<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 16, 1995
REGISTRATION NO. 33-87784
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
PUGET POWER CONSERVATION GRANTOR TRUST 1995-1
(Issuer with respect to the Certificates)
PUGET SOUND POWER & LIGHT COMPANY
(Originator of the Trust described herein)
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
WASHINGTON 4911 91-0374630
(State of (Primary Standard Industrial (I.R.S. Employer
Organization) Classification Code Number) Identification Number)
</TABLE>
411 - 108TH AVENUE N.E.
BELLEVUE, WASHINGTON 98004-5515
(206) 454-6363
(Address and telephone number of registrant's principal executive offices)
DONALD E. GAINES, TREASURER
411 - 108TH AVENUE N.E.
BELLEVUE, WASHINGTON 98004-5515
(206) 454-6363
(Name, address, and telephone number of agent for service)
------------------------
COPIES TO:
<TABLE>
<S> <C>
STEPHEN A. MCKEON CHRISTOPHER J. KELL
Perkins Coie Skadden, Arps, Slate, Meagher & Flom
1201 Third Avenue, 40th Floor 919 Third Avenue
Seattle, Washington 98101-3099 New York, New York 10022
(206) 583-8888 (212) 735-3000
</TABLE>
------------------------
Approximate date of commencement of proposed sale to the public:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM
OFFERING PRICE AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO PER OFFERING REGISTRATION
SECURITIES TO BE REGISTERED BE REGISTERED CERTIFICATE(1) PRICE(1) FEE(2)
<S> <C> <C> <C> <C>
Conservation Pass-Through
Certificates................. $202,300,000 100% $202,300,000 $69,759
</TABLE>
(1) Estimated solely for the purpose of computing the registration fee.
(2) $345 of this fee was paid on December 23, 1994.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>
Subject to Completion, Dated May 16, 1995
PROSPECTUS
$202,300,000
PUGET POWER CONSERVATION GRANTOR TRUST 1995-1
% CONSERVATION PASS-THROUGH CERTIFICATES, SERIES 1995-1
PUGET SOUND POWER & LIGHT COMPANY
SELLER AND SERVICER
The % Conservation Pass-Through Certificates, Series 1995-1 (the
"Certificates") offered hereby evidence undivided fractional interests in Puget
Power Conservation Grantor Trust 1995-1 (the "Trust"). The Certificates
represent the entire beneficial ownership of the Trust. The Trust will be
created pursuant to a Pooling and Servicing Agreement (the "Pooling and
Servicing Agreement") to be entered into by Puget Sound Power & Light Company
("Puget"), as Seller and Servicer, and Chemical Bank, as Trustee (the
"Trustee"). Puget will sell and transfer to the Trust the Purchased Assets (as
hereinafter defined), which will include the unamortized balance of previous
expenditures by Puget on customer conservation measures that are currently in
rate base in the amount of $202,494,850 (the "Bondable Conservation Investment
Amount"). The Certificates will be entitled to the benefits of the State of
Washington Conservation Financing Statute (the "Statute"), which gives the
Servicer the right to recover in rates an amount equal to the Bondable
Conservation Investment Amount plus interest thereon at the Certificate Rate (as
hereinafter defined). The Statute permits revenue allocations from a tariff
levied on all of Puget's retail customers (the "Tariff") and obligates the
Washington Utilities and Transportation Commission (the "Commission") to
maintain rates under the Tariff sufficient to fully amortize the Bondable
Conservation Investment Amount and the costs of capital associated therewith in
accordance with the terms of the Pooling and Servicing Agreement.
Principal and interest at the Certificate Rate of % per annum in respect of
the preceding Distribution Period (as hereinafter defined) will be paid
quarterly with respect to the Certificates on or about the 11th day of January,
April, July and October of each year (each, a "Distribution Date"), commencing
October 11, 1995 and ending April 11, 2005 (as such date may be extended as
described herein). The Trust property principally consists of the right to
receive revenues from Puget customers pursuant to the Tariff and any Revised
Tariff (as hereinafter defined). On September 30, 2004 (as such date may be
extended as described herein), the Tariff or any Revised Tariff then in effect
will terminate and no further billings will be made thereunder. Puget as
Servicer will be responsible for calculating the Tariff and any Revised Tariff,
for billing and collecting revenues from customers and remitting such
collections to the Trustee and for applying to the Commission for any necessary
adjustments to the Tariff or any Revised Tariff.
The Certificates represent a new issue of securities for which there is
currently no public trading market. There can be no assurance that such a market
for the Certificates will develop or if it does develop that it will continue.
Each of the Underwriters of the Certificates, Salomon Brothers Inc and Chemical
Securities Inc., has informed the Trust that it currently intends to make a
market in the Certificates. The Underwriters are not obligated to do so,
however, and any market making may be discontinued at any time without notice.
The Certificates will be issued only in fully registered form and will initially
be represented by one or more Certificates registered in the name of a nominee
of The Depository Trust Company ("DTC") (see "Description of the Certificates --
General," "-- Book-Entry Registration" and "-- Definitive Certificates"). The
Certificates will trade in the Same-Day Fund Settlement System of DTC, and, to
the extent that secondary market trading activity in the Certificates is
effected through the facilities of DTC, such trades will be settled in
immediately available funds.
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS SET FORTH UNDER "RISK
FACTORS."
THE CERTIFICATES REPRESENT INTERESTS IN THE TRUST, NOT INTERESTS IN OR
OBLIGATIONS OF PUGET SOUND POWER & LIGHT COMPANY OR ANY OF ITS AFFILIATES.
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.
<TABLE>
<CAPTION>
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Proceeds
Price to to
Public Underwriting Seller
(1) Discount (1)(2)
<S> <C> <C> <C>
Per Certificate............................. % % %
Total....................................... $ $ $
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<FN>
(1) Plus accrued interest, if any, at the Certificate Rate from ,
1995 to the date of delivery.
(2) Before deducting expenses payable by the Seller, estimated at $910,000.
</TABLE>
The Certificates are offered subject to prior sale and subject to the
Underwriters' right to reject orders in whole or in part. It is expected that
delivery of the Certificates will be made in book-entry form only through the
facilities of DTC, on or about , 1995.
SALOMON BROTHERS INC CHEMICAL SECURITIES INC.
The date of this Prospectus is , 1995.
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CERTIFICATES AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
AVAILABLE INFORMATION
Puget, as originator of the Trust, has filed with the Securities and
Exchange Commission (the "S.E.C.") a Registration Statement on Form S-1 under
the Securities Act of 1933, as amended (the "Securities Act"), with respect to
the Certificates offered hereby (the "Registration Statement"). This Prospectus,
which constitutes part of the Registration Statement, omits certain of the
information contained in the Registration Statement and the exhibits and
schedules thereto on file with the S.E.C. pursuant to the Securities Act and the
rules and regulations of the S.E.C. thereunder. The Registration Statement,
including exhibits and schedules thereto, may be inspected and copied at the
public reference facilities maintained by the S.E.C. at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the S.E.C.'s Regional Offices at 7 World Trade
Center, Suite 1300, New York, New York 10048, and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661, and copies may be obtained
at the prescribed rates from the Public Reference Section of the S.E.C. at 450
Fifth Street, N.W., Washington, D.C. 20549.
Statements contained in this Prospectus as to the contents of any contract,
agreement or other document referred to are not necessarily complete and in each
instance reference is made to the copy of such contract, agreement or other
document filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference.
Puget is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the S.E.C.
Such reports, proxy statements and other information filed by Puget can be
inspected and copied at the public reference facilities maintained by the S.E.C.
at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549,
and at the S.E.C.'s Regional Offices: New York Regional Office, 7 World Trade
Center, Suite 1300, New York, New York 10048, and Chicago Regional Office,
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such material can be obtained from the Public Reference Section of the
S.E.C. at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
Puget's Common Stock is traded on the New York Stock Exchange. Reports, proxy
statements and other information concerning Puget can be inspected at the
offices of the New York Stock Exchange, 20 Broad Street, New York, New York
10005.
REPORTS TO CERTIFICATEHOLDERS
Unless and until Definitive Certificates (as hereinafter defined) are
issued, the Trustee will provide Cede & Co. ("Cede"), as nominee of DTC and
holder of record of the Certificates (a "Certificateholder"), quarterly and
annual unaudited reports containing information concerning the Trust prepared by
the Servicer pursuant to the Pooling and Servicing Agreement described in this
Prospectus. See "Description of the Certificates -- Reports to
Certificateholders and Evidence of Compliance." Such reports will be available
to beneficial owners of the Certificates (each, a "Certificate Owner") upon
request to the Trustee or the Servicer. The Servicer, on behalf of the Trust,
will file or cause to be filed with the S.E.C. such periodic reports as are
required from time to time under the Exchange Act, and the rules and regulations
of the S.E.C. thereunder. The Servicer, on behalf of the Trust, will suspend
filing periodic reports with the S.E.C. if they are no longer required by the
Exchange Act.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS. REFERENCE IS MADE TO THE
INDEX OF TERMS FOR THE LOCATION HEREIN OF CAPITALIZED TERMS USED IN THIS
PROSPECTUS.
<TABLE>
<S> <C>
Issuer......................... Puget Power Conservation Grantor Trust 1995-1 formed by the
Seller pursuant to the Pooling and Servicing Agreement
between Puget, as Seller and Servicer, and the Trustee.
Securities Offered............. $202,300,000 principal amount of % Conservation Pass-
Through Certificates, Series 1995-1.
Certificate Rate............... % per annum, payable in arrears and calculated on the basis
of a 360-day year comprised of twelve 30-day months (the
"Certificate Rate").
The Certificates............... The Certificates will be issued in an initial aggregate
principal amount of $202,300,000. Each Certificate
represents an undivided fractional interest in the assets
of the Trust. The Certificates will be available for
purchase in minimum denominations of $1,000 and integral
multiples thereof. The Certificates will initially be
represented by one or more Certificates registered in
Cede's name, as nominee of DTC. Definitive Certificates
will be issued only under the limited circumstances
described herein. See "Description of the Certificates --
General," "-- Book-Entry Registration"
and "-- Definitive Certificates."
Seller and Servicer............ Puget Sound Power & Light Company is an investor-owned
utility providing electric service within a
4,500-square-mile territory in the state of Washington,
principally in the Puget Sound region of western
Washington. During December 1994, Puget provided electric
service to an average of approximately 823,100 Customers
(as hereinafter defined). The Certificates do not represent
interests in or obligations of Puget or any of its
affiliates.
Trustee........................ Chemical Bank, a New York banking corporation.
Statute........................ The Certificates will be entitled to the benefit of the
Statute. The Statute, among other things, (i) grants Puget
(as well as other utilities in the state of Washington with
respect to their conservation investment) the right to
include in rate base and thereby recover from Customers an
amount (the "Conservation Asset Transaction Amount") equal
to the Bondable Conservation Investment Amount plus related
costs of capital, including principal of and interest on
securities issued to finance or refinance such
expenditures, the Trustee Fee (as hereinafter defined) and
the Servicing Fee (as hereinafter defined) and (ii)
expressly defines this statutory right as an item of
property that may be sold, pledged or otherwise made the
basis for the issuance of securities. The issuance and sale
of the Certificates is conditioned upon receipt of the
Initial Order (as hereinafter defined) from the Commission.
Under the Statute, once the issuance of the Certificates
has been authorized by the Commission, this statutory right
to repayment through rates cannot be rescinded or adversely
changed by the Commission.
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
Tariff......................... Puget has made application to the Commission for an order
(the "Initial Order") that, among other things, (i)
authorizes the sale of the Purchased Assets to the Trust by
Puget, including the right to recover in rates the Bondable
Conservation Investment Amount aggregating $202,494,850,
plus interest thereon at the Certificate Rate, (ii) finds
that the Certificates are securities entitled to the
benefits of the Statute, (iii) approves the Tariff, which
allocates revenues to the Trust in an aggregate amount
equal to the Conservation Asset Transaction Amount, (iv)
approves the methodology and mechanism for periodically
implementing a Revised Tariff if a shortfall or surplus in
collections results in a Variance (as hereinafter defined)
as of any Calculation Date (as hereinafter defined), and
(v) approves the Pooling and Servicing Agreement and the
transactions contemplated thereby. The Bondable
Conservation Investment Amount represents the unamortized
balance of amounts previously expended by Puget on
conservation measures and included in Puget's rate base by
order of the Commission. As a result, amounts that provide
for amortization of the Bondable Conservation Investment
Amount through rates are presently being billed to
Customers.
The Tariff created by the Initial Order will establish
amounts intended to provide for the amortization of the
Bondable Conservation Investment Amount in accordance with
a pro forma amortization schedule (the "Pro Forma
Schedule," which is set forth on page 27), based on certain
assumptions, including, but not limited to, projected
numbers of Customers and expected delinquencies. The Tariff
specifically identifies, for each class of Puget's retail
residential, commercial, industrial and certain other
energy customers (the "Customers"), a dollar amount of each
Customer's regular electric bill that will be allocated to
the Trust from bills sent during each Regulatory Year (as
hereinafter defined). Such amounts will be collected by
Puget as part of its normal collection activities and will
be deposited into an account maintained with the Trustee
for the benefit of the Certificateholders (the "Collection
Account") on each Remittance Date (as hereinafter defined).
The Trust's right under the Tariff to receive allocations
from Customer payments ranks PARI PASSU with Puget's right
to collect amounts from Customers under other tariffs.
Amounts collected that represent partial payment of a
Customer's electric bill will be proportionately allocated
between the Trust and Puget based on the ratio of the
portion of the billed amount allocated under the Tariff to
the total billed amount.
On each September 30, beginning in 1996 and ending in 2003,
and also on March 31, 2004 (each, a "Calculation Date"),
the Servicer is required to compare the unamortized
Bondable Conservation Investment Amount (the "Bondable
Conservation Investment Balance") to the balance set forth
in the Pro Forma Schedule as of such date (the "Projected
Bondable Conservation Investment Balance"). If the Bondable
Conservation Investment Balance at such Calculation Date
differs from the Projected Bondable Conservation Investment
Balance for such Calculation Date by more than 2% (a
"Variance"), the Servicer is required to apply for (and the
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
Initial Order provides that the Commission will approve
within 30 days of the application) a revised Tariff (a
"Revised Tariff") that will allocate revenues to the Trust
in an amount (the "Revised Tariff Amount") intended to be
sufficient so that the (i) Bondable Conservation Investment
Balance on the next September 30 will equal the Projected
Bondable Conservation Investment Balance as of such date
and (ii) thereafter, will provide for the amortization of
the remaining Bondable Conservation Investment Balance in
accordance with the Pro Forma Schedule. The Revised Tariff
will be based on updated assumptions by the Servicer,
including, but not limited to, the projected number of
Customers and the expected rate of delinquencies.
Distributions and Cash Flow.... No amounts billed to Customers prior to the issuance of the
Certificates (the "Closing Date") will be transferred to
the Trust. The Trust will have the statutory right to
amounts payable pursuant to the Tariff and any Revised
Tariff from bills mailed by the Servicer on the day
following the Closing Date and, based on historical experi-
ence, such amounts would begin to be received by the
Servicer within 15 days after such date. See "Puget
Customers and Collections."
On each Distribution Date, all funds held in the Collection
Account will be distributed as follows: FIRST, to the
Trustee in the amount of the fee payable to the Trustee
pursuant to the Pooling and Servicing Agreement (the
"Trustee Fee"); SECOND, to the Servicer in the amount of
the Servicing Fee; THIRD, to the Certificateholders as
interest an amount equal to the product of the Certificate
Rate and the aggregate Certificate balance as of the first
day of the related Distribution Period (calculated on the
basis of the number of days in such Distribution Period
assuming a 360-day year comprised of twelve 30-day months);
and FOURTH, to the Certificateholders, the balance
remaining in the Collection Account as principal to reduce
the aggregate Certificate balance.
Overcollateralization.......... The Statute gives the Servicer the right to recover from
Customers an amount equal to the Bondable Conservation
Investment Amount, which is $202,494,850, plus interest
thereon at the Certificate Rate. The initial aggregate
Certificate balance is $202,300,000 and interest thereon is
calculated at the Certificate Rate. The portion of the
Bondable Conservation Investment Amount in excess of the
initial aggregate Certificate amount represents
overcollateralization (the "Overcollateralization Amount").
On each Distribution Date, the amount received by the Trust
from amounts collected from Customers equal to interest at
the Certificate Rate on the Bondable Conservation
Investment Balance as of the first day of the preceding
Distribution Period will be used to pay the Trustee Fee,
the Servicing Fee and interest on the Certificates. All
other amounts collected from Customers will constitute pay-
ments in respect of the Bondable Conservation Investment
Balance and will be used to pay principal of the
Certificates. Accordingly, amortization of the aggregate
Certificate balance in any period will equal the reduction
of the Bondable Conservation Investment Balance during such
period. As a result, the Bondable
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
Conservation Investment Balance should always exceed the
aggregate Certificate balance by the Overcollateralization
Amount. The Overcollateralization Amount is intended to
cover any shortfall in receipt of the Bondable Conservation
Investment Amount that may occur after the final
Calculation Date that is not anticipated and provided for
in a Revised Tariff, as described below.
While the Bondable Conservation Investment Amount
(including that portion attributable to the
Overcollateralization Amount) represents the statutory
right to recover those amounts, the amounts actually billed
may be less if, for example, the actual number of Customers
is less than the number of Customers projected by Puget for
the purpose of calculating rates under the Tariff or any
Revised Tariff, or the amounts actually collected may be
less if, for example, the actual rate of delinquencies is
greater than the rate of delinquencies projected.
On each Calculation Date, the Servicer is required to
determine whether a Variance has occurred. The Tariff and
any Revised Tariff will be periodically revised, if
Variances occur, through an adjustment to the amount of
revenues allocated to the Trust in respect of the
Conservation Asset Transaction Amount (a "Rate Adjustment")
to take into account factors including, but not limited to,
the projected number of Customers and the expected rate of
delinquencies. However, after the final Calculation Date on
March 31, 2004, there will be no such mechanism for the
remaining term of the Certificates. Accordingly, the
Overcollateralization Amount is intended to cover billing
or collection shortfalls that may occur from the final
Calculation Date through the Final Collection Date (as
hereinafter defined) that are not addressed through the
Rate Adjustment process.
Trust Assets................... The assets sold to the Trust (the "Purchased Assets") will
consist of (i) the right to receive the revenues allocated
to the Trust pursuant to the Tariff and any Revised
Tariffs, as well as the right under the Statute to have
rates under the Tariff and any Revised Tariffs maintained
at levels sufficient for recovery of the Bondable Conser-
vation Investment Amount, plus interest on the Certificates
and the Trustee Fee and the Servicing Fee, subject to the
Tariff Termination Date (as hereinafter defined) for
billing under the Tariff or any Revised Tariff, (ii) the
right to payments under contracts ("Conservation Repayment
Contracts") between Puget and certain Customers, which
obligate such Customers, if they change energy suppliers,
to pay Termination Fees (as hereinafter defined) generally
intended to reimburse Puget for the Bondable Conservation
Investment Balance arising from expenditures on
conservation measures for such Customers, and (iii) upon a
voluntary or involuntary sale of Puget's utility property
used to serve Customers who cease to be Customers as a
result of such sale, the portion of the proceeds (the
"Purchased Sale Proceeds") of such sale equal to the
amount, if any, of the Bondable Conservation Investment
Balance that the Commission removes from Puget's rate base
pursuant to the Statute as a result of such sale.
