF
THE MERGER AGREEMENT AND FOR APPROVAL OF THE INCREASE IN THE NUMBER OF SHARES OF
PUGET COMMON STOCK WHICH MAY BE AWARDED UNDER THE 1995 PLAN.
WECo MEETING
Date, Place and Time. The WECo Meeting will be held on Wednesday, March
20, 1996 at The Westin Hotel, 1900 Fifth Avenue, Seattle, Washington, commencing
at 9:30 a.m., local time, and at such other date, place and time as may be
specified in the case of any adjournment or postponement thereof. See "Meetings,
Voting and Proxies -- WECo Meeting."
Matters to Be Considered. At the WECo Meeting, holders of WECo Common
Stock will consider and vote on a proposal (the "WECo Proposal") to approve the
Merger Agreement and the transactions contemplated thereby. Holders of WECo
Common Stock will also be asked to consider and vote on a proposal to elect
three Class III directors to serve for three-year terms or until their
successors are elected and qualified, and any matters incidental to the conduct
of the WECo Meeting that may properly arise. See "Meetings, Voting and
Proxies -- WECo Meeting."
Record Date. The holders of record of WECo Common Stock at the close of
business on January 11, 1996 (the "WECo Record Date") are entitled to notice of,
and to vote at, the WECo Meeting. See "Meetings, Voting and Proxies -- WECo
Meeting."
Vote Required. Approval of the WECo Proposal will require the affirmative
vote of holders of WECo Common Stock representing not less than two-thirds of
all votes entitled to be cast by all holders of WECo
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<PAGE> 23
Common Stock. Holders of WECo Common Stock outstanding at the close of business
on the WECo Record Date will be entitled to one vote per share. With respect to
the election of directors, holders of WECo Common Stock are entitled to vote
cumulatively, each shareholder being entitled to cast a number of votes for such
election equal to the number of shares of WECo Common Stock held by such
shareholder multiplied by the number of directors to be elected, and to cast all
such votes for one nominee or to distribute the votes among the nominees. The
election of each director shall be decided by plurality vote. WECo's directors,
executive officers and affiliates hold in the aggregate less than 2% of the
issued and outstanding shares of WECo Common Stock entitled to vote at the WECo
Meeting. See "Meetings, Voting and Proxies -- WECo Meeting."
APPROVAL OF THE WECO PROPOSAL BY THE HOLDERS OF WECO COMMON STOCK IS A
CONDITION TO, AND REQUIRED FOR, CONSUMMATION OF THE MERGER. See "The Merger
Agreement -- Conditions to Consummation of the Merger."
WECo'S BOARD OF DIRECTORS, BY UNANIMOUS VOTE, HAS APPROVED AND ADOPTED THE
MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, AND RECOMMENDS THAT
THE HOLDERS OF WECo COMMON STOCK VOTE FOR APPROVAL OF THE MERGER AGREEMENT AND
FOR THE ELECTION OF THE NOMINATED DIRECTORS.
WNG SPECIAL MEETING
Date, Place and Time. The WNG Special Meeting will be held on Wednesday,
March 20, 1996 at The Westin Hotel, 1900 Fifth Avenue, Seattle, Washington,
commencing at 9:30 a.m., local time, and at such other date, place and time as
may be specified in the case of any adjournment or postponement thereof. The WNG
Special Meeting will be held in conjunction with the WECo Meeting at the same
time and location. See "Meetings, Voting and Proxies -- WNG Special Meeting."
Matters to Be Considered. At the WNG Special Meeting, holders of WNG
Preferred Stock will consider and vote on a proposal (the "WNG Proposal") to
approve the Merger Agreement and the transactions contemplated thereby. Holders
of WNG Preferred Stock will also be asked to consider and vote on any matters
incidental to the conduct of the WNG Special Meeting that may properly arise.
See "Meetings, Voting and Proxies -- WNG Special Meeting."
Record Date. The holders of record of WNG Preferred Stock at the close of
business on January 11, 1996 (the "WNG Record Date") are entitled to notice of,
and to vote at, the WNG Special Meeting. See "Meetings, Voting and
Proxies -- WNG Special Meeting."
Vote Required. Approval of the WNG Proposal will require the affirmative
vote of holders of WNG Series II Preferred Stock and WNG Series III Preferred
Stock, voting as separate classes, representing not less than two-thirds of all
votes entitled to be cast by all holders of each such series of WNG Preferred
Stock. Holders of WNG Preferred Stock outstanding at the close of business on
the WNG Record Date will be entitled to one vote per share. WNG's directors,
executive officers and affiliates hold in the aggregate less than 1% of the
issued and outstanding shares of WNG Preferred Stock entitled to vote at the WNG
Special Meeting. See "Meetings, Voting and Proxies -- WNG Special Meeting."
APPROVAL OF THE WNG PROPOSAL BY THE HOLDERS OF WNG PREFERRED STOCK IS A
CONDITION TO, AND REQUIRED FOR, CONSUMMATION OF THE MERGER OF WNG WITH AND INTO
PUGET. IF THE HOLDERS OF PUGET COMMON STOCK AND WECo COMMON STOCK APPROVE THE
PUGET PROPOSALS AND THE WECo PROPOSAL, RESPECTIVELY, BUT THE HOLDERS OF EITHER
SERIES OF WNG PREFERRED STOCK DO NOT APPROVE THE WNG PROPOSAL, ONLY WECo WILL BE
MERGED WITH AND INTO PUGET, WNG WILL BECOME A WHOLLY OWNED SUBSIDIARY OF THE
COMPANY, AND THE WNG PREFERRED STOCK WILL NOT BE CONVERTED INTO NEW COMPANY
PREFERRED STOCK, BUT WILL REMAIN OUTSTANDING, UNCHANGED. See "The Merger
Agreement -- Conditions to Consummation of the Merger."
WNG'S BOARD OF DIRECTORS, BY UNANIMOUS VOTE, HAS APPROVED AND ADOPTED THE
MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, AND RECOMMENDS THAT
HOLDERS OF WNG PREFERRED STOCK VOTE FOR APPROVAL OF THE MERGER AGREEMENT. WECo,
AS SOLE HOLDER OF ALL OUTSTANDING SHARES OF COMMON STOCK, PAR VALUE $5 PER
SHARE, OF WNG (THE "WNG COMMON STOCK"), HAS TAKEN ALL REQUISITE ACTION TO
APPROVE THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY.
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THE MERGER
FORM OF THE MERGER
The Merger is to be effected pursuant to the Merger Agreement and the plan
of merger contemplated thereby. Subject to the conditions of the Merger
Agreement, WECo and WNG will merge with and into Puget, the separate corporate
existence of WECo and WNG will cease, and Puget's corporate name will be changed
to a name to be mutually chosen by the parties. If, at the shareholders meetings
called in connection with the Merger, the holders of Puget Common Stock and WECo
Common Stock approve the Merger Agreement, but the holders of either series of
WNG Preferred Stock do not approve the Merger Agreement, and the other
conditions to the Merger are satisfied or waived, then, at the Effective Time,
only WECo will be merged with and into Puget, WNG will become a wholly owned
subsidiary of the Company, and the WNG Preferred Stock will not be converted
into New Company Preferred Stock, but will remain outstanding, unchanged. See
"The Merger -- Form of the Merger."
At the Effective Time, (a) each issued and outstanding share of WECo Common
Stock (other than shares owned directly or indirectly by WECo or Puget or WECo
Dissenting Shares) will be converted into the right to receive .860 share of
Company Common Stock and (b) subject to the approval of the WNG Proposal, each
issued and outstanding share of each series of WNG Preferred Stock (other than
WNG Dissenting Preferred Shares) will be converted into the right to receive one
share of New Company Preferred Stock, in each case with like rights and
preferences (including par value, dividends, redemption provisions and rights
upon liquidation) as a share of such series of WNG Preferred Stock. Each issued
and outstanding share of Puget Common Stock (other than Puget Dissenting Shares)
will remain outstanding, unchanged, as one share of Company Common Stock, so
that the holders of Puget Common Stock and WECo Common Stock immediately prior
to the Merger (except for the holders of Puget Dissenting Shares and WECo
Dissenting Shares) will all be holders of Company Common Stock immediately upon
consummation of the Merger. See "The Merger -- Conversion of Shares; Exchange of
Stock Certificates" and "Description of Company Capital Stock." From the
Effective Time, all options then outstanding under the WECo Stock Plans will
constitute options to acquire shares of Company Common Stock on the same terms
and conditions, subject to adjustments for the Ratio and the relative stock
prices. See "The Merger -- Employee Benefit Plans -- WECo Stock Plans."
Based on the capitalization of Puget and WECo on December 31, 1995 and the
Ratio, holders of Puget Common Stock and WECo Common Stock would have held
approximately 75% and 25%, respectively, of the aggregate number of shares of
Company Common Stock that would have been outstanding if the Merger had been
consummated as of such date, assuming the exercise of all outstanding options to
purchase WECo Common Stock.
EXCHANGE OF STOCK CERTIFICATES
As soon as practicable after the Effective Time, a form of letter of
transmittal will be furnished to holders of certificates that formerly
represented shares of WECo Common Stock and, subject to the approval of the WNG
Proposal, WNG Preferred Stock, together with instructions relating to the
surrender of such certificates in exchange for certificates representing Company
Common Stock, including the associated rights under the Rights Agreement (as
hereinafter defined), or New Company Preferred Stock, as the case may be.
Holders of certificates that prior to the Effective Time represented shares of
WECo Common Stock or WNG Preferred Stock will not be entitled to receive any
payment of dividends or other distributions on or payment for any fractional
share with respect to their stock until such certificates have been surrendered
for certificates representing Company Common Stock or New Company Preferred
Stock, as the case may be. Cash will be paid to holders of WECo Common Stock in
lieu of fractional shares of Company Common Stock. HOLDERS OF WECo COMMON STOCK
AND WNG PREFERRED STOCK SHOULD NOT SUBMIT THEIR STOCK CERTIFICATES FOR EXCHANGE
UNTIL A FORM OF LETTER OF TRANSMITTAL AND INSTRUCTIONS THEREFOR ARE RECEIVED.
CERTIFICATES REPRESENTING SHARES OF PUGET COMMON STOCK NEED NOT BE EXCHANGED FOR
CERTIFICATES REPRESENTING SHARES OF COMPANY COMMON STOCK. See "The
Merger -- Conversion of Shares; Exchange of Stock Certificates."
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<PAGE> 25
BACKGROUND
For a description of the background of the Merger, see "The
Merger -- Background of the Merger."
REASONS FOR THE MERGER
Puget, WECo and WNG believe that the Merger offers significant strategic
and financial benefits to each of the companies and to their respective
shareholders, as well as to their employees and customers and to the communities
in which they do business. These benefits include, among others:
- Maintenance of competitive rates that will enable the Company to meet
more effectively the challenges of the increasingly competitive
environment in the utility industry.
- Enhanced customer service, based on operational efficiencies, the
companies' overlapping service territories and the ability to provide
customers both gas and electricity to meet their total energy needs.
- Better utilization of resources through the deferral or avoidance of
certain capital intensive projects and through joint engineering, siting
and construction.
- Integration of corporate and administrative functions to eliminate
duplicative positions, reduce other administrative expenses and limit or
avoid certain capital expenditures for administrative facilities and
information systems.
See "The Merger -- Reasons for the Merger."
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
Puget. Puget's Board of Directors believes that the Merger represents a
significant growth opportunity for Puget and would offer Puget and its
shareholders more favorable prospects for the future than the prospects offered
by Puget as a stand-alone entity. In addition to the Merger's joint benefits
referred to above, Puget's Board of Directors believes that the Merger would
afford distinct benefits to Puget and its shareholders over the long term. See
"The Merger -- Recommendations of the Boards of Directors -- Puget Board
Recommendation."
The members of Puget's Board of Directors have unanimously approved and
adopted the Merger Agreement, the plan of merger contemplated thereby and the
terms and conditions thereof. As noted in "Conflicts of Interest of Certain
Persons in the Merger" below, members of Puget's Board of Directors may be
deemed to have interests in the Merger that are in addition to their interests,
if any, as shareholders of Puget generally. Puget's Board of Directors
considered these interests, among other things, in making its determination to
approve the Merger Agreement, the plan of merger contemplated thereby and the
terms and conditions thereof. To provide sufficient shares for issuance to
holders of equity interests under the WECo Stock Plans pursuant to the Merger
Agreement and for future grants to the Company's management employees following
the Merger, the members of Puget's Board of Directors have also unanimously
adopted and approved the amendment to the 1995 Plan to increase the number of
shares of Puget Common Stock which may be awarded thereunder from 500,000 to
1,200,000 shares. PUGET'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR
APPROVAL OF THE PUGET PROPOSALS.
For a more detailed discussion of the factors considered by Puget's Board
of Directors in reaching its decision on the Merger Agreement and the
transactions contemplated thereby, see "The Merger -- Reasons for the Merger"
and "The Merger -- Recommendations of the Boards of Directors."
WECo and WNG. WECo's and WNG's Boards of Directors believe that the Merger
represents a significant strategic opportunity for WECo and WNG and would offer
each company and its shareholders better prospects for the future than the
prospects offered by WECo and WNG as stand-alone entities. In addition to the
joint benefits referred to above, WECo's and WNG's Boards of Directors believe
that the Merger would offer distinct benefits to WECo and WNG and their
respective shareholders over the long term. See "The Merger -- Recommendations
of the Boards of Directors -- WECo and WNG Board Recommendations."
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The members of WECo's and WNG's Boards of Directors have unanimously
approved and adopted the Merger Agreement, the plan of merger contemplated
thereby and the terms and conditions thereof. As noted in "Conflicts of Interest
of Certain Persons in the Merger" below, members of WECo's and WNG's Boards of
Directors may be deemed to have interests in the Merger that are in addition to
their interests, if any, as shareholders of WECo and WNG generally. WECo's Board
of Directors and WNG's Board of Directors considered these interests, among
other things, in making their determinations to approve the Merger Agreement,
the plan of merger contemplated thereby and the terms and conditions thereof.
WECo'S BOARD OF DIRECTORS AND WNG'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMEND A
VOTE FOR APPROVAL OF THE MERGER AGREEMENT, AND WECo'S BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS A VOTE FOR THE ELECTION OF THE NOMINATED DIRECTORS.
For a more detailed discussion of the factors considered by WECo's Board of
Directors and WNG's Board of Directors in reaching their decisions on the Merger
Agreement and the transactions contemplated thereby, see "The Merger -- Reasons
for the Merger" and "The Merger -- Recommendations of the Boards of Directors."
OPINIONS OF FINANCIAL ADVISORS
Puget. Puget has retained Morgan Stanley & Co. Incorporated ("Morgan
Stanley") as its financial advisor in connection with the transactions
contemplated by the Merger Agreement and to assist Puget's Board of Directors in
evaluating the financial terms of the Merger. See "The Merger -- Background of
the Merger."
On October 18, 1995, Morgan Stanley rendered to Puget's Board of Directors
an oral opinion to the effect that, as of the date of such opinion, the Ratio
was fair, from a financial point of view, to Puget. Morgan Stanley subsequently
confirmed its opinion by delivery of a written opinion dated the date hereof.
The full text of Morgan Stanley's written opinion dated the date hereof, which
sets forth the assumptions made, matters considered and limitations of the
review undertaken, is attached as Annex D to this Joint Proxy Statement/
Prospectus and is incorporated herein by reference. HOLDERS OF PUGET COMMON
STOCK ARE URGED TO, AND SHOULD, READ SUCH OPINION IN ITS ENTIRETY. See "The
Merger -- Opinions of Financial Advisors."
WECo. WECo has retained Goldman, Sachs & Co. ("Goldman Sachs") as its
financial advisor in connection with the transactions contemplated by the Merger
Agreement and to assist WECo's Board of Directors in evaluating the financial
terms of the Merger. See "The Merger -- Background of the Merger."
On October 18, 1995, Goldman Sachs rendered its oral opinion to WECo's
Board of Directors that, as of the date of such oral opinion, the Ratio pursuant
to the Merger Agreement was fair to the holders of WECo Common Stock. Goldman
Sachs subsequently confirmed its opinion by delivery of a written opinion dated
the date hereof. The full text of the written opinion of Goldman Sachs, which
sets forth the assumptions made, matters considered and limitations of the
review undertaken, is attached as Annex E to this Joint Proxy
Statement/Prospectus and is incorporated herein by reference. HOLDERS OF WECo
COMMON STOCK ARE URGED TO, AND SHOULD, READ SUCH OPINION IN ITS ENTIRETY. See
"The Merger -- Opinions of Financial Advisors."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following is a summary of the material federal income tax consequences
of the Merger. Consummation of the Merger is conditioned upon the receipt by
Puget, WECo and WNG of (a) a private letter ruling from the Internal Revenue
Service (the "IRS") or (b) if no IRS ruling is received but all other conditions
to the Merger are satisfied, then legal opinions from Perkins Coie, counsel to
Puget, and Simpson Thacher & Bartlett, counsel to WECo and WNG, which ruling or
opinions shall be substantially to the effect that the Merger will qualify as a
reorganization under Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code").
Provided that the Merger so qualifies, then for federal income tax purposes
(a) no gain or loss will be recognized by Puget, WECo or WNG as a result of the
Merger, (b) holders of WECo Common Stock and WNG Preferred Stock whose shares
are converted into Company Common Stock or New Company Preferred Stock, as the
case may be, in the Merger will recognize no gain or loss as a result of the
conversion (except by reason of receipt of cash in lieu of fractional share
interests or the exercise of dissenters' rights), (c) the basis
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<PAGE> 27
of Company Common Stock or New Company Preferred Stock received pursuant to the
Merger should be the same as the basis attributable to the WECo Common Stock or
WNG Preferred Stock surrendered in exchange therefor (reduced by any amount
allocable to a fractional share interest in Company Common Stock for which cash
is received), and (d) the holding period of Company Common Stock and New Company
Preferred Stock received pursuant to the Merger shall include the holding period
of any WECo Common Stock or WNG Preferred Stock surrendered in exchange
therefor, provided that such exchanged shares are held as capital assets at the
Effective Time. See "The Merger -- Certain Federal Income Tax Consequences" and
"The Merger Agreement -- Conditions to Consummation of the Merger."
HOLDERS OF WECo COMMON STOCK AND WNG PREFERRED STOCK ARE URGED TO CONSULT
THEIR OWN TAX ADVISORS TO DETERMINE THE PARTICULAR TAX CONSEQUENCES TO THEM OF
THE MERGER, INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL AND FOREIGN TAX
LAWS.
ACCOUNTING TREATMENT
Puget, WECo and WNG believe that the Merger will be treated as a
"pooling-of-interests" for accounting and financial reporting purposes. See "The
Merger -- Accounting Treatment." The receipt by Puget and WECo of letters from
their respective independent public accountants stating that the transaction
will qualify as a pooling-of-interests is a condition precedent to consummation
of the Merger. See "The Merger Agreement -- Conditions to Consummation of the
Merger."
CONFLICTS OF INTEREST OF CERTAIN PERSONS IN THE MERGER
In considering the recommendations of Puget's Board of Directors, WECo's
Board of Directors and WNG's Board of Directors, shareholders should be aware
that certain members of such Boards may be deemed to have conflicts of interest
in the Merger.
Directorships. The Merger Agreement provides that the Company's Board of
Directors (the "Company Board") will upon consummation of the Merger consist of
no more than 15 persons, two-thirds of whom will be designated by Puget and
one-third of whom will be designated by WECo. The Merger Agreement provides that
Puget will designate Richard R. Sonstelie and William S. Weaver to the Company
Board, and WECo will designate William P. Vititoe to the Company Board. It is
anticipated that the Company Board will initially be comprised of persons who
are current directors of Puget or WECo. See "The Merger -- Conflicts of Interest
of Certain Persons in the Merger -- The Company's Board of Directors."
Employment Agreements. On October 18, 1995, Mr. Sonstelie entered into an
Employment Agreement with Puget which is currently effective. Pursuant to his
Employment Agreement, Mr. Sonstelie serves as Chairman of the Board and Chief
Executive Officer of Puget and will serve as Chairman of the Board and Chief
Executive Officer of the Company. On October 18, 1995, Mr. Vititoe entered into
an Employment Agreement with Puget that is to become effective at the Effective
Time and will replace his existing employment agreement with WECo and WNG. Mr.
Vititoe's Employment Agreement provides that he will serve as a member of the
Company Board and as President and Chief Operating Officer of the Company from
and after the Effective Time. Both Employment Agreements provide certain
benefits in the event of termination of employment under certain circumstances.
See "The Merger -- Conflicts of Interest of Certain Persons in the Merger."
WECo has employment agreements with certain other key executive officers
that provide for lump-sum payments of salary and other benefits if employment is
terminated under certain circumstances following consummation of the Merger and
during the term of the agreements. See "The Merger -- Conflicts of Interest of
Certain Persons in the Merger."
Employee Plans. Under certain benefit plans and agreements maintained or
entered into by WECo and WNG, certain directors, officers and other employees of
WECo and WNG will be entitled to immediate payment and/or vesting of certain
retirement and other deferred compensation upon consummation of the Merger. See
"The Merger -- Conflicts of Interest of Certain Persons in the
Merger -- Employment Agreements With the Company" and "The Merger -- Employee
Benefit Plans."
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Indemnification. Pursuant to the Merger Agreement, the Company will
indemnify, to the fullest extent permitted by applicable law, the present and
former directors, officers and employees of each of Puget, WECo and WNG, and any
subsidiaries thereof, against certain liabilities arising out of or pertaining
to actions or omissions occurring at or prior to the Effective Time that arise
from or are based on such service as a director, officer or employee or that
arise from or pertain to the transactions contemplated by the Merger Agreement,
and to maintain the current policies of directors' and officers' liability
insurance held by WECo and WNG (or policies at least as favorable) for a period
of not less than six years after the Effective Time to the extent that such
liability insurance can be maintained annually at a cost that is not greater
than 200% of the premium for the current directors' and officers' liability
insurance maintained by WECo and WNG. To the fullest extent permitted by
applicable law, from and after the Effective Time, all rights to indemnification
existing in favor of the employees, agents, directors or officers of Puget,
WECo, WNG and their respective subsidiaries with respect to their activities as
such prior to the Effective Time, as provided in their respective Articles of
Incorporation or Bylaws in effect on the date thereof or otherwise in effect on
October 18, 1995, will survive the Merger and continue in full force and effect
for a period of not less than six years from the Effective Time. See "The Merger
Agreement -- Indemnification."
DISSENTERS' RIGHTS
Under Washington law, holders of record of WECo Common Stock and WNG
Preferred Stock as of the WECo Record Date or the WNG Record Date, as the case
may be, who do not wish to accept shares of Company Common Stock or New Company
Preferred Stock, as the case may be, in the Merger, and holders of Puget Common
Stock who vote against the Merger, have the right to receive in cash the "fair
value" of their WECo Common Stock, WNG Preferred Stock or Puget Common Stock, as
the case may be. To perfect such dissenters' rights, holders of WECo Common
Stock, WNG Preferred Stock and Puget Common Stock must comply with the
procedural requirements of the Washington Business Corporation Act (the "WBCA"),
including, without limitation, not voting in favor of the Merger Agreement and
making a written demand for payment before the date of the WECo Meeting, the WNG
Special Meeting or the Puget Special Meeting, as the case may be. Holders of WNG
Preferred Stock will not have dissenters' rights if the Alternate Merger is
effected. See "The Merger -- Dissenters' Rights" and Annex I to this Joint Proxy
Statement/Prospectus.
REQUIRED REGULATORY APPROVALS
The approval of the Washington Utility and Transportation Commission (the
"WUTC") under applicable state laws and the expiration of the applicable waiting
period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), are conditions to consummation of the Merger.
Under the Merger Agreement, Puget and WECo have agreed to use all
reasonable efforts to obtain all governmental authorizations necessary or
advisable to consummate or effect the transactions contemplated by the Merger
Agreement. Various parties may seek intervention in these proceedings to oppose
the Merger or to have conditions imposed on the receipt of regulatory approvals.
While the parties believe that they will receive the requisite regulatory
approvals for the Merger, there can be no assurance as to the timing of such
approvals or the ability of the parties to obtain such approvals on satisfactory
terms or otherwise. It is a condition to consummation of the Merger that such
approvals be obtained on terms and conditions that would not have, or would not
be reasonably likely to have, individually or in the aggregate, a material
adverse effect on the business, operations, properties, assets, financial
condition, results of operations or prospects of the Company and its prospective
subsidiaries taken as whole. There can be no assurance that any such approvals
will not contain terms or conditions that cause such approvals to fail to
satisfy such conditions to consummation of the Merger. See "Regulatory
Requirements" and "The Merger Agreement -- Conditions to Consummation of the
Merger" with respect to the approvals noted above and other filings and actions
that also constitute conditions to consummation of the Merger.
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CONDITIONS TO THE MERGER
The obligations of Puget, on the one hand, and WECo and WNG, on the other,
to consummate the Merger are subject to the satisfaction of certain conditions,
including the approval of both of the Puget Proposals by the holders of Puget
Common Stock, approval of the WECo Proposal by the holders of WECo Common Stock
and (except in the case of the Alternate Merger) approval of the WNG Proposal by
the holders of WNG Preferred Stock, the absence of any restraining order or
injunction that prevents consummation of the Merger, the listing of the Company
Common Stock and the New Company Preferred Stock issuable in the Merger on the
NYSE, the qualification of the Merger as a "pooling-of-interests" for accounting
and financial reporting purposes, the receipt of all required governmental
approvals, the absence of any material adverse change in the business,
operations, properties, assets, financial condition, results of operations or
prospects of Puget, WECo and their respective subsidiaries, each taken as a
whole, the performance in all material respects of all obligations required to
be performed under the Merger Agreement and the Stock Option Agreements (as
hereinafter defined), the accuracy in all material respects of the
representations and warranties set forth in the Merger Agreement and the Stock
Option Agreements, the receipt by Puget of officer's certificates from WECo and
WNG, and the receipt by WECo and WNG of an officer's certificate from Puget,
each stating that certain conditions set forth in the Merger Agreement have been
satisfied and that there has occurred no material adverse change in the
business, operations, properties, assets, financial condition, results of
operations or prospects of the parties and their respective subsidiaries taken
as whole, the receipt of a tax ruling from the IRS or of tax opinions to the
effect that the Merger will be treated as a reorganization under Section 368(a)
of the Code, the receipt of certain material third-party consents, the absence
of any event that would result in the triggering of any right or entitlement of
shareholders under the Rights Agreement and the receipt by Puget of certain
agreements from all affiliates of WECo. See "The Merger Agreement -- Conditions
to Consummation of the Merger."
RIGHTS TO TERMINATE, AMEND OR WAIVE CONDITIONS
The Merger Agreement may be terminated under certain circumstances,
including: by mutual written consent of the Boards of Directors of each of Puget
and WECo; by any party thereto, in certain circumstances, if the Merger is not
consummated on or before December 31, 1996 (extendible in certain circumstances
to March 31, 1997); by any party thereto if the requisite approvals of the
holders of Puget Common Stock and WECo Common Stock are not obtained; by any
party thereto if any law or regulation is adopted that prohibits the Merger or
if any court issues an order prohibiting the Merger; by a nonbreaching party if
there occurs a material breach of the Merger Agreement that is not cured within
20 days; or by any party, under certain circumstances, if, as a result of a
third-party tender offer or any written offer or proposal with respect to a
business combination by a third party, such party's Board of Directors
determines in good faith that its fiduciary obligations under applicable law
require that such tender or other written offer or proposal be accepted. The
Merger Agreement requires that a termination fee be paid under certain
circumstances, including if, in certain circumstances, a business combination
proposal with a third party is not rejected or withdrawn and is consummated or
accepted within two and one-half years of termination. See "The Merger
Agreement -- Termination; Fees and Expenses." The aggregate termination fees
under these provisions, together with the amounts payable under certain
provisions of the Stock Option Agreements, may not exceed $20 million. See "The
Merger Agreement -- Termination; Fees and Expenses" and "The Stock Option
Agreements -- Certain Repurchases."
The Merger Agreement may be amended by the parties at any time before or
after its approval by the shareholders of Puget, WECo and WNG, but no amendment
shall be made after any such approval that alters or changes (a) the amount or
kind of shares, rights or any of the proceedings of the exchange and/or
conversion of shares, (b) the terms or conditions of the Merger Agreement if
such alteration or change, alone or in the aggregate, would materially adversely
affect the rights of the holders of Puget Common Stock, Puget Preferred Stock,
WECo Common Stock or WNG Preferred Stock, or (c) any terms of Puget's Amended
and Restated Articles of Incorporation (the "Puget Articles"), except for
alterations or changes that could otherwise be adopted by Puget's Board of
Directors, without the further approval of such shareholders, as applicable. See
"The Merger Agreement -- Amendment and Waiver."
18
<PAGE> 30
At any time prior to the Effective Time, the conditions to a party's
obligation to consummate the Merger may be waived, in certain circumstances, by
the other party. See "The Merger Agreement -- Amendment and Waiver."
STOCK OPTION AGREEMENTS
Pursuant to (a) the WECo Stock Option Agreement dated as of October 18,
1995, by and between WECo and Puget (the "WECo Stock Option Agreement") and (b)
the Puget Stock Option Agreement dated as of October 18, 1995, by and between
Puget and WECo (the "Puget Stock Option Agreement"; together with the WECo Stock
Option Agreement, the "Stock Option Agreements"), WECo has granted Puget the
right (the "Puget Option"), and Puget has granted WECo the right (the "WECo
Option"; together with the Puget Option, the "Options"), to purchase, under
certain circumstances relating to a Business Combination (as hereinafter
defined) proposal by a third party, up to a certain number of authorized but
unissued shares of the respective issuer's common stock (representing 19.9% of
the outstanding common stock of such issuer on October 18, 1995), at $20.00 per
share for WECo Common Stock and $23.25 per share for Puget Common Stock. The
exercise of the Options is subject to certain conditions set forth in the Merger
Agreement relating to Business Combination proposals by third parties and rights
of termination. See "The Stock Option Agreements -- General" and "The Merger
Agreement -- Termination; Fees and Expenses." In addition, the Stock Option
Agreements provide that the holder of an Option has the right to require the
issuer thereof to repurchase from the holder of the Option (a) all or any
portion of the Option at any time the Option is exercisable at a price that
represents the difference between the Market/Offer Price (as hereinafter
defined) and the exercise price of the Option and (b) on or at any time prior to
December 31, 1996 (which date may be extended to March 31, 1997, under certain
circumstances) all or any portion of any shares purchased pursuant to the
Option. See "The Stock Option Agreements -- Certain Repurchases." Any such
amounts payable under the Stock Option Agreements are subject to the $20 million
aggregate limit set forth in the Merger Agreement. The Stock Option Agreements
are intended to increase the likelihood that the Merger will be consummated in
accordance with the terms of the Merger Agreement and may have the effect of
discouraging competing offers. See "The Stock Option Agreements."
Further, the Stock Option Agreements contemplate the continuation of
certain standstill provisions and provide that any shares of the other party
acquired or otherwise beneficially owned must be voted for and against each
matter submitted to a shareholder vote in the same proportion as the other
shareholders of the issuer thereof vote for and against such matter. See "The
Merger Agreement -- Standstill Agreements" and "The Stock Option
Agreements -- Voting."
EFFECT OF THE MERGER ON RIGHTS OF SHAREHOLDERS
As a result of the Merger, holders of WECo Common Stock and WNG Preferred
Stock (other than, in each case, holders properly exercising dissenters' rights)
will receive shares of Company Common Stock or New Company Preferred Stock, as
the case may be. For a comparison of the charter and bylaw provisions of Puget,
WECo and WNG governing the rights of Puget, WECo and WNG shareholders, see
"Comparison of Shareholder Rights."
DIVIDENDS
The amount, declaration and timing of dividends on Company Common Stock
will be a business decision to be made by the Company from time to time based on
the Company's results of operations and financial condition, regulatory factors
and such other business considerations as the Company Board considers relevant.
Subject to the foregoing, it is anticipated that the Company initially will
adopt the dividend policy followed by Puget, which currently provides for annual
dividends of $1.84 per share. WECo currently pays an annual dividend of $1.00
per share of WECo Common Stock. Prior to the Effective Time, Puget and WECo
intend to continue their respective dividend policies.
19
<PAGE> 31
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
The summary below sets forth certain selected historical financial data and
selected pro forma financial data that should be read in conjunction with the
historical financial statements and notes thereto contained in the Puget 1994
10-K, the Puget September 1995 10-Q and the WECo 1995 10-K, each incorporated
herein by reference, and in conjunction with the pro forma financial data and
related notes appearing elsewhere in this Joint Proxy Statement/Prospectus. See
"Unaudited Pro Forma Condensed Financial Information."
SELECTED HISTORICAL FINANCIAL DATA
The selected historical financial data of Puget set forth below have been
derived from the consolidated financial statements of Puget as of, and for each
of the five fiscal years in the period ended, December 31, 1994, and as of, and
for the nine-month and twelve-month periods ended, September 30, 1995. The
consolidated financial statements as of, and for each of the five years in the
period ended, December 31, 1994 have been audited by Coopers & Lybrand L.L.P.,
independent accountants. The consolidated financial statements as of, and for
the nine-month and twelve-month periods ended, September 30, 1995 are unaudited.
In the opinion of Puget's management, such unaudited consolidated financial
statements include all adjustments and accruals necessary for a fair
presentation.
PUGET SOUND POWER & LIGHT COMPANY
<TABLE>
<CAPTION>
NINE MONTHS TWELVE
ENDED MONTHS ENDED YEARS ENDED DECEMBER 31,
SEPTEMBER 30, SEPTEMBER 30, ----------------------------------------------------------------
1995 1995 1994 1993 1992 1991 1990
------------- ------------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED INCOME
STATEMENT DATA
Operating Revenues......... $ 848,521 $1,185,456 $1,194,058 $1,112,878 $1,024,970 $ 956,769 $ 935,273
Operating Income........... 150,298 211,222(1) 193,498(2) 210,980 214,670 213,731 215,376
Income from Continuing
Operations............... 90,629 131,461(1) 120,059(2) 138,327 135,720 132,777 132,343
Preferred Stock Dividend
Requirements............. 11,725 15,704 15,731 16,442 13,884 10,039 12,395
Income Available for Common
Stock.................... 78,904 115,757 104,328 121,885 121,836 122,738 119,948
Earnings per Share......... 1.24 1.82 1.64 2.00 2.16 2.21 2.16
Cash Dividends per Common
Share.................... 1.38 1.84 1.84 1.83 1.79 1.76 1.76
Ratio of Earnings to
Combined Fixed Charges
and Preferred Stock
Dividends(3)............. 2.55x 2.45x 2.63x 2.47x 2.57x 2.58x
CONSOLIDATED BALANCE SHEET
DATA
Total Assets(4)............ $3,226,457 $3,226,457 $3,463,770 $3,341,130 $2,997,721 $2,676,438 $2,602,536
Long-Term Debt(5).......... 971,403 971,403 1,071,298 1,059,079 1,206,992 1,060,309 1,028,834
Short-Term Debt............ 131,948 131,948 234,454 149,306 90,450 111,789 93,060
Preferred Stock:
Not Subject to Mandatory
Redemption............. 125,000 125,000 125,000 115,000 165,000 140,000 140,000
Subject to Mandatory
Redemption(6).......... 89,040 89,040 91,242 93,176 93,822 20,189 28,766
Common Equity.............. 1,163,925 1,163,925 1,172,729 1,186,475 1,040,164 942,433 917,977
Book Value per Share....... 18.29 18.29 18.43 18.65 17.76 16.96 16.52
</TABLE>
See accompanying notes on pages 22-23.
20
<PAGE> 32
The selected historical financial data of WECo set forth below have been
derived from the consolidated financial statements of WECo as of, and for each
of the six fiscal years in the period ended, September 30, 1995 and for the
nine-month period ended September 30, 1995. The consolidated financial
statements as of, and for the six fiscal years in the period ended, September
30, 1995 have been audited by Arthur Andersen LLP, independent auditors. The
consolidated financial statements as of, and for the nine-month period ended,
September 30, 1995 are unaudited.
WASHINGTON ENERGY COMPANY
<TABLE>
<CAPTION>
NINE MONTHS
ENDED FISCAL YEARS ENDED SEPTEMBER 30,
SEPTEMBER 30, -------------------------------------------------------------------------
1995 1995 1994 1993 1992 1991 1990
------------- -------- ---------- ---------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED INCOME STATEMENT
DATA(4)
Operating Revenues................ $287,366 $443,611 $ 432,025 $ 470,392 $375,088 $395,564 $364,005
Operating Income.................. 27,485 (7) 51,796 (7) 28,168 (8) 55,569 45,980 59,394 48,631
Income (Loss) from Continuing
Operations...................... (54,317)(9) (41,062)(9) (44,847)(10) 22,035 13,981 31,581 19,570
Preferred Stock Dividend
Requirements.................... -- -- 9 101 105 112 117
Income (Loss) Available for Common
Stock(11)....................... (54,317) (41,062) (45,529) 21,934 13,876 31,469 19,453
Earnings per Share(11)............ (2.27) (1.72) (1.94) 0.95 0.71 1.73 1.27
Cash Dividends per Common Share... 0.75 1.00 1.00 1.40 1.40 1.38 1.34
Ratio of Earnings to Combined
Fixed Charges and Preferred
Stock Dividends(3)(12).......... -- -- 1.66x 1.43x 2.25x 1.84x
CONSOLIDATED BALANCE SHEET DATA(4)
Total Assets...................... $989,490 $989,490 $1,036,790 $1,035,817 $899,874 $809,657 $713,947
Long-Term Debt(5)................. 340,200 340,200 350,340 353,680 285,940 237,824 237,021
Short-Term Debt................... 161,994 161,994 125,182 145,498 138,210 102,345 65,060
Preferred Stock:
Not Subject to Mandatory
Redemption.................... 90,000 90,000 90,000 -- -- -- --
Subject to Mandatory
Redemption(6)................. -- -- -- 22,548 32,748 32,948 33,337
Common Equity..................... 196,686 196,686 256,800 322,931 275,517 284,260 220,381
Book Value per Share.............. 8.17 8.17 10.83 13.85 13.88 14.59 13.65
</TABLE>
See accompanying notes on pages 22-23.
21
<PAGE> 33
The selected historical financial data of WNG set forth below have been
derived from the financial statements of WNG as of, and for each of the six
fiscal years in the period ended, September 30, 1995 and for the nine-month
period ended September 30, 1995. The financial statements as of, and for the six
fiscal years in the period ended, September 30, 1995 have been audited by Arthur
Andersen LLP, independent auditors. The financial statements as of, and for the
nine-month period ended, September 30, 1995 are unaudited.
WASHINGTON NATURAL GAS COMPANY
<TABLE>
<CAPTION>
NINE MONTHS
ENDED FISCAL YEARS ENDED SEPTEMBER 30,
SEPTEMBER 30, ---------------------------------------------------------------------
1995 1995 1994 1993 1992 1991 1990
------------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA(4)
Operating Revenues................... $ 270,301 $420,048 $396,407 $431,063 $351,022 $371,445 $348,340
Operating Income..................... 26,580(13) 50,513(13) 26,381 (8) 49,889 38,143 51,761 44,533
Income (Loss) from Continuing
Operations......................... 1,712(13) 17,854(13) (8,243)(14) 21,771 12,231 29,409 18,762
Preferred Stock Dividend
Requirements....................... 5,264 7,126 4,777 2,720 2,740 2,755 2,776
Income (Loss) Available for Common
Stock.............................. (3,552) 10,728 (13,020) 19,051 9,491 26,654 15,986
Ratio of Earnings to Combined Fixed
Charges and Preferred Stock
Dividends(3)(15)................... 1.34x -- 1.83x 1.39x 2.25x 1.78x
BALANCE SHEET DATA(4)
Total Assets......................... $ 890,598 $890,598 $872,549 $834,516 $729,536 $657,727 $581,801
Long-Term Debt(5).................... 340,200 340,200 350,340 353,680 285,940 237,824 221,105
Intercompany Debt.................... 27,951 27,951 29,617 49,809 59,543 51,791 28,142
Short-Term Debt...................... -- -- -- -- 17,100 -- --
Preferred Stock:
Not Subject to Mandatory
Redemption....................... 90,000 90,000 90,000 -- -- -- --
Subject to Mandatory
Redemption(6).................... -- -- -- 22,600 32,900 33,200 33,401
Common Equity........................ 251,528 251,528 235,988 262,334 205,599 210,889 171,255
</TABLE>
- ---------------
(1) Includes charges of $1.7 million ($0.03 per share) for costs relating to
office and facilities consolidation.
(2) Includes charges of $13.6 million ($0.21 per share) for costs relating to
workforce reductions and related consolidation of facilities.
(3) For purposes of computing the ratio of earnings to combined fixed charges
and preferred stock dividends, "earnings" consists of income from
continuing operations, before interest charges and cumulative preferred
stock dividend requirements, plus income taxes, plus the estimated interest
component of rentals. "Earnings" also includes an allowance for borrowed
and other funds used during construction. "Fixed charges" consists of
interest charges, the estimated interest component of rentals and the
equivalent of pretax preferred stock dividend requirements of
majority-owned subsidiaries. Due to seasonal variations in energy usage,
operating revenues and associated expenses are not generated evenly during
the year. The ratio for the nine months ended September 30, 1995 is
therefore not meaningful and is not included.
(4) For purposes of conforming the presentation of the selected financial data,
certain historical amounts have been reclassified.
(5) Includes long-term debt due within one year.
(6) Includes amounts due within one year.
(7) Includes $3.3 million ($0.14 per share) in unusual charges relating
primarily to a workforce reduction.
(8) Includes $8.8 million in charges ($0.37 per share) relating to
restructuring operations, downsizing the workforce, writing off costs
deemed unrecoverable and establishing other reserves.
(9) Includes the charges described in (7) above plus: (1) $26.5 million ($1.11
per share) to write down coal and railroad assets associated with adoption
of Statement of Financial Accounting Standards ("SFAS") No. 121 relating to
impairment of long-lived assets; (2) $16.1 million ($0.67 per share) in
charges relating to impairment in the carrying value of WECo's investment
in its unconsolidated oil and gas affiliate and WECo's equity in losses
recognized by that affiliate associated with its adoption of SFAS No. 121;
and (3) $3.3 million ($0.14 per share) to increase a contingency reserve.
(10) Includes the charges described in (8) above and (14) below plus a $30.0
million loss ($1.28 per share) relating to the merger of WECo's oil and gas
subsidiary with another independent oil and gas company.
(11) Income (Loss) Available for Common Stock and Earnings per Share are based
on income from continuing operations after preferred dividend requirements.
Results of discontinued operations for WECo have been excluded for 1990,
1991, 1992, 1993 and 1994.
22
<PAGE> 34
(12) The results of calculating the ratio of earnings to fixed charges and
preferred stock dividends for 1995 and 1994 are not meaningful due to
losses of $52,916,000 in 1995 and $29,422,000 in 1994. Earnings would have
had to have been $53,503,000 and $44,195,000 in 1995 and 1994,
respectively, to cover fixed charges and preferred stock dividends.
(13) Includes $2.0 million in severance charges relating to a workforce
reduction.
(14) Includes the charges in (8) above plus $2.9 million ($0.13 per share) in
charges relating to the transfer of WNG's merchandise sales operation to
another subsidiary of WECo and the write-off of other nonoperating assets.
(15) Earnings for the fiscal year ended September 30, 1994 were inadequate to
cover fixed charges and preferred stock dividends, and the coverage
deficiency was $20,808,000.
23
<PAGE> 35
SELECTED PRO FORMA FINANCIAL DATA OF THE COMPANY
The selected unaudited pro forma financial data of the Company combine the
historical condensed consolidated balance sheets and statements of income of
Puget and WECo after giving effect to the Merger under the "pooling-of-interest"
method of accounting, assuming the Merger had been consummated prior to the
periods presented. The pro forma adjustments are described in the notes to the
pro forma condensed financial data of the Company included in this Joint Proxy
Statement/Prospectus, which shareholders are urged to read carefully. Pro forma
per share data for the Company give effect to the conversion of each share of
WECo Common Stock into .860 share of Company Common Stock. The selected pro
forma condensed consolidated financial data are based on preliminary evaluations
and are subject to change. The selected pro forma condensed consolidated
financial data are not necessarily indicative of the operating results or
financial position that would have occurred had the Merger been consummated at
such periods, and are not necessarily indicative of future operating results or
financial position. See "Unaudited Pro Forma Condensed Financial Information."
See the historical per share data of Puget and WECo on pages 20-21.
<TABLE>
<CAPTION>
NINE MONTHS TWELVE
ENDED MONTHS ENDED YEARS ENDED DECEMBER 31,
SEPTEMBER 30, SEPTEMBER 30, --------------------------------------------------------------
1995 1995 1994 1993 1992 1991 1990
------------- ------------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
PRO FORMA INCOME STATEMENT
DATA(1)(2)(3)(4)(10)
Operating Revenues........... $1,135,887 $1,629,067 $1,626,083 $1,583,270 $1,400,058 $1,352,333 $1,299,278
Operating Income............. 177,783 263,018 221,120 266,549 260,650 273,125 264,007
Income from Continuing
Operations(5).............. 41,577 97,525 112,485 162,974 152,323 166,995 154,837
Preferred Stock Dividend
Requirements(5)............ 16,990 22,830 19,710 19,155 16,611 12,788 15,436
Income Available for Common
Stock...................... 24,587 74,695 92,102 143,819 135,712 154,207 139,401
Earnings per Share(6)........ 0.29 0.89 1.10 1.78 1.85 2.17 2.03
Cash Dividends per Common
Share(6)................... 1.26 1.67 1.68 1.78 1.75 1.73 1.72
Ratio of Earnings to Combined
Fixed Charges and Preferred
Stock Dividends(7)......... 1.75x 1.93x 2.40x 2.23x 2.49x 2.41x
PRO FORMA BALANCE SHEET
DATA(1)(3)
Total Assets................. $4,215,947 $4,215,947 $4,500,560 $4,376,947 $3,897,595 $3,486,095 $3,316,483
Long-Term Debt(8)............ 1,311,603 1,311,603 1,421,638 1,412,759 1,492,932 1,298,133 1,265,855
Short-Term Debt.............. 293,942 293,942 359,636 294,804 228,660 214,134 158,120
Preferred Stock:
Not Subject to Mandatory
Redemption............... 215,000 215,000 215,000 115,000 165,000 140,000 140,000
Subject to Mandatory
Redemption(9)............ 89,040 89,040 91,242 115,724 126,570 53,137 62,103
Common Equity................ 1,360,611 1,360,611 1,429,529 1,509,406 1,315,681 1,226,693 1,138,358
Book Value per Share(6)...... 16.13 16.13 17.01 18.04 17.39 16.96 16.39
PRO FORMA PER SHARE
DATA(1)(2)(3)(4)(5)(6)(10)
COMPANY PRO FORMA
Earnings per Share........... $ 0.29 $ 0.89 $ 1.10 $ 1.78 $ 1.85 $ 2.17 $ 2.03
Cash Dividends Paid per
Common Share............... 1.26 1.67 1.68 1.78 1.75 1.73 1.72
Book Value per Share (end of
period).................... 16.13 16.13 17.01 18.04 17.39 16.96 16.39
EQUIVALENT WECo
Earnings per Share........... 0.25 0.76 0.94 1.53 1.59 1.86 1.74
Cash Dividends Paid per
Common Share............... 1.08 1.44 1.44 1.53 1.51 1.48 1.48
Book Value per Share (end of
period).................... 13.87 13.87 14.63 15.51 14.96 14.59 14.10
</TABLE>
- ---------------
(1) See accompanying "Notes to Unaudited Pro Forma Condensed Financial
Statements" for additional information.
24
<PAGE> 36
(2) Puget's fiscal year ends on December 31. WECo's fiscal year ends on
September 30. The pro forma financial data for the years ended December 31,
1990-1994 reflect fiscal years ended December 31 for Puget and September 30
for WECo. The financial data for the nine months ended September 30, 1995
are the results of the nine months ended September 30, 1995 for Puget and
WECo. The WECo income statement data for the three months ended December
31, 1994 are as follows: Operating Revenues, $156,245,000; Operating
Income, $24,311,000; Income from Continuing Operations, $13,255,000;
Preferred Stock Dividend Requirements, $-0-; Income Available for Common
Stock, $13,255,000; Earnings per Share, $.56; and Cash Dividends per Common
Shares, $.25.
(3) For comparative purposes, certain historical amounts have been reclassified
to conform to the pro forma financial statement format.
(4) See explanatory notes on pages 22-23 regarding unusual changes.
(5) Assumes the WECo/WNG/Puget Merger has been approved and the WNG Preferred
Stock has been exchanged for Company Preferred Stock.
(6) The data assume that the Merger was consummated prior to the periods
presented. Pro forma and equivalent pro forma per share amounts give effect
to the conversion of each share of WECo Common Stock outstanding into .860
share of Company Common Stock. Pro forma dividends paid per common share
reflect the historical dividends declared by Puget and WECo, divided by the
pro forma average number of shares of Company Common Stock outstanding. Pro
forma dividend information does not necessarily indicate what the actual
dividends would have been for the Company. The equivalent pro forma WECo
per share data was calculated by multiplying the pro forma per share data
for the Company by the Ratio.
(7) For purposes of computing the ratio of earnings to combined fixed charges
and preferred stock dividends, "earnings" consists of income from
continuing operations before interest charges and cumulative preferred
stock dividend requirements, plus income taxes, plus the estimated interest
component of rentals. "Earnings" also includes an allowance for borrowed
and other funds used during construction. "Fixed charges" consists of
interest charges, the estimated interest component of rentals and the
equivalent of pretax preferred stock dividend requirements of
majority-owned subsidiaries. The ratio assumes the WECo/WNG/Puget Merger
has been approved and WECo and WNG have been merged into Puget. Due to
seasonal variations in energy usage, operating revenues and associated
expenses are not generated evenly during the year. The ratio for the nine
months ended September 30, 1995 is therefore not meaningful and is not
included.
(8) Includes long-term debt due within one year.
(9) Includes amounts due within one year.
(10) The results of operations for 1994 reflect pro forma adjustments to
eliminate the loss on the merger of WECo's oil and gas subsidiary, as
described in note 10 on page 22, and to reflect the earnings from the
investment in the independent oil and gas company for the entire year.
For further discussion of the pro forma adjustments with respect to the
Merger and more complete financial data, see "Unaudited Pro Forma Condensed
Financial Information."
25
<PAGE> 37
COMPARATIVE MARKET PRICES AND DIVIDENDS
Puget Common Stock is listed on the NYSE under the symbol "PSD." WECo
Common Stock is listed on the NYSE under the symbol "WEG."
The following table sets forth, for the periods indicated, the high and low
sales prices of Puget Common Stock and WECo Common Stock, as reported on the
NYSE Composite Tape, and the dividends declared per share of Puget Common Stock
and WECo Common Stock.
<TABLE>
<CAPTION>
PUGET WECO
----------------------- -----------------------
CALENDAR YEAR HIGH LOW DIVIDENDS HIGH LOW DIVIDENDS
- ------------- ---- ---- --------- ---- ---- ---------
<S> <C> <C> <C> <C> <C> <C>
1993
First Quarter............................................ $28 3/4 $26 1/8 $.45 $24 1/4 $21 1/2 $.35
Second Quarter........................................... 29 3/8 26 1/4 .46 26 5/8 21 5/8 .35
Third Quarter............................................ 29 3/4 25 5/8 .46 23 3/8 17 1/2 .35
Fourth Quarter........................................... 26 7/8 23 1/2 .46 20 17 3/8 .25
1994
First Quarter............................................ $24 7/8 $22 $.46 $18 7/8 $16 $.25
Second Quarter........................................... 22 3/4 16 1/2 .46 17 1/4 14 3/8 .25
Third Quarter............................................ 20 18 3/8 .46 15 5/8 14 1/4 .25
Fourth Quarter........................................... 21 19 3/8 .46 14 3/4 12 1/2 .25
1995
First Quarter............................................ $21 7/8 $20 1/8 $.46 $14 3/8 $13 $.25
Second Quarter........................................... 23 3/8 20 3/4 .46 16 7/8 13 .25
Third Quarter............................................ 23 3/8 21 1/4 .46 17 3/8 15 3/4 .25
Fourth Quarter........................................... 24 22 1/4 .46 19 1/8 16 1/2 .25
1996
First Quarter (through January 30, 1996)................. $25 1/8 $23 1/4 $.46 $20 1/2 $18 5/8 $.25
</TABLE>
On October 18, 1995, the last trading day prior to announcement of
execution of the Merger Agreement, the closing sales price of Puget Common Stock
was $23 per share and the closing sales price of WECo Common Stock was $17 per
share. On January 30, 1996, the most recent date for which it was practicable to
obtain market price data prior to printing this Joint Proxy
Statement/Prospectus, the closing sales price of Puget Common Stock was $25 per
share and the closing sales price of WECo Common Stock was $20 1/4 per share.
Accordingly, if the Merger had been consummated as of January 30, 1996, each
share of WECo Common Stock would have been converted into the right to receive
.860 share of Company Common Stock having a market value of $21 1/2. The market
prices of Puget Common Stock and WECo Common Stock are subject to fluctuation.
Puget and WECo shareholders are urged to obtain current market quotations for
Puget Common Stock and WECo Common Stock.
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<PAGE> 38
MEETINGS, VOTING AND PROXIES
This Joint Proxy Statement/Prospectus is being furnished to (a) the holders
of outstanding shares of Puget Common Stock in connection with the solicitation
of proxies by Puget's Board of Directors from such holders for use at the Puget
Special Meeting, (b) the holders of outstanding shares of WECo Common Stock in
connection with the solicitation of proxies by WECo's Board of Directors from
such holders for use at the WECo Meeting, and (c) the holders of outstanding
shares of WNG Preferred Stock in connection with the solicitation of proxies by
WNG's Board of Directors from such holders for use at the WNG Special Meeting.
PUGET SPECIAL MEETING
Place, Time and Date. The Puget Special Meeting will be held at the Red
Lion Hotel, 300 112th Avenue S.E., Bellevue, Washington, at 10 a.m., local time,
on Wednesday, March 20, 1996. This Joint Proxy Statement/Prospectus is being
sent to holders of Puget Common Stock, accompanied by a form or forms of proxy
(the "Puget Proxy") which is being solicited by Puget's Board of Directors for
use at the Puget Special Meeting and at any adjournment or postponement thereof.
Matters to Be Considered. At the Puget Special Meeting, holders of shares
of Puget Common Stock will consider and vote on proposals to approve (a) the
Puget Merger Proposal to approve the Merger Agreement and the transactions
contemplated thereby and (b) the Puget Plan Proposal to increase the number of
shares of Puget Common Stock which may be awarded under the 1995 Plan from
500,000 to 1,200,000. Holders of Puget Common Stock will also be asked to
consider and vote on any matters incidental to the conduct of the Puget Special
Meeting that may properly arise. As of the date of mailing this Joint Proxy
Statement/Prospectus, Puget's Board of Directors knows of no other business that
will be presented for consideration at the Puget Special Meeting other than the
matters described in this Joint Proxy Statement/Prospectus.
Puget's Board of Directors, by unanimous vote, has approved and adopted the
Merger Agreement and the transactions contemplated thereby and the increase in
the number of shares of Puget Common Stock which may be awarded under the 1995
Plan, and recommends that the holders of Puget Common Stock vote FOR approval of
the Merger Agreement and FOR approval of the increase in the number of shares of
Puget Common Stock which may be awarded under the 1995 Plan.
Puget Record Date. Puget's Board of Directors has fixed the close of
business on January 22, 1996 as the date for determining holders of Puget Common
Stock who will be entitled to notice of, and to vote at, the Puget Special
Meeting. Only holders of record of Puget Common Stock at the close of business
on the Puget Record Date will be entitled to notice of, and to vote at, the
Puget Special Meeting. As of the Puget Record Date, 63,640,861 shares of Puget
Common Stock were issued and outstanding and entitled to vote at the Puget
Special Meeting.
Vote Required. Approval of the Puget Merger Proposal will require the
affirmative vote of holders of Puget Common Stock representing not less than
two-thirds of all votes entitled to be cast by all holders of Puget Common
Stock. Approval of the Puget Plan Proposal will require the affirmative vote of
holders of Puget Common Stock representing not less than a majority of all
shares present, in person or by proxy, and entitled to vote thereon at the Puget
Special Meeting. Holders of Puget Common Stock outstanding at the close of
business on the Puget Record Date will be entitled to one vote per share. Votes
may be cast in person or by properly executed proxy. Puget's directors,
executive officers and affiliates hold in the aggregate less than 1% of the
issued and outstanding shares of Puget Common Stock entitled to vote at the
Puget Special Meeting.
A majority of the voting power of all shareholders entitled to vote,
present in person or by proxy, shall constitute a quorum at the Puget Special
Meeting. In the tabulation of votes on the Puget Merger Proposal, abstentions
and "broker nonvotes" (i.e., shares held by brokers, fiduciaries or other
nominees, which are not permitted to vote due to the absence of instructions
from beneficial owners or other persons entitled to vote shares as to a matter)
will have the same effect as negative votes. Abstentions will have the practical
effect of voting against the Puget Plan Proposal since such shares are present
at the Puget Special Meeting and entitled
27
<PAGE> 39
to vote but are not voting in favor of the Puget Plan Proposal. Broker nonvotes
will have no effect on the outcome of the Puget Plan Proposal since they are not
considered shares entitled to vote on such proposal.
PURSUANT TO THE MERGER AGREEMENT, CONSUMMATION OF THE MERGER IS CONDITIONED
UPON APPROVAL OF BOTH OF THE PUGET PROPOSALS BY THE HOLDERS OF PUGET COMMON
STOCK. If approved, the Puget Plan Proposal will be implemented only if the
Merger is consummated.
Proxies. By completing and returning the Puget Proxy, each holder of Puget
Common Stock authorizes the persons named thereon to vote all such holder's
shares on his or her behalf. Shares of Puget Common Stock represented by
properly executed Puget Proxies received prior to or at the Puget Special
Meeting will, unless such Puget Proxies have been revoked, be voted in
accordance with the instructions indicated thereon. If no instructions are
indicated, the shares will be voted FOR the Puget Proposals. Failure to vote
(either by returning the Puget Proxy or, in the alternative, by voting
affirmatively in person at the Puget Special Meeting) will have the effect of
voting against the Puget Merger Proposal, but will have no impact on the Puget
Plan Proposal.
Any Puget Proxy given pursuant to this solicitation or otherwise may be
revoked by the person giving it at any time before it is voted by (a) delivering
to James W. Eldredge, Corporate Secretary, at 411 -- 108th Avenue N.E., 15th
Floor, Bellevue, Washington 98004-5515, on or before the vote to which such
Puget Proxy relates is taken at the Puget Special Meeting, a written notice of
revocation bearing a later date than the Puget Proxy relating to the same shares
or (b) attending the Puget Special Meeting and voting in person. Attendance at
the Puget Special Meeting will not in itself constitute the revocation of a
Puget Proxy.
If any other matters are properly presented at the Puget Special Meeting
for consideration, the persons named in the Puget Proxy or acting thereunder
will have discretion to vote on such matters in accordance with their best
judgment.
WECo MEETING
Place, Time and Date. The WECo Meeting will be held at The Westin Hotel,
1900 Fifth Avenue, Seattle, Washington, at 9:30 a.m., local time, on Wednesday,
March 20, 1996. This Joint Proxy Statement/ Prospectus is being sent to holders
of WECo Common Stock, accompanied by a form of proxy (the "WECo Proxy") that is
being solicited by WECo's Board of Directors for use at the WECo Meeting and at
any and all adjournments or postponements thereof.
Matters to Be Considered. At the WECo Meeting, holders of WECo Common
Stock will consider and vote on the WECo Proposal to approve the Merger
Agreement and the transactions contemplated thereby. Holders of WECo Common
Stock will also be asked to consider and vote on a proposal to elect three Class
III directors to serve for three-year terms or until their successors are
elected and qualified, and any matters incidental to the conduct of the WECo
Meeting that may properly arise. As of the date of mailing this Joint Proxy
Statement/Prospectus, WECo's Board of Directors knows of no other business that
will be presented for consideration at the WECo Meeting other than the matters
described in this Joint Proxy Statement/Prospectus.
WECo's Board of Directors, by unanimous vote, has approved and adopted the
Merger Agreement and the transactions contemplated thereby, and recommends that
holders of WECo Common Stock vote FOR approval of the Merger Agreement and FOR
the election of the nominated directors.
WECo Record Date. WECo's Board of Directors has fixed the close of
business on January 11, 1996 as the date for determining holders of WECo Common
Stock who will be entitled to notice of, and to vote at, the WECo Meeting. Only
holders of record of WECo Common Stock at the close of business on the WECo
Record Date will be entitled to notice of, and to vote at, the WECo Meeting. As
of the WECo Record Date, 24,116,682 shares of WECo Common Stock were issued and
outstanding and entitled to vote at the WECo Meeting.
Vote Required. Approval of the WECo Proposal will require the affirmative
vote of holders of WECo Common Stock representing not less than two-thirds of
all votes entitled to be cast by all holders of WECo
28
<PAGE> 40
Common Stock. Holders of WECo Common Stock outstanding at the close of business
on the WECo Record Date will be entitled to one vote per share. Votes may be
cast in person or by properly executed proxy. WECo's directors, executive
officers and affiliates hold in the aggregate less than 2% of the issued and
outstanding shares of WECo Common Stock entitled to vote at the WECo Meeting.
The holders of a majority of the total number of shares of WECo Common
Stock issued and outstanding and entitled to be voted at the WECo Meeting,
represented in person or by proxy, shall constitute a quorum for the transaction
of business at the WECo Meeting. In the tabulation of votes on the WECo
Proposal, abstentions and broker nonvotes (i.e., shares held by brokers,
fiduciaries or other nominees, which are not permitted to vote due to the
absence of instructions from beneficial owners or other persons entitled to vote
shares as to a matter) will have the same effect as negative votes.
Holders of WECo Common Stock are entitled to vote cumulatively for the
election of directors. Each holder of WECo Common Stock is entitled to a number
of votes for such election equal to the number of shares of WECo Common Stock
held by such shareholder multiplied by the number of directors to be elected,
and may cast all votes for one nominee or distribute the votes, in any
proportion, among as many nominees as the shareholder desires. The election of
each director shall be decided by plurality vote. As a result, any shares not
voted for a director (whether by withholding authority, broker nonvote or
otherwise) will have no impact on the election of directors except to the extent
that the failure to vote for an individual results in another individual
receiving a larger number of votes.
Unless a holder of WECo Common Stock directs otherwise on the WECo Proxy,
the persons named in the WECo Proxy intend to cumulate votes and allocate them
among the nominees for director hereafter named to the extent and in the manner
necessary to ensure the election of all the nominees. If a nominee becomes
unavailable to serve, which event is not anticipated, the shares may be voted
for a substitute nominee designated by WECo's Board of Directors.
Under Washington law and WECo's Restated Articles of Incorporation, as
amended (the "WECo Articles"), and WECo's Bylaws, as amended (the "WECo
Bylaws"), the three nominees for director who receive the greatest number of
votes cast in the election of directors will be elected. Shareholders may
abstain from voting for one or more of the nominees for director. Abstention
from voting for a nominee for director will make it less likely that the nominee
will be one of the three nominees for director who receive the greatest number
of votes cast.
Brokerage firms and other intermediaries holding shares of WECo Common
Stock in street name for customers are generally required to vote such shares in
the manner directed by their customers. In the absence of timely directions,
brokerage firms and other intermediaries will generally have discretion to vote
their customers' shares in the election of directors. If a brokerage firm or
other intermediary does not vote for a nominee for director, this nonvote will
make it less likely that the nominee will be one of the three nominees for
director who receive the greatest number of votes cast.
PURSUANT TO THE MERGER AGREEMENT, CONSUMMATION OF THE MERGER IS CONDITIONED
UPON APPROVAL OF THE WECo PROPOSAL, BUT IS NOT CONDITIONED UPON ELECTION OF THE
NOMINATED DIRECTORS.
Proxies. By completing and returning the WECo Proxy, each holder of WECo
Common Stock authorizes the persons named thereon to vote all such holder's
shares on his or her behalf. The WECo Bylaws also permit the appointment and
instruction of proxies by telegram, telex, telecopier or similar transmitting
device. Shares of WECo Common Stock represented by properly executed WECo
Proxies received prior to or at the WECo Meeting will, unless such WECo Proxies
have been revoked, be voted in accordance with the instructions indicated
thereon. If no instructions are indicated, the shares will be voted FOR the WECo
Proposal and FOR the election of the nominated directors. Failure to vote
(either by returning the WECo Proxy or, in the alternative, by voting
affirmatively in person at the WECo Meeting) will have the effect of voting
against the WECo Proposal, but will have no effect on the election of WECo's
directors.
Any WECo Proxy given pursuant to this solicitation or otherwise may be
revoked by the person giving it any time before it is voted by (a) delivering to
Wayne E. Hays at P.O. Box 1869, 815 Mercer Street, Seattle, Washington
98111-1869, on or before taking the vote at the WECo Meeting, a written or
telegraphic notice of
29
<PAGE> 41
revocation bearing a later date than the WECo Proxy relating to the same shares
or (b) attending the WECo Meeting and voting in person. Attendance at the WECo
Meeting will not in itself constitute the revocation of a proxy.
If any other matters are properly presented at the WECo Meeting for
consideration, the persons named in the WECo Proxy or acting thereunder will
have discretion to vote on such matters in accordance with their best judgment.
WNG SPECIAL MEETING
Place, Time and Date. The WNG Special Meeting will be held at The Westin
Hotel, 1900 Fifth Avenue, Seattle, Washington, at 9:30 a.m., local time, on
Wednesday, March 20, 1996. This Joint Proxy Statement/Prospectus is being sent
to holders of WNG Preferred Stock, accompanied by a form of proxy (the "WNG
Proxy") that is being solicited by WNG's Board of Directors for use at the WNG
Special Meeting and at any adjournment or postponement thereof.
Matters to Be Considered. At the WNG Special Meeting, holders of WNG
Preferred Stock will consider and vote on the WNG Proposal to approve the Merger
Agreement and the transactions contemplated thereby. Holders of WNG Preferred
Stock will also be asked to consider and vote on any matters incidental to the
conduct of the WNG Special Meeting that may properly arise. As of the date of
mailing this Joint Proxy Statement/Prospectus, WNG's Board of Directors knows of
no other business that will be presented for consideration at the WNG Special
Meeting other than the matters described in this Joint Proxy
Statement/Prospectus.
WNG's Board of Directors, by unanimous vote, has approved and adopted the
Merger Agreement and the transactions contemplated thereby, and recommends that
the holders of WNG Preferred Stock vote FOR approval of the Merger Agreement.
WNG Record Date. WNG's Board of Directors has fixed the close of business
on January 11, 1996 as the date for determining holders of WNG Preferred Stock
who will be entitled to notice of, and to vote at, the WNG Special Meeting. Only
holders of record of WNG Preferred Stock at the close of business on the WNG
Record Date will be entitled to notice of, and to vote at, the WNG Special
Meeting. As of the WNG Record Date, 2,400,000 shares of WNG Series II Preferred
Stock and 1,200,000 shares of WNG Series III Preferred Stock were outstanding
and entitled to vote at the WNG Special Meeting.
Vote Required. Approval of the WNG Proposal will require the affirmative
vote of holders of WNG Series II Preferred Stock and WNG Series III Preferred
Stock, voting as separate classes, representing not less than two-thirds of all
votes entitled to be cast by all holders of each such series of WNG Preferred
Stock. Holders of each series of WNG Preferred Stock outstanding at the close of
business on the WNG Record Date will be entitled to one vote per share. Votes
may be cast in person or by properly executed proxy. WNG's directors, executives
officers and affiliates hold in the aggregate less than 1% of the issued and
outstanding shares of WNG Preferred Stock entitled to vote at the WNG Special
Meeting.
The holders of a majority of the total number of shares of WNG Series II
Preferred Stock issued and outstanding and entitled to vote at the WNG Special
Meeting, represented in person or by proxy, shall constitute a quorum of holders
of WNG Series II Preferred Stock for the transaction of business at the WNG
Special Meeting by the holders of WNG Series II Preferred Stock. The holders of
a majority of the total number of shares of WNG Series III Preferred Stock
issued and outstanding and entitled to vote at the WNG Special Meeting,
represented in person or by proxy, shall constitute a quorum of holders of WNG
Series III Preferred Stock for the transaction of business at the WNG Special
Meeting by the holders of WNG Series III Preferred Stock. In the tabulation of
votes on the WNG Proposal, abstentions and broker nonvotes (i.e., shares held by
brokers, fiduciaries or other nominees, which are not permitted to vote due to
the absence of instructions from beneficial owners or other persons entitled to
vote shares as to a matter) will have the same effect as negative votes.
WECo, as the holder of all the outstanding shares of WNG Common Stock, has
taken all requisite action to approve the Merger Agreement and the transactions
contemplated thereby.
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<PAGE> 42
PURSUANT TO THE MERGER AGREEMENT, IF THE WNG PROPOSAL IS NOT APPROVED BY
THE HOLDERS OF WNG PREFERRED STOCK, BUT THE PUGET MERGER PROPOSAL AND THE WECo
PROPOSAL ARE APPROVED BY THE HOLDERS OF PUGET COMMON STOCK AND WECo COMMON
STOCK, RESPECTIVELY, ONLY WECo WILL BE MERGED WITH AND INTO PUGET, WNG WILL
BECOME A WHOLLY OWNED SUBSIDIARY OF THE COMPANY, AND THE WNG PREFERRED STOCK
WILL NOT BE CONVERTED INTO NEW COMPANY PREFERRED STOCK, BUT WILL REMAIN
OUTSTANDING, UNCHANGED.
Proxies. By completing and returning the WNG Proxy, each holder of WNG
Preferred Stock authorizes the persons named thereon to vote all such holder's
shares on his or her behalf. WNG's Bylaws, as amended (the "WNG Bylaws"), also
permit the appointment and instruction of proxies by telegram, telex, telecopier
or similar transmitting device. Shares of WNG Preferred Stock represented by
properly executed WNG Proxies received prior to or at the WNG Special Meeting
will, unless such WNG Proxies have been revoked, be voted in accordance with the
instructions indicated thereon. If no instructions are indicated, the shares
will be voted FOR the WNG Proposal. Failure to vote (either by returning the WNG
Proxy or, in the alternative, by voting affirmatively in person at the WNG
Special Meeting) will have the effect of voting against the WNG Proposal.
Any WNG Proxy given pursuant to this solicitation or otherwise may be
revoked by the person giving it at any time before it is voted by (a) delivering
to Wayne E. Hays at P.O. Box 1869, 815 Mercer Street, Seattle, Washington
98111-1869, on or before taking the vote at the WNG Special Meeting, a written
or telegraphic notice of revocation bearing a later date than the WNG Proxy
relating to the same shares or (b) attending the WNG Special Meeting and voting
in person. Attendance at the WNG Special Meeting will not in itself constitute
the revocation of a proxy.
If any other matters are properly presented at the WNG Special Meeting for
consideration, the persons named in the WNG Proxy or acting thereunder will have
discretion to vote on such matters in accordance with their best judgment.
ADJOURNMENT OF SHAREHOLDERS MEETINGS
It is currently expected that, on the scheduled date of each of the Puget
Special Meeting, the WECo Meeting and the WNG Special Meeting (each, a
"Shareholders Meeting"), votes will be taken and the polls closed on the Puget
Proposals, the WECo Proposal, the election of WECo directors and the WNG
Proposal, as applicable (each, a "Proposal"). It is possible, however, that the
management of any of such companies may propose one or more adjournments of the
applicable Shareholders Meeting, either to allow the inspectors of election to
count and report on the votes cast after the polls have been closed, without
closing the polls, in order to permit further solicitation of proxies with
respect to the Proposal being considered at such Shareholders Meeting, or for
other reasons. It is also possible that while votes could be taken and the polls
closed with respect to one series of WNG Preferred Stock, the management of WNG
could propose one or more adjournments of the WNG Special Meeting, without
closing the polls with respect to the other series of WNG Preferred Stock, to
permit further solicitation of proxies with respect to the Proposal from holders
of such other series of WNG Preferred Stock. In order for any such adjournment
to be approved, the votes cast in favor of the Proposal must represent a
majority of the total number of votes entitled to be cast by the holders of all
classes of WNG Preferred Stock present at the WNG Special Meeting in person or
by proxy, voting together as a single class, each such holder having, for this
purpose, one vote per share irrespective of class. Proxies solicited by the
Board of Directors of any of Puget, WECo or WNG will be voted at the applicable
Shareholders Meeting in favor of any adjournment proposed by management, but
will not be considered a direction to vote for any adjournment proposed by
others. If any adjournment is properly proposed at any Shareholders Meeting on
behalf of any person other than management, the persons named as proxies, acting
in such capacity, will have discretion to vote on such adjournment in accordance
with their best judgment.
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<PAGE> 43
THE MERGER
FORM OF THE MERGER
The Merger is to be effected pursuant to the Merger Agreement by and among
Puget, WECo and WNG. The Merger Agreement provides that, following approval of
the Merger Agreement by the holders of Puget Common Stock, WECo Common Stock and
WNG Preferred Stock, and the satisfaction or waiver of the other conditions to
the Merger, including obtaining the requisite regulatory approvals, WECo and WNG
will merge with and into Puget, the separate corporate existence of WECo and WNG
will cease, and Puget's corporate name will be changed to a name to be mutually
chosen by the parties. If the holders of either series of WNG Preferred Stock do
not approve the Merger Agreement, but the holders of Puget Common Stock and WECo
Common Stock approve the Merger Agreement and the other conditions to the Merger
are satisfied or waived, only WECo will merge with and into Puget, WNG will
become a wholly owned subsidiary of the Company, and the WNG Preferred Stock
will not be converted into New Company Preferred Stock, but will remain
outstanding, unchanged.
EFFECTIVE TIME
The Merger will be consummated on the second business day, or at such other
time as Puget and WECo shall agree upon, after the Merger Agreement receives the
requisite approval of shareholders, as well as the requisite regulatory
approvals, and all other conditions to the Merger have been satisfied or waived.
See "The Merger Agreement -- Conditions to Consummation of the Merger." The
Merger will become effective at the time and date specified in the articles of
merger filed with the Secretary of State of the State of Washington (the
"Effective Time").
CONVERSION OF SHARES; EXCHANGE OF STOCK CERTIFICATES
At the Effective Time, pursuant to the Merger Agreement:
- Each issued and outstanding share of WECo Common Stock (other than shares
owned by (a) Puget or any of its subsidiaries or any subsidiaries of
WECo, all of which shares will be cancelled and cease to exist, or (b)
any shareholders properly exercising dissenters' rights) will be
converted into the right to receive .860 share of Company Common Stock,
including the associated rights under the Rights Agreement.
- Subject to the approval of the WNG Proposal, each issued and outstanding
share of WNG Series II Preferred Stock and WNG Series III Preferred Stock
(other than any shares owned by shareholders properly exercising
dissenters' rights) will be converted into the right to receive one share
of Company Series II Preferred Stock and Company Series III Preferred
Stock, respectively, with like rights and preferences (including par
value, dividends, redemption provisions and rights upon liquidation), as
set forth in the Statements of Relative Rights and Preferences attached
as Annex F to this Joint Proxy Statement/Prospectus.
- Each issued and outstanding share of WNG Common Stock will be cancelled
and cease to exist.
See "Description of Company Capital Stock."
At the Effective Time, each certificate representing issued and outstanding
shares of WECo Common Stock and (subject to the approval of the WNG Proposal)
WNG Preferred Stock (other than, in each case, shares owned by shareholders
properly exercising dissenters' rights) will be converted into the right to
receive shares of Company Common Stock or New Company Preferred Stock, as the
case may be. Upon such conversion, all such shares of WECo Common Stock and WNG
Preferred Stock will be canceled and cease to exist, and each holder of a
certificate representing any such shares will cease to have any rights with
respect thereto, except the right to receive the shares of Company Common Stock
or New Company Preferred Stock, as the case may be, upon the surrender of such
certificate, without interest.
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<PAGE> 44
Based on the capitalization of Puget and WECo on December 1, 1995 and the
Ratio, holders of Puget Common Stock and WECo Common Stock would have held
approximately 75.2% and 24.8%, respectively, of the aggregate number of shares
of Company Common Stock that would have been outstanding if the Merger had been
consummated as of such date, assuming the exercise of all outstanding options to
purchase WECo Common Stock.
If any holder of WECo Common Stock would be entitled to receive a number of
shares of Company Common Stock that includes a fraction, then in lieu of a
fractional share, such holder will be entitled to receive a cash payment
determined by multiplying the fractional share interest by the average of the
last reported sales price per share of Puget Common Stock, as reported on the
NYSE Composite Tape, for the 10 business days prior to and including the last
business day on which Puget Common Stock was traded on the NYSE, without any
interest thereon.
As soon as practicable after the Effective Time, a form of letter of
transmittal will be furnished to holders of certificates that formerly
represented shares of WECo Common Stock and, subject to approval of the WNG
Proposal, WNG Preferred Stock, together with instructions relating to the
surrender of such certificates in exchange for certificates representing Company
Common Stock, including the associated Rights under the Rights Agreement, or New
Company Preferred Stock, as the case may be. Holders of certificates that prior
to the Effective Time represented shares of WECo Common Stock or WNG Preferred
Stock will not be entitled to receive any payment of dividends or other
distributions on or payment for any fractional share with respect to their stock
until such certificates have been surrendered for certificates representing
Company Common Stock or New Company Preferred Stock, as the case may be. Holders
of WECo Common Stock and WNG Preferred Stock should not submit their stock
certificates for exchange until a form of letter of transmittal and instructions
therefor are received. Certificates representing shares of Puget Common Stock
need not be exchanged for certificates representing shares of Company Common
Stock.
After the Effective Time, each certificate evidencing shares of WECo Common
Stock or WNG Preferred Stock (other than those held by dissenters), until so
surrendered and exchanged, will, for all purposes, evidence only the right to
receive that number of shares of Company Common Stock or New Company Preferred
Stock which the holder of such certificate is entitled to receive and, if
applicable, the right to receive any cash payment in lieu of a fractional share
of Company Common Stock, without interest. The holder of such unexchanged
certificate will not be entitled to receive any dividends or other distributions
payable by the Company until the certificate is surrendered, at which time such
holder will be entitled to receive all dividends or other distributions accrued
and unpaid from the Effective Time until the time of such surrender. Subject to
applicable law, such dividends and distributions, together with any cash payment
in lieu of a fractional share of Company Common Stock, will be paid without
interest.
HOLDERS OF WECo COMMON STOCK AND WNG PREFERRED STOCK SHOULD NOT SEND IN THE
CERTIFICATES REPRESENTING THEIR SHARES UNTIL THEY RECEIVE A TRANSMITTAL FORM.
SHAREHOLDERS OF PUGET NEED NOT EXCHANGE THEIR CERTIFICATES.
BACKGROUND OF THE MERGER
The Merger is an outgrowth of nearly two years of mutual efforts by Puget
and WNG to explore the potential for cost savings and efficiencies through joint
operations. In a rate order issued to WNG in the fall of 1993, the WUTC
suggested that joint meter reading by WNG and Puget might produce efficiencies.
In October 1993, Puget and WNG decided to form a task force to identify
opportunities for joint operations in such areas as meter reading, customer
paystation sharing, billing and coordination of field engineering and
construction activities. The task force met periodically starting in January
1994 to discuss jointly accomplishing such tasks in the overlapping portions of
their service territories. A pilot joint meter reading program in the City of
Mercer Island was conducted in 1994, and in November 1995, Puget and WNG
expanded their joint meter reading activities to cover much of King County,
Washington. Puget and WNG have implemented programs whereby each accepts
customer payments for the other at its paystations, and they have jointly
operated one paystation. The working relationships between the companies on
these projects have been
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excellent. However, the parties have concluded that the Merger offers the
potential for cost savings far more significant than the modest efficiencies
obtainable through joint operations of two separate companies.
In April 1994, Puget's Board of Directors formed a special Strategic
Opportunities Committee. At its organizational meeting, this Committee discussed
the possibility that the joint efforts of Puget and WNG could eventually lead to
a desire for a business combination. In May 1994, Puget engaged Morgan Stanley
to assist it in reviewing a possible business combination with WNG. In July
1994, the Puget Strategic Opportunities Committee received a presentation from
Morgan Stanley on a possible methodology for evaluating a business combination
with WNG, from a financial point of view. These preliminary studies were not
pursued further, and at that time no discussions were held between Puget and WNG
or WECo with respect to a possible business combination.
In October 1994, the Boards of Directors of WECo and WNG reviewed the
general strategic direction of such entities and concluded that until certain
restructuring events took place, the market price of WECo Common Stock increased
and the Boards of Directors of WECo and WNG had obtained more information about
possible strategic alternatives, such Boards were not in a position to evaluate
or pursue any specific strategic alternatives. At such meetings, the Boards of
WECo and WNG requested that William P. Vititoe, Chairman of the Board and Chief
Executive Officer of WECo and WNG, evaluate the possibility of retaining an
outside financial advisor to assist the Boards of Directors in identifying and
evaluating the strategic alternatives that might be available to WECo and WNG.
In November 1994, William S. Weaver, the Chief Financial Officer of Puget,
and James P. Torgerson, the Chief Financial Officer of WECo and WNG, met to
review the progress of the joint task force. The discussion touched on the
respective strategic plans of the companies, and Mr. Weaver introduced the
concept of a more complete corporate consolidation. Mr. Torgerson informed Mr.
Vititoe of Mr. Torgerson's conversation with Mr. Weaver.
At the December 14, 1994 meeting of the Boards of Directors of WECo and
WNG, Mr. Vititoe informed such Boards of Directors that several parties,
including Puget, had inquired whether WECo and WNG would have any interest in
evaluating a possible business combination with such parties. The Boards
concluded that WECo and WNG were not in a position to discuss strategic
alternatives with third parties at that time, but might be in the future, and
authorized Mr. Vititoe to retain a financial advisor to assist the Boards of
Directors of WECo and WNG. On December 15, 1994, following a joint task force
meeting, Mr. Torgerson advised Mr. Weaver that Mr. Vititoe had indicated that he
considered a possible business combination with Puget to be a topic which might
be appropriate for discussion at some future time. In January 1995, WECo engaged
Goldman Sachs to assist the Boards of Directors of WECo and WNG in identifying
and evaluating the strategic alternatives that might be available to WECo and
WNG.
On February 10, 1995, in a joint task force meeting, Mr. Weaver discussed
with Mr. Torgerson the potential future benefits to WECo's shareholders of a
business combination, including an increase in per share dividends. Mr.
Torgerson indicated that he would communicate Mr. Weaver's ideas to Mr. Vititoe
but that in light of the significant restructuring activities taking place at
WECo and WNG, the preparation of a rate case to be filed with the WUTC and
WECo's stock price, the timing was not right for WECo and WNG to consider any
discussions regarding a business combination.
On February 14, 1995, Richard R. Sonstelie, Puget's Chief Executive
Officer, in a telephone call with Mr. Vititoe, suggested that the rapid changes
in the utility industry might support the appropriateness of a consolidation.
Mr. Vititoe replied that in light of the factors Mr. Torgerson mentioned to Mr.
Weaver, the timing was not right for WECo to consider merger discussions.
At the meeting of the Boards of Directors of WECo and WNG on February 24,
1995, Mr. Vititoe informed the Boards of Mr. Sonstelie's and Mr. Weaver's
comments, and the Boards of Directors of WECo and WNG concurred with the views
of Messrs. Vititoe and Torgerson that WECo and WNG were not in a position to
discuss strategic alternatives with third parties at that time, but might be in
the future.
In March 1995, Goldman Sachs reviewed various strategic alternatives for
WECo and WNG with Messrs. Vititoe and Torgerson. At the meetings of the Boards
of Directors of WECo and WNG on June 21,
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1995, Goldman Sachs reviewed with the Boards the utility industry merger
environment and strategic alternatives that might be available to WECo and WNG.
The Boards of Directors noted the positive effects of the settlement of WNG's
rate case with the WUTC and the increase in the market price of WECo Common
Stock since the beginning of the year. The Boards concluded that they should
hold a special joint meeting in July to continue discussing possible strategic
alternatives.
At a special meeting of the Boards of Directors of WECo and WNG held on
July 18, 1995, the Boards further discussed with their financial and legal
advisors strategic alternatives, including continuing as primarily a natural gas
utility serving its existing territory or pursuing a business combination with
Puget or other utilities. The Boards of Directors of WECo and WNG noted that the
utility industry was becoming increasingly competitive and were concerned that a
natural gas utility of WNG's size would lack sufficient scale to compete
effectively. It was noted that a business combination with another utility could
create the opportunity for synergies and significant cost reductions, thereby
strengthening WECo's and WNG's competitive position. While potential
combinations with other utilities were discussed, based on Puget's overlapping
service territory, the excellent working relationship among Puget, WECo and WNG
that already existed and the common regulatory authority to which they each were
subject, the Boards of Directors of WECo and WNG concluded that Puget would most
likely provide the best opportunity for achieving significant synergies and
accomplishing WECo's and WNG's objectives. The Boards of Directors authorized
Mr. Vititoe to explore the feasibility of a strategic alliance, including a
possible merger of equals with Puget.
Shortly after the July 18, 1995 meeting of the Boards of Directors of WECo
and WNG, Mr. Torgerson informed Mr. Weaver that Mr. Vititoe wished to meet with
Mr. Sonstelie about possible merger discussions. On July 28, 1995, Mr. Vititoe
and Mr. Sonstelie met to discuss the current state of the utility industry, the
challenges presented by anticipated changes in the utility industry and the
regulatory and economic environment, the excellent working relationships
established between WNG and Puget through the joint task force on operations,
the difficulty of achieving significant savings through separate company joint
activities, and the potential for greater savings and other benefits through a
business combination. In addition, they discussed in a preliminary manner the
concept of a business combination structured as a merger of equals and certain
other issues, such as management of a combined entity, board composition and
headquarters location, which would need to be agreed upon. They concluded in the
meeting that WNG, WECo and Puget should form a small group of executives and
advisors to jointly explore the possible benefits of a merger.
Puget then informed its financial advisor, Morgan Stanley, its legal
counsel, Perkins Coie, and the members of the Strategic Opportunities Committee
of Puget's Board of Directors about the meeting, and WECo informed its financial
advisor, Goldman Sachs, and its legal counsel, Riddell, Williams, Bullitt &
Walkinshaw and Simpson Thacher & Bartlett, about the meeting.
On August 1, 1995, Puget, WECo and WNG entered into a Confidentiality
Agreement in which the parties agreed to provide nonpublic information to each
other. For a description of certain standstill provisions contained in the
Confidentiality Agreement, see "The Merger Agreement -- Standstill Agreements."
An introductory meeting was held August 10, 1995, attended by
representatives of the companies and their respective counsel and financial
advisors. At the meeting the parties discussed a preliminary timetable, topics
to be pursued and the formation of a joint task force to address such areas as
potential synergy savings, accounting, tax and legal issues, transaction
structure, regulatory issues, a strategic plan for the combined companies and
financial projections and valuations.
At a second meeting held on August 23, 1995, the parties agreed to jointly
retain Deloitte & Touche for assistance in identifying and quantifying the
potential cost savings that would result from a merger. Deloitte & Touche is a
nationally recognized consulting firm with experience in utility mergers and
acquisitions. Deloitte & Touche was selected by Puget and WECo based on its
reputation, experience and expertise. Puget and WECo will share equally the fees
of Deloitte & Touche, which will be based on time devoted to the project plus
expenses. Deloitte & Touche has also been retained by Puget and WECo to provide
expert testimony in proceedings before regulatory commissions relating to
approval of the Merger. At the August 23 meeting the parties identified the
representatives from each company for the task force. The various team
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members then commenced work on the synergies analysis, business plans, legal,
tax and accounting issues, due diligence, regulatory issues, financial
projections, valuation methodologies and other matters. In late August, Puget
retained Skadden, Arps, Slate, Meagher & Flom as an advisor on certain legal
issues related to the proposed merger.
On September 18, 1995, the Puget Board of Directors held a special meeting
with respect to the proposed merger. At the meeting, management described the
background of the current discussions and provided an overview of the proposed
timetable. Members of management described the due diligence, financial,
regulatory and synergy analyses being conducted and identified the consultants
and advisors retained to assist management and the Board. The management
presentation provided a preliminary explanation of potential benefits of a
merger and described the proposed combined company from the perspectives of
business and finance, customer service and administration, and operations and
engineering. Legal counsel provided advice on the directors' legal
responsibilities, on legal issues relating to the transaction and on due
diligence matters. Representatives of Morgan Stanley provided a general overview
of merger activity in the utility industry and discussed their proposed
valuation methodology. The Puget Board discussed the potential benefits of the
proposed transaction and decided that discussions should proceed.
On September 18, 1995, the Boards of Directors of WECo and WNG held a
special meeting with respect to the proposed merger. At the meeting, management
described the background of the current discussions, provided an overview of the
proposed timetable, outlined the potential benefits of a merger and discussed
the status of the due diligence review of corporate operations. A representative
of Deloitte & Touche discussed the prospects for synergies as a result of the
proposed merger, and representatives from Goldman Sachs discussed recent utility
merger transactions. Representatives of Riddell, Williams, Bullitt & Walkinshaw
reported on their due diligence review and advised directors on their duties and
responsibilities, and representatives of Simpson Thacher & Bartlett discussed
the legal implications of potential structures for the proposed merger. The WECo
and WNG Boards of Directors discussed the potential benefits of the proposed
transaction and agreed that discussions should proceed.
During the next several weeks the task force continued its work.
Discussions continued between Goldman Sachs, Morgan Stanley and the companies'
management representatives on issues related to financial projections and
valuation of the two companies. Legal counsel for the parties discussed the
terms of a draft merger agreement and related agreements.
On October 6, 1995, Mr. Sonstelie addressed a meeting of the Boards of
Directors of WECo and WNG on issues facing the utility industry and on his
vision for the combined company following the proposed merger. The WECo and WNG
Boards then held discussions with management, Goldman Sachs, Riddell, Williams,
Bullitt & Walkinshaw and Deloitte & Touche. Management provided an overview of
the status of discussions with Puget and an update on certain accounting, tax
and financial due diligence matters with which Arthur Andersen LLP was assisting
WECo. Management also provided information on recent Washington State regulatory
treatment of a pending utility merger. Representatives of Deloitte & Touche
discussed the parties' synergies analysis, which indicated that the combination
could result in synergies, net of costs to achieve them, of approximately $370
million over a 10-year period. Representatives from Goldman Sachs reviewed the
elements to be considered in preparing a valuation of WECo and WNG and discussed
further recent utility merger transactions. Representatives from Riddell,
Williams, Bullitt & Walkinshaw reported on the status of the due diligence
review. The Boards of Directors of WECo and WNG discussed the potential benefits
to customers and shareholders that would result from the proposed merger.
On October 10, 1995, Mr. Vititoe addressed a meeting of the Puget Board on
his perspective on the utility industry, the business of WECo and WNG, and the
benefits of the proposed merger. The Puget Board then received information from
management, Morgan Stanley, legal counsel and consultants. Management provided
an overview of the activities to date, the time schedule and the remaining work
to be performed before final Board consideration of the proposed merger.
Representatives of Deloitte & Touche discussed the parties' synergies analysis,
which indicated that the combination could result in synergies, net of costs to
achieve them, of approximately $370 million over a 10-year period. Morgan
Stanley discussed its valuation methodologies, certain factors that might
influence the pricing of the transaction and certain precedent
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transactions in the utility industry. Management provided information on recent
Washington State regulatory treatment of a pending utility merger and on the
potential benefits of implementing the best practices of each company in the
areas of customer service, administration, utility operations and engineering.
Perkins Coie advised the Board on legal and environmental due diligence and
summarized key provisions of the proposed merger agreement and stock option
agreements. The Puget Board discussed the potential benefits to customers and
shareholders that would result from the proposed merger.