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
Servicing...................... The Servicer will be responsible for billing, servicing,
managing and making collections on the Purchased Assets in
the same manner that it services similar assets for its own
account. In the event of a Variance as of any Calculation
Date, the Servicer will calculate the Revised Tariff Amount
and file an application with the Commission for a Revised
Tariff, as described under "Tariff" above. Under the
Statute, any successor to Puget pursuant to any bank-
ruptcy, reorganization or other insolvency proceeding must
assume the Servicer's obligations under the Pooling and
Servicing Agreement.
Each month the Servicer will provide the Trustee with a
certificate describing the aggregate amounts collected and
the components thereof for the preceding month. On the
basis of this information, the Trustee will furnish to the
Certificateholders on each quarterly Distribution Date
reports describing (i) the aggregate amounts collected and
the components thereof for the preceding Distribution
Period, (ii) the amounts to be distributed, (iii) the
remaining aggregate Certificate balance after giving effect
to all distributions of principal to the
Certificateholders, (iv) the Bondable Conservation
Investment Balance as of the end of the preceding
Distribution Period, and (v) if the last day of the
preceding Distribution Period is a Calculation Date, a
comparison between the Bondable Conservation Investment
Balance and the Projected Bondable Conservation Investment
Balance, together with a statement as to whether a Variance
exists. In addition, within a reasonable period of time
after the end of each calendar year, the Trustee will
furnish to each person who at any time during the calendar
year was a Certificateholder, a statement of the aggregate
amounts distributed during the year. Certificate Owners
will receive such reports as are required in accordance
with DTC procedures. The reports described above will be
available to any Certificate Owner upon request to the
Trustee or the Servicer.
The Servicer will also act as custodian of all documents
and instruments relating to the Purchased Assets.
Servicing Fee.................. The servicing fee for the period from the Closing Date
through September 30, 1995, and each three-month period
thereafter ending March 31, June 30, September 30 and
December 31 through the Final Collection Date (each, a
"Distribution Period") will be an amount equal to the sum
of (i) $ in respect of the first Distribution Period
and $ in respect of all subsequent Distribution
Periods and (ii) the investment earnings on amounts depos-
ited in the Collection Account during such Distribution
Period (the "Servicing Fee"). The interest in respect of
the Overcollateralization Amount is expected to be
sufficient to pay the fixed portion of the Servicing Fee as
well as the Trustee Fee. Such fees will be payable on each
Distribution Date prior to any distributions on the
Certificates.
Collections.................... The Servicer will deposit, on or before each Remittance
Date, to the Collection Account all amounts received by the
Servicer in respect of the Purchased Assets during such
calendar month.
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
Distribution Dates............. The Trustee will make quarterly distributions to
Certificateholders on the 11th day of January, April, July
and October of each year commencing October 11, 1995, or,
if such day is not a business day, the next succeeding
business day.
Final Distribution Date........ The Tariff or any Revised Tariff then in effect will expire
on September 30, 2004 (as such date may be extended as
described herein under "The Tariff and the Trust Assets,"
the "Tariff Termination Date"), and the Servicer will cease
to include amounts allocable to the Trust in Customers'
electric bills after the Tariff Termination Date. The
portion of receivables outstanding on the Tariff Termina-
tion Date allocable to the Trust under the Tariff or any
Revised Tariff then in effect will continue to be collected
by the Servicer through the Final Collection Date and
remitted to the Collection Account. The scheduled final
Distribution Date will be April 11, 2005 (as such date may
be extended as described herein under "The Tariff and the
Trust Assets," the "Final Distribution Date"). Billings and
collections in respect of the Purchased Assets will not
cease upon the reduction of the aggregate Certificate
balance to zero. Any collections through the Final
Collection Date in excess of the aggregate Certificate
balance will be distributed to the Certificateholders on
the next succeeding Distribution Date. As a result, any
portion of the Overcollateralization Amount that is
actually collected prior to the Final Collection Date, and
that is not required to cover billing or collection
shortfalls not recovered through a Revised Tariff, will be
distributed to the Certificateholders on or prior to the
Final Distribution Date.
Customers...................... The source of payment on the Purchased Assets will be
amounts collected from Puget's Customers. Only the portion
of amounts collected from Customers attributable to the
Tariff or any Revised Tariff will be available for payment
on the Purchased Assets. In addition, any amounts collected
that represent partial payment of a Customer's electric
bill will be proportionately allocated between the Trust
and Puget based on the ratio of the portion of the billed
amount allocated under the Tariff to the total billed
amount. During December 1994, Puget had approximately
823,100 Customers, including 731,700 residential Customers,
86,200 commercial Customers, 3,900 industrial Customers and
1,300 other Customers. For the year ended December 31,
1994, the largest Customer represented approximately 3.3%
of Puget's revenues and the 10 largest Customers
represented approximately 9.9% of Puget's revenues.
Tax Status..................... In the opinion of Perkins Coie, counsel to the Seller, the
Trust will constitute a grantor trust for federal income
tax purposes and will not be subject to federal income tax.
Certificate Owners must report their respective allocable
shares of all income earned on the Trust assets, and,
subject to certain limitations on the deduction of
miscellaneous expenses by individuals, estates and trusts,
may deduct their respective allocable shares of the
Servicing Fee and the Trustee Fee. Individuals should
consult their own tax advisors with respect to their own
individual tax situations to determine the federal, state,
local and other tax consequences of the purchase,
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
ownership and disposition of the Certificates. Prospective
investors should note that no rulings have been or will be
sought from the Internal Revenue Service (the "IRS") with
respect to any of the federal income tax consequences
discussed herein, and there can be no assurance that the
IRS will not take a contrary position. See "Federal Income
Tax Consequences."
ERISA Considerations........... The acquisition of the Certificates by employee benefit
plans that are subject to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), may result in a
violation of the prohibited transaction rules under Section
406 of ERISA and Section 4975 of the Internal Revenue Code
of 1986, as amended (the "Code"). See "ERISA
Considerations."
Rating......................... It is a condition of issuance of the Certificates that they
be rated in the highest long-term rating category by one or
more of the nationally recognized statistical rating
agencies (the "Rating Agencies"). There can be no assurance
that a rating will not be lowered or withdrawn by a Rating
Agency if circumstances so warrant. See "Risk Factors --
Limitation of Rating Agency Ratings of the Certificates."
In the event that the rating initially assigned to the
Certificates is subsequently lowered for any reason,
neither Puget nor any other person or entity is obligated
to provide any additional credit enhancement.
</TABLE>
9
<PAGE>
RISK FACTORS
In evaluating an investment in the Certificates, prospective investors
should consider carefully the following factors in addition to the other
information presented in this Prospectus.
LIMITED LIQUIDITY. The Certificates represent a new issue of securities for
which there is currently no market. If a market for the Certificates were to
develop, the Certificates may trade at a discount from their initial offering
price, depending on prevailing interest rates, the market for other securities
and other factors. There can be no assurance that a Certificateholder will be
able to sell a Certificate in the future or that any such sale will be at a
price equal to or higher than the initial public offering price of such
Certificate. Each of the Underwriters of the Certificates, Salomon Brothers Inc
and Chemical Securities Inc., has informed the Trust that, subject to applicable
laws and regulations, it currently intends to make a market in the Certificates.
The Underwriters are not obligated to do so, however, and any market making may
be discontinued at any time without notice.
LIMITED ASSETS. The Trust does not have, nor is it permitted to have, any
significant assets or sources of funds other than the Purchased Assets. The
Certificates represent interests solely in the Trust and will not be insured or
guaranteed by Puget, the Trustee or any other person or entity. Consequently,
Certificateholders will rely solely on collections on the Purchased Assets from
the Closing Date through the Final Collection Date for payment. The Tariff and
any Revised Tariffs will expire on the Tariff Termination Date, and no amounts
will be billed under the Tariff or any Revised Tariff in respect of the
Purchased Assets after that date. As a result, if collections through the Final
Collection Date on amounts billed through the Tariff Termination Date are, for
any reason, insufficient to pay all principal and interest on the Certificates,
the Certificates will not have any other source of payment and the
Certificateholders will suffer a loss on their investments.
POSSIBLE DELAYS IN OR REDUCTIONS OF DISTRIBUTIONS TO CERTIFICATEHOLDERS IN
THE EVENT OF A PUGET INSOLVENCY. In the event of an insolvency of Puget
subsequent to the transfer of the Purchased Assets to the Trust, Puget would be
subject to the United States Bankruptcy Code or other similar state laws
("Insolvency Laws"). If the transfer of the Purchased Assets to the Trust
constitutes a "true sale" to the Trust under the Insolvency Laws, the Purchased
Assets would not be part of Puget's bankruptcy estate and would not be available
to creditors of Puget. However, in the event of Puget's insolvency, it is
possible that the bankruptcy trustee, a creditor of Puget or Puget as debtor in
possession may argue that under the Insolvency Laws the transaction between
Puget and the Trust is a pledge of the Purchased Assets made to secure a
borrowing by Puget, rather than a "true sale," thereby resulting in the
inclusion of the Purchased Assets within Puget's bankruptcy estate. If a filing
were made under any Insolvency Laws by or against Puget and either an attempt
were made to litigate the foregoing issue or a court were to recharacterize the
transaction under the Insolvency Laws as a pledge rather than a "true sale,"
delays in distributions to Certificateholders (and possible reductions of such
distributions) could occur.
The Statute expressly provides that the transfer of the purchased
conservation investment assets to the Trust, if made in the manner described
herein, constitutes a "true sale" to the Trust. The Rating Agencies who will
rate the Certificates will receive a reasoned opinion of counsel on the date of
issuance of the Certificates that analyzes the Statute and analogous case law
(although there is no precedent based on directly similar facts) and concludes
that, subject to certain facts, assumptions and qualifications specified
therein, a court in a properly presented and decided case would determine that
the transfer pursuant to the Pooling and Servicing Agreement of the purchased
conservation investment assets to the Trust will be treated for Insolvency Law
purposes as a "sale or other absolute transfer"-- as opposed to a loan -- and,
accordingly, the purchased conservation investment assets would not be part of
Puget's bankruptcy estate. The legal opinion concludes that the fact that Puget
intends to report the transaction as a loan for federal income tax purposes
would not prevent true sale treatment for the transfer of the Purchased Assets
to the Trust. Such legal opinion is not binding on any court and,
notwithstanding the provisions of the Statute, there can be no assurance that a
court would not reach a contrary conclusion.
10
<PAGE>
To provide for the possibility of the transaction being recharacterized
under the Insolvency Laws as a pledge of the Purchased Assets made to secure a
borrowing by Puget rather than a "true sale," the Pooling and Servicing
Agreement provides for the grant by Puget of a security interest in the
Purchased Assets and the proceeds thereof to the Trustee to secure any such
borrowing. Puget will take the steps required to perfect that security interest
on or prior to the Closing Date and will agree to take the steps required to
maintain the perfection of that security interest thereafter. See "Description
of the Certificates -- Sale of Purchased Assets to the Trustee; Effect of
Insolvency Laws."
TRUST'S DEPENDENCE ON THE SERVICER. The Servicer is not obligated to make
any payments in respect of the Certificates or the Purchased Assets. The
existence of receivables from Customers in respect of the Purchased Assets,
however, depends on the continued provision of electric service to such
Customers by Puget or a successor to Puget. The Trust also depends on the
Servicer for the determination of any Revised Tariffs and for the Customer
billing and collection that is necessary to recover payments on the Purchased
Assets and, therefore, necessary to make payments on the Certificates. If, as a
result of its insolvency or liquidation or otherwise, Puget were to cease
servicing the Purchased Assets, determining any Revised Tariffs and collecting
payments on the Purchased Assets, it may be difficult to find a substitute
Servicer. In such an event, the risk exists that no additional payments would be
made on the Certificates.
Puget may only be removed as Servicer if (i) it fails to make required
remittances, or otherwise fails to perform in all material respects any of its
covenants under or in accordance with, or breaches any of its material
representations or warranties in, the Pooling and Servicing Agreement (in each
case after notice and lapse of the applicable grace period), (ii) a substitute
Servicer is appointed, (iii) the Holders (as hereinafter defined) of
Certificates representing not less than 75% of the aggregate Certificate balance
then outstanding consent to such removal, and (iv) each Rating Agency notifies
the Trustee that its rating assigned to the Certificates will not be withdrawn
or reduced as a result of appointment of the successor Servicer. As a result of
the requirement of such consent and Rating Agency notices, it may be difficult
to effect the Servicer's removal. Puget may only resign as Servicer if a
successor Servicer is appointed and each Rating Agency notifies the Trustee that
such resignation will not cause the rating then assigned to the Certificates to
be withdrawn or reduced.
Under the Pooling and Servicing Agreement, the Trustee will have only
limited oversight responsibility with regard to the Servicer's activities. The
Servicer is required to provide annually to the Trustee a report of a firm of
independent public accountants with respect to the Servicer's performance and
records relating to the servicing of the Purchased Assets. See "Description of
the Certificates -- Reports to Certificateholders and Evidence of Compliance."
No other party will have oversight over the Servicer's activities under the
Pooling and Servicing Agreement.
DEPENDENCE OF PURCHASED ASSETS ON PUGET. As of the date of the transfer of
the Purchased Assets from Puget to the Trust, the Purchased Assets will not
include any currently existing receivables from Customers. The existence of
receivables from Customers in respect of the Purchased Assets depends on the
continued provision of electric service and the related billing to such
Customers by Puget or any successor to Puget during the period from the date of
delivery of the Certificates through the Tariff Termination Date. If Puget or
any successor to Puget fails to provide electric service and to bill and collect
the resulting receivables during such period, the risk exists that no additional
payments would be made on the Certificates.
COMPETITIVE RISKS FACING THE ELECTRIC UTILITY INDUSTRY. The electric
utility industry is experiencing intensifying competitive pressures,
particularly in the wholesale generation and industrial customer markets. The
National Energy Policy Act of 1992 was designed to increase competition in the
wholesale electric generation market by easing regulatory restrictions on
producers of wholesale power and by authorizing the Federal Energy Regulatory
Commission to mandate access to electric transmission systems by wholesale power
generators. The potential for increased competition at the retail level in the
electric utility industry through state-mandated retail wheeling has also been
the subject of legislative and administrative interest in a number of states,
including Washington. Electric utilities, including
11
<PAGE>
Puget, now face greater potential competition for resources and customers from a
variety of sources, including privately owned independent power producers,
exempt wholesale power generators, industrial Customers developing their own
generation resources, suppliers of natural gas and other fuels, other
investor-owned electric utilities and municipal generators. There can be no
assurance that such trends will not have a significant adverse impact on Puget's
business in the future. In particular, Puget anticipates increasingly intense
competition for service to its large industrial Customers, some of which may
receive proposals from competitors for part or all of their energy requirements.
If large industrial Customers choose to purchase power from sources other than
Puget, and if Termination Fees payable by such Customers under Conservation
Repayment Contracts, if any, between Puget and such Customers are not sufficient
to reimburse Puget for the Bondable Conservation Investment Balance arising from
expenditures on conservation measures for such Customers, it may be necessary
for Puget to apply to the Commission for a Revised Tariff to account for the
loss of such Customers. See "Risk Factors -- Possible Effect of Inaccurate
Forecast of Number of Customers" and "Puget Customers and Collections --
Forecasting Customers."
POSSIBLE EFFECT OF INACCURATE FORECAST OF NUMBER OF CUSTOMERS. The Tariff
levied on all of Puget's Customers is based in part on calculations by the
Servicer that reflect the Servicer's forecasted number of Customers in each
Customer category and the anticipated rate of delinquencies.
To the extent that the number of Customers in any Customer category is less
than the number forecasted by Puget in calculating the Tariff or any Revised
Tariff or the aggregate payment due from a Customer is less than the forecasted
amount payable by such Customer in respect of the Tariff or any Revised Tariff,
the aggregate amount actually billed under the Tariff or any Revised Tariff may
be less than the forecasted amount. While the Servicer will make all reasonable
efforts to predict such circumstances and incorporate assumptions relating
thereto into the determination of the Tariff or any Revised Tariff, there can be
no assurance that such determination will not result in a shortfall in the
amount billed pursuant to the Tariff or any Revised Tariff. Through March 31,
2004, such shortfalls may be recovered through the filing of a Revised Tariff.
Thereafter, any such shortfalls are expected to be recovered from the
Overcollateralization Amount. To the extent the Overcollateralization Amount is
not sufficient to cover any such shortfalls, amounts in the Collection Account
would not be sufficient to pay the principal of and interest on the Certificates
in full by the Final Distribution Date and the Certificateholders would suffer a
loss on their investments.
POSSIBLE SHORTFALLS IN COLLECTIONS. While the aggregate amount billed
pursuant to the Tariff or any Revised Tariff may be sufficient to enable
interest on the Certificates to be paid on a timely basis and the principal of
the Certificates to be repaid in full by the Final Distribution Date, Customers
may fail to remit payments of amounts billed pursuant to the Tariff in whole or
in part or may remit such payments on a delayed basis. There can be no assurance
as to the rate of payment, the timing of the receipt of payments or the rate of
delinquencies that will actually occur in any future period. If such shortfalls
are sufficient to result in a Variance as of any Calculation Date through March
31, 2004, they may be recovered in subsequent periods through a Revised Tariff.
Thereafter, any such shortfalls are expected to be recovered from the
Overcollateralization Amount. To the extent the Overcollateralization Amount is
not sufficient to cover any such shortfalls, amounts in the Collection Account
would not be sufficient to pay the principal of and interest on the Certificates
in full by the Final Distribution Date and the Certificateholders would suffer a
loss on their investments.
The revenues collected under the Tariff will not fluctuate with levels of
electric usage unless the aggregate payment due from a Customer for the
provision of electric service is less than the amount payable in respect of the
Tariff. Any such excess of the amount payable by a Customer in respect of the
Tariff over the aggregate payment due from the Customer is not required to be
carried forward to subsequent periods.
POTENTIAL DELAYS IN COMMISSION APPROVAL OF REVISED TARIFFS. The Statute
requires the Commission to approve the Tariff at levels sufficient to recover
the Conservation Asset Transaction Amount. Under the Pooling and Servicing
Agreement, the Tariff is subject to a Rate Adjustment if a Variance exists
12
<PAGE>
as of any Calculation Date, in which case Puget is required to apply with the
Commission for a Rate Adjustment within 30 days following any Calculation Date
to which a Variance relates. Failure of Puget to make such application within
that period would constitute a breach of an obligation under the Pooling and
Servicing Agreement to which the limitations on Puget's liability under the
Pooling and Servicing Agreement would not apply and which would be enforceable
by the Trustee on behalf of the Certificateholders.
While the Initial Order requires the Commission to implement a Revised
Tariff within 30 days of the application therefor by the Servicer, and the
Statute requires the Commission to maintain rates at levels sufficient to fully
recover the Conservation Asset Transaction Amount, there can be no assurance
that such approval would not require a longer period of time. Under Washington
law applicable to rate filings generally, the Commission is obligated to act on
a rate application no later than 11 months from the date of filing. However, if
a Variance exists at either September 30, 2003 or March 31, 2004 and the
Commission fails to approve a Revised Tariff within 30 days after the Servicer's
application, the Initial Order provides that the Tariff Termination Date of such
Revised Tariff will be extended by such period of time after September 30, 2004
as corresponds to the delay beyond 30 days in approval of the latest such
Revised Tariff to be so delayed, but not to be later than July 31, 2005. If the
Tariff Termination Date is extended, the Final Collection Date will be the last
day of the month that is six months after the month in which the Tariff
Termination Date occurs and the Final Distribution Date will be the next
succeeding Distribution Date (to be no later than April 11, 2006). To the extent
that implementation of a Revised Tariff is delayed either as a result of Puget's
failure to apply for a Rate Adjustment in a timely manner or as a result of the
Commission's failure to implement the Revised Tariff as required by the Initial
Order, the previously existing Tariff would remain unchanged, and the amount
collectible thereunder may be lesser or greater than that which would have been
collected under the Revised Tariff and may be insufficient to enable interest on
the Certificates to be paid on a timely basis or the principal of the
Certificates to be repaid in full by the Final Distribution Date, in which case
the Certificateholders would suffer a loss on their investments. See "The Tariff
and the Trust Assets."
ABILITY OF THE SERVICER TO CHANGE PAYMENT TERMS. The Servicer has reserved
the right to make any change to the amount or reschedule the due date of any
scheduled payment of any billed amount in respect of the Purchased Assets or
change any material term of any Purchased Asset if such action would be in
accordance with its customary practices or those of any successor Servicer with
respect to comparable assets that it services for itself and if such action
would not materially adversely affect the Certificateholders. There are no other
limitations on the Servicer's ability to change the terms of the Purchased
Assets. While Puget has no current intention of taking actions that would change
the payment or other terms of the Purchased Assets, there can be no assurance
that changes in Puget's customary and usual practices for comparable assets it
services for itself might not result in a determination to do so or that a
successor Servicer may not make such determination. It is possible that any such
changes could delay collections from Customers or result in lower collections.
Any change in the amount or timing of scheduled payments on any billed amount in
respect of the Purchased Assets or other change in any material term of any
Purchased Asset could adversely affect the payment of interest on the
Certificates on a timely basis or the payment of the principal of the
Certificates in full by the Final Distribution Date. See "Puget Customers and
Collections -- Credit Policy and Procedures," "-- Billing Process" and "--
Collection Process."
CREDIT POLICY AND PROCEDURES. The ability of Puget to collect amounts
billed to Customers under the Tariff or any Revised Tariff will depend in part
on the creditworthiness of the Customers. Puget is obligated to provide service
to new Customers under Washington law and no outside credit investigations are
performed on new Customers. Puget's information regarding the credit status of
new Customers is limited to information regarding prior service, if any, by
Puget to such Customers. Puget relies on the information provided by Customers
and its customer information system audits to indicate whether a new Customer
has had previous service from Puget. See "Risk Factors -- Possible Shortfalls in
Collections" and "Puget Customers and Collections -- Credit Policy and
Procedures."
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<PAGE>
ORDER AND APPLICATION OF FUNDS. Under the Pooling and Servicing Agreement,
the Trustee will make distributions from the Collection Account on each
Distribution Date, FIRST, to the Trustee in the amount of the Trustee Fee;
SECOND, to the Servicer in the amount of the Servicing Fee; THIRD, to the
Certificateholders as interest an amount equal to the product of the Certificate
Rate and the aggregate Certificate balance as of the first day of the related
Distribution Period (calculated on the basis of the number of days in such
Distribution Period assuming a 360-day year comprised of twelve 30-day months);
and, FOURTH, to the Certificateholders, the balance remaining in the Collection
Account as principal to reduce the aggregate Certificate balance. Consequently,
Certificateholders will not receive payments of interest or principal on any
Distribution Date unless the Trustee Fee and the Servicing Fee due on or prior
to such date have been paid in full.
LIMITATION ON LIABILITY OF THE SERVICER AND THE SELLER. The Pooling and
Servicing Agreement provides that none of the Seller, the Servicer or any of
their directors, officers, employees or agents, in their capacities as such,
will be under any liability to the Trust, the Trustee or the Certificateholders
for any action taken, or refrained from being taken, pursuant to the Pooling and
Servicing Agreement, other than any liability that would otherwise be imposed by
reason of the breach of their respective obligations and duties under the
Pooling and Servicing Agreement. As a result, any loss suffered by the Trust or
the Certificateholders caused by any action or failure to act by any of such
parties may not be recoverable unless the loss resulted from a breach of an
obligation under the Pooling and Servicing Agreement.
CHALLENGE TO STATUTE, INITIAL ORDER OR TARIFF. The existence of the
Purchased Assets and their sufficiency as the source of payment for the
Certificates are dependent on the Statute, the Initial Order, the Tariff and any
Revised Tariff. As a result, if the Statute, the Initial Order, the Tariff or
any Revised Tariff is challenged in a lawsuit and is finally determined to be
unenforceable in whole or in part, such determination could adversely affect the
ability of Puget to make remittances to the Trustee as required by the Pooling
and Servicing Agreement, and Certificateholders could suffer a loss on their
investment. The approval of the Initial Order and the Tariff by the Commission
is a condition to the issuance of the Certificates. No challenge to the
enforceability of the Statute, the Initial Order or the Tariff currently exists
and Puget is not aware of any basis for such a challenge.
LIMITATION OF RATING AGENCY RATINGS OF THE CERTIFICATES. It is a condition
to the issuance of the Certificates that they be rated in the highest long-term
rating category by one or more of the Rating Agencies. The rating of the
Certificates addresses the likelihood of the ultimate payment of principal and
the timely payment of interest on the Certificates. A security rating is not a
recommendation to buy, sell or hold securities. There can be no assurance that a
rating will remain for any given period of time or that a rating will not be
lowered or withdrawn entirely by a Rating Agency if, in its judgment,
circumstances so warrant.
RESTRICTIONS OF BOOK-ENTRY REGISTRATION. The Certificates will be initially
represented by one or more Certificates registered in Cede's name, as nominee
for DTC, and will not be registered in the names of the Certificate Owners or
their nominees. Therefore, unless and until Definitive Certificates are issued,
Certificate Owners will not be recognized by the Trustee as Certificateholders.
Hence, until such time, Certificate Owners will only be able to receive payments
from, and exercise the rights of Certificateholders indirectly through, DTC and
participating organizations, and, unless a Certificate Owner requests a copy of
any such report from the Trustee or the Servicer, will receive reports and other
information provided for under the Pooling and Servicing Agreement only if, when
and to the extent provided to Certificate Owners by DTC and its participating
organizations. In addition, the ability of Certificate Owners to pledge
Certificates to persons or entities that do not participate in the DTC system,
or otherwise take actions in respect of such Certificates, may be limited due to
the lack of physical certificates for such Certificates. See "Description of the
Certificates -- Book-Entry Registration" and
"-- Definitive Certificates."
14
<PAGE>
THE STATUTE
The Washington State Legislature enacted the Statute, ch. 268 of Laws of
Washington 1994, to encourage utility investment in demand side management
conservation programs. Demand side management conservation programs comprise a
variety of conservation measures, such as installation of energy-efficient
lighting and building insulation, that help utility customers use electricity
more efficiently. The types of conservation measures eligible for funding are
set forth in a schedule approved by the Commission prior to the expenditures by
the utility. These programs can allow utilities to meet projected increases in
energy load in a manner that can be less costly, in both economic and
environmental terms, than adding new energy-generation facilities. However,
since conservation program expenditures often create customer-owned assets
installed in the customer's facilities, a utility typically cannot finance such
expenditures by the issuance of utility mortgage bonds secured by a lien on
utility-owned property.
The Statute creates a new property right that establishes a utility's
statutory right to include in its rate base all of its approved expenditures on
customer conservation measures and to receive through rates revenues sufficient
to recover such expenditures and the costs of capital associated with such
expenditures, including, without limitation, the payment of principal of and
interest on securities sold to finance or refinance them. The Statute provides
that the revenues to be received pursuant to this statutory right may be sold,
pledged or otherwise made the basis for the issuance of securities. Once an
order under the Statute has been obtained from the Commission authorizing the
issuance of securities to finance or refinance approved conservation
expenditures, an unconditional statutory right to repayment through utility
rates arises in favor of the securityholders. Under the Statute, this right to
repayment through rates cannot be rescinded or adversely changed by the
Commission until the full amount of such expenditures and the related costs of
capital are fully amortized in accordance with the terms of the Pooling and
Servicing Agreement.
The Certificates will be securities entitled to the benefits of the Statute.
The Tariff and any Revised Tariffs will expire on the Tariff Termination Date,
and no amounts will be billed under the Tariff or any Revised Tariff in respect
of the Purchased Assets after that date. As a result, if amounts billed through
that date and collected by the Final Collection Date are, for any reason,
insufficient to pay all principal and interest on the Certificates, the
Certificates will have no other source of payment.
THE TARIFF AND THE TRUST ASSETS
Puget has made application to the Commission for the Initial Order that,
among other things, (i) authorizes the sale of the Purchased Assets by Puget to
the Trust, including the right to recover in rates the Bondable Conservation
Investment Amount aggregating $202,494,850, plus interest thereon at the
Certificate Rate, (ii) finds that the Certificates are securities entitled to
the benefits of the Statute, (iii) approves the Tariff, which allocates revenues
to the Trust in an aggregate amount equal to the Conservation Asset Transaction
Amount, (iv) approves the methodology and mechanism for periodically
implementing a Revised Tariff if a shortfall or surplus in collections results
in a Variance as of any Calculation Date, and (v) approves the Pooling and
Servicing Agreement and the transaction contemplated thereby.
The Tariff will allocate to the Trust a portion of the amount charged to
each Customer in each utility bill sent during the period from but excluding the
Closing Date to and including September 30, 1995 and during each subsequent
period from October 1 to and including the following September 30 up to and
including the period ending on the Tariff Termination Date (each such period, a
"Regulatory Year"). The Tariff will establish different amounts to be allocated
to the Trust based on (i) the type of electrical service provided to the
Customer (each type, a "Schedule") and (ii) the Regulatory Year. A Customer may
receive more than one electric bill from the Servicer in respect of different
Schedules or attributable to multiple locations of the Customer. The revenues
collected under the Tariff will fluctuate with collection delinquencies and the
number of Customers, but not with levels of electric usage, unless the aggregate
payment due from a Customer for the provision of electric service is less than
the amount payable in respect of the Tariff. Any such excess of the amount
payable in respect of the Tariff over the aggregate
15
<PAGE>
payment due from the Customer is not required to be carried forward to
subsequent periods. The Tariff provides that the following monthly amounts of
revenue from each Customer's bill sent during the periods set forth below will
be allocated to the Trust:
<TABLE>
<CAPTION>
ORIGINAL MONTHLY TARIFF PER CUSTOMER
- ------------------------------------------------------------------------------------------------------------------------------------
SECONDARY SECONDARY SECONDARY PRIMARY
PERIOD RESIDENTIAL SERVICE 1 SERVICE 2 SERVICE 3 SERVICE HIGH VOLTAGE LIGHTING
- --------------------------------- ------------- ------------- ------------- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
10/1/1994 to 9/30/1995 $ 3.11 $ 5.33 $ 88.38 $ 616.55 $ 507.70 $ 21,108.98 $ 1.64
10/1/1995 to 9/30/1996 2.32 3.98 62.24 460.50 379.11 15,844.15 1.22
10/1/1996 to 9/30/1997 2.00 3.41 53.45 395.97 325.87 13,612.27 1.05
10/1/1997 to 9/30/1998 1.87 3.17 49.64 368.41 303.15 12,960.83 0.97
10/1/1998 to 9/30/1999 1.73 2.92 45.76 340.12 279.74 11,902.87 0.90
10/1/1999 to 9/30/2000 1.41 2.36 37.06 275.85 226.80 9,680.98 0.73
10/1/2000 to 9/30/2001 1.21 2.03 31.82 237.23 194.92 8,186.58 0.62
10/1/2001 to 9/30/2002 0.89 1.48 23.24 173.54 142.53 6,110.81 0.46
10/1/2002 to 9/30/2003 0.58 0.97 15.19 113.59 93.25 3,939.80 0.30
10/1/2003 to Tariff Termination
Date 0.26 0.42 6.66 49.89 40.94 1,738.25 0.13
</TABLE>
The amounts in the table above are preliminary and are subject to
adjustments to reflect the Certificate Rate and the timing of the Closing Date.
On each Calculation Date, the Servicer is required to compare the Bondable
Conservation Investment Balance to the Projected Bondable Conservation
Investment Balance set forth in the Pro Forma Schedule. If the Bondable
Conservation Investment Balance at such Calculation Date differs from the
Projected Bondable Conservation Investment Balance for such Calculation Date by
more than 2%, the Servicer is required to apply for (and the Initial Order
provides that the Commission will approve within 30 days of the application) a
Revised Tariff that will allocate revenues to the Trust in an amount intended to
be sufficient so that (i) the Bondable Conservation Investment Balance on the
next September 30 will equal the Projected Bondable Conservation Investment
Balance as of such date and (ii) thereafter, will provide for the amortization
of the remaining Bondable Conservation Investment Balance in accordance with the
Pro Forma Schedule. The Revised Tariff will be based on updated assumptions by
the Servicer, including, but not limited to, the projected number of Customers
and the expected rate of delinquencies.
The Tariff and any Revised Tariff are scheduled to terminate on September
30, 2004, in which case the last day for collections under the Tariff or any
Revised Tariff will be March 31, 2005 (as such date may be extended as described
below, the "Final Collection Date") and the Final Distribution Date will be
April 11, 2005. However, if a Variance exists at either September 30, 2003 or
March 31, 2004 and the Commission fails to approve a Revised Tariff within 30
days after the Servicer's application, the Initial Order provides that the
Tariff Termination Date of such Revised Tariff will be extended by such period
of time after September 30, 2004 as corresponds to the delay beyond 30 days in
approval of the latest such Revised Tariff to be so delayed, but not to be later
than July 31, 2005. If the Tariff Termination Date is extended, the Final
Collection Date will be last day of the month that is six months after the month
in which the Tariff Termination Date occurs and the Final Distribution Date will
be the next succeeding Distribution Date (to be no later than April 11, 2006).
Puget has entered into Conservation Repayment Contracts with certain
Customers (representing approximately 13% of the Bondable Conservation
Investment Amount) who have installed approved conservation measures on their
properties, some or all of the expenses of which have been paid by Puget. If any
of such Customers thereafter cease to be Customers, Puget is entitled to recover
certain amounts from such Customers under such contracts (the "Termination
Fees"). The actual terms underlying the Termination Fees vary depending on the
category of Customer. For a residential Customer, the Termination Fee is
generally the full amount of the initial conservation expenditure by Puget (the
"Grant") should the Customer change energy suppliers within five years of the
date of the contract. A commercial or industrial Customer generally must pay a
percentage of the Grant (determined as the percentage of the total estimated
useful life of the conservation measure remaining upon termination) should it
cease to be a Customer of Puget or should electricity cease to be the fuel
source for the conservation measure funded with the Grant.
16
<PAGE>
The Termination Fees are lump sum payments that vary, even among Customers
of the same type, depending on the specific Grant amount and date of
termination. In contrast, amounts recovered under the Tariff are, for each
category of Customers, fixed monthly payments. A specific Termination Fee may be
greater or less than the amount the former Customer would have paid in monthly
rates. Puget is currently unable to predict the amount of future Termination
Fees, but Termination Fees collected in recent years have been nominal. Since
January 1991, Puget has collected less than $50,000 in such fees from former
residential Customers, and it has collected no Termination Fees from commercial
or industrial Customers.
Pursuant to the Pooling and Servicing Agreement, Puget will pay to the
Trustee for the benefit of the Certificate Owners any Termination Fees it
receives from Customers in respect of the Bondable Conservation Investment
Balance. Any such amounts will be distributed ratably to Certificateholders in
the same manner as other revenues relating to the Purchased Assets sold to the
Trust.
The Statute provides that the Commission may remove from Puget's rate base
any portion of the Bondable Conservation Investment Balance arising from
conservation expenditures made for the benefit of Customers that cease to be
Customers as a result of a voluntary or involuntary sale by Puget of the utility
property used to serve those Customers. If Puget loses Customers as a result of
such a sale and the Commission removes from Puget's rate base a portion of the
Bondable Conservation Investment Balance, the Pooling and Servicing Agreement
requires Puget to pay to the Trustee for the benefit of the Certificate Owners,
from the sale proceeds, the Purchased Sale Proceeds, which amount equals the
portion of the Bondable Conservation Investment Balance that the Commission
removes from Puget's rate base as a result of such sale.
The Purchased Assets to be owned by the Trust include (i) all of Puget's
right, title and interest in and to, and to receive, payments pursuant to the
Tariff or any Revised Tariff, (ii) all of Puget's rights to have the
Conservation Asset Transaction Amount recovered through rates pursuant to and in
accordance with the Statute, (iii) all of Puget's right, title and interest
under the Conservation Repayment Contracts in and to the Termination Fees to the
extent paid by Customers, and (iv) all of Puget's right, title and interest in
and to the Purchased Sale Proceeds.
The Statute gives the Servicer the right to recover from Customers an amount
equal to the Bondable Conservation Investment Amount, which is $202,494,850,
plus interest thereon at the Certificate Rate. The initial aggregate Certificate
balance is $202,300,000 and interest thereon is calculated at the Certificate
Rate. The portion of the Bondable Conservation Investment Amount in excess of
the initial aggregate Certificate amount represents the Overcollateralization
Amount.
On each Distribution Date, the amount received by the Trust from amounts
collected from Customers equal to interest at the Certificate Rate on the
Bondable Conservation Investment Balance as of the first day of the preceding
Distribution Period will be used to pay the Trustee Fee, the Servicing Fee and
interest on the Certificates. All other amounts collected from Customers will
constitute payments in respect of the Bondable Conservation Investment Balance
and will be used to pay principal of the Certificates. Accordingly, amortization
of the aggregate Certificate balance in any period will equal the reduction of
the Bondable Conservation Investment Balance during such period. As a result,
the Bondable Conservation Investment Balance should always exceed the initial
aggregate Certificate amount by the Overcollateralization Amount. The
Overcollateralization Amount is intended to cover any shortfall in receipt of
the Bondable Conservation Investment Amount that may occur after the final
Calculation Date that is not anticipated and provided for in a Revised Tariff.
While the Bondable Conservation Investment Balance (including that portion
attributable to the Overcollateralization Amount) represents the statutory right
to recover those amounts, the amounts actually billed may be less if, for
example, the actual number of Customers is less than the number of Customers
projected by Puget for the purpose of calculating monthly allocations to the
Trust from amounts billed under the Tariff or any Revised Tariff or the amounts
actually collected may be less if, for example, the actual rate of delinquencies
is greater than the rate of delinquencies projected.
17
<PAGE>
The Tariff and any Revised Tariff will be periodically revised, if Variances
occur, through a Rate Adjustment to take into account factors including, but not
limited to, the projected number of Customers and the expected rate of
delinquencies. However, after the final Calculation Date on March 31, 2004,
there will be no such mechanism for the remaining term of the Certificates.
Accordingly, the Overcollateralization Amount is intended to cover billing or
collection shortfalls that may occur from the final Calculation Date through the
Final Collection Date and that are not addressed through the Rate Adjustment
process.
Any collections through the Final Collection Date by the Servicer in respect
of the amounts allocable to the Trust in excess of the aggregate Certificate
balance will be distributed to the Certificateholders. Billings and collections
in respect of the Purchased Assets will not cease upon the reduction of the
aggregate Certificate balance to zero. Any collections through the Final
Collection Date in excess of the aggregate Certificate balance will be
distributed to the Certificateholders on the next succeeding Distribution Date.
As a result, any portion of the Overcollateralization Amount that is actually
collected prior to the Final Collection Date, and that is not required to cover
billing or collection shortfalls not recovered through a Revised Tariff, will be
distributed to the Certificateholders on or prior to the Final Distribution
Date.