During their discussions regarding the parties' synergies analysis at the
October 6 and October 10 Board meetings, Deloitte & Touche emphasized that the
estimated net cost savings of approximately $370 million over a 10-year period
were all created by or attributable to the proposed merger and did not include
other types of savings that might be achieved without a merger. Deloitte &
Touche explained that the projected cost savings reflected the creation of cost
reduction or cost avoidance opportunities through the ability to consolidate
separate, stand-alone operations into a single entity. This consolidation would
thus enable duplicative functions and positions to be eliminated; similar
corporate activities to be combined, avoided or reduced in scope; external
purchases of commodities and services to be aggregated; technical skills and
capabilities to be optimized and shared; and capital expenditures to be avoided.
Deloitte & Touche informed the WECo and WNG Boards that the parties' joint
synergies analysis had indicated estimated savings opportunities of
approximately $198 million in corporate and operations labor, $36 million in
distribution facilities, $124 million in corporate and administrative programs,
$4 million in purchasing economies, $20 million of capital deferrals, and $18
million of revenue-related tax savings, resulting in total estimated savings
opportunities of approximately $400 million, or $370 million after netting out
approximately $30 million of costs expected to be incurred to achieve the
savings. The cost savings estimates developed were quantified by the parties
based on the individual facts regarding existing and planned costs for each
company, the current mode of operation of each company, the potential
organizational and operational framework post-merger, the estimated timing of
achievement of savings, and the interrelationship of these factors and the cost
and complexity of savings attainment.
Discussions continued over the next several days among members of
management of the parties, their financial advisors and legal counsel regarding
valuation issues, separate and combined financial forecasts, regulatory issues,
terms of the proposed merger agreement and stock option agreements, human
resource issues, management responsibilities and employment agreements.
On October 16, 1995, the Puget Board met to consider final presentations
from management on the synergy studies, the potential benefits of the proposed
merger, the vision of the combined company and a consultant's review of the
safety and reliability of the WNG gas distribution system. Perkins Coie provided
an update on the terms of the proposed merger agreement and the stock option
agreements. Management advised the Board that the parties were in agreement on
all substantive issues except the ratio at which WECo Common Stock would be
exchanged for Puget Common Stock. The Board then received and discussed at
length a presentation by Morgan Stanley on the relative valuations of WECo, WNG
and Puget. After further discussion of the benefits of the proposed merger to
Puget's customers and shareholders, the Board gave instructions to management
and Morgan Stanley with respect to negotiation of the exchange ratio. The Puget
Board also received advice from legal counsel and a recommendation from the
Chair of its Compensation Committee with respect to proposed employment
agreements with Messrs. Vititoe and Sonstelie.
Representatives of management of the parties and of Morgan Stanley and
Goldman Sachs conducted discussions on October 17, 1995, but no agreement was
reached among management of the parties on the exchange ratio for the proposed
merger.
At their October 18, 1995 meetings, the Boards of Directors of WECo and WNG
discussed the proposed merger. The Boards considered information presented by
Deloitte & Touche regarding the parties' synergy analysis and reviewed the
results of the due diligence review by Riddell, Williams, Bullitt & Walkinshaw
and management. Simpson Thacher & Bartlett reviewed with the Boards the terms of
the proposed merger agreement and stock option agreements. Each of the WECo and
WNG Boards were advised by management that the parties were in agreement on all
substantive issues except the exchange ratio for the proposed merger.
Representatives of Goldman Sachs reviewed with the Boards of Directors of WECo
and WNG the recent discussions relating to the consideration to be paid in the
transaction and the possible exchange ratios for the proposed merger. The Boards
of Directors reviewed and discussed presentations made by management and
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Goldman Sachs. The WECo and WNG Boards authorized management to propose a merger
transaction to Puget at an exchange ratio of .860 share of Puget Common Stock
for each share of WECo Common Stock.
On October 18, 1995, the Puget Board met and received a report from Morgan
Stanley and management on the status of the pricing negotiations. After several
telephone discussions between Mr. Sonstelie and Mr. Vititoe, the parties agreed
upon the Ratio. Morgan Stanley rendered to the Puget Board its oral opinion to
the effect that the Ratio was fair to Puget from a financial point of view. See
"The Merger -- Opinions of Financial Advisors -- Opinion of Morgan Stanley & Co.
Incorporated." Goldman Sachs rendered its oral opinion to the WECo Board that
the Ratio pursuant to the Merger Agreement was fair to the holders of WECo
Common Stock. See "The Merger -- Opinions of Financial Advisors -- Opinion of
Goldman Sachs & Co."
The Puget Board and the WECo and WNG Boards then approved the Merger
Agreement and the Stock Option Agreements. Following the Board meetings, the
Merger Agreement, the Stock Option Agreements and the Employment Agreements were
executed on October 18, 1995.
REASONS FOR THE MERGER
Puget, WECo and WNG believe that the Merger offers the following
significant strategic and financial benefits to each of the companies and to
their respective shareholders, as well as to their employees and customers and
to the communities in which they do business:
- Maintenance of Competitive Rates. The Company should be able to meet the
challenges of the increasingly competitive pricing environment in the
utility industry more effectively than the parties standing alone. The
Merger should create the opportunity for potential benefits for customers
in the form of lower rates over the long term than could be achieved if
the companies operated independently and for shareholders in the form of
greater financial strength and financial flexibility.
- Enhanced Customer Service and Operational Efficiencies. By coordinating
and integrating certain operations of Puget's and WNG's utility
businesses to take advantage of the companies' overlapping service
territories, the Company will be able to provide its customers enhanced
service and choice. The Company intends to assist its customers to manage
their total energy service requirements in the most efficient manner
without bias toward energy type, including the possibility of enabling
customers to shift easily between gas and electricity to achieve
short-term savings. The Company expects to be able to provide electricity
as a separate commodity or bundled with transportation or distribution
services, whichever best fits customers' needs, applying to the electric
industry the concepts developed following deregulation of the gas
industry. The Merger should offer greater convenience to customers who,
in most cases, will be able to conduct all their energy business with one
company contact at combined gas-electric service centers. In addition,
the Company should be able to respond more quickly to distribution
interruptions with a combined workforce.
- Better Utilization of Resources. The Company should be able to defer or
avoid certain capital intensive projects, such as the construction of new
service facilities and warehouses, which would no longer be necessary
given the companies' overlapping service territories. In addition, joint
engineering, siting and construction of facilities should reduce costs
and minimize environmental disruption.
- Integration of Corporate and Administrative Functions. The Company will
be able to consolidate certain corporate and administrative functions of
Puget, WECo and WNG, thereby eliminating duplicative positions, reducing
other nonlabor corporate administrative expenses and limiting or avoiding
certain capital expenditures for administrative facilities and
information systems. A joint transition task force is examining the
manner in which to best organize and manage the business of the Company.
It is anticipated that, as a result of combining staff and other
functions, the Company will have fewer employees than Puget and WECo
currently have in the aggregate. These workforce reductions will be
accomplished through severance programs, attrition and strictly
controlled hiring.
Subject to the qualifications expressed below, Puget and WECo believe that
synergies from the Merger will generate substantial cost savings to the Company
which would not be available absent the Merger.
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Preliminary estimates by the management of Puget and WECo indicate that the
Company could achieve approximately $370 million in cost savings (after taking
into account the costs incurred to achieve such savings), which could not be
realized but for the Merger, during the 10-year period following the Merger. The
treatment of the benefits and cost savings of the Merger will depend on the
results of regulatory proceedings at the WUTC. See "Regulatory
Requirements -- State Approval." Puget, WECo and WNG also believe that the
potential exists for additional benefits from integrating the best practices of
the companies and other companies, but the parties have not been able to
quantify those benefits.
The analyses employed to develop estimates of potential synergies to be
achieved as a result of the Merger were necessarily based on various assumptions
that involve judgments with respect to, among other things, future national and
regional economic and competitive conditions, inflation rates, regulatory
treatment, weather conditions, financial market conditions, interest rates,
future business decisions, and other uncertainties, all of which are difficult
to predict and many of which are beyond the control of Puget, WECo and WNG.
Accordingly, while Puget, WECo and WNG believe that such assumptions are
reasonable for purposes of the development of estimates of cost savings, there
can be no assurance that such assumptions will approximate actual experience or
that all such savings will be realized.
Although the merger of WNG into Puget would help facilitate the integration
of certain utility operations of Puget and WNG, Puget, WECo and WNG believe that
the benefits and cost savings described above would not vary materially if the
Alternate Merger rather than the WECo/WNG/Puget Merger were effected.
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
PUGET BOARD RECOMMENDATION
The members of Puget's Board of Directors have determined that the terms of
the proposed merger are fair to, and in the best interests of, the shareholders
of Puget, and at a meeting held on October 18, 1995, unanimously adopted and
approved the Merger Agreement, the plan of merger contemplated thereby and the
terms and conditions thereof.
Puget's Board of Directors believes that the Merger represents a
significant growth opportunity for Puget and would offer Puget and its
shareholders more favorable prospects for the future than the prospects offered
by Puget as a stand-alone entity.
In addition to the Merger benefits described above, Puget's Board of
Directors considered the following factors in reaching its decision to approve
the Merger Agreement: (i) the current and historical market prices and dividends
on the Puget Common Stock and the WECo Common Stock, (ii) information concerning
the financial performance, condition, business operations and prospects of each
of Puget, WECo and WNG, (iii) the anticipated effects of the Merger on existing
holders of Puget Common Stock and customers of Puget, (iv) the expected
accounting treatment of the Merger as a pooling of interests (as discussed under
"The Merger -- Accounting Treatment"), which avoids the reduction in earnings
that would result from the creation and amortization of goodwill under the
purchase method of accounting, (v) the expected federal income tax treatment of
the Merger as a tax-free reorganization to the parties and to their shareholders
(as described under "The Merger -- Certain Federal Income Tax Consequences"),
(vi) the proposed structure of the transaction, (vii) the regulatory treatment
to be requested in connection with the Merger (as discussed under "Regulatory
Requirements"), (viii) the excellent working relationship that already exists
among Puget, WECo and WNG (see "The Merger -- Background of the Merger") and the
compatibility of the corporate vision and values of Puget and WECo, (ix) the
projected pro forma ownership of the Company by Puget shareholders implied by
the Ratio, (x) the opinion of Morgan Stanley (see "The Merger -- Opinions of
Financial Advisors"), and (xi) the terms of the Merger Agreement (see "The
Merger Agreement"), the Stock Option Agreements (see "The Stock Option
Agreements") and the Employment Agreements with Messrs. Sonstelie and Vititoe
(see "The Merger -- Conflicts of Interest of Certain Persons in the Merger").
Puget's Board of Directors considered the above factors as a whole, and did not
assign any specific or relative weights to such factors.
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PUGET'S BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED AND ADOPTED THE MERGER
AGREEMENT AND CONCLUDED THAT ITS TERMS ARE FAIR TO, AND IN THE BEST INTERESTS
OF, PUGET'S SHAREHOLDERS. PUGET'S BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
APPROVAL OF THE PUGET PROPOSALS.
WECo AND WNG BOARD RECOMMENDATIONS
The members of WECo's and WNG's Boards of Directors have determined that
the terms of the proposed merger are fair to, and in the best interests of, the
respective shareholders of WECo and WNG. At the joint meeting of each Board held
on October 18, 1995, the directors of WECo and WNG unanimously adopted and
approved the Merger Agreement, the plan of merger contemplated thereby and the
terms and conditions thereof.
WECo's and WNG's Boards of Directors believe that the Merger represents a
significant strategic opportunity for WECo and WNG and would offer each company
and its shareholders better prospects for the future than the prospects offered
by WECo and WNG as stand-alone entities. In addition to the joint benefits
described above, WECo's and WNG's Boards of Directors believe that the Merger
would offer the following distinct benefits to WECo and WNG and their respective
shareholders over the long term:
(a) Common Share Dividend Rate. It is anticipated that the Company will
adopt Puget's current common share dividend payment level. Puget
currently pays $1.84 per share of Puget Common Stock annually which,
based on the Ratio, would represent an effective annual dividend
payment of approximately $1.58 per share of WECo Common Stock. WECo's
current annual dividend rate is $1.00 per share. Thus, the Company
dividend would represent approximately a 58% increase in the dividend
per share for current WECo shareholders. While the dividend policy
actually adopted by the Company is subject to evaluation from time to
time by the Company Board based on the Company's results of operations,
financial condition, capital requirements and other relevant
considerations, WECo's Board of Directors considered this possible
dividend increase a distinct benefit to WECo shareholders.
(b) Greater Financial Strength and Resources. WECo's and WNG's Boards of
Directors believe that the Company will be significantly stronger
financially than WECo and WNG are today. For example, on a pro forma
basis, at September 30, 1995, the Company's common equity would have
been $1,360.6 million, compared with $196.7 million and $251.5 million
for WECo and WNG, respectively. WECo's and WNG's Boards of Directors
believe that the Company's enhanced financial strength compared to that
of WECo and WNG will give the Company a greater ability to attract
capital in a competitive market place. WNG's Board of Directors also
believes that if the WECo/WNG/Puget Merger is effected, the holders of
WNG Preferred Stock will benefit by holding securities in a larger,
financially stronger company.
In reaching their decision to approve the Merger Agreement, in addition to
the factors described under "The Merger -- Reasons for the Merger," WECo's and
WNG's Boards of Directors considered the following factors: (i) the current and
historical market prices and dividends on the WECo Common Stock and the Puget
Common Stock, (ii) information concerning the financial performance, condition,
business operations and prospects of each of WECo, WNG and Puget, (iii) the
anticipated effects of the Merger on existing holders of WECo Common Stock, WNG
Preferred Stock and customers of WNG, (iv) the expected accounting treatment of
the Merger as a pooling of interests (as discussed under "The
Merger -- Accounting Treatment"), which avoids the reduction in earnings which
would result from the creation and amortization of goodwill under the purchase
method of accounting, (v) the expected federal income tax treatment of the
Merger as a tax-free reorganization to the parties and to their shareholders (as
described under "The Merger -- Certain Federal Income Tax Consequences"), (vi)
the proposed structure of the transaction, (vii) the regulatory treatment to be
requested in connection with the Merger (as discussed under "Regulatory
Requirements"), (viii) the excellent working relationship that already exists
among WECo, WNG and Puget (see "The Merger -- Background of the Merger") and the
compatibility of the corporate vision and values of WECo and Puget, (ix) the
opinion of Goldman Sachs (see "The Merger -- Opinions of Financial
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Advisors"), (x) that, as of October 18, 1995, the holders of WECo Common Stock
would have received 19.5% above the October 18, 1995 market price of WECo Common
Stock, calculated by multiplying the closing price of Puget Common Stock on
October 18, 1995 ($23.625) by the Ratio (.860) and dividing the difference
between that product ($20.3175) and the closing price of WECo Common Stock on
October 18, 1995 ($17.00) by such closing price for WECo Common Stock, (xi) the
projected pro forma ownership of the Company by WECo shareholders implied by the
Ratio, and (xii) the terms of the Merger Agreement (see "The Merger Agreement"),
the Stock Option Agreements (see "The Stock Option Agreements") and the
Employment Agreements with Messrs. Sonstelie and Vititoe (see "The
Merger -- Conflicts of Interest of Certain Persons in the Merger"). WECo's and
WNG's Boards of Directors considered the above factors as a whole, and did not
assign any specific or relative weights to such factors.
WECO'S AND WNG'S BOARDS OF DIRECTORS HAVE UNANIMOUSLY APPROVED AND ADOPTED
THE MERGER AGREEMENT AND CONCLUDED THAT ITS TERMS ARE FAIR TO, AND IN THE BEST
INTERESTS OF, THE RESPECTIVE SHAREHOLDERS OF WECO AND WNG. WECO'S AND WNG'S
BOARDS OF DIRECTORS RECOMMEND A VOTE FOR APPROVAL OF THE WECO PROPOSAL AND THE
WNG PROPOSAL AND WECO'S BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF
THE NOMINATED DIRECTORS.
OPINIONS OF FINANCIAL ADVISORS
OPINION OF MORGAN STANLEY & CO. INCORPORATED
General. Morgan Stanley was retained by Puget to act as its financial
advisor in connection with the Merger. Morgan Stanley is an internationally
recognized investment banking firm and was selected by Puget based on Morgan
Stanley's experience and expertise. As part of its investment banking business,
Morgan Stanley is regularly engaged in the valuation of businesses and
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements and valuation for estate, corporate and
other purposes.
In connection with Morgan Stanley's engagement, Puget requested that Morgan
Stanley evaluate the fairness of the Ratio, from a financial point of view, to
Puget. On October 18, 1995, Morgan Stanley rendered to Puget's Board of
Directors an oral opinion to the effect that, as of such date and based on and
subject to certain matters stated therein, the Ratio was fair to Puget from a
financial point of view. Morgan Stanley subsequently confirmed its opinion of
October 18, 1995 by delivery of a written opinion dated the date hereof.
Although Morgan Stanley evaluated the fairness, from a financial point of view,
of the Ratio, the specific consideration payable in the Merger was determined by
Puget and WECo through arm's-length negotiations. No limitations were imposed by
Puget on Morgan Stanley with respect to the investigations made or procedures
followed by Morgan Stanley.
THE FULL TEXT OF MORGAN STANLEY'S WRITTEN OPINION DATED THE DATE HEREOF,
WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE
REVIEW UNDERTAKEN, IS ATTACHED AS ANNEX D TO THIS JOINT PROXY
STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE. HOLDERS OF PUGET
COMMON STOCK ARE URGED TO, AND SHOULD, READ THIS OPINION CAREFULLY IN ITS
ENTIRETY. MORGAN STANLEY'S OPINION IS DIRECTED ONLY TO PUGET'S BOARD OF
DIRECTORS AND THE FAIRNESS OF THE RATIO FROM A FINANCIAL POINT OF VIEW TO PUGET;
IT DOES NOT ADDRESS ANY OTHER ASPECT OF THE MERGER NOR DOES IT CONSTITUTE A
RECOMMENDATION TO ANY HOLDER OF PUGET COMMON STOCK AS TO HOW TO VOTE AT THE
PUGET SPECIAL MEETING. The summary of the opinion of Morgan Stanley set forth in
this Joint Proxy Statement/Prospectus, while containing all material elements of
such opinion, is qualified in its entirety by reference to the full text of such
opinion.
In arriving at its opinion, Morgan Stanley (a) analyzed certain publicly
available financial statements and other information of each of WECo, WNG and
Puget, (b) analyzed certain internal financial statements and other financial
and operating data concerning WECo, WNG and Puget prepared by their respective
managements, (c) analyzed certain financial projections of WECo, WNG and Puget
prepared by their respective managements, (d) discussed the past and current
operations and financial condition and the prospects of WECo, WNG and Puget with
senior executives of WECo, WNG and Puget, respectively, (e) reviewed the
reported prices and trading activity of both WECo Common Stock and Puget Common
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Stock, (f) compared the financial performance of WECo, WNG and Puget and the
prices and trading activity of WECo Common Stock and Puget Common Stock with
those of certain other comparable publicly traded companies and their
securities, (g) reviewed the financial terms, to the extent publicly available,
of certain comparable merger or acquisition transactions, (h) analyzed the pro
forma impact of the Merger on Puget's earnings per share, consolidated
capitalization and financial ratios, (i) participated in discussions and
negotiations among representatives of WECo and Puget and their financial and
legal advisors, (j) reviewed the Merger Agreement, the Stock Option Agreements
and certain related documents, (k) discussed certain regulatory issues relating
to the proposed merger with senior executives of Puget and WECo, (l)
participated in discussions with Puget, WECo and certain advisors to Puget
regarding estimates of cost savings expected to be derived from the Merger, (m)
participated in discussions with Puget and certain advisors to Puget regarding
estimates of environmental liabilities of WECo and WNG, and (n) performed such
other analyses as Morgan Stanley deemed appropriate.
In rendering its opinion, Morgan Stanley assumed and relied upon, without
independent verification, the accuracy and completeness of the information
reviewed by Morgan Stanley for purposes of its opinion. With respect to
financial forecasts and other data reviewed, including estimates of the cost
savings expected to be achieved in the Merger, Morgan Stanley assumed that such
projections and other data were reasonably prepared on bases reflecting the best
currently available estimates and judgments of the respective managements of
Puget, WECo and WNG as to the expected future financial performance of Puget,
WECo and WNG. In addition, Morgan Stanley did not make an independent evaluation
or appraisal of the assets or liabilities (contingent or otherwise) of Puget,
WECo or WNG, nor was Morgan Stanley furnished with any such evaluations or
appraisals of advisors to Puget; however, Morgan Stanley did review the
presentations of WECo, Puget and certain of their advisors regarding estimates
of cost savings and environmental liabilities and relied without independent
verification upon such estimates for purposes of its opinion. Morgan Stanley
expressed no opinion as to what the value of the Company Common Stock actually
will be when issued to Puget shareholders pursuant to the Merger or the price at
which such securities will trade subsequent to the Merger. Morgan Stanley was
instructed by Puget to assume that the Merger will be treated as a pooling-of-
interests in accordance with generally accepted accounting principles ("GAAP")
and as a tax-free reorganization for federal income tax purposes. Morgan Stanley
also was instructed by Puget to assume that in the course of obtaining the
necessary regulatory and governmental approvals for the proposed merger, no
restriction will be imposed that will have a material adverse effect on the
contemplated benefits of the Merger. Morgan Stanley's opinion is necessarily
based on information available to it and financial, market and other conditions
and circumstances as they existed and could be evaluated on the date of its
opinion.
The following is a brief summary of the material analyses performed by
Morgan Stanley and reviewed with Puget's Board of Directors on October 18, 1995
in connection with Morgan Stanley's presentation and opinion to Puget's Board on
such date:
Analysis of Selected Precedent Transactions. Using publicly available
information, Morgan Stanley reviewed the following 15 proposed or completed
transactions in the electric utility industry: Potomac Electric Power and
Baltimore Gas and Electric, Southwestern Public Service Co. and Public
Service Co. of Colorado, CIPSCO and Union Electric, PP&L Resources and PECO
Energy, Northern States Power and Wisconsin Energy Corp., Iowa-Illinois Gas
& Electric and Midwest Resources, Sierra Pacific Resources and Washington
Water Power, PSI Resources and Cincinnati Gas and Electric, Gulf States
Utilities and Energy Corp., Iowa Southern and IES Industries, Kansas Gas &
Electric and Kansas Power & Light, Iowa Resources and Midwest Energy,
Savannah Electric & Power and Southern Company, Utah Power & Light and
PacifiCorp, and Toledo Edison and Cleveland Electric (collectively, the
"Electric Utility Transactions"). Morgan Stanley also reviewed the
following five proposed or completed transactions in the natural gas
industry: Wisconsin Southern Gas and Wisconsin Energy, Diversified Energies
and Arkla, Louisiana General Services and Citizens Utilities, Southern
Union and Metro Mobile CTS, and Michigan Energy Resources and UtiliCorp
United (collectively, the "Natural Gas Transactions"). Morgan Stanley
compared certain financial and market statistics of the Electric Utility
Transactions and the Natural Gas Transactions and noted the mean premium to
market price one month prior to the announcement of the transaction of
23.9% and 31.7%, respectively, and the median
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price to book value multiple of 1.60 and 2.19 times, respectively. Morgan
Stanley observed that, based on the Ratio, the Merger represents a premium
to the WECo Common Stock market price one month prior to October 18, 1995
of 20.0% and a price to book value multiple of 1.85 times.
Peer Group Comparison. As part of its analysis, Morgan Stanley
compared certain financial information of WECo with that of a group of
publicly traded natural gas utility companies, including Atlanta Gas Light,
Indiana Energy, MCN Corp., National Fuel Gas, New Jersey Resources, NICOR,
Northwest Natural Gas, People's Energy, Washington Gas Light, WICOR Inc.
and Cascade Natural Gas (collectively, the "Natural Gas Comparables") and
compared certain financial information of Puget with that of a group of
publicly traded electric utility companies, including Florida Progress,
Idaho Power, IES Industries, MidAmerican Energy, Nevada Power, Oklahoma Gas
& Electric, Portland General and San Diego Gas & Electric (collectively,
the "Electric Utility Comparables"). Such financial information included a
price to earnings multiple, price to book value multiple and dividend
yield. In particular, such analyses indicated that as of October 13, 1995,
based on a compilation of earnings projections by securities research
analysts, WECo and Puget traded at 12.8 and 12.3 times forecasted earnings
for the calendar year 1996, respectively, 11.2 and 11.8 times forecasted
earnings for the calendar year 1997, respectively, 1.56 and 1.26 times book
value as of the most recent quarter end, respectively, and a 5.9% and 7.9%
dividend yield, respectively. Morgan Stanley noted that, based on a
compilation of earnings projections by securities research analysts, the
Natural Gas Comparables and the Electric Utility Comparables traded in a
range of 12.5 to 14.0 and 12.0 to 13.0 times 1996 forecasted earnings,
respectively, 11.0 to 12.5 and 11.5 to 12.5 times 1997 forecasted earnings,
respectively, 1.50 to 1.80 and 1.30 to 1.60 times book value as of the most
recent quarter end, respectively, and a 5.5% to 6.5% and 6.5% to 7.5%
dividend yield, respectively.
Historical Exchange Ratio Analysis. Morgan Stanley also reviewed the
ratio of WECo Common Stock to Puget Common Stock trading prices over
varying intervals of time over the latest three years. This ratio ranged
from approximately 0.69 to 0.76 times and, based on the closing price of
WECo Common Stock and Puget Common Stock on October 13, 1995 of $17.00 and
$23.38, respectively, the ratio was 0.73 times.
Contribution Analysis. Morgan Stanley analyzed the pro forma
contribution of each of WECo and Puget to the Company. Such analysis
included, among other things, relative contributions of revenues, earnings
before interest, taxes, depreciation and amortization ("EBITDA"), net
income, book value and asset value at or over various time periods. In
particular, such analysis showed that WECo would contribute approximately
19.6% and 19.7% of the projected revenues, 17.9% and 17.7% of the projected
EBITDA, and 22.2% and 21.4% of the projected net income for calendar years
1996 and 1997, respectively, and 18.2% and 18.0% of the book value and
asset value, respectively, as of the most recent reported quarter end.
Morgan Stanley observed that the aforementioned contribution percentages
implied exchange ratios between WECo Common Stock and Puget Common Stock in
the range of 0.58 to 0.75.
Discounted Cash Flow Analysis. Morgan Stanley performed a discounted
cash flow analysis of WECo and Puget for the fiscal years ended 1995
through 2004 based on certain financial projections prepared by the
respective management of each company. Unlevered free cash flows of each
company were calculated as net income available to common shareholders plus
preferred stock dividends plus depreciation and amortization plus deferred
taxes plus other noncash expenses plus after-tax net interest expense less
capital expenditures less investment in working capital. Morgan Stanley
calculated terminal values by applying a range of perpetual growth rates to
the unlevered free cash flows in fiscal 2004 from 1.5% to 2.5% and 0.5% to
1.5%, representing estimated ranges of long-term cash flow growth rates for
WECo and Puget, respectively. The cash-flow streams and terminal values
were then discounted to the present using a range of discount rates from
7.5% to 8.0%, representing an estimated weighted average cost of capital
range for WECo and Puget. Based on this analysis, Morgan Stanley calculated
per share values for WECo ranging from $15.00 to $19.25 and for Puget
ranging from $25.50 to $29.50.
Discounted Dividend Analysis. Morgan Stanley performed a discounted
dividend analysis of WECo and Puget for the fiscal years ended 1995 through
2004 based on certain dividend projections
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prepared by the respective management of each company. Morgan Stanley
calculated terminal values by applying a range of perpetual growth rates to
the dividend in fiscal year 2004 from 1.5% to 2.5% and 0.5% to 1.5%,
representing estimated ranges of long-term dividend growth rates for WECo
and Puget, respectively. The dividend streams and terminal values were then
discounted to the present using a range of discount rates. Based on this
analysis, Morgan Stanley calculated per share values for WECo ranging from
$13.50 to $14.50 and for Puget ranging from $21.25 to $22.50.
Pro Forma Analysis of the Merger. Morgan Stanley analyzed the pro
forma impact of the Merger on Puget's earnings per share for the fiscal
years ended 1996 through 2001. Such analysis was based on earnings
estimates for the fiscal years ended 1996 through 2001 for WECo and Puget
based on certain financial projections prepared by the respective
managements of each company and taking into account the cost savings
expected to be derived from the Merger as estimated by WECo, Puget and
certain advisors to WECo and Puget. Morgan Stanley observed that if the
Merger were treated as a pooling of interests for accounting purposes, if
100% of the estimated $370 million in net cost savings were achieved and if
the regulatory authorities permitted the entire amount of these savings to
accrue to the benefit of the Company, the issuance of Company Common Stock
in the Merger would not have a dilutive effect on pro forma earnings per
share to Puget.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to a partial analysis or summary description. Morgan
Stanley believes that its analyses must be considered as a whole and that
selecting portions of its analyses, without considering all analyses, would
create an incomplete view of the process underlying its opinion. In addition,
Morgan Stanley may have given various analyses more or less weight than other
analyses, and may have deemed various assumptions more or less probable than
other assumptions, so that the ranges of valuations resulting for any particular
analysis described above should not be taken to be Morgan Stanley's view of the
actual value of WECo, WNG or Puget.
In performing its analyses, Morgan Stanley made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of WECo, WNG or Puget. The
analyses performed by Morgan Stanley are not necessarily indicative of actual
values, which may be significantly more or less favorable than suggested by such
analyses. Such analyses were prepared solely as a part of Morgan Stanley's
analysis of the fairness of the Ratio from a financial point of view to Puget
and were provided to Puget's Board in connection with the delivery of Morgan
Stanley's oral opinion of October 18, 1995. The analyses do not purport to be
appraisals or to reflect the prices at which WECo, WNG or Puget might actually
be sold. Because such estimates are inherently subject to uncertainty, none of
Puget, WECo, WNG, Morgan Stanley or any other person assumes responsibility for
their accuracy. In addition, as described above, Morgan Stanley's opinion and
presentation to Puget's Board was one of many factors taken into consideration
by Puget's Board in making its determination to approve the Merger.
Consequently, the Morgan Stanley analyses described above should not be viewed
as determinative of the opinions of the Boards of Directors of Puget, WECo or
WNG with respect to the value of WECo and WNG or of whether the Boards of Puget,
WECo or WNG would have been willing to agree to a different exchange ratio.
Morgan Stanley has been retained by Puget to act as financial advisor to
Puget with respect to the Merger. Pursuant to a letter agreement dated May 10,
1994, between Puget and Morgan Stanley, Morgan Stanley is entitled to (a) a
retainer fee of $100,000, (b) an advisory fee for its time and efforts expended
in connection with the engagement, which is estimated to be between $100,000 and
$200,000, (c) an announcement fee of $750,000, which has been paid, and (d) a
transaction fee of $3,476,890 (0.71% of the aggregate consideration paid for
shares of WECo Common Stock), which is payable upon consummation of the Merger.
All amounts paid or payable to Morgan Stanley as the retainer or advisory fee
were credited against the announcement fee. All amounts paid or payable to
Morgan Stanley for the announcement fee will be credited against the transaction
fee. Puget has agreed to reimburse Morgan Stanley for its expenses, including
reasonable fees and expenses of its counsel, and to indemnify Morgan Stanley for
liabilities and expenses arising out of the engagement and the transactions in
connection therewith, including liabilities under federal securities laws.
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In the ordinary course of its business, Morgan Stanley and its affiliates
may actively trade the debt and equity securities of Puget, WECo and WNG for
their own account and for the accounts of customers and, accordingly, may at any
time hold a long or short position in such securities. Morgan Stanley has
provided financial advisory and investment banking services to Puget and certain
affiliates of WECo in the past, for which services Morgan Stanley has received
customary fees.
OPINION OF GOLDMAN, SACHS & CO.
On October 18, 1995, Goldman Sachs delivered its oral opinion to WECo's
Board of Directors that, as of the date of such opinion, the Ratio pursuant to
the Merger Agreement was fair to the holders of WECo Common Stock. Goldman Sachs
subsequently confirmed its oral opinion by delivery of its written opinion dated
as of the date hereof.
THE FULL TEXT OF THE WRITTEN OPINION OF GOLDMAN SACHS DATED AS OF THE DATE
HEREOF, WHICH SETS FORTH ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON
THE REVIEW UNDERTAKEN IN CONNECTION WITH THE OPINION, IS ATTACHED AS ANNEX E TO
THIS JOINT PROXY STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE.
HOLDERS OF WECO COMMON STOCK ARE URGED TO, AND SHOULD, READ SUCH OPINION IN ITS
ENTIRETY. The following summary, while containing all material elements of such
opinion, is qualified in its entirety by reference to the full text of such
opinion.
In connection with its written opinion, Goldman Sachs reviewed, among other
things, (a) this Joint Proxy Statement/Prospectus; (b) the Merger Agreement; (c)
the Stock Option Agreements; (d) certain annual reports to shareholders and
Annual Reports on Form 10-K of WECo and Puget for the five fiscal years ended
September 30, 1995 and December 31, 1994, respectively; (e) certain interim
reports to stockholders and Quarterly Reports on Form 10-Q of WECo and Puget;
(f) certain FERC Forms 1 of Puget; (g) certain other communications from WECo
and Puget to their respective shareholders; and (h) certain financial analyses
and forecasts for WECo and Puget prepared by their respective managements,
including analyses and forecasts of certain operating efficiencies and financial
synergies (the "Synergies") expected to be achieved as a result of the Merger,
which were prepared by the managements of WECo, of WNG and of Puget, with the
assistance of a third-party consultant. Goldman Sachs also held discussions with
members of the senior management of WECo, of WNG and of Puget regarding the past
and current business operations, financial condition and future prospects of
their respective companies and their analyses of the strategic benefits of the
Merger, including, without limitation, the amount and timing of realization of
the Synergies. In addition, Goldman Sachs reviewed the reported price and
trading activity of the shares of WECo Common Stock and of Puget Common Stock,
compared certain financial and stock market information for WECo and Puget with
similar information for certain other companies the securities of which are
publicly traded, reviewed the financial terms of certain recent business
combinations in the electric and gas utility industries and performed such other
studies and analyses as Goldman Sachs considered appropriate.
In preparing its opinion, Goldman Sachs relied, without independent
verification, on the accuracy and completeness of all financial and other
information reviewed by Goldman Sachs for the purpose of its opinion. In that
regard, Goldman Sachs assumed, with WECo's consent, that the Synergies have been
reasonably prepared on a basis reflecting the best currently available judgments
and estimates of the management of WECo, of WNG and of Puget, as the case may
be, and management of WECo has advised Goldman Sachs that it may assume and
Goldman Sachs has so assumed, for the purposes of its opinion, that such
Synergies will be realized in the amounts and at the times contemplated thereby.
Goldman Sachs has also assumed, with WECo's consent, that the consummation of
the transactions contemplated by the Merger Agreement will be recorded as a
pooling of interests under GAAP. Goldman Sachs further assumed, with WECo's
consent, that any regulatory or third-party approvals required to consummate the
Merger pursuant to the Merger Agreement will be obtained. In addition, Goldman
Sachs has not made an independent evaluation or appraisal of the assets and
liabilities of WECo or Puget (or any of their subsidiaries) and was not
furnished with any such evaluation or appraisal. WECo did not place any
limitations upon Goldman Sachs with respect to the procedures followed or
factors considered by Goldman Sachs in rendering its opinion.
Analyses. The following is a summary of the material financial
analyses used by Goldman Sachs in connection with providing its oral
opinion to WECo's Board of Directors on October 18, 1995. Goldman
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Sachs utilized substantially the same type of financial analyses in
connection with providing the written opinion attached hereto as Annex E.
Comparable Companies Comparison. Goldman Sachs conducted a common
stock comparison of WECo to nine comparable publicly traded gas local
distribution companies: Atlanta Gas Light, Indiana Energy, MCN Corp.,
National Fuel Gas, New Jersey Resources, NICOR, Northwest Natural Gas,
People's Energy and Washington Gas Light (collectively, the "Gas LDCs").
Goldman Sachs also conducted a common stock comparison of Puget to eight
comparable publicly traded electric utility corporations: Idaho Power,
Montana Power, Nevada Power, Portland General, Public Service Company of
Colorado, Washington Water Power, Utilicorp and Western Resources
(collectively, the "Electric Utilities"). The Gas LDCs and the Electric
Utilities were chosen because they are publicly traded companies with
operations that for the purposes of analysis may be considered similar to
those of WECo and Puget, respectively. The comparison indicated for the Gas
LDCs: for the last twelve months ("LTM") period ended prior to October 17,
1995, returns on equity ("ROE"), excluding in certain cases certain
extraordinary charges, ranging from 8.92% to 14.56%, with a mean of 11.59%
and a median of 11.48%, compared to 7.34% for WECo; multiples of closing
market price on October 16, 1995 to book value per share ranging from 1.38x
to 2.04x, with a mean of 1.68x and a median of 1.64x, compared to 1.57x for
WECo; estimated price to earnings ratios ("P/E") based on IBES earnings
estimates for fiscal years 1995, 1996 and 1997 ranging from 12.9x to 16.3x
for estimated fiscal year 1995, with a mean and median of 14.6x, compared
to 31.1x for WECo, from 12.4x to 14.3x for estimated fiscal year 1996, with
a mean and median of 13.3x, compared to 13.4x for WECo, and from 11.8x to
15.7x for estimated fiscal year 1997 (with most data points unavailable),
with a mean of 13.1x and a median of 12.6x, compared to 11.4x for WECo;
dividend yields ranging from 4.5% to 6.5%, with a mean and median of 5.4%,
compared to 5.8% for WECo, and estimated payout ratios for fiscal years
1995, 1996 and 1997 ranging from 62% to 106% for estimated fiscal year
1995, with a mean of 80% and a median of 79%, compared to 182% for WECo,
from 56% to 84% for estimated fiscal year 1996, with a mean and median of
72%, compared to 78% for WECo, and from 52% to 85% for estimated fiscal
year 1997 (with most data points unavailable), with a mean of 66% and a
median of 63%, compared to 67% for WECo. The comparison indicated for the
Electric Utilities: for the LTM period ended prior to October 17, 1995,
ROE, excluding in certain cases certain extraordinary charges, ranging from
9.39% to 13.46%, with a mean of 10.69% and a median of 10.35%, compared to
9.45% for Puget; multiples of closing market price on October 16, 1995 to
book value per share ranging from 1.30x to 1.63x, with a mean of 1.46x and
a median of 1.43x, compared to 1.29x for Puget; estimated P/E based on IBES
earnings estimates for fiscal years 1995, 1996 and 1997 ranging from 11.9x
to 14.4x for estimated fiscal year 1995, with a mean of 13.1x and a median
of 13.0x, compared to 12.9x for Puget, from 11.6x to 13.9x for estimated
fiscal year 1996, with a mean of 12.7x and a median of 12.6x, compared to
12.6x for Puget, and from 11.6x to 13.0x for estimated fiscal year 1997,
with a mean and a median of 12.3x, compared to 12.1x for Puget; dividend
yields ranging from 4.5% to 7.3%, with a mean of 6.3% and a median of 6.4%,
compared to 7.7% for Puget; and estimated payout ratios for fiscal years
1995, 1996 and 1997 ranging from 59% to 97% for estimated fiscal year 1995,
with a mean of 83% and a median of 81%, compared to 99% for Puget, from 58%
to 93% for estimated fiscal year 1996, with a mean of 80% and a median of
78%, compared to 97% for Puget, and from 56% to 92% for estimated fiscal
year 1997, with a mean of 76% and a median of 73%, compared to 93% for
Puget.
Contribution Analysis. Goldman Sachs reviewed certain publicly
available operating and financial information, and estimated future
operating and financial information provided by the managements of WECo and
Puget (including, among other things, market capitalization, net income,
book value, total assets and revenues) for WECo and Puget. This analysis
indicated that WECo shareholders would receive approximately 25% of the
outstanding Company Common Stock after the Merger. Goldman Sachs also
analyzed the relative contribution of WECo and Puget to the combined pro
forma entity (excluding the Synergies) based on market capitalization, LTM
net income for the period ended June 30, 1995, WECo management's fiscal
years 1995, 1996 and 1997 net income estimates for WECo and Puget, IBES net
income estimates for the fiscal years 1995, 1996 and 1997, book value and
total assets as of June 30, 1995 and LTM revenues for the period ended June
30, 1995. This analysis indicated that WECo would have contributed to the
pro forma combined entity (excluding the Synergies): 24.51% of the
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market capitalization; 15.01% of the LTM net income; 8.41%, 23.41% and
22.21% of the WECo and Puget managements' net income estimates for fiscal
years 1995, 1996 and 1997, respectively; 10.11%, 20.31% and 22.21% of the
IBES net income estimates for fiscal years 1995, 1996 and 1997,
respectively; 18.21% of the book value; 24.41% of the total assets; and
27.11% of the LTM revenues.
Historical Stock Trading Analysis. Goldman Sachs compared the monthly
indexed trading price history for the five-year period ended September 30,
1995 for WECo Common Stock, Puget Common Stock and the Standard and Poor's
Utility Index (the "S&P 25"). Goldman Sachs also compared the daily indexed
trading price history for the period from December 30, 1994 through October
13, 1995 for WECo Common Stock, Puget Common Stock and the S&P 25.
Exchange Ratio Analysis. Goldman Sachs reviewed the exchange ratios
of WECo Common Stock to Puget Common Stock for the five-, four-, three-,
two- and one-year periods ended September 30, 1995. This analysis revealed
that the average exchange ratios for the five-year period was 0.82x, for
the four-year period was 0.78x, for the three-year period was 0.76x, for
the two-year period was 0.74x and for the one-year period was 0.69x,
compared to 0.86x in the Merger.
Pro Forma Merger Analysis. Goldman Sachs prepared pro forma analyses
of the financial impact of the Merger on holders of shares of WECo Common
Stock. Using earnings per share ("EPS") estimates for WECo Common Stock and
Puget Common Stock provided by the management of WECo and for Company
Common Stock on a pro forma basis for the fiscal years 1995 through 2001,
Goldman Sachs compared the EPS for WECo Common Stock and Puget Common
Stock, each on a stand-alone basis, to the EPS of the Company Common Stock
on a pro forma basis. Goldman Sachs performed this analysis based on
differing assumptions relating to the level of realization of the
Synergies, which were estimated to be approximately $402 million over a
10-year period (not including the costs to achieve the Synergies that were
estimated to be approximately $30.1 million). Based on such analysis,
during that period, on an EPS basis, the proposed transaction would be
accretive (dilutive) to the holders of WECo Common Stock at levels ranging
from 129.4% to (1.3)%.
Dividend Discount Analysis. Goldman Sachs performed a dividend
discount analysis for WECo and for the combined pro forma entity. Using
dividend growth rates ranging from 2.0% to 3.5% for WECo, an initial
dividend for the combined pro forma entity based on an 80% payout ratio on
such entity's pro forma estimated fiscal year 1996 EPS (derived from EPS
estimates for Puget and WECo provided by WECo's management), dividend
growth rates for the combined pro forma entity subsequent to fiscal year
1996 ranging from 2.5% to 4.0% and differing assumptions relating to the
level of realization of the Synergies, the implied per share values for
.860 share of Company Common Stock ranged from $15.23 to $65.02, compared
to implied per share values for each share of WECo Common Stock on a
stand-alone basis ranging from $12.50 to $40.00.
Dividend Accretion Analysis. Goldman Sachs performed an analysis of
the pro forma dividend accretion to a holder of a share of WECo Common
Stock who, after the Merger, would hold .860 share of Company Common Stock,
assuming a dividend growth rate of 3.0% for WECo and an 80% dividend payout
ratio on the projected EPS for the combined pro forma entity. This analysis
indicated, for the period from 1996 to 2001, stand-alone dividends for WECo
Common Stock ranging from $1.00 to $1.15 per share and pro forma dividends
for Company Common Stock that, depending on differing assumptions relating
to the level of realization of the Synergies, ranged from $1.14 to $1.60
per .860 share with dividend accretion to holders of WECo Common Stock
ranging from 14.2% to 43.1%.
Discounted Cash Flow Analysis. Goldman Sachs performed a discounted
cash flow analysis, based on projections provided by WECo management, for
WECo and for Puget, each on a stand-alone basis and for the combined pro
forma entity. Goldman Sachs calculated a net present value of free cash
flows for WECo and Puget for the fiscal years 1996 to 2001 using discount
rates ranging from 10% to 12%. Goldman Sachs calculated WECo's and Puget's
terminal values in the year 2001 based on LTM P/E multiples ranging from
11x to 13x. This analysis indicated implied values for WECo Common Stock
ranging from $14.56 to $18.17 per share and for Puget Common Stock ranging
from $20.26 to $24.30 per share. Goldman Sachs compared the net present
value of free cash flows for WECo and for the combined pro forma entity for
the fiscal years 1996 to 2001 using a discount rate of 11% and terminal
values in fiscal
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year 2001 based on LTM P/E multiples ranging from 11x to 13x. This analysis
indicated, depending on differing assumptions relating to the level of
realization of the Synergies, implied values for .860 share of Company
Common Stock ranging from $18.08 to $24.55, compared to implied values for
WECo Common Stock ranging from $15.08 to $17.54 per share.
The preparation of a fairness opinion is a complex process and is not
readily susceptible to summary description. Selecting portions of the analyses
or of the summaries set forth above, without considering the analyses as a
whole, could create an incomplete view of the process underlying Goldman Sachs'
opinion. In arriving at its fairness opinions, Goldman Sachs considered the
results of all such analyses, taken as a whole. Furthermore, in arriving at its
fairness opinions, Goldman Sachs did not attribute any particular weight to any
analysis or factor considered by it. No company or transaction used in the above
analyses as a comparison is identical to WECo or Puget or the proposed merger.
The analyses were prepared solely for the purposes of Goldman Sachs' providing
its opinions to WECo's Board of Directors as to the fairness of the Ratio
pursuant to the Merger Agreement to the holders of WECo Common Stock and do not
purport to be appraisals or necessarily reflect the prices at which businesses
or securities actually may be sold. Analyses based on forecasts of future
results are not necessarily indicative of actual future results, which may be
significantly more or less favorable than suggested by such analyses. Because
such analyses are inherently subject to uncertainty, being based on numerous
factors or events beyond the control of the parties or their respective
advisors, none of WECo, Puget, Goldman Sachs or any other person assumes
responsibility if future results are materially different from those forecast.
As described above, Goldman Sachs' opinion to WECo's Board of Directors was
one of many factors taken into consideration by WECo's Board of Directors in
making its determination to approve the Merger Agreement. The foregoing summary
does not purport to be a complete description of the analysis performed by
Goldman Sachs and is qualified by reference to the written opinion of Goldman
Sachs set forth in Annex E hereto.
Goldman Sachs, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements,
and valuations for estate, corporate and other purposes. WECo selected Goldman
Sachs as its financial advisor because it is a nationally recognized investment
banking firm that has substantial experience in transactions similar to the
Merger. Goldman Sachs is familiar with WECo, having provided certain investment
banking services to WECo from time to time, including having acted as managing
underwriter of certain public offerings of debt securities of WECo, having acted
as lead agent for certain public offerings of medium-term notes of WECo and
having acted as its financial advisor in connection with, and having
participated in certain negotiations leading to, the Merger Agreement.
Pursuant to a letter agreement dated September 15, 1995 (the "GS Engagement
Letter"), WECo engaged Goldman Sachs to act as its financial advisor in
connection with the Merger. Pursuant to the terms of the GS Engagement Letter,
WECo has agreed to pay Goldman Sachs upon consummation of the Merger a
transaction fee of 0.85% of the aggregate consideration paid for the outstanding
shares of WECo Common Stock (including amounts paid to holders of options,
warrants and convertible securities), one-third of which is payable upon
execution of the Merger Agreement, another one-third of which is payable upon
obtaining shareholder approval and the final one-third of which is payable upon
consummation of the Merger. WECo also has agreed to reimburse Goldman Sachs for
its reasonable out-of-pocket expenses, including attorneys' fees and
disbursements, and to indemnify Goldman Sachs against certain liabilities,
including certain liabilities under federal securities laws.
Goldman Sachs provides a full range of financial, advisory and brokerage
services and in the course of its normal trading activities may from time to
time effect transactions and hold long and/or short positions in the securities
or options on securities of WECo and/or Puget for its own account and for the
account of its customers.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material federal income tax consequences
of the Merger. Consummation of the Merger is conditioned upon the receipt by
Puget, WECo and WNG of (a) a private letter ruling from the IRS or (b) if no IRS
ruling is received but all other conditions to the Merger are satisfied, then
legal opinions from Perkins Coie, counsel to Puget, and Simpson Thacher &
Bartlett, counsel to WECo and WNG, which ruling or opinions shall be
substantially to the effect that the Merger will qualify as a reorganization
under Section 368(a) of the Code. If the IRS does not issue a favorable ruling
with respect to the Merger, there can be no assurance that the IRS will agree
with the conclusions set forth in this Joint Proxy Statement/ Prospectus.
Provided that the Merger qualifies as a reorganization under Section 368(a)
of the Code, then (a) no gain or loss will be recognized by Puget, WECo or WNG
as a result of the Merger, (b) holders of WECo Common Stock and WNG Preferred
Stock whose shares are converted into Company Common Stock or New Company
Preferred Stock, as the case may be, in the Merger will recognize no gain or
loss as a result of the conversion (except by reason of receipt of cash in lieu
of fractional share interests or the exercise of dissenters' rights), (c) the
basis of Company Common Stock or New Company Preferred Stock received pursuant
to the Merger should be the same as the basis attributable to the WECo Common
Stock or WNG Preferred Stock surrendered in exchange therefor (reduced by any
amount allocable to a fractional share interest in Company Common Stock for
which cash is received), and (d) the holding period of Company Common Stock and
New Company Preferred Stock received pursuant to the Merger shall include the
holding period of any WECo Common Stock or WNG Preferred Stock surrendered in
exchange therefor, provided that such exchanged shares are held as capital
assets at the Effective Time.
Holders of shares of WECo Common Stock who receive cash in lieu of a
fractional share interest in Company Common Stock will recognize gain or loss
measured by the difference between the amount of cash received and the basis of
the fractional share interest surrendered in exchange therefor. Such gain or
loss shall be capital gain or loss if the fractional share interest surrendered
was held as a capital asset at the time of consummation of the Merger, and such
capital gain or loss shall be long-term capital gain or loss if the holding
period for such fractional share interest was greater than one year.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS BASED ON CURRENT LAW
AND IS INTENDED FOR GENERAL INFORMATION ONLY. SUCH DISCUSSION MAY NOT BE
APPLICABLE TO ALL HOLDERS OF WECO COMMON STOCK AND WNG PREFERRED STOCK BECAUSE
OF THEIR PARTICULAR TAX STATUS. IT DOES NOT ADDRESS FOREIGN, STATE OR LOCAL TAX
CONSEQUENCES. HOLDERS OF WECO COMMON STOCK AND WNG PREFERRED STOCK ARE URGED TO
CONSULT THEIR OWN TAX ADVISORS TO DETERMINE THE PARTICULAR TAX CONSEQUENCES TO
THEM OF THE MERGER, INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL AND
FOREIGN TAX LAWS.
ACCOUNTING TREATMENT
The Merger is designed to qualify as a "pooling-of-interests" for
accounting and financial reporting purposes. Under this method of accounting,
the recorded assets and liabilities of WECo and WNG will be carried forward to
the Company's consolidated financial statements at their recorded amounts;
income of the Company will include income of WECo and WNG for the entire fiscal
year in which the Merger occurs; and the reported income of the separate
corporations for prior periods will be combined and restated as income of the
Company. The receipt by Puget of a letter from Coopers & Lybrand L.L.P.,
independent accountants, and the receipt by WECo and WNG of a letter from Arthur
Andersen LLP, independent accountants, each stating that the transaction will
qualify as a pooling-of-interests, are conditions to consummation of the Merger.
It is expected that representatives of Coopers & Lybrand L.L.P. will be present
at the Puget Special Meeting to respond to questions. It is also expected that
representatives of Arthur Andersen LLP will be present at the WECo Meeting and
the WNG Special Meeting to respond to questions. See "The Merger
Agreement -- Conditions to Consummation of the Merger" and "Unaudited Pro Forma
Condensed Financial Information."
OPERATIONS OF THE COMPANY AFTER THE EFFECTIVE TIME
After the Effective Time, the Company's corporate headquarters and
principal executive offices will be located in Bellevue, Washington.
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For information concerning the Company Board and the Company's management
after the Effective Time, see "The Merger -- Conflicts of Interest of Certain
Persons in the Merger -- The Company's Board of Directors" and "The
Merger -- Conflicts of Interest of Certain Persons in the Merger -- Employment
Agreements With the Company."
CONFLICTS OF INTEREST OF CERTAIN PERSONS IN THE MERGER
In considering the recommendations of the Boards of Directors of Puget,
WECo and WNG with respect to the Merger, shareholders should be aware that
certain members of Puget's, WECo's and WNG's managements and Boards of Directors
have certain interests in the Merger that are in addition to their interests, if
any, as shareholders of Puget, WECo and WNG generally. The Board of Directors of
each of Puget, WECo and WNG considered these interests, among other matters, in
approving the Merger Agreement and the transactions contemplated thereby.
All the members of the Board of Directors of each of Puget, WECo and WNG
participated in the discussions and deliberation of, and voted on, the Merger
Agreement and the transactions contemplated thereby, including those directors
who have certain interests described below, except that neither Mr. Sonstelie
nor Mr. Vititoe participated in the consideration of their respective Employment
Agreements with the Company.
THE COMPANY'S BOARD OF DIRECTORS
Upon consummation of the Merger, the Company Board will consist of no more
than 15 persons, two-thirds of whom will be designated by Puget and one-third of
whom will be designated by WECo. The Merger Agreement provides that Puget will
designate Richard R. Sonstelie and William S. Weaver to the Company Board, and
WECo will designate William P. Vititoe to the Company Board. To date, Puget and
WECo have not determined the initial size of the Company Board or which
individuals, in addition to Messrs. Sonstelie, Weaver and Vititoe, will be
designated to serve as directors of the Company as of the Effective Time. It is
anticipated, however, that the Company Board will initially be comprised
entirely of persons who are current directors of either Puget or WECo. At the
Effective Time, the Company Board will be divided into three classes, Class I,
Class II and Class III, with staggered three-year terms. The terms of the
initial WECo designees to the Company Board will expire at the first annual
meeting of shareholders of the Company following the Effective Time. Thereafter,
each WECo designee who is elected to the Company Board will serve for the
remaining term of the class to which he or she is elected. Each such class will
be as nearly equal in number as practicable. The allocation of the directors
among the three classes will be determined by the Company Board.
The directors of the Company will receive such annual retainers and other
fees, retirement benefits, medical and other benefits coverage, deferred
compensation arrangements and other benefits, if any, as shall be determined
from the time to time by the Company Board. Such fees and benefits in the future
may be higher or lower than those currently paid to the directors of Puget and
WECo.
EMPLOYMENT AGREEMENTS WITH THE COMPANY
Mr. Vititoe on October 18, 1995 entered into an Employment Agreement with
the Company that is to become effective at the Effective Time. At the Effective
Time, Mr. Vititoe's Employment Agreement will supersede an existing employment
agreement between WECo and Mr. Vititoe (the "Existing Vititoe Employment
Agreement"). Mr. Sonstelie also entered into an Employment Agreement with Puget
effective as of October 18, 1995. Copies of these Employment Agreements are
attached as Annexes G and H to this Joint Proxy Statement/Prospectus.
Pursuant to their Employment Agreements entered into on October 18, 1995,
Mr. Sonstelie will serve as Chairman of the Board (assuming his election to the
Company Board by the shareholders of the Company) and Chief Executive Officer of
the Company, and Mr. Vititoe will serve as a director (assuming his election to
the Company Board by the shareholders of the Company) and President and Chief
Operating Officer of the
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Company from and after the Effective Time. The Employment Agreements terminate
on the fourth anniversary of the consummation of the Merger (subject to earlier
termination in certain circumstances).
During their respective terms of employment, Messrs. Sonstelie and Vititoe
will receive minimum annual base salaries of $400,000 and $350,000,
respectively. Each executive will also be eligible to participate in the
Company's annual and long-term incentive compensation programs (which may
include a pay-at-risk plan, stock-based awards, stock options, stock
appreciation rights ("SARs") and other forms of compensation), and its
retirement, investment and deferred compensation plans, and will also be
entitled to paid vacation, medical, life and disability insurance benefits, and
other perquisites. In addition, with respect to Mr. Vititoe, the Company will
assume certain obligations of WNG under an Executive Retirement Compensation
Agreement between WNG and Mr. Vititoe.
In the event Mr. Vititoe's employment terminates for any reason (other than
termination by the Company "for cause," as defined in the Employment Agreement)
during the four-year term of his Employment Agreement, Mr. Vititoe will be
entitled to receive, for the three-year period following notice of termination,
the types of payments and benefits described in the next paragraph. Pursuant to
the Existing Vititoe Employment Agreement, upon consummation of the Merger, Mr.
Vititoe would have had the right to terminate his employment with WECo and
receive the payments and benefits described in the next paragraph because the
Merger constitutes a change of control under that agreement. As described below,
the Existing Vititoe Employment Agreement will be superseded at the Effective
Time by Mr. Vititoe's Employment Agreement with the Company, which is designed
to preserve the benefits to which he was entitled under the Existing Vititoe
Employment Agreement upon a change of control.
If either the Company or Mr. Vititoe terminates his employment (except
termination by the Company "for cause," as defined in the Employment Agreement),
or if Mr. Vititoe dies or is unable to perform his duties as a result of a
physical or mental disability, prior to the end of the four-year term, Mr.
Vititoe will be entitled to receive, for the three-year period following notice
of termination of employment (the "Extended Benefit Period"), (a) his full base
salary earned through termination and accrued benefits; (b) within 30 days of
termination, an amount equal to the product of (i) Mr. Vititoe's annual base
salary at the rate applicable on the date of termination plus any additional
compensation awarded for the year most recently ended and (ii) the number of
years (pro-rated for partial years) remaining between the date of termination
and the end of the Extended Benefit Period; (c) full benefits under the
Company's employee benefit plans, programs and policies; (d) in addition to the
regular payment of benefits under the Company's retirement plans or programs
(which shall not be affected by termination), the actuarial equivalent of the
additional retirement compensation Mr. Vititoe would have earned had employment
continued through the Extended Benefit Period; (e) in return for a waiver of the
right to exercise any option, a payment equal to the difference between the
exercise price of all options held by Mr. Vititoe (whether or not then fully
exercisable) and the higher of (i) the average of the high and low sales prices
of the Company Common Stock on the NYSE for the 20 days preceding termination
and (ii) the price paid for WECo Common Stock in the Merger; and (f) any
additional taxes payable by Mr. Vititoe in connection with excess parachute
payments.
If the Company terminates Mr. Sonstelie's employment (except termination
"for cause," as defined in the Employment Agreement, or termination upon death
or disability) prior to the end of the four-year term, Mr. Sonstelie will be
entitled to receive (a) all compensation and benefits earned through the date of
termination and (b) a continuation of his salary for the balance of such
four-year term. In addition, Mr. Sonstelie will be entitled to receive under his
Employment Agreement the same type of payments and benefits as described in the
immediately preceding paragraph if a Change in Control (as defined below) of the
Company occurs during the four-year term of the Employment Agreement or within
the Extended Benefit Period (except notices of termination for cause or of
termination due to death or incapacity). "Change in Control" includes (a) the
acquisition by any person of (i) power to exercise a controlling influence over
the Company's management or policies or (ii) ownership or power to vote 25% or
more of the Company's outstanding voting securities or (b) a change in the
majority of the Company Board during the six-year period subsequent to the
acquisition by any person of ownership or power to vote 10% or more of the
outstanding voting securities of the Company without the approval of the
majority of the Company's directors in office
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prior to such acquisition. The Merger does not constitute a Change in Control
for purposes of Mr. Sonstelie's Employment Agreement.
Pursuant to their Employment Agreements, the Company agrees to indemnify
each of Messrs. Sonstelie and Vititoe to the fullest extent allowed by law;
provided, however, that neither shall be entitled to indemnification for
liabilities, obligations, claims or expenses resulting from his acts of
dishonesty, the receipt of benefits to which he was not entitled, the refusal to
comply with a lawful directive of the Company Board or any willful misconduct.
Each of Messrs. Sonstelie and Vititoe is bound by confidentiality,
noncompetition and nonsolicitation provisions.
Other WECo Employment Agreements. WECo has employment agreements with
three other senior executive officers: Robert J. Tomlinson, James P. Torgerson
and Timothy J. Hogan. These Employment Agreements provide certain benefits
should employment be terminated other than for cause, or by death, disability or
normal retirement within three years subsequent to a change of control of WECo.
If the Merger is consummated, a change of control will have occurred.
The benefits to be provided under these employment agreements include: (a)
a cash payment equal to three times the executive's most recent year's annual
compensation, or a cash payment equal to the executive's annual compensation
until normal retirement date, if less than three years, (b) a lump-sum payment
for amounts calculated upon dissolution of WECo's Performance Share Plan, (c)
maintenance of participation in all current employee benefit plans or provision
for substantially similar benefits for a three-year period or until the
executive's normal retirement date, if sooner, (d) a cash payment at the
executive's retirement date equal to the additional retirement compensation to
which the executive would have been entitled had he continued in WECo's employ
for an additional three years or until his normal retirement date, if sooner,
(e) a cash payment equal to the difference between the exercise prices of all
stock options and the higher of (i) the average of the high and low sales prices
on the date of termination and (ii) the price paid for WECo Common Stock in the
Merger, and (f) a cash payment equal to the excise taxes imposed by Section 4999
of the Code, if any, on all payments enumerated in this sentence, plus the tax
expense to the executive resulting from this additional payment. If the
executive voluntarily terminates his employment without good reason, as defined
in the employment agreement, no additional or special benefits will accrue to
him.
The Company will assume WECo's obligations under the employment agreements
for Messrs. Tomlinson, Torgerson and Hogan.
INDEMNIFICATION
Pursuant to the Merger Agreement, the Company will indemnify, to the
fullest extent permitted by applicable law, the present and former directors,
officers and employees of each of Puget, WECo and WNG, and any subsidiaries
thereof, against certain liabilities arising out of or pertaining to actions or
omissions occurring at or prior to the Effective Time that arise from or are
based on such service as a director, officer or employee or that arise from or
pertain to the transactions contemplated by the Merger Agreement, and to
maintain the current policies of directors' and officers' liability insurance
held by WECo and WNG (or policies at least as favorable) for a period of not
less than six years after the Effective Time to the extent that such liability
insurance can be maintained annually at a cost that is not greater than 200% of
the premium for the current directors' and officers' liability insurance
maintained by WECo and WNG. To the fullest extent permitted by applicable law,
from and after the Effective Time, all rights to indemnification existing in
favor of the employees, agents, directors or officers of Puget, WECo, WNG and
their respective subsidiaries with respect to their activities as such prior to
the Effective Time, as provided in their respective Articles of Incorporation or
Bylaws in effect on the date thereof or otherwise in effect on October 18, 1995,
will survive the Merger and continue in full force and effect for a period of
not less than six years from the Effective Time. See "The Merger
Agreement -- Indemnification."
EMPLOYEE BENEFIT PLANS
Puget, WECo and WNG provide a number of benefits to their directors,
officers, employees and key employees. Where practicable and appropriate, it is
presently anticipated that, at or after the Effective Time,
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the Company will adopt or assume some of the benefit plans, programs and
arrangements of WECo and WNG (the "Washington Energy Benefit Plans"), with
modifications to reflect the Merger or as the Company may otherwise deem
appropriate. To the extent such Washington Energy Benefit Plans are adopted or
assumed by the Company, the directors and employees of the Company or its
subsidiaries may receive benefits thereunder. Set forth below are descriptions
of certain of such Washington Energy Benefit Plans, as well as descriptions of
certain benefit plans, programs and arrangements of Puget (the "Company Benefit
Plans"). The following discussion relates to anticipated actions or events, any
or all of which may be changed prior to the Effective Time. Except as provided
below or as may be otherwise agreed by the parties, the Merger Agreement
provides that the nonbargaining unit employees, officers and key employees of
WECo and WNG will generally receive benefits (other than those provided under
the plans described below) for a period of one year following the Effective Time
that are no less favorable in the aggregate than the benefits (other than those
provided under the plans described below) provided to the relevant group of
employees, officers or key employees immediately prior to the Merger.
WECO STOCK PLANS
In connection with the Merger, WECo's Stock Option Plan, Performance Share
Plan and Directors Stock Bonus Plan will be replaced by the Puget Long-Term
Incentive Compensation Plan providing for the grant of stock awards based on
Company Common Stock, and WECo's Employee Stock Purchase Plan and its Dividend
Reinvestment Plan will be terminated. Collectively, these five WECo plans are
referred to hereinafter as the "WECo Stock Plans." Holders of Company Common
Stock will be eligible to participate in the Company's Dividend Reinvestment
Plan.
The Washington Energy Company Stock Option Plan (the "SOP") provides for
the award of incentive stock options as described under Section 422 of the Code,
nonqualified stock options (options other than incentive stock options) and
SARs. A SAR may be awarded under the SOP only as part of an option awarded under
the SOP. A SAR entitles the participant to receive the excess of the fair market
value per share on the date the participant exercises the SAR over the exercise
price per share as provided in the related underlying option.
The Second Washington Energy Company Performance Share Plan (the "PSP")
provides for the award of shares of WECo Common Stock and cash to participating
officers of WECo, WNG and their subsidiaries. The number of shares awarded and
the amount of cash paid to participants is determined based on WECo's financial
performance during specific four-year performance cycles. Upon a change of
control, each participant then employed by WECo, WNG or any of their
subsidiaries (or employed by any such entities during the one-year period
preceding the date on which the change of control occurs) will be entitled to
receive, immediately following the change of control, an amount equal to the
greater of 100% of the units previously awarded to him or her for the award
period in which the change of control occurs or the amount indicated by WECo's
financial performance at the time of the change of control. The Merger will
constitute a change of control for purposes of the PSP.
The Washington Energy Company Directors Stock Bonus Plan (the "Directors
Plan") provides for the award of shares of WECo Common Stock to nonemployee
directors. A director may elect to defer receipt of the shares awarded to him or
her under the Directors Plan until such individual ceases to be a director of
WECo. Upon a change of control, any shares of stock previously deferred by a
director will be issued immediately to him or her. Following such issuance, the
Directors Plan will terminate. The Merger will constitute a change of control
for purposes of the Directors Plan.
At the Effective Time, each underlying stock option agreement under the
WECo Stock Plans will be amended to provide that each option to purchase shares
of WECo Common Stock (a "WECo Stock Option"), along with each tandem SAR,
granted thereunder will thereafter constitute an option to acquire shares of
Company Common Stock on the same terms and conditions as were applicable under
the WECo Stock Option. The number of shares of Company Common Stock that may be
acquired under the amended options will equal the number of shares of Company
Common Stock the holder of such WECo Stock Option would have been entitled to
receive pursuant to the Merger Agreement had such holder exercised his or her
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WECo Stock Option in full immediately prior to the Effective Time. The option
price and the terms and conditions of exercise of such amended WECo Stock Option
shall be determined in a manner that preserves both (a) the aggregate gain (or
loss) on the WECo Stock Option immediately prior to the Effective Time and (b)
the ratio of the exercise price per share under the WECo Stock Option to the
fair market value (determined immediately prior to the Effective Time) of the
WECo Common Stock; provided, however, that incentive stock options for the
purchase of Company Common Stock will be subject to the relevant provisions of
the Code. Likewise, each other outstanding award under the WECo Stock Plans
("WECo Stock Award") will be amended to provide that awards of stock granted
thereunder will thereafter constitute awards of Company Common Stock on the same
terms and conditions as were applicable under the WECo Stock Award. The number
of shares of Company Common Stock to which the holder may be, or become,
entitled under the amended award will equal the number of shares of Company
Common Stock the holder of such WECo Stock Award would have been entitled to
receive pursuant to the Merger Agreement had such holder been the absolute
owner, immediately before the Effective Time, of the shares of WECo Common Stock
on which such WECo Stock Award is based. At the Effective Time, the Company will
assume each stock award agreement, as amended, relating to the WECo Stock Plans.
OTHER WECO BENEFIT PLANS
Washington Energy Company Annual Incentive Plan. The Washington Energy
Company Annual Incentive Plan (the "AIP") provides for a cash payment to a
participant equal to a percentage of such participant's base salary for a fiscal
year (October 1 -- September 30) if WECo achieves the levels of corporate and/or
departmental performance set under the AIP for such participant for such plan
year. Payouts vary for meeting threshold, target and maximum objectives. Upon a
change of control, a targeted incentive cash payment will be paid under the AIP
to a participant if he or she is terminated without cause, regardless of WECo's
performance. The Merger will constitute a change of control for purposes of the
AIP. At the Effective Time, the Company will succeed to all rights and assume
all obligations under the AIP.
Washington Energy Company Interim Performance Share Plan. The Washington
Energy Company Interim Performance Share Plan (the "Interim Plan") provides for
cash payments at the end of the performance period based on the percentage of
total units awarded, which are earned in each of the four years, and the price
of the WECo Common Stock at the end of the performance period. Units are earned
in each year based on a comparison of Total Shareholder Return (appreciation in
stock price plus dividends paid) for WECo shareholders with that of a peer group
of gas distribution companies. The maximum payment a plan participant can
receive is equal to the total number of units awarded multiplied by the WECo
Common Stock price at the end of the four-year performance period. Participants
in the Interim Plan must be employed at September 30, 1998, to be eligible for
any payment under the Interim Plan, except in the case of retirement, death or
disability. The Compensation Committee may elect, at its discretion, to vest any
unearned units at the end of the four-year period based on the Total Shareholder
Return for the entire period. At the Effective Time, the Company will succeed to
all rights and assume all obligations under the Interim Plan.
Washington Natural Gas Company Deferred Compensation Plan. The Washington
Natural Gas Company Deferred Compensation Plan (the "Deferred Compensation
Plan") provides that participants are eligible to defer all or a portion of
their salaries, bonuses and director's fees paid by WECo, WNG or their
subsidiaries. Any amounts deferred are credited with interest, compounded
annually, until distributed. Upon a change of control, a "preferred" interest
rate applies to amounts previously or subsequently deferred under the Deferred
Compensation Plan and, if the Deferred Compensation Plan is then terminated, all
distributions must be made in a lump sum. The Merger will constitute a change of
control for purposes of the Deferred Compensation Plan. At the Effective Time,
the Company will succeed to all rights and assume all obligations under the
Deferred Compensation Plan.
Executive Retirement Compensation Agreements. Executive Retirement
Compensation Agreements with various officers of WNG and its affiliates provide
supplemental retirement benefits to such individuals. Such benefits are normally
vested and payable only if the officer retires, dies or becomes disabled while
employed by WNG or its affiliates. Upon a change of control, however, such
benefits become 100% vested. The Merger will constitute a change of control for
purposes of the Executive Retirement Compensation
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Agreements. At the Effective Time, the Company will succeed to all rights and
assume all obligations under the Executive Retirement Compensation Agreements.
TAX-QUALIFIED DEFINED BENEFIT PENSION PLANS
Both WNG and Puget maintain tax-qualified defined benefit pension plans
(the "WNG Pension Plan" and the "Company Pension Plan," respectively). The WNG
Pension Plan will be amended to provided that no additional benefits will be
accrued under such plan after the day immediately preceding the Effective Time
by nonbargaining unit employees. The Company Pension Plan will be amended to
provide that all nonbargaining unit employees of WECo, WNG or any of their
subsidiaries who were actively participating in the WNG Pension Plan immediately
prior to the Effective Time and who become employees of the Company at the
Effective Time will commence participation in the Company Pension Plan as of the
Effective Time. Each other nonbargaining unit employee of WECo, WNG or any of
their subsidiaries will commence participation in the Company Pension Plan upon
his or her satisfaction of the eligibility and participation requirements set
forth thereunder. For purposes of determining whether a nonbargaining unit
employee of WECo, WNG or any of their subsidiaries has satisfied the Company
Pension Plan's eligibility and participation requirements, and for purposes of
determining such an employee's vested interest under the Company Pension Plan
once he or she commences participation in the Company Pension Plan, service with
WECo, WNG or any of their subsidiaries will be considered to be service
performed for the Company.
The Company Pension Plan will also be amended to provide that each
nonbargaining unit employee of WECo, WNG or any of their subsidiaries who was an
active participant in the WNG Pension Plan immediately prior to the Effective
Time will, for purposes of determining the amount of such employee's accrued
benefit under the Company Pension Plan on and after the Effective Time, be
granted past-service credit equal to the number of years of service credited to
such employee under the WNG Pension Plan for benefit accrual purposes. However,
each such employee's accrued benefit under the Company Pension Plan will be
offset by such employee's accrued benefit under the WNG Pension Plan (the
"Offset"). Such employee's Offset will not exceed such employee's accrued
benefit under the Company Pension Plan attributable to such employee's past
service credit, determined as of the Effective Time. The accrued benefit of each
nonbargaining unit employee of WECo, WNG or any of their subsidiaries who has a
vested interest in the WNG Pension Plan, but who does not become an employee of
the Company or any of its subsidiaries, will be determined pursuant to the terms
of the WNG Pension Plan as in effect immediately prior to the Effective Time.
At the Effective Time, the portion of the WNG Pension Plan that provides
benefits to nonbargaining unit employees will be merged into the Company Pension
Plan, and the Company will assume sponsorship of the portion of the WNG Pension
Plan covering bargaining unit employees.
TAX-QUALIFIED CASH OR DEFERRED PROFIT-SHARING PLANS
WNG maintains two tax-qualified cash or deferred profit-sharing
plans -- one covering nonbargaining unit employees of WECo, WNG and their
subsidiaries (the "WNG Nonbargaining Unit 401(k) Plan") and the other covering
bargaining unit employees of WECo, WNG and their subsidiaries (the "WNG
Bargaining Unit 401(k) Plan"). Puget maintains a single tax-qualified cash or
deferred profit-sharing plan covering both nonbargaining and bargaining unit
employees (the "Company 401(k) Plan"). The WNG Nonbargaining Unit 401(k) Plan
will be amended to provided that no additional employer or employee
contributions will be made to the WNG Nonbargaining Unit 401(k) Plan for periods
beginning on or after the Effective Time. The Company 401(k) Plan will be
amended to provide that all employees of WECo, WNG or any of their subsidiaries
who were actively participating in the WNG Nonbargaining Unit 401(k) Plan
immediately prior to the Effective Time and who become employees of the Company
at the Effective Time will commence participation in the Company 401(k) Plan as
of the Effective Time. Each other nonbargaining unit employee of WECo, WNG or
any of their subsidiaries will commence participation in the Company 401(k) Plan
upon his or her satisfaction of the eligibility and participation requirements
set forth thereunder. For purposes of determining whether a nonbargaining unit
employee of WECo, WNG or any of their subsidiaries has satisfied the Company
401(k) Plan's eligibility and participation requirements, and for purposes of
determining such
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employee's vested interest under the Company 401(k) Plan once he or she
commences participation in the Company 401(k) Plan, service with WECo, WNG or
any of their subsidiaries will be considered to be service performed for the
Company.
As soon as practicable after the Effective Time, the WNG Nonbargaining Unit
401(k) Plan will be merged into the Company 401(k) Plan. At the Effective Time,
the Company will assume sponsorship of the WNG Bargaining Unit 401(k) Plan.
PUGET BENEFIT PLANS
Consummation of the Merger will not create or accelerate any benefits under
any of the benefit plans of Puget, except as described above.
RESALES OF COMPANY COMMON STOCK AND NEW COMPANY PREFERRED STOCK ISSUED IN THE
MERGER; AFFILIATES
All shares of Company Common Stock or New Company Preferred Stock received
by WECo or WNG shareholders in the Merger, as the case may be, will be freely
transferable, except that the shares of Company Common Stock and New Company
Preferred Stock received by persons who are deemed "affiliates" (as such term is
defined in Rule 144 under the Securities Act) of WECo or WNG prior to the Merger
may be resold by them only in transactions permitted by the resale provisions of
Rule 145 under the Securities Act (or, in the case of such persons who become
affiliates of the Company, Rule 144) or as otherwise permitted under the
Securities Act. In accordance with the Merger Agreement, WECo and WNG intend to
use all reasonable efforts to cause each of their respective affiliates to
execute a written agreement to the effect that such person will not offer or
sell or otherwise dispose of any shares of Company Common Stock or New Company
Preferred Stock issued to such person in or pursuant to the Merger in violation
of the Securities Act or the rules or regulations promulgated by the SEC
thereunder. This Joint Proxy Statement/Prospectus does not cover any resale of
the securities to be received by shareholders of WECo and WNG upon consummation
of the Merger, and no person is authorized to make any use of this Joint Proxy
Statement/Prospectus in connection with any such resale.
STOCK EXCHANGE LISTING OF COMPANY COMMON STOCK AND NEW COMPANY PREFERRED STOCK
Application will be made for listing the shares of Company Common Stock and
New Company Preferred Stock to be issued pursuant to the terms of the Merger
Agreement on the NYSE. The listing of such shares on the NYSE, subject to notice
of issuance, is a condition precedent to consummation of the Merger. So long as
Puget, WECo and WNG continue to meet the requirements of the NYSE, Puget Common
Stock, Puget Preferred Stock, par value $100 per share, Puget Preferred Stock,
par value $25 per share, WECo Common Stock and WNG Preferred Stock, as the case
may be, will continue to be listed on the NYSE until the Effective Time.
AMENDMENT OF ARTICLES OF INCORPORATION
In connection with the Merger, at the Effective Time the Puget Articles
shall be amended to (a) change Puget's name to the name of the Company, (b)
increase the authorized number of shares of Company Common Stock from 80,000,000
to 150,000,000, and (c) create the Company Series II Preferred Stock and the
Company Series III Preferred Stock. Approval of the Puget Merger Proposal
constitutes approval of the increase in the authorized number of shares of
Company Common Stock. The name change and creation of the Company Series II
Preferred Stock and Company Series III Preferred Stock do not require
shareholder approval.
The additional 70,000,000 authorized shares of Company Common Stock may be
issued for any proper corporate purpose approved by the Company Board. Without
such amendment of the Puget Articles, Puget would not have a sufficient number
of authorized shares to complete the Merger. The availability of additional
authorized shares will enable the Company Board to act with flexibility when and
as the need arises to issue additional shares in the future without the delays
necessitated by having to obtain a shareholder vote. Among the reasons for
issuing additional shares would be to increase the Company's capital through
sales of Company
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Common Stock, to engage in other types of capital transactions, to undertake
acquisitions and to satisfy contractual commitments, including employee stock
options and other stock awards that may be granted under the Company's
stock-based plans. Puget's Board of Directors has not proposed the increase in
the amount of authorized Company Common Stock with the intention of discouraging
tender offers or takeover attempts of the Company; however, the availability of
additional authorized shares for issuance could render more difficult or
discourage a merger, tender offer, proxy contest or other attempt to obtain
control of the Company, which may adversely affect the ability of the Company's
shareholders to obtain a premium for their shares of Company Common Stock and,
accordingly, have a negative effect on the price of Company Common Stock.
DISSENTERS' RIGHTS
The following summary of the availability of dissenters' rights for holders
of WECo Common Stock, WNG Preferred Stock and Puget Common Stock does not
purport to be complete and is qualified in its entirety by reference to Chapter
23B.13 of the WBCA (a copy of which is attached as Annex I to this Joint Proxy
Statement/Prospectus).
Any shareholder contemplating the exercise of dissenters' rights is urged
to review the full text of Chapter 23B.13 of the WBCA. The procedures set forth
in such Chapter must be followed exactly or dissenters' rights may be lost.
A holder of WECo Common Stock, WNG Preferred Stock or Puget Common Stock
who properly follows the procedures for dissenting and demanding payment for his
or her shares pursuant to Chapter 23B.13 (as summarized below) may be entitled
to receive in cash the "fair value" of his or her shares in lieu of the
consideration provided in the Merger Agreement. The "fair value" of a dissenting
shareholder's shares will be the value of such shares immediately prior to the
Effective Time, excluding any appreciation or depreciation in anticipation of
the Merger, unless exclusion would be inequitable. The "fair value" could be
more than, equal to or less than the value of the consideration the shareholder
would have received pursuant to the Merger Agreement if the shareholder had not
dissented. In the event the dissenting shareholder and the corporation cannot
agree on the "fair value" of the dissenter's WECo Common Stock, WNG Preferred
Stock or Puget Common Stock, "fair value" may ultimately be determined by a
court in an appraisal proceeding.
To properly exercise dissenters' rights with respect to the Merger and to
be entitled to payment under Chapter 23B.13 of the WBCA, a holder of WECo Common
Stock, WNG Preferred Stock or Puget Common Stock must, among other things, (a)
prior to the relevant Shareholders Meeting, deliver to WECo, WNG or Puget, as
the case may be, written notice of the shareholder's intent to demand payment
for his or her shares if the Merger is effected, (b) not vote his or her shares
in favor of the Merger, and (c) upon receipt of a dissenter's notice from the
Company (as described below), timely deliver a demand for payment, certifying
whether the shareholder acquired beneficial ownership before the date of the
first announcement to the news media or to shareholders of the terms of the
Merger, and timely deposit the shareholder's certificates in accordance with the
terms of the dissenter's notice. Thus, any holder of WECo Common Stock, WNG
Preferred Stock or Puget Common Stock who wishes to dissent and who executes and
returns a proxy on one of the accompanying forms must specify that such holder's
shares are to be voted against the Merger or that the proxy holder should
abstain from voting such holder's shares in favor of the Merger. A vote against
the Merger is not a proper exercise of dissenters' rights. If the shareholder
returns a proxy without voting instructions, or with instructions to vote in
favor of the Merger, such holder's shares will automatically be voted in favor
of the Merger, and the shareholder will lose any dissenters' rights. Within 10
days after the Effective Time, the Company will send a written dissenter's
notice to each holder of WECo Common Stock, WNG Preferred Stock and Puget Common
Stock who satisfied the requirements of clauses (a) and (b) above, indicating
where the payment demand must be sent and where and when share certificates must
be deposited. Such notice will include, among other things, a form of payment
demand that includes the date of the first announcement to the news media or to
shareholders of the terms of the Merger and requires the person asserting
dissenters' rights to certify whether or not such person acquired beneficial
ownership of the shares before that date, and will set the date by which the
Company must receive the payment demand, which date may not be less than 30 or
more than 60 days after the dissenter's notice is delivered. Shareholders who
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fail to file timely written intent to demand payment or who vote in favor of the
Merger will not be entitled to receive the dissenter's notice and will be bound
by the terms of the Merger Agreement. Written objections to the Merger by
holders of WECo Common Stock should be addressed to Wayne E. Hays, Washington
Energy Company, P.O. Box 1869, 815 Mercer Street, Seattle, Washington
98111-1869, and by holders of WNG Preferred Stock to Wayne E. Hays, Washington
Natural Gas Company, at the same address. Written objections to the Merger by
holders of Puget Common Stock should be addressed to James W. Eldredge,
Corporate Secretary, Puget Sound Power & Light Company, 411 -- 108th Avenue
N.E., 15th Floor, Bellevue, Washington 98004-5515. Such objections must be
received by WECo, WNG or Puget, as the case may be, prior to the relevant
Shareholders Meeting.
A beneficial shareholder may assert dissenters' rights as to shares held on
the beneficial shareholder's behalf only if (a) the beneficial shareholder
submits to the Company the record shareholder's written consent to the dissent
not later than the time the beneficial shareholder asserts dissenters' rights
and (b) the beneficial shareholder does so with respect to all shares of which
such shareholder is the beneficial shareholder or over which such shareholder
has power to direct the vote.
Within 30 days after the later of the Effective Time and the date the
payment demand is received, the Company will pay each dissenter who complied
with the conditions above the amount that the Company estimates to be the fair
value of the shareholder's shares, plus accrued interest. The payment must be
accompanied by, among other things, (a) Puget's, WECo's or WNG's balance sheet,
as the case may be, as of the end of a fiscal year ended not more than 16 months
before the date of payment, an income statement for that year, a statement of
changes in shareholders' equity for that year, and the latest available interim
financial statements, if any, and (b) an explanation of how the Company
estimated the fair value of the shares and how the interest was calculated.
Notwithstanding the foregoing, with respect to shares acquired after the date of
the first announcement to the news media or to shareholders of the terms of the
Merger, the Company may elect to withhold payment of the fair value of
dissenters' shares plus accrued interest and, in such event, the Company will
estimate after the Effective Time the fair value of the shares, plus accrued
interest, and will offer to pay this amount to each dissenter who agrees to
accept it in full satisfaction of the dissenter's demand.
A dissenter may notify the Company in writing of the dissenter's own
estimate of the fair value of the dissenter's shares and the amount of interest
due and demand payment of the dissenter's estimate, less any payment made, or,
with respect to after-acquired shares for which the Company elected to withhold
payment, reject the Company's offer of the fair value determined for such shares
and demand payment of the dissenter's estimate of the fair value of the
dissenter's shares and interest due, if:
(a) The dissenter believes that the amount paid or offered is less
than the fair value of the dissenter's shares or that the interest
due is incorrectly calculated;
(b) The Company fails to make payment within 60 days after the date
set for demanding payment; or
(c) The Merger is not effected, and Puget, WECo or WNG, as the case
may be, does not return the deposited certificates or release the
transfer restrictions imposed on uncertificated shares within 60
days after the date set for demanding payment.
A dissenter will be deemed to have waived the right to demand payment
unless the dissenter notifies the Company of his or her demand in writing within
30 days after the Company makes or offers payment for the dissenter's shares.
If a demand for payment remains unsettled, the Company will commence a
proceeding in the Superior Court of King County, Washington within 60 days after
receiving the payment demand and petition the court to determine the fair value
of the shares and accrued interest. If the Company does not commence such
proceeding within the 60-day period, it shall pay each dissenter whose demand
remains unsettled the amount demanded. The Company will make all dissenters,
whether or not residents of Washington State, whose demands remain unsettled
parties to the proceeding as in an action against their shares, and all parties
must be served with a copy of the petition. The Company may join as a party to
the proceeding any shareholder who claims to be a dissenter but who has not, in
the Company's opinion, complied with the provisions of
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Chapter 23B.13. If the court determines that such shareholder has not complied
with the provisions of Chapter 23B.13, the shareholder shall be dismissed as a
party. Each dissenter made a party to the proceeding will be entitled to
judgment (a) for the amount, if any, by which the court finds the fair value of
the shares, plus interest, exceeds the amount paid by the Company or (b) for the
fair value, plus accrued interest, of the dissenter's after-acquired shares for
which the Company elected to withhold payment.
Notwithstanding a proper exercise of dissenters' rights with respect to the
Merger, a holder of WNG Preferred Stock is not entitled to receive the fair
value of his or her shares if the Alternate Merger is effected.
If Puget, WECo and WNG (or, if approval of the WNG Proposal is not
obtained, Puget and WECo) do not effect the Merger within 60 days after the date
set for demanding payment and depositing share certificates, Puget, WECo or WNG,
as the case may be, shall return the deposited certificates and release any
transfer restrictions imposed on uncertificated shares.
REGULATORY REQUIREMENTS
Set forth below is a summary of the regulatory requirements affecting the
Merger.
HSR PREMERGER NOTIFICATION
The HSR Act and the rules and regulations thereunder provide that certain
transactions (including the Merger) may not be consummated until certain
information has been submitted to the Antitrust Division of the United States
Department of Justice (the "Antitrust Division") and the Federal Trade
Commission (the "FTC") and specified HSR Act waiting period requirements have
been satisfied. The waiting period under the HSR Act will expire 30 days after
such filing, unless additional information is required from either Puget or
WECo. The expiration or earlier termination of the HSR Act waiting period would
not preclude the Antitrust Division or the FTC from challenging the Merger on
antitrust grounds. There can be no assurance that such a challenge, if made,
would not be successful. Neither Puget nor WECo believes that the Merger will
violate federal antitrust laws. If the Merger is not consummated within 12
months after the expiration or earlier termination of the initial HSR Act
waiting period, WECo and Puget would be required to submit new information to
the Antitrust Division and the FTC, and a new HSR Act waiting period would have
to expire or be earlier terminated before the Merger could be consummated. Puget
and WECo intend to file their premerger notifications pursuant to the HSR Act at
such time as they believe will result in the expiration or termination of the
waiting period thereunder within 12 months of the latest date on which the
Merger could be expected to occur.
STATE APPROVAL
Puget and WNG are subject to the jurisdiction of the WUTC. The parties
intend to file in February 1996 applications with the WUTC seeking approval for,
among other things, consummation of the Merger and the issuance of Company
Common Stock and New Company Preferred Stock in connection therewith.
As discussed in "The Merger -- Reasons for the Merger" (and subject to the
qualifications expressed therein), Puget, WECo and WNG estimate that, if the
Merger is consummated, the Company could achieve approximately $370 million in
cost savings that could not be realized but for the Merger, net of costs of
achieving those savings and transaction and integration costs, over the 10 years
following the Merger. The applications to the WUTC contemplate a plan for the
sharing of the benefits of the Merger by shareholders and customers in an
equitable manner. The plan is expected to mitigate the need for general rate
increases that would otherwise be required, and should allow the Company to
maintain general rate stability for a number of years.
GENERAL
As project operator of a natural gas underground storage project located in
western Washington, WNG holds a Certificate of Public Convenience and Necessity
issued by the Federal Energy Regulatory Commission ("FERC"). FERC approval for
the transfer of this certificate to the Company will be required. WNG
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also possesses municipal franchises and environmental permits and licenses that
may need to be renewed or replaced as a result of the Merger. WNG and Puget do
not anticipate any difficulties at the present time in obtaining such approvals,
renewals or replacements.
Under the Merger Agreement, Puget and WECo have agreed to use all
reasonable efforts to obtain all governmental authorizations necessary or
advisable to consummate or effect the transactions contemplated by the Merger
Agreement. Various parties may seek intervention in these proceedings to oppose
the Merger or to have conditions imposed on the receipt of regulatory approvals.
While the parties believe that they will receive the requisite regulatory
approvals for the Merger, there can be no assurance as to the timing of such
approvals or the ability of the parties to obtain such approvals on satisfactory
terms or otherwise. It is a condition to consummation of the Merger that final
orders approving the Merger be obtained from the governmental authorities
described above on terms and conditions that would not have, or would not be
reasonably likely to have, individually or in the aggregate, a material adverse
effect on the business, operations, properties, assets, financial condition,
results of operations or prospects of the Company and its prospective
subsidiaries, taken as a whole. There can be no assurance that any such
approvals will not contain terms or conditions which cause such approvals to
fail to satisfy such condition to consummation of the Merger.
THE MERGER AGREEMENT
The following is a brief summary of certain provisions of the Merger
Agreement, which is attached as Annex A to this Joint Proxy Statement/Prospectus
and is incorporated herein by reference. Such summary is qualified in its
entirety by reference to the Merger Agreement.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains customary and reciprocal representations and
warranties by each of WECo, WNG and Puget relating to, among other things: (a)
their respective organization, the organization of their respective subsidiaries
and similar corporate matters; (b) their respective capital structures; (c)
authorization, execution, delivery, performance and enforceability of the Merger
Agreement and related matters; (d) regulatory approvals; (e) compliance with
applicable laws and agreements; (f) reports and financial statements filed with
the SEC and the accuracy of information contained therein; (g) absence of
material adverse changes; (h) litigation; (i) the accuracy of information
supplied by each of WECo and Puget for use in the Registration Statement filed
by Puget in connection with the issuance of Company Common Stock and New Company
Preferred Stock; (j) certain agreements relating to certain employment,
consulting and benefits matters; (k) taxes; (l) retirement and other employee
benefit plans and matters relating to the Employee Retirement Income Security
Act of 1974, as amended; (m) labor issues; (n) compliance with applicable
environmental laws, possession of material environmental, health and safety
permits and other environmental matters; (o) regulation of WNG and Puget as
public utilities in Washington; (p) the WECo, WNG and Puget shareholder votes
required in connection with the Merger Agreement and the transactions
contemplated thereby; (q) accounting matters; (r) applicability of certain
Washington laws relating to changes in control; (s) delivery of fairness
opinions of Goldman Sachs in the case of WECo and Morgan Stanley in the case of
Puget; (t) insurance; (u) WECo not beneficially owning any shares of Puget
Common Stock and Puget not beneficially owning any shares of WECo Common Stock;
and (v) the absence of any rights under the Rights Agreement resulting from the
transactions contemplated under the Merger Agreement.
CONDUCT OF BUSINESS PRIOR TO THE EFFECTIVE TIME
Pursuant to the Merger Agreement, each of Puget, WECo and WNG has agreed
that, during the period from the date of the Merger Agreement until the
Effective Time, except as permitted by the Merger Agreement, the Stock Option
Agreements or as otherwise consented to in writing by the other parties, it will
(and each of its subsidiaries will) among other things: (a) carry on its
business in the ordinary course consistent with prior practice; (b) not declare
or pay any dividends on or make other distributions in respect of any of its
capital stock, other than to such party or its wholly owned subsidiaries and
other than dividends
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required to be paid on any series of WNG Preferred Stock or Puget Preferred
Stock, and regular annual dividends to be paid on WECo Common Stock and Puget
Common Stock at a rate not to exceed, with respect to WECo Common Stock, $1.00
per share and, with respect to Puget Common Stock, $1.84 per share; (c) not
effect certain other changes in its capitalization other than specified
exceptions; (d) not issue capital stock, rights, warrants, options or
convertible or similar securities other than (i) intercompany issuances of
capital stock, (ii) with respect to WECo and its subsidiaries, issuances in
connection with refunding WNG Preferred Stock at a lower after-tax cost of funds
and issuances of shares of WECo Common Stock pursuant to WECo Stock Plans, (iii)
with respect to Puget and its subsidiaries, issuances in connection with
refunding Puget Preferred Stock at a lower after-tax cost of funds and issuances
of shares of Puget Common Stock pursuant to Puget's existing stock plans, and
(iv) issuances of capital stock under the Rights Agreement; (e) not amend its
Articles of Incorporation or Bylaws, except as contemplated by the Merger
Agreement; (f) not engage in material acquisitions in excess of $10 million in
the aggregate with respect to WECo and its subsidiaries and in excess of $25
million in the aggregate with respect to Puget and its subsidiaries; (g) with
certain exceptions, not make or permit any subsidiary to make any capital
expenditures in excess of, with respect to WECo, $156 million and, with respect
to Puget, $300 million, in any individual transaction or in the aggregate; (h)
not sell, lease, license, encumber or otherwise dispose of assets in an amount
greater than or equal to, in the case of WECo, $15 million and, in the case of
Puget, $50 million, individually or in the aggregate, other than ordinary course
of business dispositions and encumbrances; (i) not incur indebtedness for
borrowed money (or guarantees thereof), other than (i) short-term indebtedness
in the ordinary course of business consistent with prior practice, (ii) the
issuance of long-term indebtedness not aggregating more than $75 million with
respect to WECo and its subsidiaries or $150 million with respect to Puget and
its subsidiaries, (iii) in connection with refunding WNG Preferred Stock or
Puget Preferred Stock, or (iv) in connection with refunding existing
indebtedness at a lower after-tax cost of funds; (j) subject to certain
exceptions, not enter into, adopt or amend, or increase the amount or accelerate
the payment or vesting of any benefit or amount payable under, any benefit plan,
agreement or other arrangement or enter into any agreement or other arrangement
to increase, extend or enhance the compensation, fringe benefits or employment
or any related rights with respect to any director, officer or other employee,
other than in the ordinary course of business that in the aggregate do not
result in a material increase in benefits or compensation expense; (k) subject
to certain exceptions, not enter into or amend any employment, special pay
arrangement or other similar contract with any director, officer or other
employee, other than increases, grants or actions in the ordinary course of
business consistent with prior practice; (l) not engage in any activity that
would cause a change in its status under the Public Utility Holding Company Act
of 1935, as amended (the "1935 Act"), or that would require approval of the SEC
under Section 9(a)(2) of the 1935 Act or of FERC under the Federal Power Act;
(m) not make any change in its accounting methods other than as required by law
or in accordance with GAAP; (n) not take any action to prevent the Company from
accounting for the business combination to be effected by the Merger as a
pooling-of-interests; (o) not take any action that would adversely affect the
status of the Merger as a tax-free transaction, except with respect to cash
received upon exercise of dissenters' rights or for fractional shares; (p) not
enter into certain agreements with affiliates (other than wholly owned
subsidiaries) other than on an arm's-length basis; (q) cooperate with the other
parties and notify the other parties of any significant changes; (r) discuss
with the other parties any proposed changes in its rates, charges (other than
automatic cost pass-through adjustments) or standards of service or accounting;
consult with the other prior to making any filing (or amendment thereto), or
effecting any agreement, commitment, arrangement or consent with governmental
regulators; not make any filing to change its rates on file with any
governmental authority that would have a material adverse effect on the
Company's prospects following the Merger; (s) use all commercially reasonable
efforts to obtain certain third-party consents to the Merger; (t) not willfully
take any action that could result in a material breach of the Merger Agreement
or the Stock Option Agreements; (u) subject to certain exceptions, not (i) make
or rescind any election relating to taxes, (ii) settle or compromise any
material claim, action, proceeding or controversy relating to taxes if such
settlement or compromise requires aggregate payments exceeding $3 million, or
(iii) change its federal income tax reporting methods from those employed with
respect to its most recently completed fiscal year if such changes require
aggregate additional tax payments exceeding $3 million; (v) not pay, discharge
or satisfy any material claims, liabilities or obligations, other than in the
ordinary course of business consistent with prior practice or in accordance with
their terms or with respect to liabilities reflected or reserved against in the
most recent publicly available financial statements
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or liabilities incurred in the ordinary course of business consistent with prior
practice; (w) maintain insurance in such amounts and against such risks and
losses as are customary; and (x) use reasonable efforts to maintain all existing
material governmental permits required to operate.
NO SOLICITATION OF TRANSACTIONS
The Merger Agreement provides that the parties thereto and their respective
subsidiaries will not permit any of their respective officers, directors,
employees, accountants, counsel, investment bankers, financial advisors and
other representatives to, and shall use its best efforts to cause such persons
not to, directly or indirectly, initiate, solicit or encourage, or take any
other action to facilitate the making of, any offer or proposal that constitutes
or is reasonably likely to lead to any Takeover Proposal (as defined below) or,
in the event of an unsolicited Takeover Proposal, engage in negotiations or
provide any confidential information or data to any person relating to any
Takeover Proposal. Notwithstanding the foregoing, in the event of an unsolicited
Takeover Proposal, unless both the holders of the WECo Common Stock and the
holders of the Puget Common Stock shall have approved the Merger Agreement, WECo
or Puget may, to the extent that its Board of Directors is advised in a written,
reasoned opinion of outside counsel that such action is required by its
fiduciary duties under law, participate in discussions or negotiations with and
furnish information to any person in connection with an unsolicited Takeover
Proposal made by such person. The Merger Agreement provides that each party
shall promptly notify the other (orally and in writing) of any such inquiries,
offers or proposals (including, without limitation, the terms and conditions of
any such proposal and the identity of the person making it) within 24 hours of
receipt thereof, shall keep the other party informed of the status and details
of any such inquiry and shall give the other party five days' advance notice of
any agreement to be entered into with or any information to be supplied to any
person making such inquiry, offer or proposal. As used in the Merger Agreement,
"Takeover Proposal" means any tender or exchange offer, proposal for a merger,
consolidation or other business combination involving a party thereto or any of
its material subsidiaries or any proposal or offer (whether or not in writing
and whether or not delivered to the shareholders of a party generally) to
acquire in any manner, directly or indirectly, a substantial equity interest in,
or a substantial portion of the assets of, any such party or any of its material
subsidiaries, other than the transactions contemplated by the Merger Agreement.
INDEMNIFICATION
The Merger Agreement provides that to the extent, if any, not provided by
an existing right of indemnification under one of the parties' directors' and
officers' liability insurance policies, from and after the Effective Time, the
Company will, to the fullest extent permitted by applicable law, indemnify,
defend and hold harmless each person who is now or has been in the past, or who
becomes prior to the Effective Time, an officer, director or employee of WECo,
WNG or Puget or any subsidiary of such parties (each, an "Indemnified Party" and
collectively, the "Indemnified Parties") against all losses, expenses (including
reasonable attorneys' fees and expenses), claims, damages or liabilities or,
subject to the proviso of the next sentence, amounts paid in settlement arising
out of actions or omissions occurring at or prior to the Effective Time that are
in whole or in part based on, or arising out of, the fact that such person is or
was a director, officer or employee of such party or a subsidiary of such party
or based on, arising out of, or pertaining to the transactions contemplated by
the Merger Agreement. The Merger Agreement further provides that in the event of
any such loss, expense, claim, damage or liability (whether or not arising
before the Effective Time), (a) the Company shall promptly pay the reasonable
fees and expenses of counsel selected by the Indemnified Parties, which counsel
shall be reasonably satisfactory to the Company, (b) the Company will cooperate
in the defense of any such matter, and (c) any determination required to be made
with respect to whether an Indemnified Party's conduct complies with the
standards set forth under Washington law and the Company's Amended and Restated
Articles of Incorporation or Bylaws (the "Company Bylaws") shall be made by
independent counsel mutually acceptable to the Company and the Indemnified
Party; provided, however, that the Company shall not be liable for any
settlement effected without its written consent (which consent shall not be
unreasonably withheld). The Merger Agreement further requires that the
Indemnified Parties as a group may retain only one law firm with respect to each
related matter, except to the extent there is, in the
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opinion of counsel to an Indemnified Party, under applicable standards of
professional conduct, a conflict on any significant issue between the positions
of any two or more Indemnified Parties.
To the fullest extent permitted by applicable law, from and after the
Effective Time, all rights to indemnification existing in favor of the
employees, agents, directors or officers of Puget, WECo, WNG and their
respective subsidiaries with respect to their activities as such prior to the
Effective Time, as provided in their respective Articles of Incorporation or
Bylaws in effect on the date thereof or otherwise in effect on October 18, 1995,
shall survive the Merger and continue in full force and effect for a period of
not less than six years from the Effective Time.
In addition, the Merger Agreement requires that for a period of six years
after the Effective Time, the Company shall cause to be maintained in effect the
current policies of directors' and officers' liability insurance maintained by
WECo and WNG for the benefit of those persons who are covered by such policies
at the Effective Time (or the Company may substitute therefor policies of at
least the same coverage with respect to matters occurring prior to the Effective
Time), to the extent such insurance can be maintained at an annual cost that is
not greater than 200% of the premium for the current policies maintained by WECo
and WNG. If such insurance cannot be so maintained, the Company shall maintain
as much of such insurance as can be maintained at a cost equal to 200% of the
premiums of the current policies.
CONDITIONS TO CONSUMMATION OF THE MERGER
The obligations of Puget, on the one hand, and WECo and WNG, on the other,
to consummate the Merger are subject to satisfaction of the following
conditions, among others: (a) the Merger Agreement shall have been approved by
the holders of Puget Common Stock and of WECo Common Stock and (except in the
case of the Alternate Merger) by the holders of WNG Preferred Stock; (b) no
temporary restraining order, preliminary or permanent injunction or other order,
or any applicable law or regulation, shall be in effect that prevents
consummation of the Merger; (c) the Registration Statement shall have become
effective and shall not be the subject of a stop order; (d) the shares of
Company Common Stock and New Company Preferred Stock issuable in connection with
the Merger shall have been authorized for listing on the NYSE, upon official
notice of issuance; (e) the receipt by Puget and WECo of letters from their
independent public accountants, in form and substance reasonably satisfactory to
the other party, that the Merger will qualify as a pooling-of-interests
transaction under GAAP and applicable SEC regulations; (f) the receipt of all
required governmental authorizations, consents or approvals (other than such
approvals that relate to the issuance of common stock pursuant to the Stock
Option Agreements) that shall have become final and that do not, individually or
in the aggregate, impose terms or conditions that would have, or would be
reasonably likely to have, a material adverse effect on the business,
operations, properties, assets, financial condition, results of operations or
prospects of the Company and its prospective subsidiaries taken as a whole; (g)
there shall have occurred no event having a material adverse effect on the
business, operations, properties, assets, financial condition, results of
operations or prospects of Puget and its subsidiaries taken as a whole or WECo
and its subsidiaries taken as a whole; (h) the performance in all material
respects of all agreements and covenants required to be performed under the
Merger Agreement and the Stock Option Agreements; (i) the accuracy in all
material respects of the representations and warranties set forth in the Merger
Agreement and the Stock Option Agreements as of October 18, 1995 and as of the
Closing Date (as defined in the Merger Agreement), except as would not be
reasonably likely to result in a material adverse effect; (j) the receipt by
Puget of officer's certificate from WECo and WNG, and the receipt by WECo and
WNG of an officer's certificate from Puget, each stating that certain conditions
set forth in the Merger Agreement have been satisfied; (k) the receipt by each
of Puget, WECo and WNG of a tax ruling from the IRS or of tax opinions from
their respective legal counsel to the effect that the Merger will be treated as
a reorganization under Section 368(a) of the Code; (l) the receipt of certain
material third-party consents; (m) there shall have occurred no event that would
result in the triggering of any right or entitlement of Puget's shareholders
under the Rights Agreement, including a "flip-in" or "flip-over" or similar
event commonly described in such rights plans, which would have or be reasonably
likely to have a material adverse effect on the business, operations,
properties, assets, financial condition, results of operations or prospects of
Puget and its subsidiaries taken as a whole, or materially change the number of
outstanding equity securities of Puget or the Company, and the
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rights shall not have become nonredeemable by any action of Puget's Board of
Directors; and (n) the receipt by Puget of letter agreements relating to trading
in Puget's securities essentially in the form attached as an exhibit to the
Merger Agreement, duly executed by each affiliate of WECo.
In addition, the Merger Agreement provides that it shall be a condition to
Puget's obligation to hold the Puget Special Meeting that the opinion of Morgan
Stanley attached as Annex D to this Joint Proxy Statement/Prospectus shall not
have been withdrawn, and it shall be a condition of the obligation of WECo to
hold the WECo Meeting that the opinion of Goldman Sachs attached as Annex E to
this Joint Proxy Statement/Prospectus shall not have been withdrawn.
At any time prior to the Effective Time, to the extent permitted by
applicable law, the conditions to Puget's or WECo's obligations to consummate
the Merger may be waived by the other party. Any determination to waive a
condition would depend on the facts and circumstances existing at the time of
such waiver and would be made by the waiving party's Board of Directors,
exercising its fiduciary duties to such party and its shareholders. See "The
Merger Agreement -- Amendment and Waiver."
TERMINATION; FEES AND EXPENSES
The Merger Agreement may be terminated at any time prior to the Closing
Date, whether before or after approval by the shareholders of WECo, WNG and
Puget: (a) by mutual written consent of the Boards of Directors of each of Puget
and WECo; (b) by any party thereto, if the Merger is not consummated on or
before December 31, 1996; provided, however, that if on December 31, 1996 all
conditions to the closing shall have been fulfilled (or shall then be capable of
being fulfilled), except for required approvals or consents, and such approvals
and consents are being pursued with diligence, then such termination date shall
be extended to March 31, 1997; and provided, further, that such right to
terminate the Merger Agreement shall not be available to any party whose failure
to fulfill any obligation under the Merger Agreement has been the cause of, or
resulted in, the failure of the Merger to be consummated on or before such date;
(c) by any party thereto if approval of either the holders of the Puget Common
Stock or the holders of the WECo Common Stock shall not have been obtained by
reason of the failure to obtain the required vote upon a vote at a duly held
Shareholders Meeting or any adjournment thereof; (d) by any party thereto if any
state or federal law, order, rule or regulation is adopted or issued that has
the effect, as supported by a written opinion of outside counsel for such party,
of prohibiting the Merger, or if any court of competent jurisdiction in the
United States or any state shall have issued an order, judgment or decree
permanently restraining, enjoining or otherwise prohibiting the Merger, and such
order, judgment or decree shall have become final and nonappealable; (e) by WECo
or Puget, as the case may be, upon two days' prior notice to the other if, as a
result of a tender offer by a third party (other than a WECo or Puget affiliate)
or any written offer or proposal with respect to a merger, sale of a material
portion of its assets or other business combination (each, a "Business
Combination") by a third party (other than a WECo or Puget affiliate), such
party's Board of Directors determines in good faith that its fiduciary
obligations under applicable law require that such tender or other written offer
or proposal be accepted; provided, however, that (i) such party's Board of
Directors shall have been advised in writing by outside counsel that,
notwithstanding a binding commitment to consummate an agreement of the nature of
the Merger Agreement entered into in the proper exercise of its applicable
fiduciary duties, and notwithstanding all concessions that may be offered by the
other party in negotiations entered into pursuant to clause (ii) below, such
fiduciary duties would also require the directors to reconsider such commitment
as a result of such tender or other written offer or proposal; and (ii) prior to
any such termination, such party shall, and shall cause its respective financial
and legal advisors to, negotiate with the other party to make such adjustments
in the terms and conditions of the Merger Agreement as would enable such party
to proceed with the transactions contemplated thereby; or (f) by WECo or Puget,
as the case may be, by written notice to the other if (i) there shall have been
any breaches of any representations or warranties made in the Merger Agreement
as of the date thereof by the other party that, individually or in the
aggregate, have had, would have or would be reasonably likely to have a material
adverse effect on the business, operations, properties, assets, financial
condition, results of operations or prospects of the breaching party and its
subsidiaries taken as a whole or on the consummation of the Merger Agreement, or
any material breach of any covenant or agreement under the Merger Agreement, on
the part of the other party, and such breach shall not have been
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remedied within 20 days after receipt by the breaching party of notice in
writing from the nonbreaching party specifying the nature of such failure and
requesting that it be remedied; (ii) the other party shall have failed to
perform and comply with in all material respects its agreements and covenants
under the Merger Agreement, and such failure to perform or comply shall not have
been remedied within 20 days after receipt by the breaching party of notice in
writing from the nonbreaching party, specifying the nature of such failure and
requesting that it be remedied; or (iii) either party's Board of Directors shall
(A) withdraw or modify its approval or recommendation of the Merger Agreement or
the Merger in any manner materially adverse to the other party, (B) fail to
reaffirm its approval or recommendation upon request by the other party, (C)
approve or recommend any acquisition of the other party or a material portion of
its assets or any tender offer for the other party's capital stock, in each case
by a party other than such party or any of its affiliates, or (D) resolve to
take any of the actions specified in clause (A), (B) or (C).
In the event of termination of the Merger Agreement by either Puget or WECo
and WNG as provided above, there shall be no liability on the part of any party
or their respective officers or directors thereunder other than (a) continuing
obligations regarding remedies and confidentiality and survival of
representations and warranties regarding brokers, (b) continuing obligations
with respect to certain specified provisions of the Merger Agreement regarding
fees and expenses, as described below, and (c) liability by reason of any
willful breach of any representation, warranty or covenant contained in the
Merger Agreement.
If the Merger Agreement is terminated pursuant to one but not both of
clause (f)(i) or (f)(ii) above, then the breaching party shall promptly pay to
the nonbreaching party an amount in cash equal to all documented out-of-pocket
expenses and fees ("Out-of-Pocket Expenses") incurred by the nonbreaching party,
not to exceed $7 million in the aggregate. If, however, the Merger Agreement is
terminated as a result of a willful breach, (a) the nonbreaching party may
pursue and receive any remedies available at law or in equity to which such
party is entitled, as well as its Out-of-Pocket Expenses, which shall not be
limited to $7 million, and (b) if (i) at the time of such willful breach, there
shall have been a third-party tender offer for shares of, or a third-party offer
or proposal with respect to a Business Combination involving, the breaching
party or any of its affiliates that at the time of such termination shall not
have been rejected by the breaching party and (ii) within two and one-half years
of such termination by the nonbreaching party, the breaching party or an
affiliate thereof becomes a subsidiary of such offeror or an affiliate thereof
or accepts a written offer to consummate or consummates a Business Combination
with such offeror or an affiliate thereof, then such breaching party, upon the
signing of a definitive agreement relating to such Business Combination or, if
no such agreement is signed, then at the closing of such breaching party's
becoming such a subsidiary or at the closing of such Business Combination, shall
pay to the nonbreaching party an additional fee of $15 million; provided,
however, that such additional fee shall not be paid if the additional fee
described in the following paragraph shall have been paid.
If (a) the Merger Agreement is terminated (i) pursuant to clause (e) or
(f)(iii) above, (ii) following a failure to obtain the necessary shareholder
vote to approve the Puget Merger Proposal or the WECo Proposal ("Shareholder
Disapproval"), or (iii) as a result of a party's material failure to convene a
Shareholders Meeting, distribute proxy materials and, subject to its Board of
Directors' fiduciary duties, recommend the Merger Agreement and the Merger to
its shareholders and (b) at the time of such termination or, in the case of a
termination following a Shareholder Disapproval, prior to the meeting of such
party's shareholders at which such Shareholder Disapproval occurred, there shall
have been a third-party tender offer for shares of, or a third-party offer or
proposal with respect to a Business Combination involving, such party, then the
party which is the subject of the tender offer or offer or proposal with respect
to a Business Combination (the "Target Party") shall promptly pay to the other
party an amount equal to the nonbreaching party's Out-of-Pocket Expenses. In
addition, if within two and one-half years of any such termination by the
nonbreaching party, the Target Party or an affiliate thereof becomes a
subsidiary of such offeror or an affiliate thereof, then the Target Party, upon
the signing of a definitive agreement relating to such Business Combination or,
if no such agreement is signed, then at the closing of such breaching party's
becoming such a subsidiary or at the closing of such Business Combination, shall
pay to the nonbreaching party an additional fee of $15 million.
The Merger Agreement further provides that all termination fees constitute
liquidated damages and not a penalty, and if a party should fail to pay any
termination fee due, then such party shall pay the costs and
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expenses in connection with any action taken to collect payment, together with
interest on the amount of any unpaid termination fee. In no event may the
termination fees (including reimbursement for fees and expenses) payable to any
party and its affiliates under the provisions described in the two immediately
preceding paragraphs and the amounts payable upon a required purchase of an
Option or Option Shares (as hereinafter defined) pursuant to the WECo Stock
Option Agreement or the Puget Stock Option Agreement, exceed $20 million. See
"The Stock Option Agreements."
Except as set forth above, all costs and expenses incurred in connection
with the Merger Agreement shall be paid by the party incurring such expense,
except that expenses incurred in connection with printing and filing this Joint
Proxy Statement/Prospectus and the Registration Statement shall be shared
equally by Puget, on the one hand, and WECo and WNG, on the other.
AMENDMENT AND WAIVER
The Merger Agreement may be amended by the parties thereto pursuant to
action by their respective Boards of Directors at any time before or after
approval thereof by the shareholders of Puget, WECo and WNG and prior to the
Effective Time, but after such approvals, no such amendment shall be made that
would alter or change (a) the amount or kind of shares, rights or any of the
proceedings of the exchange and/or conversion of the shares under the Merger
Agreement, (b) the terms and conditions of the Merger Agreement if such
alteration or change, alone or in the aggregate, would materially and adversely
affect the rights of holders of Puget Common Stock, Puget Preferred Stock, WECo
Common Stock or WNG Preferred Stock, or (c) any terms of the Puget Articles,
except for alterations or changes that could otherwise be adopted by Puget's
Board of Directors, without the further approval of such shareholders, as
applicable. The parties to the Merger Agreement may extend the time for the
performance of any of the obligations or other acts of the other parties
thereto, waive any inaccuracies in the representations and warranties contained
therein or in any document delivered pursuant thereto, and waive compliance with
any of the agreements or conditions contained in the Merger Agreement, to the
extent permitted by law.
STANDSTILL AGREEMENTS
Pursuant to the Confidentiality Agreement, for a period commencing on
August 1, 1995 and ending August 1, 1997, Puget and WECo agreed (other than as
contemplated in the Merger Agreement or the Stock Option Agreements) not to (a)
acquire, offer to acquire or agree to acquire any voting securities or rights to
acquire voting securities of the other party or any subsidiary thereof or any
substantial portion of the other party's assets; (b) make or participate in a
solicitation of proxies for the other party; (c) form, join or participate in a
"group" with respect to the voting securities of the other party; (d) seek or
propose to influence or control the management or policies of the other party;
(e) make any public announcement or disclosure inconsistent with the foregoing;
(f) take any action that might require the other party to publicly announce the
possibility of a Business Combination; (g) advise, assist or encourage any third
party with respect to any of the foregoing; or (h) request that the other party
amend or waive any provision of this paragraph. Such restrictions will terminate
if any third party (i) acquires or proposes to acquire more than 15% of the
voting securities of either party, (ii) makes or publicly announces a
solicitation of proxies for either party, or (iii) publicly announces any other
arrangement with respect to a Business Combination with either party.
THE STOCK OPTION AGREEMENTS
The following is a brief summary of the material terms of the Stock Option
Agreements, copies of which are attached as Annexes B and C to this Joint Proxy
Statement/Prospectus and incorporated herein by reference. This summary is
qualified in its entirety by reference to the Stock Option Agreements. The Stock
Option Agreements are intended to increase the likelihood that the Merger will
be consummated in accordance with the terms of the Merger Agreement.
Consequently, certain aspects of the Stock Option Agreements may have the effect
of discouraging persons who might now or prior to the Effective Time be
interested in acquiring all of or a significant interest in, or otherwise
effecting a Business Combination with,
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Puget or WECo from considering or proposing such a transaction, even if such
persons were prepared to offer to pay a consideration to shareholders of Puget
or WECo, as the case may be, that had a higher value than the shares of Company
Common Stock to be received by holders of WECo Common Stock or to be retained by
holders of Puget Common Stock, as the case may be, pursuant to the Merger
Agreement.
GENERAL
Pursuant to the Stock Option Agreements entered into concurrently with the
Merger Agreement, Puget has granted to WECo the WECo Option, and WECo has
granted to Puget the Puget Option. As holders of such Options (each, an "Option
Holder"), Puget and WECo have the right, under certain circumstances, to
purchase up to (a) with respect to the Puget Option, 4,789,960 shares of WECo
Common Stock, and (b) with respect to the WECo Option, 12,664,531 shares of
Puget Common Stock (shares of common stock purchasable by the Puget Option and
the WECo Option are collectively referred to as the "Option Shares") at $20.00
per share for WECo Common Stock and $23.25 per share for Puget Common Stock,
such prices being equal to (i) in the case of Puget Common Stock, the average of
the daily closing sales prices for such Puget Common Stock on the NYSE during
the 10 NYSE trading days prior to the fifth NYSE trading day preceding the date
of the Merger Agreement and (ii) in the case of WECo Common Stock, the price of
Puget Common Stock set forth in (i) above multiplied by the Ratio. The exercise
price is payable, at the Option Holder's option, in cash or, subject to any
required governmental approvals, shares of the Option Holder's common stock.
The Options may be exercised by the Option Holder, in whole or in part, at
any time or from time to time after the Merger Agreement becomes terminable by
such Option Holder under circumstances relating to a third-party Business
Combination proposal which could entitle such Option Holder to termination fees
under the Merger Agreement (any such event by which the Merger Agreement becomes
terminable, a "Trigger Event"), regardless of whether the Merger Agreement is
actually terminated or whether there occurs a closing of any Business
Combination. The Options will terminate upon the earliest of (a) the Effective
Time, (b) the termination of the Merger Agreement pursuant to its terms (other
than a termination upon or during the continuance of a Trigger Event), and (c)
180 days following any termination of the Merger Agreement upon or during the
continuance of a Trigger Event (or, if at the expiration of such 180-day period
the Option cannot be exercised by reason of any applicable judgment, decree,
order, law or regulation, 10 business days after such impediment to exercise
shall have been removed or shall have become final and not subject to appeal,
but in no event under this clause (c) later than December 31, 1996 (provided,
however, that such date shall be extended to March 31, 1997 if the date after
which either party may terminate the Merger Agreement has been extended to March
31, 1997)).
Notwithstanding the foregoing, no Option may be exercised (a) if the Option
Holder is in material breach of any of its material representations or
warranties, or in material breach of any of its covenants or agreements
contained in the applicable Stock Option Agreement or in the Merger Agreement,
(b) until all necessary regulatory approvals have been obtained for the
acquisition of shares pursuant to such Option, (c) until the shares to be issued
upon exercise of such Option shall have been approved for listing, or (d) if the
issuance of the shares to be issued upon exercise of such Option is prohibited
or otherwise restrained by any court order.
CERTAIN REPURCHASES
Under the terms of the Stock Option Agreements, at any time during which an
Option is exercisable (the "Repurchase Period"), the Option Holder has the right
to require the issuer of the Option (the "Issuer") to repurchase from the Option
Holder all or any portion of the Option or, at any time prior to December 31,
1996 (provided, however, that such date shall be extended to March 31, 1997 if
the date after which either party may terminate the Merger Agreement has been
extended to March 31, 1997), all or any portion of the Option Shares purchased
pursuant to the exercise of the Option. The amount that the Issuer will pay to
the Option Holder to repurchase the Option is the difference between the
Market/Offer Price for shares of the Issuer's Common Stock as of the date the
Option Holder gives notice of its intent to exercise its repurchase rights (the
"Notice Date") and the exercise price for the Option, multiplied by the number
of Option Shares purchasable
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pursuant to the Option, or the portion thereof to be so repurchased (but only if
the Market/Offer Price is greater than such exercise price). Subject to the
aggregate $20 million limitation contained in the Merger Agreement with respect
to termination fees, expenses and payments under the Merger Agreement and the
Stock Option Agreements, the amount that the Issuer will pay to the Option
Holder to repurchase the Option Shares is the exercise price paid by the Option
Holder for the Option Shares plus the difference between the Market/Offer Price
and the exercise price paid by the Option Holder for the Option Shares (but only
if the Market/Offer Price is greater than such exercise price), multiplied by
the number of Option Shares to be so repurchased. See "The Merger
Agreement -- Termination; Fees and Expenses." The Stock Option Agreements define
"Market/Offer Price" as the higher of the price per share (the "Offer Price")
offered as of the Notice Date pursuant to any tender or exchange offer or other
Business Combination offer that was made prior to the Notice Date and not
terminated or withdrawn as of such date and the Fair Market Value of the
Issuer's Common Stock as of the Notice Date (which is defined in the Stock
Option Agreements as the average of the daily closing sales prices for such
shares of Common Stock on the NYSE during the 10 NYSE trading days prior to the
fifth NYSE trading day preceding such date). The Offer Price for the repurchase
by the Issuer of Option Shares purchased by the Option Holder pursuant to the
Option is the highest price per share offered pursuant to a tender or exchange
offer or other Business Combination offer that was made during the Repurchase
Period prior to the Notice Date. At any time prior to December 31, 1996 (which
date may be extended to March 31, 1997 under the circumstances described above),
the Option Holder may also require the Issuer to sell to the Option Holder any
shares of the Option Holder's common stock delivered by the Option Holder to the
Issuer in payment for the exercise price of the Option, at the price attributed
to such shares for such purpose plus interest at the rate of 6.5% per annum
(from the date of delivery of such shares through the date of such repurchase),
less any dividends paid or declared and payable thereon.
VOTING
Each party has agreed to vote, until October 18, 2000, any shares of the
other party's capital stock acquired pursuant to the Stock Option Agreements or
otherwise beneficially owned by such party on each matter submitted to a vote of
shareholders of such other party for and against such matter in the same
proportion as the votes of all other shareholders of such other party are voted
for and against such matter.
RESTRICTIONS ON TRANSFER
The Stock Option Agreements provide that, until October 18, 2000, neither
party may sell, assign, pledge or otherwise dispose of or transfer the shares it
acquires pursuant to the Stock Option Agreements (collectively, the "Restricted
Shares"), except as specifically provided for in the Stock Option Agreements. In
addition to the repurchase rights described under "The Stock Option
Agreements -- Certain Repurchases," subsequent to the termination of the Merger
Agreement, the parties have the right to have such shares of the other party
registered under the Securities Act for sale in a public offering. The Stock
Option Agreements also provide that, following termination of the Merger
Agreement, either party may sell any Restricted Shares pursuant to a tender or
exchange offer approved or recommended, or otherwise determined to be fair and
in the best interests of such other party's shareholders, by a majority of such
other party's Board of Directors (which majority must include a majority of
directors who were directors prior to the announcement of such tender or
exchange offer).
DESCRIPTION OF COMPANY CAPITAL STOCK
At the Effective Time, the Company's authorized capital stock will consist
of 166,700,000 shares, divided into 150,000,000 shares of Company Common Stock,
13,000,000 shares of Company Preferred Stock, par value $25 per share (the
"Company $25 Preferred Stock"), 3,000,000 shares of Company Preferred Stock, par
value $100 per share (the "Company $100 Preferred Stock"), and 700,000 shares of
$50 preference stock (the "Company Preference Stock"). The Company Common Stock
and the New Company Preferred Stock to be issued pursuant to the Merger, when so
issued, will be fully paid and nonassessable. No holder of any Company Common
Stock, Company Preferred Stock or Company Preference Stock will have any
preemptive rights.
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Following is a brief description of certain of the rights and privileges
attaching to the Company Common Stock, the Company Preferred Stock and the
Company Preference Stock. For a complete description, reference is made to the
Company's Amended and Restated Articles of Incorporation in the form to be filed
with the Secretary of State of the State of Washington upon consummation of the
Merger (the "Company Articles"), a copy of which is attached as Annex F to this
Joint Proxy Statement/Prospectus, and to the laws of Washington. The following
summary, which does not purport to be complete, is qualified in its entirety by
such reference.
COMMON STOCK
DIVIDEND RIGHTS
After accumulated dividends and the full dividend for the then-current
period on the Company Preferred Stock and Company Preference Stock shall have
been paid or declared and a sum sufficient set aside for payment as described in
"Description of Company Capital Stock -- Preferred Stock -- Dividend Rights" and
"Description of Company Capital Stock -- Preference Stock -- Dividend Rights"
and after sinking or purchase fund redemption requirements with respect to
Company Preferred Stock shall have been satisfied, the holders of Company Common
Stock will be entitled to receive such dividends as may be lawfully declared
from time to time by the Company Board.
VOTING RIGHTS
The holders of Company Common Stock will be entitled to one vote per share
on each matter submitted to a vote at a meeting of shareholders and will
exclusively possess the full voting power for the election of directors, and for
all other purposes, subject to the voting rights expressly conferred upon the
Company Preferred Stock and Company Preference Stock as described in
"Description of Company Capital Stock -- Preferred Stock -- Voting Rights" or
"Description of Company Capital Stock -- Preference Stock -- Voting Rights" or
as otherwise provided by law. The holders of Company Common Stock will be
entitled to cumulate votes in the election of directors as provided by the WBCA.
LIQUIDATION RIGHTS
In the event of any dissolution, winding up or liquidation of the Company,
after satisfaction of the preferential liquidation rights of the Company
Preferred Stock and the Company Preference Stock, the holders of Company Common
Stock would be entitled to share ratably in all remaining assets of the Company
available for distribution to its shareholders.
PREFERRED STOCK
NEW COMPANY PREFERRED STOCK ISSUABLE IN THE MERGER
The shares of New Company Preferred Stock issuable in the Merger will have
a par value of $25 per share and will be designated in two series, Series II and
Series III, corresponding to the outstanding series of WNG Preferred Stock. The
Company Series II Preferred Stock will accrue preferred dividends at a rate of
7.45% per annum of the par value per share and will not be subject to redemption
prior to November 1, 2003, after which date the Company may elect to redeem the
Company Series II Preferred Stock in whole or in part at par value. The Company
Series III Preferred Stock will accrue preferred dividends at a rate of 8.50%
per annum of the par value per share and will not be subject to redemption prior
to September 1, 1999, after which date the Company may elect to redeem the
Company Series III Preferred Stock in whole or in part at par value. In the
event of any liquidation, dissolution or winding up of the Company, whether
voluntary or involuntary, the holders of Company Series II Preferred Stock and
Company Series III Preferred Stock will be entitled to receive $25 per share
plus accrued and unpaid dividends before any distribution of assets to holders
of Company Preference Stock, Company Common Stock or stock of any other class
ranking junior to the Company Preferred Stock. The shares of Company Preferred
Stock issuable in the Merger will also have the rights and preferences described
below for all series of New Company Preferred Stock.
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GENERAL
The Company Articles provide that the shares of Company Preferred Stock may
be divided into and issued in series. The Company Board has the authority to
establish series of Company Preferred Stock and to fix the designation of each
series and, within the limitations set forth in the Company Articles and such
limitations as may be provided by law, to fix and determine the relative rights
and preferences of each series of Company Preferred Stock so established.
Without limiting the generality of the foregoing, the Company Board will have
the authority to prescribe, with respect to any series of Company Preferred
Stock:
(a) the rate of dividends, dividend periods and dividend payment
dates;
(b) whether shares may be redeemed and, if so, the redemption price
and the terms and conditions of redemption;
(c) the amounts payable in the event of a voluntary or involuntary
liquidation;
(d) sinking fund provisions, if any, for the redemption or the
purchase of shares;
(e) the terms and conditions, if any, on which shares may be
converted; and
(f) any other terms, conditions or provisions which the Company Board
shall have authority to fix and determine under the WBCA, as now
in effect or hereafter amended.
All shares of Company Preferred Stock of the same series will be identical,
except that shares of the same series issued at different times may vary as to
the dates from which dividends thereon will be cumulative. Irrespective of
series, all shares of Company $25 Preferred Stock and Company $100 Preferred
Stock will constitute one and the same class of stock, will be of equal rank
and, except as otherwise provided in or established pursuant to the Company
Articles or the resolution of the Company Board establishing any series, will be
identical.
All shares of Company $25 Preferred Stock and Company $100 Preferred Stock
will rank equally with respect to dividends and distributions of amounts upon
liquidation, dissolution or winding up of the Company.
Subject to any issuance of additional shares of Puget Preferred Stock, and
to the retirement of currently outstanding shares pursuant to sinking funds or
otherwise between the date of this Joint Proxy Statement/Prospectus and the
Effective Time, it is anticipated that, at the Effective Time, the Company
Preferred Stock will consist of:
- 3,000,000 shares designated as "7.875% Preferred Stock," having a par
value of $25 per share;
- 2,000,000 shares designated as "Adjustable Rate Cumulative Preferred
Stock, Series B," having a par value of $25 per share;
- 47,956 shares designated as "4.84% Preferred Stock," having a par value
of $100 per share;
- 56,215 shares designated as "4.70% Preferred Stock," having a par value
of $100 per share;
- 36,224 shares designated as "8% Preferred Stock," having a par value of
$100 per share;
- 750,000 shares designated as "7.75% Preferred Stock," having a par value
of $100 per share;
- 2,400,000 shares designated as "7.45% Series II Preferred Stock," having
a par value of $25 per share (which series will correspond to the WNG
Series II Preferred Stock); and
- 1,200,000 shares designated as "8.50% Series III Preferred Stock," having
a par value of $25 per share (which series will correspond to the WNG
Series III Preferred Stock).
For a complete description of the specific designations, preferences,
limitations, restrictions and relative rights of all series of Company Preferred
Stock, reference is made to the Company Articles.
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DIVIDEND RIGHTS
The holders of Company Preferred Stock of each series will be entitled, on
a parity with the holders of each other series of Company Preferred Stock and in
preference to the holders of Company Common Stock and Company Preference Stock,
to receive, but only when and as declared by the Company Board, cumulative
dividends at the rate or rates prescribed for such series.
There shall not be paid or declared and set apart for payment dividends on
Company Common Stock or Company Preference Stock unless, on such date, there
shall also have been paid or declared and set aside for payment in addition to
the full dividend for the then-current dividend period the accumulated dividends
on all outstanding shares of each series of Company Preferred Stock during all
dividend periods for such series ended on or prior to such date.
So long as any shares of Company Preferred Stock shall be outstanding, the
Company shall not declare or pay any dividends on Company Common Stock or
Company Preference Stock, other than dividends payable in shares of Company
Common Stock or Company Preference Stock, as the case may be, or make any other
distribution, expenditure for the purchase, redemption or retirement for a
consideration of shares of Company Common Stock or Company Preference Stock
(other than in exchange for, or from the proceeds of, any substantially
concurrent sale hereafter made of other shares of Company Common Stock or
Company Preference Stock), if the aggregate amount of all such dividends,
distributions and expenditures paid or made by the Company and its predecessor,
Puget Sound Power & Light Company, a Massachusetts corporation, after December
31, 1957, would exceed the aggregate amount of net income available for
dividends on Company Common Stock and Company Preference Stock accumulated after
December 31, 1957, by the Company and its predecessor, Puget Sound Power & Light
Company, a Massachusetts corporation, plus the sum of $7,500,000.
The sinking fund provisions applicable to certain series of Company
Preferred Stock prohibit the payment of dividends on Company Common Stock or
Company Preference Stock, unless sinking fund redemption requirements have been
satisfied in full. No accumulation of unpaid dividends on Company Preferred
Stock shall bear interest.
REDEMPTION
Except as otherwise provided with respect to the shares of any series, in
the case of any redemption of shares of Company Preferred Stock, the Company
will mail notice of such redemption to the holders of shares to be redeemed not
less than 30 nor more than 90 days before the date fixed for redemption, and the
redemption of any shares shall be in such amount, at such place and by such
method as the Company Board shall determine, subject to the provisions
established for any series of Company Preferred Stock.
VOTING RIGHTS
Except for those purposes for which the right to vote is expressly
conferred by law or the Company Articles, the holders of Company Preferred Stock
will have no right to vote.
Under the Company Articles, if and whenever dividends payable on any shares
of Company Preferred Stock shall be in arrears in an amount equal to or
exceeding four full quarterly dividends, the holders of Company $100 Preferred
Stock, voting separately as a class, shall be entitled to elect the smallest
number of directors necessary to constitute a majority of the Company Board and
the holders of Company $25 Preferred Stock, voting separately as a class, shall
be entitled to elect two directors (but if no shares of Company $100 Preferred
Stock are outstanding, the holders of Company $25 Preferred Stock, voting
separately as a class, shall be entitled to elect the smallest number of
directors necessary to constitute a majority of the Company Board). Such right
of the holders of Company Preferred Stock shall continue until such time as all
arrears in dividends on the Company Preferred Stock and the current dividends
thereon shall have been declared and set aside for payment.
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Under the Company Articles, so long as any Company Preferred Stock is
outstanding, the affirmative vote or consent of the holders of at least
two-thirds of the outstanding shares of each of the Company $100 Preferred Stock
and the Company $25 Preferred Stock is required:
(a) to create or authorize any shares of, or increase the authorized
amount of, stock ranking prior to the Company Preferred Stock as to
dividends or assets in liquidation;
(b) to change any of the express terms of the Company Preferred Stock
at the time outstanding in any manner prejudicial to the holders thereof;
provided, however, that if any such change of any of the express terms of
any outstanding shares of Company Preferred Stock would be prejudicial to
the holders of less than all the series of Company Preferred Stock then
outstanding, only the affirmative vote or consent of the holders of at
least two-thirds of the total number of outstanding shares of all series so
affected is required;
(c) to sell, lease or otherwise dispose of all or substantially all of
the Company's property; and
(d) for the issuance of any shares of Company Preferred Stock, or of
any other class of stock ranking on a parity with the Company Preferred
Stock as to dividends or assets in liquidation or for the disposal of any
Company Preferred Stock or of any such parity stock previously reacquired,
unless (i) the net income available for dividends on Company Preferred
Stock for a period of 12 consecutive calendar months within the 15 calendar
months immediately preceding the calendar month in which such additional
shares are to be issued or disposed of shall have been at least two and
one-half times the aggregate annual dividend requirements on all shares of
Company Preferred Stock, and on all shares of all other classes of stock
ranking as to dividends or assets in liquidation prior to or on a parity
with the Company Preferred Stock (after giving effect to the issuance or
disposition of such additional shares); (ii) the gross income available for
payment of interest charges for a period of 12 consecutive calendar months
within the 15 calendar months immediately preceding the calendar month in
which such additional shares are to be issued or disposed of shall have
been at least one and one-half times the sum of (A) the aggregate annual
interest charges on all indebtedness of the Company to be outstanding after
giving effect to the issuance or disposition and (B) the aggregate annual
dividend requirements on all shares of Company Preferred Stock and on all
shares of all other classes of stock ranking as to dividends or assets in
liquidation prior to or on a parity with the Company Preferred Stock (after
giving effect to the issuance or disposition of such additional shares);
and (iii) the aggregate of the capital of the Company applicable to all
stock ranking junior to Company Preferred Stock as to dividends or assets
in liquidation, plus capital surplus and earned surplus of the Company
(including premiums on any capital stock of the Company) is at least equal
to the aggregate amount payable upon involuntary liquidation, dissolution
or winding up of the Company to the holders of Company Preferred Stock and
of any stock ranking as to dividends or assets in liquidation prior to or
on a parity with Company Preferred Stock to be outstanding after giving
effect to the issuance or disposition but, excluding shares to be retired
in connection with the issuance or disposition.
For purposes of calculating the Company's income under clause (d) above,
the gross income of any property acquired by the Company during or after the
period for which income is computed, or any property to be acquired in
connection with the issuance or disposition of any such additional shares, if
capable of being separately determined or estimated, may be included on a pro
forma basis in such computations, and the gross income of any property disposed
of by the Company during or after the period for which income is computed, if
capable of being separately determined or estimated, shall be excluded on a pro
forma basis in computations.
In addition, so long as any of the Company Preferred Stock is outstanding,
the affirmative vote or consent of the holders of at least a majority of the
outstanding shares of each of the Company $100 Preferred Stock and the Company
$25 Preferred Stock is required:
(a) before the Company may merge or consolidate with or into any other
corporation or corporations, unless such merger or consolidation (or the
issuance and assumption of the securities to be issued or assumed in
connection with the transaction) shall have been ordered, approved,
authorized or permitted by a regulatory authority with jurisdiction over
the transaction (excluding (i) acquisitions of
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franchises or assets not involving a merger or consolidation and (ii)
mergers of wholly owned subsidiaries into the Company) or
(b) to issue, assume or create unsecured securities for any purpose,
except to refund outstanding unsecured securities if following such
issuance, assumption or creation, the aggregate principal amount of
unsecured securities would exceed 15% of the sum of (i) the total principal
amount of all outstanding secured indebtedness and (ii) the capital
represented by the Company stock (including premiums) and the capital and
earned surplus of the Company.
The voting rights of the Company Preferred Stock described herein shall not
apply to the Company $25 Preferred Stock or the Company $100 Preferred Stock if
provision is made for the redemption or other retirement of all of the Company
$25 Preferred Stock or all of the Company $100 Preferred Stock, respectively.
LIQUIDATION RIGHTS
In the event of (a) any involuntary liquidation, dissolution or winding up
of the Company, the holders of Company $100 Preferred Stock will be entitled to
$100 per share plus accrued dividends, and the holders of Company $25 Preferred
Stock will be entitled to the amount per share determined by the Company Board
at the time of issuance plus accrued dividends and (b) any voluntary
liquidation, dissolution or winding up of the Company, the holders of Company
Preferred Stock will be entitled to receive an amount per share equal to the
optional redemption price, upon dissolution or liquidation, in preference to the
holders of Company Common Stock and Company Preference Stock.
PREFERENCE STOCK
GENERAL
The Company Articles provide that the shares of the Company Preference
Stock may be divided into and issued in series in the same manner as Company
Preferred Stock. See "Description of Company Capital Stock -- Preferred
Stock -- General." Subject to any issuance of Puget Preference Stock between the
date of this Joint Proxy Statement/Prospectus and the Effective Time, no Company
Preference Stock will be outstanding at the Effective Time. Puget's Board of
Directors has reserved 80,000 shares of Series R Preference Stock (as
hereinafter defined) for issuance under the Rights Agreement dated as of January
15, 1991, as amended (the "Rights Agreement"), between Puget and The Bank of New
York (as successor to The Chase Manhattan Bank). Puget's Board of Directors
intends to increase the number of such shares to 150,000 prior to the Effective
Time. For a discussion of the rights and preferences of the Series R Preference
Stock, see "Comparison of Shareholder Rights -- Rights Plan."
DIVIDEND RIGHTS
The holders of Company Preference Stock of each series, when and as
declared by the Company Board, will be entitled, on a parity with the holders of
each other series of Company Preference Stock and in preference to the holders
of Company Common Stock (but subject to the dividend preferences of the Company
Preferred Stock) to receive cumulative dividends at the rate or rates prescribed
for such series.
There shall not be paid or declared and set apart for payment dividends on
Company Common Stock unless, on such date, there shall also have been paid or
declared and set aside for payment the dividends accumulated on all outstanding
shares of each series of the Company Preference Stock during all dividend
periods for such series ended on or prior to such date and the full dividend for
the then-current dividend period.
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VOTING RIGHTS
The holders of Company Preference Stock shall not be entitled to vote
except under the following circumstances:
(a) as required by law;
(b) if dividends payable on Company Preference Stock shall be in
arrears in an amount equal to four full quarterly dividends, the holders of
Company Preference Stock voting separately as a class shall be entitled to
elect the smallest number of directors necessary to constitute a majority
of the Company Board; provided, however, that no such right shall be
exercisable when the holders of Company Preferred Stock are exercising
their rights to elect such a majority;
(c) during periods when the holders of Company Preferred Stock are
exercising their rights to elect a majority of the Company Board, the
holders of Company Preference Stock, voting separately as a class, shall be
entitled to elect two directors;
(d) any amendment to the Company Articles or the Company Bylaws
materially altering the rights of the Company Preference Stock or creating
or enlarging any class of stock having rights and preference senior to the
Company Preference Stock must be approved by two-thirds of the holders of
the outstanding shares of Company Preference Stock; and
(e) any amendment to the Company Articles increasing the authorized
shares of Company Preference Stock or creating or enlarging any class of
stock ranking on a parity with Company Preference Stock must be approved by
a majority of the holders of outstanding shares of Company Preference
Stock.
LIQUIDATION RIGHTS
The holders of Company Preference Stock of each series will be entitled,
upon dissolution, liquidation or winding up of the Company, on a parity with the
holders of Company Preference Stock of each other series and in preference to
the holders of Company Common Stock (but subject to the liquidation preferences
of the Company Preferred Stock), if such dissolution, liquidation or winding up
is involuntary, to $50 per share plus accrued dividends and, if voluntary, to
the amount per share equal to the optional redemption price.
COMPARISON OF SHAREHOLDER RIGHTS
General Upon consummation of the Merger, the shareholders of WECo and
(except in the case of the Alternate Merger) WNG will become shareholders of the
Company, and their rights will be governed by the Company Articles and the
Company Bylaws, which differ in certain material respects from the WECo
Articles, the WECo Bylaws, the Restated Articles of Incorporation, as amended,
of WNG (the "WNG Articles"), and the WNG Bylaws. Certain significant differences
between the current rights of WECo and WNG shareholders and the rights of Puget
shareholders following consummation of the Merger are set forth below.
The following discussion of the differences between the Company Articles
and the Company Bylaws and the WECo Articles, the WECo Bylaws, the WNG Articles
and the WNG Bylaws is not intended to be complete and is qualified in its
entirety by reference to the Company Articles which are attached as Annex F to
this Joint Proxy Statement/Prospectus, the Company Bylaws, the WECo Articles,
the WECo Bylaws, the WNG Articles and WNG Bylaws. The WECo Articles, the WECo
Bylaws, the WNG Articles and the WNG Bylaws are available for inspection at
WECo's principal executive offices. The Company Bylaws are available for
inspection at Puget's principal executive offices.
Authorized Capital Stock. WECo's authorized capital stock currently
consists of 50,000,000 shares of WECo Common Stock, par value $5.00 per share
(of which approximately 24,116,682 shares were outstanding as of the WECo Record
Date), 200,000 shares of preferred stock, par value $100 per share (of which no
shares were outstanding on the date hereof), and 800,000 shares of preferred
stock, par value $25 per share (of which no shares were outstanding on the date
hereof).
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WNG's authorized capital stock currently consists of 25,000,000 shares of
WNG Common Stock, par value $5.00 per share (of which 11,020,117 shares were
outstanding on the date hereof and held by WECo, as sole shareholder), 4,000,000
shares of WNG Preferred Stock, par value $25 per share (of which 3,600,000
shares were outstanding on the WNG Record Date) and 1,000,000 shares of WNG
Preferred Stock, par value $100 per share (of which no shares were outstanding
on the date hereof).
Upon consummation of the Merger, the Company will be authorized to issue
150,000,000 shares of Company Common Stock (of which approximately 84,381,051
shares will be outstanding at the Effective Time based on the capitalization of
WECo and Puget on December 31, 1995 and assuming no change therein), 13,000,000
shares of Company $25 Preferred Stock (of which approximately 8,600,000 shares
will be outstanding at the Effective Time based on the capitalization of WNG and
Puget on December 31, 1995 and assuming no change therein), 3,000,000 shares of
Company $100 Preferred Stock (of which approximately 890,395 shares will be
outstanding at the Effective Time based on the capitalization of Puget on
December 31, 1995 and assuming no change therein), and 700,000 shares of
Preference Stock, par value $50 per share (of which 150,000 shares will be
designated as Series R, but none of which are issued and outstanding as of
December 31, 1995).
Voting Rights. Both the Company Articles and the WNG Articles grant the
holders of Common Stock the exclusive right to vote for the election of
directors and for all other purposes, except as may be otherwise provided
therein or by applicable law.
The WNG Articles grant holders of WNG Preferred Stock, voting separately as
a class, the right to elect two directors if dividends payable on any series of
WNG Preferred Stock are in arrears for six full quarterly dividends. Other than
as described in the preceding sentence, or as required by Washington corporate
law, WNG Preferred Stock is not entitled to vote. The Company Articles grant
holders of Company Preferred Stock similar voting rights if dividends payable on
any shares of Company Preferred Stock are in arrears for four full quarterly
dividends. The Company Preferred Stock has additional voting rights with respect
to certain corporate actions. See "Description of Company Capital
Stock -- Preferred Stock -- Voting Rights."
Fair Price Provision. The WECo Articles contain a "fair price" provision
which requires the affirmative vote of the holders of at least 80% of the
outstanding WECo Common Stock for the consummation of certain business
combinations, including mergers, consolidations, recapitalizations, certain
dispositions of assets, certain issuances of securities, liquidations and
dissolutions, in any case involving such company and a person or entity which is
or, under certain circumstances, was an Interested Stockholder (as defined
below); provided, however, that such supermajority approval is not needed if (a)
such business combination has been approved by a majority of the Continuing
Directors (i.e., directors who are unaffiliated with the Interested Stockholder
and who were directors before the Interested Stockholder became an Interested
Stockholder or who are successors to such directors) or (b) certain minimum
price and procedural requirements are met. "Interested Stockholder" is defined
in the WECo Articles to include (i) a beneficial owner of more than 10% of the
WECo Common Stock, (ii) an Affiliate (as defined in the Exchange Act) of WECo
which at any time within the preceding two years was a beneficial owner of more
than 10% of the WECo Common Stock, or (iii) an assignee of, or successor to, any
shares of WECo Common Stock which were at any time within the preceding two
years beneficially owned by any Interested Stockholder (unless such transfer or
succession occurred involved a public offering under the Securities Act).
With respect to the disposition of assets or the issuance of securities,
the WECo Articles require shareholder approval under this provision only if the
transaction involves the disposition of assets, or the issuance of securities,
as the case may be, having a fair market value of not less than $1,000,000.
The Company Articles have no similar provision governing transactions with
"Interested Stockholders."
Special Meetings of Shareholders; Shareholder Action by Written
Consent. Under the WECo Bylaws, special meetings of shareholders may be called
at any time by the Chairman of the Board of Directors, the President, a Vice
President or the Board of Directors. Such officers and directors must order and
call such a meeting upon the request of shareholders holding at least 10% of the
outstanding capital stock entitled to be voted at such meeting. The WECo Bylaws
provide that notice of a special meeting of shareholders must be
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given not less than 10 nor more than 60 days prior to the meeting. Under the
Company Bylaws, special meetings of shareholders may be called at any time by
the Board of Directors. In addition, the Secretary of the Company is obligated
to call a special meeting upon the written request of any director or of any
shareholder or shareholders holding 20% or more of the voting power of all
shareholders. Notice of such meeting must be given not less than 10 days prior
to the meeting.
Board of Directors. The WECo Articles provide that the number of WECo
directors shall be such number as shall be specified in the WECo Bylaws, not to
exceed 11. WECo's Board of Directors currently consists of eight directors.
The Company Articles and the Company Bylaws provide that the number of
directors of the Company shall be such number, not less than nine nor more than
25, as shall be specified from time to time by resolution of the Company Board.
Pursuant to the Merger Agreement, at the Effective Time, the Company Board will
be comprised of not more than 15 directors, with two-thirds designated by Puget
and one-third of the directors designated by WECo.
The WECo Articles and the Company Articles each provide that the Board of
Directors will be divided into three classes, with each class generally serving
a three-year term. The term of one class of directors expires annually, so that
it is only possible to elect one class (or approximately one-third) in any one
year.
Amendments to Articles of Incorporation and Bylaws. The WECo Articles
provide that the affirmative vote of the holders of 80% or more of the
outstanding WECo Common Stock is required to amend or repeal, or adopt
provisions inconsistent with, provisions relating to the number, tenure,
vacancy, classification or removal of directors and the "fair price" provision.
The WECo Articles and the WECo Bylaws provide that either the shareholders or
the Board of Directors may amend the WECo Bylaws in a manner not inconsistent
with applicable law or the WECo Articles; provided, however, that the Board of
Directors may not make or alter any bylaw provision fixing the qualifications,
term of office or compensation of its directors, nor amend or repeal any
provision relating to the right of shareholders to request a special meeting or
shareholder quorum requirements.
The Company Articles make no provision for the amendment, alteration,
change or repeal of the Company Articles. The WBCA generally requires the
approval of at least a majority of the votes entitled to be cast to amend
articles of incorporation unless the articles of incorporation require a greater
proportion of voting power. The Company Articles provide that the Company Board
may amend the Company Bylaws (subject to the right of the shareholders to change
or alter such Bylaws) in a manner not inconsistent with law or the Company
Articles; provided, however, that the Company Board may not make or amend any
Bylaw fixing the qualifications, classifications, terms of office or
compensation of directors.
Rights Plan. Puget has adopted a shareholder rights plan pursuant to which
holders of Puget Common Stock outstanding on January 25, 1991 have been granted
one right (a "Right") on each outstanding share of Puget Common Stock. In
addition, Puget's Board of Directors authorized the issuance of one Right with
respect to each additional share of Puget Common Stock that shall become
outstanding between January 25, 1991 and the earliest of the Distribution Date
(as defined below), the Final Expiration Date (January 25, 2001, unless
extended), and the date on which the Rights may be redeemed. The Rights
Agreement will remain in effect after the Effective Time, and, pursuant to the
Merger Agreement, each share of Company Common Stock to be issued to holders of
WECo Common Stock upon consummation of the Merger will be issued together with
the associated Right. The description and terms of the Rights are set forth in
the Rights Agreement. Certain of the capitalized terms used in the following
description have the meanings set forth in the Rights Agreement. A copy of the
Rights Agreement has been filed with the SEC as an exhibit to Puget's
registration statement on Form 8-A dated January 17, 1991, as amended by Puget's
Registration Statement on Form 8 dated August 30, 1991, and Puget's Registration
Statement on Form 8-A/A dated October 27, 1995. The following descriptions of
the Rights, the Rights Agreement and the Series R Preference Stock do not
purport to be complete and are qualified in their entirety by reference to the
Rights Agreement and to the Company Articles.
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The Rights could have certain antitakeover effects. The Rights may cause
substantial dilution to a person or group that attempts to acquire Puget on
terms not approved by Puget's Board of Directors, except pursuant to an offer
conditioned on a substantial number of Rights being acquired. The Rights should
not interfere with any merger or other business combination approved by Puget's
Board of Directors prior to the time that a person or group has acquired
beneficial ownership of 10% or more of the Puget Common Stock because until such
time the Rights may be redeemed as hereinafter described.
Each Right, initially evidenced by and traded with shares of Puget Common
Stock, entitles the registered holder to purchase from Puget one one-thousandth
of a share of Series R Preference Stock, $50 par value per share, of Puget (the
"Series R Preference Stock") at $45 per one one-thousandth share of Series R
Preference Stock, subject to certain adjustments and other specified conditions.
The Rights will become exercisable upon the earlier to occur of (a) 10 days
following the first date ("Shares Acquisition Date") of public announcement that
a person or group of affiliated or associated persons (an "Acquiring Person")
has acquired beneficial ownership of 10% or more of the outstanding shares of
Puget Common Stock and (b) 10 business days (or a later date determined by
Puget's Board of Directors) following the commencement of, or the announcement
of an intention to make, a tender offer or exchange offer, the consummation of
which would result in the beneficial ownership by a person or group of 10% or
more of the Puget Common Stock (the earlier of such dates being called the
"Distribution Date").
In connection with the Merger Agreement, Puget and The Bank of New York
entered into Amendment No. 2, dated as of October 18, 1995, to the Rights
Agreement (the "Rights Amendment") to provide that neither the execution,
delivery or performance of the Merger Agreement or the Stock Option Agreements
nor the consummation of the transactions contemplated thereby shall cause any
person to become an Acquiring Person or give rise to any event that would result
in a Shares Acquisition Date or a Distribution Date. In addition, the Rights
Amendment provides that certain provisions of the Rights Agreement shall not
apply to the transactions contemplated by the Merger Agreement and the Stock
Option Agreements.
Shares of Series R Preference Stock purchasable upon exercise of the Rights
may be redeemed at the option of Puget on the fifth day prior to the effective
date of a voluntary liquidation, dissolution or winding up of Puget at a price
per share equal to $10, together with accrued and unpaid dividends, provided
that each share of Series R Preference Stock will be entitled to an aggregate
payment equal to 1,000 times the payment proposed to be made per share of Puget
Common Stock in such event. In the event of an involuntary liquidation, the
holders of Series R Preference Stock will be entitled to $50 per share. Each
share of Series R Preference Stock will be entitled to a minimum preferential
quarterly dividend payment of $1 per share, but will be entitled to an aggregate
dividend of 1,000 times the dividend declared per share of Puget Common Stock.
Finally, in the event of any merger, consolidation or other transaction in which
shares of Puget Common Stock are exchanged, each share of Series R Preference
Stock will be entitled to receive 1,000 times the amount received per share of
Puget Common Stock. These rights are protected by antidilution provisions.
In addition, in the event that Puget is acquired in a merger or other
business combination transaction (other than certain approved merger
transactions) or 50% or more of Puget's assets or earning power is sold, proper
provision will be made so that each holder of a Right will thereafter have the
right to receive, upon exercise at the then current exercise price of the Right,
common stock of the acquiring or surviving company having a value equal to two
times the exercise price of the Right. In the event that any person or group
becomes an Acquiring Person, each Right will entitle its holder (other than such
person or members of such group) to purchase that number of shares of Puget
Common Stock having a market value equal to two times the exercise price of the
Right.
The Rights may be redeemed in whole, but not in part, at a redemption price
of $.01 per Right by Puget's Board of Directors at any time prior to a person or
group becoming an Acquiring Person. Immediately upon any redemption of the
Rights, the right to exercise the Rights will terminate and the only right of
the holders of Rights will be to receive the redemption price.
The Rights will expire on the Final Expiration Date or upon a redemption by
Puget, as described above.
77
<PAGE> 89
UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION
The following unaudited pro forma financial information combines the
historical consolidated balance sheet and statements of income of Puget and WECo
after giving effect to the Merger. The unaudited pro forma condensed balance
sheet gives effect to the Merger as if it had occurred at September 30, 1995.
The unaudited pro forma condensed statements of income for each of the three
years in the period ended December 31, 1994, and the nine months and twelve
months ended September 30, 1995, give effect to the Merger as if it had occurred
on January 1, 1992. These statements are prepared on the basis of accounting for
the Merger as a pooling-of-interests and are based on the assumptions set forth
in the notes thereto. The following pro forma financial information has been
prepared from, and should be read in conjunction with, the historical
consolidated financial statements and related notes thereto of Puget, WECo and
WNG, which are incorporated herein by reference. The following information is
not necessarily indicative of the operating results or financial position that
would have occurred had the Merger been consummated on the date, or at the
beginning of the periods, for which the Merger is being given effect, nor is it
necessarily indicative of future operating results or financial position.
78
<PAGE> 90
THE COMPANY
PRO FORMA CONDENSED BALANCE SHEET
AT SEPTEMBER 30, 1995
(THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
PUGET(1) WECO(1) COMBINED
---------- ---------- ----------
<S> <C> <C> <C>
ASSETS
Property, Plant and Equipment:
Utility plant.............................................................. $3,372,661 $1,055,322 $4,427,983
Oil, gas, coal and other................................................... 15,621.... 15,621
Accumulated provisions for depreciation, depletion and amortization........ 1,095,547 273,735 1,369,282
---------- ---------- ----------
Net property, plant and equipment.................................... 2,277,114 797,208 3,074,322
---------- ---------- ----------
Other Property and Investments:
Investment in Bonneville Exchange Power Contract........................... 96,044 96,044
Investment in and advances to subsidiaries................................. 91,360 91,360
Investment in unconsolidated affiliate..................................... 70,313 70,313
Other...................................................................... 11,707 11,707
---------- ---------- ----------
Total other property and investments................................. 199,111 70,313 269,424
---------- ---------- ----------
Current Assets:
Cash....................................................................... 11,149 9,315 20,464
Accounts receivable........................................................ 96,190 10,830 107,020
Estimated unbilled revenue................................................. 53,707 9,607 63,314
PRAM accrued revenues...................................................... 71,177 71,177
Materials and supplies, at average cost.................................... 45,800 31,968 77,768
Prepayments and other...................................................... 9,955 14,649 24,604
---------- ---------- ----------
Total current assets................................................. 287,978 76,369 364,347
---------- ---------- ----------
Long-Term Assets:
Regulatory asset for deferred income taxes................................. 268,824 17,605 286,429
PRAM accrued revenues (net of current portion)............................. 51,722 51,722
Unamortized energy conservation charges.................................... 33,641 33,641
Other...................................................................... 108,067 27,995 136,062
---------- ---------- ----------
Total long-term assets............................................... 462,254 45,600 507,854
---------- ---------- ----------
TOTAL ASSETS......................................................... $3,226,457 $ 989,490 $4,215,947
========== ========== ==========
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock and additional paid-in capital(4)............................. $ 965,372 $ 322,964 $1,288,336
Earnings reinvested (Accumulated deficit).................................. 198,553 (126,278) 72,275
Preferred stock not subject to mandatory redemption........................ 125,000 90,000 215,000
Preferred stock subject to mandatory redemption............................ 89,040 89,040
Long-term debt............................................................. 928,402 310,060 1,238,462
---------- ---------- ----------
Total capitalization................................................. 2,306,367 596,746 2,903,113
---------- ---------- ----------
Current Liabilities:
Accounts payable........................................................... 39,914 32,755 72,669
Short-term debt............................................................ 131,948 161,994 293,942
Current maturities of long-term debt....................................... 43,001 30,140 73,141
Accrued taxes.............................................................. 25,576 12,556 38,132
Other...................................................................... 62,441 49,071 111,512
---------- ---------- ----------
Total current liabilities............................................ 302,880 286,516 589,396
---------- ---------- ----------
Deferred Taxes:
Deferred income taxes...................................................... 539,048 70,467 609,515
Deferred investment tax credits............................................ 415 9,352 9,767
---------- ---------- ----------
Total deferred taxes................................................. 539,463 79,819 619,282
---------- ---------- ----------
Other Deferred Credits:
Customer advances for construction......................................... 20,506 14,252 34,758
Other...................................................................... 57,241 12,157 69,398
---------- ---------- ----------
Total other deferred credits......................................... 77,747 26,409 104,156
---------- ---------- ----------
TOTAL CAPITALIZATION AND LIABILITIES................................. $3,226,457 $ 989,490 $4,215,947
========== ========== ==========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Financial Statements
79
<PAGE> 91
THE COMPANY
PRO FORMA CONDENSED STATEMENT OF INCOME
FOR NINE MONTHS ENDED SEPTEMBER 30, 1995
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
PUGET(1) WECO(1) COMBINED(5)
-------- -------- -----------
<S> <C> <C> <C>
OPERATING REVENUES....................................... $848,521 $287,366 $1,135,887
OPERATING EXPENSES:
Purchased and interchanged power and gas purchases..... 293,325 137,198 430,523
Other operating expenses and maintenance............... 187,578 71,250 258,828
Depreciation, depletion and amortization............... 80,792 24,247 105,039
Taxes other than federal income taxes.................. 81,021 28,859 109,880
Federal income taxes................................... 55,507 (1,673) 53,834
-------- -------- ----------
Total operating expenses....................... 698,223 259,881 958,104
-------- -------- ----------
OPERATING INCOME......................................... 150,298 27,485 177,783
-------- -------- ----------
OTHER INCOME (EXPENSE):
Preferred dividend requirement -- WNG(6)............... -- (5,265) --
Other -- net of taxes.................................. 6,527 (45,543) (39,016)
-------- -------- ----------
Total other income (expense)................... 6,527 (50,808) (39,016)
-------- -------- ----------
INCOME (LOSS) BEFORE INTEREST CHARGES.................... 156,825 (23,323) 138,767
INTEREST CHARGES......................................... 66,196 30,994 97,190
-------- -------- ----------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE PREFERRED
DIVIDENDS.............................................. 90,629 (54,317) 41,577
LESS PREFERRED STOCK DIVIDEND ACCRUALS................... 11,725 -- 16,990
-------- -------- ----------
INCOME (LOSS) FOR COMMON STOCK(2)........................ $ 78,904 $(54,317) $ 24,587
======== ======== ==========
COMMON SHARES OUTSTANDING WEIGHTED AVERAGE(3)............ 63,641 23,945 84,234
EARNINGS (LOSS) PER SHARE(2)............................. $ 1.24 $ (2.27) $ 0.29
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Financial Statements
80
<PAGE> 92
THE COMPANY
PRO FORMA CONDENSED STATEMENT OF INCOME
FOR TWELVE MONTHS ENDED SEPTEMBER 30, 1995
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
PUGET(1) WECO(1) COMBINED(5)
---------- -------- -----------
<S> <C> <C> <C>
OPERATING REVENUES.......................................... $1,185,456 $443,611 $1,629,067
OPERATING EXPENSES:
Purchased and interchanged power and gas purchases........ 410,971 219,022 629,993
Other operating expenses and maintenance.................. 260,789 93,184 353,973
Depreciation, depletion and amortization.................. 106,185 33,128 139,313
Taxes other than federal income taxes..................... 110,894 40,974 151,868
Federal income taxes...................................... 85,395 5,507 90,902
---------- -------- ----------
Total operating expenses.......................... 974,234 391,815 1,366,049
---------- -------- ----------
OPERATING INCOME............................................ 211,222 51,796 263,018
---------- -------- ----------
OTHER INCOME (EXPENSE):
Preferred dividend requirement -- WNG(6).................. -- (7,126) --
Other -- net of taxes..................................... 8,845 (45,204) (36,359)
---------- -------- ----------
Total other income (expense)...................... 8,845 (52,330) (36,359)
---------- -------- ----------
INCOME (LOSS) BEFORE INTEREST CHARGES....................... 220,067 (534) 226,659
INTEREST CHARGES............................................ 88,606 40,528 129,134
---------- -------- ----------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE PREFERRED
DIVIDENDS................................................. 131,461 (41,062) 97,525
LESS PREFERRED STOCK DIVIDEND ACCRUALS...................... 15,704 -- 22,830
---------- -------- ----------
INCOME (LOSS) FOR COMMON STOCK(2)........................... $ 115,757 $(41,062) $ 74,695
========== ======== ==========
COMMON SHARES OUTSTANDING WEIGHTED AVERAGE(3)............... 63,640 23,893 84,188
EARNINGS (LOSS) PER SHARE(2)................................ $ 1.82 $ (1.72) $ 0.89
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Financial Statements
81
<PAGE> 93
THE COMPANY
PRO FORMA CONDENSED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1994
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
PUGET(1) WECO(1) COMBINED(5)
---------- -------- -----------
<S> <C> <C> <C>
OPERATING REVENUES...................................... $1,194,058 $432,025 $1,626,083
OPERATING EXPENSES:
Purchased and interchanged power and gas purchases.... 394,758 223,502 618,260
Other operating expenses and maintenance.............. 301,984 118,065 420,049
Depreciation, depletion and amortization.............. 115,738 30,901 146,639
Taxes other than federal income taxes................. 107,821 38,086 145,907
Federal income taxes(7)............................... 80,259 (6,697) 74,108
---------- -------- ----------
Total operating expenses...................... 1,000,560 403,857 1,404,963
---------- -------- ----------
OPERATING INCOME........................................ 193,498 28,168 221,120
---------- -------- ----------
OTHER INCOME (EXPENSE):
Pre-tax loss on merger of subsidiary(7)............... -- (6,304) --
Federal income taxes on merger of subsidiary(7)....... -- (23,711) --
Preferred dividend requirement -- WNG(6).............. -- (3,970) --
Other -- net of taxes(7).............................. 12,820 (2,732) 12,362
---------- -------- ----------
Total other income (expense).................. 12,820 (36,717) 12,362
---------- -------- ----------
INCOME (LOSS) BEFORE INTEREST CHARGES................... 206,318 (8,549) 233,482
INTEREST CHARGES(7)..................................... 86,259 36,298 120,997
---------- -------- ----------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE
PREFERRED DIVIDENDS................................... 120,059 (44,847) 112,485
LESS PREFERRED STOCK DIVIDEND ACCRUALS.................. 15,731 9 19,710
LESS EXCESS PREMIUM PREFERRED REDEMPTION................ -- 673 673
---------- -------- ----------
INCOME (LOSS) FOR COMMON STOCK(2)....................... $ 104,328 $(45,529) $ 92,102
========== ======== ==========
COMMON SHARES OUTSTANDING WEIGHTED AVERAGE(3)........... 63,632 23,486 83,830
EARNINGS (LOSS) PER SHARE(2)............................ $ 1.64 $ (1.94) $ 1.10
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Financial Statements
82
<PAGE> 94
THE COMPANY
PRO FORMA CONDENSED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1993
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
PUGET(1) WECO(1) COMBINED(5)
---------- -------- -----------
<S> <C> <C> <C>
OPERATING REVENUES...................................... $1,112,878 $470,392 $1,583,270
OPERATING EXPENSES:
Purchased and interchanged power and gas purchases.... 317,642 180,893 498,535
Other operating expenses and maintenance.............. 283,998 147,116 431,114
Depreciation, depletion and amortization.............. 115,690 38,274 153,964
Taxes other than federal income taxes................. 100,598 38,895 139,493
Federal income taxes.................................. 83,970 9,645 93,615
---------- -------- ----------
Total operating expenses...................... 901,898 414,823 1,316,721
---------- -------- ----------
OPERATING INCOME........................................ 210,980 55,569 266,549
---------- -------- ----------
OTHER INCOME (EXPENSE):
Preferred dividend requirement -- WNG(6).............. -- (2,612) --
Other -- net of taxes................................. 13,578 717 14,295
---------- -------- ----------
Total other income (expense).................. 13,578 (1,895) 14,295
---------- -------- ----------
INCOME BEFORE INTEREST CHARGES.......................... 224,558 53,674 280,844
INTEREST CHARGES........................................ 86,231 31,639 117,870
---------- -------- ----------
INCOME FROM CONTINUING OPERATIONS BEFORE PREFERRED
DIVIDENDS............................................. 138,327 22,035 162,974
LESS PREFERRED STOCK DIVIDEND ACCRUALS.................. 16,442 101 19,155
---------- -------- ----------
INCOME FOR COMMON STOCK(2).............................. $ 121,885 $ 21,934 $ 143,819
========== ======== ==========
COMMON SHARES OUTSTANDING WEIGHTED AVERAGE(3)........... 60,931 22,996 80,708
EARNINGS PER SHARE(2)................................... $ 2.00 $ 0.95 $ 1.78
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Financial Statements
83
<PAGE> 95
THE COMPANY
PRO FORMA CONDENSED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1992
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
PUGET(1) WECO(1) COMBINED(5)
---------- -------- -----------
<S> <C> <C> <C>
OPERATING REVENUES...................................... $1,024,970 $375,088 $1,400,058
OPERATING EXPENSES:
Purchased and interchanged power and gas purchases.... 236,179 122,355 358,534
Other operating expenses and maintenance.............. 284,275 137,726 422,001
Depreciation, depletion and amortization.............. 122,931 34,852 157,783
Taxes other than federal income taxes................. 94,466 30,510 124,976
Federal income taxes.................................. 72,449 3,665 76,114
---------- -------- ----------
Total operating expenses...................... 810,300 329,108 1,139,408
---------- -------- ----------
OPERATING INCOME........................................ 214,670 45,980 260,650
---------- -------- ----------
OTHER INCOME (EXPENSE):
Preferred dividend requirement -- WNG(6).............. -- (2,622) --
Other -- net of taxes................................. 17,204 1,666 18,870
---------- -------- ----------
Total other income (expense).................. 17,204 (956) 18,870
---------- -------- ----------
INCOME BEFORE INTEREST CHARGES.......................... 231,874 45,024 279,520
INTEREST CHARGES........................................ 96,154 31,043 127,197
---------- -------- ----------
INCOME FROM CONTINUING OPERATIONS BEFORE PREFERRED
DIVIDENDS............................................. 135,720 13,981 152,323
LESS PREFERRED STOCK DIVIDEND ACCRUALS.................. 13,884 105 16,611
---------- -------- ----------
INCOME FOR COMMON STOCK(2).............................. $ 121,836 $ 13,876 $ 135,712
========== ======== ==========
COMMON SHARES OUTSTANDING WEIGHTED AVERAGE(3)........... 56,284 19,659 73,191
EARNINGS PER SHARE(2)................................... $ 2.16 $ 0.71 $ 1.85
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Financial Statements
84
<PAGE> 96
NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
(1) Puget's fiscal year ends on December 31. WECo's fiscal year ends on
September 30. The pro forma financial data for the years ended December 31,
1992-1994 reflect fiscal years ended December 31 for Puget and September 30
for WECo. The financial data for the nine months ended September 30, 1995
are the results of the nine months ended September 30, 1995 for Puget and
WECo.
(2) Income (Loss) for Common Stock and Earnings per Share are based on income
from continuing operations after preferred dividend requirements. Results of
discontinued operations for WECo and WNG have been excluded for 1992, 1993
and 1994.
(3) The Pro Forma Condensed Financial Statements reflect the conversion of each
share of WECo Common Stock outstanding into .860 share of Company Common
Stock and the issuance of Company Preferred Stock for WNG Preferred Stock.
The Pro Forma Condensed Financial Statements are presented as if the Merger
had been consummated prior to the periods presented.
(4) The number of shares of common stock outstanding, by company, at September
30, 1995 were as follows: Puget, 63,641,000; WECo, 24,070,000; and Pro
Forma, 84,341,000.
(5) The pro forma financial statements do not reflect the $370 million net cost
savings estimated to be achieved in the 10-year period following
consummation of the Merger. The allocation of estimated cost savings between
the Company and its customers is subject to regulatory review and approval.
The costs to achieve such savings and the costs of the Merger are also not
reflected in the statements.
(6) Assumes the WECo/WNG/Puget Merger has been approved and the WNG Preferred
Stock has been exchanged for New Company Preferred Stock. In the Pro Forma
Condensed Statements of Income, these dividend requirements are included in
"Preferred Stock Dividend Accruals."
(7) The results of operations for 1994 reflect pro forma adjustments to
eliminate the loss on the merger of WECo's oil and gas subsidiary, as
described in note 10 on page 22, and to reflect the earnings from the
investment in the independent oil and gas company for the entire year.
85
<PAGE> 97
SELECTED INFORMATION CONCERNING THE PARTIES
DESCRIPTION OF PUGET'S BUSINESS
Puget is the largest investor-owned electric utility serving Washington
State. Puget furnishes electric service in a territory covering approximately
4,500 square miles in nine counties in the Puget Sound region of western
Washington. Puget's utility operations include the generation, purchase,
distribution and sale of electric energy on both a retail and a wholesale basis.
Puget distributes electric power to over 830,000 customers.
DESCRIPTION OF WECO'S AND WNG'S BUSINESSES
WECo is a holding company, the principal subsidiary of which, WNG, is
engaged in the retail distribution of natural gas. WECo is exempt from the
provisions of the 1935 Act, except with respect to acquiring securities of other
public utility companies, as defined in the 1935 Act. WECo was incorporated in
Washington in 1977 and became a holding company by acquiring the common stock of
WNG and its other wholly owned subsidiaries through a merger in 1978.
WNG and its predecessors have manufactured gas and distributed both
manufactured and subsequently natural gas since prior to the turn of the
century. WNG serves over 470,000 customers in five counties in the Puget Sound
region of western Washington, including the greater Seattle area. WNG entered
the gas appliance sales business in the late 1950s when natural gas became
available in the region. In response to higher prices for and reduced
availability of natural gas in the early 1970s, WNG, through its former
subsidiaries, entered the oil and gas exploration and production business and
the energy-efficiency products business, and initiated its coal-related
investments. As part of a change in business strategy, in 1994, WECo sold its
biowaste technology business, merged its oil and gas subsidiary, Washington
Energy Resources Company, with a subsidiary of Cabot Oil & Gas Corporation in a
tax-free exchange for common and preferred stock, and combined its appliance
sales, energy-efficiency products and home security businesses into a new
subsidiary.
BUSINESS CONTACTS BETWEEN PUGET AND WNG
Since late 1993, Puget and WNG have been exploring the potential benefits
of certain joint operations and have implemented certain limited programs,
including joint meter reading. See "The Merger -- Background of the Merger."
THE COMPANY FOLLOWING THE MERGER
At the Effective Time, the Company will adopt a name mutually agreed upon
among the parties. The Company's headquarters will be in Bellevue, Washington at
Puget's current headquarters. The Company will serve more than 1 million
customers in a service territory covering approximately 6,000 square miles with
a population of more than 3 million.
MANAGEMENT
Upon consummation of the Merger, the Company Board will consist of up to 15
persons, two-thirds of whom will be designated by Puget and one-third of whom
will be designated by WECo. The Merger Agreement provides that Puget will
designate Mr. Sonstelie and Mr. Weaver, and WECo will designate Mr. Vititoe, to
the Company Board, and it is anticipated that the Company Board will initially
be comprised of persons who are current directors of Puget or WECo. See "The
Merger -- Conflicts of Interest of Certain Persons in the Merger."
Pursuant to the Merger Agreement, upon consummation of the Merger, Mr.
Sonstelie will serve as Chairman and Chief Executive Officer of the Company, Mr.
Vititoe will serve as President and Chief Operating Officer of the Company, Mr.
Weaver will serve as Vice Chairman of the Company and Mr. Torgerson will serve
as Chief Financial Officer of the Company. Each of such persons will serve in
such
86
<PAGE> 98
capacities in accordance with and pursuant to the terms of their respective
employment agreements. The remaining executive officers of the Company will be
appointed by the Company Board. See "The Merger -- Conflicts of Interest of
Certain Persons in the Merger."
DIVIDENDS
The amount, declaration and timing of dividends on Company Common Stock
will be a business decision to be made by the Company Board from time to time
based on the Company's results of operations and financial condition, regulatory
factors and such other business considerations as the Company Board considers
relevant. Subject to the foregoing, it is anticipated that the Company initially
will adopt the dividend policy followed by Puget, which currently provides for
annual dividends of $1.84 per share. WECo currently pays an annual dividend of
$1.00 per share of WECo Common Stock. Prior to the Effective Time, Puget and
WECo intend to continue their respective dividend policies.
APPROVAL OF PUGET PLAN PROPOSAL
In connection with the Merger, provision has been made to substitute awards
under the 1995 Plan for equity interests currently held in WECo Stock Plans and
to extend the coverage of the 1995 Plan to all future officers and key employees
of the Company. As of the Effective Time, each underlying stock option agreement
under the WECo Stock Plan will be amended to provide that each WECo Stock
Option, along with each tandem SAR, will thereafter constitute an option to
acquire shares of Company Common Stock. Rights to acquire WECo Common Stock
under other WECo Stock Plans will become rights to acquire Company Common Stock
under the 1995 Plan. See "The Merger -- Employee Benefit Plans." Consequently,
to accommodate the present and future needs of the combined company, and as
provided in the Merger Agreement, Puget's Board of Directors has unanimously
adopted an amendment to the 1995 Plan that, subject to shareholder approval,
would increase the maximum number of shares of Company Common Stock which may be
awarded under the 1995 Plan from 500,000 to 1,200,000.
INTRODUCTION
The purpose of the 1995 Plan is to enhance the long-term profitability and
shareholder value of the Company by offering incentives and rewards to those
employees of the Company and its subsidiaries who are key to the Company's
growth and success, and to encourage them to remain in the service of the
Company and its subsidiaries and to acquire and maintain stock ownership in the
Company.
AWARDS
The 1995 Plan generally provides for grants of stock awards (including
restricted stock), stock options, performance awards, other stock-based awards
and dividend equivalent rights. Awards may be granted singly, or in tandem with,
in replacement for or as alternatives for other awards, including awards made
under other plans, including the WECo Stock Plans.
Stock Subject to the 1995 Plan. Shares issued pursuant to the 1995 Plan
will be purchased on the open market by the trustee of the 1995 Long-Term
Incentive Compensation Plan Trust (the "Trust"). The Company will not issue any
Company Common Stock under the 1995 Plan to the Trust, or purchase any shares
from the Trust.
Subject to adjustment from time to time as provided in the 1995 Plan, and
to the extent required for compliance with the exclusion from the limitation on
deductibility of compensation under Section 162(m) of the Code, no more than
40,000 shares of Company Common Stock may be subject to awards payable to any
individual participant in any one fiscal year of the Company, and no awards
denominated solely in cash that have an aggregate maximum dollar value in excess
of $400,000 may be payable to any individual participant in any one fiscal year
of the Company.
Any shares of Company Common Stock that have been made subject to an award
that cease to be subject to the award (other than by reason of exercise or
payment of the award to the extent it is exercised for
87
<PAGE> 99
or settled in shares), including, without limitation, in connection with the
cancellation of an award and the grant of a replacement award, will again be
available for issuance in connection with future grants of awards under the 1995
Plan.
Eligibility to Receive Awards. Awards may be granted under the 1995 Plan
to those officers and key employees (including directors who are also employees)
of the Company and its subsidiaries (as that term is defined in the 1995 Plan)
as the plan administrator from time to time selects.
Stock Awards. The plan administrator is authorized to make awards of
Company Common Stock to participants on such terms and conditions, and subject
to such restrictions, if any (whether based on performance standards, periods of
service or otherwise), as the plan administrator may determine.
Performance Awards. Performance awards may be denominated in cash, shares
of Company Common Stock or any combination thereof. The plan administrator is
authorized to determine the nature, length and starting date of the performance
period for each performance award and the performance objectives to be used in
valuing performance awards and determining the extent to which such performance
awards have been earned. Performance objectives will be based on profits, profit
growth, profit-related return ratios, cash flow or total shareholder return,
whether applicable to the Company or any relevant subsidiary or business unit,
comparisons with competitor companies or groups and with stock market indices,
or any combination thereof, as the plan administrator deems appropriate.
Additional performance measures may be used to the extent their use would comply
with the exclusion from the limitation on deductibility of compensation under
Section 162(m) of the Code. The plan administrator will determine the
circumstances under which a performance award will be payable if a holder ceases
to provide services to the Company.
Other Stock-Based Awards. The plan administrator may grant other
stock-based awards under the 1995 Plan pursuant to which shares of Company
Common Stock are or may in the future be acquired, or awards denominated in
stock units, including awards valued using measures other than market value.
Such other stock-based awards may be granted alone or in addition to or in
tandem with any award of any type granted under the 1995 Plan and must be
consistent with the 1995 Plan's purpose.
Dividend Equivalent Rights. Any awards under the 1995 Plan may, in the
plan administrator's discretion, earn dividend equivalent rights that entitle
the holder to be credited with an amount equal to the cash or stock dividends or
other distributions that would have been paid on the shares of Company Common
Stock covered by such award had such covered shares been issued and outstanding
on such dividend record date. The plan administrator may establish such rules
and procedures governing the crediting of dividend equivalent rights, including
the timing, form of payment and payment contingencies, as it deems are
appropriate or necessary.
Transferability. No performance award, other stock-based award or dividend
equivalent right will be assignable or otherwise transferable by the holder
other than by will or the laws of descent and distribution and, during the
holder's lifetime, may be exercised only by the holder, except, in the plan
administrator's sole discretion, to the extent permitted by Rule 16b-3 under the
Exchange Act.
Adjustment of Awards. In the event of certain mergers or consolidations or
a sale of substantially all the assets or a liquidation of the Company, each
stock award that is at the time outstanding will automatically accelerate so
that each such award shall, immediately prior to such corporate transaction,
become 100% vested, except that such award will not so accelerate except under
certain circumstances where such award is assumed or replaced in connection with
the corporate transaction. The plan administrator shall have the discretion,
exercisable at any time before a sale, merger, consolidation, reorganization,
liquidation or change in control of the Company, as defined by the plan
administrator, to take such further action as it determines to be necessary or
advisable, and fair and equitable to holders, with respect to awards.
Administration. The 1995 Plan is administered by a committee or committees
appointed by, and consisting of one or more members of, the Company Board.
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<PAGE> 100
Amendment and Termination. The 1995 Plan may be suspended, terminated or
amended by the shareholders of the Company. The Company Board may also suspend
or terminate the 1995 Plan, or amend it, subject to shareholder approval in
certain instances, as set forth in the 1995 Plan.
The affirmative vote of holders of a majority of shares of Puget Common
Stock present and entitled to vote at the Puget Special Meeting is required to
approve the increase in the number of shares issuable under the 1995 Plan.
PUGET'S BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS OF PUGET VOTE FOR
APPROVAL OF THE INCREASE IN THE NUMBER OF SHARES ISSUABLE UNDER THE 1995 PLAN.
89
<PAGE> 101
ELECTION OF WECO DIRECTORS
GENERAL
At the WECo Meeting, three directors are to be elected. Three current
directors, Robert F. Bailey, John W. Creighton, Jr. and William P. Vititoe, have
been nominated to be elected to hold office for a period of three years or until
their successors are elected and qualified. If the Merger is effected, the terms
of all directors of WECo will terminate at the Effective Time. If the Merger is
not effected, the nominees for director will hold office for the three-year term
as described above. Pursuant to the WECo Articles and the WECo Bylaws, the eight
directors serve in three classes for staggered terms. All the directors in one
of the classes are elected at each annual meeting of shareholders. Accordingly,
proxies cannot be voted for more than three persons in the election of directors
at the WECo Meeting. Each holder of WECo Common Stock is entitled to a number of
votes for such election equal to the number of shares of WECo Common Stock held
by such shareholder multiplied by the number of directors to be elected, and may
cast all votes for one nominee or distribute the votes, in any proportion, among
as many nominees as the shareholder desires. Unless a shareholder indicates
otherwise on the accompanying proxy form, the persons named therein intend to
vote the shares covered thereby for the election of the three nominees listed
below. No circumstances are presently known which would render any such nominee
unavailable. In the event that any nominee for director shall not be a candidate
for election, it is intended that votes will be cast, pursuant to the
discretionary power granted in the accompanying WECo Proxy, for such substitute
nominee as may be nominated by WECo's Board of Directors. Proxies will be voted
in such a manner as to elect all or as many of the nominees as possible.
WECO'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR
ALL OF THE NOMINEES NAMED BELOW.
The names of the nominees for director and of the other directors not
standing for election in 1996, and information about them, are set forth below:
NOMINEES FOR DIRECTOR
CLASS III (NEW TERM EXPIRES IN 1999)
<TABLE>
<CAPTION>
YEAR FIRST
NAME AND ADDRESS AGE ELECTED AS DIRECTOR
---------------------------------------------------------------- ---- -------------------
<S> <C> <C>
Robert F. Bailey................................................ 63 1988
Trans Republic Energy, L.P.