THE TRUST
Prior to this transaction, the Trust had no assets, obligations or operating
history. Upon formation, the Trust will not engage in any business activity
other than acquiring and holding the Purchased Assets, issuing the Certificates
and making payments thereon. The Servicer is required to pay all expenses
incurred in connection with its duties under the Pooling and Servicing
Agreement. See "Description of the Certificates -- Servicer Compensation" and
"-- Distributions." The Trust will not acquire any assets other than the
Purchased Assets. As a consequence, the Trust is not expected to have any need
for, or source of, additional capital resources other than the assets of the
Trust.
USE OF PROCEEDS
The Trustee on behalf of the Trust will apply the entire proceeds to be
received from the sale of the Certificates to the purchase of the Purchased
Assets from Puget.
THE SELLER AND THE SERVICER
Puget, the largest investor-owned electric utility headquartered in
Washington State, provides electric service within a 4,500-square-mile territory
principally in the Puget Sound region of western Washington. Puget has been
engaged in the electric utility business in Washington State for most of this
century. The population of Puget's service area is over 1,800,000 and during
December 1994, Puget provided electric service to an average of approximately
823,100 Customers. For each year since 1990, Puget has had a total energy output
in excess of 20 billion kilowatt hours. Approximately one-third of this energy
output represents Puget-generated electricity, with the remaining two-thirds
representing purchased power. At December 31, 1994, Puget's peak power resources
were approximately 5,400,000 kilowatts. Puget's net utility plant assets at
December 31, 1994 exceeded $2.2 billion and its common stock equity exceeded
$1.1 billion. For 1994, Puget had operating revenues and net income of
approximately $1.2 billion and $120 million, respectively. Puget currently has
approximately 2,220 employees. Puget's executive office is located at 411 -
108th Avenue N.E., Bellevue, Washington 98004-5515 and its telephone number is
(206) 454-6363.
PUGET CUSTOMERS AND COLLECTIONS
BONDABLE CONSERVATION INVESTMENT AMOUNTS
Puget has offered energy conservation programs to assist Customers in
conserving electricity since 1978. Puget has capitalized these expenditures and,
in accordance with general rate proceedings and
18
<PAGE>
periodic rate adjustment mechanism proceedings, these amounts have generally
been incorporated into its rate base on October 1 of each year. Pursuant to the
Commission Order in Docket No. U-78-45, Puget has amortized these expenditures
over a 10-year period from the time of their incorporation into its rate base.
The table below sets forth the Projected Bondable Conservation Investment
Balance as of September 30 of each year through 2004.
<TABLE>
<CAPTION>
PROJECTED BONDABLE
CONSERVATION
SEPTEMBER 30, INVESTMENT BALANCE
- ------------------------------------------------------ ------------------------
<S> <C>
1995.................................................. $ 191,721,002
1996.................................................. 161,106,486
1997.................................................. 133,905,961
1998.................................................. 106,705,436
1999.................................................. 79,504,911
2000.................................................. 56,039,465
2001.................................................. 34,441,554
2002.................................................. 17,528,547
2003.................................................. 5,692,310
2004.................................................. 0
</TABLE>
Puget currently has conservation programs available for all Customers. Of
the $202,494,850 Bondable Conservation Investment Balance at May 31, 1995,
approximately 56% is attributable to residential Customers, 35% to commercial
Customers and 9% to industrial Customers.
CONSERVATION REPAYMENT CONTRACTS
Approximately 13% of the Bondable Conservation Investment Amount represents
conservation measures supplied by Puget to Customers who have entered into
Conservation Repayment Contracts providing that the Customer must pay a
Termination Fee to Puget if it changes energy suppliers. The amount of the
Termination Fee varies based on Customer type, the conservation measures
supplied and the year the conservation measures were installed. Approximately
79% of the Conservation Repayment Contracts are with residential Customers and
21% are with commercial and industrial Customers. See "The Tariff and the Trust
Assets."
19
<PAGE>
PUGET CUSTOMER BASE
COMPOSITION. Puget's Customer base may be divided into four categories:
residential, commercial, industrial and other Customers. The table below sets
forth the number of Customers and operating revenues billed to each Customer
category.
CUSTOMERS AND OPERATING REVENUES
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
1992 1993 1994
--------------------- ---------------------- ----------------------
% OF % OF % OF
TOTAL TOTAL TOTAL
---------- ---------- ----------
--------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
AVERAGE NUMBER OF CUSTOMERS:
Residential................ 692,100 89.0% 708,123 89.0% 723,566 88.9%
Commercial................. 80,963 10.4 82,875 10.4 85,203 10.4
Industrial................. 3,659 0.5 3,715 0.5 3,851 0.5
Other (1).................. 1,254 0.1 1,289 0.1 1,325 0.2
--------- ----- ---------- ----- ---------- -----
777,976 100.0% 796,002 100.0% 813,945 100.0%
--------- ----- ---------- ----- ---------- -----
--------- ----- ---------- ----- ---------- -----
OPERATING REVENUES ($000S):
Residential................ $ 443,490 47.1% $ 502,037 48.4% $ 532,124 47.9%
Commercial................. 323,764 34.4 356,586 34.4 375,751 33.9
Industrial................. 138,416 14.7 150,063 14.5 163,574 14.7
Other (1).................. 35,779 3.8 28,189 2.7 38,759 3.5
--------- ----- ---------- ----- ---------- -----
$ 941,449 100.0% $1,036,875 100.0% $1,110,208 100.0%
--------- ----- ---------- ----- ---------- -----
--------- ----- ---------- ----- ---------- -----
<FN>
- ------------------------
(1) "Other" primarily consists of street lighting.
</TABLE>
CONCENTRATIONS. For the year ended December 31, 1994, the largest Customer
represented approximately 3.3% of Puget's revenues and the 10 largest Customers
represented approximately 10.0% of Puget's revenues. There can be no assurance
that current Customers will remain Customers or that the levels of Customer
concentration in the future will be similar to those set forth above.
GROWTH. The total average number of Customers has grown every year for more
than 40 years. The compounded annual growth rate in the average number of
Customers from 1984 through 1994 was 3.1%. Due to migration from other states,
Washington State has experienced significant population growth in recent years.
From 1988 through 1993, Washington's population increased from 4,617,000 to
5,241,000, an increase of 624,000, while population in the Puget service area
increased from 1,536,500 to 1,811,800, an increase of 275,300. There can be no
assurance that future Customer growth rates for Puget or Washington State will
be similar to historical experience.
FORECASTING CUSTOMERS
Accurate projections of the number of Customers is important in setting and
maintaining rates under the Tariff or any Revised Tariff at levels sufficient to
recover the Bondable Conservation Investment Amount, interest on the
Certificates, the Trustee Fee and the Servicing Fee.
Customer projections are determined by Puget, based on demographic and
economic information, and there is a different methodology used for each
Customer category. The residential Customer forecasting process begins with a
review of population forecasts from the Washington State Office of Financial
Management and the Puget Sound Regional Council. Puget uses these sources to
develop internal population forecasts for each of the nine counties in which it
operates. Puget then employs its own historical data regarding the percentage of
each county's population served by Puget, as well as such other factors as Puget
deems relevant, to convert the internal population forecast into a projection of
residential Customers within its service area.
20
<PAGE>
The commercial Customer forecasting process begins with a review of
nonmanufacturing employment for each county. This information is based on
projections from the Washington State Office of the Forecast Council (which
produces the official state revenue forecast) and the Puget Sound Regional
Council. Puget uses these sources to develop internal employment forecasts for
each county it serves. Puget then considers its historical data regarding the
percentage of employment in each county served by Puget, as well as such other
factors as Puget deems relevant, to convert the internal employment forecast
into a projection of commercial Customers within its service area.
The forecasting process for the industrial and other Customer categories are
based on factors including examination of past Customer growth trends and
discussions with major industrial Customers.
Forecasts are produced by a staff of two employees and are reviewed
internally by an Executive Forecast Review Committee, which includes five Puget
officers. Puget's Customer projections are reviewed by the Commission and are
factored into the Commission's ultimate determination on whether a proposed rate
schedule is fair, just and reasonable. In the course of its review, the
Commission may request additional data in support of the projections or compare
such projections to other regional forecasts. The Commission may make an
explicit finding regarding the projections, but is not required to do so.
For calendar years 1992 through 1994, Customer projection forecast error was
less than 1%. However, a shortfall or surplus in collections may result if the
actual number of Customers in any category differs from the number forecasted. A
summary of the total annual forecasted and actual number of Puget Customers is
shown below. There can be no assurance that the future variance between actual
and projected Customers in the aggregate or by category will be similar to the
historical experience of the aggregate Customer base set forth below.
<TABLE>
<CAPTION>
AVERAGE NUMBER OF CUSTOMERS
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------
1992 1993 1994
------------ ------------ ------------
<S> <C> <C> <C>
Forecasted............................................................. 780,685 798,918 811,766
Actual................................................................. 777,976 796,002 813,945
Variance............................................................... (0.3%) (0.4%) 0.3%
</TABLE>
CREDIT POLICY AND PROCEDURES
Puget is obligated to provide service to new Customers under Washington law.
No outside credit investigations are performed on new Customers. Puget relies on
the information provided by the Customer and its customer information system
audits to indicate whether the Customer has been previously served by Puget.
Based on previous payment history, each new Customer is assigned one of
three credit codes. A new Customer is automatically assigned the middle credit
code and can be moved to the higher (i.e., signifying a Customer deemed more
creditworthy) or lower (i.e., signifying a Customer deemed less creditworthy)
credit code based on ongoing payment experience. If a Customer leaves the Puget
territory and later returns, the Customer will be assigned the middle credit
code, unless the Customer had a low credit code upon leaving the territory, in
which case the Customer would be re-assigned that lower credit code. This
Customer credit code is used, among other things, to determine the need for a
deposit and the timing of the collection process. A Customer with a poor payment
history or no previous history is deemed a credit risk and a deposit may be
required. Deposit requests are governed by Washington Administrative Code rules
and amounts are determined by previous consumption at the service location.
Puget may change its credit policies and procedures from time to time. It is
expected that any such changes would be designed to enhance Puget's ability to
make timely recovery of amounts billed to Customers.
21
<PAGE>
BILLING PROCESS
Puget operates on a continuous billing cycle, with an approximately equal
number of bills being distributed each business day. For the year ended December
31, 1994, the Company mailed out an average of 23,334 bills daily to its various
Customer categories. Puget bills the majority of its residential Customers
bi-monthly, while all commercial and industrial Customers are billed monthly. Of
the 823,066 Customers of record billed by Puget as of December 31, 1994,
approximately 21% were billed monthly, while approximately 79% were billed
bi-monthly.
Accounts with potential billing errors are held by the computer system for
review. This review examines accounts that have abnormally high or low bills,
potential meter-reading errors, safety problems as identified by the
meter-reading staff and possible meter malfunctions.
Puget may change its billing policies and procedures from time to time. It
is expected that any such changes would be designed to enhance Puget's ability
to make timely recovery of amounts billed to Customers.
COLLECTION PROCESS
In 1994, approximately 77% of total bill payments were received by Puget via
the U.S. mail. During the same period, approximately 21% of total payments were
paid in person at one of Puget's 26 local business offices.
Puget also receives payments at 44 pay stations (which are located in
unaffiliated businesses or organizations) throughout the service territory. In
addition, since May 1994, Washington Natural Gas Company ("WNG") offices have
accepted Puget payments at selected sites. Customer receipts from these two
types of locations represented approximately 1% of bill payments in 1994. Since
both WNG and the pay stations are strictly bill payment sites, it is not their
responsibility to comply with any policy regarding delinquencies or collections.
Other payment methods include pay-by-phone and direct debits of customer
accounts through a local bank, which accounted for less than 1% of payments
collected in 1994.
Puget uses in-house collection attempts for all delinquent accounts. All
Customer bills are due 15 days from the date on which the bill is sent. The
timing of the collection process depends on the credit code assigned to that
Customer. The first step of the process is a reminder notice sent between 25
days (in the case of Customers with the lowest credit code) and 40 days (in the
case of Customers with the highest credit code) after billing. Between 10 to 25
(assuming the lowest and highest credit codes, respectively) days later, a
notice warning is sent regarding termination of service unless payment is
received. Puget then calls the Customer 13 days thereafter, and if full payment
is not received within four days, power is disconnected. Power is not
disconnected only if the delinquent Customer is subject to the Washington State
winter moratorium (the "Winter Moratorium"), which prohibits the disconnection
of electricity to low-income Customers (defined as those whose income is below
125% of the "poverty line") from November 15 through March 15 of each year. In
the 1993-94 winter period, 27 Customers were subject to the Winter Moratorium.
These Customer bills accumulate during the Winter Moratorium and payment plans
are established for each Customer. Customers subject to the Winter Moratorium
are required to pay 7% of their income toward their electric bills during the
Winter Moratorium period. Electric service is subject to disconnection if
satisfactory payment arrangements are not established.
If a Customer account is closed, either because a Customer has moved or the
Customer has failed to remedy a delinquent account, a reminder notice is sent 23
days after the date the account is closed. Assuming the uncollected amounts are
not received, a final request for payment is sent 36 days after the account
closing date, and a third-party collection letter is sent 50 days after such
date. After 80 days without receipt of payment, a closed account collector
attempts to contact the Customer by telephone. If after 120 days these telephone
attempts are unsuccessful, Puget's customer information system will
automatically code the account as a bad debt and send the account to a
collection agency. In 1994, $3,944,000 was referred to the collection agency,
$931,000 was recovered by the collection agency for
22
<PAGE>
accounts previously referred to it and $631,000 was remitted to Puget after
deducting the collection agency's fee. Collection recovery rates are monitored
monthly. Once written off, the uncollected amount remains monitored for six
years and may be collected at any point during that time.
Puget may change its collection policies and procedures from time to time.
It is expected that any such changes would be designed to enhance Puget's
ability to make timely recovery of amounts billed to Customers.
DELINQUENCY AND LOSS EXPERIENCE
The following table sets forth the loss and aging experience with respect to
payments to Puget for each of the periods indicated below. There can be no
assurance that the future loss and aging experience for Puget will be similar to
the historical experience set forth below:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
1992 1993 1994
--------- --------- ---------
<S> <C> <C> <C>
Net Charge-Offs as a percentage of Billed Revenues............................... 0.19% 0.25% 0.29%
Delinquencies (30 days+) as a percentage of Billed Revenues...................... 16.45% 16.21% 16.19%
</TABLE>
DESCRIPTION OF THE CERTIFICATES
The Certificates will be issued pursuant to the Pooling and Servicing
Agreement to be entered into by Puget, as originator of the Trust, Seller and
Servicer, and Chemical Bank, as Trustee, substantially in the form filed as an
exhibit to the Registration Statement of which this Prospectus is a part. The
Trustee will provide a copy of the final form of the Pooling and Servicing
Agreement to Certificateholders without charge on written request addressed to
the Trustee at its principal corporate trust office, located at 450 West 33rd
Street, 15th Floor, New York, New York 10001, Attention: Structured Finance
Services (ABS). The following summary describes certain terms of the Pooling and
Servicing Agreement and is qualified in its entirety by reference to the Pooling
and Servicing Agreement.
GENERAL
The Certificates will be available for purchase in book-entry form in
minimum denominations representing $1,000 of aggregate Certificate amount and in
integral multiples thereof and will evidence an undivided fractional interest
(the "Fractional Interest") in the Trust equal to the percentage obtained by
dividing the denomination of the Certificate by the aggregate Certificate
amount.
BOOK-ENTRY REGISTRATION
The Certificates will initially be represented by one or more certificates
registered in the name of the nominee of DTC, except as set forth below. Puget
has been informed by DTC that DTC's nominee will be Cede. Accordingly, Cede is
expected to be the holder of record of the Certificates. Unless and until
Definitive Certificates are issued under the limited circumstances described
herein, no Certificate Owner will be entitled to receive a Certificate
representing such person's interest in the Trust. All references herein to
action by Certificateholders shall refer to actions taken by DTC upon
instructions from its participating organizations (the "Participants") and all
references herein to distributions, notices, reports and statements to
Certificateholders shall refer to distributions, notices, reports and statements
of DTC or Cede, as the registered holder of the Certificates, as the case may
be, for distribution to Certificate Owners in accordance with DTC procedures.
DTC is a limited-purpose trust company organized under the laws of the state
of New York, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code, and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Exchange
Act. DTC was created to hold securities for its Participants and to facilitate
the clearance and settlement of securities transactions between Participants
through electronic book-entry changes in accounts of its Participants, thereby
eliminating the need for physical movement of certificates. Participants include
securities brokers and dealers, banks, trust companies and clearing corporations
and may include certain other organizations (including the Underwriters).
Indirect access to the
23
<PAGE>
DTC system also is available to others such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly (the "Indirect Participants").
Certificate Owners that are not Participants or Indirect Participants but
desire to purchase, sell or otherwise transfer ownership of, or other interests
in, Certificates may do so only through Participants and Indirect Participants.
In addition, Certificate Owners will receive all distributions of principal of
and interest on the Certificates from the Trustee, as paying agent, or its
successor in such capacity (the "Paying Agent"), through the Participants who in
turn will receive them from DTC. Under a book-entry format, Certificate Owners
may experience some delay in receiving payments, because such payments will be
forwarded by the Paying Agent to Cede by wire transfer of immediately available
funds, as nominee for DTC. DTC will forward such payments to its Participants
who thereafter will forward them to Indirect Participants or Certificate Owners.
It is anticipated that the only "Certificateholder" will be Cede, as nominee of
DTC. Certificate Owners will not be recognized by the Trustee as
Certificateholders, as such term is used in the Pooling and Servicing Agreement,
and the Certificate Owners will only be permitted to exercise the rights of
Certificateholders indirectly through the Participants who in turn will exercise
the rights of Certificateholders through DTC.
Under the rules, regulations and procedures creating and affecting DTC and
its operations, DTC is required to make book-entry transfers among Participants
on whose behalf it acts with respect to the Certificates and is required to
receive and transmit distributions of principal of and interest on the
Certificates. Participants and Indirect Participants with which Certificate
Owners have accounts with respect to the Certificates similarly are required to
make book-entry transfers and receive and transmit such payments on behalf of
their respective Certificate Owners. Accordingly, although Certificate Owners
will not possess Certificates, Certificate Owners will receive payments and will
be able to transfer their interests.
Because DTC can only act on behalf of Participants, which in turn act on
behalf of Indirect Participants and certain banks, the ability of a Certificate
Owner to pledge Certificates to persons or entities that do not participate in
the DTC system, or otherwise take actions in respect of such Certificates, may
be limited due to the lack of a physical certificate.
DTC will take any action permitted to be taken by a Certificateholder under
the Pooling and Servicing Agreement only at the direction of one or more
Participants to whose account with DTC the Certificates are credited.
Additionally, DTC will take such actions with respect to specified Fractional
Interests of the Trust only at the direction of and on behalf of Participants
whose holdings include undivided interests that satisfy such specified
Fractional Interest. DTC may take conflicting actions with respect to other
undivided interests to the extent that such actions are taken on behalf of
Participants whose holdings include such undivided interests.