Midland, Texas
John W. Creighton, Jr........................................... 63 1989
Weyerhaeuser Company
Tacoma, Washington
William P. Vititoe.............................................. 57 1994
Washington Energy Company
Seattle, Washington
</TABLE>
90
<PAGE> 102
OTHER DIRECTORS
CLASS I (TERM EXPIRES IN 1997)
<TABLE>
<CAPTION>
YEAR FIRST
NAME AND ADDRESS AGE ELECTED AS DIRECTOR
---------------------------------------------------------------- ---- -------------------
<S> <C> <C>
Virginia Anderson............................................... 48 1991
Seattle Center, City of Seattle
Seattle, Washington
Tomio Moriguchi................................................. 59 1988
Uwajimaya, Inc.
Seattle, Washington
Sally G. Narodick............................................... 50 1989
Edmark Corporation
Redmond, Washington
</TABLE>
CLASS II (TERM EXPIRES IN 1998)
<TABLE>
<CAPTION>
YEAR FIRST
NAME AND ADDRESS AGE ELECTED AS DIRECTOR
---------------------------------------------------------------- ---- -------------------
<S> <C> <C>
Donald J. Covey................................................. 67 1982
Seattle, Washington
Robert L. Dryden................................................ 62 1991
Boeing Commercial
Airplane Group
Seattle, Washington
</TABLE>
Each of the nominees has served continuously since the date of his or her
first election as a director of WECo.
Provided below is a brief description of the business experience of the
nominees and other directors for the past five years.
CLASS III:
Mr. Bailey has been President of Trans Republic Energy, L.P., an oil and
gas investment company based in Midland, Texas, since January 1992. He is also
President of Mabelle, Inc., an oil and gas production company, also based in
Midland, Texas. Previously, he was President of Alta Energy Corporation,
Midland, Texas, an oil and gas drilling and production company operating
primarily in the southwestern United States.
Mr. Creighton has been President of Weyerhaeuser Company, a forest products
company headquartered in Tacoma, Washington, since 1988.
Mr. Vititoe joined WECo in January 1994. From November 1990 to November
1993, he served as President and Chief Executive Officer of American Natural
Resources Pipeline Co., a natural gas pipeline company. From July 1989 to
October 1990, he served as President of Ameritech Enterprises Group, a
diversified communications company. Prior to that he served as President and
Chief Executive Officer of Michigan Bell Telephone Company from September 1983
to July 1989.
CLASS I:
Ms. Anderson has been Director of the Seattle Center, a large civic center
in Seattle owned by the City of Seattle, since August 1988.
Mr. Moriguchi has been Chairman and Chief Executive Officer of Uwajimaya,
Inc., Seattle, Washington, a food and merchandise distributor, retailer and
exporter since December 1994. Previously, he served as President beginning in
1965. He is also President of Town and Country Travel, Inc., Seattle,
Washington, and President of North American Post Publishing, Seattle,
Washington.
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<PAGE> 103
Mrs. Narodick has been Chairman and Chief Executive Officer of Edmark
Corporation, a Redmond, Washington based company which publishes print and
software educational materials, since October 1989.
CLASS II:
Mr. Covey was Chairman of the Board of Directors of UNICO Properties, Inc.,
Seattle, Washington, from 1992 until his retirement on December 31, 1994. He
served as Chairman and Chief Executive Officer from 1990 to 1992. UNICO
Properties, Inc. manages several major office buildings in downtown Seattle.
Mr. Dryden has been Executive Vice President, Airplane Production, Boeing
Commercial Airplane Group, Seattle, Washington, since January 1990.
Certain directors and nominees are also directors of other companies that
make periodic filings with the SEC as follows: Virginia Anderson -- U.S. Bank of
Washington, a subsidiary of U.S. Bancorporation; Robert F. Bailey -- Texas
Commerce Bank-Midland and Cabot Oil & Gas Corporation; John W. Creighton,
Jr. -- Weyerhaeuser Company, Portland General Corporation, Quality Food Centers,
Inc. and Unocal Corporation; Robert L. Dryden -- U.S. Bank of Washington, a
subsidiary of U.S. Bancorporation; Tomio Moriguchi -- Seafirst Corporation, a
subsidiary of Bank of America, N.T. & S.A.; Sally G. Narodick -- Edmark
Corporation, Pacific Northwest Bank and Penwest; and William P. Vititoe -- Cabot
Oil & Gas Corporation, Comerica Bank and Amerisure Michigan Mutual Insurance
Company.
There are no family relationships between the directors.
WECO BOARD OF DIRECTORS AND COMMITTEES
The full WECo Board of Directors met eight times during the fiscal year
ended September 30, 1995. Each incumbent director attended more than 75 percent
of the aggregate number of meetings of WECo's Board of Directors and committees
on which he or she served.
WECo's Board of Directors has a standing Administrative Committee, Audit
Committee, Compensation and Benefits Committee, Executive Committee and
Nominating Committee. The Audit Committee and the Compensation and Benefits
Committee consist exclusively of nonemployee directors.
The Administrative Committee is currently composed of Mrs. Narodick
(Chairman), Ms. Anderson, Mr. Dryden, Mr. Vititoe and WECo's Chief Financial
Officer, Mr. James P. Torgerson, as a non-director committee member. The
committee is responsible for the administration of the defined contribution and
the defined benefit retirement plans of WECo. The committee met two times during
fiscal 1995.
The Audit Committee is currently composed of Mr. Covey (Chairman), Ms.
Anderson, Mr. Bailey and Mr. Moriguchi. The committee is responsible for
oversight of WECo's and its subsidiaries' corporate accounting practices,
financial reporting process and internal accounting and other financial control
systems. The committee is also responsible for the review of management's
recommendation of independent public accountants. The committee met five times
during fiscal 1995.
The Compensation and Benefits Committee currently consists of Mr. Creighton
(Chairman), Mr. Bailey, Mr. Dryden and Mrs. Narodick. The committee is
responsible for determining appropriate compensation and other benefit measures
for WECo's executive officers. The committee met five times during fiscal 1995.
The Executive Committee currently consists of Mr. Vititoe (Chairman), Mr.
Covey and Mr. Moriguchi. It is authorized to act in lieu of WECo's full Board of
Directors on various matters between WECo Board meetings. The committee met once
during fiscal 1995.
The Nominating Committee currently consists of Mr. Bailey (Chairman), Mr.
Creighton and Mr. Vititoe. The Nominating Committee is responsible for the
identification and evaluation of candidates for election to WECo's Board of
Directors. The committee did not meet during fiscal 1995. The Nominating
Committee will consider nominees to the WECo Board recommended by WECo
shareholders. Any shareholder recommendations for consideration for the 1997
Annual Meeting should be sent to Mr. Bailey,
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<PAGE> 104
Chairman, Nominating Committee, Washington Energy Company, P.O. Box 1869,
Seattle, Washington 98111, so as to be received no later than September 15,
1996.
Section 16(a) of the Exchange Act requires the directors and executive
officers of WECo to file reports of ownership and reports of changes in
ownership of WECo Common Stock with the SEC and the NYSE. Directors and
executive officers are also required by SEC regulations to furnish WECo with
copies of all such reports that they file. Based solely on its review of the
copies of such forms received by it, WECo believes that all filing requirements
applicable to its directors and executive officers were complied with during the
fiscal year ended September 30, 1995, except for a failure to timely report
nonvested stock options awarded in December 1994 to executive officers, which
were reported by amendments filed in December 1995.
BENEFICIAL OWNERSHIP OF WECO DIRECTORS AND OFFICERS
(AS OF DECEMBER 8, 1995)
<TABLE>
<CAPTION>
AMOUNT OF BENEFICIAL PERCENT
NAME OF BENEFICIAL OWNER OWNERSHIP OF CLASS
----------------------------------------------- -------------------- --------
<S> <C> <C>
DIRECTORS
Virginia Anderson.............................. 1,273 --
Robert F. Bailey............................... 4,548 --
Donald J. Covey................................ 6,375 --
John W. Creighton, Jr. ........................ 2,499 --
Robert L. Dryden............................... 4,037 --
Tomio Moriguchi................................ 2,190 --
Sally G. Narodick.............................. 1,499 --
NAMED EXECUTIVE OFFICERS
William P. Vititoe*............................ 69,176(1) --
Timothy J. Hogan............................... 21,892(1) --
James P. Torgerson............................. 28,684(1) --
Robert J. Tomlinson............................ 31,825(1) --
James W. Gustafson............................. 48,767(1) --
Donald H. Gessel............................... 32,000(1) --
All directors and executive officers as a group
(15 persons)................................. 282,671(1) 1.2%
</TABLE>
- ---------------
* Also serves as a director.
(1) Includes unexercised options to acquire shares of WECo Common Stock pursuant
to the SOP as follows: Mr. Vititoe, 65,800 shares; Mr. Hogan, 16,250 shares;
Mr. Torgerson, 24,700 shares; Mr. Tomlinson, 20,850 shares; Mr. Gustafson,
22,100 shares; Mr. Gessel, 20,850 shares; and all directors and executive
officers as a group, 194,750 shares.
WECo is unaware of any person who beneficially owns more than 5% of the
WECo Common Stock.
With respect to each person who has options to acquire WECo Common Stock,
such options are assumed to be outstanding for the purpose of computing
percentage ownership of that person, but are assumed not to be outstanding for
purposes of computing percentage ownership for any other person.
WECO EXECUTIVE COMPENSATION
WECO COMPENSATION AND BENEFITS COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation and Benefits Committee of WECo's Board of Directors (the
"Committee") is composed of outside directors. The establishment and
administration of WECo's executive officer compensation and benefits program is
the Committee's responsibility. The following has been prepared by the
93
<PAGE> 105
Committee composed of the following directors -- John W. Creighton, Jr.
(Chairman), Robert F. Bailey, Robert L. Dryden and Sally G. Narodick.
COMPENSATION OBJECTIVES
The Committee's compensation objectives are:
(a) Total compensation competitive with industry practice sufficient
to attract and retain key executives.
(b) Balanced long- and short-term variable compensation elements tied
to WECo's corporate goals.
(c) Performance-based incentive pay which supports WECo's business
goals.
COMPENSATION COMPONENTS
Executive officer compensation is composed of four elements:
Base Salary. WECo reviews comparative company data prepared by an
independent consultant to ensure that its base compensation levels and annual
adjustments are competitive with industry practices and supportive of its
corporate goals. Base pay and subsequent adjustments are targeted at the 50th
percentile values for the comparative company group. All executive officer pay
adjustments are reviewed and approved by the Committee. Committee approval of
base pay and base pay adjustments depends on the executive's performance,
changes in duties and responsibilities and market-related factors specific to
the executive's responsibilities and those of others in similar positions at
comparative firms.
Annual Incentive Pay. All Vice Presidents and above qualify to receive
annual incentive pay. The purpose of such pay is to enhance the link between
executive officer direct pay and the achievement of corporate, department and
individual goals. The Committee approves all elements and corporate goals of the
annual incentive pay program.
Awards vary by position and performance. Vice Presidents and above can earn
maximum annual incentive awards ranging from 30% to 60% of base salary. The
Chief Executive Officer (the "CEO") can recommend discretionary award
adjustments. In fiscal 1995, each award was based upon a combination of
corporate and department performance objectives, which determined the percentage
of potential pay. In fiscal 1996, awards will be based solely upon corporate
objectives.
Corporate performance may be measured by operating income, operating and
maintenance expense per customer, capital spending limitations and other
financial measures which the Committee may use at its discretion. Incentive pay
is determined at the end of each year by application of the weighting factors to
specific goal performance.
Long-Term Incentive Pay. Long-term incentives in combination with
short-term incentives provide a balanced basis for executive compensation and
achievement. WECo has provided long-term performance incentives to executive
officers through the PSP since 1986. The determination was made at the end of
fiscal 1994 that, due to the losses sustained that year, the minimum performance
objectives of the PSP could not be met for the years 1994 through 1997, thereby
eliminating the incentive to perform provided by the plan. No performance units
were granted under the PSP in fiscal 1995. In December 1994, the WECo Board of
Directors approved the Interim Plan to provide a long-term performance incentive
for the four years, 1995 through 1998, for all officers of WECo and its
subsidiaries. The Interim Plan provides for cash payments at the end of the
four-year performance period based on the percentage of total units awarded
which are earned in each of the four years and the price of the WECo Common
Stock at the end of the performance period. Units are earned in each year based
on a comparison of Total Shareholder Return (appreciation in stock price plus
dividends paid) for WECo shareholders with that of a peer group of gas
distribution companies. The maximum payment a plan participant can receive is
equal to the total number of units awarded multiplied by the WECo Common Stock
price at the end of the four-year performance period. Participants in the
Interim Plan must be employed at September 30, 1998, to be eligible for any
payment under the plan, except in the
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<PAGE> 106
case of retirement, death or disability. The Committee may elect, at its
discretion, to vest any unearned units at the end of the four-year period based
on the Total Shareholder Return for the entire period.
Incentive Stock Options. Under the SOP, incentive stock options, qualified
under Section 422 of the Code, are intended to align management pay and thereby
management motivation with the long-term interests of the shareholders and the
attainment of corporate planning objectives. The Committee grants options at the
fair market value of WECo Common Stock on the date of grant, thereby ensuring
that executives receive a benefit only when the stock price appreciates. The
Committee retains the power to impose terms and conditions on the options
granted under the SOP. Options and derived SARs are for a period not to exceed
10 years. Under current Committee policy, unless otherwise authorized by the
Committee, at least 50% of any payments made pursuant to the SOP are to be paid
in WECo Common Stock and the balance of the payments are to be paid in cash or
shares of WECo Common Stock.
Compensation and Benefits Committee
John W. Creighton, Jr.
Robert F. Bailey
Robert L. Dryden
Sally G. Narodick
CEO COMPENSATION
WECo, WNG and William P. Vititoe entered into the Existing Vititoe
Employment Agreement effective January 15, 1994. Mr. Vititoe was appointed
Chairman and Chief Executive Officer of WECo and WNG on February 25, 1994, and
was also named President of both companies following the retirement of the prior
President on March 1, 1994.
The Existing Vititoe Employment Agreement provided an initial base salary
of $325,000 and a guaranteed, one-time bonus of $100,000 for services in 1994.
The agreement also provided for the granting of options to purchase 40,000
shares of WECo Common Stock at an exercise price of $18.25 per share in
accordance with the SOP. These options vest in accordance with a schedule which
began on January 15, 1994 and concludes with all shares vested as of January 15,
1997. The Existing Vititoe Employment Agreement provided that his base salary
would be reviewed periodically, he would participate in the annual incentive pay
plan and he would be entitled to periodic stock option grants, all in accordance
with WECo policy for officer compensation. Mr. Vititoe's annual salary was
increased to $338,000, effective January 1, 1995 and in December 1994, he was
granted options to purchase 25,800 shares of WECo Common Stock at $13.38 per
share. He also earned $45,100 through the annual incentive pay plan based on
WECo performance in fiscal 1995.
Additionally, the Existing Vititoe Employment Agreement provides for an
annual vacation and other benefits, the use of an automobile to conduct company
business, a reasonable number of initial club membership fees in furtherance of
company business, and a secured, interest-free housing loan for $1,000,000, the
term of which ends at the latest on January 14, 1998.
DEDUCTIBILITY OF COMPENSATION
Section 162(m) of the Code contains potential limitations on the
deductibility of compensation in excess of $1 million paid in any fiscal year to
any of WECo's five highest-paid executive officers. Compensation that is
"performance-based" and meets certain other requirements is not subject to these
limitations. Based on proposed regulations issued by the IRS, WECo believes it
has taken the necessary actions to ensure the deductibility of any compensation
that executive officers might realize in connection with options granted under
the SOP. Upon issuance of final regulations, WECo intends to take actions, to
the extent necessary and possible, to maintain the deductibility of compensation
under the SOP. WECo does not expect payments to any executive officer under
WECo's annual incentive plan and the Interim Plan, when added to the base salary
of the officer, to exceed $1 million in any single fiscal year. Therefore, WECo
does not intend to take any actions to qualify the payments under the annual
incentive plan and the Interim Plan as "performance-based."
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<PAGE> 107
SHAREHOLDER RETURN PERFORMANCE GRAPH
Set forth below is a line graph comparing the annual percentage change in
the cumulative total shareholder return on the WECo Common Stock against the
cumulative total return of the S&P Composite-500 Stock Index and Dow Jones
Utilities Index for the period of five years commencing October 1, 1990 and
ending September 30, 1995.
COMPARISON OF CUMULATIVE TOTAL RETURN
(TOTAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS)
<TABLE>
<CAPTION>
MEASUREMENT PERIOD
(FISCAL YEAR COVERED) WECO S&P 500 DJ UTILITY
<S> <C> <C> <C>
1990 100.00 100.00 100.00
1991 122.18 131.17 114.78
1992 125.90 145.66 126.81
1993 119.64 164.60 151.81
1994 100.70 170.67 117.60
1995 123.98 221.43 148.00
</TABLE>
SUMMARY COMPENSATION TABLE
The following table sets forth the total annual and long-term compensation
paid by WECo and its subsidiaries to the persons who, for the year ended
September 30, 1995, were the Chief Executive Officer and the other five most
highly compensated executive officers of the Company and its subsidiaries (the
"named executives").
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
--------------------------- ---------------------------------
OTHER ALL
ANNUAL SECURITIES OTHER OTHER
COMPEN- UNDERLYING INCENTIVE COMPEN-
NAME AND SALARY BONUS SATION OPTIONS/SARS PAYMENTS SATION
PRINCIPAL POSITION YEAR ($)(1) ($)(2) ($)(3) (#)(4) ($)(5) ($)(6)
- -------------------------------------- ---- ------- ------- ------- ------------ -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
William P. Vititoe.................... 1995 332,596 45,100 34,386 25,800 -- 6,682
Chairman, Chief Executive Officer 1994 230,423 100,000 78,664 40,000 -- 2,437
and President 1993 -- -- -- -- -- --
Timothy J. Hogan...................... 1995 114,000 25,700 13,647 7,850 -- 3,420
Executive Vice President and Chief 1994 99,024 22,500 -- 1,800 14,145 2,970
Operating Officer 1993 94,032 4,600 -- 1,800 23,153 2,820
James P. Torgerson.................... 1995 150,000 15,000 13,647 11,700 -- 4,500
Executive Vice President and Chief 1994 137,346 23,200 -- 2,600 -- 4,119
Administrative and Financial Officer 1993 133,128 8,000 -- 2,600 19,804 3,994
Robert J. Tomlinson................... 1995 145,008 21,800 13,647 7,850 -- 4,350
Sr. Vice President, General Counsel 1994 136,098 8,000 -- 2,600 -- 3,960
and Corporate Secretary 1993 134,532 6,800 -- 2,600 19,804 3,992
</TABLE>
96
<PAGE> 108
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
--------------------------- ---------------------------------
OTHER ALL
ANNUAL SECURITIES OTHER OTHER
COMPEN- UNDERLYING INCENTIVE COMPEN-
NAME AND SALARY BONUS SATION OPTIONS/SARS PAYMENTS SATION
PRINCIPAL POSITION YEAR ($)(1) ($)(2) ($)(3) (#)(4) ($)(5) ($)(6)
- -------------------------------------- ---- ------- ------- ------- ------------ -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
James W. Gustafson.................... 1995 150,000 15,000 13,647 11,700 -- 3,718
Sr. Vice President-Operations, 1994 137,346 7,200 -- 2,600 -- 4,119
Washington Natural Gas Company 1993 133,128 6,800 -- 2,600 19,804 3,350
Donald H. Gessel...................... 1995 147,000 12,000 13,647 7,850 -- 4,054
President, Washington Energy 1994 136,596 6,313 -- 2,600 -- 4,098
Services Company 1993 133,128 8,900 -- 2,600 19,804 3,817
</TABLE>
- ---------------
(1) Mr. Vititoe's 1994 salary reflects service from January 15, 1994. His annual
base salary was $325,000 in 1994.
(2) Incentive compensation is based on performance in the year shown, but
determined and paid the following year. For example, bonuses for fiscal 1995
are based on performance in fiscal 1995 and are measured and paid in the
first quarter of fiscal 1996.
(3) Mr. Vititoe's "Other Annual Compensation" includes moving expenses and
temporary housing expenses of $22,386 and $75,640, for 1995 and 1994,
respectively. The balance of the amounts shown in this column are for other
executive officers' car allowances.
(4) All options granted to executive officers were in tandem with SARs.
(5) Amounts relate to payouts under the PSP further described in the Long-Term
Incentive Pay section.
(6) Amounts reflect the company contribution to individual 401(k) accounts.
1995 STOCK OPTION GRANTS
The following table sets forth the number of stock options which were
granted to each of the named executives during fiscal 1995. In addition, the
table provides the present value of the stock options as of the grant date.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------------
NUMBER OF PERCENTS OF
SECURITIES TOTAL
UNDERLYING OPTIONS/SARS EXERCISE OR
OPTIONS/SARS GRANTED TO BASE GRANT DATE
GRANTED EMPLOYEES IN PRICE EXPIRATION PRESENT VALUE
NAME (#)(1) FISCAL YEAR ($/SH) DATE ($)(2)
- -------------------------------------- ------------ ------------ ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
William P. Vititoe.................... 25,800 15% $13.375 12/15/04 $50,052
Timothy J. Hogan...................... 7,850 5% 13.375 12/15/04 15,229
James P. Torgerson.................... 11,700 7% 13.375 12/15/04 22,698
Robert J. Tomlinson................... 7,850 5% 13.375 12/15/04 15,229
James W. Gustafson.................... 11,700 7% 13.375 12/15/04 22,698
Donald H. Gessel...................... 7,850 5% 13.375 12/15/04 15,229
</TABLE>
- ---------------
(1) The exercise price of the options is the fair market value of WECo Common
Stock on the date of grant. Each option was granted in tandem with a SAR
covering the same number of shares. Any optionee exercising his stock
options loses the corresponding SARs for those shares, and vice versa. Two
separate option grants were made during the year. Options under one grant
vested immediately and options under the other grant vest over an
approximate four-year period. Options granted to the named executives which
are subject to the four-year vesting period are as follows: Mr. Vititoe,
13,300 shares; Mr. Hogan, 5,250 shares; Mr. Torgerson, 9,100 shares; Mr.
Tomlinson, 5,250 shares; Mr. Gustafson, 9,100 shares; and Mr. Gessel, 5,250
shares.
(2) The values shown were calculated using the Black-Scholes option pricing
model, which is based on arbitrary assumptions regarding variables such as
stock price volatility, future dividend yield and interest rates. The actual
value that an executive may realize, if any, will depend on the amount by
which the
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<PAGE> 109
stock price at the time of exercise exceeds the exercise price, which is the
fair market value of the stock at the time of grant. There can be no
assurance that any executive will receive the amounts estimated by the
Black-Scholes model.
AGGREGATED OPTION/SAR EXERCISES IN FISCAL 1995 AND FISCAL YEAR END OPTION/SAR
VALUES
The following table sets forth certain information regarding stock options
(or tandem SARs) exercised during fiscal 1995 by each of the named executives
and the fiscal year-end value of the unexercised stock options (and tandem
SARs), provided on an aggregated basis.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS/SARS AT OPTIONS/SARS AT
FISCAL YEAR END FISCAL YEAR END
SHARES --------------------------- ---------------------------
ACQUIRED ON VALUE EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
NAME EXERCISE(#) REALIZED($) (#) (#) ($)(1) ($)(1)
- ----------------------------- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
William P. Vititoe........... -- -- 32,500 33,300 46,875 49,875
Timothy J. Hogan............. -- -- 11,000 5,250 9,750 19,688
James P. Torgerson........... -- -- 15,600 9,100 9,750 34,125
Robert J. Tomlinson.......... -- -- 15,600 5,250 9,750 19,688
James W. Gustafson........... -- -- 13,000 9,100 9,750 34,125
Donald H. Gessel............. -- -- 15,600 5,250 9,750 19,688
</TABLE>
- ---------------
(1) The value of the unexercised options/SARs is calculated as the excess of the
WECo Common Stock price of $17.125 over the exercise price multiplied by the
number of options for each grant under which options/SARs are outstanding.
LONG-TERM INCENTIVE PLAN -- AWARDS IN FISCAL 1995
<TABLE>
<CAPTION>
ESTIMATED FUTURE
PAYOUTS
UNDER NON-STOCK
UNITS PRICE-BASED PLANS
AWARDED ---------------------
BEGINNING OF PERIOD UNTIL UNITS EARNED MINIMUM MAXIMUM
NAME 1995(#)(1) PAYOUT TO DATE(#)(2) (#)(3) (#)(4)
- ------------------------------------ ------------ ------------ ------------- ------- -------
<S> <C> <C> <C> <C> <C>
William P. Vititoe.................. 11,400 4 years 1,710 1,710 11,400
Timothy J. Hogan.................... 7,800 4 years 1,170 1,170 7,800
James P. Torgerson.................. 7,800 4 years 1,170 1,170 7,800
Robert J. Tomlinson................. 7,800 4 years 1,170 1,170 7,800
James W. Gustafson.................. 7,800 4 years 1,170 1,170 7,800
Donald H. Gessel.................... 7,800 4 years 1,170 1,170 7,800
</TABLE>
- ---------------
(1) Represents the number of units assigned under the Interim Plan. Dependent
upon satisfaction of future performance objectives of WECo, each unit can
represent the right to receive a cash payment equal to the value of up to
one share of WECo Common Stock.
(2) Represents the number of units earned based on WECo financial performance in
fiscal 1995, the first year of the plan.
(3) Corresponds to the number of units earned since the plan was initiated for
which a cash payment will be made subsequent to the end of the four-year
performance period on September 30, 1998. The payment will be calculated as
the number of units earned during the performance period multiplied by the
WECo Common Stock price at the end of the four-year performance period. The
payment is contingent upon continued employment through September 30, 1998.
(4) Represents the maximum number of units which can be earned over the
four-year performance period for which a payment will be made as described
in (3) above. The Committee may elect, at its discretion, to vest any
unearned units at the end of the four-year period based on the Total
Shareholder Return for the entire period.
98
<PAGE> 110
FUTURE BENEFITS -- PENSION PLANS
WNG maintains a qualified defined benefit retirement plan (the "Retirement
Plan") that covers the named executives and all other employees who satisfy
certain eligibility requirements relating to age, length of service and hours
worked in each year. In addition, WECo has entered into individual agreements
with its executive officers, including all the named executives, that provide
these officers with certain retirement, death and disability benefits
supplementing the benefits available to them under the Retirement Plan.
The following table sets forth the aggregate annual pension benefits
payable upon retirement at age 62 to the named executives, based on specified
years of service and levels of remuneration, under the Retirement Plan and the
individual agreements for supplemental retirement benefits.
RETIREMENT PLAN AND SUPPLEMENTAL RETIREMENT BENEFITS TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
------------------------------------------------------------
ANNUAL COMPENSATION 5 10 15 20 25
-------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$100,000........... $ 55,000 $ 55,000 $ 55,000 $ 55,000 $ 55,000
125,000........... 72,500 72,500 72,500 72,500 72,500
150,000........... 90,000 90,000 90,000 90,000 90,000
200,000........... 125,000 125,000 125,000 125,000 125,000
300,000........... 195,000 195,000 195,000 195,000 195,000
325,000........... 212,500 212,500 212,500 212,500 212,500
350,000........... 230,000 230,000 230,000 230,000 230,000
</TABLE>
Remuneration covered by the Retirement Plan and the individual agreements
for supplemental retirement benefits is based on the officer's average salary
for the three years where the officer's salary was the highest during the last
eight years preceding the officer's retirement. The pension benefits shown in
the table are based on a single-life annuity (with ten-year term certain) and
have been reduced by an offset for estimated Social Security benefits. In
certain cases, a reduced level of benefits may be available to an officer's
surviving spouse following the death of the officer. Under the individual
agreements for supplemental retirement benefits, pension benefits are available
to the named executives without regard to years of service with WECo. Based on
compensation through September 30, 1995, the remuneration of the named
executives upon which retirement benefits will be based is as follows: Mr.
Vititoe, $328,798; Mr. Hogan, $102,352; Mr. Torgerson, $140,158; Mr. Tomlinson,
$138,546; Mr. Gustafson, $140,158; and Mr. Gessel, $138,908.
EMPLOYMENT AGREEMENTS
For a description of WECo's employment agreements with its named
executives, see "The Merger -- Conflicts of Interest of Certain Persons in the
Merger."
COMPENSATION OF DIRECTORS
Remuneration of Directors: Commencing in fiscal 1996, each WECo director
who is not also an officer of WECo or its subsidiaries is paid a retainer of
$10,000 per year and an additional $2,000 per year for serving on the Executive
Committee or as Chairman of another committee of WECo's Board of Directors. In
addition, each such director is paid a fee of $800 for attending a regular,
special or annual meeting of WECo's Board of Directors or for a committee
meeting not held on the same day as a WECo Board meeting. None of such directors
is eligible to participate in any of the compensation plans described above.
WECo also has a Directors Stock Bonus Plan, which was approved by WECo's
shareholders in February 1991. Under this plan, an outside director is awarded
200 shares of WECo Common Stock in January of each year for service on WECo's
Board of Directors for the prior fiscal year. During fiscal 1995, 1,400 shares
of WECo Common Stock were awarded under the Directors Stock Bonus Plan. WECo
pays no additional remuneration to employees of WECo who are directors.
99
<PAGE> 111
LEGAL MATTERS
The validity of the Company Common Stock and the New Company Preferred
Stock to be issued by the Company in connection with the Merger will be passed
upon by Perkins Coie, Seattle, Washington.
CERTAIN EXPENSES AND FEES
Under the Merger Agreement, all costs and expenses incurred in connection
with printing and filing this Joint Proxy Statement/Prospectus and the
Registration Statement, as well as the filing fee relating thereto, will be
shared equally by Puget, on the one hand, and WECo and WNG, on the other, except
as otherwise provided by the provisions of the Merger Agreement relating to the
payment under certain circumstances of a party's expenses by the other party in
the event of termination of the Merger Agreement. See "The Merger
Agreement -- Termination; Fees and Expenses."
The cost of soliciting proxies from holders of Puget Common Stock will be
borne by Puget, and the cost of soliciting proxies from holders of WECo Common
Stock and WNG Preferred Stock will be borne by WECo and WNG, respectively. In
addition to soliciting proxies by mail, directors, officers, employees and
agents of Puget, without receiving additional compensation therefor, may solicit
proxies by telephone, by telegram or in person. Puget has retained Beacon Hill
Partners to assist in the solicitation of proxies; the fee to be paid to such
firm is not expected to exceed $40,000, plus reimbursement of reasonable
out-of-pocket costs and expenses. Puget will also make arrangements with
brokerage firms and other custodians, nominees and fiduciaries to send proxy
material to their principals. In addition to soliciting proxies by mail,
directors, officers, employees and agents of WECo and WNG, without receiving
additional compensation therefor, may solicit proxies by telephone, by telegram
or in person. WECo and WNG have also retained Beacon Hill Partners to assist in
the solicitation of proxies; the fee to be paid to such firm is not expected to
exceed $25,000, plus reimbursement of reasonable out-of-pocket costs and
expenses. WECo and WNG will also make arrangements with brokerage firms and
other custodians, nominees and fiduciaries to send proxy material to their
principals.
Except as set forth above, whether or not the Merger is consummated, all
costs and expenses incurred in connection with the Merger Agreement and the
transactions contemplated thereby shall be paid by the party incurring such
expenses.
ACCOUNTANTS' REPRESENTATIVES
It is expected that representatives of Coopers & Lybrand L.L.P., Puget's
independent accountants, will be present at the Puget Special Meeting to respond
to appropriate questions of shareholders and to make a statement, if they so
desire. Any questions should be submitted in advance in writing to James W.
Eldredge, Corporate Secretary, Puget Sound Power & Light Company, 411 -- 108th
Avenue N.E., 15th Floor, Bellevue, Washington 98004-5515. It is also expected
that representatives of Arthur Andersen LLP, WECo's and WNG's independent
accountants, will be present at the WECo Meeting and the WNG Special Meeting to
respond to appropriate questions of shareholders and to make a statement, if
they so desire. Any questions should be submitted in advance in writing to
Robert J. Tomlinson, Secretary, Washington Energy Company, P.O. Box 1869, 815
Mercer Street, Seattle, Washington 98111-1869.
EXPERTS
The consolidated financial statements and related financial statement
schedule of Puget as of December 31, 1993 and 1994 and for each of the three
years in the period ended December 31, 1994 incorporated in this Joint Proxy
Statement/Prospectus by reference from the Puget 1994 10-K have been
incorporated by reference in reliance on the report of Coopers & Lybrand L.L.P.,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
The consolidated balance sheets and consolidated statements of
capitalization of WECo and WNG as of September 30, 1994 and 1995 and the
consolidated statements of income, shareholders' earnings reinvested in
100
<PAGE> 112
the business and premiums on capital stock and cash flows for each of the years
in the period ended September 30, 1995, incorporated herein by reference from
the WECo 1995 10-K, have been incorporated herein in reliance on the report of
Arthur Andersen LLP, independent accountants, given on the authority of that
firm as experts in accounting and auditing.
The balance sheets and statements of capitalization of WNG as of September
30, 1994 and 1995 and the statements of income, shareholders' earnings
reinvested in the business and premiums on capital stock and cash flows for each
of the three years in the period ended September 30, 1995, incorporated herein
by reference from the WECo 1995 10-K, have been incorporated herein in reliance
on the report of Arthur Andersen LLP, independent accountants, given upon the
authority of that firm as experts in accounting and auditing.
OTHER MATTERS
As of the date of this Joint Proxy Statement/Prospectus, the Board of
Directors of each of Puget, WECo and WNG know of no matters to be presented for
consideration at the Shareholders Meetings other than as set forth in the
Notices of the Shareholders Meetings attached to this Joint Proxy
Statement/Prospectus. However, if any other matters shall come before the
Shareholders Meetings or any adjournments or postponements thereof and shall be
voted upon, the Puget Proxy, the WECo Proxy and the WNG Proxy shall be deemed to
confer discretionary authority to the individuals named or authorized therein to
vote the shares represented by such proxy as to any such matters in accordance
with their best judgment on such matters.
SHAREHOLDER PROPOSALS
Shareholder proposals intended to be presented at Puget's 1997 Annual
Meeting of Shareholders must be received by Puget no later than November 23,
1996 to be eligible for inclusion in Puget's proxy statement and form of proxy
relating to that meeting. Any such proposals should be directed to James W.
Eldredge, Corporate Secretary, Puget Sound Power & Light Company, 411 -- 108th
Avenue N.E., 15th Floor, Bellevue, Washington 98004-5515.
Shareholder proposals intended to be presented at WECo's 1997 Annual
Meeting of Shareholders must be received by WECo no later than September 15,
1996 to be eligible for inclusion in WECo's proxy statement and form of proxy
relating to that meeting. Any such proposals should be directed to Robert J.
Tomlinson, Secretary, Washington Energy Company, P.O. Box 1869, 815 Mercer
Street, Seattle, Washington 98111-1869. If the Merger is effected, no WECo
Annual Meeting of Shareholders will be held in 1997.
101
<PAGE> 113
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 114
ANNEX A
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
PUGET SOUND POWER & LIGHT COMPANY,
WASHINGTON ENERGY COMPANY
AND
WASHINGTON NATURAL GAS COMPANY
DATED AS OF OCTOBER 18, 1995
A-1
<PAGE> 115
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I THE MERGER.............................................................. A-7
Section 1.1 The Merger............................................................ A-7
Section 1.2 Effective Time of the Merger.......................................... A-7
Section 1.3 Articles of Incorporation............................................. A-8
Section 1.4 Effects of Merger..................................................... A-8
ARTICLE II CONVERSION OF SHARES.................................................... A-8
Section 2.1 Effect of Merger on Capital Stock..................................... A-8
Section 2.2 Dissenting Shares..................................................... A-9
Section 2.3 Exchange of Certificates.............................................. A-9
ARTICLE III THE CLOSING............................................................. A-11
Section 3 Closing............................................................... A-11
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF WECO AND WNG.......................... A-11
Section 4.1 Organization and Qualification........................................ A-11
Section 4.2 Subsidiaries.......................................................... A-11
Section 4.3 Capitalization........................................................ A-12
Section 4.4 Authority; Noncontravention; Statutory Approvals; Compliance.......... A-12
Section 4.5 Reports and Financial Statements...................................... A-14
Section 4.6 Absence of Certain Changes or Events.................................. A-14
Section 4.7 Litigation............................................................ A-14
Section 4.8 Registration Statement and Proxy Statement............................ A-14
Section 4.9 Tax Matters........................................................... A-15
Section 4.10 Employee Matters; ERISA............................................... A-17
Section 4.11 Environmental Protection.............................................. A-19
Section 4.12 Regulation as a Utility............................................... A-20
Section 4.13 Vote Required......................................................... A-21
Section 4.14 Accounting Matters.................................................... A-21
Section 4.15 Applicability of Certain Washington Law............................... A-21
Section 4.16 Opinion of Financial Advisor.......................................... A-21
Section 4.17 Insurance............................................................. A-21
Section 4.18 Ownership of Puget Common Stock....................................... A-22
ARTICLE V REPRESENTATIONS AND WARRANTIES OF PUGET................................. A-22
Section 5.1 Organization and Qualification........................................ A-22
Section 5.2 Subsidiaries.......................................................... A-22
Section 5.3 Capitalization........................................................ A-22
Section 5.4 Authority; Noncontravention; Statutory Approvals; Compliance.......... A-23
Section 5.5 Reports and Financial Statements...................................... A-24
Section 5.6 Absence of Certain Changes or Events.................................. A-24
Section 5.7 Litigation............................................................ A-24
Section 5.8 Registration Statement and Proxy Statement............................ A-25
Section 5.9 Tax Matters........................................................... A-25
Section 5.10 Employee Matters; ERISA............................................... A-27
Section 5.11 Environmental Protection.............................................. A-29
Section 5.12 Regulation as a Utility............................................... A-30
Section 5.13 Vote Required......................................................... A-30
</TABLE>
A-2
<PAGE> 116
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Section 5.14 Accounting Matters.................................................... A-30
Section 5.15 Applicability of Certain Washington Law............................... A-30
Section 5.16 Opinion of Financial Advisor.......................................... A-30
Section 5.17 Insurance............................................................. A-30
Section 5.18 Ownership of WeCo Common Stock........................................ A-30
Section 5.19 Puget Rights Agreement................................................ A-31
ARTICLE VI CONDUCT OF BUSINESS PENDING THE MERGER................................... A-31
Section 6.1 Ordinary Course of Business........................................... A-31
Section 6.2 Dividends............................................................. A-31
Section 6.3 Issuance of Securities................................................ A-32
Section 6.4 Charter Documents..................................................... A-32
Section 6.5 No Acquisitions....................................................... A-32
Section 6.6 Capital Expenditures.................................................. A-32
Section 6.7 No Dispositions....................................................... A-33
Section 6.8 Indebtedness.......................................................... A-33
Section 6.9 Compensation; Benefits................................................ A-33
Section 6.10 1935 Act; Federal Power Act........................................... A-33
Section 6.11 Accounting............................................................ A-34
Section 6.12 Pooling............................................................... A-34
Section 6.13 Tax-Free Status....................................................... A-34
Section 6.14 Affiliate Transactions................................................ A-34
Section 6.15 Cooperation, Notification............................................. A-34
Section 6.16 Rate Matters.......................................................... A-34
Section 6.17 Third-Party Consents.................................................. A-35
Section 6.18 No Breach, Etc........................................................ A-35
Section 6.19 Tax Matters........................................................... A-35
Section 6.20 Discharge of Liabilities.............................................. A-35
Section 6.21 Insurance............................................................. A-35
Section 6.22 Permits............................................................... A-35
ARTICLE VII ADDITIONAL AGREEMENTS.................................................... A-36
Section 7.1 Access to Information................................................. A-36
Section 7.2 Joint Proxy Statement and Registration Statement...................... A-36
Section 7.3 Regulatory Matters.................................................... A-37
Section 7.4 Shareholder Approval.................................................. A-37
Section 7.5 Directors' and Officers' Indemnification.............................. A-38
Section 7.6 Disclosure Schedules.................................................. A-39
Section 7.7 Public Announcements.................................................. A-39
Section 7.8 Rule 145 Affiliates................................................... A-39
Section 7.9 Employee Agreements and Work-Force Matters............................ A-39
Section 7.10 Employee Benefit Plans................................................ A-40
Section 7.11 Incentive, Stock and Other Plans...................................... A-43
Section 7.12 Indebtedness.......................................................... A-44
Section 7.13 No Solicitations...................................................... A-44
Section 7.14 Company Board of Directors............................................ A-44
Section 7.15 Company Officers...................................................... A-45
Section 7.16 Employment Contracts.................................................. A-45
Section 7.17 Transition Management................................................. A-45
</TABLE>
A-3
<PAGE> 117
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Section 7.18 Expenses.............................................................. A-45
Section 7.19 Further Assurances.................................................... A-45
ARTICLE VIII CONDITIONS............................................................... A-46
Section 8.1 Conditions to Each Party's Obligations to Effect the Merger........... A-46
Section 8.2 Conditions to Obligations of WeCo and WNG to Effect the Merger........ A-47
Section 8.3 Conditions to Obligations of Puget to Effect the Merger............... A-47
ARTICLE IX TERMINATION, AMENDMENT AND WAIVER........................................ A-48
Section 9.1 Termination........................................................... A-48
Section 9.2 Effect of Termination................................................. A-50
Section 9.3 Termination Fee; Expenses............................................. A-50
Section 9.4 Amendment............................................................. A-51
Section 9.5 Waiver................................................................ A-51
ARTICLE X GENERAL PROVISIONS....................................................... A-52
Section 10.1 Nonsurvival of Representations, Warranties, Covenants and
Agreements............................................................ A-52
Section 10.2 Brokers............................................................... A-52
Section 10.3 Notices............................................................... A-52
Section 10.4 Miscellaneous......................................................... A-53
Section 10.5 Interpretation........................................................ A-53
Section 10.6 Counterparts; Effect.................................................. A-54
Section 10.7 Parties in Interest................................................... A-54
Section 10.8 Remedies.............................................................. A-54
Exhibit 1.3 Form of Amendment to Amended and Restated Articles of Incorporation of the
Company and Certificate of Designation relating to New Series II Preferred
Stock and New Series III Preferred Stock
Exhibit 7.8 Form of Affiliate Agreement
Exhibit 7.16.1 Employment Agreement between the Company and Richard R. Sonstelie
Exhibit 7.16.2 Employment Agreement between the Company and William P. Vititoe
Exhibit A Puget Stock Option Agreement
Exhibit B WeCo Stock Option Agreement
</TABLE>
A-4
<PAGE> 118
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
TERM PAGE
- ------------------------------------------------------------------------------------- ----
<S> <C>
1935 Act............................................................................. A-11
affiliate............................................................................ A-11
Affiliate Agreement.................................................................. A-39
Agreement............................................................................ A-7
Business Combination................................................................. A-49
Certificates......................................................................... A-9
Closing.............................................................................. A-11
Closing Agreement.................................................................... A-16
Closing Date......................................................................... A-11
Code................................................................................. A-7
Company.............................................................................. A-7
Company Common Stock................................................................. A-8
Company Preferred Stock.............................................................. A-9
Company Shares....................................................................... A-9
Company Stock Plan................................................................... A-42
Confidentiality Agreement............................................................ A-36
control.............................................................................. A-21
Converted Shares..................................................................... A-9
Disclosure Schedules................................................................. A-39
Effective Time....................................................................... A-8
Environmental Claim.................................................................. A-20
Environmental Laws................................................................... A-20
Environmental Permits................................................................ A-19
Exchange Act......................................................................... A-14
Exchange Agent....................................................................... A-9
FERC................................................................................. A-14
Final Order.......................................................................... A-46
GAAP................................................................................. A-14
Governmental Authority............................................................... A-13
Hazardous Materials.................................................................. A-20
HSR Act.............................................................................. A-37
Indemnified Party.................................................................... A-38
Initial Termination Date............................................................. A-48
IRS.................................................................................. A-16
Joint Proxy Statement/Prospectus..................................................... A-15
joint venture........................................................................ A-11
Merger............................................................................... A-7
New Series II Preferred Stock........................................................ A-8
New Series III Preferred Stock....................................................... A-8
NYSE................................................................................. A-10
Puget................................................................................ A-7
Puget Disclosure Schedule............................................................ A-39
Puget Financial Statements........................................................... A-24
Puget Joint Ventures................................................................. A-22
Puget Material Adverse Effect........................................................ A-22
Puget Preferred Stock................................................................ A-22
Puget Required Consents.............................................................. A-23
Puget Required Statutory Approvals................................................... A-23
Puget Rights Agreement............................................................... A-8
Puget SEC Reports.................................................................... A-24
</TABLE>
A-5
<PAGE> 119
<TABLE>
<CAPTION>
TERM PAGE
- ------------------------------------------------------------------------------------- ----
<S> <C>
Puget Shareholders' Approval......................................................... A-30
Puget Special Meeting................................................................ A-37
Puget Stock Option Agreement......................................................... A-7
Puget Subsidiaries................................................................... A-22
Ratio................................................................................ A-8
Registration Statement............................................................... A-14
Representatives...................................................................... A-36
Rights............................................................................... A-8
SEC.................................................................................. A-14
Securities Act....................................................................... A-14
Shareholder Disapproval.............................................................. A-51
subsidiary........................................................................... A-11
Target Party......................................................................... A-51
Task Force........................................................................... A-45
Tax Return........................................................................... A-15
Tax Ruling........................................................................... A-16
Taxes................................................................................ A-15
Three-Year Period.................................................................... A-54
Violation............................................................................ A-13
WBCA................................................................................. A-7
WeCo................................................................................. A-7
WeCo Common Shareholders' Approval................................................... A-21
WeCo Common Stock.................................................................... A-8
WeCo Disclosure Schedule............................................................. A-39
WeCo Dissenting Common Shares........................................................ A-9
WeCo Dissenting Shares............................................................... A-9
WeCo Financial Statements............................................................ A-14
WeCo Joint Venture................................................................... A-11
WeCo Material Adverse Effect......................................................... A-11
WeCo Preferred Stock................................................................. A-11
WeCo Required Consents............................................................... A-13
WeCo Required Statutory Approvals.................................................... A-13
WeCo SEC Reports..................................................................... A-14
WeCo Special Meetings................................................................ A-37
WeCo Stock Option Agreement.......................................................... A-7
WeCo Stock Plans..................................................................... A-43
WeCo/Puget Merger.................................................................... A-7
WeCo/WNG/Puget Merger................................................................ A-7
Washington Natural Gas............................................................... A-8
WNG Common Stock..................................................................... A-8
WNG Dissenting Preferred Shares...................................................... A-9
WNG Preferred Shareholders' Approval................................................. A-21
WNG Series II Preferred Stock........................................................ A-8
WNG Series III Preferred Stock....................................................... A-8
WNG Subsidiaries..................................................................... A-11
WUTC................................................................................. A-11
</TABLE>
A-6
<PAGE> 120
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of October 18, 1995 (this
"Agreement"), by and among Puget Sound Power & Light Company, a Washington
corporation ("Puget," and after the Effective Time (as defined below), the
"Company"), Washington Energy Company, a Washington corporation ("WeCo"), and
Washington Natural Gas Company, a Washington corporation and a wholly owned
subsidiary of WeCo ("WNG").
WHEREAS, Puget, WeCo and WNG have determined to engage in a business
combination as peer firms in a merger of equals;
WHEREAS, in furtherance thereof the respective Boards of Directors of
Puget, WeCo and WNG, and WeCo as the sole holder of all outstanding shares of
common stock of WNG, have approved the merger of WeCo and WNG (or in certain
circumstances described herein, the merger of WeCo only) with and into Puget,
and the change of Puget's corporate name to a name to be chosen by mutual
agreement of the parties, all pursuant to the terms and conditions set forth in
this Agreement;
WHEREAS, the Board of Directors of Puget has approved and Puget has
executed an agreement with WeCo in the form of Exhibit A (the "Puget Stock
Option Agreement") and the Board of Directors of WeCo has approved and WeCo has
executed an agreement with Puget in the form of Exhibit B (the "WeCo Stock
Option Agreement") whereby each of Puget and WeCo, respectively, has granted to
the other an option to purchase shares of its common stock on the terms and
conditions provided in such agreement; and
WHEREAS, for federal income tax purposes, it is intended that the Merger
will constitute a reorganization under Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code");
NOW THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements contained herein, the parties hereto,
intending to be legally bound hereby, agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1 THE MERGER
(a) WeCo/WNG/Puget Merger. Upon the terms and subject to the conditions of
this Agreement, at the Effective Time (as defined in Section 1.2), each of WeCo
and WNG shall be merged with and into Puget (the "WeCo/WNG/Puget Merger"), and
the separate corporate existence and organization of each of WeCo and WNG shall
thereupon cease as and to the extent provided in Section 23B.11.060 of the
Washington Business Corporation Act (the "WBCA").
(b) WeCo/Puget Merger. Notwithstanding Section 1.1(a), if at the WeCo
Special Meetings (as defined in Section 7.4), the WeCo Common Shareholders'
Approval (as defined in Section 4.13) has been obtained but the WNG Preferred
Shareholders' Approval (as defined in Section 4.13) has not been obtained, then
upon the terms and subject to the conditions of this Agreement, at the Effective
Time, only WeCo shall be merged with and into Puget (the "WeCo/Puget Merger")
and the separate corporate existence and organization of WeCo shall thereupon
cease as and to the extent provided in Section 23B.11.060 of the WBCA. As used
in this Agreement, the term "Merger" shall refer to the WeCo/WNG/Puget Merger or
the WeCo/Puget Merger, as applicable.
(c) Surviving Corporation. Puget shall be the surviving corporation in the
Merger, the corporate name of Puget shall be changed to a name to be chosen by
mutual agreement of the parties, and the Company shall continue its existence
under the provisions of the WBCA.
SECTION 1.2 EFFECTIVE TIME OF THE MERGER
On the Closing Date (as defined in Section 3), articles of merger shall be
executed by the parties to the Merger and filed with the Secretary of State of
the State of Washington pursuant to the WBCA. The Merger
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shall become effective at the time specified in the articles of merger as so
filed, such time being herein called the "Effective Time."
SECTION 1.3 ARTICLES OF INCORPORATION
The Articles of Incorporation of Puget shall as of the Effective Time be
amended as set forth in Exhibit 1.3, and such Articles of Incorporation as so
amended shall be the Articles of Incorporation of the Company after the
Effective Time until duly amended.
SECTION 1.4 EFFECTS OF MERGER
The Merger shall have the effects set forth in Section 23B.11.060 of the
WBCA.
ARTICLE II
CONVERSION OF SHARES
SECTION 2.1 EFFECT OF MERGER ON CAPITAL STOCK
At the Effective Time, by virtue of the Merger and without any action on
the part of any holder of any capital stock of WeCo, WNG, Puget or the Company:
(a) Cancellation of Certain WeCo Common Stock. Each share of WeCo Common
Stock (as defined in Section 2.1(b)) that is owned by direct or indirect
subsidiaries of WeCo or by Puget or any of its direct or indirect subsidiaries
shall be cancelled and cease to exist.
(b) Conversion of WeCo Common Stock. Each issued and outstanding share of
Common Stock of WeCo, par value $5 per share (the "WeCo Common Stock"), other
than WeCo Dissenting Common Shares (as defined in Section 2.2(a)) and shares
cancelled pursuant to Section 2.1(a), shall be converted into the right to
receive 0.86 (the "Ratio") fully paid and nonassessable shares of Common Stock,
stated value $10 per share, of the Company (the "Company Common Stock"),
together with the associated purchase rights (the "Rights") under the Rights
Agreement between Puget and The Chase Manhattan Bank, N.A. dated as of January
15, 1991, as amended (the "Puget Rights Agreement"). Upon such conversion, all
such shares of WeCo Common Stock shall be cancelled and cease to exist, and each
holder of a certificate representing any such shares shall cease to have any
rights with respect thereto, except the right to receive the shares of Company
Common Stock and Rights to be issued in consideration therefor upon the
surrender of such certificate in accordance with Section 2.3.
(c) Cancellation of WNG Common Stock. If pursuant to Section 1.1 the
WeCo/WNG/Puget Merger is to be effected, each share of Common Stock, par value
$5 per share, of WNG (the "WNG Common Stock") shall be cancelled and cease to
exist.
(d) Conversion of WNG Preferred Stock. If pursuant to Section 1.1 the
WeCo/WNG/Puget Merger is to be effected, each issued and outstanding share of
7.45% Series II Preferred Stock of WNG, par value $25 per share (the "WNG Series
II Preferred Stock"), other than WNG Dissenting Preferred Shares (as defined in
Section 2.2(b)), shall be converted into the right to receive one fully paid and
nonassessable share of a series of 7.45% preferred stock of the Company (the
"New Series II Preferred Stock") with like rights and preferences (including par
value, dividends, redemption provisions and rights upon liquidation) to the
cancelled series of WNG Series II Preferred Stock. The rights and preferences of
the New Series II Preferred Stock are set forth in the form of Certificate of
Designation attached in Exhibit 1.3. If pursuant to Section 1.1 the
WeCo/WNG/Puget Merger is to be effected, each issued and outstanding share of
8.50% Series III Preferred Stock of WNG, par value $25 per share (the "WNG
Series III Preferred Stock"), other than WNG Dissenting Preferred Shares, shall
be converted into the right to receive one fully paid and nonassessable share of
a series of 8.50% preferred stock of the Company (the "New Series III Preferred
Stock") with like rights and preferences (including par value, dividends,
redemption provisions and rights upon liquidation) to the cancelled series of
WNG Series III Preferred Stock. The rights and preferences of
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the New Series III Preferred Stock are set forth in the form of Certificate of
Designation attached in Exhibit 1.3. Upon such conversion, all such shares of
WNG Series II Preferred Stock and WNG Series III Preferred Stock shall be
cancelled and cease to exist, and each holder of a certificate representing any
such shares shall cease to have any rights with respect thereto, except the
right to receive the shares of New Series II Preferred Stock and New Series III
Preferred Stock, as the case may be (collectively, the "Company Preferred
Stock"), to be issued in consideration therefor upon surrender of such
certificate in accordance with Section 2.3.
SECTION 2.2 DISSENTING SHARES
(a) WeCo Dissenting Common Shares. Shares of WeCo Common Stock held by any
holder entitled to and seeking relief as a dissenting shareholder under Section
23B.13.020 of the WBCA (the "WeCo Dissenting Common Shares") shall not be
converted into the right to receive Company Common Stock but shall be converted
into such consideration as may be due with respect to such shares pursuant to
the applicable provisions of the WBCA, unless and until the right of such holder
to receive fair cash value for such WeCo Dissenting Common Shares terminates in
accordance with Section 23B.13.020 of the WBCA. If such right is terminated
otherwise than by the purchase of such shares by the Company, then such shares
shall cease to be WeCo Dissenting Common Shares and shall be converted into and
represent the right to receive Company Common Stock as provided in Section
2.1(b).
(b) WNG Dissenting Preferred Shares. If pursuant to Section 1.1 the
WeCo/WNG/Puget Merger is to be effected, shares of WNG Series II Preferred Stock
or WNG Series III Preferred Stock held by any holder entitled to and seeking
relief as a dissenting shareholder under Section 23B.13.020 of the WBCA (the
"WNG Dissenting Preferred Shares" and, together with the WeCo Dissenting Common
Shares, the "WeCo Dissenting Shares") shall not be converted into the right to
receive Company Preferred Stock but shall be converted into such consideration
as may be due with respect to such shares pursuant to the applicable provisions
of the WBCA, unless and until the right of such holder to receive fair cash
value for such WNG Dissenting Preferred Shares terminates in accordance with
Section 23B.13.020 of the WBCA. If such right is terminated otherwise than by
the purchase of such shares by the Company, then such shares shall cease to be
WNG Dissenting Preferred Shares and shall be converted into and represent the
right to receive Company Preferred Stock as provided in Section 2.1(d).
SECTION 2.3 EXCHANGE OF CERTIFICATES
(a) Deposit With Exchange Agent. As soon as practicable after the
Effective Time, the Company shall deposit with a bank or trust company mutually
agreeable to Puget and WeCo (the "Exchange Agent") certificates representing
shares of Company Common Stock and Company Preferred Stock, if applicable,
required to effect the exchanges referred to in Section 2.1, together with cash
payable in respect of fractional shares pursuant to Section 2.3(d).
(b) Exchange Procedures. As soon as practicable after the Effective Time,
the Exchange Agent shall mail to each holder of record of a certificate or
certificates which immediately prior to the Effective Time represented
outstanding shares of WeCo Common Stock or WNG Preferred Stock, if applicable
(the "Certificates") that were converted (the "Converted Shares") into the right
to receive shares of Company Common Stock (and associated Rights) or Company
Preferred Stock, if applicable (together, the "Company Shares") pursuant to
Section 2.1, (i) a letter of transmittal (which shall specify that delivery
shall be effected, and risk of loss and title to the Certificates shall pass,
only upon actual delivery of the Certificates to the Exchange Agent) and (ii)
instructions for use in effecting the surrender of the Certificates in exchange
for certificates representing Company Shares and Rights (as applicable). Upon
surrender of a Certificate to the Exchange Agent (or to such other agent or
agents as may be appointed by agreement of Puget and WeCo), together with a duly
executed letter of transmittal and such other documents as the Exchange Agent
shall require, the holder of such Certificate shall be entitled to receive in
exchange therefor a certificate representing that number of whole Company Shares
and Rights (as applicable) which such holder has the right to receive pursuant
to the provisions of this Article II. In the event of a transfer of ownership of
Converted Shares which is not registered in the transfer records of Puget, WeCo
or WNG, as the case may be,
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a certificate representing the proper number of Company Shares and Rights (as
applicable) may be issued to a transferee if the Certificate representing such
Converted Shares is presented to the Exchange Agent, accompanied by all
documents required to evidence and effect such transfer and by evidence
satisfactory to the Exchange Agent that any applicable stock transfer taxes have
been paid. If any Certificate shall have been lost, stolen, mislaid or
destroyed, upon receipt of (i) an affidavit of that fact from the holder
claiming such Certificate to be lost, stolen, mislaid or destroyed, (ii) such
bond, security or indemnity as the Company or the Exchange Agent may reasonably
require, and (iii) any other documentation necessary to evidence and effect the
bona fide exchange thereof, the Exchange Agent shall issue to such holder a
certificate representing the number of Company Shares and Rights (as applicable)
into which the shares represented by such lost, stolen, mislaid or destroyed
Certificate shall have been converted. Until surrendered as contemplated by this
Section 2.3, each Certificate shall be deemed at any time after the Effective
Time to represent only the right to receive upon such surrender a certificate
representing Company Shares and Rights (as applicable) and cash in lieu of any
fractional shares of Company Common Stock as contemplated by this Section 2.3.
(c) Distributions With Respect to Unexchanged Shares. No dividends or
other distributions declared or made after the Effective Time with respect to
Company Shares with a record date after the Effective Time shall be paid to the
holder of any unsurrendered Certificate with respect to the Company Shares
represented thereby, and no cash payment in lieu of fractional shares shall be
paid to any such holder pursuant to Section 2.3(d), until the holder of record
of such Certificate shall surrender such Certificate as contemplated by Section
2.3(b). Subject to the effect of unclaimed property, escheat and other
applicable laws, following surrender of any such Certificate, there shall be
paid to the record holder of the certificates representing whole Company Shares
issued in exchange therefor, without interest, (i) at the time of such
surrender, the amount of any cash payable in lieu of a fractional share of
Company Common Stock to which such holder is entitled pursuant to Section 2.3(d)
and the amount of dividends or other distributions with a record date after the
Effective Time theretofore paid with respect to such whole Company Shares and
(ii) at the appropriate payment date, the amount of dividends or other
distributions with a record date after the Effective Time but prior to surrender
and a payment date subsequent to surrender payable with respect to such whole
Company Shares.
(d) No Fractional Securities. Notwithstanding any other provision of this
Agreement, the Company shall not issue any fractional share of Company Common
Stock upon the surrender for exchange of Certificates. In lieu of any such
fractional shares, any holder of WeCo Common Stock who would otherwise have been
entitled to a fractional share of Company Common Stock shall be entitled to
receive a cash payment in lieu of such fractional share in an amount equal to
the product of such fraction multiplied by the average of the last reported
sales price, regular way, per share of Puget Common Stock on the New York Stock
Exchange ("NYSE") Composite Tape for the ten business days prior to and
including the last business day on which Puget Common Stock was traded on the
NYSE, without any interest thereon.
(e) Closing of Transfer Books. From and after the Effective Time, the
stock transfer books of Puget and WeCo (and, if pursuant to Section 1.1 hereof
the WeCo/WNG/Puget Merger is to be effected, WNG) shall be closed and no
transfer of any capital stock of Puget or WeCo (or, if pursuant to Section 1.1
hereof the WeCo/WNG/Puget Merger is to be effected, WNG) shall thereafter be
made. If, after the Effective Time, Certificates are presented to the Company
for registration of transfer, they shall be cancelled and exchanged for
certificates representing the appropriate Company Shares and Rights (if
applicable) as provided in Section 2.1 and Section 2.3(b).
(f) Termination of Duties of Exchange Agent. Any certificates representing
Company Shares deposited with the Exchange Agent pursuant to Section 2.3(a) and
not exchanged within one year after the Effective Time pursuant to this Section
2.3 shall be returned by the Exchange Agent to the Company, which shall
thereafter act as Exchange Agent. All funds held by the Exchange Agent for
payment to the holders of unsurrendered Certificates and unclaimed at the end of
one year from the Effective Time shall be returned to the Company, whereupon any
holder of unsurrendered Certificates shall look as a general unsecured creditor
only to the Company for payment of any funds to which any holder may be
entitled, subject to applicable law. The Company shall not be liable to any
person for such shares or funds delivered to a public official pursuant to any
applicable abandoned property, escheat or similar law.
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ARTICLE III
THE CLOSING
SECTION 3 CLOSING
The closing (the "Closing") of the Merger shall take place at the offices
of Perkins Coie, 1201 Third Avenue, Seattle, Washington 98101 at 10:00 a.m.,
local time, on the second business day immediately following the date on which
the last of the conditions set forth in Article VIII hereof is fulfilled or
waived, or at such other time and date and place as Puget and WeCo shall
mutually agree (the "Closing Date").
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF WECO AND WNG
WeCo and WNG jointly and severally represent and warrant to Puget as
follows:
SECTION 4.1 ORGANIZATION AND QUALIFICATION
Except as set forth in Section 4.1 of the WeCo Disclosure Schedule (as
defined in Section 7.6(i)), each of WeCo, WNG and the other WNG Subsidiaries (as
defined below) is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation or organization,
has all requisite power and authority, and, in the case of WNG, has been duly
authorized by all necessary approvals and orders of the Washington Utilities and
Transportation Commission (the "WUTC"), to own, lease and operate its assets and
properties to the extent owned, leased and operated and to carry on its business
as it is now being conducted, and is duly qualified and in good standing to do
business in each jurisdiction in which the nature of its business or the
ownership or leasing of its assets and properties makes such qualification
necessary other than in such jurisdictions where the failure to be so qualified
and in good standing would not, when taken together with all other such
failures, have a material adverse effect on the business, operations,
properties, assets, financial condition, results of operations or prospects of
WeCo, WNG and the other WNG Subsidiaries taken as a whole or on the consummation
of this Agreement (any such material adverse effect being hereinafter referred
to as a "WeCo Material Adverse Effect"). As used in this Agreement, (a) the term
"subsidiary" of a person shall mean any corporation or other entity (including
partnerships and other business associations) in which such person directly or
indirectly owns at least a majority of any class of the outstanding voting
securities or equity and (b) the term "WNG Subsidiaries" means WNG and all other
subsidiaries of WeCo.
SECTION 4.2 SUBSIDIARIES
Section 4.2 of the WeCo Disclosure Schedule sets forth a description as of
the date hereof of all WNG Subsidiaries and WeCo Joint Ventures (as defined
below), including the name of each such entity, the jurisdiction of its
incorporation, a brief description of the principal line or lines of business
conducted by each such entity and WeCo's interest therein. Except for WNG and as
set forth in Section 4.2 of the WeCo Disclosure Schedule, none of such entities
is a "public utility company," a "holding company," a "subsidiary company" or an
"affiliate" of any public utility company within the meaning of Section 2(a)(5),
2(a)(7), 2(a)(8) or 2(a)(11) of the Public Utility Holding Company Act of 1935,
as amended (the "1935 Act"), respectively. Except as set forth in Section 4.2 of
the WeCo Disclosure Schedule, all of the issued and outstanding shares of
capital stock of each WNG Subsidiary are validly issued, fully paid,
nonassessable and free of preemptive rights, are owned directly or indirectly by
WeCo free and clear of any liens, claims, encumbrances, security interests,
equities, charges and options of any nature whatsoever, and there are no
outstanding subscriptions, options, calls, contracts, voting trusts, proxies or
other commitments, understandings, restrictions, arrangements, rights or
warrants, including any right of conversion or exchange under any outstanding
security, instrument or other agreement, obligating any such subsidiary to
issue, deliver or sell, or cause to be issued, delivered or sold, additional
shares of its capital stock or obligating it to grant, extend or enter into any
such agreement or commitment. As used in this Agreement, (a) the term "joint
venture" of a
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person shall mean any corporation or other entity (including partnerships and
other business associations) in which such person or one or more of its
subsidiaries owns an equity interest that is less than a majority of any class
of the outstanding voting securities or equity, other than equity interests held
for passive investment purposes which are less than 5% of any class of the
outstanding voting securities or equity of any such entity, and (b) the term
"WeCo Joint Venture" shall mean any joint venture of WeCo or a WNG Subsidiary.
SECTION 4.3 CAPITALIZATION
(a) WeCo. The authorized capital stock of WeCo consists of 50,000,000
shares of WeCo Common Stock, 200,000 shares of preferred stock, $100 par value
per share, and 800,000 shares of preferred stock, $25 par value per share (such
preferred stock being referred to herein in the aggregate as the "WeCo Preferred
Stock"). As of the close of business on October 16, 1995, 24,070,153 shares of
WeCo Common Stock were issued and outstanding, and no shares of WeCo Preferred
Stock were issued and outstanding. All of the issued and outstanding shares of
the capital stock of WeCo are, and any shares of WeCo Common Stock issued
pursuant to the WeCo Stock Option Agreement will be, validly issued, fully paid,
nonassessable and free of preemptive rights. Except as set forth in Section
4.3(a) of the WeCo Disclosure Schedule, as of the date hereof, there are no
outstanding subscriptions, options, stock appreciation rights, calls, contracts,
voting trusts, proxies or other commitments, understandings, restrictions,
arrangements, rights or warrants, including any right of conversion or exchange
under any outstanding security, instrument or other agreement, obligating WeCo
or any WNG Subsidiary to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of the capital stock of WeCo or obligating
WeCo or any WNG Subsidiary to grant, extend or enter into any such agreement or
commitment, other than under the WeCo Stock Option Agreement.
(b) WNG. The authorized capital stock of WNG consists of 25,000,000 shares
of WNG Common Stock, 1,000,000 shares of preferred stock, $100 par value per
share ("WNG $100 Preferred Stock"), and 4,000,000 shares of preferred stock, $25
par value per share ("WNG $25 Preferred Stock"). As of the close of business on
October 16, 1995, (i) 10,982,119 shares of WNG Common Stock were issued and
outstanding, (ii) 3,600,000 shares of WNG $25 Preferred Stock were issued and
outstanding, consisting of 2,400,000 shares of WNG Series II Preferred Stock and
1,200,000 shares of WNG Series III Preferred Stock, and (iii) no shares of WNG
$100 Preferred Stock were issued and outstanding. All of the issued and
outstanding shares of the capital stock of WNG are validly issued, fully paid,
nonassessable and free of preemptive rights. Except as set forth in Section
4.3(b) of the WeCo Disclosure Schedule, as of the date hereof, there are no
outstanding subscriptions, options, stock appreciation rights, calls, contracts,
voting trusts, proxies or other commitments, understandings, restrictions,
arrangements, rights or warrants, including any right of conversion or exchange
under any outstanding security, instrument or other agreement, obligating WeCo
or any WNG Subsidiary to issue, deliver or sell, or cause to be issued,
delivered or sold, the capital stock of WNG or obligating WeCo or any WNG
Subsidiary to grant, extend or enter into any such agreement or commitment.
SECTION 4.4 AUTHORITY; NONCONTRAVENTION; STATUTORY APPROVALS; COMPLIANCE
(a) Authority. Each of WeCo and WNG has all requisite power and authority
to enter into this Agreement and the WeCo Stock Option Agreement, and, subject
to the applicable WeCo Shareholders' Approval (as defined in Section 4.13) (in
the case of this Agreement only) and the applicable WeCo Required Statutory
Approvals (as defined in Section 4.4(c)), to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this Agreement
and the WeCo Stock Option Agreement, and the consummation by WeCo and WNG of the
transactions contemplated hereby and thereby, have been duly authorized by all
necessary corporate action on the part of WeCo and WNG, subject in the case of
this Agreement to obtaining the applicable WeCo Shareholders' Approval. Each of
this Agreement and the WeCo Stock Option Agreement has been duly and validly
executed and delivered by WeCo and WNG and, assuming the due authorization,
execution and delivery hereof and thereof by Puget, constitutes the valid and
binding obligation of each of WeCo and WNG enforceable against each of them in
accordance with its terms.
(b) Noncontravention. Except as set forth in Section 4.4(b) of the WeCo
Disclosure Schedule, the execution and delivery of this Agreement by WeCo and
WNG and of the WeCo Stock Option Agreement by WeCo do not, and the consummation
of the transactions contemplated hereby and thereby will not, violate,
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conflict with, or result in a breach of any provision of, or constitute a
default (with or without notice or lapse of time or both) under, or result in
the termination or modification of, or accelerate the performance required by,
or result in a right of termination, modification, cancellation or acceleration
of any obligation or the loss of a material benefit under, or result in the
creation of any lien, security interest, charge or encumbrance upon any of the
properties or assets (any such violation, conflict, breach, default, right of
termination, modification, cancellation or acceleration, loss or creation, a
"Violation" with respect to WeCo, any WNG Subsidiary or any WeCo Joint Venture;
such term when used in Article V having a correlative meaning with respect to
Puget, any Puget Subsidiary or any Puget Joint Venture) of WeCo or any WNG
Subsidiary or WeCo Joint Venture pursuant to any provisions of (i) the articles
of incorporation, bylaws or similar governing documents of WeCo or any WNG
Subsidiary, (ii) subject to obtaining the WeCo Required Statutory Approvals and
the receipt of the WeCo Shareholders' Approvals, any statute, law, ordinance,
rule, regulation, judgment, decree, order, injunction, writ, permit or license
of any Governmental Authority (as defined in Section 4.4(c)) applicable to WeCo
or any WNG Subsidiary or WeCo Joint Venture or any of their respective
properties or assets or (iii) subject to obtaining the third-party consents or
other approvals set forth in Section 4.4(b) of the WeCo Disclosure Schedule (the
"WeCo Required Consents"), any note, bond, mortgage, indenture, deed of trust,
license, franchise, permit, concession, contract, lease or other instrument,
obligation or agreement of any kind to which WeCo or any WNG Subsidiary or any
WeCo Joint Venture is now a party or by which it or any of its properties or
assets may be bound or affected, excluding from the foregoing clauses (ii) and
(iii) such Violations that would not, in the aggregate, have a WeCo Material
Adverse Effect.
(c) Statutory Approvals. No declaration, filing or registration with, or
notice to or authorization, consent or approval of, any court, federal, state,
local or foreign governmental or regulatory body (including a stock exchange or
other self-regulatory body) or authority (each, a "Governmental Authority"), the
failure to obtain, make or give which would have, in the aggregate, a WeCo
Material Adverse Effect, is necessary for the execution and delivery of this
Agreement by WeCo and WNG or the WeCo Stock Option Agreement by WeCo or the
consummation by WeCo and WNG of the transactions contemplated hereby or thereby,
except as described in Section 4.4(c) of the WeCo Disclosure Schedule (the "WeCo
Required Statutory Approvals," it being understood that references in this
Agreement to "obtaining" such WeCo Required Statutory Approvals shall mean
making such declarations, filings or registrations; giving such notices;
obtaining such authorizations, consents or approvals; and having such waiting
periods expire as are necessary to avoid a violation of law).
(d) Compliance. Except as set forth in Section 4.4(d) or 4.11 of the WeCo
Disclosure Schedule or as disclosed in the WeCo SEC Reports (as defined in
Section 4.5) filed prior to the date hereof, neither WeCo nor any WNG Subsidiary
nor, to the knowledge of WeCo or WNG, any WeCo Joint Venture, is in violation of
or is under investigation with respect to any violation of, or has been given
notice or been charged with any violation of, any law, statute, order, rule,
regulation, ordinance or judgment (including, without limitation, any applicable
environmental law, ordinance or regulation) of any Governmental Authority except
for violations which in the aggregate do not and, insofar as reasonably can be
foreseen, will not have a WeCo Material Adverse Effect. Except as set forth in
Section 4.4(d) of the WeCo Disclosure Schedule or in Section 4.11 of the WeCo
Disclosure Schedule, WeCo and the WNG Subsidiaries and WeCo Joint Ventures have
all permits, licenses, franchises and other governmental authorizations,
consents and approvals necessary to conduct their businesses as currently
conducted in all material respects except for those which the failure to obtain
would not, in the aggregate, have a WeCo Material Adverse Effect. Except as set
forth in Section 4.4(d) of the WeCo Disclosure Schedule, neither WeCo nor any
WNG Subsidiary is in material breach or violation of or in material default in
the performance or observance of any term or provision of, and no event has
occurred which, with lapse of time or action by a third party, could result in a
material default under, (i) its articles of incorporation or bylaws or (ii) any
contract, commitment, agreement, indenture, mortgage, loan agreement, note,
lease, bond, license, approval or other instrument to which it is a party or by
which it is bound or to which any of its property is subject except in the case
of clause (ii) for violations and defaults which would not, in the aggregate,
have a WeCo Material Adverse Effect.
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SECTION 4.5 REPORTS AND FINANCIAL STATEMENTS
Since January 1, 1990, the filings required to be made by WeCo and the WNG
Subsidiaries under the Securities Act of 1933, as amended (the "Securities
Act"), the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
applicable Washington laws and regulations, the Natural Gas Act or the 1935 Act
have been filed with the Securities and Exchange Commission (the "SEC"), the
WUTC or the Federal Energy Regulatory Commission (the "FERC"), as the case may
be, including all forms, statements, reports, agreements (oral or written) and
all documents, exhibits, amendments and supplements appertaining thereto, and
complied, as of their respective dates, in all material respects with all
applicable requirements of the appropriate act and the rules and regulations
thereunder. WeCo has made available to Puget a true and complete copy of each
report, schedule, registration statement and definitive proxy statement filed by
WeCo or WNG with the SEC since January 1, 1991 (the "WeCo SEC Reports"). As of
their respective dates, the WeCo SEC Reports did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The audited financial
statements and unaudited interim financial statements of WeCo and WNG included
in the WeCo SEC Reports (collectively, the "WeCo Financial Statements") have
been prepared in accordance with generally accepted accounting principles
applied on a consistent basis ("GAAP") (except as may be indicated therein or in
the notes thereto and except with respect to unaudited statements as permitted
by Form 10-Q of the SEC) and fairly present the financial position of WeCo and
WNG, as the case may be, as of the dates thereof and the results of their
operations and cash flows for the periods then ended, subject, in the case of
the unaudited interim financial statements, to normal, recurring audit
adjustments. True, accurate and complete copies of the Articles of Incorporation
and Bylaws of WeCo and WNG, as in effect on the date hereof, have been delivered
to Puget.
SECTION 4.6 ABSENCE OF CERTAIN CHANGES OR EVENTS
Except as disclosed in the WeCo SEC Reports filed prior to the date hereof
or as set forth in Section 4.6 of the WeCo Disclosure Schedule, from September
30, 1994 through the date hereof, (a) each of WeCo, WNG and the other WNG
Subsidiaries has conducted its business only in the ordinary course of business
consistent with past practice and (b) there has not been, and no fact or
condition exists which would have or, insofar as reasonably can be foreseen,
could have, a WeCo Material Adverse Effect.
SECTION 4.7 LITIGATION
Except as disclosed in the WeCo SEC Reports filed prior to the date hereof
or as set forth in Section 4.7, 4.9 or 4.11 of the WeCo Disclosure Schedule, (a)
there are no material claims, suits, actions or proceedings, pending or, to the
knowledge of WeCo or WNG, threatened, nor are there, to the knowledge of WeCo or
WNG, any material investigations or reviews pending or threatened against,
relating to or affecting WeCo, any WNG Subsidiary or any WeCo Benefit Plan, (b)
there are no material judgments, decrees, injunctions, rules or orders of any
court, governmental department, commission, agency, instrumentality or authority
or any arbitrator applicable to WeCo or any WNG Subsidiary, and (c) there have
not been any material developments since June 30, 1995 with respect to such
disclosed claims, suits, actions, proceedings, investigations or reviews.
SECTION 4.8 REGISTRATION STATEMENT AND PROXY STATEMENT
None of the information supplied or to be supplied by or on behalf of WeCo
or WNG for inclusion or incorporation by reference in (a) the registration
statement on Form S-4 to be filed with the SEC by the Company in connection with
the issuance of shares of Company Common Stock and Company Preferred Stock, if
applicable, in the Merger (the "Registration Statement") will, at the time the
Registration Statement is filed with the SEC and at the time it becomes
effective under the Securities Act, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading and (b) the joint proxy
and information statement in definitive form relating to the meetings of the
shareholders of Puget, WeCo and WNG to be held in connection with the Merger and
the prospectus relating to the Company Common Stock and Company Preferred Stock,
if
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applicable, to be issued in the Merger (the "Joint Proxy Statement/Prospectus")
will, at the dates mailed to such shareholders and, as the same may be amended
or supplemented, at the times of such meetings, contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading, and will comply as to
form in all material respects with the provisions of the Securities Act and the
Exchange Act and the rules and regulations thereunder.
SECTION 4.9 TAX MATTERS
"Taxes," as used in this Agreement, means any federal, state, county, local
or foreign taxes, charges, fees, levies or other assessments, including all
income, sales, use, ad valorem, transfer, gains, profits, excise, franchise,
property, gross receipt, capital stock, production, business and occupation,
disability, employment, payroll, license, estimated, stamp, custom duties,
severance, social security, unemployment, environmental or withholding taxes or
charges imposed by any Governmental Authority, and includes any interest, fines
and penalties (civil or criminal) on or additions to any such taxes and any
expenses incurred in connection with the determination, settlement or litigation
of any tax liability. "Tax Return," as used in this Agreement, means a report,
return or other information required to be supplied to a Governmental Authority
with respect to Taxes, including, where permitted or required, combined or
consolidated returns for any group of entities that includes WeCo or any of the
WNG Subsidiaries on the one hand, or Puget or any of its subsidiaries on the
other hand.
Except as set forth in Section 4.9 of the WeCo Disclosure Schedule:
(a) Filing of Timely Tax Returns. WeCo and each of the WNG Subsidiaries
have filed all material Tax Returns required to be filed by each of them with
the appropriate Governmental Authority. All such Tax Returns were and are in all
material respects (and, as to Tax Returns not filed as of the date hereof, will
be) true, complete and correct and filed on a timely basis.
(b) Payment of Taxes; Reserves. WeCo and each of the WNG Subsidiaries
have, within the time and in the manner prescribed by law, paid (and until the
Closing Date will pay within the time and in the manner prescribed by law) all
Taxes that are currently due and payable except for those contested in good
faith and for which adequate reserves have been taken. WeCo and each of the WNG
Subsidiaries have established on their books and records reserves adequate to
pay all Taxes and reserves for deferred income taxes in accordance with GAAP.
(c) Tax Liens. There are no material Tax liens upon the assets of WeCo or
any of the WNG Subsidiaries except liens for Taxes not yet due.
(d) Withholding Taxes. WeCo and each of the WNG Subsidiaries have complied
(and until the Closing Date will comply) in all respects with the provisions of
the Code relating to the payment and withholding of Taxes, including, without
limitation, the withholding and reporting requirements under Sections 1441
through 1464, 3401 through 3406, and 6041 through 6050P of the Code, as well as
similar provisions under any other laws, and have, within the time and in the
manner prescribed by law, withheld from employee wages and paid over to the
proper Governmental Authorities all amounts required.
(e) Extensions of Time for Filing Tax Returns. Neither WeCo nor any WNG
Subsidiary has requested any extension of time within which to file any Tax
Return, which Tax Return has not since been filed.
(f) Waivers of Statute of Limitations. Neither WeCo nor any WNG Subsidiary
has executed any outstanding waivers or comparable consents regarding the
application of the statute of limitations with respect to any Taxes or Tax
Returns.
(g) Expiration of Statute of Limitations. The statute of limitations for
the assessment of all Taxes has expired for all U.S. federal and state Tax
Returns of WeCo and each WNG Subsidiary or such Tax Returns have been examined
by the appropriate Governmental Authorities for all periods through the date
hereof. No
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deficiency for any material Taxes has been proposed, asserted or assessed
against WeCo or any of the WNG Subsidiaries by any Governmental Authorities that
has not been resolved and paid in full.
(h) Audit, Administrative and Court Proceedings. No audits or other
administrative proceedings or court proceedings are presently pending with
regard to any Taxes or Tax Returns of WeCo or any of the WNG Subsidiaries.
(i) Powers of Attorney. No power of attorney currently in force has been
granted by WeCo or any of the WNG Subsidiaries concerning any Tax matter.
(j) Tax Rulings. Neither WeCo nor any WNG Subsidiary has received a Tax
Ruling (as defined below) or entered into a Closing Agreement (as defined below)
that would have a continuing adverse effect after the Closing Date. "Tax
Ruling," as used in this Agreement, shall mean a written ruling of a
Governmental Authority relating to Taxes. "Closing Agreement," as used in this
Agreement, shall mean a written and legally binding agreement with a
Governmental Authority relating to Taxes.
(k) Availability of Tax Returns. WeCo and the WNG Subsidiaries have made
available to Puget complete and accurate copies of (i) all Tax Returns, and any
amendments thereto, filed by WeCo or any of the WNG Subsidiaries, (ii) all audit
reports received from any Governmental Authority relating to any Tax Return
filed by WeCo or any of the WNG Subsidiaries and (iii) any Closing Agreements
entered into by WeCo or any of the WNG Subsidiaries with any Governmental
Authority.
(l) Tax Sharing Agreements. No agreements relating to allocating or
sharing of Taxes exist between or among WeCo and any of the WNG Subsidiaries.
(m) Section 341(f) of the Code. Neither WeCo nor any WNG Subsidiary has
filed (or will file prior to the Closing) a consent pursuant to Section 341(f)
of the Code or has agreed to have Section 341(f)(2) of the Code apply to any
disposition of a subsection (f) asset (as that term is defined in Section
341(f)(4) of the Code) owned by WeCo or any WNG Subsidiary.
(n) Section 168 of the Code. No property of WeCo or any WNG Subsidiary is
property that WeCo or any such subsidiary or any party to this transaction is or
will be required to treat as being owned by another person pursuant to the
provisions of Section 168(f)(8) of the Code (as in effect prior to its amendment
by the Tax Reform Act of 1986) or is "tax-exempt use property" within the
meaning of Section 168 of the Code.
(o) Section 481 of the Code. Neither WeCo nor any WNG Subsidiary is
required to include in income any adjustment pursuant to Section 481(a) of the
Code by reason of a voluntary change in accounting method initiated by WeCo or
any WNG Subsidiary, and to the best of the knowledge of WeCo or WNG, the
Internal Revenue Service (the "IRS") has not proposed any such adjustment or
change in accounting method.
(p) Sections 6661 and 6662 of the Code. All transactions that could give
rise to a material understatement of federal income tax (within the meaning of
Section 6661 of the Code for Tax Returns the due date for which (determined
without regard to extensions) is on or before December 31, 1989, and within the
meaning of Section 6662 of the Code for Tax Returns filed after December 31,
1989) have been adequately disclosed (or, with respect to Tax Returns filed
following the Closing will be adequately disclosed) on the Tax Returns of WeCo
and the WNG Subsidiaries in accordance with Section 6661(b)(2)(B) of the Code
for Tax Returns the due date for which (determined without regard to extensions)
is on or prior to December 31, 1989, and in accordance with Section
6662(d)(2)(B) of the Code for Tax Returns filed after December 31, 1989.
(q) Jurisdiction. No claim has been made by a governmental entity in any
jurisdiction where either WeCo or any WNG Subsidiary does not file any Tax
Returns that such non-filing entity is or may be subject to taxation by that
jurisdiction.
(r) U.S. Real Property Holding Company. Neither WeCo nor any WNG
Subsidiary has been a United States real property holding corporation within the
meaning of Section 897(c)(2) of the Code during the applicable period specified
in Section 897(c)(1)(A)(2)(i) of the Code.
(s) Liability for Others. Neither WeCo nor any WNG Subsidiary has any
liability for Taxes of any person other than WeCo and any WNG Subsidiary (i)
under Treasury Regulation Section 1.1502-6 (or any
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similar provision of any state, local or foreign law) as a transferee or
successor, (ii) by contract or (iii) otherwise.
SECTION 4.10 EMPLOYEE MATTERS; ERISA
(a) Benefit Plans. Section 4.10(a) of the WeCo Disclosure Schedule
contains a true and complete list of each material employee benefit plan, fund,
program, contract or arrangement covering employees, former employees or
directors of WeCo and each of the WNG Subsidiaries or any of their dependents or
beneficiaries, or providing benefits to such persons in respect of services
provided to any such entity, or with respect to which WeCo or any of the WNG
Subsidiaries has or could have any liability, including, but not limited to, any
material employee benefit plans within the meaning of Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and
specifically including, but not limited to, each material retirement, pension,
multi-employer, profit sharing, stock bonus, savings, thrift, bonus, cafeteria,
medical, health, hospitalization, dental, vision, welfare, life insurance,
disability, accident insurance, group insurance, tuition reimbursement, medical
expense reimbursement, dependent care expense reimbursement plan or program,
executive or deferred compensation plan or contract, stock purchase, stock
option or stock appreciation rights plan or arrangement, severance or change in
control agreement or plan, and employment, consulting or personal services
contract with any officer, director or employee (or any person who prior to
entering into such contract was an officer, director or employee) of WeCo or any
of the WNG Subsidiaries (individually, a "WeCo Benefit Plan," and collectively,
the "WeCo Benefit Plans").
(b) Documents Made Available. Each of WeCo and WNG has made available to
Puget a true and correct copy of each collective bargaining agreement to which
WeCo or any of the WNG Subsidiaries is a party or under which WeCo or any of the
WNG Subsidiaries has obligations and, with respect to each WeCo Benefit Plan,
where applicable, true and correct copies of (i) such WeCo Benefit Plan, (ii)
the annual reports (Form 5500 series) filed with the Internal Revenue Service
(the "IRS") for the last three years with respect to such WeCo Benefit Plan (to
the extent required to be filed), (iii) the most recent summary plan description
(together with any applicable summaries of material modifications) and most
recent material employee manuals distributed with respect to such WeCo Benefit
Plan, (iv) each trust agreement (or group annuity contract), including all
amendments to each such document, related to such WeCo Benefit Plan, (v) the
most recent determination letter from the IRS with respect to the qualified
status of such WeCo Benefit Plan (provided such WeCo Benefit Plan is intended to
be qualified under Section 401(a) of the Code) and (vi) the most recent
actuarial report or valuation, if any, for such WeCo Benefit Plan.
(c) Compliance. Except as set forth in Section 4.10(c) of the WeCo
Disclosure Schedule, with respect to each WeCo Benefit Plan, WeCo and each of
the WNG Subsidiaries have at all times been in compliance in all material
respects with, and each WeCo Benefit Plan has at all times been maintained and
operated in all material respects in compliance with, the terms of such WeCo
Benefit Plan and all applicable laws, rules and regulations governing such WeCo
Benefit Plan, including, but not limited to, ERISA and the Code.
(d) Qualified Plans. Except as set forth in Section 4.10(d) of the WeCo
Disclosure Schedule, each WeCo Benefit Plan that is intended to be "qualified,"
within the meaning of Section 401(a) of the Code, has been determined to be so
qualified (and a determination letter to that effect has been issued) by the
IRS, and, to the best knowledge of WeCo or WNG, no circumstances exist that have
or are likely to adversely affect, or result in the revocation of, such
determination.
(e) Welfare Plans. Except as set forth in Section 4.10(e) of the WeCo
Disclosure Schedule, none of the WeCo Benefit Plans that are "welfare plans,"
within the meaning of Section 3(1) of ERISA, provides or has any obligation to
provide benefits with respect to current or former employees of WeCo, any of the
WNG Subsidiaries or any other entity beyond their retirement or other
termination of service, including, without limitation, post-retirement (or
post-termination) medical, dental, life insurance, severance or any other
similar benefit, whether provided on an insured or self-insured basis, other
than benefits mandated by applicable law, including, but not limited to,
continuation coverage required to be provided under Section 4980B of the Code or
Part 6 of Title I of ERISA.
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(f) Contributions. Except as set forth in Section 4.10(f) of the WeCo
Disclosure Schedule, all material contributions and other payments required to
have been made by WeCo or any of the WNG Subsidiaries (including any pre-tax or
post-tax contributions or payments by employees or their dependents) to any WeCo
Benefit Plan (or to any person pursuant to the terms thereof) have been so made
or the amount of any such payment or contribution obligation that is not yet due
has been properly reflected in the WeCo Financial Statements.
(g) Funded Status of Plans. Except as set forth in Section 4.10(g) of the
WeCo Disclosure Schedule, the fair market value, as of the date hereof, of the
assets held by each WeCo Benefit Plan that is subject to the requirements of
Section 412 of the Code, Part 3 of Title I of ERISA or Title IV of ERISA is not
materially less than the present value of the accumulated benefit obligations
(determined as of the date hereof) of the participants and beneficiaries under
such WeCo Benefit Plan, based on the actuarial methods, tables and assumptions
heretofore utilized by such WeCo Benefit Plan's actuary to determine such WeCo
Benefit Plan's funded status. None of the WeCo Benefit Plans that are subject to
Section 412 of the Code or Section 302 of ERISA has ever incurred an
"accumulated funding deficiency" (as defined in such Code and ERISA sections).
(h) Termination or Withdrawal Liability. Except as set forth in Section
4.10(h) of the WeCo Disclosure Schedule, the termination of, or withdrawal from,
any WeCo Benefit Plan that is subject to Section 412 of the Code, Section 302 of
ERISA or Title IV of ERISA by WeCo, any of the WNG Subsidiaries or any WeCo
ERISA Affiliate has not subjected, and will not subject, WeCo or any of the WNG
Subsidiaries to any material liability to any Governmental Authority,
corporation or other person or entity (including, but not limited to, such plan
or the Pension Benefit Guaranty Corporation (the "PBGC")) and has not resulted,
and will not result, in the imposition of a material lien under Title IV of
ERISA against the assets of WeCo or any of the WNG Subsidiaries. "WeCo ERISA
Affiliate" means any entity, whether or not incorporated, that is or has ever
been considered as a single employer together with WeCo or any of the WNG
Subsidiaries under Section 414(b), (c), (m) or (o) of the Code.
(i) Liabilities. Except as set forth in Section 4.10(i) of the WeCo
Disclosure Schedule, with respect to the WeCo Benefit Plans, individually and in
the aggregate, no event has occurred, and, to the best knowledge of WeCo or WNG,
there exists no condition or set of circumstances that could subject WeCo or any
of the WNG Subsidiaries, or any director, officer, or employee of WeCo or any of
the WNG Subsidiaries, to any material fine, penalty, tax or liability
(including, without limitation, any liability to any such plan or the PBGC),
whether pursuant to any agreement, instrument, indemnification obligation,
statute, regulation or rule of law, excluding liability for benefit claims and
funding obligations payable in the ordinary course and liability for premiums
due to the PBGC.
(j) Payments Resulting From Merger. Except as set forth in Section 7.11 or
in Section 4.10(j) of the WeCo Disclosure Schedule, the consummation or
announcement of any transaction contemplated by this Agreement will not (either
alone or upon the occurrence of any additional or further acts or events) result
in any (i) material payment (whether of severance pay or otherwise) becoming due
from the Company, WeCo or any of the WNG Subsidiaries to any officer, employee,
former employee or director thereof or to the trustee under any "rabbi trust" or
similar arrangement, (ii) material benefit under any WeCo Benefit Plan being
established or becoming accelerated, vested or payable or (iii) payment of
"excess parachute payments" within the meaning of Section 280G of the Code under
any contract or arrangement to which WeCo or any WNG Subsidiary is a party.
(k) Other Binding Commitments. Except as set forth in Section 4.10(k) of
the WeCo Disclosure Schedule, neither WeCo nor any WNG Subsidiary has any
agreement, arrangement, commitment or obligation, whether formal or informal,
whether written or unwritten and whether legally binding or not, to create any
plan, fund, program, contract or arrangement not identified in Section 4.10(a)
of the WeCo Disclosure Schedule or to modify or amend any of the existing WeCo
Benefit Plans.
(l) Labor Agreements. Except as disclosed in the WeCo SEC Reports or as
set forth in Section 4.10(l) of the WeCo Disclosure Schedule, (i) neither WeCo
nor any WNG Subsidiary is a party to any collective bargaining agreement or
other labor agreement with any union or labor organization; (ii) to the best
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knowledge of WeCo or WNG, there is no current union representation election or
controversy involving employees of WeCo or any of the WNG Subsidiaries, nor does
WeCo or WNG know of any activity or proceeding of any labor organization (or
representative thereof) or employee group (or representative thereof) to
organize any such employees; (iii) there is no material unfair labor practice
charge or material grievance arising out of a collective bargaining agreement or
other material grievance procedure against WeCo or any of the WNG Subsidiaries
pending, or to the best knowledge of WeCo or WNG, threatened; (iv) there is no
material complaint, lawsuit or proceeding in any forum by or on behalf of any
present or former employee, any applicant for employment or classes of the
foregoing alleging breach of any express or implied contract of employment, any
law or regulation governing employment or the termination thereof or other
discriminatory, wrongful or tortious conduct in connection with the employment
relationship against WeCo or any of the WNG Subsidiaries pending, or to the best
knowledge of WeCo or WNG, threatened; (v) there is no strike, dispute, slowdown,
work stoppage or lockout pending, or to the best knowledge of WeCo or WNG,
threatened, against or involving WeCo or any of the WNG Subsidiaries; (vi) WeCo
and the WNG Subsidiaries are in compliance in all material respects with all
applicable laws respecting employment and employment practices, terms and
conditions of employment, wages, hours of work and occupational safety and
health; and (vii) there is no proceeding, claim, suit, action or governmental
investigation pending or, to the best knowledge of WeCo or WNG, threatened, in
respect of which any director, officer, employee or agent of WeCo or any of the
WNG Subsidiaries is or may be entitled to claim indemnification from WeCo or any
of the WNG Subsidiaries pursuant to their respective articles of incorporation
or bylaws or as provided in the Indemnification Agreements listed on Section
4.10(l) of the WeCo Disclosure Schedule.
SECTION 4.11 ENVIRONMENTAL PROTECTION
Except as set forth in Section 4.11 of the WeCo Disclosure Schedule:
(a) Compliance. Each of WeCo and each WNG Subsidiary is in compliance in
all material respects with all applicable Environmental Laws (as hereinafter
defined). Neither WeCo nor any WNG Subsidiary has received any written, or, to
the knowledge of appropriate officers of WeCo and WNG, upon diligent review,
oral communication from any person or Governmental Authority that alleges that
WeCo or any WNG Subsidiary is not in compliance in all material respects with
applicable Environmental Laws.
(b) Environmental Permits. Each of WeCo and each WNG Subsidiary has
obtained or has applied for all material environmental, health and safety
permits and authorizations (collectively, the "Environmental Permits") necessary
for the construction of their facilities or the conduct of their operations, and
all such permits are in good standing or, where applicable, a renewal
application has been timely filed and is pending agency approval, and WeCo and
the WNG Subsidiaries are in material compliance with all terms and conditions of
the Environmental Permits and are not required to make any material expenditure
in order to obtain or renew any Environmental Permit.
(c) Environmental Claims. There is no material Environmental Claim (as
hereinafter defined) pending (i) against WeCo or any of the WNG Subsidiaries or
WeCo Joint Ventures or (ii) to the best knowledge of appropriate officers of
WeCo and WNG, upon diligent review, (x) against any person or entity whose
liability for any Environmental Claim WeCo or any WNG Subsidiary or WeCo Joint
Venture has or may have retained or assumed either contractually or by operation
of law or (y) against any real or personal property or operations which WeCo or
any WNG Subsidiary or WeCo Joint Venture owns, leases or manages, in whole or in
part.
(d) Releases. Neither WeCo nor WNG has knowledge of any material Releases
(as hereinafter defined) of any Hazardous Material (as hereinafter defined) that
would be reasonably likely to form the basis of any material Environmental Claim
against WeCo or any WNG Subsidiary or WeCo Joint Venture, or against any person
or entity whose liability for any Environmental Claim WeCo or any of the WNG
Subsidiaries or WeCo Joint Ventures has or may have retained or assumed either
contractually or by operation of law.
(e) Predecessors. Neither WeCo nor WNG has knowledge, with respect to any
predecessor of WeCo or any WNG Subsidiary or WeCo Joint Venture, of any material
Environmental Claim pending or threatened,
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or of any Release of Hazardous Materials that would be reasonably likely to form
the basis of any material Environmental Claim.
(f) Disclosure. To the best knowledge of WeCo or WNG, WeCo and WNG have
disclosed to Puget all material facts which WeCo or WNG reasonably believes are
likely to form the basis of a material Environmental Claim arising from (i) the
cost of pollution control equipment currently required or known to be required
in the future, (ii) current remediation costs or remediation costs that insofar
as reasonably can be foreseen could be required in the future or (iii) any other
material environmental matter affecting WeCo or any of the WNG Subsidiaries.
(g) As used in this Agreement:
(i) "Environmental Claim" means any and all administrative, regulatory
or judicial actions, suits, demands, demand letters, directives, claims,
liens, investigations, proceedings or notices of noncompliance or violation
(written or oral) by any person or entity (including any Governmental
Authority) alleging potential liability (including, without limitation,
potential liability for enforcement, investigatory costs, cleanup costs,
governmental response costs, removal costs, remedial costs, natural
resources damages, property damages, personal injuries or penalties)
arising out of, based on or resulting from (A) the presence, or Release or
threatened Release into the environment, of any Hazardous Materials at any
location, whether or not owned, operated, leased or managed by WeCo or any
WNG Subsidiary or WeCo Joint Venture (for purposes of this Section 4.11),
or by Puget or any Puget Subsidiary or Puget Joint Venture (for purposes of
Section 5.11); or (B) circumstances forming the basis of any violation, or
alleged violation, of any Environmental Law; or (C) any and all claims by
any third party seeking damages, contribution, indemnification, cost
recovery, compensation or injunctive relief resulting from the presence or
Release of any Hazardous Materials.
(ii) "Environmental Laws" means all federal, state and local laws,
rules and regulations relating to pollution or protection of human health
or the environment (including, without limitation, ambient air, surface
water, groundwater, land surface or subsurface strata), including, without
limitation, laws and regulations relating to Releases or threatened
Releases of Hazardous Materials, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of Hazardous Materials.
(iii) "Hazardous Materials" means (A) any petroleum or petroleum
products, radioactive materials, asbestos in any form that is or could
become friable, urea formaldehyde foam insulation, and transformers or
other equipment that contain dielectric fluid containing polychlorinated
biphenyls ("PCBs"); (B) any chemicals, materials or substances which are
now defined as or included in the definition of "hazardous substances,"
"hazardous wastes," "hazardous materials," "extremely hazardous wastes,"
"restricted hazardous wastes," "toxic substances," "toxic pollutants," or
words of similar import, under any Environmental Law; and (C) any other
chemical, material, substance or waste, exposure to which is now
prohibited, limited or regulated under Environmental Law in a jurisdiction
in which WeCo or any WNG Subsidiary or WeCo Joint Venture operates (for
purposes of this Section 4.11) or in which Puget or any Puget Subsidiary or
Puget Joint Venture operates (for purposes of Section 5.11).
(iv) "Releases" means any release, spill, emission, leakage,
injection, deposit, disposal, discharge, dispersal, leaching or migration
into the atmosphere, soil, surface water, groundwater or property.
SECTION 4.12 REGULATION AS A UTILITY
WNG is regulated as a public utility in the state of Washington and in no
other state. Except as set forth in Section 4.12 of the WeCo Disclosure Schedule
or in the preceding sentence, neither WeCo nor any "subsidiary company" or
"affiliate" of WeCo or of WNG is subject to regulation as a public utility or
public service company (or similar designation) by any other state in the United
States or any foreign country. As used in this Section 4.12 and in Section 5.12,
the terms "subsidiary company" and "affiliate" shall have the respective
meanings ascribed to them in the 1935 Act. WeCo is an exempt holding company
under Section 3(a)(1) of the 1935 Act. Schedule 4.12 of the WeCo Disclosure
Schedule sets forth each "affiliate"
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and each "subsidiary company" of WeCo which may be deemed to be a "public
utility company" or a "holding company" within the meaning of the 1935 Act.
SECTION 4.13 VOTE REQUIRED
The approval of the Merger by (a) in the case of the WeCo/WNG/Puget Merger,
if applicable, (i) two-thirds of all votes entitled to be cast by all holders of
WeCo Common Stock (the "WeCo Common Shareholders' Approval"), (ii) two-thirds of
all votes entitled to be cast by WeCo as the sole holder of WNG Common Stock
(the "WNG Common Shareholder Approval") and (iii) two-thirds of all votes
entitled to be cast by all holders of WNG Series II Preferred Stock and WNG
Series III Preferred Stock, each voting separately as a class (collectively, the
"WNG Preferred Shareholders' Approval" and together with the WeCo Common
Shareholders' Approval and the WNG Common Shareholder Approval, collectively
referred to as the "WeCo Shareholders' Approval") and (b) in the case of the
WeCo/Puget Merger, if applicable, the WeCo Common Shareholders' Approval are the
only votes of the holders of any class or series of the capital stock of WeCo or
WNG required to approve this Agreement, the Merger and the other transactions
contemplated hereby. This Agreement and the transactions contemplated hereby,
including the Merger, have been approved by WeCo as the sole holder of WNG
Common Stock.
SECTION 4.14 ACCOUNTING MATTERS
Neither WeCo nor any of the WNG Subsidiaries nor, to WeCo's or WNG's best
knowledge, any of their affiliates have, through the date of this Agreement,
taken or agreed to take any action that would prevent the Company from
accounting for the business combination to be effected by the Merger as a
pooling of interests in accordance with GAAP and applicable SEC regulations. As
used in this Agreement, except where specifically otherwise defined, "affiliate"
means, as to any person, any other person which directly or indirectly controls,
or is under common control with, or is controlled by, such person. As used in
this definition, "control" (including, with its correlative meanings,
"controlled by" and "under common control with") shall mean possession, directly
or indirectly, of power to direct or cause the direction of management or
policies whether through ownership of securities or partnership or other
ownership interests, by contract or otherwise).
SECTION 4.15 APPLICABILITY OF CERTAIN WASHINGTON LAW
Assuming the representation and warranty of Puget made in Section 5.18 is
correct, neither the business combination provisions of Chapter 23B.19 of the
WBCA, the "interested shareholder" provisions of Section 23B.17.020 of the WBCA
or any similar provisions of the WBCA nor the Articles of Incorporation or
Bylaws of WeCo or WNG are applicable to the transactions contemplated by this
Agreement or the WeCo Stock Option Agreement.
SECTION 4.16 OPINION OF FINANCIAL ADVISOR
WeCo has received the opinion of Goldman, Sachs & Co., on the date hereof,
to the effect that, as of the date hereof, the Ratio is fair to the holders of
WeCo Common Stock.
SECTION 4.17 INSURANCE
Except as set forth in Section 4.17 of the WeCo Disclosure Schedule, each
of WeCo and each WNG Subsidiary is, and has been continuously since January 1,
1990, insured with financially responsible insurers in such amounts and against
such risks and losses as are customary for companies conducting the businesses
conducted by WeCo and the WNG Subsidiaries during such time period. Except as
set forth in Schedule 4.17 of the WeCo Disclosure Schedule, neither WeCo nor any
WNG Subsidiary has received any notice of cancellation or termination with
respect to any material insurance policy of WeCo or any of the WNG Subsidiaries.
All insurance policies of WeCo and each of the WNG Subsidiaries are valid and
enforceable policies in all material respects.
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SECTION 4.18 OWNERSHIP OF PUGET COMMON STOCK
Except pursuant to the terms of the Puget Stock Option Agreement, WeCo does
not "beneficially own" (as such term is defined for purposes of Section 13(d) or
the Exchange Act and in the Puget Rights Agreement) any shares of Puget Common
Stock.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PUGET
Puget represents and warrants to WeCo and WNG as follows:
SECTION 5.1 ORGANIZATION AND QUALIFICATION
Except as set forth in Section 5.1 of the Puget Disclosure Schedule (as
defined in Section 7.6(ii)), each of Puget and each Puget Subsidiary (as defined
below) is a corporation duly organized, validly existing and in good standing
under the laws of its jurisdiction of incorporation or organization, has all
requisite power and authority, and has been duly authorized by all necessary
approvals and orders of WUTC, to own, lease and operate its assets and
properties to the extent owned, leased and operated and to carry on its business
as it is now being conducted, and is duly qualified and in good standing to do
business in each jurisdiction in which the nature of its business or the
ownership or leasing of its assets and properties makes such qualification
necessary other than in such jurisdictions where the failure to be so qualified
and in good standing would not, when taken together with all other such
failures, have a material adverse effect on the business, operations,
properties, assets, financial condition, results of operations or prospects of
Puget and the Puget Subsidiaries taken as a whole or on the consummation of this
Agreement (any such material adverse effect being hereinafter referred to as a
"Puget Material Adverse Effect"). As used in this Agreement, the term "Puget
Subsidiaries" shall mean all subsidiaries of Puget.
SECTION 5.2 SUBSIDIARIES
Section 5.2 of the Puget Disclosure Schedule sets forth a description as of
the date hereof of all Puget Subsidiaries and Puget Joint Ventures (as defined
below), including the name of each such entity, the jurisdiction of its
incorporation, a brief description of the principal line or lines of business
conducted by each such entity and Puget's interest therein. Except as set forth
in Section 5.2 of the Puget Disclosure Schedule, none of such entities is a
"public utility company," a "holding company," a "subsidiary company" or an
"affiliate" of any public-utility company within the meaning of Section 2(a)(5),
2(a)(7), 2(a)(8) or 2(a)(11) of the 1935 Act, respectively. Except as set forth
in Section 5.2 of the Puget Disclosure Schedule, all of the issued and
outstanding shares of capital stock of each Puget Subsidiary are validly issued,
fully paid, nonassessable and free of preemptive rights, are owned directly or
indirectly by Puget free and clear of any liens, claims, encumbrances, security
interests, equities, charges and options of any nature whatsoever, and there are
no outstanding subscriptions, options, calls, contracts, voting trusts, proxies
or other commitments, understandings, restrictions, arrangements, rights or
warrants, including any right of conversion or exchange under any outstanding
security, instrument or other agreement, obligating any such subsidiary to
issue, deliver or sell, or cause to be issued, delivered or sold, additional
shares of its capital stock or obligating it to grant, extend or enter into any
such agreement or commitment. As used in this Agreement, the term "Puget Joint
Ventures" shall mean any joint venture of Puget or a Puget Subsidiary.
SECTION 5.3 CAPITALIZATION
The authorized capital stock of Puget consists of 80,000,000 shares of
Puget Common Stock, 3,000,000 shares of $100 preferred stock and 13,000,000
shares of $25 preferred stock (such shares of preferred stock being referred to
herein as the "Puget Preferred Stock") and 700,000 shares of preference stock,
par value $50 per share. As of the close of business on October 16, 1995, (i)
63,640,861 shares of Puget Common Stock were issued and outstanding, and (ii)
5,890,395 shares of Puget Preferred Stock were issued and outstanding,
consisting of 3,000,000 shares of nonredeemable 7.875% $25 Preferred Stock,
2,000,000 shares of nonredeem-
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able Adjustable Rate $25 Series B Preferred Stock, 47,956 shares of redeemable
4.84% $100 Preferred Stock, 56,215 shares of 4.70% $100 Preferred Stock, 36,224
shares of redeemable 8% $100 Preferred Stock, and 750,000 shares of redeemable
7.75% $100 Preferred Stock. All of the issued and outstanding shares of the
capital stock of Puget are, and any shares of Puget Common Stock issued pursuant
to the Puget Stock Option Agreement will be, validly issued, fully paid,
nonassessable and free of preemptive rights. Except as set forth in Section 5.3
of the Puget Disclosure Schedule, as of the date hereof, there are no
outstanding subscriptions, options, stock appreciation rights, calls, contracts,
voting trusts, proxies or other commitments, understandings, restrictions,
arrangements, rights or warrants, including any right of conversion or exchange
under any outstanding security, instrument or other agreement, obligating Puget
or any Puget Subsidiary to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of the capital stock of Puget or obligating
Puget or any Puget Subsidiary to grant, extend or enter into any such agreement
or commitment, other than under the Puget Stock Option Agreement and the Puget
Rights Agreement.
SECTION 5.4 AUTHORITY; NONCONTRAVENTION; STATUTORY APPROVALS; COMPLIANCE
(a) Authority. Puget has all requisite power and authority to enter into
this Agreement and the Puget Stock Option Agreement and, subject to the
applicable Puget Shareholders' Approval (as defined in Section 5.13) (in the
case of this Agreement only) and the applicable Puget Required Statutory
Approvals (as defined in Section 5.4(c)), to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this Agreement
and the Puget Stock Option Agreement, and the consummation by Puget of the
transactions contemplated hereby and thereby, have been duly authorized by all
necessary corporate action on the part of Puget, subject in the case of this
Agreement to obtaining the applicable Puget Shareholders' Approval. Each of this
Agreement and the Puget Stock Option Agreement has been duly and validly
executed and delivered by Puget and, assuming the due authorization, execution
and delivery hereof and thereof by WeCo and WNG, constitutes the valid and
binding obligation of Puget enforceable against it in accordance with its terms.
(b) Noncontravention. Except as set forth in Section 5.4(b) of the Puget
Disclosure Schedule, the execution and delivery of this Agreement and of the
Puget Stock Option Agreement by Puget do not, and the consummation of the
transactions contemplated hereby and thereby will not, violate, conflict with,
or result in a breach of any provision of, or constitute a default (with or
without notice or lapse of time or both) under, or result in any Violation by
Puget or any Puget Subsidiary or any Puget Joint Venture pursuant to any
provisions of (i) the articles of incorporation, bylaws or similar governing
documents of Puget or any Puget Subsidiary, (ii) subject to obtaining the Puget
Required Statutory Approvals and the receipt of the Puget Shareholders'
Approval, any statute, law, ordinance, rule, regulation, judgment, decree,
order, injunction, writ, permit or license of any Governmental Authority
applicable to Puget or any Puget Subsidiary or Puget Joint Venture, or any of
its respective properties or assets or (iii) subject to obtaining the thirdparty
consents or other approvals set forth in Section 5.4(b) of the Puget Disclosure
Schedule (the "Puget Required Consents"), any note, bond, mortgage, indenture,
deed of trust, license, franchise, permit, concession, contract, lease or other
instrument, obligation or agreement of any kind to which Puget or any Puget
Subsidiary or any Puget Joint Venture is now a party or by which it or any of
its properties or assets may be bound or affected, excluding from the foregoing
clauses (ii) and (iii) such Violations that would not, in the aggregate, have a
Puget Material Adverse Effect.
(c) Statutory Approvals. No declaration, filing or registration with, or
notice to or authorization, consent or approval of, any Governmental Authority
the failure to obtain, make or give which would have, in the aggregate, a Puget
Material Adverse Effect, is necessary for the execution and delivery of this
Agreement or the Puget Stock Option Agreement by Puget or the consummation by
Puget of the transactions contemplated hereby or thereby, except as described in
Section 5.4(c) of the Puget Disclosure Schedule (the "Puget Required Statutory
Approvals," it being understood that references in this Agreement to "obtaining"
such Puget Required Statutory Approvals shall mean making such declarations,
filings or registrations; giving such notices; obtaining such authorizations,
consents or approvals; and having such waiting periods expire as are necessary
to avoid a violation of law).
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(d) Compliance. Except as set forth in Section 5.4(d) or 5.11 of the Puget
Disclosure Schedule or as disclosed in the Puget SEC Reports (as defined in
Section 5.5) filed prior to the date hereof, neither Puget nor any Puget
Subsidiary nor, to the knowledge of Puget, any Puget Joint Ventures, is in
violation of, or is under investigation with respect to any violation of, or has
been given notice or been charged with any violation of, any law, statute,
order, rule, regulation, ordinance or judgment (including, without limitation,
any applicable environmental law, ordinance or regulation) of any Governmental
Authority except for violations which in the aggregate do not and, insofar as
reasonably can be foreseen, will not have a Puget Material Adverse Effect.
Except as set forth in Section 5.4(d) of the Puget Disclosure Schedule or in
Section 5.11 of the Puget Disclosure Schedule, Puget and each of the Puget
Subsidiaries and Puget Joint Ventures have all permits, licenses, franchises and
other governmental authorizations, consents and approvals necessary to conduct
their businesses as currently conducted in all material respects except for
those which the failure to obtain would not, in the aggregate, have a Puget
Material Adverse Effect. Except as set forth in Section 5.4(d) of the Puget
Disclosure Schedule, neither Puget nor any Puget Subsidiary is in material
breach or violation of or in material default in the performance or observance
of any term or provision of, and no event has occurred which, with lapse of time
or action by a third party, could result in a material default under, (i) its
articles of incorporation or bylaws or (ii) any contract, commitment, agreement,
indenture, mortgage, loan agreement, note, lease, bond, license, approval or
other instrument to which it is a party or by which it is bound or to which any
of its property is subject except in the case of clause (ii) for violations and
defaults which would not, in the aggregate, have a Puget Material Adverse
Effect.
SECTION 5.5 REPORTS AND FINANCIAL STATEMENTS
Since January 1, 1990, the filings required to be made by Puget and the
Puget Subsidiaries under the Securities Act, the Exchange Act, applicable
Washington laws and regulations, the Federal Power Act or the 1935 Act have been
filed with the SEC, the WUTC or the FERC, as the case may be, including all
forms, statements, reports, agreements (oral or written) and all documents,
exhibits, amendments and supplements appertaining thereto, and complied, as of
their respective dates, in all material respects with all applicable
requirements of the appropriate act and the rules and regulations thereunder.
Puget has made available to WeCo a true and complete copy of each report,
schedule, registration statement and definitive proxy statement filed by Puget
with the SEC since January 1, 1991 (the "Puget SEC Reports"). As of their
respective dates, the Puget SEC Reports did not contain any untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. The audited consolidated financial
statements and unaudited interim financial statements of Puget included in the
Puget SEC Reports (the "Puget Financial Statements") have been prepared in
accordance with GAAP (except as may be indicated therein or in the notes thereto
and except with respect to unaudited statements as permitted by Form 10-Q of the
SEC) and fairly present the financial position of Puget as of the dates thereof
and the results of its operations and cash flows for the periods then ended,
subject, in the case of the unaudited interim financial statements, to normal
recurring audit adjustments. True, accurate and complete copies of the Restated
Articles of Incorporation and Bylaws of Puget as in effect on the date hereof
have been delivered to WeCo and WNG.
SECTION 5.6 ABSENCE OF CERTAIN CHANGES OR EVENTS
Except as disclosed in the Puget SEC Reports filed prior to the date hereof
or as set forth Section 5.6 of the Puget Disclosure Schedule, from December 31,
1994 through the date hereof (a) each of Puget and each Puget Subsidiary has
conducted its business only in the ordinary course of business consistent with
past practice and (b) there has not been, and no fact or condition exists which
would have or, insofar as reasonably can be foreseen, could have, a Puget
Material Adverse Effect.
SECTION 5.7 LITIGATION
Except as disclosed in the Puget SEC Reports filed prior to the date hereof
or as set forth in Section 5.7, 5.9 or 5.11 of the Puget Disclosure Schedule,
(a) there are no material claims, suits, actions or proceedings, pending or, to
the knowledge of Puget, threatened, nor are there, to the knowledge of Puget,
any material
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investigations or reviews pending or threatened against, relating to or
affecting Puget, any Puget Subsidiary or any Puget Benefit Plan and (b) there
are no material judgments, decrees, injunctions, rules or orders of any court,
governmental department, commission, agency, instrumentality or authority or any
arbitrator applicable to Puget or any Puget Subsidiary, and (c) there have not
been any material developments since June 30, 1995 with respect to such
disclosed claims, suits, actions, proceedings, investigations or reviews.
SECTION 5.8 REGISTRATION STATEMENT AND PROXY STATEMENT
None of the information supplied or to be supplied by or on behalf of Puget
for inclusion or incorporation by reference in (a) the Registration Statement
will, at the time the Registration Statement is filed with the SEC and at the
time it becomes effective under the Securities Act, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading and (b) the
Joint Proxy Statement/Prospectus will, at the dates mailed to the shareholders
of Puget, WeCo and WNG and, as the same may be amended or supplemented, at the
times of the meetings of such shareholders to be held in connection with the
Merger, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
misleading, and will comply as to form in all material respects with the
provisions of the Securities Act and the Exchange Act and the rules and
regulations thereunder.
SECTION 5.9 TAX MATTERS
Except as set forth in Section 5.9 of the Puget Disclosure Schedule:
(a) Filing of Timely Tax Returns. Puget and each of the Puget Subsidiaries
have filed all material Tax Returns required to be filed by each of them with
the appropriate Governmental Authority. All such Tax Returns were and are in all
material respects (and, as to Tax Returns not filed as of the date hereof, will
be) true, complete and correct and filed on a timely basis.
(b) Payment of Taxes; Reserves. Puget and each of the Puget Subsidiaries
have, within the time and in the manner prescribed by law, paid (and until the
Closing Date will pay within the time and in the manner prescribed by law) all
Taxes that are currently due and payable except for those contested in good
faith and for which adequate reserves have been taken. Puget and each of the
Puget Subsidiaries have established on their books and records reserves adequate
to pay all Taxes and reserves for deferred income taxes in accordance with GAAP.
(c) Tax Liens. There are no material Tax liens upon the assets of Puget or
any of the Puget Subsidiaries except liens for Taxes not yet due.
(d) Withholding Taxes. Puget and each of the Puget Subsidiaries have
complied (and until the Closing Date will comply) in all respects with the
provisions of the Code relating to the payment and withholding of Taxes,
including, without limitation, the withholding and reporting requirements under
Sections 1441 through 1464, 3401 through 3406, and 6041 through 6050P of the
Code, as well as similar provisions under any other laws, and have, within the
time and in the manner prescribed by law, withheld from employee wages and paid
over to the proper Governmental Authorities all amounts required.
(e) Extensions of Time for Filing Tax Returns. Neither Puget nor any Puget
Subsidiary has requested any extension of time within which to file any Tax
Return, which Tax Return has not since been filed.
(f) Waivers of Statute of Limitations. Neither Puget nor any Puget
Subsidiary has executed any outstanding waivers or comparable consents regarding
the application of the statute of limitations with respect to any Taxes or Tax
Returns.
(g) Expiration of Statute of Limitations. The statute of limitations for
the assessment of all Taxes has expired for all U.S. federal and state Tax
Returns of Puget and each Puget Subsidiary or such Tax Returns have been
examined by the appropriate Governmental Authorities for all periods through the
date hereof. No
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deficiency for any material Taxes has been proposed, asserted or assessed
against Puget or any of the Puget Subsidiaries by any Governmental Authorities
that has not been resolved and paid in full.
(h) Audit, Administrative and Court Proceedings. No audits or other
administrative proceedings or court proceedings are presently pending with
regard to any Taxes or Tax Returns of Puget or any of the Puget Subsidiaries.
(i) Powers of Attorney. No power of attorney currently in force has been
granted by Puget or any of the Puget Subsidiaries concerning any Tax matter.
(j) Tax Rulings. Neither Puget nor any Puget Subsidiary has received a Tax
Ruling or entered into a Closing Agreement that would have a continuing adverse
effect after the Closing Date.
(k) Availability of Tax Returns. Puget and the Puget Subsidiaries have
made available to WeCo complete and accurate copies of (i) all Tax Returns, and
any amendments thereto, filed by Puget or any of its the Puget Subsidiaries,
(ii) all audit reports received from any Governmental Authority relating to any
Tax Return filed by Puget or any of the Puget Subsidiaries and (iii) any Closing
Agreement entered into by Puget or any of the Puget Subsidiaries with any
Governmental Authority.
(l) Tax Sharing Agreements. No agreements relating to allocating or
sharing of Taxes exist between or among Puget and any of the Puget Subsidiaries.
(m) Section 341(f) of the Code. Neither Puget nor any Puget Subsidiary has
filed (or will file prior to the Closing) a consent pursuant to Section 341(f)
of the Code or have agreed to have Section 341(f)(2) of the Code apply to any
disposition of a subsection (f) asset (as that term is defined in Section
341(f)(4) of the Code) owned by Puget or any Puget Subsidiary.
(n) Section 168 of the Code. No property of Puget or any Puget Subsidiary
is property that Puget or any such subsidiary or any party to this transaction
is or will be required to treat as being owned by another person pursuant to the
provisions of Section 168(f)(8) of the Code (as in effect prior to its amendment
by the Tax Reform Act of 1986) or is "tax-exempt use property" within the
meaning of Section 168 of the Code.
(o) Section 481 of the Code. Neither Puget nor any Puget Subsidiary is
required to include in income any adjustment pursuant to Section 481(a) of the
Code by reason of a voluntary change in accounting method initiated by Puget or
any Puget Subsidiary, and to the best of the knowledge of Puget, the IRS has not
proposed any such adjustment or change in accounting method.
(p) Sections 6661 and 6662 of the Code. All transactions that could give
rise to a material understatement of federal income tax (within the meaning of
Section 6661 of the Code for Tax Returns the due date for which (determined
without regard to extensions) is on or before December 31, 1989, and within the
meaning of Section 6662 of the Code for Tax Returns filed after December 31,
1989) have been adequately disclosed (or, with respect to Tax Returns filed
following the Closing will be adequately disclosed) on the Tax Returns of Puget
and the Puget Subsidiaries in accordance with Section 6661(b)(2)(B) of the Code
for Tax Returns the due date for which (determined without regard to extensions)
is on or prior to December 31, 1989, and in accordance with Section
6662(d)(2)(B) of the Code for Tax Returns filed after December 31, 1989.
(q) Jurisdiction. No claim has been made by a governmental entity in any
jurisdiction where either Puget or any Puget Subsidiary does not file any Tax
Returns that such non-filing entity is or may be subject to taxation by that
jurisdiction.
(r) U.S. Real Property Holding Company. Neither Puget nor any Puget
Subsidiary has been a United States real property holding corporation within the
meaning of Section 897(c)(2) of the Code during the applicable period specified
in Section 897(c)(1)(A)(2)(i) of the Code.
(s) Liability for Others. Neither Puget nor any Subsidiary has any
liability for Taxes of any person other than Puget and the Puget Subsidiaries
(i) under Treasury Regulation Section 1.1502-6 (or any similar provision of any
state, local or foreign law) as a transferee or successor, (ii) by contract or
(iii) otherwise.
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SECTION 5.10 EMPLOYEE MATTERS; ERISA
(a) Benefit Plans. Section 5.10(a) of the Puget Disclosure Schedule
contains a true and complete list of each material employee benefit plan, fund,
program, contract or arrangement covering employees, former employees or
directors of Puget and each of the Puget Subsidiaries or any of their dependents
or beneficiaries, or providing benefits to such persons in respect of services
provided to any such entity, or with respect to which Puget or any Puget
Subsidiaries has or could have any liability, including, but not limited to, any
material employee benefit plans within the meaning of Section 3(3) of ERISA, and
specifically including, but not limited to, each material retirement, pension,
multi-employer, profit sharing, stock bonus, savings, thrift, bonus, cafeteria,
medical, health, hospitalization, dental, vision, welfare, life insurance,
disability, accident insurance, group insurance, tuition reimbursement, medical
expense reimbursement, dependent care expense reimbursement plan or program,
executive or deferred compensation plan or contract, stock purchase, stock
option or stock appreciation rights plan or arrangement, severance or change in
control agreement or plan, and employment, consulting or personal services
contract with any officer, director or employee (or any person who prior to
entering into such contract was an officer, director or employee) of Puget or
any of its subsidiaries (individually, a "Puget Benefit Plan," and collectively,
the "Puget Benefit Plans").
(b) Documents Made Available. Puget has made available to WeCo a true and
correct copy of each collective bargaining agreement to which Puget or any Puget
Subsidiary is a party or under which Puget or any Puget Subsidiary has
obligations and, with respect to each Puget Benefit Plan, where applicable, true
and correct copies of (i) such Puget Benefit Plan, (ii) the annual reports (Form
5500 series) filed with the IRS for the last three years with respect to such
Puget Benefit Plan (to the extent required to be filed), (iii) the summary plan
description (together with any applicable summaries of material modifications
and the most recent material employee manuals distributed with respect to such
Puget Benefit Plan), (iv) each trust agreement (or group annuity contract),
including all amendments to each such document, related to such Puget Benefit
Plan, (v) the most recent determination letter from the IRS with respect to the
qualified status of such Puget Benefit Plan (provided such Puget Benefit Plan is
intended to be qualified under Section 401(a) of the Code) and (v) the most
recent actuarial report or valuation, if any, for such Puget Benefit Plan.
(c) Compliance. Except as set forth in Section 5.10(c) of the Puget
Disclosure Schedule, with respect to each Puget Benefit Plan, Puget and each of
the Puget Subsidiaries have at all times been in compliance in all material
respects with, and each Puget Benefit Plan has at all times been maintained and
operated in all material respects in compliance with, the terms of such Puget
Benefit Plan and all applicable laws, rules and regulations governing such Puget
Benefit Plan, including, but not limited to, ERISA and the Code.
(d) Qualified Plans. Except as set forth in Section 5.10(d) of the Puget
Disclosure Schedule, each Puget Benefit Plan that is intended to be "qualified,"
within the meaning of Section 401(a) of the Code, has been determined to be so
qualified (and a determination letter to that effect has been issued) by the
IRS, and, to the best knowledge of Puget, no circumstances exist that have or
are likely to adversely affect, or result in the revocation of, such
determination.
(e) Welfare Plans. Except as set forth in Section 5.10(e) of the Puget
Disclosure Schedule, none of the Puget Benefit Plans that are "welfare plans,"
within the meaning of Section 3(1) of ERISA, provides or has any obligation to
provide benefits with respect to current or former employees of Puget, any Puget
Subsidiary or any other entity beyond their retirement or other termination of
service, including, without limitation, post-retirement (or post-termination)
medical, dental, life insurance, severance or any other similar benefit, whether
provided on an insured or self-insured basis, other than benefits mandated by
applicable law, including, but not limited to, continuation coverage required to
be provided under Section 4980B of the Code or Part 6 of Title I of ERISA.
(f) Contributions. Except as set forth in Section 5.10(f) of the Puget
Disclosure Schedule, all material contributions and other payments required to
have been made by Puget or any of Puget Subsidiary (including any pre-tax or
post-tax contributions or payments by employees or their dependents) to any
Puget Benefit Plan (or to any person pursuant to the terms thereof) have been so
made or the amount of any such payment or contribution obligation that is not
yet due has been properly reflected in the Puget Financial Statements.
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(g) Funded Status of Plans. Except as set forth in Section 5.10(g) of the
Puget Disclosure Schedule, the fair market value, as of the date hereof, of the
assets held by each Puget Benefit Plan that is subject to the requirements of
Section 412 of the Code, Part 3 of Title I of ERISA or Title IV of ERISA is not
materially less than the present value of the accumulated benefit obligations
(determined as of the date hereof) of the participants and beneficiaries under
such Puget Benefit Plan, based on the actuarial methods, tables and assumptions
heretofore utilized by such Puget Benefit Plan's actuary to determine such Puget
Benefit Plan's funded status. None of the Puget Benefit Plans that are subject
to Section 412 of the Code or Section 302 of ERISA has ever incurred an
"accumulated funding deficiency" (as defined in such Code and ERISA sections).
(h) Termination or Withdrawal Liability. Except as set forth in Section
5.10(h) of the Puget Disclosure Schedule, the termination of, or withdrawal
from, any Puget Benefit Plan that is subject to Section 412 of the Code, Section
302 of ERISA or Title IV of ERISA by Puget, any Puget Subsidiary or any Puget
ERISA Affiliate has not subjected, and will not subject, Puget or any Puget
Subsidiary to any material liability to any governmental authority, corporation
or other person or entity (including, but not limited to, such plan or the PBGC)
and has not resulted, and will not result, in the imposition of a material lien
under Title IV of ERISA against the assets of Puget or any Puget Subsidiary.
"Puget ERISA Affiliate" means any entity, whether or not incorporated, that is
or has ever been considered as a single employer together with Puget or any of
the Puget Subsidiaries under Section 414(b), (c), (m) or (o) of the Code.
(i) Liabilities. Except as set forth in Section 5.10(i) of the Puget
Disclosure Schedule, with respect to the Puget Benefit Plans, individually and
in the aggregate, no event has occurred, and, to the best knowledge of Puget,
there exists no condition or set of circumstances that could subject Puget or
any of the Puget Subsidiaries, or any director, officer, or employee of Puget or
any of the Puget Subsidiaries, to any material fine, penalty, tax or liability
(including, without limitation, any liability to any such plan or the PBGC),
whether pursuant to any agreement, instrument, indemnification obligation,
statute, regulation or rule of law, excluding liability for benefit claims and
funding obligations payable in the ordinary course and liability for premiums
due to the PBGC.
(j) Payments Resulting From Merger. Except as set forth in Section 7.11 or
in Section 5.10(j) of the Puget Disclosure Schedule, the consummation or
announcement of any transaction contemplated by this Agreement will not (either
alone or upon the occurrence of any additional or further acts or events) result
in any (i) material payment (whether of severance pay or otherwise) becoming due
from the Company or Puget or any of the Puget Subsidiaries to any officer,
employee, former employee or director thereof or to the trustee under any "rabbi
trust" or similar arrangement, (ii) material benefit under any Puget Benefit
Plan being established or becoming accelerated, vested or payable or (iii)
payment of "excess parachute payments" within the meaning of Section 280G of the
Code under any contract or arrangement to which Puget or any Puget Subisidary is
a party.
(k) Other Binding Commitments. Except as set forth in Section 5.10(k) of
the Puget Disclosure Schedule, neither Puget nor any Puget Subsidiary has any
agreement, arrangement, commitment or obligation, whether formal or informal,
whether written or unwritten and whether legally binding or not, to create any
plan, fund, program, contract or arrangement not identified in Section 5.10(a)
of the Puget Disclosure Schedule or to modify or amend any of the existing Puget
Benefit Plans.
(l) Labor Agreements. Except as disclosed in the Puget SEC Reports or as
set forth in Section 5.10(l) of the Puget Disclosure Schedule, (i) neither Puget
nor any Puget Subsidiary is a party to any collective bargaining agreement or
other labor agreement with any union or labor organization; (ii) to the best
knowledge of Puget, there is no current union representation election or
controversy involving employees of Puget or any of the Puget Subsidiaries, nor
does Puget know of any activity or proceeding of any labor organization (or
representative thereof) or employee group (or representative thereof) to
organize any such employees; (iii) there is no material unfair labor practice
charge or material grievance arising out of a collective bargaining agreement or
other material grievance procedure against Puget or any of the Puget
Subsidiaries pending, or to the best knowledge of Puget, threatened; (iv) there
is no material complaint, lawsuit or proceeding in any forum by or on behalf of
any present or former employee, any applicant for
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employment or classes of the foregoing alleging breach of any express or implied
contract of employment, any law or regulation governing employment or the
termination thereof or other discriminatory, wrongful or tortious conduct in
connection with the employment relationship against Puget or any of the Puget
Subsidiaries pending, or to the best knowledge of Puget, threatened; (v) there
is no strike, dispute, slowdown, work stoppage or lockout pending, or to the
best knowledge of Puget, threatened, against or involving Puget or any of the
Puget Subsidiaries; (vi) Puget and the Puget Subsidiaries are in compliance in
all material respects with all applicable laws respecting employment and
employment practices, terms and conditions of employment, wages, hours of work
and occupational safety and health; and (vii) there is no proceeding, claim,
suit, action or governmental investigation pending or, to the best knowledge of
Puget, threatened, in respect of which any director, officer, employee or agent
of Puget or any of the Puget Subsidiaries is or may be entitled to claim
indemnification from Puget or any of the Puget Subsidiaries pursuant to its
articles of incorporation or bylaws or as provided in the Indemnification
Agreements listed on Section 5.10(l) of the Puget Disclosure Schedule.
SECTION 5.11 ENVIRONMENTAL PROTECTION
Except as set forth in Section 5.11 of the Puget Disclosure Schedule:
(a) Compliance. Each of Puget and each Puget Subsidiary is in compliance
in all material respects with all applicable Environmental Laws. Neither Puget
nor any Puget Subsidiary has received any written, or, to the knowledge of
appropriate officers of Puget upon diligent review, oral communication from any
person or Governmental Authority, that alleges that Puget or any Puget
Subsidiary is not in compliance in all material respects with applicable
Environmental Laws.
(b) Environmental Permits. Each of Puget and each Puget Subsidiary has
obtained or has applied for all material Environmental Permits necessary for the
construction of their facilities or the conduct of their operations, and all
such permits are in good standing or, where applicable, a renewal application
has been timely filed and is pending agency approval, and Puget and the Puget
Subsidiaries are in material compliance with all terms and conditions of the
Environmental Permits and are not required to make any material expenditure in
order to obtain or renew any Environmental Permit.
(c) Environmental Claims. There is no material Environmental Claim pending
(i) against Puget or any of the Puget Subsidiaries or Puget Joint Ventures or
(ii) to the best knowledge of appropriate officers of Puget, upon diligent
review, (x) against any person or entity whose liability for any Environmental
Claim Puget or any Puget Subsidiary or Puget Joint Venture has or may have
retained or assumed either contractually or by operation of law or (y) against
any real or personal property or operations which Puget or any Puget Subsidiary
or Puget Joint Venture owns, leases or manages, in whole or in part.
(d) Releases. Puget has no knowledge of any material Releases of any
Hazardous Material that would be reasonably likely to form the basis of any
material Environmental Claim against Puget or any of the Puget Subsidiaries or
Puget Joint Ventures, or against any person or entity whose liability for any
Environmental Claim Puget or any Puget Subsidiary or Puget Joint Venture has or
may have retained or assumed either contractually or by operation of law.
(e) Predecessors. Puget has no knowledge, with respect to any predecessor
of Puget or any of the Puget Subsidiaries or Puget Joint Ventures, of any
material Environmental Claim pending or threatened, or of any Release of
Hazardous Materials that would be reasonably likely to form the basis of any
material Environmental Claim.
(f) Disclosure. To the best knowledge of Puget, Puget has disclosed to
WeCo all material facts which Puget reasonably believes is likely to form the
basis of a material Environmental Claim arising from (i) the cost of pollution
control equipment currently required or known to be required in the future, (ii)
current remediation costs or remediation costs that insofar as reasonably can be
foreseen could be required in the future or (iii) any other material
environmental matter affecting Puget or the Puget Subsidiaries.
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SECTION 5.12 REGULATION AS A UTILITY
Puget is regulated as a public utility in the state of Washington and in no
other state. Except as set forth in Section 5.12 of the Puget Disclosure
Schedule hereof, neither Puget nor any "subsidiary company" or "affiliate" of
Puget is subject to regulation as a public utility or public service company (or
similar designation) by any other state in the United States or any foreign
country. Section 5.12 of the Puget Disclosure Schedule sets forth each
"affiliate" and each "subsidiary company" of Puget which may be deemed to be a
"public utility company" or a "holding company" within the meaning of the 1935
Act.
SECTION 5.13 VOTE REQUIRED
The approval of the plan of Merger by two-thirds of all votes entitled to
be cast by all holders of Puget Common Stock and the approval of the increase in
the number of shares authorized for issuance under the Puget 1995 Incentive
Compensation Plan from 500,000 shares to 1,200,000 shares by a majority of the
votes cast at a Puget meeting of its shareholders at which a quorum is present
(collectively, the "Puget Shareholders' Approval") are the only votes of the
holders of any class or series of the capital stock of Puget required to approve
this Agreement, the Merger and the other transactions contemplated hereby.
SECTION 5.14 ACCOUNTING MATTERS
Neither Puget nor, to Puget's best knowledge, any of its affiliates, have,
through the date of this Agreement, taken or agreed to take any action that
would prevent the Company from accounting for the business combination to be
effected by the Merger as a pooling of interests in accordance with GAAP and
applicable SEC regulations.
SECTION 5.15 APPLICABILITY OF CERTAIN WASHINGTON LAW
Assuming the representation and warranty of WeCo and WNG made in Section
4.18 is correct, neither the business combination provisions of Chapter 23B.19
of the WBCA, the "interested shareholder" provisions of Section 23B.17.020 of
the WBCA or any similar provisions of the WBCA nor the Articles of Incorporation
or Bylaws of Puget are applicable to the transactions contemplated by this
Agreement or the Puget Stock Option Agreement.
SECTION 5.16 OPINION OF FINANCIAL ADVISOR
Puget has received the opinion of Morgan Stanley & Co. Incorporated, on the
date hereof, to the effect that, as of the date hereof, the Ratio is fair from a
financial point of view to the holders of Puget Common Stock.
SECTION 5.17 INSURANCE
Except as set forth in Section 5.17 of the Puget Disclosure Schedule, each
of Puget and each Puget Subsidiary is, and has been continuously since January
1, 1990, insured with financially responsible insurers in such amounts and
against such risks and losses as are customary for companies conducting the
businesses conducted by Puget and the Puget Subsidiaries during such time
period. Except as set forth in Schedule 5.17 of the Puget Disclosure Schedule,
neither Puget nor any Puget Subsidiary has received any notice of cancellation
or termination with respect to any material insurance policy of Puget or the
Puget Subsidiaries. All insurance policies of Puget and each of the Puget
Subsidiaries are valid and enforceable policies in all material respects.
SECTION 5.18 OWNERSHIP OF WECO COMMON STOCK
Except pursuant to the terms of the WeCo Stock Option Agreement, Puget does
not "beneficially own" (as such term is defined for purposes of Section 13(d) of
the Exchange Act) any shares of WeCo Common Stock.
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SECTION 5.19 PUGET RIGHTS AGREEMENT
Prior hereto, Puget has delivered to WeCo a true and complete copy of the
Puget Rights Agreement in effect on the date hereof (which has been amended
prior to the date hereof to provide that the execution, delivery and performance
of the WeCo Stock Option Agreement and the Puget Stock Option Agreement will not
result in WeCo becoming an "Acquiring Person" thereunder), and assuming the
accuracy of the representation contained in Section 4.18, the consummation of
the Merger or any of the other transactions contemplated by this Agreement will
not result in the triggering of any right (including, without limitation, a
"flip-in" or "flip-over" or similar event commonly described in rights
agreements) or entitlement of Puget shareholders under the Puget Rights
Agreement or any similar agreement to which Puget or any of its affiliates is a
party.
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER
After the date hereof and prior to the Effective Time or earlier
termination of this Agreement, Puget, WeCo and WNG each agrees as to itself and
each of the WNG Subsidiaries and the Puget Subsidiaries, as the case may be,
except as expressly contemplated or permitted in this Agreement, the WeCo Stock
Option Agreement or the Puget Stock Option Agreement, or to the extent the other
parties hereto shall otherwise consent in writing:
SECTION 6.1 ORDINARY COURSE OF BUSINESS
Each party hereto shall, and shall cause its respective subsidiaries to,
carry on their respective businesses in the usual, regular and ordinary course
in substantially the same manner as heretofore conducted and use all
commercially reasonable efforts to preserve intact their present business
organizations and goodwill, preserve the goodwill and relationships with
customers, suppliers and others having business dealings with them and, subject
to prudent management of workforce needs and ongoing programs currently in
force, keep available the services of their present officers and employees.
Except as set forth in Section 6.1 of the WeCo Disclosure Schedule or the Puget
Disclosure Schedule, no party shall, nor shall any party permit any of its
subsidiaries to, enter into a new line of business, or make any change in the
line of business it engages in as of the date hereof involving any material
investment of assets or resources or any material exposure to liability or loss,
in the case of WeCo, to WeCo and the WNG Subsidiaries taken as a whole, and in
the case of Puget, to Puget and the Puget Subsidiaries taken as a whole.
SECTION 6.2 DIVIDENDS
Neither WeCo nor Puget shall, nor shall WeCo or Puget permit any of its
subsidiaries (including, in the case of WeCo, WNG) to (i) declare or pay any
dividends on or make other distributions in respect of any of their capital
stock other than to such party or its wholly owned subsidiaries and other than
dividends required to be paid on any series of WNG Preferred Stock or Puget
Preferred Stock in accordance with the respective terms thereof, regular
dividends on WeCo Common Stock with usual record and payment dates not in excess
of an annual rate of $1.00 per share and regular dividends on Puget Common Stock
with usual record and payment dates not in excess of an annual rate of $1.84 per
share; (ii) split, combine or reclassify any of their capital stock or issue or
authorize or propose the issuance of any other securities in respect of, in lieu
of, or in substitution for, shares of its capital stock; or (iii) redeem,
repurchase or otherwise acquire any shares of their capital stock, other than
redemptions, repurchases and other acquisitions of shares of capital stock (A)
required by, or made in anticipation of sinking fund payments or redemptions
required by, the respective terms of any series of WNG Preferred Stock or Puget
Preferred Stock, (B) in connection with refunding of WNG Preferred Stock or
Puget Preferred Stock with preferred stock or debt at a lower after-tax cost of
funds, (C) in connection with intercompany purchases of capital stock, (D) the
redemption, if required, of the Rights pursuant to the terms of the Puget Rights
Agreement or (E) in connection with the administration of employee benefit plans
in effect on the date hereof in the ordinary course of the operation of such
plans. The last record date of each of Puget and WeCo on or prior to the
Effective Time which relates to a regular
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quarterly dividend on Puget Common Stock or WeCo Common Stock, as the case may
be, shall be agreed to by the parties in advance and shall be the same date and
shall be prior to the Effective Time.
SECTION 6.3 ISSUANCE OF SECURITIES
Except as set forth in Section 6.3 of the WeCo Disclosure Schedule or the
Puget Disclosure Schedule, no party shall, nor shall any party permit any of its
subsidiaries to, issue, agree to issue, deliver, sell, award, pledge, dispose of
or otherwise encumber, or authorize or propose the issuance, delivery, sale,
award, pledge, disposal or other encumbrance of, any shares of their capital
stock of any class or any securities convertible into or exchangeable for, or
any rights, warrants or options to acquire, any such shares or convertible or
exchangeable securities, other than pursuant to the WeCo Stock Option Agreement
or the Puget Stock Option Agreement as the case may be, other than intercompany
issuances of capital stock, and other than issuances, in the case of WeCo and
the WNG Subsidiaries (i) in connection with refunding of WNG Preferred Stock
with preferred stock or debt at a lower after-tax cost of funds and (ii) of
shares of WeCo Common Stock issued pursuant to WeCo's Dividend Reinvestment and
Stock Purchase Plan, Employee Stock Purchase Plan, Performance Share Plan, Stock
Option Plan and Directors' Stock Bonus Plan, in each case consistent in kind and
amount with past practice and in the ordinary course of business under such
plans substantially in accordance with their present terms; and in the case of
Puget (i) in connection with refunding of Puget Preferred Stock with preferred
stock or debt at a lower cost of funds, (ii) of shares of Puget Common Stock
issued pursuant to Puget's Dividend Reinvestment and Stock Purchase Plan, 1995
Long-Term Incentive Compensation Plan and Employee Investment Plan, in each case
in the ordinary course of business under such plans substantially in accordance
with their present terms; and (iii) of capital stock under the Puget Rights
Agreement if required by the terms thereof. The parties shall promptly furnish
to each other such information as may be reasonably requested, including
financial information, and take such action as may be reasonably necessary and
otherwise fully cooperate with each other in the preparation of any registration
statement under the Securities Act and other documents necessary in connection
with issuance of securities as contemplated by this Section 6.3, subject to
obtaining customary indemnities.
SECTION 6.4 CHARTER DOCUMENTS
Except as set forth in Section 6.4 of the WeCo Disclosure Schedule or the
Puget Disclosure Schedule, no party shall amend or propose to amend its
respective articles of incorporation or by-laws, except as contemplated herein.
SECTION 6.5 NO ACQUISITIONS
Except as set forth in Section 6.5 of the WeCo Disclosure Schedule or the
Puget Disclosure Schedule, other than (i) acquisitions by WeCo and the WNG
Subsidiaries not in excess of $10 million in the aggregate and (ii) acquisitions
by Puget and the Puget Subsidiaries not in excess of $25 million in the
aggregate, no party shall, nor shall any party permit any of its subsidiaries
to, acquire, or publicly propose to acquire, or agree to acquire, by merger or
consolidation with, or by purchase or otherwise, a substantial equity interest
in or a substantial portion of the assets of, any business or any corporation,
partnership, association or other business organization or division thereof or
otherwise acquire or agree to acquire a material amount of assets, other than in
the ordinary course of business consistent with past practice.
SECTION 6.6 CAPITAL EXPENDITURES
Except as set forth in Section 6.6 of the WeCo Disclosure Schedule or the
Puget Disclosure Schedule, and except as required by law, no party shall, nor
shall any party permit any of its subsidiaries to, make or obligate itself to
make capital expenditures (including, without limitation, the purchase of sulfur
dioxide emission allowances as provided in the Clean Air Act Amendments of 1990)
in excess of 120% of the respective aggregate amounts provided in Section 6.6 of
the WeCo Disclosure Schedule or the Puget Disclosure Schedule for capital
expenditures.
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SECTION 6.7 NO DISPOSITIONS
Except as set forth in Section 6.7 of the WeCo Disclosure Schedule or the
Puget Disclosure Schedule, other than (i) dispositions by WeCo and the WNG
Subsidiaries of less than $15 million, individually or in the aggregate, and
(ii) dispositions by Puget and the Puget Subsidiaries of less than $50 million
individually or in the aggregate, no party shall, nor shall any party permit any
of its subsidiaries to, sell, lease, license, encumber or otherwise dispose of,
any of its assets, other than encumbrances or dispositions in the ordinary
course of business consistent with past practice. In no event shall any party
make any disposition that would result in a violation of Section 6.12.
SECTION 6.8 INDEBTEDNESS
Except as set forth in Section 6.8 of the WeCo Disclosure Schedule or the
Puget Disclosure Schedule, no party shall, nor shall any party permit any of its
subsidiaries to, incur or guarantee any indebtedness (including any debt
borrowed or guaranteed or otherwise assumed, including, without limitation, the
issuance of debt securities or warrants or rights to acquire debt) or enter into
any "keep well" or other agreement to maintain the financial condition of
another person or enter into any other arrangement having the economic effect of
any of the foregoing other than (i) short-term indebtedness in the ordinary
course of business consistent with past practice (such as the issuance of
commercial paper or the use of existing credit facilities); (ii) long-term
indebtedness not aggregating more than $75 million in the case of WeCo and the
WNG Subsidiaries, or $150 million in the case of Puget and the Puget
Subsidiaries; (iii) in connection with the refunding of WNG Preferred Stock or
Puget Preferred Stock as permitted in Section 6.2; and (iv) in connection with
the refunding of existing indebtedness at a lower after-tax cost of funds.
SECTION 6.9 COMPENSATION; BENEFITS
Except (a) as set forth in Section 6.9 of the WeCo Disclosure Schedule or
the Puget Disclosure Schedule or Section 7.10 or Section 7.11, (b) as
contemplated by this Agreement, (c) as may be required by applicable law, (d) as
may be required to obtain an IRS determination that a plan is "qualified" under
Section 401(a) of the Code or (e) as may be required under existing WeCo Benefit
Plans or Puget Benefit Plans, no party shall, nor shall any party permit any of
its subsidiaries to, (i) enter into, adopt or amend (except as may be required
by applicable law), or increase the amount or accelerate the payment or vesting
of any benefit or amount payable under, any employee benefit plan or other
contract, agreement, commitment, arrangement, plan or policy maintained by,
contributed to or entered into by such party or any of its subsidiaries, or
increase, or enter into any contract, agreement, commitment or arrangement to
increase in any manner, the compensation or fringe benefits, or otherwise to
extend, expand or enhance the engagement, employment or any related rights, of
any director, officer or other employee of such party or any of its
subsidiaries, except for normal increases, grants or actions in the ordinary
course of business that, in the aggregate, do not result in a material increase
in benefits or compensation expense to such party or any of its subsidiaries, or
(ii) enter into or amend any employment contract or special pay arrangement with
respect to termination of employment or other similar contract, agreement or
arrangement with any director or officer or other employee other than in the
ordinary course of business consistent with past practice.
SECTION 6.10 1935 ACT; FEDERAL POWER ACT
No party shall, nor shall any party permit any of its subsidiaries to,
except as required or contemplated by this Agreement, the WeCo Stock Option
Agreement or the Puget Stock Option Agreement, engage in any activities which
would cause a change in its status, or that of its subsidiaries, under the 1935
Act, or that would require the approval of the SEC under Section 9(a)(2) of the
1935 Act or of the FERC under the Federal Power Act for any of the transactions
contemplated by this Agreement, the WeCo Stock Option Agreement or the Puget
Stock Option Agreement.
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SECTION 6.11 ACCOUNTING
No party shall, nor shall any party permit any of its subsidiaries to, make
any changes in their accounting methods, except as set forth in Section 6.11 of
the WeCo Disclosure Schedule or the Puget Disclosure Schedule or as required by
law, rule, regulation or GAAP.
SECTION 6.12 POOLING
No party shall, nor shall any party permit any of its subsidiaries to, take
any action which would, or would be reasonably likely to, prevent the Company
from accounting for the business combination to be effected by the Merger as a
pooling of interests in accordance with GAAP and applicable SEC regulations, and
each party hereto shall use all reasonable efforts to achieve such result
(including taking such actions as may be necessary to cure any facts or
circumstances that could prevent such transactions from qualifying for pooling-
of-interests accounting treatment).
SECTION 6.13 TAX-FREE STATUS
No party shall, nor shall any party permit any of its subsidiaries to, take
any action which would, or would be reasonably likely to, adversely affect the
status of the Merger as a tax-free transaction (except as to cash received (i)
upon the exercise of dissenters' rights or (ii) for fractional shares) under
Section 368(a) of the Code, and each party hereto shall use all reasonable
efforts to achieve such result.
SECTION 6.14 AFFILIATE TRANSACTIONS
Except as set forth in Section 6.14 of the WeCo Disclosure Schedule or the
Puget Disclosure Schedule, no party shall, nor shall any party permit any of its
subsidiaries to, enter into any agreement or arrangement with any other person
which, directly or indirectly, controls or is under common control with or is
controlled by such party, or any of its respective subsidiaries on terms to such
party or its subsidiaries materially less favorable than could be reasonably
expected to have been obtained with an unaffiliated third party on an
arm's-length basis, other than transfers of assets or liabilities between or
among (i) WeCo and any of the wholly owned WNG Subsidiaries or (ii) Puget and
any of the wholly owned Puget Subsidiaries.
SECTION 6.15 COOPERATION, NOTIFICATION
Each party shall, and shall cause its subsidiaries to, (i) confer on a
regular and frequent basis with one or more representatives of the other party
to discuss, subject to applicable law, material operational matters and the
general status of its ongoing operations; (ii) promptly notify the other party
of any significant changes in its business, operations, properties, assets,
financial condition, results of operations or prospects; (iii) advise the other
party of any change or event which has or would cause any representation or
warranty of such party made in or pursuant to this Agreement, the WeCo Stock
Option Agreement or the Puget Stock Option Agreement to be incorrect or any such
covenant or agreement of such party to be breached, or which has had or, to the
knowledge of such party, insofar as reasonably can be foreseen, could result in,
a WeCo Material Adverse Effect or a Puget Material Adverse Effect, as the case
may be; and (iv) promptly provide the other party with copies of all filings
made by such party or any of its subsidiaries with any state or federal court,
administrative agency, commission or other Governmental Authority in connection
with this Agreement and the transactions contemplated hereby.
SECTION 6.16 RATE MATTERS
Each party shall, and shall cause its subsidiaries to, discuss with the
other party any changes in its or its subsidiaries' rates or charges (other than
automatic cost pass-through adjustments), standards of service or accounting
from those in effect on the date of this Agreement and consult with the other
party prior to making any filing (or any amendment thereto), or effecting any
agreement, commitment, arrangement or consent with governmental regulators,
whether written or oral, formal or informal, with respect thereto, and no party
will make any filing to change its or its subsidiaries' rates on file with any
Governmental Authority that would have a material adverse effect on the
prospects of the Company following the Merger.
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SECTION 6.17 THIRD-PARTY CONSENTS
Each party shall, and shall cause its respective subsidiaries to, use all
commercially reasonable efforts to obtain all WeCo Required Consents or Puget
Required Consents, as the case may be. Each party shall promptly notify the
other party of any failure or prospective failure to obtain any such consents
and, if requested by the other party, shall provide to the other party copies of
all WeCo Required Consents or Puget Required Consents, as the case may be,
obtained by such party.
SECTION 6.18 NO BREACH, ETC.
No party shall, nor shall any party permit any of its subsidiaries to,
willfully take any action that would or, insofar as reasonably can be foreseen,
could result in a material breach of any provision of this Agreement, the WeCo
Stock Option Agreement or the Puget Stock Option Agreement, or in any of the
representations and warranties set forth in this Agreement, the WeCo Stock
Option Agreement or the Puget Stock Option Agreement, as the case may be, being
untrue on and as of the Closing Date.
SECTION 6.19 TAX MATTERS
Except as set forth in Section 6.19 of the WeCo Disclosure Schedule or the
Puget Disclosure Schedule, no party shall make or rescind any material express
or deemed election relating to Taxes, settle or compromise any material claim,
action, suit, litigation, proceeding, arbitration, investigation, audit or
controversy relating to Taxes to the extent any such settlement or compromise
requires (or is reasonably likely to require, over a period of not more than
three years from the date of such settlement or compromise) payment by such
party of additional Taxes in an aggregate amount in excess of $3 million, or
change any of its methods of reporting income or deductions for federal income
tax purposes from those employed in the preparation of its federal income tax
return for the taxable year ending December 31, 1994, in the case of Puget, and
the taxable year ending September 30, 1994, in the case of WeCo, except as may
be required by applicable law, to the extent such changes of method require
payment by such party of additional Taxes in an aggregate amount in excess of $3
million.
SECTION 6.20 DISCHARGE OF LIABILITIES
No party shall pay, discharge or satisfy any material claims, liabilities
or obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction, in the ordinary
course of business consistent with past practice (which includes the payment of
final and unappealable judgments) or in accordance with their terms, of
liabilities reflected or reserved against in, or contemplated by, the most
recent consolidated financial statements (or the notes thereto) of such party
included in such party's reports filed with the SEC, or incurred in the ordinary
course of business consistent with past practice.
SECTION 6.21 INSURANCE
Each party shall, and shall cause its subsidiaries to, maintain with
financially responsible insurance companies insurance in such amounts and
against such risks and losses as are customary for companies engaged in the
electric and gas utility industry and employing methods of generating electric
power and fuel sources similar to those methods employed and fuels used by such
party or its subsidiaries or as set forth in Section 4.17 of the WeCo Disclosure
Schedule or Section 5.17 of the Puget Disclosure Schedule.
SECTION 6.22 PERMITS
Each party shall, and shall cause its subsidiaries to, use reasonable
efforts to maintain in effect all existing material governmental permits
pursuant to which such party or its subsidiaries operate.
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ARTICLE VII
ADDITIONAL AGREEMENTS
SECTION 7.1 ACCESS TO INFORMATION
Upon reasonable notice, each party shall, and shall cause its subsidiaries
to, afford to the officers, directors, employees, accountants, counsel,
investment bankers, financial advisors and other representatives of the other
(collectively, "Representatives") reasonable access, during normal business
hours throughout the period prior to the Effective Time, to all of its
properties, books, contracts, commitments and records (including, but not
limited to, Tax Returns) and, during such period, each party shall, and shall
cause its subsidiaries to, furnish promptly to the other access to (i) each
report, schedule and other document filed or received by it or any of its
subsidiaries pursuant to the requirements of federal or state securities laws or
filed with the SEC, the Department of Justice, the Federal Trade Commission, the
WUTC, or any other federal or state regulatory agency or commission and (ii) all
information concerning themselves, their subsidiaries, directors, officers and
shareholders and such other matters as may be reasonably requested by the other
party in connection with any filings, applications or approvals required or
contemplated by this Agreement or for any other reason related to the
transactions contemplated by this Agreement. All documents and information
furnished pursuant to this Section 7.1 shall be subject to the Confidentiality
Agreement, dated August 1, 1995, between WeCo and Puget (the "Confidentiality
Agreement").
SECTION 7.2 JOINT PROXY STATEMENT AND REGISTRATION STATEMENT
(a) Preparation and Filing. As promptly as reasonably practicable after
the date hereof, the parties will prepare and file with the SEC the Joint Proxy
Statement/Prospectus and the Registration Statement. The parties will take such
actions as may be reasonably required to cause the Registration Statement to be
declared effective under the Securities Act as promptly as practicable after
such filing and to cause the shares of Company Common Stock and Company
Preferred Stock issuable in connection with the Merger to be registered or to
obtain an exemption from registration under applicable state "blue sky" or
securities laws; provided, however, that no party shall be required to register
or qualify as a foreign corporation or to take other action which would subject
it to general service of process in any jurisdiction where it will not be,
following the Merger, so subject. Each of the parties hereto shall furnish all
information concerning itself which is required or customary for inclusion in
the Registration Statement or the Joint Proxy Statement/Prospectus. The
Registration Statement and the Joint Proxy Statement/Prospectus will comply as
to form in all material respects with the Securities Act and the rules and
regulations thereunder. The parties shall take such action as may be reasonably
required to cause the shares of Company Common Stock and associated Rights and
Company Preferred Stock, if applicable, issuable in the Merger to be approved
for listing on the NYSE upon official notice of issuance.
(b) Letter of Puget Accountants. Puget shall use its best efforts to cause
to be delivered to Puget, WeCo and WNG a letter of Coopers & Lybrand L.L.P.,
dated a date within two business days before the effective date of the
Registration Statement, and addressed to Puget, WeCo and WNG, in form and
substance reasonably satisfactory to Puget, WeCo and WNG and customary in scope
and substance for "cold comfort" letters delivered by independent public
accountants in connection with registration statements similar to the
Registration Statement and proxy statements similar to the Joint Proxy
Statement/Prospectus.
(c) Letter of WeCo's Accountants. WeCo shall use best efforts to cause to
be delivered to Puget and WeCo a letter of Arthur Andersen LLP, dated a date
within two business days before the effective date of the Registration
Statement, and addressed to Puget and WeCo, in form and substance satisfactory
to Puget and WeCo and customary in scope and substance for "cold comfort"
letters delivered by independent public accountants in connection with
registration statements similar to the Registration Statement and proxy
statements similar to the Joint Proxy Statement/Prospectus.
(d) Fairness Opinions. It shall be a condition to the mailing of the Joint
Proxy Statement/Prospectus to the shareholders of Puget, WeCo and WNG that (i)
Puget shall have received an opinion from Morgan Stanley & Co. Incorporated,
dated the date of the Joint Proxy Statement/Prospectus, to the effect that, as
of
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the date thereof, the Ratio is fair from a financial point of view to the
holders of Puget Common Stock and (ii) WeCo shall have received an opinion from
Goldman, Sachs & Co., dated the date of the Joint Proxy Statement/Prospectus, to
the effect that, as of the date thereof, the Ratio is fair to the holders of
WeCo Common Stock.
SECTION 7.3 REGULATORY MATTERS
(a) HSR Filings. As promptly as reasonably practicable after the date
hereof, each party hereto shall file or cause to be filed with the Federal Trade
Commission and the Department of Justice any notifications required to be filed
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"), and the rules and regulations promulgated thereunder with respect to
the transactions contemplated hereby, and will respond promptly to any requests
for additional information made by either of such agencies.
(b) Other Regulatory Approvals. Each party hereto shall cooperate and use
its best efforts to promptly prepare and file all necessary documentation, to
effect all necessary applications, notices, petitions, filings and other
documents, and use all commercially reasonable efforts to obtain all necessary
permits, consents, approvals and authorizations of all Governmental Authorities
necessary or advisable to consummate the transactions contemplated by this
Agreement, including, without limitation, the Puget Required Statutory Approvals
and the WeCo Required Statutory Approvals. Puget shall have the right to review
and approve in advance all the information relating to Puget, on the one hand,
and WeCo and WNG shall have the right to review and approve in advance all the
information relating to WeCo and WNG, on the other hand, in either case, which
appear in any filing made with the WUTC in connection with the transactions
contemplated by this Agreement or the Merger; it being understood that the
parties shall jointly, and on an equal basis, coordinate the overall development
of the positions taken and the regulatory action requested (the "Regulatory
Plan") in such filings. Puget, WeCo and WNG agree that they will consult with
each other with respect to the obtaining of all such necessary permits,
consents, approvals and authorizations of Governmental Authorities. Efforts to
obtain any necessary approvals from the Governmental Authorities in addition to
the WUTC shall be at the joint direction of Puget and WeCo, it being understood
that all positions taken in the filings with such Governmental Authorities shall
be consistent with the Regulatory Plan.
SECTION 7.4 SHAREHOLDER APPROVAL
(a) Approval of WeCo and WNG Shareholders. Subject to the provisions of
Sections 7.4(c) and (d), each of WeCo and WNG shall, as promptly as reasonably
practicable after the date hereof, (i) take all steps necessary to duly call,
give notice of, convene and hold a special meeting of its respective
shareholders (collectively the "WeCo Special Meetings") for the purpose of
securing the WeCo Shareholders' Approvals, (ii) distribute to its shareholders
the Joint Proxy Statement/Prospectus in accordance with applicable federal and
state law and with its articles of incorporation and bylaws, (iii) subject to
the fiduciary duties of its board of directors, recommend to its shareholders
the approval of the Merger, this Agreement and the transactions contemplated
hereby and (iv) cooperate and consult with Puget with respect to each of the
foregoing matters.
(b) Approval of Puget Shareholders. Puget shall, as promptly as reasonably
practicable after the date hereof (i) take all steps reasonably necessary to
duly call, give notice of, convene and hold a special meeting of its
shareholders (the "Puget Special Meeting") for the purpose of securing the Puget
Shareholders' Approval, (ii) distribute to its shareholders the Joint Proxy
Statement/Prospectus in accordance with applicable federal and state law and its
Restated Articles of Incorporation and Bylaws, (iii) subject to the fiduciary
duties of its board of directors, recommend to its shareholders the approval of
the Merger, this Agreement and the transactions contemplated hereby and (iv)
cooperate and consult with WeCo with respect to each of the foregoing matters.
(c) Meeting Date. The Puget Special Meeting and the WeCo Special Meetings
shall be held on the same day unless otherwise agreed by Puget, WeCo and WNG.
(d) Fairness Opinions Not Withdrawn. It shall be a condition to the
obligation of WeCo and WNG to hold the WeCo Special Meetings that the opinion of
Goldman, Sachs & Co. referred to in Section 7.2(d)
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shall not have been withdrawn, and it shall be a condition to the obligation of
Puget to hold the Puget Special Meeting that the opinion of Morgan Stanley & Co.
Incorporated referred to in Section 7.2(d) shall not have been withdrawn.
SECTION 7.5 DIRECTORS' AND OFFICERS' INDEMNIFICATION
(a) Indemnification. To the extent, if any, not provided by an existing
right under one of the parties' directors and officers liability insurance
policies, from and after the Effective Time, the Company shall, to the fullest
extent permitted by applicable law, indemnify, defend and hold harmless each
person who is now, or has been at any time prior to the date hereof, or who
becomes prior to the Effective Time, a director, officer or employee of the
parties hereto or any subsidiary thereof (each an "Indemnified Party" and,
collectively, the "Indemnified Parties") against all losses, expenses (including
reasonable attorneys' fees and expenses), claims, damages or liabilities or,
subject to the proviso of the next succeeding sentence, amounts paid in
settlement, arising out of actions or omissions occurring at or prior to the
Effective Time and whether asserted or claimed prior to, at or after the
Effective Time) that are in whole or in part (i) based on, or arising out of the
fact that such person is or was a director, officer or employee of such party or
a subsidiary of such party or (ii) based on, arising out of or pertaining to the
transactions contemplated by this Agreement. In the event of any such loss,
expense, claim, damage or liability (whether or not arising before the Effective
Time), (i) the Company shall pay the reasonable fees and expenses of counsel
selected by the Indemnified Parties, which counsel shall be reasonably
satisfactory to the Company, promptly after statements therefor are received and
otherwise advance to such Indemnified Party upon request reimbursement of
documented expenses reasonably incurred, in either case to the extent not
prohibited by the WBCA and upon receipt of any affirmation and undertaking
required by the WBCA, (ii) the Company will cooperate in the defense of any such
matter and (iii) any determination required to be made with respect to whether
an Indemnified Party's conduct complies with the standards set forth under
Washington law and the Company's Restated Articles of Incorporation or Bylaws
shall be made by independent counsel mutually acceptable to the Company and the
Indemnified Party; provided, however, that the Company shall not be liable for
any settlement effected without its written consent (which consent shall not be
unreasonably withheld). The Indemnified Parties as a group may retain only one
law firm with respect to each related matter except to the extent there is, in
the opinion of counsel to an Indemnified Party, under applicable standards of
professional conduct, a conflict on any significant issue between positions of
any two or more Indemnified Parties.
(b) Insurance. For a period of six years after the Effective Time, the
Company shall cause to be maintained in effect the policies of directors' and
officers' liability insurance maintained by WeCo and WNG for the benefit of
those persons who are covered by such policies at the Effective Time (or the
Company may substitute therefor policies of at least the same coverage with
respect to matters occurring prior to the Effective Time), to the extent that
such liability insurance can be maintained annually at a cost to the Company not
greater than 200 percent of the premium for the current WeCo and WNG directors'
and officers' liability insurance; provided that if such insurance cannot be so
maintained or obtained at such cost, the Company shall maintain or obtain as
much of such insurance as can be so maintained or obtained at a cost equal to
200 percent of the current annual premiums of WeCo and WNG for such insurance.
(c) Successors. In the event the Company or any of its successors or
assigns (i) consolidates with or merges into any other person and shall not be
the continuing or surviving corporation or entity of such consolidation or
merger or (ii) transfers all or substantially all of its properties and assets
to any person, then and in either such case, proper provision shall be made so
that the successors and assigns of the Company shall assume the obligations set
forth in this Section 7.5.
(d) Survival of Indemnification. To the fullest extent permitted by law,
from and after the Effective Time, all rights to indemnification now existing in
favor of the employees, agents, directors or officers of Puget, WeCo and their
respective subsidiaries with respect to their activities as such prior to the
Effective Time, as provided in their respective Articles of Incorporation or
Bylaws, in effect on the date thereof or otherwise in effect on the date hereof,
shall survive the Merger and shall continue in full force and effect for a
period of not less than six years from the Effective Time.
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(e) Benefit. The provisions of this Section 7.5 are intended to be for the
benefit of, and shall be enforceable by, each Indemnified Party, his or her
heirs and his or her representatives.
SECTION 7.6 DISCLOSURE SCHEDULES
On the date of this Agreement, (i) WeCo and WNG have delivered to Puget a
schedule (the "WeCo Disclosure Schedule"), accompanied by a certificate signed
by the chief financial officer of WeCo stating that the WeCo Disclosure Schedule
is being delivered pursuant to this Section 7.6(i), and (ii) Puget has delivered
to WeCo a schedule (the "Puget Disclosure Schedule"), accompanied by a
certificate signed by the chief financial officer of Puget stating that the
Puget Disclosure Schedule is being delivered pursuant to this Section 7.6(ii).
The WeCo Disclosure Schedule and the Puget Disclosure Schedule are collectively
referred to herein as the "Disclosure Schedules." The Disclosure Schedules, when
so delivered, shall be deemed to constitute an integral part of this Agreement
and to modify or otherwise affect the respective representations, warranties,
covenants or agreements of the parties hereto contained herein to the extent
that such representations, warranties, covenants or agreements expressly refer
to the Disclosure Schedules. Anything to the contrary contained herein or in the
Disclosure Schedules notwithstanding, any and all statements, representations,
warranties or disclosures set forth in the Disclosure Schedules shall be deemed
to have been made on and as of the date of this Agreement.
SECTION 7.7 PUBLIC ANNOUNCEMENTS
Subject to each party's disclosure obligations imposed by law or any
applicable national securities exchange, Puget, WeCo and WNG will cooperate with
each other in the development and distribution of all news releases and other
public information disclosures with respect to this Agreement or any of the
transactions contemplated hereby and shall not issue any public announcement or
statement with respect hereto or thereto without the consent of the other
parties (which consent shall not be unreasonably withheld).
SECTION 7.8 RULE 145 AFFILIATES
WeCo shall identify in a letter to Puget all persons who will be, at the
Closing Date, "affiliates" of WeCo, as such term is used in Rule 145 under the
Securities Act. WeCo shall use all reasonable efforts to cause its affiliates to
deliver to the Company on or prior to the Closing Date a written agreement
substantially in the form attached as Exhibit 7.8 (each, an "Affiliate
Agreement"). If any affiliate refuses to provide such a written agreement, the
Company shall, in lieu of receipt of such written agreement, be entitled to
place appropriate legends on the certificates evidencing the Company Common
Stock to be received by such affiliate pursuant to the terms of this Agreement,
and to issue appropriate stock transfer instructions to the transfer agent for
Company Common Stock, to the effect that the shares of Company Common Stock
received or to be received by such affiliate pursuant to the terms of this
Agreement may only be sold, transferred or otherwise conveyed, and the holder
thereof may only reduce his interest in or risks relating to such shares of
Company Common Stock, pursuant to an effective registration statement under the
Securities Act, in compliance with Rule 145, as amended from time to time, or in
a transaction which, in the opinion of legal counsel satisfactory to the
Company, is exempt from the registration requirements of the Securities Act. The
foregoing restrictions on the transferability of Company Common Stock shall
apply to all purported sales, transfers and other conveyances of the shares of
Company Common Stock received or to be received by such affiliate pursuant to
this Agreement and to all purported reductions in the interest in or risks
relating to such shares of Company Common Stock, whether or not such affiliate
has exchanged the certificates previously evidencing such affiliates' shares of
WeCo Common Stock for certificates evidencing the shares of Company Common Stock
into which such shares were converted. The Joint Proxy Statement/Prospectus and
the Registration Statement shall disclose the foregoing in a reasonably
prominent manner.
SECTION 7.9 EMPLOYEE AGREEMENTS AND WORK-FORCE MATTERS
(a) Certain Employee Agreements. Subject to Section 7.10 and Section 7.16,
the Company and its subsidiaries shall honor, without modification, all
contracts, agreements, collective bargaining agreements and commitments of the
parties prior to the date hereof which apply to any current or former employee
or current
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or former director of the parties hereto; provided, however, that this
undertaking is not intended to prevent the Company from enforcing such
contracts, agreements, collective bargaining agreements and commitments in
accordance with their terms, including, without limitation, any right to amend,
modify, suspend, revoke or terminate any such contract, agreement, collective
bargaining agreement or commitment.
(b) Work-Force Matters. Subject to applicable collective bargaining
agreements, for a period of two years following the Effective Time any
reductions in work-force in respect of employees of the Company shall be made on
a fair and equitable basis, in light of the circumstances and the objectives to
be achieved, giving consideration to previous work history, job experience, and
qualifications, without regard to whether employment was with Puget or the Puget
Subsidiaries or WeCo or the WNG Subsidiaries, and any employee whose employment
is terminated or whose job is eliminated by the Company or any of its
subsidiaries during such period shall be entitled to participate on a fair and
equitable basis in the job opportunity and employment placement programs offered
by the Company or any of its subsidiaries. No provision of this Section 7.9
shall be deemed to constitute an employment contract between the Company and any
individual, or a waiver of the Company's right to discharge any employee at any
time with or without cause, and no individual shall have any contractual rights
as a third-party beneficiary of this Section 7.9 or of Section 7.10 or Section
7.11.
SECTION 7.10 EMPLOYEE BENEFIT PLANS
(a) Maintenance of WeCo and Puget Benefit Plans. Each of the WeCo Benefit
Plans and Puget Benefit Plans, other than such plans specifically provided for
in Section 7.10(b) or Section 7.11, in effect at the date of this Agreement (or
as amended in accordance with this Agreement), shall be maintained in effect
with respect to the employees or former employees of WeCo and any of the WNG
Subsidiaries, on the one hand, and of Puget and any of the Puget Subsidiaries,
on the other hand, respectively, who are covered by any such benefit plan
immediately prior to the Closing Date (the "Affiliated Employees") until the
Company otherwise determines on or after the Effective Time; provided, however,
that nothing herein contained, other than the provisions of Section 6.9 hereof,
shall limit any reserved right contained in any such WeCo Benefit Plan or Puget
Benefit Plan to amend, modify, suspend, revoke or terminate any such plan;
provided, further, however, that for a period of not less than one year
following the Effective Time, the Company or its subsidiaries shall provide to
nonbargaining unit Affiliated Employees benefits, other than those provided
under the plans referred to in Section 7.10(b) and Section 7.11, that are no
less favorable in the aggregate than those provided immediately prior to the
Closing Date under the WeCo Benefit Plans or the Puget Benefit Plans, as the
case may be. Without limiting the foregoing, each nonbargaining unit participant
of any such WeCo Benefit Plan or Puget Benefit Plan shall receive credit for
purposes of eligibility to participate, vesting, benefit accrual and eligibility
to receive benefits under any benefit plan of the Company or any of its
subsidiaries or affiliates (other than those plans referred to in Section
7.10(b) and Section 7.11) for which such individual is otherwise eligible for
service credited for the corresponding purpose under such WeCo Benefit Plan or
Puget Benefit Plan, as the case may be; provided, however, that such crediting
of service shall not operate to duplicate any benefit to any such participant or
the funding for any such benefit. Any person hired by the Company or any of its
subsidiaries on or after the Closing Date who was not employed by any party
hereto or its subsidiaries immediately prior to the Closing Date shall be
eligible to participate in such benefit plans maintained, or contributed to, by
the subsidiary, division or operation by which such person is employed, provided
that such person meets the eligibility requirements of the applicable plan. The
rights of bargaining unit Affiliated Employees shall be determined under the
terms of the applicable bargaining agreement.
(b) Adoption of Company Replacement Plans. The parties hereto intend that
ongoing benefit programs will not result in a materially larger cost to the
Company than to Puget and WeCo. Accordingly, they agree that with respect to
nonbargaining unit employees the following actions are intended to be taken with
respect to the employee benefit programs set forth in this Section 7.10(b).
However, final action regarding such plans will be subject to the discretion of
the Company's Board of Directors. Any references in the subsections below to
employees and plans shall be deemed to be in reference to only nonbargaining
unit employees and plans (or nonbargaining unit portions of any plans). With
respect to bargaining unit employees and plans (or portions of
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any plans), the Company shall act in accordance with the applicable collective
bargaining agreement but shall make reasonable efforts to insure similar
treatment to the extent permitted by such agreement.
(i) Defined Benefit Plans. Effective as of the day immediately
preceding the Effective Time all individuals who are participating in the
qualified defined benefit plan maintained by WeCo, WNG or any of the WNG
Subsidiaries (the "WeCo Pension Plan") shall cease accruing benefits
thereunder. WeCo or WNG will take all steps necessary, including the
preparation of a plan amendment and the distribution of notices to
employees on a timely basis, to effectuate this cessation of benefit
accruals. Effective as of the Effective Time, but subject to the
qualification requirements of Section 401(a) of the Code, the defined
benefit pension plan maintained by Puget (the "Puget Pension Plan") shall
be amended by the Board of Directors of the Company to reflect the
following:
(A) All individuals who were actively participating under the WeCo
Pension Plan immediately prior to the Effective Time shall commence
participation under the Puget Pension Plan effective as of the Effective
Time. Each other eligible employee of the Company shall commence
participation in the Puget Pension Plan upon satisfaction of the
eligibility and participation requirements set forth thereunder. For
purposes of the immediately preceding sentence, and for purposes of
determining an individual's vested interest in the Puget Pension Plan,
service with WeCo or any of the WNG Subsidiaries will be considered as
service performed for the Company.
(B) Each individual who was an active participant in the WeCo
Pension Plan immediately prior to the Effective Time shall, for purposes
of determining the amount of such individual's accrued benefit under the
Puget Pension Plan on and after the Effective Time, be granted past-
service credit equal to the number of years of service credited to such
individual under the WeCo Pension Plan for benefit accrual purposes.
However, each such individual's accrued benefit under the Puget Pension
Plan shall be offset by such individual's accrued benefit under the WeCo
Pension Plan (the "Offset"); provided, however, that in no event shall
such individual's Offset exceed such individual's accrued benefit under
the Puget Pension Plan attributable to such individual's past service
credit, determined as of the Effective Time. The accrued benefit of each
individual who has a vested interest in the WeCo Pension Plan, but who
does not become an employee of the Company or any of the Puget
Subsidiaries, shall be determined pursuant to the terms of the WeCo
Pension Plan as in effect immediately prior to the Effective Time.
The WeCo Pension Plan shall be merged into the Puget Pension Plan pursuant
to the provisions of Section 414(l) of the Code effective as of the
Effective Time. To accommodate such merger, the Puget Pension Plan will be
amended, if necessary, to prevent any benefit cutback as described in
Section 411(d)(6) of the Code. The parties hereto agree to cooperate in the
preparation of all materials necessary to effect the merger of such plans,
and the requisite transfer of assets and liabilities, on a timely basis.
(ii) 401(k) Plans. Effective as of the day immediately preceding the
Effective Time the cash-or-deferred profit sharing plans maintained by
WeCo, WNG or any of the WNG Subsidiaries for nonbargaining unit employees
(the "WeCo 401(k) Plan") shall be amended to provide that no additional
employer or employee contributions shall be made thereto for periods
beginning on or after the Effective Time. Effective as of the Effective
Time, the 401(k) plan maintained by Puget (the "Company 401(k) Plan") shall
provide that each individual who, immediately prior to the Effective Time,
was a participant in the WeCo 401(k) Plan shall become eligible to
participate in the Company 401(k) Plan as of the Effective Time. Each other
employee of the Company shall begin participation in the Company 40l(k)
Plan upon satisfaction of the eligibility and participation requirements
set forth thereunder. For purposes of the immediately preceding sentence,
and for purposes of determining an individual's vested interest in the
Company 401(k) Plan, service with WeCo or any of the WNG Subsidiaries will
be considered as service performed for the Company. As soon as practicable
after the Effective Time, the assets and liabilities contained under the
WeCo 401(k) Plan shall be transferred to the Company 401(k) Plan in
transactions satisfying the requirements of Sections 414(l) and 411(d)(6)
of the Code.
(iii) Stock Plans. The WeCo Employee Stock Purchase Plan, Incentive
Stock Option Plan, Performance Share Plan and Directors' Stock Bonus Plan
shall be replaced by the Puget 1995 Incentive
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Compensation Plan (the "Company Stock Plan") providing for the grant of
such stock awards based upon the Company Common Stock as the Board of
Directors may determine. The Company shall seek shareholder approval at the
Puget Special Meeting to increase the number of shares issuable under the
Company Stock Plan from 500,000 shares to 1,200,000 shares. Affiliated
Employees of WeCo and any of the WNG Subsidiaries shall receive, for a
period of not less than one year following the Effective Time, awards under
the Company Stock Plan that are no less favorable in the aggregate than the
equity-based awards provided to other employees of the Company in
comparable positions.
(iv) Health and Medical Plans. All employees of WeCo or any of the
WNG Subsidiaries who become employees of the Company as of the Effective
Time, and who are within the class of individuals eligible to participate
therein, shall become eligible to participate in Puget's existing health
and medical benefits plans (the "Company Health and Medical Plan") as of
the Effective Time and will not be subject to any restrictions on
preexisting conditions. As of the Effective Time, such individuals also
shall be entitled to make new benefit elections subject to the terms and
conditions of the Company Health and Medical Plan, the related cafeteria
plan, and the requirements of Section 125 of the Code and the regulations
promulgated thereunder. Individuals who retire from WeCo or any of the WNG
Subsidiaries prior to the Effective Time shall be entitled to receive such
retiree health and medical benefits, if any, as they are entitled to
receive under, and such benefits shall be subject to, the terms of the
applicable WeCo Benefit Plan as in effect from time to time; provided,
however, that nothing contained herein shall prevent the Company from
amending or terminating any such WeCo Benefit Plan to the extent that WeCo
or any of the WNG Subsidiaries could have amended or terminated such WeCo
Benefit Plan.
(v) Cafeteria Plans. All individuals who participated in the
cafeteria plan maintained by WeCo or any of the WNG Subsidiaries (the "WeCo
Cafeteria Plan") immediately prior to the Effective Time shall be eligible
to participate in Puget's flexible benefits unreimbursed medical expense
and dependent care expense plans (the "Company Cafeteria Plan") effective
as of the Effective Time and, to the extent applicable, will be credited
with their unreimbursed medical expense and dependent care expense account
balances under the WeCo Cafeteria Plan determined immediately prior to the
Effective Time. All other employees of the Company shall become eligible to
participate in the Company Cafeteria Plan pursuant to the eligibility and
participation requirements of such plan.
(vi) Other Executive Compensation Programs. After the Effective Time,
the Company will maintain all nonqualified executive compensation plans
(other than those described in Section 7.10(b)(iii) or Section 7.11),
including, but not limited to, deferred compensation plans, directors'
plans, SERPs, etc. (the "Executive Compensation Programs") currently
sponsored by WeCo or any of the WNG Subsidiaries solely for the purposes of
providing for the continuing payment of benefits being paid thereunder or
the maintenance of benefits accrued thereunder prior to the Effective Time;
provided, however, that the Company shall provide to participants of the
Executive Compensation Programs, for a period of not less than one year
following the Effective Time, benefits that are no less favorable in the
aggregate than those provided under the Executive Compensation Programs.
(c) Modification by Mutual Agreement. During the period following the
signing of this Agreement and preceding the Effective Time (the "Interim
Period"), a consultant that is acceptable to both Puget and WeCo shall be
retained to study the Puget Benefit Plans and WeCo Benefit Plans and provide a
recommendation with respect to the treatment of the Puget Benefit Plans and the
WeCo Benefit Plans following the Effective Time. Puget and WeCo shall share such
consultant's fees for such project equally. Puget and WeCo agree to reasonably
cooperate in good faith with such consultant and with one another to facilitate
such study. During the Interim Period, whether as a result of such study or
otherwise, Puget and WeCo may mutually agree that one or more of the Puget
Benefit Plans and/or the WeCo Benefit Plans will be treated differently than as
provided in Section 7.10(a), Section 7.10(b) or Section 7.11(a) following the
Effective Time. Any such agreement shall be in writing and shall be deemed to be
a part of this Agreement.
Nothing contained in this Section 7.10 or Section 7.11 shall be deemed to
give any former, current or future employee or director of Puget, any Puget
Subsidiary, WeCo or any WNG Subsidiary, or any beneficiary of any such employee
or director, any right, contractual or otherwise, to any particular benefit,
whether before
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or after the Effective Time so as to limit the ability of the parties to make
any agreement or amendment of the kind referred to in this Section 7.10(c).