None of the Trustee, the Seller or the Servicer will have any liability for
any actions taken by DTC or its nominee, including, without limitation, actions
for any aspects of the records relating to or payments made on account of
beneficial ownership interests in the Certificates held by the nominee of DTC,
or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
DEFINITIVE CERTIFICATES
The Certificates will be issued in fully registered, certificated form to
Certificate Owners or their nominees ("Definitive Certificates"), rather than to
DTC or its nominee, only if (i) the Trustee advises the Servicer in writing that
DTC is no longer willing or able to discharge properly its responsibilities as
depository with respect to the Certificates, and the Trustee is unable to locate
a qualified successor, (ii) Certificate Owners with aggregate Fractional
Interests representing more than 50% of the Trust advise the Trustee and the
clearing agency through Participants in writing that the continuation of a
book-entry system through DTC (or a successor thereto) is no longer in the best
interests of the Certificate Owners, or (iii) after the Servicer becomes subject
to insolvency proceedings, Certificate Owners with aggregate
24
<PAGE>
Fractional Interests representing more than 50% of the Trust advise the Trustee
and the clearing agency through Participants in writing that the continuation of
a book-entry system through DTC (or a successor thereto) is no longer in the
best interests of the Certificate Owners.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, DTC is required to notify all Participants of the
availability through DTC of Definitive Certificates. Upon surrender by DTC of
the physical certificates representing the Certificates and instructions for
reregistration, the Trustee will issue Definitive Certificates according to
DTC's instructions, and thereafter the Trustee will recognize the holders of
Definitive Certificates as Certificateholders under the Pooling and Servicing
Agreement (the "Holders").
If Definitive Certificates are issued, distributions of principal and
interest on the Definitive Certificates will be made by the Paying Agent
(initially the Trustee) directly to Holders of Definitive Certificates in
accordance with the procedures set forth herein and in the Pooling and Servicing
Agreement. Interest payments and principal payments on each payment date will be
made to holders in whose names the Definitive Certificates were registered at
the close of business on the last business day of the calendar month immediately
preceding the payment date. Distributions will be made by check mailed to the
address of such Holder as it appears on the Certificate register. The final
payment on any Certificate (whether Definitive Certificates or the certificates
registered in the name of Cede representing the Certificates), however, will be
made only upon presentation and surrender of such Certificate at the office or
agency specified in the notice of final distribution to Certificateholders. The
Paying Agent will provide such notice to registered Certificateholders not later
than the fifth day of the month of such final distributions.
Definitive Certificates will be transferable and exchangeable at the offices
of the Trustee in New York, New York. No service charge will be imposed for any
registration of transfer or exchange, but the Trustee may require payment of a
sum sufficient to cover any tax or other governmental charge imposed in
connection therewith.
SALE OF PURCHASED ASSETS TO THE TRUSTEE; EFFECT OF INSOLVENCY LAWS
On the Closing Date, Puget will sell and assign to the Trustee on behalf of
the Trust, without recourse or reversion, its entire interest in the Purchased
Assets. Puget believes that the transfer of the Purchased Assets by Puget to the
Trust will constitute a "true sale" of the Purchased Assets to the Trust for
Insolvency Law (but not tax law) purposes. Puget has granted a security interest
in the Purchased Assets and the proceeds thereof to the Trustee and has taken
the steps required by the Statute to perfect that security interest if for any
reason the transaction were to be recharacterized for Insolvency Law purposes as
a pledge of the Purchased Assets made to secure a borrowing by Puget rather than
a "true sale" under the Pooling and Servicing Agreement.
In the event of proceedings by or against Puget under any Insolvency Laws,
the Trustee would have the right pursuant to the Statute to cause the Commission
to order the sequestration, and payment to the Trust, of the revenues arising
from the Purchased Assets, although there can be no assurance that the
Commission would issue such an order in light of the automatic stay provisions
of Section 362 of the Bankruptcy Code or, alternatively, that a bankruptcy court
would lift the automatic stay to permit such action by the Commission. In that
event, the Trustee is required under the Pooling and Servicing Agreement to seek
an order from the bankruptcy court lifting the automatic stay with respect to
such action by the Commission and an order requiring an accounting and
segregation of the revenues arising from the Purchased Assets, although there
can be no assurance that the court would grant either order. If the transaction
were recharacterized as a secured borrowing in any such proceedings, the
bankruptcy court, under Section 363 of the Bankruptcy Code, could substitute
other collateral for the Purchased Assets and the proceeds therefrom if the
court were to conclude that the revenues arising from the Purchased Assets were
required for Puget's continuing operations and that the Certificateholders would
be "adequately protected" by a lien on such substitute collateral, in which case
delays and possible reductions in distributions to Certificateholders could
occur.
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The Statute provides that any successor to Puget pursuant to any Insolvency
Laws will be required to perform the Servicer's obligations with respect to the
Certificates. See "Risk Factors -- Possible Delays in or Reductions of
Distributions to Certificateholders in the Event of a Puget Insolvency."
ADMINISTRATION AND SERVICING OF PURCHASED ASSETS
The Trustee will irrevocably appoint the Servicer as agent to calculate the
Tariff and any Revised Tariff and to bill, manage, service, administer and make
collections of amounts due from Customers under the Tariff or any Revised
Tariff, the Conservation Repayment Contracts and the Purchased Sale Proceeds.
The Servicer shall use all reasonable efforts, consistent with its customary
procedures, to make collections from Customers of amounts due under the Tariff
or any Revised Tariff, the Conservation Repayment Contracts and the Purchased
Sale Proceeds, in each case to the same extent that it makes collection efforts
for its own account. The Servicer will maintain records of all revenues
collected under the Tariff or any Revised Tariff. The Servicer will deposit to
the Collection Account all amounts received by the Servicer in respect of the
Purchased Assets during such calendar month (i) within two business days after
such amounts are received by the Servicer, during any period in which the
long-term unsecured debt rating of the Servicer is below the fourth highest
long-term rating category of any of the Rating Agencies, or (ii) on or before
the tenth calendar day succeeding the last day of each calendar month (a
"Remittance Date"). The Trust has designated the Servicer as custodian to
maintain possession of all documents and instruments relating exclusively to the
Purchased Assets.
The Servicer has reserved the right to make any change to the amount or
reschedule the due date of any scheduled payment of any billed amount in respect
of the Purchased Assets or change any material term of any Purchased Asset if
such action would be in accordance with its customary practices or those of any
successor Servicer with respect to comparable assets that it services for itself
and if such action would not materially adversely affect the Certificateholder.
SERVICER COMPENSATION
The Servicing Fee for each quarterly Distribution Period will be an amount
equal to the sum of (i) $ in respect of the first Distribution Period and
$ in respect of all subsequent Distribution Periods and (ii) the
investment earnings on amounts deposited in the Collection Account during such
Distribution Period. The interest in respect of the Overcollateralization Amount
is expected to be sufficient to pay the fixed portion of the Servicing Fee as
well as the Trustee Fee. Such fees will be payable on each Distribution Date
prior to any distributions on the Certificates.
TARIFF
The Tariff specifically identifies, for each category of Puget's Customers,
a dollar amount of each Customer's regular electric bill that will be allocated
to the Trust from bills sent during each Regulatory Year. Such amounts will be
collected by Puget daily as part of its normal collection activities and will be
deposited to the Collection Account monthly on each Remittance Date.
DISTRIBUTIONS
On each Distribution Date, the Trustee will cause to be made the following
distributions, to the extent of funds available in the Collection Account, in
the following order of priority and in the amounts set forth in the applicable
Trustee's certificate:
(i) to the Trustee, the Trustee Fee for such Distribution Period and
any unpaid Trustee Fee for any prior Distribution Periods;
(ii) to the Servicer, the Servicing Fee for such Distribution Period and
any unpaid Servicing Fee for any prior Distribution Periods;
(iii) to the Certificateholders, an amount equal to the product of the
quarterly Certificate Rate and the aggregate Certificate balance as of the
first day of the Distribution Period plus any such amounts due to
Certificateholders with respect to any prior Distribution Period (plus an
amount equal to the product of the quarterly Certificate Rate and such
previously due amounts); and
(iv) to the Certificateholders, the balance remaining in the Collection
Account after payment of the amounts described in clauses (i) through (iii)
above as principal to reduce the aggregate Certificate balance.
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AMORTIZATION
Set forth below is the Pro Forma Schedule showing the Projected Bondable
Conservation Investment Balances.
<TABLE>
<CAPTION>
PROJECTED BONDABLE
CONSERVATION INVESTMENT
DATE BALANCE
- ------------------------------------------------------------------ ------------------------
<S> <C>
Initial........................................................... $202,494,850
September 30, 1995................................................ 191,721,002
September 30, 1996................................................ 161,106,486
September 30, 1997................................................ 133,905,961
September 30, 1998................................................ 106,705,436
September 30, 1999................................................ 79,504,911
September 30, 2000................................................ 56,039,465
September 30, 2001................................................ 34,441,554
September 30, 2002................................................ 17,528,547
September 30, 2003................................................ 5,692,310
March 31, 2004.................................................... 2,846,155
September 30, 2004................................................ 0
</TABLE>
The amount received by the Trust from amounts collected from Customers equal
to interest at the Certificate Rate on the Bondable Conservation Investment
Balance as of the first day of the preceding Distribution Period will be used to
pay the Trustee Fee, the Servicing Fee and interest on the Certificates. All
other amounts collected from Customers will constitute payments in respect of
the Bondable Conservation Investment Balance and will be used to pay principal
of the Certificates. Accordingly, amortization of the aggregate Certificate
balance in any period will equal the reduction of the Bondable Conservation
Investment Balance during such period. Assuming reductions of the Bondable
Conservation Investment Balance in accordance with the Pro Forma Schedule set
forth above and assuming straight-line amortization within each yearly period,
the weighted average life of the Certificates would be 3.8 years. The Servicer
does not, however, anticipate straight-line amortization within each yearly
period and deviations from the Pro Forma Schedule are expected to occur subject
to subsequent adjustment through Revised Tariffs, both of which factors could
affect the weighted average life of the Certificates. No representation can be
made as to the actual amortization of the Certificates.
PERIODIC RATE ADJUSTMENTS
On each Calculation Date, the Servicer is required to compare the Bondable
Conservation Investment Balance to the Projected Bondable Conservation
Investment Balance set forth in the Pro Forma Schedule as of such date. If the
Bondable Conservation Investment Balance at a Calculation Date differs from the
Projected Bondable Conservation Investment Balance for such Calculation Date by
more than 2%, the Servicer is required within 30 days of such Calculation Date
to apply for (and the Initial Order provides that the Commission will approve
within 30 days of the application) a Revised Tariff that will allocate revenues
to the Trust in an amount intended to be sufficient so that (i) the Bondable
Conservation Investment Balance on the next September 30 will equal the
Projected Bondable Conservation Investment Balance as of such date and (ii)
thereafter, will provide for the amortization of the remaining Bondable
Conservation Investment Amount in accordance with the Pro Forma Schedule. Under
Washington law applicable to rate filings generally, the Commission is obligated
to act on a rate application no later than 11 months from the date of filing.
The Revised Tariff will be based on updated assumptions by the Servicer,
including, but not limited to, the projected number of Customers and the
expected rate of delinquencies.
COLLECTION ACCOUNT
The Servicer will establish and maintain an account in the Trustee's name
for the benefit of the Certificateholders. The Collection Account shall be a
segregated identifiable trust account established in the trust department of a
Qualified Trust Institution (as hereinafter defined). The Collection Account
will be established and maintained with the Trustee, which is a Qualified Trust
Institution. The Servicer will remit to the Collection Account, prior to 1:00
p.m., New York City time, on each Remittance Date, the
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amounts received by the Servicer from or on behalf of Customers pursuant to the
Tariff and any Revised Tariffs, the Conservation Repayment Contracts and the
Purchased Sale Proceeds during the preceding calendar month. However, during any
period in which the long-term first-mortgage debt rating of the Servicer is
below the fourth highest long-term rating category of any of the Rating
Agencies, the Servicer is obligated to remit such amounts to the Collection
Account within two business days after such amounts are received by the
Servicer. "Qualified Trust Institution" is defined as an institution organized
under the laws of the United States or one of the states thereof or incorporated
under the laws of a foreign jurisdiction with a branch or agency located in the
United States and subject to supervision and examination by federal or state
banking authorities which at all times (i) is authorized under such laws to act
as a trustee or in any other fiduciary capacity, (ii) has not less than
$500,000,000 in assets under fiduciary management, (iii) has a minimum net worth
of at least $50,000,000, and (iv) has a long-term deposits rating in one of the
three highest rating categories by each of the Rating Agencies.
Funds in the Collection Account may be invested in any of the following: (i)
obligations of the United States or any agency thereof, provided such
obligations are backed by the full faith and credit of the United States; (ii)
general obligations of or obligations guaranteed as to the timely payment of
interest and principal by any state of the United States or the District of
Columbia then rated in the highest long-term rating category by the Rating
Agencies or such lower rating categories (as confirmed in writing by the Rating
Agencies) as will not result in the qualification, downgrading or withdrawal of
the ratings then assigned to the Certificates by the Rating Agencies; (iii)
commercial paper that is then rated in the highest short-term rating category by
the Rating Agencies or such lower rating categories (as confirmed in writing by
the Rating Agencies) as will not result in the qualification, downgrading or
withdrawal of the ratings then assigned to the Certificates by the Rating
Agencies; (iv) certificates of deposit, demand or time deposits, federal funds
or banker's acceptances issued by any depository institution or trust company
(including the Trustee acting in its commercial banking capacity) incorporated
under the laws of the United States or of any state thereof or incorporated
under the laws of a foreign jurisdiction with a branch or agency located in the
United States and subject to supervision and examination by federal or state
banking authorities, provided that the short-term unsecured deposit obligations
of such depository institution or trust company are then rated in the highest
short-term rating category by the Rating Agencies or such lower rating
categories (as confirmed in writing by the Rating Agencies) as will not result
in the qualification, downgrading or withdrawal of the ratings then assigned to
the Certificates by the Rating Agencies; (v) demand or time deposits of, or
certificates of deposit issued by, any bank, trust company, savings bank or
other savings institution, provided that such deposits or certificates of
deposit are fully insured by the FDIC; (vi) guaranteed reinvestment agreements
issued by any bank, insurance company or other corporation (a) the short-term
unsecured debt or deposits of which are rated in the highest short-term rating
category by the Rating Agencies or the long-term unsecured debt of which is
rated in the highest long-term rating category by the Rating Agencies or (b)
that are otherwise confirmed in writing by the Rating Agencies as investments
that will not result in the qualification, downgrading or withdrawal of the
ratings then assigned to the Certificates by the Rating Agencies; (vii)
repurchase obligations with respect to any security described in clause (i),
(ii) or (ix) herein or any other security issued or guaranteed by the FHLMC, the
FNMA or any other agency or instrumentality of the United States that is backed
by the full faith and credit of the United States, in either case entered into
with a federal agency or a depository institution or trust company (acting as
principal) described in clause (iv) above or a corporation (acting as principal)
described in clause (vi) above; (viii) investments in money market funds, which
funds are (a) not subject to any sales, load or other similar charge; (b) rated
in the highest rating category by the Rating Agencies; and (c) invested solely
in obligations described in clauses (i) through (vii) above; (ix) interests in
any open-end or closed-end management-type investment company or investment
trust (a) registered under the Investment Company Act of 1940, as from time to
time amended, the portfolio of which is limited to obligations of the United
States or obligations guaranteed by the United States and to agreements to
repurchase such obligations, which agreements, with respect to principal and
interest, are at least 100% collateralized by such obligations marked to market
on a daily basis and pursuant to which the investment company or investment
trust is required to take delivery of such obligations either directly or
through an independent custodian designated in
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accordance with the Investment Company Act of 1940, as from time to time
amended, and (b) acceptable to the Rating Agencies (as confirmed in writing by
the Rating Agencies) as collateral for securities having ratings equivalent to
the ratings of the Certificates on the Closing Date; and (x) such other
investments where either (a) the short-term unsecured debt or deposits of the
obligor on such investments are rated in the highest short-term rating category
by the Rating Agencies or (b) such investments are acceptable to, and confirmed
in writing by, the Rating Agencies and will not result in the qualification,
downgrading or withdrawal of the ratings then assigned to the Certificates by
the Rating Agencies.
REPORTS TO CERTIFICATEHOLDERS AND EVIDENCE OF COMPLIANCE
For each Calculation Date, the Servicer will provide to the Trustee a
certificate indicating (i) the Bondable Conservation Investment Balance as of
such Calculation Date and (ii) a comparison of the Bondable Conservation
Investment Balance and the Projected Bondable Conservation Investment Balance,
together with a statement as to whether a Variance exists. Moreover, on or
before each Remittance Date, the Servicer will prepare and furnish to the
Trustee a certificate for the related Collection Period setting forth the
aggregate amount remitted and the components thereof. On the basis of this
information, the Trustee will furnish to the Certificateholders on each
Distribution Date reports describing (a) the aggregate amounts collected and the
components thereof for the preceding Distribution Period, (b) the amounts to be
distributed, (c) the remaining aggregate Certificate balance after giving effect
to all distributions of principal to the Certificateholders, (d) the Bondable
Conservation Investment Balance as of the end of the preceding Distribution
Period, and (e) if the last day of the preceding Distribution Period is a
Calculation Date, a comparison between the Bondable Conservation Investment
Balance and the Projected Bondable Conservation Investment Balance, together
with a statement as to whether a Variance exists. In addition, within a
reasonable period of time after the end of each calendar year, the Trustee shall
furnish to each person who at any time during the calendar year was a
Certificateholder, a statement of the aggregate amounts distributed during the
year.
The Servicer shall deliver to the Trustee on or before April 30 of each
year, a certificate signed by an appropriate officer of the Servicer stating
that to the best of such officer's knowledge, after a review of the Servicer's
activities during the prior year, the Servicer has fulfilled all of its material
obligations in all material respects under the Pooling and Servicing Agreement.
The Servicer shall also cause a firm of independent public accountants to
prepare a report for the Trustee's use on or before May 31 of each year to the
effect that such firm has performed certain review procedures with respect to
the Servicer's performance and records relating to servicing the Purchased
Assets and has found them to be in compliance with the Pooling and Servicing
Agreement.
The Trustee will provide a copy of any Servicer's certificate described in
the two preceding paragraphs to any Certificateholder who so requests in writing
at the Trustee's offices located at 450 West 33rd Street, 15th Floor, New York,
New York 10001, Attention: Structured Finance Services (ABS). All reports
described above will be available to any Certificate Owner upon request to the
Trustee or the Servicer.
REPRESENTATIONS AND WARRANTIES
As of the Closing Date, the Seller will make representations and warranties
to the Trust relating to the Purchased Assets to the effect, among other things,
that as of the Closing Date (i) the Purchased Assets have been conveyed to the
Trust free and clear of any liens, claims or encumbrances arising through the
Seller; (ii) no authorization or approval or other action by, and no notice to
or filing with, and no consent by, any governmental authority, regulatory body
or third party is required for the due execution and delivery by the Seller of
the Pooling and Servicing Agreement and the performance by the Seller of its
obligations thereunder, except for (a) the Initial Order and (b) such other
authorizations, approvals, notices, consents and filings as have been duly
received or made; (iii) the Seller is a corporation duly organized and in good
standing under the laws of the state of Washington with the power and authority
to own its properties and to conduct its business as currently owned or
conducted, and to execute, deliver and perform its obligations under the Pooling
and Servicing Agreement; (iv) the execution,
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delivery and performance of the Pooling and Servicing Agreement by the Seller
have been duly authorized by the Seller by all necessary corporate action; (v)
the Pooling and Servicing Agreement constitutes a legal, valid and binding
agreement of the Seller enforceable against the Seller in accordance with its
terms, subject to bankruptcy and equity exceptions; and (vi) the consummation of
the transactions contemplated by the Pooling and Servicing Agreement do not (a)
conflict with the Seller's charter or bylaws or the material terms of any
agreements of the Seller, (b) result in the creation or imposition of any lien
upon the Seller's properties, or (c) violate any law or any order, rule or
regulation applicable to the Seller. As of the Closing Date, the Servicer will
make representations and warranties to the Trust similar in form and substance
to those described in clauses (ii) through (vi) above.
In the event of a material breach by the Seller or the Servicer of any of
its representations and warranties described in the preceding paragraph, the
Seller or the Servicer, as the case may be, will indemnify, defend and hold
harmless the Trustee, the Trust and the Certificateholders against any loss,
liability or expense that is the sole and direct result thereof.
SERVICER COVENANTS
In the Pooling and Servicing Agreement, the Servicer has covenanted that, in
servicing the Purchased Assets: (i) it will manage, service, administer and make
collections on the Purchased Assets with reasonable care and in accordance with
law, using that degree of skill and attention that the Servicer exercises with
respect to assets that the Servicer services for itself; (ii) it will follow its
customary standards, policies and procedures in performing its duties as
Servicer; (iii) it will use all reasonable efforts, consistent with its
customary servicing procedures, to (a) enforce, and maintain rights in respect
of, the Purchased Assets in each case to the extent it services comparable
assets that it services for itself and (b) maintain the aggregate amount of
revenues allocated to the Trust pursuant to the Tariff or any Revised Tariff by
making necessary filings or refilings with the Commission; and (iv) it will
comply with all laws applicable to and binding on it relating to the Purchased
Assets, the noncompliance with which would have a material adverse effect on the
value of the Purchased Assets; PROVIDED, HOWEVER, that the foregoing is not
intended to, and shall not, impose any liability on the Servicer for
noncompliance with any law that the Servicer is contesting in good faith in
accordance with its customary standards and procedures.
In addition, under the Pooling and Servicing Agreement, the Servicer has
agreed, among other things, (i) to calculate the Bondable Conservation
Investment Balance as of each Calculation Date and deliver a written copy of
such calculation to the Trustee not later than two business days prior to the
Distribution Date immediately following such Calculation Date and, within 30
days following the Calculation Date to which a Variance relates, to apply with
the Commission for a Rate Adjustment and (ii) in connection with each such Rate
Adjustment, to (a) calculate the relevant Revised Tariff, (b) file an
application with the Commission, (c) take all reasonable actions and make all
reasonable efforts in order to effectuate the rate adjustment and enforce the
provisions of the Statute that obligate the Commission to approve rates at
levels sufficient to recover the Conservation Asset Transaction Amount in
accordance with the Pooling and Servicing Agreement, and (d) send to the Trustee
copies of all material notices and documents.
In the event of a material breach by the Servicer of any of these covenants,
the Servicer will indemnify, defend and hold harmless the Trustee, the Trust and
the Certificateholders against any costs, expenses, losses, claims, damages and
liabilities incurred as a sole and direct result thereof.
In addition, the Servicer has agreed to indemnify, defend and hold harmless
the Trustee against any loss, liability or expense (except for recurring
expenses incurred in the ordinary course of business, which are intended to be
covered by the Trustee Fee) in connection with the Trustee's administration of
the Trust, other than any loss, liability or expense incurred by reason of
willful misfeasance, bad faith or negligence in the performance of the Trustee's
duties under the Pooling and Servicing Agreement or reckless disregard of its
obligations and duties thereunder.
LIMITATION ON LIABILITY OF THE SELLER AND THE SERVICER
The Pooling and Servicing Agreement provides that none of the Seller, the
Servicer or any of their directors, officers, employees or agents, in their
capacities as such, will be under any other liability to the
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Trust, the Trustee or the Certificateholders for any action taken, or refrained
from being taken, pursuant to the Pooling and Servicing Agreement, provided that
the Seller and the Servicer are not so protected against any liability that
would otherwise be imposed by reason of the breach of their respective
obligations and duties under the Pooling and Servicing Agreement.
SUCCESSOR SERVICER; EVENTS OF DEFAULT
The Pooling and Servicing Agreement and the Statute provide that any
successor to Puget pursuant to any bankruptcy, reorganization or other
insolvency proceeding shall perform and satisfy all of Puget's obligations as
Servicer under the Pooling and Servicing Agreement.
Any person into which the Servicer may be merged or consolidated or any
person resulting from any merger or consolidation to which the Servicer is a
party, or any person succeeding to the electric utility distribution business of
the Servicer, will be the successor to the Servicer under the Pooling and
Servicing Agreement.
Except as provided in the preceding paragraph, the Servicer may not transfer
or assign all or a portion of its rights, obligations and duties under the
Pooling and Servicing Agreement unless (i) such transfer or assignment will not
result in a withdrawal or reduction by the Rating Agencies of the rating then
assigned to the Certificates or (ii) the Trustee and the Certificateholders
evidencing not less than 75% of the aggregate Certificate balance consent
thereto.
The Servicer may not resign from its obligations and duties under the
Pooling and Servicing Agreement except upon (i) appointment of a successor
Servicer and (ii) receipt by the Trustee of notice from each of the Rating
Agencies to the effect that the rating then assigned to the Certificates will
not be withdrawn or reduced as a result of such resignation and the appointment
of a successor.
The Servicer may be removed by the Certificateholders upon an Event of
Default. "Event of Default" shall mean (i) the Servicer's failure to make
remittances required under the Pooling and Servicing Agreement, which failure
continues unremedied for five business days after notice from the Trustee, (ii)
the Servicer's failure to observe and perform in all material respects any of
the other covenants or agreements on the Servicer's part under the Pooling and
Servicing Agreement, which failure continues unremedied for 30 days after notice
from the Trustee or from the holders of Certificates representing not less than
25% of the aggregate Certificate balance, and (iii) any representation or
warranty of the Servicer having been incorrect when made that has a material
adverse effect on the Certificate Owners, which material adverse effect
continues for 30 days after notice from the Trustee or from the holders of
Certificates representing not less than 25% of the aggregate Certificate
balance, and in each case which is followed by notice of termination from the
holders of Certificates representing not less than 75% of the aggregate
Certificate balance, appointment of a successor Servicer and receipt by the
Trustee of notice from each of the Rating Agencies to the effect that the rating
then assigned to the Certificates will not be qualified, downgraded or withdrawn
as a result of appointment of the successor Servicer.
AMENDMENTS
The Pooling and Servicing Agreement may be amended from time to time by
agreement of the Trustee, the Servicer and the Seller without the consent of any
Certificateholders to cure any ambiguity, to correct or supplement any provision
that may be inconsistent with any other provision therein, to evidence a
succession to the Servicer or the Seller pursuant thereto or to add any other
provisions with respect to matters or questions arising thereunder that are not
inconsistent with the provisions thereof; PROVIDED, HOWEVER, that such action
may not, as evidenced by an officer's certificate or an opinion of counsel
delivered to the Trustee, adversely and materially affect the interests of the
Trust or any of the Certificateholders.
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The Pooling and Servicing Agreement may also be amended from time to time by
the Seller, the Servicer and the Trustee with the consent of the holders of
Certificates evidencing not less than 51% of the aggregate Certificate balance
for the purpose of adding any provision or changing any of the provisions
thereof, or modifying in any manner the rights of the Certificateholders,
provided that no such amendment may (i) increase or reduce in any manner the
amount of, or accelerate or delay the timing of, collections of payments with
respect to the Purchased Assets or distributions to be made to
Certificateholders, (ii) modify the provisions of the Pooling and Servicing
Agreement relating to Events of Default or waiver of past defaults, or (iii)
reduce the percentage of the aggregate Certificate balance referenced above for
approval of an amendment, without the consent of all Certificateholders.
The Trustee will furnish written notice of the substance of any such
amendment to each Certificateholder promptly following the execution of any such
amendment (other than any amendment described in the first paragraph of this
section).
THE TRUSTEE
Chemical Bank is the initial Trustee under the Pooling and Servicing
Agreement. The Corporate Trust Department of Chemical Bank is located at 450
West 33rd Street, 15th Floor, New York, New York 10001. The Servicer and its
affiliates may from time to time enter into normal banking and trustee
relationships with the Trustee and its affiliates. An affiliate of the Trustee,
Chemical Securities Inc., will be one of the Underwriters of the Certificates.
The Trustee and the Servicer and any of their respective affiliates may hold
Certificates in their own names; however, any Certificates held by the Servicer
or any of its affiliates shall not be entitled to participate in any decisions
made or instructions given to the Trustee by Certificateholders as a group. In
addition, for purposes of meeting the legal requirements of certain local
jurisdictions, the Trustee, acting jointly with the Servicer, shall have the
power to appoint a co-trustee or separate trustee of all or any part of the
Trust. In the event of such appointment, all rights, powers, duties and
obligations shall be conferred or imposed on the Trustee and such separate
trustee or co-trustee jointly or, in any jurisdiction in which the Trustee shall
be incompetent or unqualified to perform certain acts, singly upon such separate
trustee or co-trustee, who shall exercise and perform such rights, powers,
duties and obligations solely at the direction of the Trustee. Such appointment
shall not absolve the Trustee of its obligations under the Pooling and Servicing
Agreement.
The Trustee may resign at any time, in which event the holders of
Certificates evidencing not less than 51% of the aggregate Certificate balance
(the "Majority Holders") may appoint a successor Trustee. The Majority Holders
may also remove the Trustee if the Trustee ceases to be eligible to continue as
such under the Pooling and Servicing Agreement or if the Trustee becomes
insolvent. In such circumstances, the Majority Holders will be obligated to
appoint a successor Trustee. Any resignation or removal of the Trustee and
appointment of a successor Trustee will not become effective until acceptance of
the appointment by the successor Trustee.
The Trustee will have no obligation to exercise any of the rights or powers
vested in it by the Pooling and Servicing Agreement, or to institute, conduct or
defend any litigation under or in relation to the Pooling and Servicing
Agreement, at the request, order or direction of any of the Certificateholders
unless such Certificateholders have offered to the Trustee reasonable security
or indemnity against the costs, expenses and liabilities that may be incurred
therein or thereby. The Trustee will have the right to decline to follow any
such request, order or direction if the Trustee, in accordance with an opinion
of counsel, determines that the action or proceeding may not lawfully be taken
or if the Trustee in good faith determines that the action or proceeding so
directed would involve it in personal liability or be unjustly prejudicial to
the nonassenting Certificateholders.
TERMINATION OF THE TRUST
The respective responsibilities of the Seller, the Servicer and the Trustee
created by the Pooling and Servicing Agreement will terminate upon distribution
to the Certificateholders of all amounts required to be distributed to them
under the Pooling and Servicing Agreement. The Tariff and any Revised Tariffs
will expire on the Tariff Termination Date, which will be the final date on
which rates under the Tariff or any
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Revised Tariff may be billed to Customers. Amounts received on any date prior to
the Final Collection Date with respect to bills sent on or prior to the Tariff
Termination Date will be distributed on the succeeding Distribution Date, but
not later than the Final Distribution Date.
LIST OF CERTIFICATEHOLDERS
At such time, if any, as Definitive Certificates have been issued, upon
written request of any Certificateholder of record holding Certificates
evidencing not less than 10% of the aggregate Certificate balance, the Trustee
will afford such Certificateholder access during business hours to the current
list of Certificateholders for purposes of communicating with other
Certificateholders with respect to their rights under the Pooling and Servicing
Agreement. See "-- Book-Entry Registration" and "-- Definitive Certificates."
The Pooling and Servicing Agreement will not provide for any annual or other
meetings of Certificateholders.
FEDERAL INCOME TAX CONSEQUENCES
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
Perkins Coie, counsel to Puget ("Tax Counsel"), has prepared the following
summary of Tax Counsel's opinion regarding the material U.S. federal income tax
consequences resulting from the purchase, ownership and disposition of
Certificates. This summary neither purports to consider all the possible tax
consequences of the purchase, ownership or disposition of the Certificates nor
reflects issues that may be material to an investor based on its particular tax
situation. It deals only with Certificates held as capital assets and, except as
expressly indicated, it is addressed only to initial purchasers of Certificates.
It does not deal with holders with a special tax status or special tax
situations, such as dealers in securities. Except to the extent discussed under
"-- Taxation of Non-U.S. Certificateholders," this discussion may not apply to
non-U.S. persons that are not subject to U.S. federal income tax on a net income
basis.
This summary is based on the U.S. federal income tax laws and regulations
now in effect and as currently interpreted, and does not take into account
possible changes in such tax laws or such interpretations, all of which may be
applied retroactively. It does not include any description of the tax laws of
any state or local governments within the United States, or of any foreign
government, that may be applicable to the Certificates or the
Certificateholders. Persons considering the purchase of Certificates should
consult their own tax advisors concerning the application of the U.S. federal
income tax laws to their particular situations, as well as any consequences
arising under the laws of any other taxing jurisdiction.
No rulings have been or will be sought from the IRS with respect to any of
the U.S. federal income tax consequences discussed below. Thus, there can be no
assurance that the IRS will not take contrary positions. Accordingly, each
prospective investor is urged to consult its own tax advisor with respect to the
U.S. federal income tax consequences of holding an interest in a Certificate.
For purposes of the discussion below, (i) "U.S. Person" means a citizen or
resident of the United States, a corporation, partnership or other specified
entity created or organized in or under the laws of the United States, or any
political subdivision thereof, or an estate or trust the income of which is
includible in gross income for U.S. federal income tax purposes regardless of
its source and (ii) "non-U.S. Person" means a person other than a U.S. Person.
TAX STATUS OF THE TRUST
Under the trust agreement, the Certificateholders agree to treat the Trust
as a grantor trust within the meaning of Section 671 ET SEQ. of the Code. As
such, the Trust itself should not be subject to tax unless it is recharacterized
as an association taxable as a corporation. Characterization of the Trust as an
association taxable as a corporation could cause the Trust to incur federal
income taxes and cause payments received by Certificateholders to constitute
taxable dividends. Tax Counsel has reviewed the Pooling and Servicing Agreement
and is of the opinion that the Trust will not be taxable as a corporation.
33
<PAGE>
TAXATION OF U.S. CERTIFICATEHOLDERS
Each Certificateholder that is a U.S. Person will be required to include in
income, in accordance with its usual method of accounting, the portion of the
stated interest attributable to the Certificates held by such holder. For
federal income tax purposes, Puget intends to treat the transactions described
herein as a loan by the Trust to Puget secured by a pledge of the Purchased
Assets, and the Trust will be treated as owning debt in which each
Certificateholder will own an undivided interest; accordingly, each
Certificateholder will be required to report as interest income its share of the
income of the Trust, which will equal in amount the stated interest attributable
to the Certificates held by such holder. Tax Counsel is of the opinion that the
Certificateholders will not be required to include in taxable income from the
Trust any original issue discount ("OID") income. However, any
Overcollateralization Amount received by a Certificateholder will be ordinary
income if and when received. In addition, under current proposed regulations
(which are not yet in effect), any distribution by the Trust to a
Certificateholder in excess of the amount equal to the Bondable Conservation
Investment Amount allocable to such holder plus interest at the Certificate Rate
would be contingent interest that is required to be included in gross income of
the Certificateholder in the year in which the amount of such payment becomes
fixed, which is expected to be the year in which any such amount will be
distributed.
A Certificateholder that is a U.S. Person will recognize gain or loss upon
the sale or exchange of a Certificate equal to the difference between the amount
realized from such sale or exchange (exclusive of any portion thereof reflecting
accrued but unpaid interest) and its tax basis in the Certificate. A
Certificateholder that is a U.S. Person will have a tax basis in a Certificate
equal to the Certificateholder's purchase price for such Certificate, decreased
by any principal repayments and any amortization of bond premium and increased
by the amount of any OID previously taken into income.
TAXATION OF NON-U.S. CERTIFICATEHOLDERS
Interest paid to a Certificateholder that is a non-U.S. Person will be
subject to a U.S. withholding tax of 30% or such lower amount as may apply by
income tax treaty between the United States and the country in which the
Certificateholder is resident, except that no withholding tax will apply if the
portfolio interest exemption under Section 881(c) or 871(g) of the Code applies.
The portfolio interest exemption should apply if the Certificateholder is not a
bank and it provides to the Trustee a form W-8 or the equivalent thereof. See
"-- Information Reporting and Backup Withholding" for requirements for exemption
of non-U.S. Persons from information reporting and backup withholding.
Notwithstanding the foregoing, if interest or other income received with
respect to the Certificates is effectively connected with a U.S. trade or
business conducted by a Certificateholder that is a non-U.S. Person, such
Certificateholder, although exempt from the withholding tax described in the
preceding paragraph, may be subject to U.S. federal income tax on such interest
in the same manner as if it were a U.S. Person. In addition, if such
Certificateholder is a corporation, it may be subject to a branch profits tax
equal to 30% (or lower treaty rate) of its effectively connected earnings and
profits for the taxable year, subject to certain adjustments.
INFORMATION REPORTING AND BACKUP WITHHOLDING
The Trustee will be required to report annually to the IRS, and to each
Certificateholder of record, certain information, including the
Certificateholder's name, address and taxpayer identification number (either the
Certificateholder's social security number or its employer identification
number, as the case may be), the aggregate amount of principal and interest paid
and the amount of tax withheld, if any. This obligation, however, does not apply
with respect to certain U.S. Persons, including corporations, tax-exempt
organizations, qualified pension and profit-sharing trusts and individual
retirement accounts.
In the event a U.S. Person subject to the reporting requirements described
above fails to supply its correct taxpayer identification number in the manner
required by applicable law or underreports its tax liability, the Trust, its
agents or the Paying Agent may be required to "backup" withhold a tax equal to
31% of each payment of principal and interest on the Certificates. This backup
withholding is not an additional tax and may be credited against the
Certificateholder's U.S. federal tax liability, provided that the required
information is furnished to the IRS.
34
<PAGE>
Under current Treasury regulations, information reporting and backup
withholding will not apply to payments made by the Trust or any agent thereof to
a Certificateholder that is a non-U.S. Person if (i) the beneficial owner of the
Certificate certifies under penalties of perjury that it is not a U.S. Person
and provides its name, address and taxpayer identification number (if any) or
(ii) a securities clearing organization, bank or other financial institution
that holds customer's securities in the ordinary course of its trade or business
(a "financial institution") and holds the Certificate certifies to the Trust or
its agent, under penalties of perjury, that such statement has been received
from the beneficial owner by it or another financial institution and furnishes
the payor with a copy thereof. To take advantage of any treaty exemption from
U.S. withholding tax on interest, a Certificateholder must provide an IRS Form
1001. To take advantage of the portfolio interest exemption, Certificateholders
must provide a form W-8 or the equivalent thereof.
Payment of the proceeds from the sale of a Certificate to or through a
foreign office of a broker will not be subject to information reporting or
backup withholding, except to the extent that the broker is (i) a U.S. Person,
(ii) a controlled foreign corporation for U.S. federal income tax purposes, or
(iii) a foreign person 50% or more of whose gross income from all sources for
the three-year period ending with the close of its taxable year preceding the
payment was effectively connected with a U.S. trade or business. Payment of the
proceeds from the sale of a Certificate to or through the U.S. office of a
broker is subject to information reporting and backup withholding unless the
Certificateholder or beneficial owner certifies as to its taxpayer
identification number or otherwise establishes an exemption from information
reporting and backup withholding.
ERISA CONSIDERATIONS
ERISA and the Code impose certain restrictions on employee benefit plans
("Plans") subject to ERISA or the Code and on persons who have certain specified
relationships to such Plans ("Parties-in-Interest" under ERISA and "Disqualified
Persons" under the Code). ERISA also imposes certain duties on persons who are
fiduciaries of Plans subject to ERISA and prohibits certain transactions between
a Plan and Parties-in-Interest or Disqualified Persons with respect to such
Plans.