SECTION 7.11 INCENTIVE, STOCK AND OTHER PLANS
(a) Amendment of WeCo Stock Plans. Effective as of the Effective Time,
WeCo shall take any action necessary under the WeCo Performance Share Plan,
Employee Stock Purchase Plan, Stock Option Plan, Dividend Reinvestment Plan,
Directors' Stock Bonus Plan and any other employer benefit plan under which WeCo
Common Stock may be issued (the "WeCo Stock Plans") and each underlying
agreement implementing awards or grants under the WeCo Stock Plans to provide
that (i) each outstanding option to purchase shares of WeCo Common Stock (each,
a "WeCo Stock Option"), along with any tandem stock appreciation right, shall
constitute an option to acquire shares of Company Common Stock, on the same
terms and conditions as were applicable under such WeCo Stock Option, based on
the same number of shares of the Company Common Stock as the holder of such WeCo
Stock Option would have been entitled to receive pursuant to the Merger in
accordance with Article II had such holder exercised such option in full
immediately prior to the Effective Time; provided, that the number of shares,
the option price and the terms and conditions of exercise of such option shall
be determined in a manner that preserves both (A) the aggregate gain (or loss)
on the WeCo Stock Option immediately prior to the Effective Time and (B) the
ratio of the exercise price per share subject to the WeCo Stock Option to the
fair market value (determined immediately prior to the Effective Time) per share
subject to such option; and provided, further, that in the case of any option to
which Section 421 of the Code applies by reason of its qualification under any
of Sections 422-424 of the Code, the option price, the number of shares
purchasable pursuant to such option and the term and conditions of exercise of
such option shall be determined in order to comply with Section 424(a) of the
Code and (ii) each other outstanding award under the WeCo Stock Plan ("WeCo
Stock Awards") shall constitute an award based upon the same number of shares of
Company Common Stock as the holder of such WeCo Stock Award would have been
entitled to receive pursuant to the Merger in accordance with Article II had
such holder been the absolute owner, immediately before the Effective Time, of
the shares of WeCo Common Stock on which such WeCo Stock Award is based, and
otherwise on the same terms and conditions as governed such WeCo Stock Award
immediately before the Effective Time. At the Effective Time, the Company shall
assume each stock award agreement relating to the WeCo Stock Plans, each as
amended as previously provided. As soon as practicable after the Effective Time,
the Company shall deliver to the holders of WeCo Stock Options and WeCo Stock
Awards appropriate notices setting forth such holders' rights pursuant to the
Company Stock Plan and each underlying stock award agreement, each as assumed by
the Company.
(b) Company Action. With respect to the Company Stock Plan which will
replace the WeCo Stock Plans, the Company shall take all corporate action
necessary or appropriate to (i) obtain shareholder approval with respect to such
plan to the extent such approval is required for purposes of the Code or other
applicable law, or to the extent the Company deems it desirable, to enable such
plan to comply with Rule 16b-3 promulgated under the Exchange Act, (ii) reserve
for issuance under such plan or otherwise provide a sufficient number of shares
of Company Common Stock for delivery upon payment of benefits, grants of awards
or exercise of options under such plan and (iii) as soon as practicable after
the Effective Time, file registration statements on Form S-3 or Form S-8, as the
case may be (or any successor or other appropriate forms), with respect to the
shares of Company Common Stock subject to such plan to the extent such
registration statement is required under applicable law, and the Company shall
use its best efforts to maintain the effectiveness of such registration
statements (and maintain the current status of the prospectuses contained
therein or related thereto) for so long as such benefits and grants remain
payable and such options remain outstanding.
(c) Dividend Reinvestment Plans. The Dividend Reinvestment and Stock
Purchase Plan of WeCo shall terminate as of the Effective Time, and Puget and
WeCo shall send notices of termination to participants in the plan prior to the
Effective Time.
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SECTION 7.12 INDEBTEDNESS
(a) Execution of Supplemental Indenture. If pursuant to Section 1.1 hereof
the WeCo/WNG/Puget Merger is effected, at the Effective Time, the Company shall
execute, and promptly cause to be recorded, a supplemental indenture to the
Indenture of First Mortgage dated as of April 1, 1957 between WNG and Harris
Trust and Savings Bank (as supplemented and modified from time to time, the "WNG
Indenture") in accordance with Section 14.01(4) of the WNG Indenture and shall
take all necessary action to comply with Section 14.07 of the WNG Indenture.
(b) No Second Liens on WNG Property. Neither Puget nor the Company shall
execute any supplemental indenture to the First and Refunding Mortgage dated as
of June 2, 1924 between Puget and Old Colony Trust Company of Boston (as
supplemented and modified from time to time, the "Puget Indenture") subjecting
to the lien of the Puget Indenture (i) all or any part of the trust estate of
WNG subject to the lien of the WNG Indenture immediately prior to the Effective
Time or (ii) all or any part of the substitutions, replacements, additions,
betterments, developments, extensions and enlargements thereafter acquired to,
of or upon such trust estate.
(c) No Second Liens on Puget Property. Neither WeCo, WNG nor the Company
shall execute any supplemental indenture to the WNG Indenture subjecting to the
lien of the WNG Indenture (i) all or any part of the trust estate of Puget
subject to the lien of the Puget Indenture immediately prior to the Effective
Time or (ii) all or any part of the substitutions, replacements, additions,
betterments, developments, extensions and enlargements thereafter acquired to,
of or upon such trust estate.
SECTION 7.13 NO SOLICITATIONS
No party hereto shall, and each such party shall cause its subsidiaries not
to, permit any of its Representatives to, and shall use its best efforts to
cause such persons not to, directly or indirectly, initiate, solicit or
encourage, or take any action to facilitate the making of any offer or proposal
which constitutes or is reasonably likely to lead to any Takeover Proposal (as
defined below), or, in the event of any unsolicited Takeover Proposal, engage in
negotiations or provide any confidential information or data to any person
relating to any Takeover Proposal. Notwithstanding the foregoing, in the event
of an unsolicited Takeover Proposal, unless the WeCo Shareholder Approval and
the Puget Shareholder Approval shall have both been obtained, WeCo or Puget may,
to the extent that its Board of Directors is advised in a written, reasoned
opinion of outside counsel that such action is required by its fiduciary duties
under law, participate in discussions or negotiations with and furnish
information to any person in connection with an unsolicited Takeover Proposal
made by such person. Each party hereto shall notify the other party orally and
in writing of any such inquiries, offers or proposals (including, without
limitation, the terms and conditions of any such proposal and the identity of
the person making it), within 24 hours of the receipt thereof, shall keep the
other party informed of the status and details of any such inquiry and shall
give the other party five days' advance notice of any agreement to be entered
into with or any information to be supplied to any person making such inquiry,
offer or proposal. Each party hereto shall immediately cease and cause to be
terminated all existing discussions and negotiations, if any, with any parties
conducted heretofore with respect to any Takeover Proposal. As used in this
Section 7.13, "Takeover Proposal" shall mean any tender or exchange offer,
proposal for a merger, consolidation or other business combination involving any
party to this Agreement or any of its material subsidiaries, or any proposal or
offer (in each case, whether or not in writing and whether or not delivered to
the stockholders of a party generally) to acquire in any manner, directly or
indirectly, a substantial equity interest in, or a substantial portion of the
assets of any party to this Agreement or any of its material subsidiaries, other
than pursuant to the transactions contemplated by this Agreement. Nothing
contained herein shall prohibit a party from taking and disclosing to its
shareholders a position contemplated by Rule 14e-2(a) under the Exchange Act
with respect to a Takeover Proposal by means of a tender offer.
SECTION 7.14 COMPANY BOARD OF DIRECTORS
Puget's and WeCo's Boards of Directors will take such action as may be
necessary to cause the number of directors comprising the full Board of
Directors of the Company at the Effective Time to be not more than 15
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persons, two-thirds of whom shall be designated by Puget prior to the Effective
Time and one-third of whom shall be designated by WeCo prior to the Effective
Time. Puget shall include among its designees Richard R. Sonstelie and William
S. Weaver, and WeCo shall include among its designees William P. Vititoe. The
initial designation of such directors among the three classes of the Board of
Directors of the Company shall be agreed among the parties, the designees of
each party to be divided as equally as is feasible among such classes; provided,
however, that if, prior to the Effective Time, any of such designees shall
decline or be unable to serve, the party which designated such person shall
designate another person to serve in such person's stead. Unless the parties
otherwise agree at the Effective Time, at least one Board member designated by
WeCo shall be named to each committee of the Board of Directors of the Company.
SECTION 7.15 COMPANY OFFICERS
(a) Richard R. Sonstelie shall serve as Chairman and Chief Executive
Officer of the Company in accordance with the terms of his employment contract
referred to in Section 7.16.
(b) William P. Vititoe shall serve as President and Chief Operating Officer
of the Company in accordance with the terms of his employment contract referred
to in Section 7.16.
(c) William S. Weaver shall serve as Vice Chairman of the Company.
(d) James P. Torgerson shall serve as Chief Financial Officer of the
Company.
SECTION 7.16 EMPLOYMENT CONTRACTS
The Company shall, as of the Effective Time, enter into employment
contracts with Messrs. Sonstelie and Vititoe in the forms set forth in Exhibits
7.16.1 and 7.16.2, respectively.
SECTION 7.17 TRANSITION MANAGEMENT
As promptly as practicable after the date hereof, the parties shall create
a special transition management task force (the "Task Force") which shall be
headed by Richard R. Sonstelie or an individual designated by him and William P.
Vititoe or an individual designated by him. The Task Force shall examine the
manner in which to best organize and manage the business of the Company after
the Effective Time. From time to time, the Task Force shall report its finding
to the Board of Directors of each of WeCo and Puget. After the date hereof and
prior to the Effective Time, Mr. Vititoe shall attend meetings of Puget's Board
of Directors and Sonstelie shall attend meetings of WeCo's Board of Directors as
they deem appropriate in consultation with each other. In connection with their
responsibilities as co-heads of the Task Force, Messrs. Vititoe and Mr.
Sonstelie shall together recommend to the Board of Directors of the Company
candidates to serve as the officers of the Company who are not otherwise
designated by this Agreement. Such officers shall be appointed by the Board of
Directors of the Company in accordance with its Bylaws.
SECTION 7.18 EXPENSES
Subject to Section 9.3, all costs and expenses incurred in connection with
this Agreement and the transactions contemplated hereby shall be paid by the
party incurring such expenses, except that those expenses incurred in connection
with printing the Joint Proxy Statement/Prospectus, and the Registration
Statement as well as the filing fee relating thereto, shall be shared equally by
Puget and WeCo.
SECTION 7.19 FURTHER ASSURANCES
Subject to the terms and conditions herein provided, each of the parties
hereto agrees to use its commercially reasonable efforts, taking into account
the circumstances and giving due weight to the materiality of the matter
involved or the action required, to take, or cause to be taken, all action, and
to do, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the Merger and
the transactions contemplated by this Agreement. Each party will, and will cause
its subsidiaries to, execute such further documents and instruments and take
such further actions as may reasonably be requested by any other party in order
to consummate the Merger in accordance
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with the terms hereof. The parties expressly acknowledge and agree that,
although it is their current intention to effect a business combination among
themselves in the form contemplated by this Agreement, it may be preferable to
effectuate such a business combination by means of an alternative structure in
light of the conditions set forth in Section 8.1(f), Section 8.2(f) and Section
8.3(f). Accordingly, if the only conditions to the parties' obligations to
consummate the Mergers which are not satisfied or waived are receipt of any one
or more of the WeCo Required Consents or the WeCo Required Statutory Approvals
or the Puget Required Consents or the Puget Required Statutory Approvals, and
the adoption of an alternative structure (that otherwise substantially preserves
for WeCo, WNG and Puget the economic benefits of the Merger) would result in
such conditions being satisfied or waived, then the parties shall use their
respective best efforts to effect a business combination among themselves by
means of a mutually agreed upon structure other than the Merger that so
preserves such benefits; provided that, prior to closing any such restructured
transactions, all material third party and Governmental Authority declarations,
filings, registrations, notices, authorizations, consents or approvals necessary
for the effectuation of such alternative business combination shall have been
obtained and all other conditions to the parties' obligations to consummate the
Merger, as applied to such alternative business combination, shall have been
satisfied or waived.
ARTICLE VIII
CONDITIONS
SECTION 8.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS TO EFFECT THE MERGER
The respective obligations of each party to effect the Merger shall be
subject to the satisfaction on or prior to the Closing Date of the following
conditions, except, to the extent permitted by applicable law, that such
conditions may be waived in writing pursuant to Section 9.5:
(a) Shareholder Approvals. The WeCo Common Shareholders' Approval and the
Puget Shareholders' Approval shall have been obtained.
(b) No Injunction. No temporary restraining order or preliminary or
permanent injunction or other order by any federal or state court preventing
consummation of the Merger shall have been issued and be continuing in effect,
and the Merger and the other transactions contemplated hereby shall not have
been prohibited under any applicable federal or state law or regulation.
(c) Registration Statement. The Registration Statement shall have become
effective in accordance with the provisions of the Securities Act, and no stop
order suspending such effectiveness shall have been issued and remain in effect.
(d) Listing of Shares. The shares of Company Common Stock and Company
Preferred Stock, if applicable, issuable in the Merger pursuant to Article II
shall have been approved for listing on the NYSE upon official notice of
issuance.
(e) Pooling. Each of Puget and WeCo shall have received a letter of its
independent public accountants, dated the Closing Date, in form and substance
reasonably satisfactory to WeCo and Puget, as the case may be, stating that the
Merger will qualify as a pooling of interests transaction under GAAP and
applicable SEC regulations.
(f) Statutory Approvals. The Puget Required Statutory Approvals and the
WeCo Required Statutory Approvals (other than such Puget Required Statutory
Approvals and WeCo Required Statutory Approvals that relate to the issuance of
Puget Common Stock or WeCo Common Stock pursuant to the Puget Stock Option
Agreement or the WeCo Stock Option Agreement and do not relate to the Merger)
shall have been obtained at or prior to the Effective Time; such approvals shall
have become Final Orders (as hereinafter defined); and such Final Orders shall
not, individually or in the aggregate, impose terms or conditions which would
have, or would be reasonably likely to have, a material adverse effect on the
business, operations, properties, assets, financial condition, results of
operations or prospects of the Company and its prospective subsidiaries taken as
a whole. A "Final Order" means action by the relevant regulatory authority which
has
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not been reversed, stayed, enjoined, set aside, annulled or suspended, with
respect to which any waiting period prescribed by law before the transactions
contemplated hereby may be consummated has expired, and as to which all
conditions to the consummation of such transactions prescribed by law,
regulation or order have been satisfied.
SECTION 8.2 CONDITIONS TO OBLIGATIONS OF WECO AND WNG TO EFFECT THE MERGER
The obligation of WeCo and WNG to effect the Merger shall be further
subject to the satisfaction, on or prior to the Closing Date, of the following
conditions, except as may be waived by WeCo and WNG in writing pursuant to
Section 9.5:
(a) Performance of Obligations of Puget. Puget will have performed in all
material respects its agreements and covenants contained in or contemplated by
this Agreement and the Puget Stock Option Agreement required to be performed by
it at or prior to the Effective Time.
(b) Representations and Warranties. The representations and warranties of
Puget set forth in this Agreement and the Puget Stock Option Agreement shall be
true and correct as of the date hereof and as of the Closing Date, as if made on
and as of the Closing Date (except to the extent such representations and
warranties speak only as of any other date, which need only be true and correct
as of such other date), except in each such case for such failures of
representation and warranties to be true and correct (without regard to any
materiality qualifications contained therein) which, individually or in the
aggregate, have not had and would not be reasonably likely to result in a Puget
Material Adverse Effect.
(c) Closing Certificates. WeCo and WNG shall have received a certificate
signed by the chief financial officer of Puget, dated the Closing Date, to the
effect that, to the best of such officer's knowledge, the conditions set forth
in Section 8.2(a) and Section 8.2(b) have been satisfied.
(d) Puget Material Adverse Effect. No Puget Material Adverse Effect shall
have occurred and there shall exist no fact or circumstance which is reasonably
likely to have a Puget Material Adverse Effect.
(e) Tax Ruling or Opinion. WeCo and WNG shall have received (i) a private
letter ruling from the IRS providing certain assurances regarding the federal
income tax consequences of the Merger satisfactory in form and substance to WeCo
and WNG or (ii) if all the conditions set forth in Sections 8.1 and 8.2 other
than Section 8.2(e)(i) shall have been satisfied, an opinion of counsel to WeCo
and WNG, in form and substance satisfactory to WeCo and WNG, dated the Closing
Date, to the effect that the Merger will be a reorganization under Section
368(a) of the Code.
(f) Puget Required Consents. The Puget Required Consents, the failure of
which to obtain would be reasonably likely to have a Puget Material Adverse
Effect, shall have been obtained.
(g) Trigger of Puget Rights. No event has occurred that would result in
the triggering of any right or entitlement of Puget shareholders under the Puget
Rights Agreement, including a "flip-in" or "flip-over" or similar event commonly
described in such rights plans, has occurred or will occur as a result of
consummation of the Merger, which would have or be reasonably likely to result
in a Puget Material Adverse Effect or materially change the number of
outstanding equity securities of Puget or the Company, and the Rights shall not
have become nonredeemable by any action of the Puget Board of Directors.
SECTION 8.3 CONDITIONS TO OBLIGATIONS OF PUGET TO EFFECT THE MERGER
The obligations of Puget to effect the Merger shall be further subject to
the satisfaction, prior to the Closing Date, of the following conditions, except
as may be waived by Puget in writing pursuant to Section 9.5:
(a) Performance of Obligations of WeCo and WNG. Each of WeCo and WNG will
have performed in all material respects its agreements and covenants contained
in or contemplated by this Agreement and the WeCo Stock Option Agreement
required to be performed at or prior to the Effective Time.
(b) Representations and Warranties. The representations and warranties of
each of WeCo and WNG set forth in this Agreement and the WeCo Stock Option
Agreement shall be true and correct as of the date
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hereof and as of the Closing Date as if made on and as of the Closing Date
(except to the extent such representations and warranties speak only as of any
other date, which need only be true and correct as of such other date), except
in each such case for such failures of representations and warranties to be true
and correct (without regard to any materiality qualifications contained therein)
which, individually or in the aggregate, have not had and would not be
reasonably likely to result in a WeCo Material Adverse Effect.
(c) Closing Certificates. Puget shall have received certificates signed by
the chief financial officer of each of WeCo and WNG, dated the Closing Date, to
the effect that, to the best of such officer's knowledge, the conditions set
forth in Section 8.3(a) and Section 8.3(b) have been satisfied.
(d) WeCo Material Adverse Effect. No WeCo Material Adverse Effect shall
have occurred, and there shall exist no fact or circumstance which is reasonably
likely to have a WeCo Material Adverse Effect.
(e) Tax Ruling or Opinion. Puget shall have received (i) a private letter
ruling from the IRS providing certain assurances regarding the federal income
tax consequences of the Merger satisfactory in form and substance to Puget or
(ii) if all the conditions set forth in Sections 8.1 and 8.3 other than Section
8.3(e)(i) shall have been satisfied, an opinion of counsel to Puget, in form and
substance satisfactory to Puget, dated the Closing Date, to the effect that the
Merger will be treated as a reorganization under Section 368(a) of the Code.
(f) WeCo Required Consents. The WeCo Required Consents, the failure of
which to obtain would be reasonably likely to have a WeCo Material Adverse
Effect, shall have been obtained.
(g) Affiliate Agreements. The Company shall have received Affiliate
Agreements, duly executed by each "affiliate" of WeCo substantially in the form
of Exhibit 7.8, as provided in Section 7.8.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
SECTION 9.1 TERMINATION
This Agreement may be terminated at any time prior to the Closing Date,
whether before or after approval by the shareholders of the respective parties
hereto contemplated by this Agreement:
(a) by mutual written consent of the Boards of Directors of Puget and WeCo;
(b) by any party hereto, by written notice to the other parties, if the
Effective Time shall not have occurred on or before December 31, 1996 (the
"Initial Termination Date"); provided, that if on the Initial Termination Date
the conditions to the Closing set forth in Sections 8.1(f), 8.2(f) or 8.3(f)
shall not have been fulfilled but all other conditions to the Closing shall be
fulfilled or shall then be capable of being fulfilled and the approvals required
by Section 8.1(f), 8.2(f) or 8.3(f) are being pursued with diligence, then the
Initial Termination Date shall be extended to March 31, 1997; provided, however,
that the right to terminate the Agreement under this Section 9.1(b) shall not be
available to any party whose failure to fulfill any obligation under this
Agreement has been the cause of, or resulted in, the failure of the Effective
Time to occur on or before such date.
(c) by any party hereto, by written notice to the other parties, if the
Puget Shareholders' Approval shall not have been obtained at a duly held Puget
Special Meeting, including any adjournments thereof, or the WeCo Common
Shareholders' Approvals shall not have been obtained at a duly held WeCo Special
Meeting, including any adjournments thereof;
(d) by any party hereto, if any state or federal law, order, rule or
regulation is adopted or issued, which has the effect, as supported by the
written opinion of outside counsel for such party, of prohibiting the Merger, or
by any party hereto, if any court of competent jurisdiction in the United States
or any State shall have issued an order, judgment or decree permanently
restraining, enjoining or otherwise prohibiting the Merger, and such order,
judgment or decree shall have become final and nonappealable;
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(e) by WeCo, upon two days' prior notice to Puget, if, as a result of a
tender offer by a party other than Puget or any of its affiliates or any written
offer or proposal with respect to a merger, sale of a material portion of its
assets or other business combination (each, a "Business Combination") by a party
other than Puget or any of its affiliates, the Board of Directors of WeCo
determines in good faith that the fiduciary obligations of such directors under
applicable law require that such tender offer or other written offer or proposal
be accepted; provided, however, that (i) the Board of Directors of WeCo shall
have been advised in writing by outside counsel that notwithstanding a binding
commitment to consummate an agreement of the nature of this Agreement entered
into in the proper exercise of their applicable fiduciary duties, and
notwithstanding all concessions which may be offered by Puget in negotiations
entered into pursuant to clause (ii) below, such fiduciary duties would also
require the directors to reconsider such commitment as a result of such tender
offer or other written offer or proposal; and (ii) prior to any such
termination, WeCo shall, and shall cause its respective financial and legal
advisors to, negotiate with Puget to make such adjustments in the terms and
conditions of this Agreement as would enable WeCo and WNG to proceed with the
transactions contemplated herein; provided further, that Puget and WeCo
acknowledge and affirm that, notwithstanding anything in this Section 9.1(e) to
the contrary, Puget and WeCo intend this Agreement to be an exclusive agreement
and, accordingly, nothing in this Agreement is intended to constitute a
solicitation of an offer or proposal for a Business Combination, it being
acknowledged and agreed that any such offer or proposal would interfere with the
strategic advantages and benefits that Puget and WeCo expect to derive from the
Merger and other transactions contemplated hereby;
(f) by Puget, upon two days' prior notice to WeCo, if, as a result of a
tender offer by a party other than WeCo or any of its affiliates or any written
offer or proposal with respect to a Business Combination by a party other than
WeCo or any of its affiliates, the Board of Directors of Puget determines in
good faith that the fiduciary obligations of such directors under applicable law
require that such tender offer or other written offer or proposal be accepted;
provided, however, that (i) the Board of Directors of Puget shall have been
advised in writing by outside counsel that notwithstanding a binding commitment
to consummate an agreement of the nature of this Agreement entered into in the
proper exercise of their applicable fiduciary duties and notwithstanding all
concessions which may be offered by WeCo in negotiations entered into pursuant
to clause (ii) below, such fiduciary duties would also require the directors to
reconsider such commitment as a result of such tender offer or other written
offer or proposal; and (ii) prior to any such termination, Puget shall, and
shall cause its respective financial and legal advisors to, negotiate with WeCo
to make such adjustments in the terms and conditions of this Agreement as would
enable Puget to proceed with the transactions contemplated herein; provided
further, that Puget and WeCo acknowledge and affirm that, notwithstanding
anything in this Section 9.1(f) to the contrary, Puget and WeCo intend this
Agreement to be an exclusive agreement and, accordingly, nothing in this
Agreement is intended to constitute a solicitation of an offer or proposal for a
Business Combination, it being acknowledged and agreed that any such offer or
proposal would interfere with the strategic advantages and benefits that Puget
and WeCo expect to derive from the Merger and other transactions contemplated
hereby;
(g) by WeCo, by written notice to Puget, if (i) there shall have been any
breaches of the representations and warranties of Puget made herein as of the
date hereof which breaches, individually or in the aggregate, have had, would or
would be reasonably likely to result in a Puget Material Adverse Effect, and
such breaches shall not have been remedied within 20 days after receipt by Puget
of notice in writing from WeCo, specifying the nature of such breaches and
requesting that they be remedied, (ii) Puget shall have failed to perform and
comply with in all material respects its agreements and covenants hereunder, and
such failure to perform or comply shall not have been remedied within 20 days
after receipt by Puget of notice in writing from WeCo, specifying the nature of
such failure and requesting that it be remedied; or (iii) the Board of Directors
of Puget or any committee thereof (A) shall withdraw or modify in any manner
materially adverse to WeCo its approval or recommendation of this Agreement or
the Merger, (B) shall fail to reaffirm such approval or recommendation upon
WeCo's request, (C) shall approve or recommend any acquisition of Puget or a
material portion of its assets or any tender offer for shares of capital stock
of Puget, in each case, by a party other than WeCo or any of its affiliates or
(D) shall resolve to take any of the actions specified in clause (A), (B) or
(C); or
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(h) by Puget, by written notice to WeCo, if (i) there shall have been any
breaches of the representations and warranties of WeCo or WNG made herein as of
the date hereof which breaches, individually or in the aggregate, have had,
would or would be reasonably likely to result in, a WeCo Material Adverse
Effect, and such breaches shall not have been remedied within 20 days after
receipt by WeCo of notice in writing from Puget, specifying the nature of such
breaches and requesting that they be remedied, (ii) WeCo or WNG shall have
failed to perform and comply with in all material respects its agreements and
covenants hereunder, and such failure to perform or comply shall not have been
remedied within 20 days after receipt by WeCo of notice in writing from Puget,
specifying the nature of such failure and requesting that it be remedied; or
(iii) the Board of Directors of WeCo (A) shall withdraw or modify in any manner
materially adverse to Puget its approval or recommendation of this Agreement or
the Merger, (B) shall fail to reaffirm such approval or recommendation upon
Puget's request, (C) shall approve or recommend any acquisition of WeCo or WNG
or a material portion of their assets or any tender offer for shares of capital
stock of WeCo, in each case by a party other than Puget or any of its affiliates
or (D) shall resolve to take any of the actions specified in clause (A), (B) or
(C).
SECTION 9.2 EFFECT OF TERMINATION
In the event of termination of this Agreement by either Puget or WeCo and
WNG pursuant to Section 9.1, there shall be no liability on the part of either
Puget or WeCo and WNG or their respective officers or directors hereunder except
as provided in Section 9.3, and except that (i) Section 7.18, Section 9.3,
Section 10.2, Section 10.8 and the agreement contained in the last sentence of
Section 7.1 shall survive any such termination and (ii) no such termination
shall relieve any party from liability by reason of any willful breach of any
representation, warranty or covenant contained in this Agreement.
SECTION 9.3 TERMINATION FEE; EXPENSES
(a) Expenses Payable Upon Certain Breaches. If this Agreement is
terminated at such time that this Agreement is terminable pursuant to one (but
not both) of (x) Section 9.1(g)(i) or (ii) or (y) Section 9.1(h)(i) or (ii),
then the breaching party shall promptly (but not later than five business days
after receipt of notice from the nonbreaching party) pay to the nonbreaching
party an amount in cash equal to all documented out-of-pocket expenses and fees
incurred by the nonbreaching party (including, without limitation, fees and
expenses payable to all legal, accounting, financial, public relations and other
professional advisors arising out of, in connection with or related to the
Merger or the transactions contemplated by this Agreement) not to exceed $7
million in the aggregate; provided, however, that if this Agreement is
terminated by a party as a result of a willful breach by the other party, (i)
the nonbreaching party may pursue any remedies available to it at law or in
equity and shall, in addition to its out-of-pocket expenses (which shall be paid
as specified above and shall not be limited to $7 million), be entitled to
retain such additional amounts as such nonbreaching party may be entitled to
receive at law or in equity and (ii) if (x) at the time of the breaching party's
willful breach of this Agreement, there shall have been a third-party tender
offer for shares of, or a third-party offer or proposal with respect to a
Business Combination involving, such party or any of its affiliates which at the
time of such termination shall not have been rejected by such party and its
board of directors and withdrawn by the third party, and (y) within
two-and-one-half years of such termination by the nonbreaching party, the
breaching party or an affiliate thereof becomes a subsidiary of such offeror or
a subsidiary of an affiliate of such offeror or accepts a written offer to
consummate or consummates a Business Combination with such offeror or an
affiliate thereof, then such breaching party (jointly and severally with its
affiliates), upon the signing of a definitive agreement relating to such a
Business Combination, or, if no such agreement is signed, then at the closing
(and as a condition to the closing) of such breaching party becoming such a
subsidiary or of such Business Combination, will pay to the nonbreaching party
an additional fee equal to $15 million in cash; provided that in no event shall
the additional termination fee provided for in Section 9.3(b) be payable if the
additional fee referred to in this Section 9.3(a)(ii) has been paid.
(b) Termination Fee in Certain Other Events. If (i) this Agreement (x) is
terminated by any party pursuant to Section 9.1(e), or Section 9.1(f) or Section
9.1(g)(iii) or Section 9.1(h)(iii), (y) is terminated following a failure of the
shareholders of any one of the parties to grant the necessary approvals
described in
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Sections 4.13(a)(i), 4.13(b) and 5.13 ("Shareholder Disapproval"), or (z) is
terminated as a result of such party's material breach of Section 7.4 and (ii)
at the time of such termination or, in the case of any termination following a
Shareholder Disapproval, prior to the meeting of such party's shareholders at
which such Shareholder Disapproval occurred, there shall have been a third-party
tender offer for shares of, or a third-party offer or proposal with respect to a
Business Combination involving such party (WeCo and WNG being considered a
single party for purposes of this Section 9.3(b)), then the party which is the
subject of the tender offer or offer or proposal with respect to a Business
Combination (the "Target Party") shall promptly (but not later than five
business days after receipt of notice from the other party) pay to the other
party, an amount in cash equal to all documented out-of-pocket fees and expenses
incurred by the nonbreaching party (including, without limitation, fees and
expenses payable to all Representatives arising out of, in connection with or
related to the Merger or the transactions contemplated by this Agreement). In
addition, if within two-and-one-half years after any such termination the party
which was the subject of the tender offer or offer or proposal with respect to a
Business Combination or an affiliate thereof becomes a subsidiary of such
offeror or a subsidiary of an affiliate of such offeror or accepts a written
offer to consummate or consummates a Business Combination with such offeror or
an affiliate thereof, then such Target Party (jointly and severally with its
affiliates), upon the signing of a definitive agreement relating to such a
Business Combination or, if no such agreement is signed then at the closing (and
as a condition to the closing) of such Target Party becoming such a subsidiary
or of such Business Combination, will pay to the terminating party hereunder an
additional fee equal to $15 million in cash.
(c) Expenses. The parties agree that the agreements contained in this
Section 9.3 are an integral part of the transactions contemplated by the
Agreement and constitute liquidated damages and not a penalty. If one party
fails to promptly pay to the other any fees due hereunder, the defaulting party
shall pay the costs and expenses (including legal fees and expenses) in
connection with any action, including the filing of any lawsuit or other legal
action, taken to collect payment, together with interest on the amount of any
unpaid fee at the publicly announced prime rate of Citibank, N.A. from the date
such fee was required to be paid.
(d) Limitation of Termination Fees. Notwithstanding anything herein to the
contrary, the aggregate amount payable to WeCo and its affiliates pursuant to
Section 9.3(a), Section 9.3(b) and the terms of the Puget Stock Option Agreement
shall not exceed $20 million, and the aggregate amount payable to Puget and its
affiliates pursuant to Section 9.3(a), Section 9.3(b) and the terms of the WeCo
Stock Option Agreement shall not exceed $20 million (including in each case
reimbursement for fees and expenses payable pursuant to this Section 9.3). For
purposes of this Section 9.3(d), the amount payable pursuant to the terms of the
Puget Stock Option Agreement or the WeCo Stock Option Agreement, as the case may
be, shall be the amount paid pursuant to Section 7(a)(i) and 7(a)(ii) thereof.
SECTION 9.4 AMENDMENT
This Agreement may be amended by parties hereto pursuant to action of their
respective Boards of Directors, at any time before or after approval hereof by
the shareholders of Puget, WeCo and WNG and prior to the Effective Time, but
after such approvals, no such amendment shall (a) alter or change the amount or
kind of shares, rights or any of the proceedings of the exchange and/or
conversion under Article II, (b) alter or change any of the terms and conditions
of this Agreement if any of the alterations or changes, alone or in the
aggregate, would materially adversely affect the rights of holders of Puget
Common Stock, Puget Preferred Stock, WeCo Common Stock or WNG Preferred Stock,
or (c) alter or change any term of the Articles of Incorporation of the Company,
except for alterations or changes that could otherwise be adopted by the Board
of Directors of the Company, without the further approval of such shareholders,
as applicable. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties hereto.
SECTION 9.5 WAIVER
At any time prior to the Effective Time, the parties hereto may (a) extend
the time for the performance of any of the obligations or other acts of the
other parties hereto, (b) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant hereto, and
(c) waive
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compliance with any of the agreements or conditions contained herein, to the
extent permitted by applicable law. Any agreement on the part of a party hereto
to any such extension or waiver shall be valid if set forth in an instrument in
writing signed by a duly authorized officer of such party.
ARTICLE X
GENERAL PROVISIONS
SECTION 10.1 NONSURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS
All representations, warranties, covenants and agreements in this Agreement
shall not survive the Merger, except the covenants and agreements contained in
this Article X and in Article II, the last sentence of Section 7.1, Section 7.5,
Section 7.9, Section 7.10, Section 7.11, Section 7.12, Section 7.14, Section
7.15, Section 7.16, Section 7.17 and Section 7.18, each of which shall survive
in accordance with its terms.
SECTION 10.2 BROKERS
Puget represents and warrants that, except for Morgan Stanley & Co.
Incorporated, whose fees have been disclosed to WeCo prior to the date hereof,
no broker, finder or investment banker is entitled to any brokerage, finder's or
other fee or commission in connection with the Merger or the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
Puget. WeCo and WNG represent and warrant that, except for Goldman, Sachs & Co.,
whose fees have been disclosed to Puget prior to the date hereof, no broker,
finder or investment banker is entitled to any brokerage, finder's or other fee
or commission in connection with the Merger or the transactions contemplated by
this Agreement based upon arrangements made by or on behalf of WeCo or WNG.
SECTION 10.3 NOTICES
All notices and other communications hereunder shall be in writing and
shall be deemed given if (i) delivered personally, (ii) sent by overnight
courier service (receipt confirmed in writing), (iii) delivered by facsimile
transmission (with receipt confirmed), or (iv) five days after being mailed by
registered or certified mail (return receipt requested) to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
(a) If to Puget, to:
Puget Sound Power & Light Company
P.O. Box 97034
Bellevue, WA 98009-9734
Attention: William S. Weaver
Telephone: (206) 462-3162
Telecopy: (206) 462-3686
with a copy to:
Perkins Coie
1201 Third Avenue
Seattle, WA 98101
Attention: Stephen A. McKeon, Esq.
Telephone: (206) 583-8888
Telecopy: (206) 583-8500
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and a copy to:
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, NY 10022
Attention: Sheldon S. Adler, Esq.
Telephone: (212) 735-3000
Telecopy: (212) 735-2001
(b) If to WeCo and/or WNG, to:
Washington Energy Company
815 Mercer Street
Seattle, WA 98109
Attention: James P. Torgerson
Telephone: (206) 224-2358
Telecopy: (206) 224-2435
with a copy to:
Graham & James/Riddell Williams
1001 Fourth Avenue
Plaza Building, Suite 4400
Seattle, WA 98154
Attention: Marion V. Larson, Esq.
Telephone: (206) 389-1798
Telecopy: (206) 389-1708
and a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
Attention: David B. Chapnick, Esq.
Telephone: (212) 455-2530
Telecopy: (212) 455-2502
SECTION 10.4 MISCELLANEOUS
This Agreement (including the documents and instruments referred to herein)
(a) constitutes the entire agreement and supersedes all other prior agreements
and understandings, both written and oral, among the parties, or any of them,
with respect to the subject matter hereof other than the Confidentiality
Agreement, the WeCo Stock Option Agreement and the Puget Stock Option Agreement;
(b) shall not be assigned by operation of law or otherwise; and (c) shall be
governed by and construed in accordance with the laws of the state of Washington
applicable to contracts executed in and to be fully performed in such state,
without giving effect to its conflicts of law, rules or principles.
SECTION 10.5 INTERPRETATION
When a reference is made in this Agreement to Sections or Exhibits, such
reference shall be to a Section or Exhibit of this Agreement, respectively,
unless otherwise indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the words "include,"
"includes," or "including" are used in this Agreement, they shall be deemed to
be followed by the words "without limitation."
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SECTION 10.6 COUNTERPARTS; EFFECT
This Agreement may be executed in one or more counterparts, each of which
shall be deemed to be an original, but all of which shall constitute one and the
same agreement.
SECTION 10.7 PARTIES IN INTEREST
This Agreement shall be binding upon and inure solely to the benefit of
each party hereto, and, except for rights of Indemnified Parties as set forth in
Section 7.5, nothing in this Agreement, express or implied, is intended to
confer upon any person any rights or remedies of any nature whatsoever under or
by reason of this Agreement. Notwithstanding the foregoing and any other
provision of this Agreement, and in addition to any other required action of the
Board of Directors of the Company (a) a majority of the WeCo Directors (or their
successors) serving on the Board of Directors of the Company who are designated
by WeCo pursuant to Section 7.14 shall be entitled during the three-year period
commencing at the Effective Time (the "Three-Year Period") to enforce the
provisions of Section 7.9, Section 7.10, Section 7.11, and Section 7.15 on
behalf of the WeCo officers, directors and employees, as the case may be, and
(b) a majority of the Puget directors (or their successors) serving on the Board
of Directors of the Company who are designated by Puget pursuant to Section 7.14
shall be entitled during the Three-Year Period to enforce the provisions of
Sections 7.9, Section 7.10, Section 7.11, and Section 7.15 on behalf of the
Puget officers, directors and employees, as the case may be. Such directors'
rights and remedies under the preceding sentence are cumulative and are in
addition to any other rights and remedies they may have at law or in equity, but
in no event shall this Section 10.7 be deemed to impose any additional duties on
any such directors. The Company shall pay, at the time they are incurred, all
reasonable costs, fees and expenses of such directors incurred in connection
with the assertion of any rights on behalf of the persons set forth above
pursuant to this Section 10.7.
SECTION 10.8 REMEDIES
The parties agree that irreparable damage would result if any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent breaches of
this Agreement and to enforce specifically the terms and provisions of this
Agreement in any court of the United States located in the state of Washington
or in Washington state court, this being in addition to any other remedy to
which the parties are entitled at law or in equity.
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IN WITNESS WHEREOF, Puget, WeCo and WNG have caused this Agreement to be
signed by their respective officers thereunto duly authorized as of the date
first written above.
PUGET SOUND POWER & LIGHT COMPANY
By: /s/ Richard R. Sonstelie
------------------------------------
Name: Richard R. Sonstelie
Title: President and Chief
Executive Officer
WASHINGTON ENERGY COMPANY
By: /s/ William P. Vititoe
------------------------------------
Name: William P. Vititoe
Title: Chairman, Chief Executive
Officer and President
WASHINGTON NATURAL GAS COMPANY
By: /s/ William P. Vititoe
------------------------------------
Name: William P. Vititoe
Title: Chairman, Chief Executive
Officer and President
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ANNEX B
PUGET SOUND POWER & LIGHT COMPANY
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of October 18, 1995 by and among
Washington Energy Company, a Washington corporation ("WeCo"), and Puget Sound
Power & Light Company, a Washington corporation ("Puget" or the "Company").
WHEREAS, concurrently with the execution and delivery of this Agreement,
(i) WeCo, the Company and Washington Natural Gas Company, a Washington
corporation ("WNG"), are entering into an Agreement and Plan of Merger, dated as
of the date hereof (the "Merger Agreement"), which provides, among other things,
on the terms and subject to the conditions thereof, for the merger of WeCo and
WNG (or, in certain circumstances described therein, only WeCo) with and into
the Company (the "Merger"), and (ii) the Company and WeCo are entering into a
stock option agreement dated as of the date hereof whereby WeCo grants to the
Company an option with respect to certain shares of WeCo's common stock on the
terms and subject to the conditions set forth therein (the "WeCo Stock Option
Agreement"); and
WHEREAS, as a condition to WeCo's willingness to enter into the Merger
Agreement and the WeCo Stock Option Agreement, WeCo has requested that the
Company agree, and the Company has so agreed, to grant to WeCo an option with
respect to certain shares of the Common Stock, stated value $10 per share, of
the Company, together with the Rights under the Puget Rights Agreement (as
defined in the Merger Agreement) associated therewith (such Common Stock and the
associated Rights being collectively referred to herein as "Company Common
Stock"), on the terms and subject to the conditions set forth herein.
NOW, THEREFORE, to induce WeCo to enter into the Merger Agreement and the
WeCo Stock Option Agreement, and in consideration of the mutual covenants and
agreements set forth herein and in the Merger Agreement and the WeCo Stock
Option Agreement, the parties hereto agree as follows:
1. GRANT OF OPTION
The Company hereby grants WeCo an irrevocable option (the "Company Option")
to purchase up to 12,664,531 shares, subject to adjustment as provided in
Section 11 (such shares being referred to herein as the "Company Shares") of
Company Common Stock (being 19.9% of the number of shares of Company Common
Stock outstanding on the date hereof) in the manner set forth below at a price
(the "Exercise Price") per Company Share of $23.25 (which is equal to the Fair
Market Value (as defined below) of a Company Share on the date hereof) payable,
at WeCo's option, (a) in cash or (b) subject to the receipt of the approvals of
any Governmental Authority required for the Company to acquire the WeCo Shares
(as defined below) from WeCo, which approvals the Company and WeCo shall use all
commercially reasonable efforts to obtain, in shares of common stock, par value
$5.00 per share, of WeCo ("WeCo Shares") in either case in accordance with
Section 4 hereof. Notwithstanding the foregoing, in no event shall the number of
Company Shares for which the Company Option is exercisable exceed 19.9% of the
number of issued and outstanding shares of Company Common Stock. As used herein,
the "Fair Market Value" of any share shall be the average of the daily closing
sales price for such share on the New York Stock Exchange (the "NYSE") during
the 10 NYSE trading days prior to the fifth NYSE trading day preceding the date
such Fair Market Value is to be determined. Capitalized terms used herein but
not defined herein shall have the meanings set forth in the Merger Agreement.
2. EXERCISE OF OPTION
The Company Option may be exercised by WeCo, in whole or in part, at any
time or from time to time after the Merger Agreement becomes terminable by WeCo
under circumstances which could entitle WeCo to termination fees under either
Section 9.3(a) of the Merger Agreement (provided that the events specified in
Section 9.3(a)(ii)(x) of the Merger Agreement shall have occurred, although the
events specified in Section 9.3(a)(ii)(y) thereof need not have occurred) or
Section 9.3(b) of the Merger Agreement (regardless of
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whether the Merger Agreement is actually terminated or whether there occurs a
closing of any Business Combination involving a Target Party or a closing by
which a Target Party becomes a subsidiary), any such event by which the Merger
Agreement becomes so terminable by WeCo being referred to herein as a "Trigger
Event." The Company shall notify WeCo promptly in writing of the occurrence of
any Trigger Event, it being understood that the giving of such notice by the
Company shall not be a condition to the right of WeCo to exercise the Company
Option. In the event WeCo wishes to exercise the Company Option, WeCo shall
deliver to the Company a written notice (an "Exercise Notice") specifying the
total number of Company Shares it wishes to purchase. Each closing of a purchase
of Company Shares (a "Closing") shall occur at a place, on a date and at a time
designated by WeCo in an Exercise Notice delivered at least two business days
prior to the date of the Closing. The Company Option shall terminate upon the
earlier of: (i) the Effective Time; (ii) the termination of the Merger Agreement
pursuant to Section 9.1 thereof (other than upon or during the continuance of a
Trigger Event); or (iii) 180 days following any termination of the Merger
Agreement upon or during the continuance of a Trigger Event (or if, at the
expiration of such 180-day period the Company Option cannot be exercised by
reason of any applicable judgment, decree, order, law or regulation, 10 business
days after such impediment to exercise shall have been removed or shall have
become final and not subject to appeal, but in no event under this clause (iii)
later than December 31, 1996; provided that such date shall be extended to March
31, 1997 if the date after which either party may terminate the Merger Agreement
pursuant to Section 9.1(b) of the Merger Agreement has been extended to March
31, 1997). Notwithstanding the foregoing, the Company Option may not be
exercised if WeCo is in material breach of any of its material representations
or warranties, or in material breach of any of its covenants or agreements,
contained in this Agreement, the WeCo Stock Option Agreement or in the Merger
Agreement. Upon the giving by WeCo to the Company of the Exercise Notice and the
tender of the applicable aggregate Exercise Price, WeCo shall be deemed to be
the holder of record of the Company Shares issuable upon such exercise,
notwithstanding that the stock transfer books of the Company shall then be
closed or that certificates representing such Company Shares shall not then be
actually delivered to WeCo.
3. CONDITIONS TO CLOSING
The obligation of the Company to issue the Company Shares to WeCo hereunder
is subject to the conditions (the condition described in clause (ii) below may
be waived by the Company in its sole discretion) that (i) all waiting periods,
if any, under the HSR Act, applicable to the issuance of the Company Shares
hereunder shall have expired or have been terminated; (ii) any WeCo Shares which
are issued in payment of the Exercise Price, shall have been approved for
listing on the NYSE upon official notice of issuance; (iii) all consents,
approvals, orders or authorizations of, or registrations, declarations or
filings with, any federal, state or local administrative agency or commission or
other federal, state or local Governmental Authority, if any, required in
connection with the issuance of the Company Shares hereunder shall have been
obtained or made, as the case may be; and (iv) no preliminary or permanent
injunction or other order by any court of competent jurisdiction prohibiting or
otherwise restraining such issuance shall be in effect.
4. CLOSING
At any Closing, (a) the Company will deliver to WeCo or its designee a
single certificate in definitive form representing the number of the Company
Shares designated by WeCo in its Exercise Notice, such certificate to be
registered in the name of WeCo and to bear the legend set forth in Section 12,
and (b) WeCo will deliver to the Company the aggregate price for the Company
Shares so designated and being purchased by (i) wire transfer of immediately
available funds or certified check or bank check or (ii) subject to the
condition in Section l(b), a certificate or certificates representing the number
of WeCo Shares being issued by WeCo in consideration thereof, as the case may
be. For the purposes of this Agreement, the number of WeCo Shares to be
delivered to the Company shall be equal to the quotient obtained by dividing (i)
the product of (x) the number of Company Shares with respect to which the
Company Option is being exercised and (y) the Exercise Price by (ii) the Fair
Market Value of the WeCo Shares on the date immediately preceding the date the
Exercise Notice is delivered to the Company. The Company shall pay all expenses,
and any and all United States federal, state and local taxes and other charges
that may be payable in connection with the preparation,
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issuance and delivery of stock certificates under this Section 4 in the name of
WeCo or such of its designees as shall have obtained requisite regulatory
approvals.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to WeCo that (a) the Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Washington and has the corporate power and authority to enter
into this Agreement and, subject to obtaining the applicable approval of
shareholders of the Company for the repurchase of Company Shares pursuant to
Section 7(a) below under circumstances where the provisions of Section
23B.06.400 of the WBCA would be applicable (the "Buyback Approval") and subject
to any regulatory approvals referred to herein, (b) the execution and delivery
of this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of the Company and no other corporate proceedings
on the part of the Company are necessary to authorize this Agreement or any of
the transactions contemplated hereby (other than any required Buyback Approval),
(c) such corporate action (including the approval of the Board of Directors of
the Company) is intended to render inapplicable to this Agreement and the Merger
Agreement, and to the transactions contemplated hereby and thereby, the
provisions of the WBCA referred to in Section 5.15 of the Merger Agreement, (d)
this Agreement has been duly executed and delivered by the Company, constitutes
a valid and binding obligation of the Company and, assuming this Agreement
constitutes a valid and binding obligation of WeCo, is enforceable against the
Company in accordance with its terms, (e) the Company has taken all necessary
corporate action to authorize and reserve for issuance and to permit it to
issue, upon exercise of the Company Option, and at all times from the date
hereof through the expiration of the Company Option will have reserved,
12,664,531 authorized and unissued Company Shares, such amount being subject to
adjustment as provided in Section 11, all of which, upon their issuance and
delivery in accordance with the terms of this Agreement, will be validly issued,
fully paid and nonassessable, (f) upon delivery of the Company Shares to WeCo
upon the exercise of the Company Option, WeCo will acquire the Company Shares
free and clear of all claims, liens, charges, encumbrances and security
interests of any nature whatsoever, (g) except as described in Section 5.4(b) of
the Merger Agreement, the execution and delivery of this Agreement by the
Company does not, and the consummation by the Company of the transactions
contemplated hereby will not, violate, conflict with, or result in a breach of
any provision of, or constitute a default (with or without notice or lapse of
time, or both) under, or result in the termination of, or accelerate the
performance required by, or result in a right of termination, cancellation, or
acceleration of any obligation or the loss of a material benefit under, or the
creation of a lien, pledge, security interest or other encumbrance on assets
(any such conflict, violation, default, right of termination, cancellation or
acceleration, loss or creation, a "Violation") of the Company or any of its
subsidiaries, pursuant to, (A) any provision of the Restated Articles of
Incorporation or Bylaws of the Company, (B) any provisions of any loan or credit
agreement, note, mortgage, indenture, lease, Company benefit plan or other
agreement, obligation, instrument, permit, concession, franchise, license or (C)
any judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to the Company or its properties or assets, which Violation, in the
case of each of clauses (B) and (C), could reasonably be expected to have a
material adverse effect on the Company and its subsidiaries taken as a whole,
(h) except as described in Section 5.4(c) of the Merger Agreement or Section
1(b) or Section 3 hereof, the execution and delivery of this Agreement by the
Company does not, and the performance of this Agreement by the Company will not,
require any consent, approval, authorization or permit of, or filing with or
notification to, any Governmental Authority, (i) none of the Company, any of its
affiliates or anyone acting on its or their behalf has issued, sold or offered
any security of the Company to any person under circumstances that would cause
the issuance and sale of the Company Shares, as contemplated by this Agreement,
to be subject to the registration requirements of the Securities Act as in
effect on the date hereof and, assuming the representations of WeCo contained in
Section 6(h) are true and correct, the issuance, sale and delivery of the
Company Shares hereunder would be exempt from the registration and prospectus
delivery requirements of the Securities Act, as in effect on the date hereof
(and the Company shall not take any action which would cause the issuance, sale
and delivery of the Company Shares hereunder not to be exempt from such
requirements), (j) any WeCo Shares acquired pursuant to this Agreement will be
acquired for the Company's own account, for investment purposes only and will
not be acquired by the
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Company with a view to the public distribution thereof in violation of any
applicable provision of the Securities Act and (k) the delivery of Company
Shares to WeCo pursuant hereto will not result in WeCo becoming an "Acquiring
Person" for purposes of the Puget Rights Agreement or otherwise result in the
triggering of any right (including, without limitation, a "flip-in" or
"flip-over" or similar event commonly described in rights agreements) or
entitlement of the Company s shareholders under the Puget Rights Agreement or
any similar agreement to which the Company or any of its affiliates is a party.
6. REPRESENTATIONS AND WARRANTIES OF WECO
WeCo represents and warrants to the Company that (a) WeCo is a corporation
duly organized, validly existing and in good standing under the laws of the
state of Washington and has the corporate power and authority to enter into this
Agreement and to carry out its obligations hereunder, (b) the execution and
delivery of this Agreement by WeCo and the consummation by WeCo of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of WeCo and no other corporate proceedings on the
part of WeCo are necessary to authorize this Agreement or any of the
transactions contemplated hereby, (c) this Agreement has been duly executed and
delivered by WeCo and constitutes a valid and binding obligation of WeCo, and,
assuming this Agreement constitutes a valid and binding obligation of the
Company, is enforceable against WeCo in accordance with its terms, (d) prior to
any delivery of WeCo Shares in consideration of the purchase of Company Shares
pursuant hereto, WeCo will have taken all necessary corporate action to
authorize for issuance and to permit it to issue such WeCo Shares, all of which,
upon their issuance and delivery in accordance with the terms of this Agreement,
will be validly issued, fully paid and nonassessable, and to render inapplicable
to the receipt by the Company of the WeCo Shares the provisions of the WBCA
referred to in Section 4.15 of the Merger Agreement, (e) upon any delivery of
such WeCo Shares to the Company in consideration of the purchase of Company
Shares pursuant hereto, the Company will acquire the WeCo Shares free and clear
of all claims, liens, charges, encumbrances and security interests of any nature
whatsoever, (f) except as described in Section 4.4(b) of the Merger Agreement,
the execution and delivery of this Agreement by WeCo does not, and the
consummation by WeCo of the transactions contemplated hereby will not, violate,
conflict with, or result in the breach of any provision of, or constitute a
default (with or without notice or lapse of time, or both) under, or result in
any Violation by WeCo or any of its subsidiaries, pursuant to (A) any provision
of the Restated Articles of Incorporation or Bylaws of WeCo, (B) any provisions
of any loan or credit agreement, note, mortgage, indenture, lease, WeCo benefit
plan or other agreement, obligation, instrument, permit, concession, franchise
or license or (C) any judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to WeCo or its properties or assets, which Violation, in
the case of each of clauses (B) and or (C), would have a material adverse effect
on WeCo and its subsidiaries taken as a whole, (g) except as described in
Section 4.4(c) of the Merger Agreement or Section 1(b) or Section 3 hereof, the
execution and delivery of this Agreement by WeCo does not, and the consummation
by WeCo of the transactions contemplated hereby will not, require any consent,
approval, authorization or permit of, or filing with or notification to, any
Governmental Authority and (h) any Company Shares acquired upon exercise of the
Company Option will be acquired for WeCo's own account, for investment purposes
only and will not be, and the Company Option is not being, acquired by WeCo with
a view to the public distribution thereof in violation of any applicable
provision of the Securities Act.
7. CERTAIN REPURCHASES
(a) WeCo Put. At the request of WeCo by written notice at any time during
which the Company Option is exercisable pursuant to Section 2 (the "Repurchase
Period"), the Company (or any successor entity thereof) shall repurchase from
WeCo all or any portion of the Company Option, at the price set forth in
subparagraph (i) below, or, at the request of WeCo by written notice at any time
prior to December 31, 1996 (provided that such date shall be extended to March
31, 1997 if the date after which either party may terminate the Merger Agreement
pursuant to Section 9.1(b) of the Merger Agreement has been extended to March
31, 1997), the Company (or any successor entity thereof) shall repurchase from
WeCo all or any
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portion of the Company Shares purchased by WeCo pursuant to the Company Option,
at the price set forth in subparagraph (ii) below:
(i) the difference between (x) the "Market/Offer Price" for shares of
Company Common Stock as of the date WeCo gives notice of its intent to
exercise its rights under this Section 7 (defined as the higher of (A) the
price per share offered as of such date pursuant to any tender or exchange
offer or other offer with respect to a Business Combination which was made
prior to such date and not terminated or withdrawn as of such date (the
"Offer Price") and (B) the Fair Market Value of Company Common Stock as of
such date (the "Market Price")) and (y) the Exercise Price, multiplied by
the number of Company Shares purchasable pursuant to the Company Option (or
portion thereof with respect to which WeCo is exercising its rights under
this Section 7), but only if the Market/Offer Price is greater than the
Exercise Price;
(ii) the product of (x) the sum of (A) the Exercise Price paid by WeCo
per Company Share acquired pursuant to the Company Option and (B) the
difference between the Market/Offer Price and the Exercise Price, but only
if the Market/Offer Price is greater than the Exercise Price, and (y) the
number of Company Shares so to be repurchased pursuant to this Section 7.
For purposes of this clause (ii), the Offer Price shall be the highest
price per share offered pursuant to a tender or exchange offer or other
Business Combination offer during the Repurchase Period prior to the
delivery by WeCo of a notice of repurchase.
(b) Redelivery of WeCo Shares. If WeCo elected to purchase Company Shares
pursuant to the exercise of the Company Option by the issuance and delivery of
WeCo Shares, then the Company shall, if so requested by WeCo , in fulfillment of
its obligation pursuant to clause (A) of Section 7(a)(ii)(x) (that is, with
respect to the Exercise Price only and without limitation to its obligation to
pay additional consideration under clause (B) of Section 7(a)(ii)(x)), redeliver
the certificate for such WeCo Shares to WeCo, free and clear of all liens,
claims, damages, charges and encumbrances of any kind or nature whatsoever;
provided, however, that if less than all of the Company Shares purchased by WeCo
pursuant to the Company Option are to be repurchased pursuant to this Section 7,
then WeCo shall issue to the Company a new certificate representing those WeCo
Shares which are not due to be redelivered to WeCo pursuant to this Section 7 as
they constituted payment of the Exercise Price for the Company Shares not being
repurchased.
(c) Payment and Redelivery of Company Option or Shares. If WeCo exercises
its rights under this Section 7, the Company shall, within 10 business days
thereafter, pay the required amount to WeCo in immediately available funds and
WeCo shall surrender to the Company the Company Option or the certificates
evidencing the Company Shares purchased by WeCo pursuant thereto, and WeCo shall
warrant that it owns the Company Option or such shares and that the Company
Option or such shares are then free and clear of all liens, claims, damages,
charges and encumbrances of any kind or nature whatsoever.
(d) WeCo Call. If WeCo has elected to purchase Company Shares pursuant to
the exercise of the Company Option by the issuance and delivery of WeCo Shares,
notwithstanding that WeCo may no longer hold any such Company Shares or that
WeCo elects not to exercise its other rights under this Section 7, WeCo may
require, at any time or from time to time prior to December 31, 1996 (provided
that such date shall be extended to March 31, 1997 if the date after which
either party may terminate the Merger Agreement pursuant to Section 9.1(b) of
the Merger Agreement has been extended to March 31, 1997), the Company to sell
to WeCo any such WeCo Shares at the price attributed to such WeCo Shares
pursuant to Section 4 plus interest at the rate of 6.5% per annum on such amount
from the date of the Closing relating to the exchange of such WeCo Shares
pursuant to Section 4 to the closing date under this Section 7(d) less any
dividends on such WeCo Shares paid during such period or declared and payable to
stockholders of record on a date during such period.
(e) Repurchase Price Reduced at WeCo's Option. If the repurchase price
specified in Section 7(a) would subject the purchase of the Company Option or
the Company Shares purchased by WeCo pursuant to the Company Option to a vote of
the shareholders of the Company pursuant to the provisions of Section 23B.06.400
of the WBCA, then WeCo may, at its election, reduce the repurchase price to an
amount which would permit such repurchase without the necessity for such a
shareholder vote.
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8. VOTING OF SHARES
Following the date hereof and prior to the fifth anniversary of the date
hereof (the "Expiration Date"), each party shall vote any shares of capital
stock of the other party acquired by such party pursuant to this Agreement,
including any WeCo Shares issued pursuant to Section 1(b) ("Restricted Shares")
or otherwise beneficially owned (within the meaning of Rule 13d-3 promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) by
such party on each matter submitted to a vote of shareholders of such other
party for and against such matter in the same proportion as the vote of all
other shareholders of such other party are voted (whether by proxy or otherwise)
for and against such matter.
9. RESTRICTIONS ON TRANSFER
(a) Restrictions on Transfer. Prior to the Expiration Date, neither party
shall, directly or indirectly, by operation of law or otherwise, sell, assign,
pledge, or otherwise dispose of or transfer any Restricted Shares beneficially
owned by such party, other than (i) pursuant to Section 7, or (ii) in accordance
with Section 9(b) or Section 10.
(b) Permitted Sales. Following the termination of the Merger Agreement, a
party shall be permitted to sell any Restricted Shares beneficially owned by it
if such sale is made pursuant to a tender or exchange offer that has been
approved or recommended, or otherwise determined to be fair to and in the best
interests of the shareholders of the other party, by a majority of the members
of the Board of Directors of such other party which majority shall include a
majority of directors who were directors prior to the announcement of such
tender or exchange offer.
10. REGISTRATION RIGHTS
Following the termination of the Merger Agreement, each party hereto (a
"Designated Holder") may by written notice (the "Registration Notice") to the
other party (the "Registrant") request the Registrant to register under the
Securities Act all or any part of the Restricted Shares beneficially owned by
such Designated Holder (the "Registrable Securities") pursuant to a bona fide
firm commitment underwritten public offering in which the Designated Holder and
the underwriters shall effect as wide a distribution of such Registrable
Securities as is reasonably practicable and shall use their best efforts to
prevent any person (including any Group (as used in Rule 13d-5 under the
Exchange Act)) and its affiliates from purchasing through such offering
Restricted Shares representing more than 1% of the outstanding shares of common
stock of the Registrant on a fully diluted basis (a "Permitted Offering"). The
Registration Notice shall include a certificate executed by the Designated
Holder and its proposed managing underwriter, which underwriter shall be an
investment banking firm of nationally recognized standing (the "Manager"),
stating that (i) they have a good faith intention to commence promptly a
Permitted Offering and (ii) the Manager in good faith believes that, based on
the then prevailing market conditions, it will be able to sell the Registrable
Securities at a per share price equal to at least 80% of the then Fair Market
Value of such shares. The Registrant (and/or any person designated by the
Registrant) shall thereupon have the option, exercisable by written notice
delivered to the Designated Holder within 10 business days after the receipt of
the Registration Notice, irrevocably to agree to purchase all or any part of the
Registrable Securities proposed to be so sold for cash at a price (the "Option
Price") equal to the product of (i) the number of Registrable Securities to be
so purchased by the Registrant and (ii) the then Fair Market Value of such
shares. Any such purchase of Registrable Securities by the Registrant (or its
designee) hereunder shall take place at a closing to be held at the principal
executive offices of the Registrant or at the offices of its counsel at any
reasonable date and time designated by the Registrant and/or such designee in
such notice within 20 business days after delivery of such notice. Any payment
for the shares to be purchased shall be made by delivery at the time of such
closing of the Option Price in immediately available funds.
If the Registrant does not elect to exercise its option pursuant to this
Section 10 with respect to all Registrable Securities, it shall use its best
efforts to effect, as promptly as practicable, the registration under the
Securities Act of the unpurchased Registrable Securities proposed to be so sold;
provided, however, that (i) neither party shall be entitled to more than an
aggregate of two effective registration statements hereunder
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and (ii) the Registrant will not be required to file any such registration
statement during any period of time (not to exceed 40 days after such request in
the case of clause (A) below or 90 days in the case of clauses (B) and (C)
below) when (A) the Registrant is in possession of material non-public
information which it reasonably believes would be detrimental to be disclosed at
such time and, in the opinion of counsel to the Registrant, such information
would have to be disclosed if a registration statement were filed at that time;
(B) the Registrant is required under the Securities Act to include audited
financial statements for any period in such registration statement and such
financial statements are not yet available for inclusion in such registration
statement; or (C) the Registrant determines, in its reasonable judgment, that
such registration would interfere with any financing, acquisition or other
material transaction involving the Registrant or any of its affiliates. The
Registrant shall use its reasonable best efforts to cause any Registrable
Securities registered pursuant to this Section 10 to be qualified for sale under
the securities or Blue Sky laws of such jurisdictions as the Designated Holder
may reasonably request and shall continue such registration or qualification in
effect in such jurisdiction; provided, however, that the Registrant shall not be
required to qualify to do business in, or consent to general service of process
in, any jurisdiction by reason of this provision.
The registration rights set forth in this Section 10 are subject to the
condition that the Designated Holder shall provide the Registrant with such
information with respect to such holder's Registrable Securities, the plans for
the distribution thereof, and such other information with respect to such holder
as, in the reasonable judgment of counsel for the Registrant, is necessary to
enable the Registrant to include in such registration statement all material
facts required to be disclosed with respect to a registration thereunder.
A registration effected under this Section 10 shall be effected at the
Registrant's expense, except for underwriting discounts and commissions and the
fees and the expenses of counsel to the Designated Holder, and the Registrant
shall provide to the underwriters such documentation (including certificates,
opinions of counsel and "comfort" letters from auditors) as are customary in
connection with underwritten public offerings as such underwriters may
reasonably require. In connection with any such registration, the parties agree
to (i) indemnify each other and the underwriters in the customary manner, (ii)
enter into an underwriting agreement in form and substance customary for
transactions of such type with the Manager and the other underwriters
participating in such offering, and (iii) take all further actions which shall
be reasonably necessary to effect such registration and sale (including, if the
Manager deems it necessary, participating in road-show presentations).
The Registrant shall be entitled to include (at its expense) additional
shares of its common stock in a registration effected pursuant to this Section
10 only if and to the extent the Manager determines that such inclusion will not
adversely affect the prospects for success of such offering.
11. ADJUSTMENT UPON CHANGES IN CAPITALIZATION
Without limitation to any restriction on the Company contained in this
Agreement or in the Merger Agreement, in the event of any change in Company
Common Stock by reason of stock dividends, splitups, mergers (other than the
Merger), recapitalizations, combinations, exchange of shares or the like, the
type and number of shares or securities subject to the Company Option, and the
purchase price per share provided in Section 1, shall be adjusted appropriately
to restore to WeCo its rights hereunder, including the right to purchase from
the Company (or its successors) shares of Company Common Stock representing
19.9% of the outstanding Company Common Stock for the aggregate Exercise Price
calculated as of the date of this Agreement as provided in Section 1.
12. RESTRICTIVE LEGENDS
Each certificate representing shares of Company Common Stock issued to WeCo
hereunder, and WeCo Shares, if any, delivered to the Company at a Closing, shall
include a legend in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE
REOFFERED OR SOLD ONLY IF SO REGISTERED OR IF AN EXEMPTION FROM SUCH
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REGISTRATION IS AVAILABLE. SUCH SECURITIES ARE ALSO SUBJECT TO ADDITIONAL
RESTRICTIONS ON TRANSFER AS SET FORTH IN A STOCK OPTION AGREEMENT DATED AS
OF OCTOBER 18, 1995, A COPY OF WHICH MAY BE OBTAINED FROM THE ISSUER UPON
REQUEST.
It is understood and agreed that: (i) the reference to the resale
restrictions of the Securities Act in the above legend shall be removed by
delivery of substitute certificate(s) without such reference if WeCo or the
Company, as the case may be, shall have delivered to the other party a copy of a
letter from the staff of the Securities and Exchange Commission, or an opinion
of counsel, in form and substance satisfactory to the other party, to the effect
that such legend is not required for purposes of the Securities Act; (ii) the
reference to the provisions to this Agreement in the above legend shall be
removed by delivery of substitute certificate(s) without such reference if the
shares have been sold or transferred in compliance with the provisions of this
Agreement and under circumstances that do not require the retention of such
reference; and (iii) the legend shall be removed in its entirety if the
conditions in the preceding clauses (i) and (ii) are both satisfied. In
addition, such certificates shall bear any other legend as may be required by
law. Certificates representing shares sold in a registered public offering
pursuant to Section 10 shall not be required to bear the legend set forth in
this Section 12.
13. BINDING EFFECT; NO ASSIGNMENT; NO THIRD PARTY BENEFICIARIES
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns. Except as
expressly provided for in this Agreement, neither this Agreement nor the rights
or the obligations of either party hereto are assignable, except by operation of
law, or with the written consent of the other party. Nothing contained in this
Agreement, express or implied, is intended to confer upon any person other than
the parties hereto and their respective permitted assigns any rights or remedies
of any nature whatsoever by reason of this Agreement. Any Restricted Shares sold
by a party in compliance with the provisions of Section 10 shall, upon
consummation of such sale, be free of the restrictions imposed with respect to
such shares by this Agreement, unless and until such party shall repurchase or
otherwise become the beneficial owner of such shares, and any transferee of such
shares shall not be entitled to the registration rights of such party.
14. SPECIFIC PERFORMANCE
The parties recognize and agree that if for any reason any of the
provisions of this Agreement are not performed in accordance with their specific
terms or are otherwise breached, immediate and irreparable harm or injury would
be caused for which money damages would not be an adequate remedy. Accordingly,
each party agrees that, in addition to other remedies, the other party shall be
entitled to an injunction restraining any violation or threatened violation of
the provisions of this Agreement. In the event that any action should be brought
in equity to enforce the provisions of the Agreement, neither party will allege,
and each party hereby waives the defense, that there is adequate remedy at law.
15. ENTIRE AGREEMENT
This Agreement, the WeCo Stock Option Agreement, the Confidentiality
Agreement and the Merger Agreement (including the exhibits and schedules
thereto) constitute the entire agreement among the parties with respect to the
subject matter hereof and thereof and supersede all other prior agreements and
understandings, both written and oral, among the parties or any of them with
respect to the subject matter hereof and thereof.
16. FURTHER ASSURANCES
Each party will execute and deliver all such further documents and
instruments and take all such further action as may be necessary in order to
consummate the transactions contemplated hereby.
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17. VALIDITY
The invalidity or unenforceability of any provision of this Agreement shall
not affect the validity or enforceability of the other provisions of this
Agreement, which shall remain in full force and effect. In the event any court
or other competent authority holds any provisions of this Agreement to be null,
void or unenforceable, the parties hereto shall negotiate in good faith the
execution and delivery of an amendment to this Agreement in order, as nearly as
possible, to effectuate, to the extent permitted by law, the intent of the
parties hereto with respect to such provision and the economic effects thereof.
If for any reason any such court or regulatory agency determines that WeCo is
not permitted to acquire, or the Company is not permitted to repurchase pursuant
to Section 7, the full number of shares of Company Common Stock provided in
Section 1 hereof (as the same may be adjusted), it is the express intention of
the Company to allow WeCo to acquire or to require the Company to repurchase
such lesser number of shares as may be permissible, without any amendment or
modification hereof. Each party agrees that, should any court or other competent
authority hold any provision of this Agreement or part hereof to be null, void
or unenforceable, or order any party to take any action inconsistent herewith,
or not take any action required herein, the other party shall not be entitled to
specific performance of such provision or part hereof or to any other remedy,
including but not limited to money damages, for breach hereof or of any other
provision of this Agreement or part hereof as the result of such holding or
order.
18. NOTICES
All notices and other communications hereunder shall be in writing and
shall be deemed given if (i) delivered personally, (ii) sent by reputable
overnight courier service, (iii) telecopied (which is confirmed), or (iv) five
days after being mailed by registered or certified mail (return receipt
requested) to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice):
A. If to WeCo, to:
Washington Energy Company
815 Mercer Street
Seattle, WA 98109
Attention: James P. Torgerson
Telephone: (206) 224-2358
Telecopy: (206) 224-2435
with a copy to:
Graham & James/Riddell Williams
1001 Fourth Avenue
Plaza Building, Suite 4400
Seattle, WA 98154
Attention: Marion V. Larson, Esq.
Telephone: (206) 389-1798
Telecopy: (206) 389-1708
and a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
Attention: David B. Chapnick, Esq.
Telephone: (212) 455-2530
Telecopy: (212) 455-2502
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B. If to the Company, to:
Puget Sound Power & Light Company
P.O. Box 97034
Bellevue, WA 98009-9734
Attention: William S. Weaver
Telephone: (206) 462-3162
Telecopy: (206) 462-3686
with a copy to:
Perkins Coie
1201 Third Avenue
Seattle, WA 98101
Attention: Stephen A. McKeon, Esq.
Telephone: (206) 583-8888
Telecopy: (206) 583-8500
and a copy to:
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, NY 10022
Attention: Sheldon S. Adler, Esq.
Telephone: (212) 735-3000
Telecopy: (212) 735-2001
19. GOVERNING LAW; CHOICE OF FORUM
This Agreement shall be governed by and construed in accordance with the
laws of the state of Washington applicable to agreements made and to be
performed entirely within such State and without regard to its choice of law
principles. Each of the parties hereto (a) consents to submit itself to the
personal jurisdiction of any federal court located in the state of Washington or
any Washington state court in the event any dispute arises out of this Agreement
or any of the transactions contemplated by this Agreement, (b) agrees that it
will not attempt to deny or defeat such personal jurisdiction by motion or other
request for leave from any such court and (c) agrees that it will not bring any
action relating to this Agreement or any of the transactions contemplated by
this Agreement in any court other than a federal court sitting in the state of
Washington or a Washington state court.
20. INTERPRETATION
When a reference is made in this Agreement to a Section such reference
shall be to a Section of this Agreement unless otherwise indicated. Whenever the
words "include," "includes" and "including" are used in this Agreement, they
shall be deemed to be followed by the words "without limitation." The
descriptive headings herein are inserted for convenience of reference only and
are not intended to be part of or to affect the meaning or interpretation of
this Agreement.
21. COUNTERPARTS
This Agreement may be executed in two counterparts, each of which shall be
deemed to be an original, but both of which, taken together, shall constitute
one and the same instrument.
22. EXPENSES
Except as otherwise expressly provided herein or in the Merger Agreement,
all costs and expenses incurred in connection with the transactions contemplated
by this Agreement shall be paid by the party incurring such expenses.
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23. AMENDMENTS; WAIVER
This Agreement may be amended by the parties hereto and the terms and
conditions hereof may be waived only by an instrument in writing signed on
behalf of each of the parties hereto, or, in the case of a waiver, by an
instrument signed on behalf of the party waiving compliance.
24. EXTENSION OF TIME PERIODS
The time periods for exercise of certain rights under Sections 2, 6 and 7
shall be extended (i) to the extent necessary to obtain all regulatory approvals
for the exercise of such rights, and for the expiration of all statutory waiting
periods, and (ii) to the extent necessary to avoid any liability under Section
16(b) of the Exchange Act by reason of such exercise.
25. REPLACEMENT OF COMPANY OPTION
Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of this Agreement, and (in the case
of loss, theft or destruction) of reasonably satisfactory indemnification, and
upon surrender and cancellation of this Agreement, if mutilated, the Company
will execute and deliver a new Agreement of like tenor and date.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective duly authorized officers as of the date first above
written.
WASHINGTON ENERGY COMPANY
By: /s/ WILLIAM P. VITITOE
------------------------------------
Name: William P. Vititoe
Title: Chairman, Chief Executive
Officer and President
PUGET SOUND POWER & LIGHT COMPANY
By: /s/ RICHARD R. SONSTELIE
------------------------------------
Name: Richard R. Sonstelie
Title: President and Chief
Executive Officer
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ANNEX C
WASHINGTON ENERGY COMPANY
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of October 18, 1995 by and among Puget
Sound Power & Light Company, a Washington corporation ("Puget"), and Washington
Energy Company, a Washington corporation ("WeCo" or the "Company").
WHEREAS, concurrently with the execution and delivery of this Agreement:
(i) Puget, the Company and Washington Natural Gas Company, a Washington
corporation ("WNG"), are entering into an Agreement and Plan of Merger, dated as
of the date hereof (the "Merger Agreement"), which provides, among other things,
on the terms and subject to the conditions thereof, for the merger of the
Company and WNG (or, in certain circumstances described therein, only the
Company) with and into Puget (the "Merger"), and (ii) Puget and the Company are
entering into a stock option agreement dated as of the date hereof whereby Puget
grants to the Company an option with respect to certain shares of Common Stock,
stated value $10 per share, of Puget, together with the Rights under the Puget
Rights Agreement (as defined in the Merger Agreement) associated therewith (such
Common Stock and the associated Rights being collectively referred to herein as
"Puget Shares"), on the terms and subject to the conditions set forth therein
(the "Puget Stock Option Agreement"); and
WHEREAS, as a condition to Puget's willingness to enter into the Merger
Agreement and the Puget Stock Option Agreement, Puget has requested that the
Company agree, and the Company has so agreed, to grant to Puget an option with
respect to certain shares of Common Stock, par value $5 per share, of the
Company ("Company Common Stock"), on the terms and subject to the conditions set
forth herein.
NOW, THEREFORE, to induce Puget to enter into the Merger Agreement and the
Puget Stock Option Agreement, and in consideration of the mutual covenants and
agreements set forth herein and in the Merger Agreement and the Puget Stock
Option Agreement, the parties hereto agree as follows:
1. GRANT OF OPTION
The Company hereby grants Puget an irrevocable option (the "Company
Option") to purchase up to 4,789,960 shares, subject to adjustment as provided
in Section 11 (such shares being referred to herein as the "Company Shares") of
Company Common Stock (being 19.9% of the number of shares of Company Common
Stock outstanding on the date hereof) in the manner set forth below at a price
(the "Exercise Price") per Company Share of $20.00 (which is equal to the
product of (x) the Fair Market Value (as defined below) of a Puget Share on the
date hereof and (y) the Ratio set forth in Section 2.1(b) of the Merger
Agreement) payable, at Puget's option, (a) in cash or (b) subject to the receipt
of the approvals of any Governmental Authority required for the Company to
acquire the Puget Shares from Puget and for Puget to issue the Puget Shares to
WeCo, which approvals the Company and Puget shall use all commercially
reasonable efforts to obtain, in Puget Shares, in either case in accordance with
Section 4 hereof. Notwithstanding the foregoing, in no event shall the number of
Company Shares for which the Company Option is exercisable exceed 19.9% of the
number of issued and outstanding shares of Company Common Stock. As used herein,
the "Fair Market Value" of any share shall be the average of the daily closing
sales price for such share on the New York Stock Exchange (the "NYSE") during
the 10 NYSE trading days prior to the fifth NYSE trading day preceding the date
such Fair Market Value is to be determined. Capitalized terms used herein but
not defined herein shall have the meanings set forth in the Merger Agreement.
2. EXERCISE OF OPTION
The Company Option may be exercised by Puget, in whole or in part, at any
time or from time to time after the Merger Agreement becomes terminable by Puget
under circumstances which could entitle Puget to termination fees under either
Section 9.3(a) of the Merger Agreement (provided that the events specified in
Section 9.3(a)(ii)(x) of the Merger Agreement shall have occurred, although the
events specified in
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Section 9.3(a)(ii)(y) need not have occurred) or Section 9.3(b) of the Merger
Agreement (regardless of whether the Merger Agreement is actually terminated or
whether there occurs a closing of any Business Combination involving a Target
Party or a closing by which a Target Party becomes a subsidiary), any such event
by which the Merger Agreement becomes so terminable by Puget being referred to
herein as a "Trigger Event." The Company shall notify Puget promptly in writing
of the occurrence of any Trigger Event, it being understood that the giving of
such notice by the Company shall not be a condition to the right of Puget to
exercise the Company Option. In the event Puget wishes to exercise the Company
Option, Puget shall deliver to the Company a written notice (an "Exercise
Notice") specifying the total number of Company Shares it wishes to purchase.
Each closing of a purchase of Company Shares (a "Closing") shall occur at a
place, on a date and at a time designated by Puget in an Exercise Notice
delivered at least two business days prior to the date of the Closing. The
Company Option shall terminate upon the earlier of: (i) the Effective Time; (ii)
the termination of the Merger Agreement pursuant to Section 9.1 thereof (other
than upon or during the continuance of a Trigger Event); or (iii) 180 days
following any termination of the Merger Agreement upon or during the continuance
of a Trigger Event (or if, at the expiration of such 180-day period, the Company
Option cannot be exercised by reason of any applicable judgment, decree, order,
law or regulation, 10 business days after such impediment to exercise shall have
been removed or shall have become final and not subject to appeal, but in no
event under this clause (iii) later than December 31, 1996; provided that such
date shall be extended to March 31, 1997 if the date after which either party
may terminate the Merger Agreement pursuant to Section 9.1(b) of the Merger
Agreement has been extended to March 31, 1997. Notwithstanding the foregoing,
the Company Option may not be exercised if Puget is in material breach of any of
its material representations or warranties, or in material breach of any of its
covenants or agreements, contained in this Agreement, the Puget Stock Option
Agreement or the Merger Agreement. Upon the giving by Puget to the Company of
the Exercise Notice and the tender of the applicable aggregate Exercise Price,
Puget shall be deemed to be the holder of record of the Company Shares issuable
upon such exercise, notwithstanding that the stock transfer books of the Company
shall then be closed or that certificates representing such Company Shares shall
not then be actually delivered to Puget.
3. CONDITIONS TO CLOSING
The obligation of the Company to issue the Company Shares to Puget
hereunder is subject to the conditions (the condition described in clause (ii)
below may be waived by the Company in its sole discretion) that (i) all waiting
periods, if any, under the HSR Act, applicable to the issuance of the Company
Shares hereunder shall have expired or have been terminated; (ii) any Puget
Shares which are issued in payment of the Exercise Price, shall have been
approved for listing on the NYSE upon official notice of issuance; (iii) all
consents, approvals, orders or authorizations of, or registrations, declarations
or filings with, any federal, state or local administrative agency or commission
or other federal, state or local Governmental Authority, if any, required in
connection with the issuance of the Company Shares hereunder shall have been
obtained or made, as the case may be; and (iv) no preliminary or permanent
injunction or other order by any court of competent jurisdiction prohibiting or
otherwise restraining such issuance shall be in effect.
4. CLOSING
At any Closing, (a) the Company will deliver to Puget or its designee a
single certificate in definitive form representing the number of the Company
Shares designated by Puget in its Exercise Notice, such certificate to be
registered in the name of Puget and to bear the legend set forth in Section 12
and (b) Puget will deliver to the Company the aggregate price for Company Shares
so designated and being purchased by (i) wire transfer of immediately available
funds or certified check or bank check or (ii) subject to the condition in
Section 1(b), a certificate or certificates representing the number of Puget
Shares being issued by Puget in consideration thereof, as the case may be. For
the purposes of this Agreement, the number of Puget Shares to be delivered to
the Company shall be equal to the quotient obtained by dividing (i) the product
of (x) the number of Company Shares with respect to which the Company Option is
being exercised and (y) the Exercise Price by (ii) the Fair Market Value of the
Puget Shares on the date immediately preceding the date the Exercise Notice is
delivered to the Company. The Company shall pay all expenses, and any and all
United States federal, state and local taxes and other charges that may be
payable in connection with the preparation,
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issuance and delivery of stock certificates under this Section 4 in the name of
Puget or such of its designees as shall have obtained requisite regulatory
approvals.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Puget that (a) the Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Washington and has the corporate power and authority to enter
into this Agreement and, subject to obtaining the applicable approval of
shareholders of the Company for the repurchase of Company Shares pursuant to
Section 7(a) below under circumstances where the provisions of Section
23B.06.400 of the WBCA would be applicable (the "Buyback Approval") and subject
to any regulatory approvals referred to herein, to carry out its obligations
hereunder, (b) the execution and delivery of this Agreement by the Company and
the consummation by the Company of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of the
Company and no other corporate proceedings on the part of the Company are
necessary to authorize this Agreement or any of the transactions contemplated
hereby (other than any required Buyback Approval), (c) such corporate action
(including the approval of the Board of Directors of the Company) is intended to
render inapplicable to this Agreement and the Merger Agreement, and to the
transactions contemplated hereby and thereby, the provisions of the WBCA
referred to in Section 4.15 of the Merger Agreement, (d) this Agreement has been
duly executed and delivered by the Company, constitutes a valid and binding
obligation of the Company and, assuming this Agreement constitutes a valid and
binding obligation of Puget, is enforceable against the Company in accordance
with its terms, (e) the Company has taken all necessary corporate action to
authorize and reserve for issuance and to permit it to issue, upon exercise of
the Company Option, and at all times from the date hereof through the expiration
of the Company Option will have reserved, 4,789,960 authorized and unissued
Company Shares, such amount being subject to adjustment as provided in Section
11, all of which, upon their issuance and delivery in accordance with the terms
of this Agreement, will be validly issued, fully paid and nonassessable, (f)
upon delivery of the Company Shares to Puget upon the exercise of the Company
Option, Puget will acquire the Company Shares free and clear of all claims,
liens, charges, encumbrances and security interests of any nature whatsoever,
(g) except as described in Section 4.4(b) of the Merger Agreement, the execution
and delivery of this Agreement by the Company does not, and the consummation by
the Company of the transactions contemplated hereby will not, violate, conflict
with, or result in a breach of any provision of, or constitute a default (with
or without notice or lapse of time, or both) under, or result in the termination
of, or accelerate the performance required by, or result in a right of
termination, cancellation, or acceleration of any obligation or the loss of a
material benefit under, or the creation of a lien, pledge, security interest or
other encumbrance on assets (any such conflict, violation, default, right of
termination, cancellation or acceleration, loss or creation, a "Violation") of
the Company or any of its subsidiaries, pursuant to (A) any provision of the
Restated Articles of Incorporation or Bylaws of the Company, (B) any provisions
of any loan or credit agreement, note, mortgage, indenture, lease, Company
benefit plan or other agreement, obligation, instrument, permit, concession,
franchise, license or (C) any judgment, order, decree, statute, law, ordinance,
rule or regulation applicable to the Company or its properties or assets, which
Violation, in the case of each of clauses (B) and (C), could reasonably be
expected to have a material adverse effect on the Company and its subsidiaries
taken as a whole, (h) except as described in Section 4.4(c) of the Merger
Agreement or Section 1(b) or Section 3 hereof, the execution and delivery of
this Agreement by the Company does not, and the performance of this Agreement by
the Company will not, require any consent, approval, authorization or permit of,
or filing with or notification to, any Governmental Authority, (i) none of the
Company, any of its affiliates or anyone acting on its or their behalf has
issued, sold or offered any security of the Company to any person under
circumstances that would cause the issuance and sale of the Company Shares, as
contemplated by this Agreement, to be subject to the registration requirements
of the Securities Act as in effect on the date hereof and, assuming the
representations of Puget contained in Section 6(h) are true and correct, the
issuance, sale and delivery of the Company Shares hereunder would be exempt from
the registration and prospectus delivery requirements of the Securities Act, as
in effect on the date hereof (and the Company shall not take any action which
would cause the issuance, sale and delivery of the Company Shares hereunder not
to be exempt from such requirements), and (j) any Puget Shares acquired pursuant
to this Agreement will be acquired for the Company's own account, for investment
purposes only and will not be acquired by the
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Company with a view to the public distribution thereof in violation of any
applicable provision of the Securities Act.
6. REPRESENTATIONS AND WARRANTIES OF PUGET
Puget represents and warrants to the Company that (a) Puget is a
corporation duly organized, validly existing and in good standing under the laws
of the state of Washington and has the corporate power and authority to enter
into this Agreement and to carry out its obligations hereunder, (b) the
execution and delivery of this Agreement by Puget and the consummation by Puget
of the transactions contemplated hereby have been duly authorized by all
necessary corporate action on the part of Puget and no other corporate
proceedings on the part of Puget are necessary to authorize this Agreement or
any of the transactions contemplated hereby, (c) this Agreement has been duly
executed and delivered by Puget and constitutes a valid and binding obligation
of Puget, and, assuming this Agreement constitutes a valid and binding
obligation of the Company, is enforceable against Puget in accordance with its
terms, (d) prior to any delivery of Puget Shares in consideration of the
purchase of Company Shares pursuant hereto, Puget will have taken all necessary
corporate action to authorize for issuance and to permit it to issue such Puget
Shares, all of which, upon their issuance and delivery in accordance with the
terms of this Agreement, will be validly issued, fully paid and nonassessable,
and to render inapplicable to the receipt by the Company of the Puget Shares the
provisions of the WBCA referred to in Section 5.15 of the Merger Agreement, (e)
upon any delivery of such Puget Shares to the Company in consideration of the
purchase of Company Shares pursuant hereto, the Company will acquire the Puget
Shares free and clear of all claims, liens, charges, encumbrances and security
interests of any nature whatsoever, (f) except as described in Section 5.4(b) of
the Merger Agreement, the execution and delivery of this Agreement by Puget does
not, and the consummation by Puget of the transactions contemplated hereby will
not, violate, conflict with, or result in the breach of any provision of, or
constitute a default (with or without notice or lapse of time, or both) under,
or result in any Violation by Puget or any of its subsidiaries, pursuant to (A)
any provision of the Restated Articles of Incorporation or Bylaws of Puget, (B)
any provisions of any loan or credit agreement, note, mortgage, indenture,
lease, Puget benefit plan or other agreement, obligation, instrument, permit,
concession, franchise or license or (C) any judgment, order, decree, statute,
law, ordinance, rule or regulation applicable to Puget or its properties or
assets, which Violation, in the case of each of clauses (B) and or (C), would
have a material adverse effect on Puget and its subsidiaries taken as a whole,
(g) except as described in Section 5.4(c) of the Merger Agreement or Section
1(b) or Section 3 hereof, the execution and delivery of this Agreement by Puget
does not, and the consummation by Puget of the transactions contemplated hereby
will not, require any consent, approval, authorization or permit of, or filing
with or notification to, any Governmental Authority, (h) any Company Shares
acquired upon exercise of the Company Option will be acquired for Puget's own
account, for investment purposes only and will not be, and the Company Option is
not being, acquired by Puget with a view to the public distribution thereof in
violation of any applicable provision of the Securities Act and (i) the delivery
of Puget Shares to the Company in consideration of the purchase of Company
Shares pursuant hereto will not result in the Company becoming an "Acquiring
Person" for purposes of the Puget Rights Agreement or otherwise result in the
triggering of any right (including, without limitation, a "flip-in" or
"flip-over" or similar event commonly described in rights agreements) or
entitlement of Puget shareholders under the Puget Rights Agreement or any
similar agreement to which Puget or any of its affiliates is a party.
7. CERTAIN REPURCHASES
(a) Puget Put. At the request of Puget by written notice at any time
during which the Company Option is exercisable pursuant to Section 2 (the
"Repurchase Period"), the Company (or any successor entity thereof) shall
repurchase from Puget all or any portion of the Company Option, at the price set
forth in subparagraph (i) below, or, at the request of Puget by written notice
at any time prior to December 31, 1996 (provided that such date shall be
extended to March 31, 1997 if the date after which either party may terminate
the Merger Agreement pursuant to Section 9.1(b) of the Merger Agreement has been
extended to March 31, 1997), the Company (or any successor entity thereof) shall
repurchase from Puget all or any
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portion of the Company Shares purchased by Puget pursuant to the Company Option,
at the price set forth in subparagraph (ii) below:
(i) the difference between (x) the "Market/Offer Price" for shares of
Company Common Stock as of the date Puget gives notice of its intent to
exercise its rights under this Section 7 (defined as the higher of (A) the
price per share offered as of such date pursuant to any tender or exchange
offer or other offer with respect to a Business Combination which was made
prior to such date and not terminated or withdrawn as of such date (the
"Offer Price") and (B) the Fair Market Value of Company Common Stock as of
such date (the "Market Price")) and (y) the Exercise Price, multiplied by
the number of Company Shares purchasable pursuant to the Company Option (or
portion thereof with respect to which Puget is exercising its rights under
this Section 7), but only if the Market/Offer Price is greater than the
Exercise Price;
(ii) the product of (x) the sum of (A) the Exercise Price paid by
Puget per Company Share acquired pursuant to the Company Option and (B) the
difference between the Market/Offer Price and the Exercise Price, but only
if the Market/Offer Price is greater than the Exercise Price, and (y) the
number of Company Shares so to be repurchased pursuant to this Section 7.
For purposes of this clause (ii), the Offer Price shall be the highest
price per share offered pursuant to a tender or exchange offer or other
Business Combination offer during the Repurchase Period prior to the
delivery by Puget of a notice of repurchase.
(b) Redelivery of Puget Shares. If Puget elected to purchase Company
Shares pursuant to the exercise of the Company Option by the issuance and
delivery of Puget Shares, then the Company shall, if so requested by Puget, in
fulfillment of its obligation pursuant to clause (A) of Section 7(a)(ii)(x)
(that is, with respect to the Exercise Price only and without limitation to its
obligation to pay additional consideration under clause (B) of Section
7(a)(ii)(x)), redeliver the certificate for such Puget Shares to Puget, free and
clear of all liens, claims, damages, charges and encumbrances of any kind or
nature whatsoever; provided, however, that if less than all of the Company
Shares purchased by Puget pursuant to the Company Option are to be repurchased
pursuant to this Section 7, then Puget shall issue to the Company a new
certificate representing those Puget Shares which are not due to be redelivered
to Puget pursuant to this Section 7 as they constituted payment of the Exercise
Price for the Company Shares not being repurchased.
(c) Payment and Redelivery of Company Option or Shares. If Puget exercises
its rights under this Section 7, the Company shall, within 10 business days
thereafter, pay the required amount to Puget in immediately available funds and
Puget shall surrender to the Company the Company Option or the certificates
evidencing the Company Shares purchased by Puget pursuant thereto, and Puget
shall warrant that it owns the Company Option or such shares and that the
Company Option or such shares are then free and clear of all liens, claims,
damages, charges and encumbrances of any kind or nature whatsoever.
(d) Puget Call. If Puget has elected to purchase Company Shares pursuant
to the exercise of the Company Option by the issuance and delivery of Puget
Shares, notwithstanding that Puget may no longer hold any such Company Shares or
that Puget elects not to exercise its other rights under this Section 7, Puget
may require, at any time or from time to time prior to December 31, 1996
(provided that such date shall be extended to March 31, 1997 if the date after
which either party may terminate the Merger Agreement pursuant to Section 9.1(b)
of the Merger Agreement has been extended to March 31, 1997), the Company to
sell to Puget any such Puget Shares at the price attributed to such Puget Shares
pursuant to Section 4 plus interest at the rate of 6.5% per annum on such
amount, from the date of the Closing relating to the exchange of such Puget
Shares pursuant to Section 4 to the closing date under this Section 7(d) less
any dividends on such Puget Shares paid during such period or declared and
payable to stockholders of record on a date during such period.
(e) Repurchase Price Reduced at Puget's Option. If the repurchase price
specified in Section 7(a) would subject the repurchase of the Company Option or
the Company Shares purchased by Puget pursuant to the Company Option to a vote
of the shareholders of the Company pursuant to the provisions of Section
23B.06.400 of the WBCA, then Puget may, at its election, reduce the repurchase
price to an amount which would permit such repurchase without the necessity for
such a shareholder vote.
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8. VOTING OF SHARES
Following the date hereof and prior to the fifth anniversary of the date
hereof (the "Expiration Date"), each party shall vote any shares of capital
stock of the other party acquired by such party pursuant to this Agreement,
including any Puget Shares issued pursuant to Section l(b) ("Restricted Shares")
or otherwise beneficially owned (within the meaning of Rule 13d-3 promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) by
such party on each matter submitted to a vote of shareholders of such other
party for and against such matter in the same proportion as the vote of all
other shareholders of such other party are voted (whether by proxy or otherwise)
for and against such matter.
9. RESTRICTIONS ON TRANSFER
(a) Restrictions on Transfer. Prior to the Expiration Date, neither party
shall, directly or indirectly, by operation of law or otherwise, sell, assign,
pledge, or otherwise dispose of or transfer any Restricted Shares beneficially
owned by such party, other than (i) pursuant to Section 7 or (ii) in accordance
with Section 9(b) or Section 10.
(b) Permitted Sales. Following the termination of the Merger Agreement, a
party shall be permitted to sell any Restricted Shares beneficially owned by it
if such sale is made pursuant to a tender or exchange offer that has been
approved or recommended, or otherwise determined to be fair to and in the best
interests of the shareholders of the other party, by a majority of the members
of the Board of Directors of such other party which majority shall include a
majority of directors who were directors prior to the announcement of such
tender or exchange offer.
10. REGISTRATION RIGHTS
Following the termination of the Merger Agreement, each party hereto (a
"Designated Holder") may by written notice (the "Registration Notice") to the
other party (the "Registrant") request the Registrant to register under the
Securities Act all or any part of the Restricted Shares beneficially owned by
such Designated Holder (the "Registrable Securities") pursuant to a bona fide
firm commitment underwritten public offering in which the Designated Holder and
the underwriters shall effect as wide a distribution of such Registrable
Securities as is reasonably practicable and shall use their best efforts to
prevent any person (including any Group (as used in Rule 13d-5 under the
Exchange Act)) and its affiliates from purchasing through such offering
Restricted Shares representing more than 1% of the outstanding shares of common
stock of the Registrant on a fully diluted basis (a "Permitted Offering"). The
Registration Notice shall include a certificate executed by the Designated
Holder and its proposed managing underwriter, which underwriter shall be an
investment banking firm of nationally recognized standing (the "Manager"),
stating that (i) they have a good-faith intention to commence promptly a
Permitted Offering and (ii) the Manager in good faith believes that, based on
the then prevailing market conditions, it will be able to sell the Registrable
Securities at a per share price equal to at least 80% of the then Fair Market
Value of such shares. The Registrant (and/or any person designated by the
Registrant) shall thereupon have the option, exercisable by written notice
delivered to the Designated Holder within 10 business days after the receipt of
the Registration Notice, irrevocably to agree to purchase all or any part of the
Registrable Securities proposed to be so sold for cash at a price (the "Option
Price") equal to the product of (i) the number of Registrable Securities to be
so purchased by the Registrant and (ii) the then Fair Market Value of such
shares. Any such purchase of Registrable Securities by the Registrant (or its
designee) hereunder shall take place at a closing to be held at the principal
executive offices of the Registrant or at the offices of its counsel at any
reasonable date and time designated by the Registrant and/or such designee in
such notice within 20 business days after delivery of such notice. Any payment
for the shares to be purchased shall be made by delivery at the time of such
closing of the Option Price in immediately available funds.
If the Registrant does not elect to exercise its option pursuant to this
Section 10 with respect to all Registrable Securities, it shall use its best
efforts to effect, as promptly as practicable, the registration under the
Securities Act of the unpurchased Registrable Securities proposed to be so sold;
provided, however, that (i) neither party shall be entitled to more than an
aggregate of two effective registration statements hereunder
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and (ii) the Registrant will not be required to file any such registration
statement during any period of time (not to exceed 40 days after such request in
the case of clause (A) below or 90 days in the case of clauses (B) and (C)
below) when (A) the Registrant is in possession of material nonpublic
information which it reasonably believes would be detrimental to be disclosed at
such time and, in the opinion of counsel to the Registrant, such information
would have to be disclosed if a registration statement were filed at that time;
(B) the Registrant is required under the Securities Act to include audited
financial statements for any period in such registration statement and such
financial statements are not yet available for inclusion in such registration
statement; or (C) the Registrant determines, in its reasonable judgment, that
such registration would interfere with any financing, acquisition or other
material transaction involving the Registrant or any of its affiliates. The
Registrant shall use its reasonable best efforts to cause any Registrable
Securities registered pursuant to this Section 10 to be qualified for sale under
the securities or Blue Sky laws of such jurisdictions as the Designated Holder
may reasonably request and shall continue such registration or qualification in
effect in such jurisdiction; provided, however, that the Registrant shall not be
required to qualify to do business in, or consent to general service of process
in, any jurisdiction by reason of this provision.
The registration rights set forth in this Section 10 are subject to the
condition that the Designated Holder shall provide the Registrant with such
information with respect to such holder's Registrable Securities, the plans for
the distribution thereof, and such other information with respect to such holder
as, in the reasonable judgment of counsel for the Registrant, is necessary to
enable the Registrant to include in such registration statement all material
facts required to be disclosed with respect to a registration thereunder.
A registration effected under this Section 10 shall be effected at the
Registrant's expense, except for underwriting discounts and commissions and the
fees and the expenses of counsel to the Designated Holder, and the Registrant
shall provide to the underwriters such documentation (including certificates,
opinions of counsel and "comfort" letters from auditors) as are customary in
connection with underwritten public offerings as such underwriters may
reasonably require. In connection with any such registration, the parties agree
to (i) indemnify each other and the underwriters in the customary manner, (ii)
enter into an underwriting agreement in form and substance customary for
transactions of such type with the Manager and the other underwriters
participating in such offering, and (iii) take all further actions which shall
be reasonably necessary to effect such registration and sale (including, if the
Manager deems it necessary, participating in road-show presentations).
The Registrant shall be entitled to include (at its expense) additional
shares of its common stock in a registration effected pursuant to this Section
10 only if and to the extent the Manager determines that such inclusion will not
adversely affect the prospects for success of such offering.
11. ADJUSTMENT UPON CHANGES IN CAPITALIZATION
Without limitation to any restriction on the Company contained in this
Agreement or in the Merger Agreement, in the event of any change in Company
Common Stock by reason of stock dividends, splitups, mergers (other than the
Merger), recapitalizations, combinations, exchange of shares or the like, the
type and number of shares or securities subject to the Company Option, and the
purchase price per share provided in Section 1, shall be adjusted appropriately
to restore to Puget its rights hereunder, including the right to purchase from
the Company (or its successors) shares of Company Common Stock representing
19.9% of the outstanding Company Common Stock for the aggregate Exercise Price
calculated as of the date of this Agreement as provided in Section 1.
12. RESTRICTIVE LEGENDS
Each certificate representing shares of Company Common Stock issued to
Puget hereunder, and Puget Shares, if any, delivered to the Company at a
Closing, shall include a legend in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE
REOFFERED OR SOLD ONLY IF SO REGISTERED OR IF AN EXEMPTION FROM SUCH
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REGISTRATION IS AVAILABLE. SUCH SECURITIES ARE ALSO SUBJECT TO ADDITIONAL
RESTRICTIONS ON TRANSFER AS SET FORTH IN A STOCK OPTION AGREEMENT DATED AS
OF OCTOBER 18, 1995, A COPY OF WHICH MAY BE OBTAINED FROM THE ISSUER UPON
REQUEST.
It is understood and agreed that: (i) the reference to the resale restrictions
of the Securities Act in the above legend shall be removed by delivery of
substitute certificate(s) without such reference if Puget or the Company, as the
case may be, shall have delivered to the other party a copy of a letter from the
staff of the Securities and Exchange Commission, or an opinion of counsel, in
form and substance satisfactory to the other party, to the effect that such
legend is not required for purposes of the Securities Act; (ii) the reference to
the provisions to this Agreement in the above legend shall be removed by
delivery of substitute certificate(s) without such reference if the shares have
been sold or transferred in compliance with the provisions of this Agreement and
under circumstances that do not require the retention of such reference; and
(iii) the legend shall be removed in its entirety if the conditions in the
preceding clauses (i) and (ii) are both satisfied. In addition, such
certificates shall bear any other legend as may be required by law. Certificates
representing shares sold in a registered public offering pursuant to Section 10
shall not be required to bear the legend set forth in this Section 12.
13. BINDING EFFECT; NO ASSIGNMENT; NO THIRD-PARTY BENEFICIARIES
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns. Except as
expressly provided for in this Agreement, neither this Agreement nor the rights
or the obligations of either party hereto are assignable, except by operation of
law, or with the written consent of the other party. Nothing contained in this
Agreement, express or implied, is intended to confer upon any person other than
the parties hereto and their respective permitted assigns any rights or remedies
of any nature whatsoever by reason of this Agreement. Any Restricted Shares sold
by a party in compliance with the provisions of Section 10 shall, upon
consummation of such sale, be free of the restrictions imposed with respect to
such shares by this Agreement, unless and until such party shall repurchase or
otherwise become the beneficial owner of such shares, and any transferee of such
shares shall not be entitled to the registration rights of such party.
14. SPECIFIC PERFORMANCE
The parties recognize and agree that if for any reason any of the
provisions of this Agreement are not performed in accordance with their specific
terms or are otherwise breached, immediate and irreparable harm or injury would
be caused for which money damages would not be an adequate remedy. Accordingly,
each party agrees that, in addition to other remedies, the other party shall be
entitled to an injunction restraining any violation or threatened violation of
the provisions of this Agreement. In the event that any action should be brought
in equity to enforce the provisions of the Agreement, neither party will allege,
and each party hereby waives the defense, that there is adequate remedy at law.
15. ENTIRE AGREEMENT
This Agreement, the Puget Stock Option Agreement, the Confidentiality
Agreement and the Merger Agreement (including the exhibits and schedules
thereto) constitute the entire agreement among the parties with respect to the
subject matter hereof and thereof and supersede all other prior agreements and
understandings, both written and oral, among the parties or any of them with
respect to the subject matter hereof and thereof.
16. FURTHER ASSURANCES
Each party will execute and deliver all such further documents and
instruments and take all such further action as may be necessary in order to
consummate the transactions contemplated hereby.
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17. VALIDITY
The invalidity or unenforceability of any provision of this Agreement shall
not affect the validity or enforceability of the other provisions of this
Agreement, which shall remain in full force and effect. In the event any court
or other competent authority holds any provisions of this Agreement to be null,
void or unenforceable, the parties hereto shall negotiate in good faith the
execution and delivery of an amendment to this Agreement in order, as nearly as
possible, to effectuate, to the extent permitted by law, the intent of the
parties hereto with respect to such provision and the economic effects thereof.
If for any reason any such court or regulatory agency determines that Puget is
not permitted to acquire, or the Company is not permitted to repurchase pursuant
to Section 7, the full number of shares of Company Common Stock provided in
Section 1 hereof (as the same may be adjusted), it is the express intention of
the Company to allow Puget to acquire or to require the Company to repurchase
such lesser number of shares as may be permissible, without any amendment or
modification hereof. Each party agrees that, should any court or other competent
authority hold any provision of this Agreement or part hereof to be null, void
or unenforceable, or order any party to take any action inconsistent herewith,
or not take any action required herein, the other party shall not be entitled to
specific performance of such provision or part hereof or to any other remedy,
including, but not limited to, money damages, for breach hereof or of any other
provision of this Agreement or part hereof as the result of such holding or
order.
18. NOTICES
All notices and other communications hereunder shall be in writing and
shall be deemed given if (i) delivered personally, (ii) sent by reputable
overnight courier service, (iii) telecopied (which is confirmed), or (iv) five
days after being mailed by registered or certified mail (return-receipt
requested) to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice):
A. If to Puget, to:
Puget Sound Power & Light Company
P.O. Box 97034
Bellevue, WA 98009-9734
Attention: William S. Weaver
Telephone: (206) 462-3162
Telecopy: (206) 462-3686
with a copy to:
Perkins Coie
1201 Third Avenue
Seattle, WA 98101
Attention: Stephen A. McKeon, Esq.
Telephone: (206) 583-8888
Telecopy: (206) 583-8500
and a copy to:
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, NY 10022
Attention: Sheldon S. Adler, Esq.
Telephone: (212) 735-3000
Telecopy: (212) 735-2001
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B. If to the Company, to:
Washington Energy Company
815 Mercer Street
Seattle, WA 98109
Attention: James P. Torgerson
Telephone: (206) 224-2358
Telecopy: (206) 224-2435
with a copy to:
Graham & James/Riddell Williams
1001 Fourth Avenue
Plaza Building, Suite 4400
Seattle, WA 98154
Attention: Marion V. Larson, Esq.
Telephone: (206) 389-1798
Telecopy: (206) 389-1708
and a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
Attention: David B. Chapnick, Esq.
Telephone: (212) 455-2530
Telecopy: (212) 455-2502
19. GOVERNING LAW; CHOICE OF FORUM
This Agreement shall be governed by and construed in accordance with the
laws of the state of Washington applicable to agreements made and to be
performed entirely within such State and without regard to its choice of law
principles. Each of the parties hereto (a) consents to submit itself to the
personal jurisdiction of any federal court located in the state of Washington or
any Washington state court in the event any dispute arises out of this Agreement
or any of the transactions contemplated by this Agreement, (b) agrees that it
will not attempt to deny or defeat such personal jurisdiction by motion or other
request for leave from any such court, and (c) agrees that it will not bring any
action relating to this Agreement or any of the transactions contemplated by
this Agreement in any court other than a federal court sitting in the state of
Washington or a Washington state court.
20. INTERPRETATION
When a reference is made in this Agreement to a Section such reference
shall be to a Section of this Agreement unless otherwise indicated. Whenever the
words "include," "includes" and "including" are used in this Agreement, they
shall be deemed to be followed by the words "without limitation." The
descriptive headings herein are inserted for convenience of reference only and
are not intended to be part of or to affect the meaning or interpretation of
this Agreement.
21. COUNTERPARTS
This Agreement may be executed in two counterparts, each of which shall be
deemed to be an original, but both of which, taken together, shall constitute
one and the same instrument.
22. EXPENSES
Except as otherwise expressly provided herein or in the Merger Agreement,
all costs and expenses incurred in connection with the transactions contemplated
by this Agreement shall be paid by the party incurring such expenses.
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23. AMENDMENTS; WAIVER
This Agreement may be amended by the parties hereto and the terms and
conditions hereof may be waived only by an instrument in writing signed on
behalf of each of the parties hereto, or, in the case of a waiver, by an
instrument signed on behalf of the party waiving compliance.
24. EXTENSION OF TIME PERIODS
The time periods for exercise of certain rights under Sections 2, 6 and 7
shall be extended (i) to the extent necessary to obtain all regulatory approvals
for the exercise of such rights, and for the expiration of all statutory waiting
periods; and (ii) to the extent necessary to avoid any liability under Section
16(b) of the Exchange Act by reason of such exercise.
25. REPLACEMENT OF COMPANY OPTION
Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of this Agreement, and (in the case
of loss, theft or destruction) of reasonably satisfactory indemnification, and
upon surrender and cancellation of this Agreement, if mutilated, the Company
will execute and deliver a new Agreement of like tenor and date.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective duly authorized officers as of the date first above
written.
PUGET SOUND POWER & LIGHT COMPANY
By: /s/ Richard R. Sonstelie
------------------------------------
Name: Richard R. Sonstelie
Title: President and Chief
Executive Officer
WASHINGTON ENERGY COMPANY
By: /s/ William P. Vititoe
------------------------------------
Name: William P. Vititoe
Title: Chairman, Chief Executive
Officer and President
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ANNEX D
[MORGAN STANLEY & CO. INCORPORATED LETTERHEAD]
February 1, 1996
Puget Sound Power & Light Company
Puget Power Building
10608 N.E. 4th Street
Bellevue, Washington 98009
Members of the Board of Directors:
We understand that Washington Energy Company ("Washington Energy"),
Washington Natural Gas Company, a wholly owned subsidiary of Washington Energy
("Washington Natural Gas"), and Puget Sound Power & Light Company ("Puget
Power") have entered into an Agreement and Plan of Merger, dated as of October
18, 1995 (the "Merger Agreement"), which provides, among other things, for the
merger (the "Merger") of each of Washington Energy and Washington Natural Gas
with and into Puget Power. Pursuant to the Merger, Puget Power will be the
surviving corporation and each issued and outstanding share of Common Stock, par
value $5 per share, of Washington Energy (the "Washington Energy Common Stock"),
other than shares as to which dissenters' rights have been perfected, shall be
converted into the right to receive .860 share (the "Exchange Ratio") of Common
Stock, stated value $10 per share, of Puget Power (the "Puget Power Common
Stock"). We further understand that pursuant to the Merger, each issued and
outstanding share of (i) 7.45% Series II Preferred Stock, par value $25 per
share, and (ii) 8.50% Series III Preferred Stock, par value $25 per share, of
Washington Natural Gas, other than shares as to which dissenters' rights have
been perfected, shall be converted into the right to receive one share of a
series of preferred stock of Puget Power with like rights and preferences to the
canceled series of Washington Natural Gas series preferred stock. In addition,
we understand that Puget Power and Washington Energy have entered into Stock
Option Agreements, each dated as of October 18, 1995 (the "Option Agreements"),
which provide, among other things, for the grant by Puget Power to Washington
Energy of an option to acquire certain shares of Puget Power Common Stock and
the grant by Washington Energy to Puget Power of an option to acquire certain
shares of Washington Energy Common Stock upon the terms and conditions provided
in such agreements (collectively, the "Options"). The terms and conditions of
the Merger and the Options are more fully set forth in the Merger Agreement and
Option Agreements, respectively.
You have asked for our opinion as to whether the Exchange Ratio pursuant to
the Merger Agreement is fair from a financial point of view to Puget Power.
For purposes of the opinion set forth herein, we have:
(i) analyzed certain publicly available financial statements and other
information of Washington Energy, Washington Natural Gas and Puget Power;
(ii) analyzed certain internal financial statements and other
financial and operating data concerning Washington Energy, Washington
Natural Gas and Puget Power prepared by their respective managements;
(iii) analyzed certain financial projections of Washington Energy,
Washington Natural Gas and Puget Power prepared by their respective
managements;
(iv) discussed the past and current operations and financial condition
and the prospects of Washington Energy, Washington Natural Gas and Puget
Power with senior executives of Washington Energy, Washington Natural Gas
and Puget Power, respectively;
(v) reviewed the reported prices and trading activity of both
Washington Energy Common Stock and Puget Power Common Stock;
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(vi) compared the financial performance of Washington Energy,
Washington Natural Gas and Puget Power and the prices and trading activity
of Washington Energy Common Stock and Puget Power Common Stock with those
of certain other comparable publicly traded companies and their securities;
(vii) reviewed the financial terms, to the extent publicly available,
of certain comparable merger or acquisition transactions;
(viii) analyzed the pro forma impact of the Merger on Puget Power's
earnings per share, consolidated capitalization and financial ratios;
(ix) participated in discussions and negotiations among
representatives of Washington Energy and Puget Power and their financial
and legal advisors;
(x) reviewed the Merger Agreement, the Option Agreements and certain
related documents;
(xi) discussed certain regulatory issues relating to the proposed
Merger with senior executives of Puget Power and Washington Energy;
(xii) participated in discussions with Washington Energy, Puget Power
and certain advisors to Puget Power regarding estimates of cost savings
expected to be derived from the Merger;
(xiii) participated in discussions with Puget Power and certain
advisors to Puget Power regarding estimates of environmental liabilities of
Washington Energy and Washington Natural Gas; and
(xiv) performed such other analyses as we have deemed appropriate.
We have assumed and relied upon without independent verification the
accuracy and completeness of the information reviewed by us for the purposes of
this opinion. With respect to the financial projections, including estimates of
cost savings expected to be derived from the Merger, we have assumed that they
have been reasonably prepared on bases reflecting the best currently available
estimates and judgments of the future financial performance of Washington
Energy, Washington Natural Gas and Puget Power, respectively. We have not made
any independent valuation or appraisal of the assets or liabilities of
Washington Energy, Washington Natural Gas or Puget Power; however, we have
reviewed the presentations of Washington Energy, Puget Power and certain of
their advisors regarding estimates of cost savings and environmental liabilities
and have relied without independent verification upon such estimates for
purposes of this opinion. Our opinion is necessarily based on economic, market
and other conditions as in effect on, and the information made available to us
as of, the date hereof.
In arriving at our opinion, we have assumed that in connection with the
receipt of all the necessary regulatory and governmental approvals for the
proposed Merger, no restrictions will be imposed which would have a material
adverse effect on the contemplated benefits expected to be derived in the
proposed Merger.
We have acted as financial advisor to the Board of Directors of Puget Power
in connection with this transaction and will receive a fee for our services. In
the past, Morgan Stanley & Co. Incorporated and its affiliates have provided
financial advisory and financing services for Puget Power and certain affiliates
of Washington Energy and have received fees for the rendering of these services.
It is understood that this letter is for the information of the Board of
Directors of Puget Power and may not be used for any other purpose without our
prior written consent. We hereby consent, however, to the inclusion of this
opinion as an exhibit to any proxy or registration statement distributed in
connection with the Merger.
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Based upon and subject to the foregoing, we are of the opinion on the date
hereof that the Exchange Ratio pursuant to the Merger Agreement is fair from a
financial point of view to Puget Power.
Very truly yours,
MORGAN STANLEY & CO.
INCORPORATED
By: /s/ ROBERT W. JONES
------------------------------------
Robert W. Jones
Managing Director
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<PAGE> 198
ANNEX E
February 1, 1996
Board of Directors
Washington Energy Company
815 Mercer Street
Seattle, Washington 98111-1869
Gentlemen and Mesdames:
You have requested our opinion as to the fairness to the holders of the
outstanding shares of Common Stock, par value $5.00 per share (the "Shares"), of
Washington Energy Company (the "Company") of the exchange ratio of 0.860 shares
of Common Stock, stated value $10.00 per share (the "Puget Common Stock"), of
Puget Sound Power & Light Company ("Puget") to be received for each Share (the
"Exchange Ratio") pursuant to the Agreement and Plan of Merger dated as of
October 18, 1995, by and among Puget, the Company, and Washington Natural Gas
Company ("WNG"), a wholly owned subsidiary of the Company (the "Agreement").
Capitalized terms used herein but not defined shall have the meanings ascribed
to such terms in the Agreement.
Goldman, Sachs & Co., as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes. We are
familiar with the Company having provided certain investment banking services to
the Company from time to time, including having acted as managing underwriter of
certain public offerings of debt securities of the Company and acting as lead
agent for certain public offerings of medium term notes of the Company, and
having acted as its financial advisor in connection with, and having
participated in certain of the negotiations leading to, the Agreement.
In connection with this opinion, we have reviewed, among other things, the
Agreement; the Registration Statement on Form S-4 including the Joint Proxy
Statement/Prospectus relating to the Annual Meeting of Shareholders of the
Company, the Special Meeting of Preferred Shareholders of WNG and the Special
Meeting of Puget Shareholders to be held in connection with the Agreement; the
Stock Option Agreements; annual reports to shareholders and Annual Reports on
Form 10-K of the Company and Puget for the five fiscal years ended September
30, 1995 and December 31, 1994, respectively; certain interim reports to
shareholders and Quarterly Reports on Form 10-Q of the Company and Puget;
certain FERC Forms 1 of Puget; certain other communications from the Company
and Puget to their respective shareholders; and certain financial analyses and
forecasts for the Company, for WNG and for Puget prepared by their respective
managements, including analyses and forecasts of certain operating efficiencies
and financial synergies (the "Synergies") expected to be achieved as a result
of the Merger, which were prepared jointly by the managements of the Company,
of WNG and of Puget, with the assistance of a third party consultant. We also
have held discussions with members of the senior managements of the Company, of
WNG and of Puget regarding the past and current business operations, financial
condition and future prospects of their respective companies and their analyses
of the strategic benefits of the Merger, including, without limitation, the
amount and timing of realization of the Synergies. In addition, we have
reviewed the reported price and trading activity for the Shares and the Puget
Common Stock, compared certain financial and stock market information for the
Company and Puget with similar information for certain other companies the
securities of which are publicly traded, reviewed the financial terms of
certain recent business combinations in the electric and gas utility industries
and performed such other studies and analyses as we considered appropriate.
We have relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed by us for
purposes of this opinion. In that regard, we have assumed, with your consent,
that the Synergies have been reasonably prepared on a basis reflecting the best
currently available judgments and estimates of the managements of the Company,
of WNG and of Puget, as the case
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may be, and that such Synergies will be realized in the amounts and at the times
contemplated thereby. We have also assumed, with your consent, that the
consummation of the transactions contemplated by the Agreement will be recorded
as a pooling of interests under generally accepted accounting principles. We
have further assumed, with your consent, that any regulatory or third party
approvals required to consummate the Merger pursuant to the Agreement will be
obtained. We have not made an independent evaluation or appraisal of the assets
and liabilities of the Company or Puget (or any of their subsidiaries) and we
have not been furnished with any such evaluation or appraisal.
Based upon and subject to the foregoing and based upon such other matters
as we consider relevant, it is our opinion that as of the date hereof the
Exchange Ratio pursuant to the Agreement is fair to the holders of the Shares.
Very truly yours,
/s/ GOLDMAN SACHS & CO.
- ---------------------------------
GOLDMAN, SACHS & CO.
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ANNEX F
FORM OF AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
------------------------------------
Pursuant to RCW 23B.10.070 and a resolution duly adopted by the Board of
Directors on , 1996, the following constitutes Amended and Restated
Articles of Incorporation of the undersigned, a Washington Corporation. These
Amended and Restated Articles of Incorporation correctly set forth without
change the corresponding provisions of the Articles of Incorporation as
heretofore amended and supersede the original Restated Articles of Incorporation
and all amendments thereto.
ARTICLE I.
The name of this Corporation is .
ARTICLE II.
The purposes for which this Corporation is formed are as follows:
SECTION 1. To engage in the electric utility business, including, but not
limited to, the generation, purchase, interchange, transmission and sale of
electricity and the furnishing of electric service generally, and to engage in
any business or activity directly or indirectly related to the electric utility
business.
SECTION 2. To engage in the gas utility business, including, but not
limited to, the manufacture, purchase, distribution and sale of gas and the
furnishing of gas service generally, and to engage in any business or activity
directly or indirectly related to the gas utility business.
SECTION 3. To engage in the transportation business and any business or
activity directly or indirectly related to the transportation of persons or
property by any means of conveyance.
SECTION 4. To engage in the real estate business, including, but not
limited to, the purchase or other acquisition of real property and the
subdividing, platting, development, improvement, use, sale or other disposition
of real property or any interest therein and to engage in any business or
activity directly or indirectly related to the real estate business.
SECTION 5. To engage in any form of public service or utility business and
any business or activity directly or indirectly related thereto.
SECTION 6. To purchase or otherwise acquire, and to own, hold, use,
mortgage, pledge or otherwise encumber, and to assign, sell, or otherwise
dispose of, shares of stock or other securities of any kind whatsoever of any
corporation or entity, and while the holder or owner thereof to exercise all of
the rights of such holder or owner.
SECTION 7. To borrow money with or without the giving of security of any
kind or nature, and to execute and deliver notes, debentures, bonds and other
evidences of indebtedness and to act as guarantor or surety, and, without
limiting the generality of the foregoing, to mortgage, pledge, hypothecate or
otherwise encumber the whole or any portion of the property of this Corporation,
real, personal or mixed.
SECTION 8. To carry on any business or activity which may lawfully be
conducted by a corporation organized under the Washington Business Corporation
Act, which may seem to this Corporation capable of being conveniently carried on
in connection with any branch of this Corporation's business or calculated
directly or indirectly to enhance the value of, or render profitable, any of
this Corporation's business, property or rights.
SECTION 9. In general, to do any or all of the things hereinbefore set
forth, and such other things as are incidental or conducive to the attainment of
the objects and purposes of this Corporation, or any of them, in
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any place whatsoever, as principal, agent, or otherwise, either alone or in
conjunction with any person, firm, association or corporation; and to do such
acts and things and to exercise any and all such powers to the full extent
authorized or permitted to be done or exercised by a corporation under any laws
that may be now or hereafter applicable or available to this Corporation.
SECTION 10. The several clauses contained in this statement of purposes
shall be construed as both purposes and powers and the statements contained in
each clause shall be in no way limited or restricted by reference to or
inference from the terms of any other clause, but shall be regarded as
independent purposes and powers; and nothing contained in these purposes shall
be deemed in any way to limit or exclude any power, right or privilege given to
this Corporation by law.
ARTICLE III.
The duration of this Corporation shall be perpetual.
ARTICLE IV.
The location and post office address of the registered office of this
Corporation shall be Puget Power Building, 10608 N.E. 4th, Bellevue, Washington
98009.
ARTICLE V.
The total authorized shares of this Corporation shall consist of One
Hundred Fifty Million (150,000,000) shares of Common Stock without par value,
Three Million (3,000,000) shares of Preferred Stock having a par value of One
Hundred Dollars a share, Thirteen Million (13,000,000) shares of Preferred Stock
having a par value of Twenty-five Dollars a share, and Seven Hundred Thousand
(700,000) shares of Preference Stock having a par value of Fifty Dollars a
share.
ARTICLE VI.
The provisions as to the respective rights, privileges, voting power,
preferences, qualifications and restrictions of the several classes of stock are
as follows:
SECTION 1. PREFERRED STOCK -- GENERAL.
The authorized Preferred Stock of this Corporation shall consist of two
classes: stock of the par value of $100 per share entitled "$100 par value
Preferred Stock" and stock of the par value of $25 per share entitled "$25 par
value Preferred Stock." The $100 par value Preferred Stock and the $25 par value
Preferred Stock are sometimes collectively referred to herein as the "Preferred
Stock," and unless otherwise specified all references herein to Preferred Stock
shall be deemed to include the stock of both classes.
The $100 par value Preferred Stock and the $25 par value Preferred Stock
shall rank equally with respect to dividends and distribution of assets upon
liquidation, dissolution or winding up of this Corporation.
Shares of the Preferred Stock may be divided into and issued in series. The
series of the $100 par value Preferred Stock shall be of the same class and of
equal rank and identical in all respects, and the series of the $25 par value
Preferred Stock shall be of the same class and of equal rank and identical in
all respects, except as to the following relative rights and preferences as to
which there may be variations between the different series of the $100 par value
Preferred Stock and between the different series of the $25 par value Preferred
Stock:
(a) The rate of dividends, dividend periods and dividend payment
dates;
(b) Whether shares may be redeemed and, if so, the redemption price
and the terms and conditions of redemption;
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(c) The amount payable upon shares in event of voluntary and
involuntary liquidation;
(d) Sinking fund provisions, if any, for the redemption or purchase of
shares;
(e) The terms and conditions, if any, on which the shares may be
converted; and
(f) Any other terms, conditions, or provisions which the Board of
Directors shall have the authority to fix and determine under the
Washington Business Corporation Act, as now in effect or hereafter amended.
The Board of Directors is hereby expressly vested with the authority to
divide any or all of the Preferred Stock into series and fix the designations of
series and, within the limitations set forth herein, fix and determine the
relative rights and preferences of the shares of any series so established.
SECTION 2. SPECIAL PROVISIONS OF PARTICULAR SERIES OF PREFERRED STOCK.
2.01. The first series of $100 par value Preferred Stock is designated
4.84% Preferred Stock and consists of 150,000 shares. The holders of the 4.84%
Preferred Stock shall be entitled to preferential dividends at the rate of Four
and 84/100 percent (4.84%) per annum as provided in Section 3.
2.02. This Corporation may, at its option expressed by resolution of the
Board of Directors, redeem the 4.84% Preferred Stock as a whole at any time or
in part from time to time in accordance with the provisions of Section 5 at:
$105.00 per share if redeemed prior to May 15, 1967,
$104.00 per share if redeemed on May 15, 1967 or thereafter prior to May
15, 1972,
$103.00 per share if redeemed on May 15, 1972 or thereafter prior to May
15, 1977,
$102.00 per share if redeemed on or after May 15, 1977,
in each case together with any accrued dividends (herein sometimes called the
"optional redemption price").
2.03. The 4.84% Preferred Stock shall be entitled to the benefits of a
sinking fund as follows:
(A) On May 15 in each year, commencing with the year 1966, this
Corporation shall, upon notice given as provided in Section 5, redeem at a
price per share equal to $100.00, together with accrued dividends (herein
sometimes called the "sinking fund redemption price"), a number of shares
of the 4.84% Preferred Stock equal to two percent (2%) of the maximum
number of shares thereof outstanding at any one time prior to such May 15.
The obligation to redeem shares of the 4.84% Preferred Stock pursuant to
the provisions of this Section is herein sometimes referred to as the
"sinking fund obligation."
(B) The sinking fund obligation shall be cumulative so that if on any
May 15, on or after May 15, 1966, this Corporation shall not have satisfied
to the full extent the sinking fund obligation then due, for any reason
whatsoever, then any such deficiency shall be made good before (i) any
dividend shall be paid upon or set apart for the shares of Common Stock or
of any other class of stock ranking junior as to dividends or assets in
liquidation to the Preferred Stock (other than a dividend in stock ranking
junior as to dividends and assets in liquidation to the Preferred Stock) or
any other distribution shall be made on any shares of such junior stock,
(ii) any shares of stock ranking junior to the Preferred Stock as to
dividends or assets in liquidation may be redeemed, purchased or otherwise
retired for a consideration by this Corporation (other than in exchange
for, or from the proceeds of any substantially concurrent sale hereafter
made of, other shares of stock of this Corporation ranking junior to the
Preferred Stock as to dividends and assets in liquidation) or (iii) any
shares of Preferred Stock or of any stock ranking on a parity with the
Preferred Stock may be redeemed, purchased or otherwise retired for a
consideration by
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this Corporation. Nothing herein contained, however, shall prevent this
Corporation from satisfying, in whole or in part, its obligations in
respect of any sinking or purchase fund for shares of any other series of
Preferred Stock, provided that any sinking fund obligations for the 4.84%
Preferred Stock, which shall have theretofore become due as aforesaid and
not have been satisfied, shall be satisfied by a percentage not less than
that by which any obligation of this Corporation in respect of any such
other fund is to be satisfied.
(C) This Corporation shall have the right to satisfy in whole or in
part any sinking fund obligation (including any deficiency in any past
sinking fund obligation) by crediting against such obligation any shares of
the 4.84% Preferred Stock purchased or otherwise acquired by this
Corporation, such credit to be effected by delivering to the Transfer Agent
for the 4.84% Preferred Stock not later than the April 1 next preceding the
May 15 on which there is due any sinking fund obligation in respect of
which such credit is to be taken, a certificate signed by its President or
one of its Vice Presidents or its Treasurer or one of its Assistant
Treasurers, specifying the election of this Corporation to take such credit
and stating that no previous sinking fund credit has been taken in respect
of any such shares.
(D) At least one day prior to the May 15 on which any sinking fund
obligation is due, this Corporation shall deliver to the Transfer Agent for
the 4.84% Preferred Stock, in trust for such redemption, an amount of money
sufficient to redeem all shares of such stock called for redemption to
satisfy such obligation, to be held and applied as provided in Section 5,
and certificates properly endorsed in blank for transfer or accompanied by
proper instruments of assignment or transfer in blank and bearing all
necessary stock transfer tax stamps thereto affixed and canceled, for any
shares of such stock purchased or otherwise acquired by this Corporation
which are to be used as a credit against the sinking fund obligation due on
such date, for cancellation as provided in Section 5 with respect to shares
redeemed for sinking fund purposes.
2.04. The second series of $100 par value Preferred Stock is designated
4.70% Preferred Stock and consists of 150,000 shares. The holders of the 4.70%
Preferred Stock shall be entitled to preferential dividends at the rate of Four
and 70/100 percent (4.70%) per annum as provided in Section 3.
2.05. This Corporation may, at its option expressed by resolution of the
Board of Directors, redeem the 4.70% Preferred Stock as a whole at any time or
in part from time to time in accordance with the provisions of Section 5 at:
$107.00 per share if redeemed prior to May 15, 1969,
$104.00 per share if redeemed on May 15, 1969 or thereafter prior to May
15, 1974,
$102.00 per share if redeemed on May 15, 1974 or thereafter prior to May
15, 1979,
$101.00 per share if redeemed on or after May 15, 1979,
in each case together with any accrued dividends (herein sometimes called the
"optional redemption price").
2.06. The 4.70% Preferred Stock shall be entitled to the benefits of a
sinking fund as follows:
(A) On May 15 in each year, commencing with the year 1968, this
Corporation shall, upon notice given as provided in Section 5, redeem at a
price per share equal to $100.00, together with accrued dividends (herein
sometimes called the "sinking fund redemption price"), a number of shares
of the 4.70%. Preferred Stock equal to two percent (2%) of the maximum
number of shares thereof outstanding at any one time prior to such May 15.
The obligation to redeem shares of the 4.70% Preferred Stock pursuant to
the provisions of this Section is herein sometimes referred to as the
"sinking fund obligation."
(B) The sinking fund obligation shall be cumulative so that if on any
May 15, on or after May 15, 1968, this Corporation shall not have satisfied
to the full extent the sinking fund obligation then due, for any reason
whatsoever, then any such deficiency shall be made good before (i) any
dividend shall be paid upon or set apart for the shares of Common Stock or
of any other class of stock ranking junior as to dividends or assets in
liquidation to the Preferred Stock (other than a dividend in stock ranking
junior as to dividends and assets in liquidation to the Preferred Stock) or
any other distribution shall be made on
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any shares of such junior stock, (ii) any shares of stock ranking junior to
the Preferred Stock as to dividends or assets in liquidation may be
redeemed, purchased or otherwise retired for a consideration by this
Corporation (other than in exchange for, or from the proceeds of any
substantially concurrent sale hereafter made of, other shares of stock of
this Corporation ranking junior to the Preferred Stock as to dividends and
assets in liquidation) or (iii) any shares of Preferred Stock or of any
stock ranking on a parity with the Preferred Stock may be redeemed,
purchased or otherwise retired for a consideration by this Corporation.
Nothing herein contained, however, shall prevent this Corporation from
satisfying, in whole or in part, its obligations in respect of any sinking
or purchase fund for shares of any other series of Preferred Stock,
provided that any sinking fund obligations for the 4.70% Preferred Stock,
which shall have theretofore become due as aforesaid and not have been
satisfied, shall be satisfied by a percentage not less than that by which
any obligation of this Corporation in respect of any such other fund is to
be satisfied.
(C) This Corporation shall have the right to satisfy in whole or in
part any sinking fund obligation (including any deficiency in any past
sinking fund obligation) by crediting against such obligation any shares of
the 4.70% Preferred Stock purchased or otherwise acquired by this
Corporation, such credit to be effected by delivering to the Transfer Agent
for the 4.70% Preferred Stock not later than the April 1 next preceding the
May 15 on which there is due any sinking fund obligation in respect of
which such credit is to be taken, a certificate signed by its President or
one of its Vice Presidents or its Treasurer or one of its Assistant
Treasurers, specifying the election of this Corporation to take such credit
and stating that no previous sinking fund credit has been taken in respect
of any such shares.
(D) At least one day prior to the May 15 on which any sinking fund
obligation is due, this Corporation shall deliver to the Transfer Agent for
the 4.70% Preferred Stock, in trust for such redemption, an amount of money
sufficient to redeem all shares of such stock called for redemption to
satisfy such obligation, to be held and applied as provided in Section 5,
and certificates properly endorsed in blank for transfer or accompanied by
proper instruments of assignment or transfer in blank and bearing all
necessary stock transfer tax stamps thereto affixed and cancelled, for any
shares of such stock purchased or otherwise acquired by this Corporation
which are to be used as a credit against the sinking fund obligation due on
such date, for cancellation as provided in Section 5 with respect to shares
redeemed for sinking fund purposes.
SECTION 3. DIVIDEND PROVISIONS RELATING TO ALL SERIES OF PREFERRED STOCK.
Out of the assets of this Corporation available for dividends the holders
of the Preferred Stock at the time outstanding shall be entitled to receive, but
only when and as declared by the Board of Directors, dividends at the rate per
annum fixed for each series, and no more, payable quarterly on February 15, May
15, August 15 and November 15 in each year, provided, however, that as to any
series of Preferred Stock issued after May 15, 1987, the Board of Directors may
declare dividends at the rate or rates, or in accordance with methods or
procedures established from time to time by the Board of Directors as to any
such series, which may be subject to adjustment in accordance with a method or
procedure adopted by resolution of the Board of Directors at the time of
creation of such series, payable from time to time when and as declared by the
Board of Directors or a committee or designee thereof. Dividends on the shares
of Preferred Stock of each series shall be cumulative, and, at the option of the
Board of Directors, shall, with respect to particular shares of each series,
commence to accrue from the date of the original issue of such particular shares
or from the dividend date next preceding such original issue.
No dividend shall be paid upon or set apart for the shares of Common Stock
or of any other class of stock ranking junior as to dividends to the Preferred
Stock (other than a dividend in stock ranking junior as to dividends and assets
in liquidation to the Preferred Stock), no other distribution shall be made on
any shares of such junior stock and no expenditure shall be made for the
purchase, redemption or other retirement for a consideration of shares of this
Corporation's stock of any class ranking junior as to assets in liquidation to
the Preferred Stock (other than in exchange for, or from the proceeds of any
substantially concurrent sale hereafter made of, other shares of stock of this
Corporation ranking junior to the Preferred Stock as to dividends and assets in
liquidation), unless full dividends on all shares of the Preferred Stock for all
past
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dividend periods shall have been paid or declared and a sum sufficient for the
payment thereof set apart and the full dividend for the then current dividend
period shall have been or concurrently shall be paid or declared and a sum
sufficient for the payment thereof set apart. The amount of any deficiency for
past dividend periods may be paid or declared and set apart at any time without
reference to any dividend payment date. No accumulation of unpaid dividends on
the Preferred Stock shall bear interest. Dividends remaining unclaimed by the
holders of such Preferred Stock for six years after having been declared and
made available for payment to such holders of Preferred Stock shall revert to
this Corporation for its general corporate purposes and the obligations of this
Corporation to pay such dividends shall at that time cease and determine. Any
dividends declared or paid on the Preferred Stock in an amount less than full
cumulative dividends accrued or in arrears upon all Preferred Stock outstanding
shall, if more than one series be outstanding, be divided between the different
series in proportion to the aggregate amounts which would be distributable to
the Preferred Stock of each series if full cumulative dividends to the next
preceding dividend date were declared and paid thereon.
So long as any shares of the Preferred Stock shall be outstanding, this
Corporation shall not declare or pay any dividends on any shares of its stock of
any class ranking junior as to dividends to the Preferred Stock (other than
dividends payable in shares of any such junior stock) or make any other
distribution on any shares of such junior stock, or make any expenditures for
the purchase, redemption or other retirement for a consideration of shares of
its stock of any class ranking junior as to assets in liquidation to the
Preferred Stock (other than in exchange for, or from the proceeds of any
substantially concurrent sale hereafter made of, other shares of stock of this
Corporation ranking junior to the Preferred Stock as to dividends and assets in
liquidation), if the aggregate amount of all such dividends, distributions and
expenditures paid or made by this Corporation and its predecessor, Puget Sound
Power & Light Company, a Massachusetts corporation, after December 31, 1957,
would exceed the aggregate amount of this Corporation's net income available for
dividends on junior stock accumulated after December 31, 1957, by this
Corporation and its predecessor, Puget Sound Power & Light Company, a
Massachusetts corporation, plus the sum of $7,500,000.
SECTION 4. LIQUIDATION PROVISIONS RELATING TO ALL SERIES OF PREFERRED STOCK.
In the event of any involuntary liquidation, dissolution or winding up of
this Corporation, the holders of the $100 par value Preferred Stock shall be
entitled to receive for each share thereof the sum of $100 together with accrued
dividends and the holders of the $25 par value Preferred Stock shall be entitled
to receive the amount per share determined by the Board of Directors for each
series at the time of its issuance (which amount shall not be less than the par
value or greater than the issue price thereof) together with accrued dividends,
before any distribution of the assets shall be made to the holders of Common
Stock, Preference Stock or stock of any other class ranking junior to the
Preferred Stock as to assets in liquidation. In the event of any voluntary
liquidation, dissolution or winding up of this Corporation, the holders of the
Preferred Stock shall be entitled to receive an amount per share equal to the
then applicable optional redemption price, before any distribution of the assets
shall be made to the holders of Common Stock, Preference Stock or stock of any
other class ranking junior to the Preferred Stock as to assets in liquidation.
In either such event the holders of the Preferred Stock shall be entitled to no
further participation in such distribution. If, upon any such liquidation,
dissolution or winding up, the assets distributable among the holders of the
Preferred Stock shall be insufficient to permit the payment of the full
preferential amounts aforesaid, then the entire assets of this Corporation to be
distributed shall be distributed among the holders of all series of the
Preferred Stock then outstanding, ratably per share in proportion to the full
preferential amounts per share to which they are respectively entitled as
hereinabove provided. A consolidation or merger of this Corporation or sale,
conveyance, exchange or transfer (for cash, shares of stock, securities or other
consideration) of all or substantially all of the property or assets of this
Corporation shall not constitute a dissolution, liquidation or winding up of
this Corporation within the meaning of this Section 4.
SECTION 5. REDEMPTION PROVISIONS RELATING TO ALL SERIES OF PREFERRED STOCK.
This Corporation (a) at its option, expressed by resolution of its Board of
Directors, may at any time or from time to time redeem the whole or any part of
the Preferred Stock or of any series thereof at the optional redemption price
for each such series; (b) at its option, expressed by resolution of its Board of
Directors, or
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upon the happening of a specified event or events, may redeem the whole or any
part of any series of the Preferred Stock created after May 15, 1987, at such
time or times, price or prices, or rate or rates, as shall be fixed by
resolution of the Board of Directors or from time to time in accordance with a
method or procedure adopted by resolution of the Board of Directors at the time
of the issuance of such series; and (c) may redeem the whole or any part of the
Preferred Stock or of any series thereof at the sinking fund redemption price
for each such series at such time or times and to the extent necessary to
satisfy the obligations of this Corporation in respect of any sinking fund for
any series of the Preferred Stock. Notice of any proposed redemption of
Preferred Stock shall be given by this Corporation by mailing a copy of such
notice at least thirty days but not more than ninety days prior to the date
fixed for such redemption to the holders of the Preferred Stock to be redeemed
of record on such date as shall be fixed by resolution of the Board of Directors
at their respective addresses then appearing on the books of this Corporation.
Any such redemption of any shares of Preferred Stock shall be in such amount, at
such place and by such method, whether by lot or pro rata, as shall from time to
time be determined by vote of the Board of Directors, subject, in any case, to
the provisions established for any series of Preferred Stock. On or after the
date specified in such notice, each holder of shares of Preferred Stock called
for redemption as aforesaid, upon presentation and surrender at the place
designated in such notice of the certificates for such shares of Preferred Stock
held by him, properly endorsed in blank for transfer or accompanied by proper
instruments of assignment or transfer in blank (if required by this Corporation)
and bearing all necessary stock transfer tax stamps thereto affixed and
cancelled, shall be entitled to receive therefor the redemption funds to which
he is entitled. On and after the date fixed for redemption, if notice is given
as aforesaid, and unless default is made by this Corporation in providing money
for payment of the redemption price, all dividends on the shares called for
redemption shall cease to accrue; and on and after such redemption date, unless
default be made as aforesaid, or on and after the date of earlier deposit by
this Corporation with a bank or trust company doing business in the City of New
York, New York, or in the City of Boston, Massachusetts, or in the City of
Seattle, Washington, and having a capital and surplus of at least $1,000,000, in
trust for the benefit of the holders of the shares of the Preferred Stock so
called for redemption, of all funds necessary for such redemption as aforesaid
(provided in the latter case that there shall have been mailed as aforesaid to
holders of record of shares to be redeemed a notice of the redemption thereof or
that this Corporation shall have executed and delivered to the Transfer Agent
for the Preferred Stock or to the bank or trust company with which such deposit
is made an instrument irrevocably authorizing it to mail such notice at this
Corporation's expense) all rights of the holders of the shares called for
redemption as shareholders of this Corporation, except only the right to receive
the redemption price without interest, shall cease and determine. Any interest
which shall have been allowed by such bank or trust company shall belong to this
Corporation and shall be paid to it from time to time. Any funds so deposited
which shall remain unclaimed by the holders of such Preferred Stock at the end
of six years after the redemption date shall be paid over by such bank or trust
company to this Corporation and thereby revert to the general funds of this
Corporation, to be used by it for its general corporate purposes, and thereafter
such holders shall have no claim against such bank or trust company or this
Corporation therefor. Any shares of Preferred Stock redeemed as aforesaid shall
be cancelled and shall not be reissued. This Corporation may also from time to
time purchase shares of its Preferred Stock at not exceeding the optional
redemption price applicable to the particular shares at the time in effect plus
customary brokerage commissions. Subject to the provisions of Section 6(A)(iv),
shares of Preferred Stock so purchased may in the discretion of the Board of
Directors be cancelled, reissued or otherwise disposed of from time to time to
the extent permitted by law, provided, however, shares of any series of the
Preferred Stock having the benefit of a sinking fund may not be reissued or
otherwise disposed of as shares of the same series. If and so long as there are
dividends in arrears on any shares of Preferred Stock, this Corporation shall
not redeem or purchase any shares of the Preferred Stock unless in connection
therewith all of the outstanding Preferred Stock is redeemed or a bona fide
offer to purchase all of the outstanding Preferred Stock is made to all of the
holders thereof at the same percentage of the then applicable optional
redemption prices. This Corporation may, from time to time and without the
consent or vote of the holders of Preferred Stock, take such appropriate
corporate action as may be necessary to reduce the authorized Preferred Stock
with respect to any shares of any series of Preferred Stock redeemed or
purchased and cancelled.
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SECTION 6. RESTRICTIONS ON CORPORATE ACTION FOR BENEFIT OF ALL SERIES OF
PREFERRED STOCK.
(A) So long as any of the Preferred Stock is outstanding this Corporation
shall not, without the consent (given in writing or by a vote in person or by
proxy at a meeting called for the purpose of the holders of shares of the $100
par value Preferred Stock of all series then outstanding) of the holders of at
least two-thirds of the aggregate number of shares of the $100 par value
Preferred Stock then outstanding, or of each series of the then outstanding $100
par value Preferred Stock if then so required by the laws of the State of
Washington, and the consent (given in writing or by a vote in person or by proxy
at a meeting called for the purpose of the holders of shares of the $25 par
value Preferred Stock of all series then outstanding) of the holders of at least
two-thirds of the aggregate number of shares of $25 par value Preferred Stock
then outstanding, or of each series of the then outstanding $25 par value
Preferred Stock if then so required by the laws of the State of Washington,
(i) create or authorize any shares of stock, or increase the
authorized amount of any class of stock ranking as to dividends or assets
in liquidation prior to the Preferred Stock, or of any obligation or
security convertible into stock ranking as to dividends or assets in
liquidation prior to the Preferred Stock, or
(ii) amend, change or repeal any of the express terms of the Preferred
Stock outstanding in any manner prejudicial to the holders thereof, except
that, if such amendment, change or repeal is prejudicial to the holders of
less than all the series of the Preferred Stock, the consent of the holders
of two-thirds of the total number of shares of the series so affected shall
alone be required, or
(iii) sell, lease or otherwise dispose of all or substantially all of
its property (but no consent of the holders of the Preferred Stock shall be
required by the foregoing in connection with the creation or amendment of
any mortgage or other encumbrance securing indebtedness upon any or all of
the assets of this Corporation), or
(iv) issue any shares of the Preferred Stock or issue any stock of any
class ranking as to dividends or as to assets in liquidation on a parity
with the Preferred Stock or dispose of any shares of Preferred Stock or of
such parity stock previously reacquired, unless
(a) the net income available for dividends on Preferred Stock, as
defined herein, for a period of twelve consecutive calendar months
within the fifteen calendar months immediately preceding the calendar
month within which such additional shares of stock are to be issued or
disposed of, shall have been at least two and one-half (2 1/2) times the
aggregate annual dividend requirements upon the entire amount of
Preferred Stock and any stocks of this Corporation of any class ranking
as to dividends or assets in liquidation prior to or on a parity with
the Preferred Stock to be outstanding after giving effect to the
issuance or disposition of such additional shares,
(b) the gross income available for payment of interest charges, as
defined herein, for a period of twelve consecutive calendar months
within the fifteen calendar months immediately preceding the calendar
month within which such additional shares of stock are to be issued or
disposed of, shall have been at least one and one-half (1 1/2) times the
sum of (1) the aggregate annual interest charges on all indebtedness of
this Corporation to be outstanding after giving effect to the issuance
or disposition of such additional shares, and (2) the aggregate annual
dividend requirements upon the entire amount of Preferred Stock and any
stocks of this Corporation of any class ranking as to dividends or
assets in liquidation prior to or on a parity with the Preferred Stock
to be outstanding after giving effect to the issuance or disposition of
such additional shares, and
(c) the aggregate of the capital of this Corporation applicable to
all stock ranking as to dividends and assets in liquidation junior to
the Preferred Stock, plus capital surplus and earned surplus of this
Corporation, including premiums on stock of this Corporation of any
class, shall be not less than the aggregate amount payable upon
involuntary liquidation, dissolution or winding up of this Corporation
to the holders of shares of Preferred Stock and of stock ranking as to
assets in liquidation prior to or on a parity with the Preferred Stock
to be outstanding after giving effect to the issuance or disposition of
such additional shares but excluding all such shares to be retired in
connection with such proposed issuance or disposition.
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The foregoing computations shall be made as if this Corporation and its
predecessor, Puget Sound Power & Light Company, a Massachusetts corporation,
were the same corporation. There shall be excluded from the foregoing
computations interest charges on all indebtedness and dividend requirements on
all shares of stock which are to be retired in connection with the issuance or
disposition of such additional shares. The gross income of any property acquired
by this Corporation during or after the period for which income is computed, or
of any property which is to be acquired in connection with the issuance or
disposition of any such additional shares, if capable of being separately
determined or estimated, may be included on a pro forma basis in the foregoing
computations; and the gross income of any property disposed of by this
Corporation during or after the period for which income is computed, if capable
of being separately determined or estimated, shall be excluded on a pro forma
basis in the foregoing computations.
(B) So long as any of the $100 par value Preferred Stock is outstanding or
any of the $25 par value Preferred Stock is outstanding, this Corporation shall
not, without the consent (given in writing or by vote in person or by proxy at a
meeting called for the purpose of the holders of shares of the $100 par value
Preferred Stock of all series then outstanding) of the holders of a majority of
the aggregate number of shares of the $100 par value Preferred Stock then
outstanding, or of each series of the then outstanding $100 par value Preferred
Stock if then so required by the laws of the State of Washington, or such
greater proportion of such aggregate number of shares or of each series as shall
then be required by such laws, and the consent (given in writing or by a vote in
person or by proxy at a meeting called for the purpose of the holders of shares
of the $25 par value Preferred Stock of all series then outstanding), of the
holders of a majority of the aggregate number of shares of the $25 par value
Preferred Stock then outstanding, or of each series of the then outstanding $25
par value Preferred Stock if then so required by the laws of the State of
Washington, or such greater proportion of such aggregate number of shares or of
each series as shall then be required by such laws,
(i) merge or consolidate with or into any other corporation or
corporations, unless such merger or consolidation, or the issuance and
assumption of all securities to be issued or assumed in connection with any
such merger or consolidation, shall have been ordered, approved, authorized
or permitted by a regulatory authority of the United States of America or
of the State of Washington having jurisdiction in the premises; provided
that the provisions of this paragraph (i) shall not apply
(a) to a purchase or other acquisition by this Corporation of
franchises or assets of another corporation, in any manner which does
not involve a merger or consolidation, or
(b) to the merger into this Corporation of another corporation all
the stock and other securities of which are at the time owned by this
Corporation, or
(ii) issue, assume or create unsecured securities (notes, debentures
or other securities representing unsecured indebtedness other than
unsecured indebtedness maturing by its terms in one year or less from the
date of its issue) for any purpose except to refund outstanding unsecured
securities theretofore issued or assumed, if thereby the aggregate
principal amount of such unsecured securities would exceed fifteen percent
(15%) of the sum of (1) the total principal amount of all bonds or other
securities representing secured indebtedness of this Corporation then to be
outstanding, and (2) the capital represented by stock (including premiums
on stock) of this Corporation and the capital and earned surplus of this
Corporation; provided, however, that any unsecured securities theretofore
issued under any authorization of holders of Preferred Stock given pursuant
hereto and the $15,000,000 principal amount of 5 1/4% Debentures due
November 1, 1983, of Puget Sound Power & Light Company, a Massachusetts
corporation, predecessor to this Corporation (and any securities to refund
the same), shall not be considered in determining the amount of other
unsecured securities which may be issued, assumed or created within the
aforesaid fifteen percent (15%) limitation.
(C) The voting rights of the $100 par value Preferred Stock hereinabove set
forth shall not be effective if, in connection with any of the matters specified
in paragraphs (A) or (B), provision is made for the redemption or other
retirement of all of the $100 par value Preferred Stock at the time outstanding,
or provision is made that the proposed action shall not be effective unless
provision is made for the redemption or other retirement of all shares of the
$100 par value Preferred Stock at the time outstanding.
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(D) The voting rights of the $25 par value Preferred Stock hereinabove set
forth shall not be effective if, in connection with any of the matters specified
in paragraphs (A) or (B), provision is made for the redemption or other
retirement of all of the $25 par value Preferred Stock at the time outstanding,
or provision is made that the proposed action shall not be effective unless
provision is made for the redemption or other retirement of all shares of the
$25 par value Preferred Stock at the time outstanding.
SECTION 7. VOTING RIGHTS OF ALL CLASSES OF STOCK.
The holders of the $100 par value Preferred Stock and the holders of the
$25 par value Preferred Stock shall not be entitled to vote except
(a) as provided above in Section 6;
(b) as may from time to time be mandatorily required by the laws of
the State of Washington; and
(c) if and whenever dividends payable on any of the Preferred Stock
shall be in arrears in an amount equivalent to or exceeding four full
quarterly dividends, the holders of the shares of the $100 par value
Preferred Stock voting separately as a class shall be entitled to elect the
smallest number of directors necessary to constitute a majority of the full
Board of Directors, the holders of the $25 par value Preferred Stock voting
separately as a class shall be entitled to elect two directors (provided,
that if no shares of $100 par value Preferred Stock are outstanding, the
holders of the $25 par value Preferred Stock voting separately as a class
shall be entitled to elect the smallest number of directors necessary to
constitute a majority of the full Board of Directors), and the holders of
the Common Stock voting separately as a class shall be entitled, subject to
the right of the holders of the Preference Stock voting separately as a
class to elect two directors under certain circumstances, to elect the
remaining directors; but when all arrears in dividends on the Preferred
Stock and the current dividend thereon shall have been declared and set
apart for payment, all voting rights given by this clause (c) shall be
divested from the Preferred Stock (subject, however, to being at any time
or from time to time similarly revived and divested).
So long as the holders of Preferred Stock shall have the right to elect
directors under the terms of the foregoing clause (c), the number of directors
constituting a full Board shall be an odd number fixed by the Board of Directors
and stated in the notice of each meeting at which a full Board of Directors is
to be elected.
Whenever, under the provisions of the foregoing clause (c), the rights of
holders of the Preferred Stock to elect directors shall accrue or shall
terminate, the Board of Directors may, and within ten days after delivery to
this Corporation at its registered office in the State of Washington of a
request or requests to such effect signed by the holders of at least ten percent
(10%) of the outstanding shares of any class of stock entitled to vote shall,
call a special meeting in accordance with the Bylaws of this Corporation of the
holders of the class or classes of stock of this Corporation entitled to vote,
to be held within forty days from the delivery of such request, for the purpose
of electing a full Board of Directors to serve until the next annual meeting and
until their respective successors shall be elected and shall qualify; provided,
however, that if the annual meeting of shareholders for the election of
directors is to be held within sixty days after the delivery of such request,
the Board of Directors need not act thereon. If, at any meeting called as
aforesaid or at any annual meeting of shareholders after accrual or termination
of the rights of holders of the Preferred Stock to elect directors as in the
foregoing clause (c) provided, any director shall not be reelected, his term of
office shall end upon the election and qualification of his successor,
notwithstanding that the term for which such director was originally elected
shall not at the time have expired.
If, during any interval between annual meetings of shareholders for the
election of directors while holders of the Preferred Stock shall be entitled to
elect any director pursuant to the foregoing clause (c), the number of directors
in office who have been elected by the holders of the $100 par value Preferred
Stock or by the holders of the $25 par value Preferred Stock, or by the holders
of the Common Stock, as the case may be, shall become less than the total number
of directors subject to election by holders of shares of such class, whether by
reason of the resignation, death, or removal of any director or directors, or an
increase in the total number of directors, the vacancy or vacancies shall be
filled (1) by the remaining directors or director, if any,
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then in office who either were or was elected by the votes of shares of such
class or succeeded to a vacancy originally filled by the votes of shares of such
class or, (2) if there is no such director remaining in office, at a special
meeting of holders of shares of such class which shall be called by the
President of this Corporation to be held within forty days after there shall
have been delivered to this Corporation at its registered office in the State of
Washington a request or requests signed by the holders of at least ten percent
(10%) of the outstanding shares of such class.
Any director may be removed from office for cause by vote of the holders of
a majority of the shares of the class of stock which voted for his election (or
for his predecessor in case such director was elected by directors). A special
meeting of the holders of shares of any class may be called by a majority vote
of the Board of Directors or by the President for the purpose of removing a
director in accordance with the provisions of the preceding sentence, and shall
be called within forty days after there shall have been delivered to this
Corporation at its registered office in the State of Washington a request or
requests to such effect signed by the holders of at least ten percent (10%) of
the outstanding shares of the class entitled to vote with respect to the removal
of any such director.
Whenever, under the provisions of the Articles of Incorporation, the rights
of the holders of Preferred Stock to elect directors shall accrue and be
exercised, the amount of all dividends on the Preferred Stock which shall be in
arrears shall as soon as practicable be paid out of any assets of this
Corporation available therefor.
Holders of Preferred Stock of any series and holders of stock of any other
class shall not be entitled to receive notice of any meeting of holders of any
class of stock at which they are not entitled to vote.
Each holder of $100 par value Preferred Stock, as to all matters in respect
of which such stock has voting power, is entitled to one vote for each share of
stock standing in his name.
Each holder of $25 par value Preferred Stock, as to all matters in respect
of which such stock has voting power, is entitled to one vote for each share of
stock standing in his name.
Subject to the voting rights expressly conferred upon the Preferred Stock
or upon other classes of stock by the Articles of Incorporation, the holders of
the Common Stock shall exclusively possess the full voting power for the
election of directors, and for all other purposes.
The holders of the Preference Stock shall not be entitled to vote except
(a) as may from time to time be mandatorily required by the laws of
the State of Washington;
(b) if and whenever dividends payable on any of the Preference Stock
shall be in arrears in an amount equivalent to or exceeding four full
quarterly dividends, the holders of the shares of the Preference Stock
voting separately as a class shall be entitled to elect the smallest number
of directors necessary to constitute a majority of the full Board of
Directors and the holders of the Common Stock voting separately as a class
shall be entitled to elect the remaining directors, provided, such right of
the holders of Preference Stock shall not be exercisable during periods
when holders of the Preferred Stock are exercising their rights to elect
directors under Section 7 of this Article VI, and when all arrears in
dividends on the Preference Stock and the current dividend thereon shall
have been declared and set apart for payment, all voting rights given by
this clause (b) shall be divested from the Preference Stock (subject,
however, to being at any time or from time to time similarly revived and
divested);
(c) during periods when holders of the Preferred Stock are exercising
their rights to elect directors, as provided above, the holders of the
shares of the Preference Stock voting separately as a class shall be
entitled to elect two directors in addition to those elected by the holders
of the $100 par value Preferred Stock and the holders of the $25 par value
Preferred Stock and in place of two of the directors who would otherwise be
elected by the holders of the Common Stock, which right of election by the
holders of the Preference Stock shall continue until the rights of the
Preferred Stock to elect directors terminate, at which time subject to (b)
above of this paragraph it is likewise to terminate;
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(d) any amendment to the Articles of Incorporation or Bylaws altering
materially any existing provisions of the Preference Stock, or creating or
enlarging any class of stock having rights and preferences senior to those
of the Preference Stock must be approved by a two-thirds vote of the shares
of the Preference Stock voting separately as a class; and
(e) any amendment to the Articles of Incorporation increasing the
authorized shares of Preference Stock or creating or enlarging any class of
stock ranking on a parity with the Preference Stock must be approved by a
vote of a majority of the holders of the shares of the Preference Stock
voting separately as a class.
Each holder of Preference Stock, as to all matters in respect to which such
stock has voting power, is entitled to one vote for each share of stock standing
in his name.
Whenever, under the provisions of the foregoing clauses (b) and (c), the
rights of holders of the Preference Stock to elect directors shall accrue or
shall terminate, the Board of Directors may, and within ten days after delivery
to this Corporation at its registered office in the State of Washington of a
request or requests to such effect signed by the holders of at least ten percent
(10%) of the outstanding shares of any class of stock entitled to vote shall,
call a special meeting in accordance with the Bylaws of this Corporation of the
holders of the class or classes of stock of this Corporation entitled to vote,
to be held within forty days from the delivery of such request, for the purpose
of electing Directors pursuant to clause (b) or (c), as the case may be, to
serve until the next annual meeting and until their respective successors shall
be elected and shall qualify; provided, however, that if the annual meeting of
shareholders for the election of directors is to be held within sixty days after
the delivery of such request, the Board of Directors need not act thereon. If,
at any meeting called as aforesaid or at any annual meeting of shareholders
after accrual or termination of the right of holders of the Preference Stock to
elect directors as in the foregoing clauses (b) and (c) provided, any director
shall not be reelected, his term of office shall end upon the election and
qualification of his successor, notwithstanding that the term for which such
director was originally elected shall not at the time have expired.
If, during any interval between annual meetings of shareholders for the
election of directors while holders of the Preference Stock shall be entitled to
elect any director pursuant to the foregoing clauses (b) and (c), the number of
directors in office who have been elected by the holders of the Preference
Stock, or by the holders of the Common Stock, as the case may be, shall become
less than the total number of directors subject to election by holders of shares
of such class, whether by reason of the resignation, death or removal of any
director or directors, or an increase in the total number of directors, the
vacancy or vacancies shall be filled (1) by the remaining directors or director,
if any, then in office who either were or was elected by the votes of shares of
such class or succeeded to a vacancy originally filled by the votes of shares of
such class or (2), if there is no such director remaining in office, at a
special meeting of holders of shares of such class which shall be called by the
President of this Corporation to be held within forty days after there shall
have been delivered to this Corporation at its registered office in the State of
Washington a request or requests signed by the holders of at least ten percent
(10%) of the outstanding shares of such class.
SECTION 8. COMMON STOCK.
Dividends. Subject to compliance with the requirements of Section 3 and of
any sinking or purchase fund for any series of Preferred Stock, dividends may be
declared by the Board of Directors and paid upon the Common Stock, to the
exclusion of the Preferred Stock, out of any assets of this Corporation
available for dividends.
Liquidation Provisions. Subject to compliance with the requirements of
Section 4, in the event of any liquidation, dissolution or winding up of this
Corporation, the holders of the Common Stock shall be entitled to receive, pro
rata, all of the remaining assets of this Corporation available for distribution
to its shareholders.
SECTION 9. DEFINITIONS.
(A) The term "gross income available for payment of interest charges" shall
mean the total operating revenues of this Corporation, less the total operating
expenses, taxes (including income, excess profits and
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other taxes based on or measured by income or undistributed earnings or
undistributed income), and other appropriate items, including provision for
maintenance, and provision for retirements, depreciation or obsolescence, plus
or minus, as the case may be, any net nonoperating income or deductions, but
excluding any charges on account of interest on debt or on account of debt
discount and expense, all to be determined in accordance with sound accounting
practice. In determining such "gross income available for payment of interest
charges," no deduction or adjustment shall be made for or in respect of (1)
profits or losses from the sale, abandonment or other disposition of property
properly carried in the plant or investment accounts of this Corporation, or
taxes paid on or in respect of any such profits, or (2) charges for the
elimination or amortization of utility plant adjustment accounts or other
intangibles.
(B) The term "net income available for dividends on Preferred Stock" shall
mean the total operating revenues of this Corporation, less the total operating
expenses, taxes (including income, excess profits and other taxes based on or
measured by income of undistributed earnings or undistributed income), interest
charges, dividend requirements on any stock ranking prior as to dividends or
assets in liquidation to the Preferred Stock and other appropriate items,
including provision for maintenance, and provision for retirements, depreciation
or obsolescence, and including charges for amortization of debt discount and
expense, plus or minus, as the case may be, any net nonoperating income or
deductions, all to be determined in accordance with sound accounting practice.
In determining such "net income available for dividends on Preferred Stock," no
deduction or adjustment shall be made for or in respect of (1) expenses in
connection with the issuance, redemption or retirement of any securities of this
Corporation, including any amount paid in excess of the principal amount or par
or stated value of securities redeemed or retired and, in the event that such
redemption or retirement is effected with the proceeds of sale of other
securities of this Corporation, interest or dividends on the securities redeemed
or retired from the date on which the funds required for retirement are
deposited in trust for such purpose to the date of redemption or retirement, (2)
profits or losses from the sale, abandonment or other disposition of property
properly carried in the plant or investment accounts of this Corporation, or
taxes paid on or in respect of any such profits, (3) charges for the elimination
or amortization of utility plant adjustment accounts or other intangibles, or
(4) any earned surplus adjustment (including tax adjustments) applicable to any
period prior to January 1, 1959.
(C) The term "net income available for dividends on junior stock" shall
mean "net income available for dividends on Preferred Stock," as defined and
determined above, less the sum of all dividends paid and all dividends accrued
and unpaid on any outstanding Preferred Stock and any other class of stock
ranking on a parity with the Preferred Stock as to dividends.
(D) The term "sound accounting practice" shall mean recognized principles
of accounting practice followed by companies engaged in a business similar to
that of this Corporation, provided that any applicable rules, regulations or
orders of any public regulatory authority having jurisdiction over the accounts
of this Corporation shall be controlling, except to the extent that this
Corporation, at that time, shall be contesting in good faith the validity or
applicability to this Corporation of any such rule, regulation or order.
(E) The term "accrued dividends" means, in respect of each share of the
Preferred Stock, that amount which shall be equal to simple interest upon the
par value thereof at the annual rate thereon and no more from the date upon
which cumulative dividends on such share commence to accrue to the date fixed
for payment of any amount to be distributed in liquidation or upon redemption
less the aggregate amount of all dividends theretofore paid or declared and set
apart for payment thereon.
(F) The term "this Corporation" includes, to the extent applicable, its
predecessor, Puget Sound Power & Light Company, a Massachusetts corporation, in
addition to this Corporation.
SECTION 10. PREEMPTIVE RIGHTS.
No preemptive right shall exist with respect to shares of stock or
securities convertible into shares of stock. Any and all shares of stock and
securities convertible into shares of stock that may be issued at any time may,
in whole or in part, be disposed of without having been offered to shareholders.
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SECTION 11. PREFERENCE STOCK.
11.01. General. Stock of the par value of $50 per share entitled
"Preference Stock" may be issued by the Board of Directors in series which shall
be of the same class and of equal rank and identical in all respects except that
to the extent not established herein the Board of Directors shall have the
authority to fix the designation of the series and to fix and determine the
following relative rights and preferences of the shares of any series so
established:
(a) The rate of dividends;
(b) Whether shares may be redeemed and, if so, the redemption price
and the terms and conditions of redemption;
(c) The amount payable upon shares in event of voluntary and
involuntary liquidation;
(d) Sinking fund provisions, if any, for the redemption or purchase of
shares;
(e) The terms and conditions, if any, on which the shares may be
converted; and
(f) Any other terms, conditions, or provisions which the Board of
Directors shall have the authority to fix and determine under the
Washington Business Corporation Act, as now in effect or hereafter amended.
11.02. Dividend Rights. Out of the assets of this Corporation available
for dividends, the holders of the Preference Stock at the time outstanding shall
be entitled to receive, but only when and as declared by the Board of Directors,
dividends at the rate per annum fixed for each series by the Board of Directors
at the time of issuance of each series, and no more, payable quarterly on the
dates fixed by the Board of Directors at the time of issuance of each series.
Dividends on the shares of Preference Stock of each series shall be cumulative,
and, at the option of the Board of Directors, shall, with respect to particular
shares of each series, commence to accrue from the date of the original issue of
such particular shares or from the quarterly dividend date next preceding such
original issue. The Preference Stock shall be considered junior stock for
purposes of Section 3 of this Article VI.
No dividend shall be paid upon or set apart for the shares of Common Stock
or of any other class of stock ranking junior as to dividends to the Preference
Stock (other than a dividend in stock ranking junior as to dividends and assets
in liquidation to the Preference Stock), no other distribution shall be made on
any shares of such junior stock and no expenditure shall be made for the
purchase, redemption or other retirement for a consideration of shares of this
Corporation's stock of any class ranking junior as to assets in liquidation to
the Preference Stock (other than in exchange for, or from the proceeds of any
substantially concurrent sale hereafter made of, other shares of stock of this
Corporation ranking junior to the Preference Stock as to dividends and assets in
liquidation), unless full dividends on all shares of the Preference Stock for
all past quarterly dividend periods shall have been paid or declared and a sum
sufficient for the payment thereof set apart and the full dividend for the then
current quarterly dividend period shall have been or concurrently shall be paid
or declared and a sum sufficient for the payment thereof set apart. The amount
of any deficiency for past dividend periods may be paid or declared and set
apart at any time without reference to any quarterly dividend payment date. No
accumulation of unpaid dividends on the Preference Stock shall bear interest.
Dividends remaining unclaimed by the holders of such Preference Stock for six
years after having been declared and made available for payment to such holders
of Preference Stock shall revert to this Corporation for its general corporate
purposes and the obligation of this Corporation to pay such dividends shall at
that time cease and determine. Any dividends declared or paid on the Preference
Stock in an amount less than full cumulative dividends accrued or in arrears
upon all Preference Stock outstanding shall, if more than one series be
outstanding, be divided between the different series in proportion to the
aggregate amounts which would be distributable to the Preference Stock of each
series if full cumulative dividends to the next preceding quarterly dividend
date were declared and paid thereon.
11.03. Liquidation Provisions. In the event of any liquidation,
dissolution or winding up of this Corporation, if involuntary, the holders of
the Preference Stock shall be entitled to receive, for each share thereof, the
sum of $50 together with accrued dividends, or, in case such liquidation,
dissolution or winding up
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shall have been voluntary, an amount per share equal to the then applicable
optional redemption price, before any distribution of the assets shall be made
to the holders of the Common Stock or stock of any other class ranking junior as
to assets in liquidation to the Preference Stock, but after payment of the
liquidation rights of the Preferred Stock, provided for in Section 4 of this
Article VI. The holders of the Preference Stock shall be entitled to no further
participation in such distribution. If upon any such liquidation, dissolution or
winding up, the assets distributable among the holders of the Preference Stock
shall be insufficient to permit the payment of the full preferential amount
aforesaid, then after payment of such liquidation rights of the Preferred Stock
the entire assets of this Corporation to be distributed shall be distributed
among the holders of all series of the Preference Stock then outstanding,
ratably per share in proportion to the full preferential amounts per share to
which they are respectively entitled as hereinabove provided. A consolidation or
merger of this Corporation or sale, conveyance, exchange or transfer (for cash,
shares of stock, securities or other consideration) of all or substantially all
of the property or assets of this Corporation shall not constitute a
dissolution, liquidation or winding up of this Corporation within the meaning of
this Section 11.03.
11.04. Conversion Rights. The Board of Directors may fix and determine,
prior to the issuance of each series of the Preference Stock, to the extent then
permitted by the Washington Business Corporation Act, the terms and conditions,
if any, on which shares may be converted into, or exchanged for, shares of any
other class or classes or of any other series of the same or any other class or
classes of stock of the Company, and the price or prices or the rates of
exchange and the adjustment at which such shares shall be convertible or
exchangeable. The Board of Directors may also establish antidilution provisions
for each convertible series.
ARTICLE VII.
The amount of paid-in capital with which this Corporation will begin
business is the sum of SIX HUNDRED DOLLARS ($600.00).
ARTICLE VIII.
SECTION 1. The Board of Directors of this Corporation shall be, and hereby
is, expressly vested with full power and authority to issue and sell, from time
to time, the authorized but unissued shares of stock and securities convertible
into shares of stock, upon such terms and conditions and for such lawful
consideration as the Board of Directors shall determine, all in accordance with
the laws of the State of Washington.
SECTION 2. The authority to make, alter, amend or repeal bylaws not
inconsistent with law or these Articles of Incorporation shall be, and is
hereby, expressly vested in the Board of Directors of this Corporation, subject
to the power of the shareholders to change or repeal such bylaws; provided,
however, that the Board of Directors shall not make or alter any bylaws fixing
their qualifications, classifications, term of office or compensation.
SECTION 3. The number of Directors of this Corporation shall be fixed in
the manner provided in the Bylaws, provided that the number of Directors shall
not be less than nine. The Directors shall be divided into three classes, each
class to be as nearly equal in number as possible, any Director or Directors in
excess of a number divisible by three being assigned to the first class, or to
the first and second classes, as the case may be. At the Annual Meeting of
Shareholders in 1982, the Directors of the first class shall be elected to serve
until the next ensuing Annual Meeting, the Directors of the second class to
serve until the second ensuing Annual Meeting, and the Directors of the third
class to serve until the third ensuing Annual Meeting, and in each case until
their respective successors shall have been elected and qualified or until their
prior death, resignation or removal. Beginning at the Annual Meeting of
Shareholders in the year 1983, and thereafter at each Annual Meeting, successors
to the Directors of the class whose term of office shall then expire shall be
elected to serve until the third ensuing Annual Meeting, and until their
respective successors shall have been elected and qualified or until their prior
death, resignation or removal. In case of any change in the number of Directors,
the respective classes shall be adjusted so that thereafter each of the three
classes shall be as nearly equal in number as possible, any Director or
Directors in excess of the number divisible by three being assigned to the class
or classes having the shortest unexpired terms.
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ARTICLE IX.
The following Statements of Relative Rights and Preferences annexed hereto
are hereby incorporated by reference in these Amended and Restated Articles of
Incorporation as though fully set forth herein:
Annex A Statement of Relative Rights and Preferences for the 8% Preferred
Stock, $100 par value.(1)
Annex B Statement of Relative Rights and Preferences for the Preference
Stock, Series R, $50 Par Value.(2)
Annex C Statement of Relative Rights and Preferences for the 7 3/4% Series
Preferred Stock Cumulative, $100 Par Value.(3)
Annex D Statement of Relative Rights and Preferences for the 7 7/8% Series
Preferred Stock Cumulative, $25 Par Value.(4)
Annex E Statement of Relative Rights and Preferences for the Adjustable
Rate Cumulative Preferred Stock Series B, $25 par value.(5)
Annex F Statement of Relative Rights and Preferences for the Series II
Cumulative Preferred Stock, $25 par value.
Annex G Statement of Relative Rights and Preferences for the Series III
Cumulative Preferred Stock, $25 par value.
ARTICLE X. LIMITATION OF DIRECTORS LIABILITY
To the full extent that the Washington Business Corporation Act, as it
exists on the date hereof or may hereafter be amended, permits the limitation or
elimination of the liability of Directors, a Director of the Corporation shall
not be liable to the Corporation or its Shareholders for monetary damages for
conduct as a Director. Any amendment to or repeal of this Article X shall not
adversely affect any right or protection of a Director of the Corporation for or
with respect to any acts or omissions of such Director occurring prior to such
amendment or repeal.
IN WITNESS WHEREOF, we have hereunto set our hands this day of
, 1996.
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--------------------------------------
- ---------------
(1)Incorporated herein by reference to Exhibit 1.2 to Registration
Statement on Form 8-A filed February 14, 1994, Commission File No. 1-4393.
(2)Incorporated herein by reference to Exhibit 1.5 to Registration
Statement on Form 8-A filed February 14, 1994, Commission File No. 1-4393.
(3)Incorporated herein by reference to Exhibit 1.6 to Registration
Statement on Form 8-A filed February 14, 1994, Commission File No. 1-4393.
(4)Incorporated herein by reference to Exhibit 1.7 to Registration
Statement on Form 8-A filed February 14, 1994, Commission File No. 1-4393.
(5)Incorporated herein by reference to Exhibit 1.1 to Registration
Statement on Form 8-A filed February 14, 1994, Commission File No. 1-4393.
F-16
<PAGE> 216
COMPANY
FORM OF STATEMENT OF RELATIVE RIGHTS AND PREFERENCES
FOR THE SERIES II CUMULATIVE PREFERRED STOCK
($25 PAR VALUE)
------------------------
Pursuant to Section 23B.06.020 of the Washington Business Corporation Act,
(the "Company"), a Washington corporation, hereby states that at a
meeting of the Board of Directors of the Company duly convened and held on
, 1996, the following resolution was duly adopted:
RESOLVED -- That pursuant to the authority expressly vested in it by the
Company's Articles of Incorporation (the "Articles") and subject to the
preferences, limitations, relative rights and other terms and provisions
set forth in the Articles, the Board of Directors of the Company hereby
establishes an additional series of the Company's $25 par value Preferred
Stock, sets forth the designation of the series, and fixes and determines
the relative rights and preferences thereof, including the rate of
dividends, the price, terms and conditions of redemption and the amount
payable upon shares in event of voluntary or involuntary liquidation, as
follows:
1. Designation. The shares of such series shall be designated "7.45%
Preferred Stock, Series II ($25 par value)" (the "Series II Preferred
Stock" herein) and the number of shares constituting such series shall be
2,400,000.
2. Dividends. The holders of the Series II Preferred Stock shall be
entitled to annual preferential dividends, in accordance with the
provisions of Article VI, Section 3 of the Articles, at a rate of 7.45% per
annum of the par value per share. Dividends shall be cumulative and shall
commence to accrue from the date of the last dividend payment on the
Washington Natural Gas Company 7.45% Series II Preferred Stock which was
converted into the right to receive the Series II Preferred Stock pursuant
to the Agreement and Plan of Merger by and among the Company, Washington
Energy Company and Washington Natural Gas Company dated as of October 18,
1995. The first dividend date shall be , and dividends shall be
payable each April 1, July 1, October 1 and January 1 thereafter.
3. Redemption. The Series II Preferred Stock will not be subject to
redemption prior to November 1, 2003. At any time on or after November 1,
2003, the Series II Preferred Stock may be redeemed, at the election of the
Company, in the manner provided in Article VI, Section 5 of the Articles,
as a whole or from time to time in part, at par value per share; in each
case together with accrued and unpaid dividends thereon to the date
designated for redemption (sometimes in the Articles called the "optional
redemption date"). Prior notice of any redemption pursuant to this
paragraph 3 shall be given by first-class mail, postage prepaid, by the
Company in the manner provided in Article VI, Section 5 of the Articles.
All redemptions shall be pro rata, as nearly as possible, among the holders
of Series II Preferred Stock the outstanding, according to the number of
shares held by each.
4. Further Issuances. All shares of Series II Preferred Stock redeemed,
purchased or otherwise acquired and retired by the Company shall be
cancelled and shall not be reissued; and, so long as any shares of the
Series II Preferred Stock are outstanding, the Company shall not issue any
of its authorized and unissued shares as additional shares of Series II
Preferred Stock.
5. Liquidation Preferences. In the event of any liquidation, dissolution
or winding up of the Company, whether voluntary or involuntary, the holders
of the Series II Preferred Stock shall be entitled to receive, for each
share thereof, the sum of $25 together with accrued and unpaid dividends,
before any distribution of the assets shall be made to the holders of the
Preference Stock, the Common Stock or stock of any other class ranking
junior as to assets in liquidation to the Series II Preferred Stock; but
the holders of the Series II Preferred Stock shall be entitled to no
further participation in such distribution.
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<PAGE> 217
6. Sinking Fund. The Series II Preferred Stock shall not be entitled to
the benefits of a sinking fund.
7. Conversion. The shares of the Series II Preferred Stock shall not be
convertible into shares of stock of the Company of any other class, into
any shares of $25 par value Preferred Stock of the Company of any other
series or into any other type of securities.
IN WITNESS WHEREOF, the Company has caused this instrument to be executed
in duplicate in its name and on its behalf by its duly authorized officers and
its corporate seal to be affixed hereto, this day of ,
1996.
--------------------------------------
By
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By
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<PAGE> 218
COMPANY
FORM OF STATEMENT OF RELATIVE RIGHTS AND PREFERENCES
FOR THE SERIES III CUMULATIVE PREFERRED STOCK
($25 PAR VALUE)
------------------------
Pursuant to Section 23B.06.020 of the Washington Business Corporation Act,
(the "Company"), a Washington corporation, hereby states that at a
meeting of the Board of Directors of the Company duly convened and held on
, 1996, the following resolution was duly adopted:
RESOLVED -- That pursuant to the authority expressly vested in it by the
Company's Articles of Incorporation (the "Articles") and subject to the
preferences, limitations, relative rights and other terms and provisions
set forth in the Articles, the Board of Directors of the Company hereby
establishes an additional series of the Company's $25 par value Preferred
Stock, sets forth the designation of the series, and fixes and determines
the relative rights and preferences thereof, including the rate of
dividends, the price, terms and conditions of redemption and the amount
payable upon shares in event of voluntary or involuntary liquidation, as
follows:
1. Designation. The shares of such series shall be designated "8.50%
Preferred Stock, Series III ($25 par value)" (the "Series III Preferred
Stock" herein) and the number of shares constituting such series shall be
1,200,000.
2. Dividends. The holders of the Series III Preferred Stock shall be
entitled to annual preferential dividends, in accordance with the
provisions of Article VI, Section 3 of the Articles, at a rate of 8.50% per
annum of the par value per share. Dividends shall be cumulative and shall
commence to accrue from the date of the last dividend payment on the
Washington Natural Gas Company 8.50% Series III Preferred Stock which was
converted into the right to receive the Series III Preferred Stock pursuant
to the Agreement and Plan of Merger by and among the Company, Washington
Energy Company and Washington Natural Gas Company dated as of October 18,
1995. The first dividend date shall be , and dividends shall be
payable each April 1, July 1, October 1 and January 1 thereafter.
3. Redemption. The Series III Preferred Stock will not be subject to
redemption prior to September 1, 1999. At any time on or after September 1,
1999, the Series III Preferred Stock may be redeemed, at the election of
the Company, in the manner provided in Article VI, Section 5 of the
Articles, as a whole or from time to time in part, at par value per share;
in each case together with accrued and unpaid dividends thereon to the date
designated for redemption (sometimes in the Articles called the "optional
redemption price"). Prior notice of any redemption pursuant to this
paragraph 3 shall be given by first-class mail, postage prepaid, by the
Company in the manner provided in Article VI, Section 5 of the Articles.
All redemptions shall be pro rata, as nearly as possible, among the holders
of Series III Preferred Stock then outstanding, according to the number of
shares held by each.
4. Further Issuances. All shares of Series III Preferred Stock redeemed,
purchased or otherwise acquired and retired by the Company shall be
cancelled and shall not be reissued; and, so long as any shares of the
Series III Preferred Stock are outstanding, the Company shall not issue any
of its authorized and unissued shares as additional shares of Series III
Preferred Stock.
5. Liquidation Preferences. In the event of any liquidation, dissolution
or winding up of the Company, whether voluntary or involuntary, the holders
of the Series III Preferred Stock shall be entitled to receive, for each
share thereof, the sum of $25 together with accrued and unpaid dividends,
before any distribution of the assets shall be made to the holders of the
Preference Stock, the Common Stock or stock of any other class ranking
junior as to assets in liquidation to the Series III Preferred Stock; but
the holders of the Series III Preferred Stock shall be entitled to no
further participation in such distribution.
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<PAGE> 219
6. Sinking Fund. The Series III Preferred Stock shall not be entitled to
the benefits of a sinking fund.
7. Conversion. The shares of the Series III Preferred Stock shall not be
convertible into shares of stock of the Company of any other class, into
any shares of $25 par value Preferred Stock of the Company of any other
series or into any other type of securities.
IN WITNESS WHEREOF, the Company has caused this instrument to be executed
in duplicate in its name and on its behalf by its duly authorized officers and
its corporate seal to be affixed hereto, this day of ,
1996.
--------------------------------------
By
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By
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<PAGE> 220
ANNEX G
EMPLOYMENT AGREEMENT
BETWEEN
PUGET SOUND POWER & LIGHT COMPANY
AND
RICHARD R. SONSTELIE
OCTOBER 18, 1995
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as of
the 18th day of October, 1995 (the "Effective Date"), between PUGET SOUND POWER
& LIGHT COMPANY, a Washington corporation (the "Company"), and RICHARD R.
SONSTELIE (the "Employee"). The term "Parties" refers to the Company and the
Employee.
RECITALS
A. Employee is currently serving as President and Chief Executive Officer
of the Company;
B. Pursuant to an Agreement and Plan of Merger, dated as of October 18,
1995, by and among the Company, Washington Energy Company ("WECO") and
Washington Natural Gas Company ("WNG") (the "Merger Agreement"), WECO and WNG
have agreed to merge with and into the Company;
C. The Company wishes to continue to employ the Employee as its Chief
Executive Officer, and the Employee wishes to accept such employment;
D. The Parties have reached agreement on the terms and conditions of such
employment, and believe that it is in their mutual best interests to enter into
a written agreement that specifies those terms and conditions;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and for other good and valuable consideration, the Parties
agree as follows:
1. EMPLOYMENT
The Company hereby agrees to employ Employee and to perform the obligations
of the Company under this Agreement. Employee hereby accepts employment by the
Company and agrees to perform the obligations of Employee under this Agreement.