The Department of Labor has issued a regulation (29 C.F.R.
Section 2510.3-101) concerning the definition of what constitutes the assets of
a Plan (the "Plan Asset Regulation"). The Plan Asset Regulation provides that,
as a general rule, the underlying assets and properties of corporations,
partnerships, trusts and certain other entities in which a Plan purchases an
"equity interest" will be deemed for purposes of ERISA to be assets of the
investing Plan, unless certain exceptions apply.
The Plan Asset Regulation defines an "equity interest" as any interest in an
entity other than an instrument that is treated as indebtedness under applicable
local law and that has no substantial equity features. Although it is not free
from doubt, the Certificates offered hereby should be treated as "equity
interests" for purposes of the Plan Asset Regulation. In addition, there can be
no assurance that any of the exceptions set forth in the Plan Asset Regulation
will apply to the purchase of the Certificates offered hereby.
One exception under the Plan Asset Regulation provides that an investing
Plan's assets will not include any of the underlying assets of an entity if the
class of "equity" interests in question are (i) held by 100 or more investors
who are independent of the issuer and each other, (ii) freely transferable, and
(iii) sold as part of an offering pursuant to (a) an effective registration
statement under the Securities Act or (b) an effective registration statement
under Section 12(b) or 12(g) of the Exchange Act (the "Publicly Offered
Securities Exception"). There can be no assurance that the Publicly Offered
Securities Exception or any other exception set forth in the Plan Asset
Regulation will be applicable to the Certificates offered hereby.
Under the terms of the Plan Asset Regulation, if the issuer were deemed to
hold Plan assets by reason of a Plan's investment in a Certificate, such Plan
assets would include an undivided interest in the Purchased Assets held by the
issuer. In such event, the persons providing services with respect to the
Purchased Assets may be subject to the fiduciary responsibility provisions of
Title 1 of ERISA and to the
35
<PAGE>
prohibited transaction provisions of ERISA and Section 4975 of the Code with
respect to transactions involving such assets. In addition, if any of the
obligors on the Purchased Assets is a Party-in-Interest or a Disqualified Person
with respect to an investing Plan, such Plan's investment could be deemed to
constitute a transaction prohibited under Title 1 of ERISA or Section 4975 of
the Code (e.g., the extension of credit between a Plan and a Party-in-Interest
or Disqualified Person). Such transactions may, however, be subject to a
statutory or administrative exemption such as Prohibited Transaction Class
Exemption ("PTCE") 90-1, which exempts certain transactions involving an
insurance company pooled separate account; PTCE 91-38, which exempts certain
transactions involving bank collective investment funds; and PTCE 84-14, which
exempts certain transactions effected on behalf of a Plan by a "qualified
professional asset manager" or pursuant to any other available exemption. Such
exemptions may not, however, apply to all the transactions that could be deemed
prohibited transactions in connection with the Plan's investment.
Any Plan fiduciary that proposes to cause a Plan to purchase Certificates
should consult with its counsel with respect to the potential applicability of
ERISA and the Code to such investment and whether any exemption would be
applicable and determine on its own whether all conditions of such exemption or
exemptions have been satisfied. Moreover each Plan fiduciary should determine
whether, under the general fiduciary standards of investment prudence and
diversification, an investment in the Certificates is appropriate for the Plan,
taking into account the Plan's overall investment policy and the composition of
the Plan's investment portfolio.
36
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting agreement
(the "Underwriting Agreement") among Puget, as originator of the Trust, and
Salomon Brothers Inc and Chemical Securities Inc., as underwriters (the
"Underwriters"), the Seller has agreed to cause the Trust to sell to each of the
Underwriters, and the Underwriters have severally agreed to purchase, the
principal amount of Certificates set forth opposite each Underwriter's name
below:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT OF
UNDERWRITERS CERTIFICATES TO BE PURCHASED
- -------------------------------------------------------------------------- ----------------------------
<S> <C>
Salomon Brothers Inc...................................................... $
Chemical Securities Inc................................................... $
---------------
Total................................................................. $ 202,300,000
---------------
---------------
</TABLE>
In the Underwriting Agreement, the Underwriters have severally agreed,
subject to the terms and conditions set forth therein, to purchase all the
Certificates offered hereby if any Certificates are purchased. Puget has been
advised that the Underwriters propose initially to offer the Certificates to the
public at the public offering price set forth on the cover page of this
Prospectus, and to certain dealers at such price less a concession not in excess
of % of the principal amount of the Certificates. The Underwriters may allow
and such dealers may reallow a concession not in excess of % of the principal
amount of the Certificates. After the initial public offering, the public
offering price and such concessions may be changed. The Underwriting Agreement
provides that Puget will pay to Salomon Brothers Inc a structuring fee in the
amount of $____.
Puget, as the Seller, will be responsible for payment of the underwriting
compensation and fees to the Underwriters. The Trust and the Certificateholders
will not pay any underwriting discounts, commissions or other compensation to
the Underwriters.
Chemical Securities Inc. is an affiliate of Chemical Bank, which is a lender
to Puget. In addition, Chemical Bank, or its affiliates, participates on a
regular basis in various general financing and banking transactions for Puget.
The Underwriting Agreement provides that Puget will indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act.
LEGAL MATTERS
Certain legal matters relating to the issuance of the Certificates will be
passed upon for the Seller and the Servicer by Perkins Coie, Seattle,
Washington, and for the Underwriters by Skadden, Arps, Slate, Meagher & Flom,
New York, New York. Certain federal income tax matters will be passed upon for
the Seller by Perkins Coie.
37
<PAGE>
INDEX OF TERMS
<TABLE>
<S> <C>
Bondable Conservation Investment Amount.................................................. 1
Bondable Conservation Investment Balance................................................. 4
Calculation Date......................................................................... 4
Cede..................................................................................... 2
Certificate Owner........................................................................ 2
Certificate Rate......................................................................... 3
Certificateholder........................................................................ 2
Certificates............................................................................. 1
Closing Date............................................................................. 5
Code..................................................................................... 9
Collection Account....................................................................... 4
Commission............................................................................... 1
Conservation Asset Transaction Amount.................................................... 3
Conservation Repayment Contracts......................................................... 6
Customers................................................................................ 4
Definitive Certificates.................................................................. 24
Disqualified Persons..................................................................... 35
Distribution Date........................................................................ 1
Distribution Period...................................................................... 7
DTC...................................................................................... 1
ERISA.................................................................................... 9
Event of Default......................................................................... 31
Exchange Act............................................................................. 2
Final Collection Date.................................................................... 16
Final Distribution Date.................................................................. 8
financial institution.................................................................... 35
Fractional Interest...................................................................... 23
Grant.................................................................................... 16
Holders.................................................................................. 25
Indirect Participants.................................................................... 24
Initial Order............................................................................ 4
Insolvency Laws.......................................................................... 10
IRS...................................................................................... 9
Majority Holders......................................................................... 32
non-U.S. Person.......................................................................... 33
OID...................................................................................... 34
Overcollateralization Amount............................................................. 5
Participants............................................................................. 23
Parties-in-Interest...................................................................... 35
Paying Agent............................................................................. 24
Plan Asset Regulation.................................................................... 35
Plans.................................................................................... 35
Pooling and Servicing Agreement.......................................................... 1
Pro Forma Schedule....................................................................... 4
Projected Bondable Conservation Investment Balance....................................... 4
PTCE..................................................................................... 36
Publicly Offered Securities Exception.................................................... 35
Puget.................................................................................... 1
Purchased Assets......................................................................... 6
Purchased Sale Proceeds.................................................................. 6
Qualified Trust Institution.............................................................. 28
</TABLE>
38
<PAGE>
<TABLE>
<S> <C>
Rate Adjustment.......................................................................... 6
Rating Agencies.......................................................................... 9
Registration Statement................................................................... 2
Regulatory Year.......................................................................... 15
Remittance Date.......................................................................... 26
Revised Tariff........................................................................... 5
Revised Tariff Amount.................................................................... 5
S.E.C.................................................................................... 2
Schedule................................................................................. 15
Securities Act........................................................................... 2
Servicing Fee............................................................................ 7
Statute.................................................................................. 1
Tariff................................................................................... 1
Tariff Termination Date.................................................................. 8
Tax Counsel.............................................................................. 33
Termination Fees......................................................................... 16
Trust.................................................................................... 1
Trustee.................................................................................. 1
Trustee Fee.............................................................................. 5
Underwriters............................................................................. 37
Underwriting Agreement................................................................... 37
U.S. Person.............................................................................. 33
Variance................................................................................. 4
Winter Moratorium........................................................................ 22
WNG...................................................................................... 22
</TABLE>
39
<PAGE>
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THE OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY PUGET,
THE TRUST OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY
IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN
SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AT ANY TIME SUBSEQUENT TO THE DATE
HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE TRUST.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Available Information.......................... 2
Reports to Certificateholders.................. 2
Prospectus Summary............................. 3
Risk Factors................................... 10
The Statute.................................... 15
The Tariff and the Trust Assets................ 15
The Trust...................................... 18
Use of Proceeds................................ 18
The Seller and the Servicer.................... 18
Puget Customers and Collections................ 19
Description of the Certificates................ 23
Federal Income Tax Consequences................ 33
ERISA Considerations........................... 35
Underwriting................................... 37
Legal Matters.................................. 37
Index of Terms................................. 38
</TABLE>
------------------------
UNTIL , 1995 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
$202,300,000
PUGET POWER
CONSERVATION GRANTOR
TRUST 1995-1
% CONSERVATION PASS-THROUGH CERTIFICATES, SERIES 1995-1
PUGET SOUND POWER & LIGHT COMPANY
SELLER AND SERVICER
SALOMON BROTHERS INC
CHEMICAL SECURITIES INC.
PROSPECTUS
DATED , 1995
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses payable by the
registrant in connection with the sale of the Certificates being registered
hereby. All amounts shown are estimated, except the Securities and Exchange
Commission registration fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee.............. $ 69,759
Blue Sky fees and expenses....................................... 10,000
Printing and engraving expenses.................................. 30,000
Legal fees and expenses.......................................... 450,000
Accounting fees and expenses..................................... 65,000
Trustee fees and expenses........................................ 25,000
Rating agencies' fees............................................ 250,000
Miscellaneous expenses........................................... 10,241
---------
Total........................................................ $ 910,000
---------
---------
<FN>
- ------------------------
* To be completed by amendment.
</TABLE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<C> <S>
1.1(A) Form of Underwriting Agreement.
+3.1 Restated Articles of Incorporation of Puget Sound Power & Light Company.
+3.2 Bylaws of Puget Sound Power & Light Company.
4.1(A) Form of Pooling and Servicing Agreement between Puget Sound Power & Light
Company and Chemical Bank, including Form of Certificate.
5.1 Opinion of Perkins Coie with respect to legality.
8.1 Opinion of Perkins Coie with respect to tax matters.
23.1 Consent of Perkins Coie (included as part of Exhibit 5.1).
+24.1 Power of Attorney of Officers and Directors (contained on signature page).
99.1 Form of opinion of Perkins Coie with respect to Insolvency Law matters.
99.2 Initial Order.
<FN>
- ------------------------
+ Previously filed
</TABLE>
(b) FINANCIAL STATEMENT SCHEDULES
None.
II-1
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Puget Sound
Power & Light Company, the registrant and the originator of the Puget Power
Conservation Grantor Trust 1995-1, has duly caused this Amendment No. 3 to
Registration Statement to be signed on its behalf by the undersigned, thereto
duly authorized, in the City of Bellevue, State of Washington, on the 15th day
of May, 1995.
By: /s/ R.R. SONSTELIE*
-----------------------------------
R.R. Sonstelie
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to Registration Statement has been signed by the following persons in the
capacities indicated below on the 15th day of May, 1995.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- -------------------------------------------------- ----------------------------
<C> <S>
/s/ R.R. SONSTELIE* President and Chief
-------------------------------------------- Executive Officer and
R.R. Sonstelie Director
/s/ WILLIAM S. WEAVER* Executive Vice President,
-------------------------------------------- Chief Financial Officer and
William S. Weaver Director
/s/ JAMES W. ELDREDGE* Secretary and Controller
-------------------------------------------- (Principal Accounting
James W. Eldredge Officer)
/s/ DOUGLAS P. BEIGHLE*
-------------------------------------------- Director
Douglas P. Beighle
/s/ CHARLES W. BINGHAM*
-------------------------------------------- Director
Charles W. Bingham
/s/ PHYLLIS J. CAMPBELL*
-------------------------------------------- Director
Phyllis J. Campbell
/s/ JOHN D. DURBIN*
-------------------------------------------- Director
John D. Durbin
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE
- -------------------------------------------------- ----------------------------
<C> <S>
/s/ JOHN W. ELLIS*
-------------------------------------------- Director
John W. Ellis
/s/ DANIEL J. EVANS*
-------------------------------------------- Director
Daniel J. Evans
-------------------------------------------- Director
Nancy L. Jacob
/s/ R. KIRK WILSON*
-------------------------------------------- Director
R. Kirk Wilson
*By DONALD E. GAINES
---------------------------------------
Donald E. Gaines,
ATTORNEY-IN-FACT
</TABLE>
II-3
<PAGE>
PUGET POWER CONSERVATION GRANTOR TRUST 1995-1
__% CONSERVATION PASS-THROUGH CERTIFICATES, SERIES 1995-1
PUGET SOUND POWER & LIGHT COMPANY
(Seller and Servicer)
UNDERWRITING AGREEMENT
__________, 1995
Salomon Brothers Inc
Chemical Securities Inc.
c/o Salomon Brothers Inc
Seven World Trade Center
New York, New York 10048
Ladies and Gentlemen:
1. INTRODUCTION. PUGET SOUND POWER & LIGHT
COMPANY, a Washington corporation (the "Seller"),
proposes to cause Puget Power Conservation Grantor Trust
1995-1 (the "Trust") to issue and sell $_______ principal
amount of its __% Conservation Pass-Through Certificates,
Series 1995-1 (the "Certificates") to Salomon Brothers
Inc and Chemical Securities Inc. (collectively, the
"Underwriters"). Each Certificate will represent a
fractional undivided interest in the Trust. The property
of the Trust will consist of (i) the Purchased
Conservation Investment Assets, (ii) the Purchased
Contract Rights, (iii) the Purchased Sale Proceeds, and
(iv) all proceeds of the foregoing (collectively, the
"Purchased Assets"). The Trust will be formed, the
Purchased Assets will be serviced by Puget Sound Power &
Light Company (in such capacity, the "Servicer") and the
Certificates will be issued pursuant to a pooling and
servicing agreement, dated as of ______, 1995 (as amended
and supplemented from time to time (the "Pooling and
Servicing Agreement"), among the Seller, the Servicer and
Chemical Bank, as trustee (the "Trustee"). Pursuant to
the Pooling and Servicing Agreement, the Servicer will
act as custodian of the Purchased Asset Documentation.
Capitalized terms
<PAGE>
used and not otherwise defined herein shall have the
meanings given to them in the Pooling and Servicing
Agreement.
2. REPRESENTATIONS AND WARRANTIES OF THE
SELLER. The Seller represents and warrants to, and
agrees with the Underwriters that:
(a) The Seller has filed with the Securities
and Exchange Commission (the "Commission") a
registration statement (No. 33-87784) on Form S-1,
including a related preliminary prospectus, for the
registration under the Securities Act of 1933, as
amended (the "Act"), of the offering and sale of the
Certificates. The Seller may have filed one or more
amendments thereto, including the related
preliminary prospectus, each of which has previously
been furnished to you. The Seller will next file
with the Commission either (i) prior to
effectiveness of such registration statement, a
further amendment to such registration statement
(including the form of final prospectus) or (ii)
after effectiveness of such registration statement,
a final prospectus in accordance with Rules 430A and
424(b)(l) or (4). In the case of clause (ii), the
Seller has included in such registration statement,
as amended at the Effective Date, all information
(other than Rule 430A Information) required by the
Act and the rules thereunder to be included in the
Prospectus with respect to the Certificates and the
offering thereof. As filed, such amendment and form
of final prospectus, or such final prospectus, shall
contain all Rule 430A Information, together with all
other such required information, with respect to the
Certificates and the offering thereof and, except to
the extent the Underwriters shall agree in writing
to a modification, shall be in all substantive
respects in the form furnished to you prior to the
Execution Time or, to the extent not completed at
the Execution Time, shall contain only such specific
additional information and other changes (beyond
that contained in the latest Preliminary Prospectus)
as the Seller has advised you, prior to the
Execution Time, will be included or made therein.
(b) On the Effective Date, the Registration
Statement did or will, and when the Prospectus is
2
<PAGE>
first filed (if required) in accordance with Rule
424(b) and on the Closing Date, the Prospectus (and
any supplements thereto) will, comply in all
material respects with the applicable requirements
of the Act and the rules thereunder; on the
Effective Date, the Registration Statement did not
or will not 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 not misleading; and,
on the Effective Date, the Prospectus, if not filed
pursuant to Rule 424(b), did not or will not, and on
the date of any filing pursuant to Rule 424(b) and
on the Closing Date, the Prospectus (together with
any supplement thereto) will not, include any untrue
statement of a material fact or omit to state a
material fact necessary in order to make the
statements therein, in the light of the
circumstances under which they were made, not
misleading; PROVIDED, HOWEVER, that the Seller makes
no representations or warranties as to the
information contained in or omitted from the
Registration Statement or the Prospectus (or any
supplement thereto) in reliance upon and in
conformity with information relating to either
Underwriter furnished in writing to the Seller by or
on behalf of such Underwriter specifically for
inclusion in the Registration Statement or the
Prospectus (or any supplement thereto).
(c) The terms which follow, when used in this
Agreement, shall have the meanings indicated. The
term "the Effective Date" shall mean each date that
the Registration Statement and any post-effective
amendment or amendments thereto became or become
effective. "Execution Time" shall mean the date and
time that this Agreement is executed and delivered
by the parties hereto. "Preliminary Prospectus"
shall mean any preliminary prospectus referred to in
paragraph (a) above and any preliminary prospectus
included in the Registration Statement at the
Effective Date that omits Rule 430A Information.
"Prospectus" shall mean the prospectus relating to
the Certificates that is first filed pursuant to
Rule 424(b) after the Execution Time or, if no
filing pursuant to Rule 424(b) is required, shall
mean the form of final prospectus relating to the
Certificates included in the Registration Statement
at the
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Effective Date. "Registration Statement" shall mean
the registration statement referred to in
paragraph (a) above, including exhibits and
financial statements, as amended at the Execution
Time (or, if not effective at the Execution Time, in
the form in which it shall become effective) and, in
the event any post-effective amendment thereto
becomes effective prior to the Closing Date (as
hereinafter defined), shall also mean such
registration statement as so amended. Such term
shall include any Rule 430A Information deemed to be
included therein at the Effective Date as provided
by Rule 430A. "Rule 424" and "Rule 430A" refer to
such rules under the Act. "Rule 430A Information"
means information with respect to the Certificates
and the offering thereof permitted to be omitted
from the Registration Statement when it becomes
effective pursuant to Rule 430A.
(d) The Seller has been duly organized and is
in good standing under the laws of the State of
Washington, with power and authority to own its
properties and to conduct its business as such
properties are currently owned and such business is
presently conducted.
(e) As of the Closing Date, the Certificates
will be duly and validly authorized, and, when duly
and validly executed by the Trustee on behalf of the
Trust in accordance with the Pooling and Servicing
Agreement, and following delivery to and payment
therefor by the Underwriters, will be validly issued
and outstanding and entitled to the benefits of the
Pooling and Servicing Agreement.