2. TERM
This Agreement shall commence on the date hereof and shall terminate on the
fourth anniversary of the consummation of the Merger pursuant to the Merger
Agreement (the "Term"), subject to earlier termination as provided in Section 10
(Termination Prior to the End of the Term).
3. DUTIES
From the date hereof to the consummation of the Merger pursuant to the
Merger Agreement, Employee shall serve as President and Chief Executive Officer
of the Company. Effective as of the consummation of the
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<PAGE> 221
Merger, Employee shall serve as the Chairman and Chief Executive Officer of the
Company. Employee shall faithfully and diligently perform such duties and
exercise such powers as:
(i) Are set forth in the description of duties of the President and
Chief Executive Officer, or the Chairman and Chief Executive Officer, as
applicable, in the Bylaws of the Company (which may be amended by the
Company from time to time);
(ii) Are customarily expected of the Chairman and Chief Executive
Officer of business organizations which are similar to the Company; and
(iii) May from time to time be properly assigned to him by the Board
of Directors of the Company. At the request of the Board of Directors of
the Company, Employee also shall serve as an officer or as a member of the
Board of Directors of any of the Company's subsidiaries and affiliates,
without additional compensation.
4. EXTENT OF SERVICES
Employee shall devote his full working time, attention and skill to the
duties and responsibilities set forth in Section 3 ("Duties"). Employee may
participate in other businesses as an outside director or investor, provided
that:
(i) Employee shall not actively participate in the operation or
management of such businesses; and
(ii) Employee shall not, without the prior approval of the Board of
Directors of the Company, make or maintain any investment in any entity
with which the Company has a commercial relationship of any kind, including
that of lessor, partner, investor, vendor, supplier, consultant or
otherwise, or an entity which is in direct competition with the Company.
5. SALARY
In consideration for the performance of Employee's obligations under the
Agreement, the Company shall pay Employee an annual salary of $400,000, which
salary shall be subject to prospective adjustment from time to time by the Board
of Directors of the Company (the "Board of Directors"), in its sole discretion,
but shall not be reduced during the term of this Agreement. Employee's salary
shall be paid in installments in accordance with the Company's payroll policy
for other employees.
6. INCENTIVE COMPENSATION
The Employee shall participate in the Company's annual and long-term
incentive compensation programs which may include a pay-at-risk plan,
stock-based awards, stock options, stock appreciation rights, and other forms of
compensation. Employee is familiar with the Company's incentive programs, and
acknowledges that any benefits that may be granted to Employee under the
incentive programs are subject to the approval of the Board of Directors or the
Compensation Committee appointed by the Board of Directors, in the exercise of
its sole discretion.
7. VACATION AND OTHER BENEFITS
Employee shall be entitled to paid time off in accordance with Company
policies. Employee shall be entitled to participate in the Company's Retirement
Plan, the Investment Plan, the Deferred Compensation Plan for Key Employees, and
the Supplemental Retirement Plan for Officers, in accordance with their terms,
each of which may be amended from time to time. The Company shall provide
Employee with medical, life and disability insurance benefits for Employee with
terms and provisions substantially as favorable to Employee, as of the Effective
Date, as those provided to other executive employees of the Company at that
date. The Company may prospectively amend, eliminate or add to the insurance and
benefit programs at any time, in its sole discretion.
G-2
<PAGE> 222
8. CLUB DUES
The Company shall pay on behalf of Employee monthly dues and other charges
in connection with membership in clubs, so as to permit Employee to conduct
Company business and represent the Company in the business community.
9. EXPENSES
The Company shall, upon receipt of adequate supporting documentation,
reimburse Employee for reasonable expenses incurred by Employee in promoting the
business of the Company, subject to the Company's expense reimbursement
policies, which may be amended from time to time.
10. TERMINATION PRIOR TO THE END OF THE TERM
10.1 The Company may terminate this Agreement for cause prior to the end of
the Term. The term "for cause" shall mean a termination based on a determination
by the Board of Directors that Employee has: committed an act of dishonesty
related to his employment; obtained any benefit of money or other property in
connection with his employment to which he was not entitled; refused to comply
with a lawful directive of the Board of Directors; or engaged in any willful
misconduct with respect to his duties or other obligations under this Agreement.
The Company shall not terminate this Agreement for cause unless a determination
has been made by majority vote of the Board of Directors at a lawfully called
meeting at which Employee shall be entitled to be told of the reasons for the
termination and given an opportunity to personally respond to the reasons
provided by the Board of Directors. In the event of termination of this
Agreement by the Company for cause, Employee shall be paid all compensation and
benefits earned through the date of termination, the Company shall not be
obligated to provide any further compensation or benefits to him under the
Agreement, and the Parties' obligations to each other under this Agreement shall
cease, with the exception of the Company's obligations under Section 12
(Indemnification) and Employee's obligations under Section 13 (Confidentiality)
and Section 14 (Noncompetition).
10.2 The Company may, at its option and at any time, terminate this
Agreement prior to the end of the term, without cause. In the event that the
Company exercises this right, Employee shall be entitled to receive: all
compensation and benefits earned through the date of termination; and a
continuation of his salary for the balance of the term of this Agreement, at the
level in effect as of the date of termination. In that event, the Parties'
obligations to each other under this Agreement shall cease, with the exception
of the Company's obligations under Section 11 (Change in Control) and Section 12
(Indemnification) and the Employee's obligations under Section 13
(Confidentiality) and Section 14 (Noncompetition).
10.3 This Agreement shall terminate in the event Employee dies, or is
unable to perform his duties as a result of a physical or mental disability at
any time during the term of this Agreement. In the event of a termination under
this subsection, Employee or his estate shall be paid all compensation and
benefits earned through the date of such termination, including pro-rated
payments under incentive compensation programs described in Section 6, and shall
be entitled to receive benefits under any salary continuation plan that the
Company may have in effect as of the date of such termination, the Company shall
have no further obligations to provide compensation or benefits to him or his
estate under this Agreement, and the Parties' obligations to each other under
this Agreement shall cease, with the exception of the Company's obligations
under Section 12 (Indemnification) and the Employee's obligations, if he is
still living, under Section 13 (Confidentiality) and Section 14
(Noncompetition). For purposes of this Agreement, Employee shall be deemed to be
disabled when each of the following conditions are met:
(i) The Employee shall become physically or mentally incapable
(excluding infrequent and temporary absences due to ordinary illnesses) of
properly performing the services required of him by this Agreement;
(ii) Employee's physical or mental incapacity shall exist or shall be
reasonably expected to exist for more than 90 days in the aggregate during
any period of 12 consecutive calendar months; and
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(iii) Such physical or mental incapacity is independently diagnosed by
a qualified medical practitioner.
11. CHANGE IN CONTROL
11.1 The provisions of this Section shall survive the expiration of the
term of this Agreement, but shall not be effective in the event of a termination
of this Agreement prior to the end of the term for cause, in accordance with
subsection 10.1, or as a result of the death or incapacity of Employee in
accordance with subsection 10.3. The provisions of this Section shall remain in
effect for a period of three years (the "Extended Benefit Period") following the
date either the Company or Employee provides written notice to the other of
its/his intent to terminate the provisions of this Section ("Notice of
Termination of Extended Benefits"). A Notice of Termination of Extended Benefits
may be given during the term of this Agreement, or thereafter, but the Extended
Benefit Period may not end prior to the end of the term of this Agreement.
Notwithstanding any other provision of this Section, the Extended Benefit Period
shall terminate when Employee reaches the Normal Retirement Date as that term is
defined in the Company's Retirement Plan (the "Normal Retirement Date").
11.2 The Board of Directors, in the exercise of its responsibility to serve
the best interests of the shareholders of the Company, may at any time consider
a merger or acquisition proposal that could result in a Change of Control of the
Company. In order to avoid any adverse affect on Employee's performance under
this Agreement that might be caused by uncertainties concerning his tenure and
treatment by the Company in the event of such a Change in Control, the Company
has agreed to provide certain benefits to Employee in certain circumstances
involving a Change of Control of the Company in accordance with the provisions
of this Section. For purposes of this Agreement, a Change in Control shall mean
the occurrence of any one of the following actions or events:
(i) The acquisition of any person (which, for purposes of this
Agreement, shall include a natural person, corporation, partnership,
association, joint stock company, trust fund or organized group of persons)
of the power, directly or indirectly, to exercise a controlling influence
over the management or policies of the Company (either alone or pursuant to
an arrangement or understanding with one or more other persons), whether
through the ownership of voting securities through one or more intermediary
persons, by contract or otherwise; or
(ii) The acquisition by a person (whether alone or pursuant to an
arrangement or understanding with one or more other persons) of the
ownership or power to vote 25% or more of the outstanding voting securities
of the Company; or
(iii) During a period of six years after the acquisition by any
person, directly or indirectly, of the ownership or power to vote 10% or
more of the outstanding voting securities of the Company, the ceasing of
the individuals who prior to such acquisition were directors of the Company
(the "Prior Directors") to constitute a majority of the Board of Directors,
unless the nomination of each new director was approved by a vote of a
majority of the Prior Directors.
11.3 In the event of a Change in Control during the term of this Agreement,
or a Change in Control following the expiration of the term, but during the
Extended Benefit Period, which in either event is followed by a Material Adverse
Change in the terms of Employee's employment, as that term is defined in Section
11.4, which results in the termination, by Employee or the Company, of
Employee's employment by the Company, shall entitle Employee to receive the
benefits described in Subsection 11.5.
11.4 For purposes of this Section, any of the following shall constitute a
Material Adverse Change in the terms of Employee's employment:
(i) A material change in Employee's Duties, without Employee's express
consent;
(ii) A reduction in Employee's base salary in effect prior to the
Change in Control, unless such reduction is applied to all officers of the
Company, does not exceed the average percentage reduction in base salary
for all officers of the Company and is not greater than a reduction of 25%;
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(iii) Failure by the Company to increase Employee's base salary each
year following a Change in Control, by an amount which equals at least
one-half of the average percentage increase in base salary for all officers
of the Company and its subsidiaries or a parent or successor of the Company
during the prior two full calendar years;
(iv) Failure by the Company to maintain any employee benefits to which
Employee is entitled prior to the Change in Control at a level equal to or
greater than those in effect prior to the Change in Control, through the
continuation of the same or substantially similar programs and policies or
the taking of any action by the Company that would adversely affect
Employee's participation in or materially reduce Employee's benefits under
any such plans, programs or policies, or deprive Employee of any fringe
benefits enjoyed by Employee prior to the Change in Control, unless such a
reduction in benefits is nondiscriminatory as to Employee and is applied
generally to all officers and management employees of the Company, its
subsidiaries and affiliates and any parent or successor of the Company;
(v) The failure by the Company to provide Employee with the number of
paid vacation days to which Employee would be entitled as a salaried
employee of the Company, its subsidiaries or affiliates or any parent or
successor of the Company on a nondiscriminatory basis;
(vi) The requirement by the Company that Employee relocate his
residence or office anywhere outside of the Seattle/Bellevue metropolitan
area, except for required travel on the Company's business to the extent
consistent with Employee's duties;
(vii) Any purported termination of employment by the Company other
than for cause as defined in Section 10.1, or death or disability as
defined in Section 10.3, or prior to the Employee's Normal Retirement Date.
11.5 In the event of a termination of Employee's employment as described in
Subsection 11.4, the Company shall provide to Employee the following benefits
for the balance of the Extended Benefit Period:
(i) Employee's full base salary earned through the termination date,
plus payment for all accrued vacation and any deferred compensation to
which Employee is entitled for the fiscal year most recently ended prior to
Employee's termination, and Employee's pro rata share of any compensation
under any Company plan which has accrued through the date of termination,
regardless of whether such amounts are vested or are payable in the year of
termination.
(ii) Within 30 days following the date of termination, an amount equal
to the sum of Employee's annual base salary at the rate in effect as of the
date of termination, plus the amount of any additional compensation awarded
to Employee for the year most recently ended, including any sums awarded
under an annual wage accumulation plan, multiplied by number of years
(prorated for any partial years) remaining between the date of termination
and the end of the Extended Benefit Period. The Company's obligation to pay
this amount shall not be affected by any alternative employment that
Employee may obtain.
(iii) The Company shall maintain in full force and effect for the
remaining term of the Extended Benefit Period all employee benefit plans,
programs and policies, including any life or health insurance plans in
which Employee was entitled to participate immediately prior to
termination, provided that Employee is qualified to participate under the
general terms and provisions of such plans, programs and policies. In the
event that Employee's participation in any such plan, program or policy is
not possible under its terms and conditions, the Company shall at its
option either arrange for Employee to receive benefits substantially
similar to those which Employee would have been entitled to receive under
each plan, program or policy, or pay to employee an amount equal to the
premiums that the Company would pay on Employee's behalf for participation
in such plan, program or policy. At the end of the period of coverage,
Employee will have the option to receive an assignment at no cost, and with
no apportionment of prepaid premiums, any assignable insurance policies
owned by the Company and relating to Employee, and to take advantage of any
conversion privileges pertinent to the benefits available under Company
policies.
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(iv) In addition to the regular payment of benefits to which Employee
is entitled under the retirement plans or programs in effect on the date of
Employee's termination, which shall not be affected by such termination,
the Company shall pay to Employee in cash at the Normal Retirement Date, an
amount equal to the actuarial equivalent of the additional retirement
compensation to which Employee would have been entitled under the terms of
such retirement plans or programs (without regard to vesting) had Employee
continued in the employ of the Company during the balance of the Extended
Benefit Period at Employee's base salary rate as of the date of
termination, provided that payment shall not extend beyond Employee's
Normal Retirement Date. For purposes of this calculation, the actuarial
equivalent shall be determined by assuming survival to age 80.
(v) Employee shall waive all rights to receive shares of common stock
of the Company issuable upon exercise of options ("Options"), if any,
granted to employee under the Company's long-range incentive compensation
plans. In return for that waiver, Employee shall be entitled to receive,
within 30 days following the date of termination, a payment equal to the
difference between the exercise price of all options held by Employee,
whether or not then fully exercisable, and the higher of (1) the average of
the high and low sale prices of the Company's stock on the New York Stock
Exchange in each of the twenty business days preceding the date of
termination or (2) the highest price per share actually paid for any of the
Company Shares in connection with any Change in Control of the Company.
(vi) Notwithstanding any other provisions of this Agreement, if any
severance benefits under Section 11 of this Agreement, together with any
other Parachute Payments (as defined under Internal Revenue Code Section
280(G)(b)(2)) made by the Company to Employee, if any, are characterized as
Excess Parachute Payments (as defined in Internal Revenue Code, Section
280(G)(b)(1)), then the Company shall pay to Employee, in addition to the
payments to be received under this Section, an amount equal to the excise
taxes imposed by Section 4999 of the Code on Employee's Excess Parachute
Payments, plus an amount equal to the federal and, if applicable, state
income taxes which will be payable to Employee as a result of this
additional payment.
12. INDEMNIFICATION
The Company shall defend, indemnify and hold Employee harmless from any and
all liabilities, obligations, claims or expenses which arise in connection with
or as a result of Employee's service as an officer or employee (or director if
Employee is elected and serves as a director) of the Company and/or any of its
affiliates and subsidiaries to the fullest extent allowed by law; provided, that
the Company shall not be obligated to defend, indemnify or hold Employee
harmless from any liabilities, obligations, claims or expenses which result from
Employee having committed an act of dishonesty, obtained any benefit of money or
other property to which he was not entitled, refused to comply with a lawful
directive of the Board of Directors, or engaged in any willful misconduct with
respect to his duties or other obligations under this Agreement.
13. CONFIDENTIALITY
Employee shall not, during the term of this Agreement or thereafter, use
for his own purposes or disclose to any other person or entity any confidential
information concerning the Company, its affiliates or subsidiaries, or any of
their business operations, except as may be consistent with his duties hereunder
or as may be required by order of a court of competent jurisdiction.
Confidential information shall include, without limitation, any information,
formula, pattern, compilation, program, device, method, technique or process
that derives independent economic value, actual or potential, from not being
generally known to, and not being readily ascertainable by proper means by,
other persons or entities.
14. NONCOMPETITION
14.1 During the term of his employment with the Company, Employee shall
comply with his fiduciary obligations as an officer of the Company, and shall
comply with the restrictions contained in Section 4.
14.2 During the term of his employment with the Company and for a period of
two years thereafter, Employee shall not, without the prior written consent of
the Company which shall not be unreasonably
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withheld, participate in or perform services, whether directly or indirectly, as
a director, officer, employee, owner, partner, agent, consultant, lessor,
creditor or otherwise, for any person, or entity engaged in the same or similar
business as the Company or any of the Company's affiliates or subsidiaries is
engaged in at any time during the term of this Agreement and that provides
products or services of the type provided by the Company or any of its
affiliates or subsidiaries to any person or entity located in the states of
Washington, Oregon or Idaho that was a customer of the Company while Employee
was employed by the Company.
14.3 During the term of his employment with the Company and for a period of
two years thereafter, Employee shall not, directly or indirectly: solicit for
employment any employee of the Company; attempt to persuade or entice any
employee of the Company to terminate his or her employment; or persuade or
attempt to persuade, any person or company to terminate, cancel, rescind or
revoke its business or contractual relationships with the Company.
14.4 Employee agrees that damages for breach of the covenants contained in
this Section would be difficult to determine and therefore agrees that these
provisions may be enforced by temporary or permanent injunction. The right to
such injunctive relief shall be in addition to and not in place of any other
remedies to which the Company may be entitled. Employee agrees that any profits
made or benefits obtained by Employee in violation of his obligations under this
Section shall be held by Employee in constructive trust for, and shall be
promptly paid to, the Company.
14.5 Employee agrees that the provisions of this Section are reasonable.
However, if any court of competent jurisdiction determines that any provision
within this Section is unreasonable in any respect, the Parties intend that this
Section should be enforced to the fullest extent allowed by such court.
15. ARBITRATION
Any dispute between the Parties hereto with respect to any of the matters
set forth herein shall be submitted to binding arbitration in King County, state
of Washington. Either Party may commence the arbitration by delivery of a
written notice to the other, describing the issue in dispute and its position
with regard to the issue. If the Parties are unable to agree on an arbitrator
within 30 days following delivery of such notice, the arbitrator shall be
selected by a Judge of the Superior Court of the State of Washington for King
County upon three days' notice. Discovery shall be allowed in connection with
any such arbitration to the same extent permitted by the Washington Rules of
Civil Procedure but either Party may petition the arbitrator to limit the scope
of such discovery, in which event the arbitrator shall determine the extent of
discovery allowable in connection with the dispute in question. Except as
otherwise provided herein, the arbitration shall be conducted in accordance with
the rules of the American Arbitration Association then in effect for expedited
proceedings. The award of the arbitrator shall be final and binding, and
judgment upon an award may be entered in any court of competent jurisdiction.
The arbitrator shall hold a hearing, at which the Parties may present evidence
and argument, within 30 days of his or her appointment, and shall issue an award
within 15 days of the close of the hearing. In any such arbitration, the
prevailing Party shall be entitled to recover its costs, including without
limitation reasonable attorneys' fees, and the nonprevai1ing Party shall pay all
costs of arbitration, but if neither Party is determined to be the prevailing
Party, each Party shall bear its own costs and attorneys' fees and one-half of
the costs of arbitration. Nothing contained in this Section shall prevent either
Party from seeking a temporary restraining order, preliminary injunction or
similar injunctive relief from a court of competent jurisdiction to enforce the
provisions of this Agreement. In the event that either Party institutes an
action in court for such relief or to compel arbitration to, or enforce an award
of arbitration, the prevailing Party shall be entitled to recover its costs,
including without limitation reasonable attorneys' fees.
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16. NOTICES
All notices or other communications required or permitted by this Agreement
shall be in writing and shall be sufficiently given if sent by certified mail,
postage prepaid, addressed as follows:
If to Employee, to:
Richard R. Sonstelie
P.O. Box 97034
Bellevue, Washington 98009-9734
Facsimile: (206) 462-3300
If to Company:
Puget Sound Power & Light Company
P.O. Box 97034
Bellevue, Washington 98009-9734
Attention: Corporate Secretary
Facsimile: (206) 462-3300
Any such notice or communication shall be deemed to have been given as of
the date mailed. Any address may be changed by giving written notice of such
change in the manner provided herein for giving notice.
17. WAIVER OF BREACH
The waiver by a Party of a breach of any provision of this Agreement shall
not operate or be construed as a waiver of any subsequent breach.
18. ASSIGNMENT
This Agreement is for personal services. Neither Party may assign its
rights or delegate its duties hereunder without the prior written consent of the
other Party.
19. ENTIRE AGREEMENT
This Agreement contains the entire understanding of the Parties with regard
to the subject matter of this Agreement and may only be changed by written
agreement signed by both Parties. Any and all prior discussions, negotiations,
commitments and understandings related thereto are merged herein.
20. BINDING EFFECT
This Agreement shall be binding upon and inure to the benefit of the
respective Parties, and their legal representatives, successors, permitted
assigns and heirs.
21. LAW
This Agreement shall be governed by, construed and enforced in accordance
with the laws of the state of Washington, without giving effect to principles
and provisions thereof relating to conflict or choice of laws and irrespective
of the fact that any one of the Parties is now or may become a resident of a
different state.
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22. VALIDITY
In case any term of this Agreement shall be invalid, illegal or
unenforceable, in whole or in part, the validity of any of the other terms of
this Agreement shall not in any way be affected thereby.
"Company"
PUGET SOUND POWER & LIGHT COMPANY
By /s/ William S. Weaver
------------------------------------
Its Executive Vice President and
Chief Financial Officer
"Employee"
/s/ Richard R. Sonstelie
--------------------------------------
Richard R. Sonstelie
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ANNEX H
EMPLOYMENT AGREEMENT
Between
PUGET SOUND POWER & LIGHT COMPANY
And
WILLIAM P. VITITOE
October 18, 1995
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as of
the 18th day of October, 1995 between PUGET SOUND POWER & LIGHT COMPANY, a
Washington corporation (the "Company") and WILLIAM P. VITITOE ("Employee"). The
term "Parties" refers to the Company and the Employee.
RECITALS
A. Employee is currently serving as Chairman, President and Chief Executive
Officer of Washington Energy Company ("WECO") and Washington Natural Gas Company
("WNG") pursuant to the terms of an Employment Agreement dated January 15, 1994
(the "WECO Employment Agreement");
B. Pursuant to an Agreement and Plan of Merger, dated as of October 18,
1995, by and among the Company, WECO and WNG (the "Merger Agreement"), WECO and
WNG have agreed to merge with and into the Company;
C. Effective upon the consummation of the Merger pursuant to the terms of
the Merger Agreement (the "Effective Date"), the Company wishes to employ the
Employee as its President and Chief Operating Officer, and the Employee wishes
to accept such employment;
D. The Parties have reached agreement on the terms and conditions of such
employment, and believe that it is in their mutual best interests to enter into
a written agreement that specifies those terms and conditions and that amends
the terms of the WECO Employment Agreement;
E. The Parties agree that upon the Effective Date, a Change of Control of
WECO and a Material Adverse Change in the terms of Employee's employment will
have occurred under the terms of the WECO Employment Agreement. This Agreement
is intended to preserve for the Employee benefits substantially equivalent to
those provided in the WECO Employment Agreement upon a Change of Control and a
Material Adverse Change, in the event that prior to the expiration of the Term
the Employee terminates his employment with the Company for any reason or the
Company terminates the employment of the Employee without cause.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and for other good and valuable consideration, the Parties
agree as follows:
1. EMPLOYMENT
The Company hereby agrees to employ Employee on the Effective Date and to
perform the obligations of the Company under this Agreement. Employee hereby
accepts employment by the Company on the Effective Date and agrees to perform
the obligations of Employee under this Agreement.
2. TERM
The employment of Employee by the Company under this Agreement shall
commence on the Effective Date and shall terminate on the fourth anniversary of
the Effective Date (the "Term") subject to earlier
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termination as provided in Section 13 (Termination Prior to the End of the
Term). For all periods prior to, but not including, the Effective Date, the WECO
Employment Agreement shall remain in full force and effect. As of the Effective
Date, the WECO Employment Agreement shall terminate and be of no force and
effect. If the Effective Date does not occur because the Merger Agreement is
terminated, then at the time of such termination this Agreement shall be deemed
cancelled and of no force and effect and the WECO Employment Agreement shall
remain in full force and effect.
3. DUTIES
From and after the Effective Date, Employee shall serve as the President
and Chief Operating Officer of the Company, and shall faithfully and diligently
perform such duties and exercise such powers as:
(i) May be set forth in the description of duties of the President and
Chief Operating Officer in the Bylaws of the Company (which may be amended
by the Company from time to time);
(ii) Are customarily expected of the President and Chief Operating
Officer of business organizations which are similar to the Company; and
(iii) May from time to time be properly assigned to him by the Board
of Directors or the Chief Executive Officer of the Company. At the request
of the Board of Directors of the Company, Employee also shall serve as an
officer or as a member of the Board of Directors of any of the Company's
subsidiaries and affiliates, without additional compensation.
4. EXTENT OF SERVICES
Employee shall devote his full working time, attention and skill to the
duties and responsibilities set forth in Section 3 ("Duties"). Employee may
participate in other businesses as an outside director or investor, provided
that:
(i) Employee shall not actively participate in the operation or
management of such businesses; and
(ii) Employee shall not, without the prior approval of the Board of
Directors of the Company, make or maintain any investment in any entity
with which the Company has a commercial relationship of any kind, including
that of lessor, partner, investor, vendor, supplier, consultant or
otherwise, or an entity which is in direct competition with the Company.
5. SALARY
In consideration for the performance of Employee's obligations under the
Agreement, the Company shall pay Employee an initial salary of Three Hundred
Fifty Thousand Dollars ($350,000) per year, which salary shall be subject to
prospective adjustment from time to time by the Board of Directors of the
Company (the "Board of Directors"), in its sole discretion, but shall not be
reduced during the term of this Agreement. Employee's salary shall be paid in
installments in accordance with the Company's payroll policy for other
employees.
6. INCENTIVE COMPENSATION
The Employee shall participate in the Company's annual and long-term
incentive compensation programs which may include a pay-at-risk plan,
stock-based awards, stock options, stock appreciation rights, and other forms of
compensation. Employee is familiar with the Company's incentive programs, and
acknowledges that any benefits that may be granted to Employee under the
incentive programs are subject to the approval of the Board of Directors or the
Compensation Committee appointed by the Board of Directors, in the exercise of
its sole discretion.
7. STOCK OPTIONS
As provided in the Merger Agreement, on the Effective Date each outstanding
option held by Employee to purchase shares of WECO common stock, together with
any tandem stock appreciation right (each, a
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"WECO Stock Option"), shall become an option to purchase shares of the Company's
common stock, and a tandem stock appreciation right, on the same terms and
condition as were applicable under such WECO Stock Option, based on the number
of shares of the Company's common stock which the Employee would have been
entitled to receive pursuant to the Merger has the Employee exercised the WECO
Stock Option in full immediately prior to the Effective Date, provided, that the
number of shares, the option price and the terms and conditions of exercise of
such option shall be determined in a manner that preserves both (a) the
aggregate gain (or loss) on the WECO Stock Option immediately prior to the
Effective Date and (b) the ratio of the exercise price per share to the fair
market value (determined immediately prior to the Effective Date) per share
subject to such option.
8. VACATION AND OTHER BENEFITS
Employee shall be entitled to five weeks of paid vacation each year, in
addition to the holidays observed by the Company for its employees in general.
Vacation or holiday time that is not taken shall not be carried into the next
calendar year. Employee shall be entitled to participate in the Company's
Retirement Plan, the Investment Plan, the Deferred Compensation Plan for Key
Employees, and the Supplemental Retirement Plan for Officers, in accordance with
their terms, each of which may be amended from time to time. The Company, as
successor to WNG, hereby assumes WNG's obligations to the Employee under the
Executive Retirement Compensation Agreement between WNG and the Employee, dated
as of January 15, 1994 (the "WNG Retirement Agreement"), a true copy of which is
attached as Attachment B to the WECO Employment Agreement. The Company agrees to
be bound by the terms of the WNG Retirement Agreement; provided, that the WNG
Retirement Agreement shall be deemed an individual contract providing
supplemental pension benefits, for purposes of the offsets to benefits under
Section 3.1(c) of the Company's Supplemental Retirement Plan for Officers. The
Company shall provide Employee with medical, life and disability insurance
benefits for Employee with terms and provisions substantially as favorable to
Employee, as of the Effective Date, as those provided to other executive
employees of the Company at that date. The Company may prospectively amend,
eliminate or add to the insurance and benefit programs at any time, in its sole
discretion.
9. AUTOMOBILE
The Company shall provide Employee with the use of an automobile to conduct
Company business. The Company shall pay all expenses incurred in purchasing or
leasing the automobile, and shall in addition either pay or reimburse Employee
for all reasonable expenses incurred for maintenance, service and fuel costs for
the automobile on the same basis as for other executive employees of the
Company. Employee shall maintain adequate records to reflect any personal use of
the automobile.
10. CLUB DUES
The Company shall pay on behalf of Employee monthly dues and other charges
in connection with membership in clubs, so as to permit Employee to conduct
Company business and represent the Company in the business community.
11. HOUSING LOAN
The Parties acknowledge that the WECO Employment Agreement provided for a
secured, interest-free housing loan for $1,000,000 to the Employee, which loan
has been made. The Employee agrees to repay such loan on the terms provided in
the promissory note previously executed by Employee in favor of WECO, which note
is substantially in the form attached as Exhibit C to the WECO Employment
Agreement.
12. EXPENSES
The Company shall, upon receipt of adequate supporting documentation,
reimburse Employee for reasonable expenses incurred by Employee in promoting the
business of the Company, subject to the Company's expense reimbursement
policies, which may be amended from time to time.
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13. TERMINATION PRIOR TO THE END OF THE TERM
13.1 The Company may terminate this Agreement for cause prior to the end of
the Term. The term "for cause" shall mean a termination based on a determination
by the Board of Directors that Employee has: committed an act of dishonesty
related to his employment; obtained any benefit of money or other property in
connection with his employment to which he was not entitled; refused to comply
with a lawful directive of the Board of Directors; or engaged in any willful
misconduct with respect to his duties or other obligations under this Agreement.
The Company shall not terminate this Agreement for cause unless a determination
has been made by majority vote of the Board of Directors at a lawfully called
meeting at which Employee shall be entitled to be told of the reasons for the
termination and given an opportunity to personally respond to the reasons
provided by the Board of Directors. In the event of termination of this
Agreement by the Company for cause, Employee shall be paid all compensation and
benefits earned through the date of termination, the Company shall not be
obligated to provide any further compensation or benefits to him under the
Agreement, and the Parties' obligations to each other under this Agreement shall
cease, with the exception of the Company's obligations under Section 15
(Indemnification) and Employee's obligations under Section 16 (Confidentiality)
and Section 17 (Noncompetition).
13.2 The Company may, at its option and at any time, terminate this
Agreement prior to the end of the Term, without cause. In the event that the
Company exercises this right, or in the event that the Employee terminates his
employment with the Company for any reason prior to the end of the Term,
Employee shall be entitled to receive the benefits described in Section 14
hereof. In that event, the Parties' obligations to each other under this
Agreement shall cease, with the exception of the Company's obligations under
Section 14 (Payments on Certain Terminations) and Section 15 (Indemnification)
and the Employee's obligations under Section 16 (Confidentiality) and Section 17
(Noncompetition).
13.3 This Agreement shall terminate in the event Employee dies, or is
unable to perform his duties as a result of a physical or mental disability at
any time during the term of this Agreement. In the event of a termination under
this subsection, Employee or his estate shall be entitled to receive the
benefits described in Section 14 hereof, the Company shall have no further
obligations to provide compensation or benefits to him or his estate under this
Agreement, and the Parties' obligations to each other under this Agreement shall
cease, with the exception of the Company's obligations under Section 14
(Payments on Certain Terminations), Section 15 (Indemnification) and the
Employee's obligations, if he is still living, under Section 16
(Confidentiality) and Section 17 (Noncompetition). For purposes of this
Agreement, Employee shall be deemed to be disabled when each of the following
conditions are met:
(i) The Employee shall become physically or mentally incapable
(excluding infrequent and temporary absences due to ordinary illnesses) of
properly performing the services required of him by this Agreement;
(ii) Employee's physical or mental incapacity shall exist or shall be
reasonably expected to exist for more than 90 days in the aggregate during
any period of 12 consecutive calendar months; and
(iii) Such physical or mental incapacity is independently diagnosed by
a qualified medical practitioner.
14. PAYMENTS ON CERTAIN TERMINATIONS
In the event of a termination of Employee's employment as described in
Subsection 13.2 or 13.3, the Company shall provide to Employee the following
benefits for the balance of the Extended Benefit Period. For purposes of this
Section, the term "Extended Benefit Period" means a three-year period commencing
on the date of written notice of intent to terminate; provided, however, that
the Extended Benefit Period shall terminate in any event when the Employee
reaches age 65 (Normal Retirement Date).
(a) Employee's full base salary earned through the termination date, plus
payment for all accrued vacation and any deferred compensation to which Employee
is entitled for the fiscal year most recently ended prior to Employee's
termination, and Employee's pro rata share of any compensation under any Company
plan
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which has accrued through the date of termination, regardless of whether such
amounts are vested or are payable in the year of termination; plus
(b) Within 30 days following the date of termination, an amount equal to
the sum of Employee's annual base salary at the rate in effect as of the date of
termination, plus the amount of any additional compensation awarded to Employee
for the year most recently ended, including any sums awarded under an annual
wage accumulation plan, multiplied by number of years (prorated for any partial
years) remaining between the date of termination and the end of the Extended
Benefit Period. The Company's obligation to pay this amount shall not be
affected by any alternative employment that Employee may obtain.
(c) The Company shall maintain in full force and effect for the remaining
term of the Extended Benefit Period all employee benefit plans, programs and
policies, including any life or health insurance plans in which Employee was
entitled to participate immediately prior to termination, provided that Employee
is qualified to participate under the general terms and provisions of such
plans, programs and policies. In the event that Employee's participation in any
such plan, program or policy is not possible under its terms and conditions, the
Company shall at its option either arrange for Employee to receive benefits
substantially similar to those which Employee would have been entitled to
receive under each plan, program or policy, or pay to employee an amount equal
to the premiums that the Company would pay on Employee's behalf for
participation in such plan, program or policy. At the end of the period of
coverage, Employee will have the option to receive an assignment at no cost, and
with no apportionment of prepaid premiums, any assignable insurance policies
owned by the Company and relating to Employee, and to take advantage of any
conversion privileges pertinent to the benefits available under Company
policies.
(d) In addition to the regular payment of benefits to which Employee is
entitled under the retirement plans or programs in effect on the date of
Employee's termination, which shall not be affected by such termination and
which for this purpose includes the WNG Retirement Agreement, the Company shall
pay to Employee in cash at the Normal Retirement Date, an amount equal to the
actuarial equivalent of the additional retirement compensation to which Employee
would have been entitled under the terms of such retirement plans or programs
(without regard to vesting) had Employee continued in the employ of the Company
during the balance of the Extended Benefit Period at Employee's base salary rate
as of the date of termination, provided that payment shall not extend beyond
Employee's Normal Retirement Date. For purposes of this calculation, the
actuarial equivalent shall be determined by assuming survival to age 80.
(e) Employee shall waive all rights to receive shares of common stock of
the Company ("Company Shares") issuable upon exercise of options ("Options"), if
any, granted to employee under the Company's stock option plans. In return for
that waiver, Employee shall be entitled to receive, within 30 days following the
date of termination, a payment equal to the difference between the exercise
price of all options held by Employee, whether or not then fully exercisable,
and the average of the high and low sale prices of the Company's common stock on
the New York Stock Exchange on the date of termination.
(f) Notwithstanding any other provisions of this Agreement, if any
severance benefits under Section 14 of this Agreement, together with any other
Parachute Payments (as defined under Internal Revenue Code Section 280(G)(b)(2))
made by the Company to Employee, if any, are characterized as Excess Parachute
Payments (as defined in Internal Revenue Code, Section 280(G)(b)(1)), then the
Company shall pay to Employee, in addition to the payments to be received under
this Section, an amount equal to the excise taxes imposed by Section 4999 of the
Code on Employee's Excess Parachute Payments, plus an amount equal to the
federal and, if applicable, state income taxes which will be payable to Employee
as a result of this additional payment.
15. INDEMNIFICATION
The Company shall defend, indemnify and hold Employee harmless from any and
all liabilities, obligations, claims or expenses which arise in connection with
or as a result of Employee's service as an officer or employee (or director if
Employee is elected and serves as a director) of the Company and/or any of its
affiliates and subsidiaries to the fullest extent allowed by law; provided, that
the Company shall not be obligated to defend, indemnify or hold Employee
harmless from any liabilities, obligations, claims or expenses
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which result from Employee having committed an act of dishonesty, obtained any
benefit of money or other property to which he was not entitled, refused to
comply with a lawful directive of the Board of Directors, or engaged in any
willful misconduct with respect to his duties or other obligations under this
Agreement.
16. CONFIDENTIALITY
Employee shall not, during the term of this Agreement or thereafter, use
for his own purposes or disclose to any other person or entity any confidential
information concerning the Company, its affiliates or subsidiaries, or any of
their business operations, except as may be consistent with his duties hereunder
or as may be required by order of a court of competent jurisdiction.
Confidential information shall include, without limitation, any information,
formula, pattern, compilation, program, device, method, technique or process
that derives independent economic value, actual or potential, from not being
generally known to, and not being readily ascertainable by proper means by,
other persons or entities.
17. NONCOMPETITION
17.1 During the term of his employment with the Company, Employee shall
comply with his fiduciary obligations as an officer of the Company, and shall
comply with the restrictions contained in Section 4.
17.2 During the term of his employment with the Company and for a period of
two years thereafter, Employee shall not, without the written consent of the
Company (which consent shall not be unreasonably withheld), participate in or
perform services, whether directly or indirectly, as a director, officer,
employee, owner, partner, agent, consultant, lessor, creditor or otherwise, for
any person, or entity engaged in the same or similar business as the Company or
any of the Company's affiliates or subsidiaries is engaged in at any time during
the term of this Agreement and that provides products or services of the type
provided by the Company or any of its affiliates or subsidiaries to any person
or entity located in the states of Washington, Oregon or Idaho that was a
customer of the Company while Employee was employed by the Company.
17.3 During the term of his employment with the Company and for a period of
two years thereafter, Employee shall not, directly or indirectly: solicit for
employment any employee of the Company; attempt to persuade or entice any
employee of the Company to terminate his or her employment; or persuade or
attempt to persuade, any person or company to terminate, cancel, rescind or
revoke its business or contractual relationships with the Company.
17.4 Employee agrees that damages for breach of the covenants contained in
this Section would be difficult to determine and therefore agrees that these
provisions may be enforced by temporary or permanent injunction. The right to
such injunctive relief shall be in addition to and not in place of any other
remedies to which the Company may be entitled. Employee agrees that any profits
made or benefits obtained by Employee in violation of his obligations under this
Section shall be held by Employee in constructive trust for, and shall be
promptly paid to, the Company.
17.5 Employee agrees that the provisions of this Section are reasonable.
However, if any court of competent jurisdiction determines that any provision
within this Section is unreasonable in any respect, the Parties intend that this
Section should be enforced to the fullest extent allowed by such court.
18. ARBITRATION
Any dispute between the Parties hereto with respect to any of the matters
set forth herein shall be submitted to binding arbitration in city of Seattle,
state of Washington. Either Party may commence the arbitration by delivery of a
written notice to the other, describing the issue in dispute and its position
with regard to the issue. If the Parties are unable to agree on an arbitrator
within 30 days following delivery of such notice, the arbitrator shall be
selected by a Judge of the Superior Court of the State of Washington for King
County upon three days' notice. Discovery shall be allowed in connection with
any such arbitration to the same extent permitted by the Washington Rules of
Civil Procedure but either Party may petition the arbitrator to limit the scope
of such discovery, in which event the arbitrator shall determine the extent of
discovery allowable in connection with the dispute in question. Except as
otherwise provided herein, the
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arbitration shall be conducted in accordance with the rules of the American
Arbitration Association then in effect for expedited proceedings. The award of
the arbitrator shall be final and binding, and judgment upon an award may be
entered in any court of competent jurisdiction. The arbitrator shall hold a
hearing, at which the Parties may present evidence and argument, within 30 days
of his or her appointment, and shall issue an award within 15 days of the close
of the hearing. In any such arbitration, the prevailing Party shall be entitled
to recover its costs, including without limitation reasonable attorneys' fees,
and the nonprevailing Party shall pay all costs of arbitration, but if neither
Party is determined to be the prevailing Party, each Party shall bear its own
costs and attorneys' fees and one-half of the costs of arbitration. Nothing
contained in this Section shall prevent either Party from seeking a temporary
restraining order, preliminary injunction or similar injunctive relief from a
court of competent jurisdiction to enforce the provisions of this Agreement. In
the event that either Party institutes an action in court for such relief or to
compel arbitration to, or enforce an award of arbitration, the prevailing Party
shall be entitled to recover its costs, including without limitation reasonable
attorneys' fees.
19. NOTICES
All notices or other communications required or permitted by this Agreement
shall be in writing and shall be sufficiently given if sent by certified mail,
postage prepaid, addressed as follows:
If to Employee, to:
William P. Vititoe
815 Mercer Street
P.O. Box 1869
Seattle, WA 98111
Facsimile: (206) 382-7875
If to Company:
Puget Sound Power & Light Company
P.O. Box 97034
Bellevue, Washington 98009-9734
Attention: Corporate Secretary
Facsimile: (206) 462-3300
Any such notice or communication shall be deemed to have been given as of
the date mailed. Any address may be changed by giving written notice of such
change in the manner provided herein for giving notice.
20. WAIVER OF BREACH
The waiver by a Party of a breach of any provision of this Agreement shall
not operate or be construed as a waiver of any subsequent breach.
21. ASSIGNMENT
This Agreement is for personal services. Neither Party may assign its
rights or delegate its duties hereunder without the prior written consent of the
other Party.
22. ENTIRE AGREEMENT
This Agreement contains the entire understanding of the Parties with regard
to the subject matter of this Agreement and may only be changed by written
agreement signed by both Parties. Any and all prior discussions, negotiations,
commitments and understandings related thereto are merged herein.
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23. BINDING EFFECT
This Agreement shall be binding upon and inure to the benefit of the
respective Parties, and their legal representatives, successors, permitted
assigns and heirs.
24. LAW
This Agreement shall be governed by, construed and enforced in accordance
with the laws of the state of Washington, without giving effect to principles
and provisions thereof relating to conflict or choice of laws and irrespective
of the fact that any one of the Parties is now or may become a resident of a
different state.
25. VALIDITY
In case any term of this Agreement shall be invalid, illegal or
unenforceable, in whole or in part, the validity of any of the other terms of
this Agreement shall not in any way be affected thereby.
"Company"
PUGET SOUND POWER & LIGHT COMPANY
By /s/ Richard R. Sonstelie
------------------------------------
Its Chief Executive Officer
"Employee"
/s/ William P. Vititoe
--------------------------------------
William P. Vititoe
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ANNEX I
WASHINGTON BUSINESS CORPORATION ACT
CHAPTER 23B.13
DISSENTERS' RIGHTS
23B.13.010 DEFINITIONS -- As used in this chapter:
(1) "Corporation" means the issuer of the shares held by a dissenter before
the corporate action, or the surviving or acquiring corporation by merger or
share exchange of that issuer.
(2) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under RCW 23B.13.020 and who exercises that right when and in
the manner required by RCW 23B.13.200 through 23B.13.280.
(3) "Fair value," with respect to a dissenter's shares, means the value of
the shares immediately before the effective date of the corporate action to
which the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action unless exclusion would be inequitable.
(4) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair and
equitable under all the circumstances.
(5) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares to
the extent of the rights granted by a nominee certificate on file with a
corporation.
(6) "Beneficial shareholder" means the person who is a beneficial owner of
shares held in a voting trust or by a nominee as the record shareholder.
(7) "Shareholder" means the record shareholder or the beneficial
shareholder.
23B.13.020 RIGHT TO DISSENT -- (1) A shareholder is entitled to dissent
from, and obtain payment of the fair value of the shareholder's shares in the
event of, any of the following corporate actions:
(a) Consummation of a plan of merger to which the corporation is a
party (i) if shareholder approval is required for the merger by RCW
23B.11.030, RCW 23B.11.080 or the articles of incorporation and the
shareholder is entitled to vote on the merger, or (ii) if the corporation
is a subsidiary that is merged with its parent RCW 23B.11.040;
(b) Consummation of a plan of share exchange to which the corporation
is a party as the corporation whose shares will be acquired, if the
shareholder is entitled to vote on the plan;
(c) Consummation of a sale or exchange of all, or substantially all,
of the property of the corporation other than in the usual and regular
course of business, if the shareholder is entitled to vote on the sale or
exchange, including a sale in dissolution, but not including a sale
pursuant to court order or a sale for cash pursuant to a loan by which all
or substantially all of the net proceeds of the sale will be distributed to
the shareholders within one year after the date of sale;
(d) An amendment of the articles of incorporation that materially
reduces the number of shares owned by the shareholder to a fraction of a
share if the fractional share so created is to be acquired for cash under
RCW 23B.06.040; or
(e) Any corporate action taken pursuant to a shareholder vote to the
extent the articles of incorporation, bylaws, or a resolution of the board
of directors provides that voting or nonvoting shareholders are entitled to
dissent and obtain payment for their shares.
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(2) A shareholder entitled to dissent and obtain payment for the
shareholder's shares under this chapter may not challenge the corporate action
creating the shareholder's entitlement unless the action fails to comply with
the procedural requirements imposed by this title, RCW 25.10.900 through
25.10.955, the articles of incorporation, or the bylaws, or is fraudulent with
respect to the shareholder or the corporation.
(3) The right of a dissenting shareholder to obtain payment of the fair
value of the shareholder's shares shall terminate upon the occurrence of any one
of the following events:
(a) The proposed corporate action is abandoned or rescinded;
(b) A court having jurisdiction permanently enjoins or sets aside the
corporate action; or
(c) The shareholder's demand for payment is withdrawn with the written
consent of the corporation.
23B.13.030 DISSENT OF NOMINEES AND BENEFICIAL OWNERS -- (1) A record
shareholder may assert dissenters' rights as to fewer than all the shares
registered in the shareholder's name only if the shareholder dissents with
respect to all shares beneficially owned by any one person and notifies the
corporation in writing of the name and address of each person on whose behalf
the shareholder asserts dissenters' rights. The rights of a partial dissenter
under this subsection are determined as if the shares as to which the dissenter
dissents and the dissenter's other shares were registered in the names of
different shareholders.
(2) A beneficial shareholder may assert dissenters' rights as to shares
held on the beneficial shareholder's behalf only if:
(a) The beneficial shareholder submits to the corporation the record
shareholder's written consent to the dissent not later than the time the
beneficial shareholder asserts dissenters' rights; and
(b) The beneficial shareholder does so with respect to all shares of
which such shareholder is the beneficial shareholder or over which such
shareholder has power to direct the vote.
23B.13.200 NOTICE OF DISSENTERS' RIGHTS -- (1) If proposed corporate action
creating dissenters' rights under RCW 23B.13.020 is submitted to a vote at a
shareholders' meeting, the meeting notice must state that shareholders are or
may be entitled to assert dissenters' rights under this chapter and be
accompanied by a copy of this chapter.
(2) If corporate action creating dissenters' rights under RCW 23B.13.020 is
taken without a vote of shareholders, the corporation, within ten days after the
effective date of such corporate action, shall notify in writing all
shareholders entitled to assert dissenters' rights that the action was taken and
send them the dissenters' notice described in RCW 23B.13.220.
23B.13.210 NOTICE OF INTENT TO DEMAND PAYMENT -- (1) If proposed corporate
action creating dissenters' rights under RCW 23B.13.020 is submitted to a vote
at a shareholders' meeting, a shareholder who wishes to assert dissenters'
rights must (a) deliver to the corporation before the vote is taken written
notice of the shareholder's intent to demand payment for the shareholder's
shares if the proposed action is effected, and (b) not vote such shares in favor
of the proposed action.
(2) A shareholder who does not satisfy the requirements of subsection (1)
of this section is not entitled to payment for the shareholder's shares under
this chapter.
23B.13.220 DISSENTERS' NOTICE -- (1) If proposed corporate action creating
dissenters' rights under RCW 23B.13.020 is authorized at a shareholders'
meeting, the corporation shall deliver a written dissenters' notice to all
shareholders who satisfied the requirements of RCW 23B.13.210.
(2) The dissenters' notice must be sent within ten days after the effective
date of the corporate action, and must:
(a) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
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(b) Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received;
(c) Supply a form for demanding payment that includes the date of the
first announcement to news media or to shareholders of the terms of the
proposed corporate action and requires that the person asserting
dissenters' rights certify whether or not the person acquired beneficial
ownership of the shares before that date;
(d) Set a date by which the corporation must receive the payment
demand, which date may not be fewer than thirty nor more than sixty days
after the date the notice in subsection (1) of this section is delivered;
and
(e) Be accompanied by a copy of this chapter.
23B.13.230 DUTY TO DEMAND PAYMENT -- (1) A shareholder sent a dissenters'
notice described in RCW 23B.13.220 must demand payment, certify whether the
shareholder acquired beneficial ownership of the shares before the date required
to be set forth in the dissenters' notice pursuant to RCW 23B.13.220(2)(c), and
deposit the shareholder's certificates in accordance with the terms of the
notice.
(2) The shareholder who demands payment and deposits the shareholder's
share certificates under subsection (1) of this section retains all other rights
of a shareholder until the proposed corporate action is effected.
(3) A shareholder who does not demand payment or deposit the shareholder's
share certificates where required, each by the date set in the dissenters'
notice, is not entitled to payment for the shareholder's shares under this
chapter.
23B.13.240 SHARE RESTRICTIONS -- (1) The corporation may restrict the
transfer of uncertificated shares from the date the demand for their payment is
received until the proposed corporate action is effected or the restriction is
released under RCW 23B.13.260.
(2) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until the
effective date of the proposed corporate action.
23B.13.250 PAYMENT -- (1) Except as provided in RCW 23B.13.270, within
thirty days of the later of the effective date of the proposed corporate action,
or the date the payment demand is received, the corporation shall pay each
dissenter who complied with RCW 23B.13.230 the amount the corporation estimates
to be the fair value of the shareholder's shares, plus accrued interest.
(2) The payment must be accompanied by:
(a) The corporation's balance sheet as of the end of a fiscal year
ending not more than sixteen months before the date of payment, an income
statement for that year, a statement of changes in shareholders' equity for
that year, and the latest available interim financial statements, if any;
(b) An explanation of how the corporation estimated the fair value of
the shares;
(c) An explanation of how the interest was calculated;
(d) A statement of the dissenter's right to demand payment under RCW
23B.13.280; and
(e) A copy of this chapter.
23B.13.260 FAILURE TO TAKE ACTION -- (1) If the corporation does not effect
the proposed action within sixty days after the date set for demanding payment
and depositing share certificates, the corporation shall return the deposited
certificates and release any transfer restrictions imposed on uncertificated
shares.
(2) If after returning deposited certificates and releasing transfer
restrictions, the corporation wishes to undertake the proposed action, it must
send a new dissenters' notice under RCW 23B.13.220 and repeat the payment demand
procedure.
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23B.13.270 AFTER-ACQUIRED SHARES -- (1) A corporation may elect to withhold
payment required by RCW 23B.13.250 from a dissenter unless the dissenter was the
beneficial owner of the shares before the date set forth in the dissenters'
notice as the date of the first announcement to news media or to shareholders of
the terms of the proposed corporate action.
(2) To the extent the corporation elects to withhold payment under
subsection (1) of this section, after taking the proposed corporate action, it
shall estimate the fair value of the shares, plus accrued interest, and shall
pay this amount to each dissenter who agrees to accept it in full satisfaction
of the dissenter's demand. The corporation shall send with its offer an
explanation of how it estimated the fair value of the shares, an explanation of
how the interest was calculated, and a statement of the dissenter's right to
demand payment under RCW 23B.13.280.
23B.13.280 PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR
OFFER -- (1) A dissenter may notify the corporation in writing of the
dissenter's own estimate of the fair value of the dissenter's shares and amount
of interest due, and demand payment of the dissenter's estimate, less any
payment under RCW 23B.13.250, or reject the corporation's offer under RCW
23B.13.270 and demand payment of the dissenter's estimate of the fair value of
the dissenter's shares and interest due, if:
(a) The dissenter believes that the amount paid under RCW 23B.13.250
or offered under RCW 23B.13.270 is less than the fair value of the
dissenter's shares or that the interest due is incorrectly calculated;
(b) The corporation fails to make payment under RCW 23B.13.250 within
sixty days after the date set for demanding payment; or
(c) The corporation does not effect the proposed action and does not
return the deposited certificates or release the transfer restrictions
imposed on uncertificated shares within sixty days after the date set for
demanding payment.
(2) A dissenter waives the right to demand payment under this section
unless the dissenter notifies the corporation of the dissenter's demand in
writing under subsection (1) of this section within thirty days after the
corporation made or offered payment for the dissenter's shares.
23B.13.300 COURT ACTION -- (1) If a demand for payment under RCW 23B.13.280
remains unsettled, the corporation shall commence a proceeding within sixty days
after receiving the payment demand and petition the court to determine the fair
value of the shares and accrued interest. If the corporation does not commence
the proceeding within the sixty-day period, it shall pay each dissenter whose
demand remains unsettled the amount demanded.
(2) The corporation shall commence the proceeding in the superior court of
the county where a corporation's principal office, or, if none in this state,
its registered office, is located. If the corporation is a foreign corporation
without a registered office in this state, it shall commence the proceeding in
the county in this state where the registered office of the domestic corporation
merged with or whose shares were acquired by the foreign corporation was
located.
(3) The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unsettled, parties to the proceeding as in an
action against their shares and all parties must be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
(4) The corporation may join as a party to the proceeding any shareholder
who claims to be a dissenter but who has not, in the opinion of the corporation,
complied with the provisions of this chapter. If the court determines that such
shareholder has not complied with the provisions of this chapter, the
shareholder shall be dismissed as a party.
(5) The jurisdiction of the court in which the proceeding is commenced
under subsection (2) of this section is plenary and exclusive. The court may
appoint one or more persons as appraisers to receive evidence and recommend
decision on the question of fair value. The appraisers have the powers described
in the order
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appointing them, or in any amendment to it. The dissenters are entitled to the
same discovery rights as parties in other civil proceedings.
(6) Each dissenter made a party to the proceeding is entitled to judgment
(a) for the amount, if any, by which the court finds the fair value of the
dissenter's shares, plus interest, exceeds the amount paid by the corporation,
or (b) for the fair value, plus accrued interest, of the dissenter's
after-acquired shares for which the corporation elected to withhold payment
under RCW 23B.13.270.
23B.13.310 COURT COSTS AND COUNSEL FEES -- (1) The court in a proceeding
commenced under RCW 23B.13.300 shall determine all costs of the proceeding,
including the reasonable compensation and expenses of appraisers appointed by
the court. The court shall assess the costs against the corporation, except that
the court may assess the costs against all or some of the dissenters, in amounts
the court finds equitable, to the extent the court finds the dissenters acted
arbitrarily, vexatiously, or not in good faith in demanding payment under RCW
23B.13.280.
(2) The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable:
(a) Against the corporation and in favor of any or all dissenters if the
court finds the corporation did not substantially comply with the requirements
of RCW 23B.13.200 through 23B.13.280;
(b) Against either the corporation or a dissenter, in favor of any other
party, if the court finds that the party against whom the fees and expenses are
assessed acted arbitrarily, vexatiously, or not in good faith with respect to
the rights provided by Chapter 23B.13 RCW.
(3) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the corporation, the court may
award to these counsel reasonable fees to be paid out of the amounts awarded the
dissenters who were benefited.
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ANNEX J
COMPANY
AMENDED AND RESTATED
1995 LONG-TERM INCENTIVE COMPENSATION PLAN
SECTION 1. PURPOSE
The purpose of the Company Amended and Restated 1995 Long-Term
Incentive Compensation Plan (the "Plan") is to enhance the long-term
profitability and shareholder value of Company, a Washington
corporation (the "Company"), by offering incentives and rewards to those
employees of the Company and its Subsidiaries (as defined in Section 5 of the
Plan) who are key to the Company's growth and success, and to encourage them to
remain in the service of the Company and its Subsidiaries and to acquire and
maintain stock ownership in the Company.
SECTION 2. ADMINISTRATION
2.1 PLAN ADMINISTRATOR
The Plan shall be administered by a committee or committees (the "Plan
Administrator") (which term includes subcommittees) appointed by, and consisting
of one or more members of, the Company's Board of Directors (the "Board"). The
Board may delegate the responsibility for administering the Plan with respect to
designated classes of eligible Participants (as defined in Section 3 of the
Plan) to different committees, subject to such limitations as the Board deems
appropriate. Committee members shall serve for such term as the Board may
determine, subject to removal by the Board at any time. The composition of any
committee responsible for administering the Plan with respect to officers and
directors of the Company who are subject to Section 16 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), with respect to
securities of the Company shall comply with the requirements of Rule 16b-3 under
Section 16(b) of the Exchange Act.
2.2 ADMINISTRATION AND INTERPRETATION BY THE PLAN ADMINISTRATOR
Except for the terms and conditions explicitly set forth in the Plan, the
Plan Administrator shall have exclusive authority, in its discretion, to
determine all matters relating to Awards (as defined in Section 3 of the Plan)
under the Plan, including the selection of individuals to be granted Awards, the
type of Awards, the number of shares of the Company's common stock, par value
$.01 per share (the "Common Stock"), subject to an Award, all terms, conditions,
restrictions and limitations, if any, of an Award and the terms of any
instrument that evidences the Award, and to authorize the Trustee (the
"Trustee") of the 1995 Long-Term Incentive Compensation Plan Trust, a trust
established under the laws of the State of Washington (the "Trust"), to grant
Awards. The Plan Administrator shall also have exclusive authority to interpret
the Plan and may from time to time adopt, and Administrator's interpretation of
the Plan and its rules and regulations, and all actions taken and determinations
made by the Plan Administrator pursuant to the Plan, shall be conclusive and
binding on all parties involved or affected. The Plan Administrator may delegate
administrative duties to such of the Company's officers as it so determines.
SECTION 3. AWARDS
3.1 FORM AND GRANT OF AWARDS
The Plan Administrator shall have the authority, in its sole discretion, to
determine the type or types of awards (an "Award") to be made under the Plan,
which may include, but are not limited to, Stock Awards, Performance Awards,
Other Stock-Based Awards (including any Dividend Equivalent Rights granted in
connection with such Awards) as those terms are defined in Sections 6, 7, 8 and
9, respectively, of the Plan. Awards may be granted singly, in combination or in
tandem so that the settlement or payment of one automatically reduces or cancels
the other. Awards may also be made in combination or in tandem with, in
replacement of, as alternatives to, or as the payment form for, grants or rights
under any other employee or
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compensation plan of the Company. For purposes of the Plan, a "Participant"
means an individual who is a Holder of an Award or, as the context may require,
any employee of the Company or a Subsidiary who has been designated by the Plan
Administrator as eligible to participate in the Plan, and a "Holder" means the
Participant to whom an Award is granted, or the personal representative of a
Holder who has died.
3.2 ACQUIRED COMPANY AWARDS
Notwithstanding anything in the Plan to the contrary, the Plan
Administrator may grant Awards under the Plan in substitution for awards issued
under other plans, or assume under the Plan awards issued under other plans, if
the other plans are or were plans of other entities ("Acquired Entities") (or
the parent of the Acquired Entity) and the new Award is substituted, or the old
award is assumed, by reason of a merger, consolidation, acquisition of property
or of stock, reorganization or liquidation (the "Acquisition Transaction"). In
the event that a written agreement pursuant to which the Acquisition Transaction
is completed is approved by the Board and said agreement sets forth the terms
and conditions of the substitution for or assumption of outstanding awards of
the Acquired Entity, said terms and conditions shall be deemed to be the action
of the Plan Administrator without any further action by the Plan Administrator,
except as may be required for compliance with Rule 16b-3 under the Exchange Act,
and the persons holding such Awards shall be deemed to be Participants and
Holders.
3.3 1995 LONG-TERM INCENTIVE COMPENSATION PLAN TRUST
Awards may be, but need not be, paid to the Trustee, such payments to be
used by the Trustee to purchase shares of the Common Stock. Shares purchased by
the Trustee pursuant to the terms of the Trust ("Trustee Shares") shall be held
for the benefit of Participants, and shall be distributed to Participants or
their beneficiaries by the Trustee at the direction of the Plan Administrator in
accordance with the terms and conditions of the Awards. Awards may also be made
in units that are redeemable (in whole or part) in Trustee Shares.
SECTION 4. STOCK SUBJECT TO THE PLAN
4.1 AUTHORIZED NUMBER OF SHARES
Subject to adjustment from time to time as provided in Section 11.1 of the
Plan, the maximum number of shares of Common Stock that may be purchased by the
Trustee as Trustee Shares for purposes of the Plan shall be 1,200,000. Common
Stock shall be purchased by the Trustee on the open market. The Company shall
not issue any Common Stock under the Plan to the Trust or to any Participant,
nor shall the Company purchase any Trustee Shares from the Trust.
4.2 LIMITATIONS
Subject to adjustment from time to time as provided in Section 11.1 of the
Plan, no Awards denominated in stock that constitute more than 40,000 shares of
Common Stock shall be payable to any individual Participant in any one fiscal
year of the Company, and no Awards denominated in cash that have an aggregate
maximum dollar value in excess of $400,000 shall be payable to any individual
Participant in any one fiscal year of the Company, such limitations to be
applied in a manner consistent with the requirements of, and only to the extent
required for compliance with, the exclusion from the limitation on deductibility
of compensation under Section 162(m) of the Internal Revenue Code of 1986, as
amended (the "Code").
4.3 REUSE OF SHARES
Any shares of Common Stock that have been made subject to an Award that
cease to be subject to the Award (other than by reason of exercise or payment of
the Award to the extent it is exercised for or settled in shares), including,
without limitation, in connection with the cancellation of an Award and the
grant of a replacement Award, shall again be available for issuance in
connection with future grants of Awards under the Plan. Shares that are subject
to tandem Awards shall be counted only once.
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SECTION 5. ELIGIBILITY
Awards may be granted under the Plan to those officers and key employees
(including directors who are also employees) of the Company and its Subsidiaries
as the Plan Administrator from time to time selects. For purposes of the Plan,
"Subsidiary," except as expressly provided otherwise, means any entity that is
directly or indirectly controlled by the Company or in which the Company has a
significant ownership interest, as determined by the Plan Administrator, and any
entity that may become a direct or indirect parent of the Company.
SECTION 6. STOCK AWARDS
6.1 GRANT OF STOCK AWARDS
The Plan Administrator is authorized to grant Awards of Common Stock
("Stock Awards") to Participants on such terms and conditions, and subject to
such restrictions, if any (whether based on performance standards, periods of
service or otherwise), as the Plan Administrator shall determine, which terms,
conditions and restrictions shall be set forth in the instrument evidencing the
Award (shares subject to such restrictions are referred to herein as "Restricted
Stock"). The terms, conditions and restrictions that the Plan Administrator
shall have the power to determine shall include, without limitation, the manner
in which shares subject to Stock Awards are held during the periods they are
subject to restrictions and the circumstances under which forfeiture of
Restricted Stock shall occur by reason of termination of the Holder's
employment.
6.2 ISSUANCE OF SHARES
Upon the satisfaction of any terms, conditions and restrictions prescribed
in respect to a Stock Award, or upon the Holder's release from any terms,
conditions and restrictions of a Stock Award, as determined by the Plan
Administrator, the Company shall deliver, as soon as practicable, to the Holder
or, in the case of the Holder's death, to the personal representative of the
Holder's estate or as the appropriate court directs, a stock certificate for the
appropriate number of shares of Common Stock.
6.3 WAIVER OF RESTRICTIONS
Notwithstanding any other provisions of the Plan, the Plan Administrator
may, in its sole discretion, waive the forfeiture period and any other terms,
conditions and restrictions on any Restricted Stock under such circumstances and
subject to such terms and conditions as the Plan Administrator shall deem
appropriate.
SECTION 7. PERFORMANCE AWARDS
7.1 PLAN ADMINISTRATOR AUTHORITY
Awards made under this Section 7 ("Performance Awards") may be denominated
in cash, shares of Common Stock or any combination thereof. The Plan
Administrator is authorized to grant Performance Awards and shall determine the
nature, length and starting date of the performance period for each Performance
Award and the performance objectives to be used in valuing Performance Awards
and determining the extent to which such Performance Awards have been earned.
Performance objectives and other terms may vary from Participant to Participant
and between groups of Participants. Performance objectives shall be based on
profits, profit growth, profit-related return ratios, cash flow or total
shareholder return, whether applicable to the Company or any relevant Subsidiary
or business unit, comparisons with competitor companies or groups and with stock
market indices, or any combination thereof, as the Plan Administrator deems
appropriate. Additional performance measures may be used to the extent their use
would comply with the exclusion from the limitation on deductibility of
compensation under Section 162(m) of the Code. Performance periods may overlap
and Participants may participate simultaneously with respect to Performance
Awards that are subject to different performance periods and different
performance factors and criteria. The Plan Administrator shall determine for
each Performance Award the range of dollar values or number of shares of Common
Stock (which may, but need not, be shares of Restricted Stock pursuant to
Section 6 of the Plan), or a combination thereof, to be received by the
Participant at the end of the
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performance period if and to the extent that the relevant measures of
performance for such Performance Awards are met. The performance measures must
include a minimum performance standard below which no payment will be made and a
maximum performance level above which no increased payment will be made, such
limitation to be applied in a manner consistent with the requirements of, and to
the extent required for compliance with, the exclusion from the limitation on
deductibility of compensation under Section 162(m) of the Code. The earned
portion of a Performance Award may be paid currently or on a deferred basis with
such interest or earnings equivalent as may be determined by the Plan
Administrator. Payment shall be made in the form of cash, whole shares of Common
Stock (which may, but need not, be shares of Restricted Stock pursuant to
Section 6 of the Plan), or any combination thereof, either in a single payment
or in annual installments, all as the Plan Administrator shall determine.
7.2 ADJUSTMENT OF AWARDS
The Plan Administrator may adjust the performance goals and measurements
applicable to Performance Awards to take into account changes in law and
accounting and tax rules and to make such adjustments as the Plan Administrator
deems necessary or appropriate to reflect the inclusion or exclusion of the
impact of extraordinary or unusual items, events or circumstances, except that,
to the extent required for compliance with the exclusion from the limitation on
deductibility of compensation under Section 162(m) of the Code, no adjustment
shall be made that would result in an increase in the compensation of any
Participant whose compensation is subject to such limitation for the applicable
year. The Plan Administrator also may adjust the performance goals and
measurements applicable to Performance Awards and thereby reduce the amount to
be received by any Participant pursuant to such Awards if and to the extent that
the Plan Administrator deems it appropriate.
7.3 PAYOUT UPON TERMINATION
The Plan Administrator shall establish and set forth in each instrument
that evidences a Performance Award whether the Award will be payable, and the
terms and conditions of such payment, if a Holder ceases to be employed by the
Company or its Subsidiaries, which provisions may be waived or modified by the
Plan Administrator at any time. If not so established in the instrument
evidencing the Performance Award, the Award will be payable according to the
following terms and conditions, which may be waived or modified by the Plan
Administrator at any time. If during a performance period a Participant's
employment with the Company terminates by reason of the Participant's
Retirement, Early Retirement at the Company's request, Disability, position
elimination or death, such Participant shall be entitled to a payment with
respect to each outstanding Performance Award at the end of the applicable
performance period (a) based, to the extent relevant under the terms of the
Performance Award, on the Participant's performance for the portion of such
performance period ending on the date of termination and (b) prorated for the
portion of the performance period during which the Participant was employed by
the Company, all as determined by the Plan Administrator. For purposes of the
Plan, "Retirement" and "Disability" mean "retirement" and "disability" as those
terms are defined in the Company's Investment Plan for Employees or other
similar successor plan applicable to salaried employees, and "Early Retirement"
means "early retirement" as that term is defined by the Plan Administrator from
time to time for purposes of the Plan. The Plan Administrator may provide for an
earlier payment in settlement of such Performance Award discounted at a
reasonable interest rate and otherwise in such amount and under such terms and
conditions as the Plan Administrator deems appropriate. Except as otherwise
provided in Section 11 of the Plan or in the instrument evidencing the
Performance Award, if during a performance period a Participant's employment
with the Company terminates other than by reason of the Participant's
Retirement, Early Retirement at the Company's request, Disability, position
elimination or death, then such Participant shall not be entitled to any payment
with respect to the Performance Awards relating to such performance period,
unless the Plan Administrator shall otherwise determine. In case of termination
of the Holder's employment for Cause, the Performance Award shall automatically
terminate upon first notification to the Holder of such termination, unless the
Plan Administrator determines otherwise. For purposes of the Plan, "Cause" means
dishonesty, fraud, misconduct, unauthorized use or disclosure of confidential
information or trade secrets, or conviction or confession of a crime punishable
by law (except minor violations), in each case as determined by the Plan
Administrator, whose
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determination shall be conclusive and binding. If a Holder's employment with the
Company is suspended pending an investigation of whether the Holder shall be
terminated for Cause, all of the Holder's rights under any Performance Award
likewise shall be suspended during the period of investigation. A transfer of
employment between or among the Company and its Subsidiaries shall not be
considered a termination of employment. Unless the Plan Administrator determines
otherwise, a leave of absence approved in accordance with Company procedures
shall not be considered a termination of employment.
SECTION 8. OTHER STOCK-BASED AWARDS
The Plan Administrator may grant other Awards under the Plan ("Other
Stock-Based Awards") pursuant to which shares of Common Stock (which may, but
need not, be shares of Restricted Stock pursuant to Section 6 of the Plan) are
or may in the future be acquired, or Awards denominated in stock units,
including Awards valued using measures other than market value. Such Other
Stock-Based Awards may be granted alone or in addition to or in tandem with any
Award of any type granted under the Plan and must be consistent with the Plan's
purpose.
SECTION 9. DIVIDEND EQUIVALENT RIGHTS
Any Awards under the Plan may, in the Plan Administrator's discretion, earn
Dividend Equivalent Rights ("Dividend Equivalent Rights"). In respect of any
Award that is outstanding on the dividend record date for Common Stock, the
Participant may be credited with an amount equal to the cash or stock dividends
or other distributions that would have been paid on the shares of Common Stock
covered by such Award had such covered shares been issued and outstanding on
such dividend record date. The Plan Administrator shall establish such rules and
procedures governing the crediting of Dividend Equivalent Rights, including the
timing, form of payment and payment contingencies of such Dividend Equivalent
Rights, as it deems are appropriate or necessary.
SECTION 10. ASSIGNABILITY
No Performance Award, Other Stock-Based Award or Dividend Equivalent Right
granted under the Plan may be assigned or transferred by the Holder other than
by will or by the laws of descent and distribution and, during the Holder's
lifetime, such Awards may be exercised only by the Holder. Notwithstanding the
foregoing, and to the extent permitted by Rule 16b-3 under the Exchange Act, the
Plan Administrator, in its sole discretion, may permit such assignment, transfer
and exercisability and may permit a Holder of such Awards to designate a
beneficiary who may exercise the Award or receive compensation under the Award
after the Holder's death.
SECTION 11. ADJUSTMENTS
11.1 ADJUSTMENT OF SHARES
In the event that at any time or from time to time a stock dividend, stock
split, spin-off, combination or exchange of shares, recapitalization, merger,
consolidation, distribution to shareholders other than a normal cash dividend,
or other change in the Company's corporate or capital structure results in (a)
the outstanding shares, or any securities exchanged therefor or received in
their place, being exchanged for a different number or class of securities of
the Company or of any other corporation or (b) new, different or additional
securities of the Company or of any other corporation being received by the
holders of shares of Common Stock, then the Plan Administrator, in its sole
discretion, shall make such equitable adjustments as it shall deem appropriate
under the circumstances in (i) the maximum number of and class of securities
subject to the Plan as set forth in Section 4.1 of the Plan, (ii) the maximum
number and class of securities and dollar amount subject to Awards that may be
paid to any individual Participant as set forth in Section 4.2 of the Plan, and
(iii) the number and class of securities that are subject to any outstanding
Award and the per share price of such securities, without any change in the
aggregate price to be paid therefor. The determination by the Plan Administrator
as to the terms of any of the foregoing adjustments shall be conclusive and
binding.
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11.2 CORPORATE TRANSACTION
Except as otherwise provided in the instrument that evidences an Award, in
the event of any Corporate Transaction (as defined below), each Stock Award that
is at the time outstanding shall automatically accelerate so that each such
Award shall, immediately prior to the specified effective date for the Corporate
Transaction, become 100% vested, except that such acceleration will not occur if
in the opinion of the Company's accountants it would render unavailable "pooling
of interest" accounting for a Corporate Transaction that would otherwise qualify
for such accounting treatment. Such Award shall not so accelerate, however, if
and to the extent: (a) such Award is, in connection with the Corporate
Transaction, either to be assumed by the successor corporation or parent thereof
or to be replaced with a comparable award for the purchase of shares of the
capital stock of the successor corporation or its parent corporation, (b) such
Award is to be replaced with a cash incentive program of the successor
corporation that preserves the value existing at the time of the Corporate
Transaction and provides for subsequent payout in accordance with the same
vesting schedule applicable to such Award, or (c) the acceleration of such Award
is subject to other limitations imposed by the instrument evidencing the Award.
The determination of Award comparability under clause (a) above shall be made by
the Plan Administrator, and its determination shall be conclusive and binding.
All such Awards shall terminate and cease to remain outstanding immediately
following the consummation of the Corporate Transaction, except to the extent
assumed by the successor corporation or its parent corporation. Any such Awards
that are assumed or replaced in the Corporate Transaction and do not otherwise
accelerate at that time shall be accelerated in the event the Holder's
employment should subsequently terminate within two years following such
Corporate Transaction, unless such employment is terminated by the Company for
Cause or by the Holder voluntarily without Good Reason (as defined below).
For purposes of the Plan, "Corporate Transaction" means any of the
following events:
(a) Approval by the holders of Common Stock of any merger or
consolidation of the Company in which the Company is not the continuing or
surviving corporation or pursuant to which shares of Common Stock are
converted into cash, securities or other property, other than a merger of
the Company in which the holders of Common Stock immediately prior to the
merger have substantially the same proportionate ownership of common stock
of the surviving corporation immediately after the merger;
(b) Approval by the holders of Common Stock of any sale, lease,
exchange or other transfer in one transaction or a series of related
transactions of all or substantially all of the Company's assets other than
a transfer of the Company's assets to a majority-owned subsidiary (as the
term "subsidiary" is defined for purposes of Section 422 of the Code) of
the Company; or
(c) Approval by the holders of Common Stock of any plan or proposal
for the liquidation or dissolution of the Company.
Also for purposes of the Plan, "Good Reason" means the occurrence of any of
the following events or conditions:
(a) a change in the Holder's status, title, position or
responsibilities (including reporting responsibilities) that, in the
Holder's reasonable judgment, represents a substantial reduction of the
status, title, position or responsibilities as in effect immediately prior
thereto; the assignment to the Holder of any duties or responsibilities
that, in the Holder's reasonable judgment, are inconsistent with such
status, title, position or responsibilities; or any removal of the Holder
from or failure to reappoint or reelect the Holder to any of such
positions, except in connection with the termination of the Holder's
employment for Cause, for Disability or as a result of his or her death, or
by the Holder other than for Good Reason;
(b) a reduction in the Holder's annual base salary;
(c) the Company's requiring the Holder (without the Holder's consent)
to be based at any place outside a 35-mile radius of his or her place of
employment prior to a Corporate Transaction, except for reasonably required
travel on the Company's business that is not materially greater than such
travel requirements prior to the Corporate Transaction;
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(d) the Company's failure to (i) continue in effect any material
compensation or benefit plan (or the substantial equivalent thereof) in
which the Holder was participating at the time of a Corporate Transaction,
including, but not limited to, the Plan, or (ii) provide the Holder with
compensation and benefits at least equal (in terms of benefit levels and/or
reward opportunities) to those provided for under each employee benefit
plan, program and practice as in effect immediately prior to the Corporate
Transaction (or as in effect following the Corporate Transaction, if
greater);
(e) any material breach by the Company of any provision of the Plan;
or
(f) any purported termination of the Holder's employment for Cause by
the Company that does not comply with the terms of the Plan.
11.3 FURTHER ADJUSTMENT OF AWARDS
Without limiting the preceding Section 11.2 of the Plan, and subject to the
limitations set forth in Section 7 of the Plan, the Plan Administrator shall
have the discretion, exercisable at any time before a sale, merger,
consolidation, reorganization, liquidation or change in control of the Company,
as defined by the Plan Administrator, to take such further action as it
determines to be necessary or advisable, and fair and equitable to Participants,
with respect to Awards. Such authorized action may include (but shall not be
limited to) establishing, amending or waiving the type, terms, conditions or
duration of, or restrictions on, Awards so as to provide for earlier, later,
extended or additional time for exercise, payment or settlement or lifting
restrictions, differing methods for calculating payments or settlements,
alternate forms and amounts of payments and settlements and other modifications,
and the Plan Administrator may take such actions with respect to all
Participants, to certain categories of Participants or only to individual
Participants. The Plan Administrator may take such actions before or after
granting Awards to which the action relates and before or after any public
announcement with respect to such sale, merger, consolidation, reorganization,
liquidation or change in control that is the reason for such action.
11.4 LIMITATIONS
The grant of Awards will in no way affect the Company's right to adjust,
reclassify, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.
SECTION 12. WITHHOLDING OF TAXES
The Company may require the Holder to pay to the Company the amount of any
withholding taxes that the Company is required to withhold with respect to the
grant, exercise, payment or settlement of any Award. In such instances, the Plan
Administrator may, in its discretion and subject to the Plan and applicable law,
permit the Holder to satisfy withholding obligations, in whole or in part, by
paying cash, by electing to have the Company withhold shares of Common Stock or
by transferring shares of Common Stock to the Company, in such amounts as are
equivalent to the Fair Market Value of the withholding obligation. For purposes
of the Plan, "Fair Market Value" means the mean of the high and low per share
trading prices for the Common Stock as reported in The Wall Street Journal for
the New York Stock Exchange -- Composite Transactions (or similar successor
consolidated transactions reports) for a single trading day.
SECTION 13. AMENDMENT AND TERMINATION OF PLAN
13.1 AMENDMENT OF PLAN
The Plan may be amended by the shareholders of the Company. The Board may
also amend the Plan in such respects as it shall deem advisable; however, to the
extent required for compliance with Rule 16b-3 under the Exchange Act or any
applicable law or regulation, shareholder approval will be required for any
amendment that will (a) increase the total number of shares that may be used in
payment of Awards under the Plan, (b) materially modify the class of persons
eligible to receive Awards, (c) materially increase the
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benefits accruing to Participants under the Plan, or (d) otherwise require
shareholder approval under any applicable law or regulation.
13.2 TERMINATION OF PLAN
The Company's shareholders or the Board may suspend or terminate the Plan
at any time. The Plan will have no fixed expiration date.
13.3 CONSENT OF HOLDER
The amendment or termination of the Plan shall not, without the consent of
the Holder of any Award under the Plan, alter or impair any rights or
obligations under any Award theretofore granted under the Plan.
SECTION 14. GENERAL
14.1 NOTIFICATION
The Plan Administrator shall promptly notify a Participant of an Award, and
a written grant shall promptly be executed and delivered by or on behalf of the
Company.
14.2 CONTINUED EMPLOYMENT; RIGHTS IN AWARDS
Neither the Plan, participation in the Plan as a Participant nor any action
of the Plan Administrator taken under the Plan shall be construed as giving any
Participant or employee of the Company any right to be retained in the employ of
the Company or limit the Company's right to terminate the employment of the
Participant.
14.3 REGISTRATION; CERTIFICATES FOR SHARES
The Company shall be under no obligation to any Participant to register for
offering or resale under the Securities Act of 1933, as amended, or register or
qualify under state securities laws, any shares of Common Stock, security or
interest in a security paid or issued under, or created by, the Plan. The
Company may issue certificates for shares with such legends and subject to such
restrictions on transfer and stop-transfer instructions as counsel for the
Company deems necessary or desirable for compliance by the Company with federal
and state securities laws.
14.4 NO RIGHTS AS A SHAREHOLDER
No Performance Award, Other Stock-Based Award or Dividend Equivalent Right
shall entitle the Holder to any dividend (except to the extent provided in an
Award of Dividend Equivalent Rights), voting or other right of a shareholder
unless and until the date of issuance under the Plan of the shares that are the
subject of such Award, free of all applicable restrictions.
14.5 COMPLIANCE WITH LAWS AND REGULATIONS
It is the Company's intention that, so long as any of the Company's equity
securities are registered pursuant to Section 12(b) or 12(g) of the Exchange
Act, the Plan shall comply in all respects with Rule 16b-3 under the Exchange
Act and, if any Plan provision is later found not to be in compliance with Rule
16b-3, the provision shall be deemed null and void, and in all events the Plan
shall be construed in favor of its meeting the requirements of Rule 16b-3.
Notwithstanding anything in the Plan to the contrary, the Board, in its sole
discretion, may bifurcate the Plan so as to restrict, limit or condition the use
of any provision of the Plan to Participants who are officers or directors
subject to Section 16 of the Exchange Act without so restricting, limiting or
conditioning the Plan with respect to other Participants.
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14.6 UNFUNDED PLAN
The Plan is intended to constitute an "unfunded" plan. Nothing contained
herein shall require the Company to segregate any monies or other property, or
shares of Common Stock, or to create any trusts, or to make any special deposits
for any immediate or deferred amounts payable to any Participant, and no
Participant shall have any rights that are greater than those of a general
unsecured creditor of the Company.
14.7 GOVERNING LAW
The Plan and all interpretations of its provisions shall be governed by the
laws of the state of Washington and applicable federal laws.
14.8 SEVERABILITY
If any provision of the Plan or any Award is determined to be invalid,
illegal or unenforceable in any jurisdiction, or as to any person, or would
disqualify the Plan or any Award under any law deemed applicable by the Plan
Administrator, such provision shall be construed or deemed amended to conform to
applicable laws, or, if it cannot be so construed or deemed amended without, in
the Plan Administrator's determination, materially altering the intent of the
Plan or the Award, such provision shall be stricken as to such jurisdiction,
person or Award, and the remainder of the Plan and any such Award shall remain
in full force and effect.
SECTION 15. EFFECTIVE DATE
The Plan's effective date is the date of effectiveness of the merger
between Puget Sound Power & Light Company ("Puget") and Washington Energy
Company ("WECo") pursuant to the Agreement and Plan of Merger, dated as of
October 18, 1995, among Puget, WECo and Washington Natural Gas Company.
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LOGO P.O. Box 96010, Bellevue, WA 98009-9610
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints RICHARD R. SONSTELIE and JAMES W. ELDREDGE, and
each or either of them, as Proxies, each with the power to appoint his
substitute, and hereby authorizes them to represent and to vote, as designated
below, all the shares of Common Stock of PUGET SOUND POWER & LIGHT COMPANY held
of record by the undersigned on January 22, 1996, at the Special Meeting of
Shareholders to be held on March 20, 1996, or any adjournment thereof.
1. APPROVAL OF THE AGREEMENT AND PLAN OF MERGER, DATED AS OF OCTOBER 18, 1995,
BY AND AMONG PUGET SOUND POWER & LIGHT COMPANY, WASHINGTON ENERGY COMPANY AND
WASHINGTON NATURAL GAS COMPANY.
/ / FOR / / AGAINST / / ABSTAIN
(Having the same effect as a vote AGAINST)
2. INCREASE THE NUMBER OF SHARES OF COMMON STOCK WHICH MAY BE AWARDED UNDER THE
1995 LONG-TERM INCENTIVE COMPENSATION PLAN FROM 500,000 TO 1,200,000 SHARES.
PROPOSAL CONDITIONED UPON SHAREHOLDER APPROVAL OF PROPOSAL 1.
/ / FOR / / AGAINST / / ABSTAIN
(This Proxy Card continues and MUST be signed on the reverse side)
<PAGE> 254
(Continued from the reverse) This proxy when properly executed will be voted in
the manner directed herein by the undersigned shareholder. PROXY CARDS PROPERLY
EXECUTED AND RETURNED WITHOUT DIRECTION WILL BE VOTED FOR PROPOSALS 1 AND 2. In
their discretion, the Proxies are authorized to vote upon such other business as
may properly come before the meeting and any adjournment thereof. Please sign
exactly as name appears below. When shares are held by joint tenants, both
should sign. When signing as attorney, executor, administrator, trustee or
guardian, please give full title as such. If a corporation, please sign in full
corporate name by President or other authorized officer. If a partnership,
please sign in partnership name by authorized person.
- --------------------------------------------------------------------------------
SIGNATURE/DATE SIGNATURE IF HELD JOINTLY/DATE
- --------------------------------------------------------------------------------
PLEASE MARK, SIGN, DATE AND RETURN THE
PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
<PAGE> 255
PROXY PROXY
WASHINGTON ENERGY COMPANY
PROXY FOR 1996 ANNUAL MEETING
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints William P. Vititoe and Robert J. Tomlinson,
and each or either of them, proxy for the undersigned, with power of
substitution, to represent and vote all the shares of common stock of Washington
Energy Company held of record by the undersigned as of the close of business on
January 11, 1996, at the Annual Meeting of Shareholders of Washington Energy
Company to be held on Wednesday, March 20, 1996, or any adjournment thereof,
upon all matters properly coming before the Annual Meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR APPROVAL OF THE AGREEMENT AND PLAN OF MERGER, DATED AS OF OCTOBER 18,
1995, BY AND AMONG PUGET SOUND POWER & LIGHT COMPANY, WASHINGTON ENERGY COMPANY
AND WASHINGTON NATURAL GAS COMPANY AND FOR THE ELECTION OF THE THREE NOMINEES
FOR DIRECTOR.
PLEASE DO NOT FOLD (PLEASE DATE AND SIGN ON REVERSE SIDE)
<PAGE> 256
WASHINGTON ENERGY COMPANY
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. /x/
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE FOLLOWING PROPOSALS:
1. APPROVAL OF THE AGREEMENT AND PLAN OF MERGER, DATED AS OF OCTOBER 18, 1995,
BY AND AMONG PUGET SOUND POWER & LIGHT COMPANY, WASHINGTON ENERGY COMPANY AND
WASHINGTON NATURAL GAS COMPANY.
For Against Abstain
/ / / / / /
(Having the same effect as a vote AGAINST)
2. ELECTION OF THREE CLASS III DIRECTORS
/ / FOR all nominees listed below / / AUTHORITY WITHHELD to
(except as marked to the contrary vote for all nominees listed
below).
Robert F. Bailey, John W. Creighton, Jr., William P. Vititoe
(To withhold authority to vote for any individual nominee, strike out that
nominee's name above. To cumulate votes for any nominee(s), write your
instructions as to the number of votes cast for each in the space provided
below. The total must not exceed three times the number of shares you hold.)
3. In their discretion, the designated proxies are authorized to vote upon such
other business as may properly come before the Annual Meeting.
IMPORTANT: THIS IS YOUR PROXY Please mark, sign, date and return this proxy
promptly in the enclosed envelope.
I hereby revoke any proxy to vote said shares heretofore given. PLEASE SIGN
EXACTLY AS NAME APPEARS HEREIN. When shares are held by joint tenants, both
should sign. When signing as attorney, executor, administrator, trustee or
guardian, give full title as such. If a corporation, please sign in full
corporate name by President or other authorized officer. If a partnership,
please sign in partnership name by authorized person.
Date _________________________________________________, 1996
____________________________________________________________
Signature
____________________________________________________________
Signature
<PAGE> 257
PROXY PROXY
WASHINGTON NATURAL GAS COMPANY
PROXY FOR SPECIAL MEETING
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints William P. Vititoe and Robert J. Tomlinson,
and each or either of them, proxy for the undersigned, with power of
substitution, to represent and vote all the shares of preferred stock of
Washington Natural Gas Company held of record by the undersigned as of the close
of business on January 11, 1996, at the Special Meeting of Holders of
the Preferred Stock of Washington Natural Gas Company to be held on Wednesday,
March 20, 1996, or any adjournment thereof, upon all matters properly coming
before the Special Meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR APPROVAL OF THE AGREEMENT AND PLAN OF MERGER, DATED AS OF OCTOBER 18,
1995, BY AND AMONG PUGET SOUND POWER & LIGHT COMPANY, WASHINGTON ENERGY COMPANY
AND WASHINGTON NATURAL GAS COMPANY.
PLEASE DO NOT FOLD (PLEASE DATE AND SIGN ON REVERSE SIDE)
<PAGE> 258
WASHINGTON NATURAL GAS COMPANY
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. /x/
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE FOLLOWING PROPOSAL:
1. APPROVAL OF THE AGREEMENT AND PLAN OF MERGER, DATED AS OF OCTOBER 18, 1995,
BY AND AMONG PUGET SOUND POWER & LIGHT COMPANY, WASHINGTON ENERGY COMPANY AND
WASHINGTON NATURAL GAS COMPANY.
For Against Abstain
/ / / / / /
(Having the same effect as a vote AGAINST)
2. In their discretion, the designated proxies are authorized to vote upon such
other business as may properly come before the Special Meeting.
IMPORTANT: THIS IS YOUR PROXY Please mark, sign, date and return this proxy
promptly in the enclosed envelope.
I hereby revoke any proxy to vote said proxies heretofore given. PLEASE SIGN
EXACTLY AS NAME APPEARS HEREIN. When shares are held by joint tenants, both
should sign. When signing as attorney, executor, administrator, trustee or
guardian, give full title as such. If a corporation, please sign in full
corporate name by President or other authorized officer. If a partnership,
please sign in partnership name by authorized person.
Date _________________________________________________, 1996
____________________________________________________________
Signature
____________________________________________________________
Signature
<PAGE> 259
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of
Puget Sound Power & Light Company
We have audited the consolidated financial statements and the financial
statement schedule of Puget Sound Power & Light Company listed on page 32 of
this Annual Report on Form 10-K. These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Puget Sound Power
& Light Company as of December 31, 1994 and 1993, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1994 in conformity with generally accepted accounting
principles. In addition, in our opinion, the financial statement schedule
referred to above, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects, the
information required to be included therein.
As discussed in Notes 13 and 14, effective January 1, 1993, the Company changed
its method of accounting for income taxes and postretirement benefits other
than pensions.
/s/ COOPERS & LYBRAND L.L.P.
- -----------------------------
Seattle, Washington
February 10, 1995
<PAGE> 260
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Washington Energy Company:
We have audited the accompanying consolidated balance sheets and statements of
capitalization of Washington Energy Company (a Washington corporation) and
subsidiaries as of September 30, 1995 and 1994, and the related consolidated
statements of income, shareholders' earnings reinvested in the business,
premium on capital stock and cash flows for each of the three years in the
period ended September 30, 1995, and the accompanying consolidated balance
sheets and statements of capitalization of Washington Natural Gas Company and
subsidiaries as of September 30, 1995 and 1994, and the related consolidated
statements of income, shareholder's earnings reinvested in the business,
premium on capital stock and cash flows for each of the three years in the
period ended September 30, 1995. These financial statements and the schedules
referred to below are the responsibility of the companies' management. Our
responsibility is to express an opinion on these financial statements and
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Washington Energy Company and
subsidiaries and of Washington Natural Gas Company and subsidiaries as of
September 30, 1995 and 1994, and the results of their operations and their cash
flows for each of the three years in the period ended September 30, 1995, in
conformity with generally accepted accounting principles.
As discussed in Note 1 to the financial statements, the Company adopted
Statement of Financial Accounting Standards No. 121 "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of"
during the current year.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedules listed in Item 14(a) are presented
for purposes of complying with the Securities and Exchange Commission's rules
and are not part of the basic financial statements. These schedules have been
subjected to the auditing procedures applied in the audit of the basic
financial statements and, in our opinion, fairly state in all material respects
the financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Seattle, Washington
October 27, 1995