(f) The Seller has the power and authority to
execute and deliver this Agreement and the Pooling
and Servicing Agreement and to carry out their
respective terms; the Seller has the power and
authority to sell and assign the Purchased Assets to
be sold and assigned to the Trustee pursuant to the
Pooling and Servicing Agreement as part of the
Trust; and the execution, delivery and performance
of this Agreement and the Pooling and Servicing
Agreement have been duly authorized by the Seller by
all necessary corporate action.
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<PAGE>
(g) This Agreement and the Pooling and
Servicing Agreement each constitutes a legal, valid
and binding obligation of the Seller enforceable
against the Seller in accordance with their
respective terms, except as enforceability may be
limited by bankruptcy, insolvency, reorganization or
other similar laws affecting the enforcement of
creditors' rights in general, by general principles
of equity, regardless of whether such enforceability
is considered in a proceeding in equity or at law;
and, with respect to enforceability of Section 8
hereof, by public policy.
(h) Neither the execution and delivery of the
Pooling and Servicing Agreement, the issue and sale
of the Certificates, nor the consummation of the
transactions contemplated by this Agreement or the
Pooling and Servicing Agreement and the fulfillment
of the terms hereof and thereof (A) conflict with,
result in any breach of any of the terms and
provisions of, or constitute (with or without notice
or lapse of time) a default under the charter or
bylaws of the Seller, or conflict with or breach any
of the material terms or provisions of, or
constitute (with or without notice or lapse of time)
a default under, any indenture, agreement or other
instrument to which the Seller is a party or by
which the Seller is bound or to which any property
or assets of the Seller are subject, (B) result in
the creation or imposition of any lien upon any
property or assets of the Seller pursuant to the
terms of any such indenture, agreement or other
instrument, or (C) violate any law, order, rule or
regulation applicable to the Seller of any court or
of any federal or state regulatory body,
administrative agency or other governmental
instrumentality having jurisdiction over the Seller
or its property or assets.
(i) There are no proceedings or investigations
pending or, to the best of the Seller's knowledge,
threatened before any court, regulatory body,
administrative agency or other governmental
instrumentality having jurisdiction over the Seller
or its property or assets (A) asserting the
invalidity of this Agreement, the Pooling and
Servicing Agreement or the Certificates and (B)
seeking to prevent the issuance of the Certificates
or the consummation of
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<PAGE>
any of the transactions contemplated by this Agreement
or the Pooling and Servicing Agreement.
(j) No authorization or approval or other
action by, and no notice to or filing with, and no
consent by, any governmental authority, regulatory
body or third party is required for the due
execution and delivery by the Seller of this
Agreement or the Pooling and Servicing Agreement and
the performance by the Seller of its obligations
under this Agreement and the Pooling and Servicing
Agreement except for (i) the Initial Commission
Order and (ii) such authorizations, approvals,
notices, consents and filings that have been duly
received or made, as the case may be, as of the date
of this Agreement.
(k) There are no liens, claims or encumbrances
on any of the Purchased Assets arising by, through
or under the Seller.
(l) The Trust is not an "investment company"
or under the "control" of an "investment company" as
such terms are defined under the Investment Company
Act of 1940, as amended.
(m) The statements in the Prospectus under the
headings "The Statute," "The Tariff and the Trust
Assets," "Federal Income Tax Consequences" and
"ERISA Considerations" fairly summarize the matters
described therein.
(n) Since the dates as of which information is
given in the Prospectus and except as set forth in
or contemplated by the Prospectus, excluding any
amendment or supplement thereto, there has been no
change or development that materially and adversely
affects the Purchased Assets or the ability of the
Seller to perform its obligations under the Pooling
and Servicing Agreement.
3. PURCHASE, SALE AND DELIVERY OF
CERTIFICATES. On the basis of the representations,
warranties and agreements herein contained, but subject
to the terms and conditions herein set forth, the Seller
agrees to sell to the Underwriters, and the Underwriters
agree, severally and not jointly, to purchase from the
Seller, the entire aggregate principal amounts of
Certificates
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<PAGE>
set forth opposite the names of the Underwriters in
Schedule I hereto. The Certificates are
to be purchased at the purchase price of _____% of the
aggregate initial Certificate Balance (as defined in the
Pooling and Servicing Agreement), plus accrued interest,
if any, at the Certificate Rate (as defined in the
Prospectus) from (and including) ____________, 1995 to
(but excluding) the Closing Date. The Seller shall
deliver the Certificates to the Underwriters against
payment by the Underwriters of the purchase price
thereof, to or upon the order of the Seller by wire
transfer of immediately available funds, at the office of
Skadden, Arps, Slate, Meagher & Flom, 919 Third Avenue,
New York, New York at 10:00 a.m. (New York City time), or
at such other date and time not later than seven full
business days thereafter as the Underwriters and the
Seller determine, such times being herein referred to as
the "Closing Date." The Certificates so to be delivered
will be initially represented by Certificates registered
in the name of Cede & Co., the nominee of The Depository
Trust Company ("DTC"). The interests of beneficial
owners of the Certificates will be represented by book
entries on the records of DTC and participating members
thereof. Definitive Certificates will be available only
under limited circumstances.
4. OFFERING BY UNDERWRITERS. It is understood
that the Underwriters propose to offer the Certificates
for sale to the public (which may include selected
dealers) as set forth in the Prospectus and the
Underwriters agree that all such offers and sales by the
Underwriters shall be made in compliance with all
applicable laws and regulations.
5. COVENANTS OF THE SELLER. The Seller
covenants and agrees with the Underwriters as follows:
(a) The Seller shall use its best efforts to
cause the Registration Statement, if not effective
at the Execution Time, and any amendment thereof, to
become effective. Prior to the termination of the
offering of the Certificates, the Seller shall not
file any amendment of the Registration Statement or
supplement to the Prospectus unless, within a
reasonable amount of time prior to filing, the
Seller has furnished to the Underwriters a copy of
such proposed amendment or supplement for their
review and shall not file any such proposed
amendment or
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<PAGE>
supplement to which the Underwriters object.
Subject to the foregoing sentence, if the
Registration Statement has become or becomes
effective pursuant to Rule 430A, or filing of the
Prospectus is otherwise required under Rule 424(b),
the Seller shall cause the Prospectus, properly
completed, and any supplement thereto to be filed
with the Commission pursuant to the applicable
paragraph of Rule 424(b) within the time period
prescribed and shall provide evidence satisfactory
to the Underwriters of such timely filing. The
Seller shall promptly advise the Underwriters (i)
when the Registration Statement, if not effective at
the Execution Time, and any amendment thereto, shall
have become effective, (ii) when the Prospectus, and
any supplement thereto, shall have been filed (if
required) with the Commission pursuant to Rule
424(b), (iii) when, prior to termination of the
offering of the Certificates, any amendment to the
Registration Statement shall have been filed or
become effective, (iv) of any request by the
Commission for any amendment of the Registration
Statement or supplement to the Prospectus or for any
additional information, (v) of the issuance by the
Commission of any stop order suspending the
effectiveness of the Registration Statement or the
institution or threatening of any proceeding for
that purpose and (vi) of the receipt by the Seller
of any notification with respect to the suspension
of the qualification of the Certificates for sale in
any jurisdiction or the initiation or threatening of
any proceeding for such purpose. The Seller shall
use its best efforts to prevent the issuance of any
such stop order and, if issued, to obtain as soon as
possible the withdrawal thereof.
(b) If, at any time when in the opinion of
counsel for the Underwriters a prospectus relating
to the Certificates is required to be delivered
under the Act, any event occurs as a result of which
the Prospectus as then supplemented would include
any untrue statement of a material fact or omit to
state any material fact necessary to make the
statements therein in the light of the circumstances
under which they were made not misleading, or if it
shall be necessary to amend the Registration
Statement or supplement the Prospectus to comply
with the Act or the rules thereunder, the Seller
promptly
8
<PAGE>
shall (i) prepare and file with the Commission, subject
to the second sentence of paragraph (a) of this
Section 5, an amendment or supplement which will
correct such statement or omission or effect such
compliance and (ii) supply any supplemented Prospectus
to you in such quantities as you may reasonably request.
(c) The Seller shall furnish to the
Underwriters and counsel for the Underwriters,
without charge, signed copies of the Registration
Statement (including exhibits thereto) and, so long
as delivery of a prospectus by an Underwriter or
dealer may be required by the Act, as many copies of
each Preliminary Prospectus and the Prospectus and
any supplement thereto as the Underwriters may
reasonably request. The Seller shall furnish or
cause to be furnished to the Underwriters copies of
all reports on Form SR required by Rule 463 under
the Act. The Seller shall pay the expenses of
printing or other production of all documents
relating to the offering.
(d) The Seller shall take such action for the
qualification or exemption of the Certificates for
offer and sale under the securities or Blue Sky laws
of such jurisdictions as the Underwriters shall
reasonably request and to pay all reasonable
expenses (including reasonable fees and
disbursements of counsel) in connection with such
qualification or exemption and in connection with
the determination of the eligibility of the
Certificates for investment under the laws of such
jurisdictions as the Underwriters shall designate.
(e) The Seller shall arrange for the
determination of the legality of the Certificates
for purchase by institutional investors and shall
pay the fee of the National Association of
Securities Dealers, Inc., in connection with its
review of the offering.
(f) For a period from the date of this
Agreement until the retirement of the Certificates,
or until such time as no Underwriter shall maintain
a secondary market in the Certificates, whichever
first occurs, the Seller shall deliver to the
Under-
9
<PAGE>
writers the annual statement of compliance delivered
to the Trustee pursuant to Section 6.10 of the Pooling
and Servicing Agreement and the annual independent
auditor's servicing report furnished to the Trustee
pursuant to Section 6.11 of the Pooling and Servicing
Agreement, as soon as such statements are furnished
to the Trustee.
(g) So long as any of the Certificates are
outstanding, the Seller shall furnish to the
Underwriters (i) as soon as available, a copy of
each report of the Trust filed with the Commission
under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), or mailed to
Certificateholders, and (ii) from time to time, such
other information concerning the Seller or the Trust
as the Underwriters may reasonably request.
(h) The Seller shall pay or cause to be paid
all expenses incident to the performance of the
Seller's obligations under this Agreement, and shall
pay or cause to be paid or shall reimburse the
Underwriters for any reasonable expenses (including
reasonable fees and disbursements of counsel)
incurred by them in connection with qualification of
the Certificates for sale and determination of their
eligibility for investment under the laws of such
jurisdictions as the Underwriters have reasonably
requested pursuant to paragraph (e) above and the
printing of memoranda relating thereto, for any fees
charged by investment rating agencies for the rating
of the Certificates, and for expenses incurred in
printing and distributing each Preliminary
Prospectus and the Prospectus (including any
amendments and supplements thereto) to the
Underwriters.
(i) To the extent, if any, that, any rating
necessary to satisfy the condition set forth in
Section 6(i) of this Agreement is conditioned upon
the furnishing of documents or the taking of other
actions by the Seller on or after the Closing Date,
the Seller shall furnish such documents and take
such other actions.
(j) If, during the period after the Closing
Date in which a prospectus relating to the
Certificates is required to be delivered under the
Act, the
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<PAGE>
Seller receives notice that a stop order suspending
the effectiveness of the Registration Statement
or preventing the offer and sale of the
Certificates is in effect, the Seller shall advise
the Underwriters of the issuance of such stop order.
(k) The Seller confirms as of the date hereof
that it is in compliance with all provisions of
Section 1 of Laws of Florida, Chapter 92-198, AN ACT
RELATING TO DISCLOSURE OF DOING BUSINESS WITH CUBA,
and the Seller further agrees that if it commences
engaging in business with the government of Cuba or
with any person or affiliate located in Cuba after
the date the Registration Statement becomes or has
become effective with the Securities and Exchange
Commission or with the Florida Department of Banking
and Finance (the "Department"), whichever date is
later, or if the information reported in the
Prospectus, if any, concerning the Seller's business
with Cuba or with any person or affiliate located in
Cuba changes in any material way, the Company will
provide the Department notice of such business or
change, as appropriate, in a form acceptable to the
Department.
(l) Upon any request of the Underwriters, the
Seller shall deliver to the Underwriters a copy of
the most recent Monthly Servicer's Certificate and
Trustee's Certificate required by Sections 7.6(a)
and (b), respectively, of the Pooling and Servicing
Agreement.
6. CONDITIONS TO THE OBLIGATIONS OF THE
UNDERWRITERS. The obligations of the Underwriters to
purchase the Certificates shall be subject to the
accuracy of the representations and warranties on the
part of the Seller contained herein and in Section 9.1 of
the Pooling and Servicing Agreement as of the Execution
Time and the Closing Date, to the accuracy of the
representations and warranties of the Servicer in Section
10.1 of the Pooling and Servicing Agreement as of the
Execution Time and as of the Closing Date, to the
accuracy of the statements of the Seller made in any
certificates pursuant to the provisions hereof, to the
performance by the Seller of its obligations hereunder
and to the following additional conditions:
11
<PAGE>
(a) If the Registration Statement has not
become effective prior to the Execution Time, unless
the Underwriters agree in writing to a later time,
the Registration Statement will become effective not
later than (i) 6:00 p.m. New York City time on the
date of determination of the public offering price,
if such determination occurred at or prior to 3:00
p.m. New York City time on such date or (ii) 12:00
Noon on the business day following the day on which
the public offering price was determined, if such
determination occurred after 3:00 p.m. New York City
time on such date; if filing of the Prospectus, or
any supplement thereto, is required pursuant to Rule
424(b), the Prospectus, and any such supplement,
will be filed in the manner and within the time
period required by Rule 424(b); and no stop order
suspending the effectiveness of the Registration
Statement shall have been issued and no proceedings
for that purpose shall have been instituted or
threatened.
(b) The Seller shall have furnished to the
Underwriters the opinion of Perkins Coie, counsel to
the Seller, dated the Closing Date, to the effect
that:
(i) the Seller has been duly
incorporated and is validly existing as a
corporation in good standing under the laws of
the State of Washington, with full corporate
power and authority to own its properties and
conduct its business as described in the
Prospectus, and is duly qualified to do
business as a foreign corporation and is in
good standing under the laws of each
jurisdiction which requires such qualification
wherein it owns or leases material properties
or conducts material business;
(ii) the Pooling and Servicing
Agreement has been duly authorized, executed
and delivered, and constitutes a legal, valid
and binding instrument enforceable against the
Seller in accordance with its terms (except as
enforceability may be limited by applicable
bankruptcy, reorganization, insolvency,
moratorium or other laws affecting creditors'
rights generally from time to time in effect
and by
12
<PAGE>
general principals of equity, regardless of
whether such enforceability is considered in
a proceeding in equity or at law); and the
Certificates have been duly authorized and,
when executed and authenticated in accordance
with the provisions of the Pooling and
Servicing Agreement and delivered to and paid
for by the Underwriters pursuant to this
Agreement, will be validly issued and
outstanding and entitled to the benefits of the
Pooling and Servicing Agreement;
(iii) to the best knowledge of such
counsel after due inquiry, there is no pending
or threatened action, suit or proceeding before
any court or governmental agency, authority or
body or any arbitrator (A) asserting the
invalidity of this Agreement, the Pooling or
Servicing Agreement or the Certificates, (B)
seeking to prevent the issuance of the
Certificates or the consummation of any of the
transactions contemplated by this Agreement or
the Pooling and Servicing Agreement or (C) that
materially and adversely affects the Purchased
Assets or the ability of the Seller to perform
its obligations under the Pooling and Servicing
Agreement; and to the best knowledge of such
counsel after due inquiry, there is no
franchise, contract or other document of a
character required to be described in the
Registration Statement or Prospectus, or to be
filed as an exhibit, which is not described or
filed as required; and the statements in the
Prospectus under the headings "The Statute,"
"The Tariff and the Trust Assets," "Federal
Income Tax Consequences" and "ERISA
Considerations" fairly summarize the legal
matters described therein;
(iv) the Registration Statement has
become effective under the Act; any required
filing of the Prospectus, and any supplements
thereto, pursuant to Rule 424(b) has been made
in the manner and within the time period
required by Rule 424(b); to the best knowledge
of such counsel, no stop order suspending the
effectiveness of the Registration Statement has
been issued, no proceedings for that purpose
13
<PAGE>
have been instituted or threatened and the
Registration Statement and the Prospectus
(other than the financial statements and other
financial and statistical information contained
therein as to which such counsel need express
no opinion) comply as to form in all material
respects with the applicable requirements of
the Act and the rules thereunder; and (although
such counsel are not passing upon or assuming
any responsibility for the accuracy,
completeness of fairness of the statements made
in the Registration Statement or the
Prospectus, except as stated in paragraph
(iii)) no facts have come to the attention of
such counsel that have led such counsel to
believe that at the Effective Date the
Registration Statement contained any untrue
statement of a material fact or omitted to
state any material fact required to be stated
therein or necessary to make the statements
therein not misleading or that at the Closing
Date the Prospectus includes any untrue
statement of a material fact or omits to state
a material fact necessary to make the
statements therein, in the light of the
circumstances under which they were made, not
misleading;
(v) this Agreement has been duly
authorized, executed and delivered by the
Seller;
(vi) the Initial Commission Order has
been issued and has not been rescinded,
annulled or modified; and no consent, approval,
authorization or order of any court or
governmental agency or body is required for the
consummation of the transactions contemplated
herein, except the Initial Commission Order and
such as have been obtained under the Statute
and the Act and such as may be required under
the blue sky laws of any jurisdiction in
connection with the purchase and distribution
of the Certificates by the Underwriters and
such other approvals (specified in such
opinion) as have been obtained;
(vii) neither the execution and
delivery of the Pooling and Servicing
Agreement, the
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<PAGE>
issue and sale of the Certificates, nor the
consummation of the transactions contemplated by
this Agreement or the Pooling and Servicing
Agreement and the fulfillment of the terms hereof
and thereof (A) conflict with, result in any breach
of any of the terms and provisions of, or constitute
(with or without notice or lapse of time) a
default under the charter or bylaws of the
Seller, or conflict with or breach any of the
material terms or provisions of, or constitute
(with or without notice or lapse of time) a
default under, any indenture, agreement or
other instrument known to such counsel, after
due inquiry and to which the Seller is a party
or by which the Seller is bound or to which any
property or assets of the Seller are subject,
(B) result in the creation or imposition of any
lien upon any property or assets of the Seller
pursuant to the terms of any such indenture,
agreement or other instrument, or (C) violate
any law or, to the best of such counsel's
knowledge after due inquiry, any order, rule or
regulation applicable to the Seller of any
court or of any federal or state regulatory
body, administrative agency or other
governmental instrumentality having
jurisdiction over the Seller or its properties
or assets.
In rendering such opinion, such counsel may rely (A)
as to matters involving the application of laws of
any jurisdiction other than the State of Washington
or the United States, to the extent they deem proper
and specified in such opinion, upon the opinion of
other counsel of good standing whom they believe to
be reliable and who are satisfactory to counsel for
the Underwriters and (B) as to matters of fact, to
the extent they deem proper, on certificates of
responsible officers of the Seller and public
officials. References to the Prospectus in this
paragraph (b) include any supplements thereto at the
Closing Date.
(c) The Underwriters shall have received from
Skadden, Arps, Slate, Meagher & Flom, counsel for
the Underwriters, such opinion or opinions, dated
the Closing Date, with respect to the issuance and
15
<PAGE>
sale of the Certificates, the Registration
Statement, the Prospectus (together with any
supplement thereto) and other related matters as the
Underwriters may reasonably require, and the Seller
shall have furnished to such counsel such documents
as they reasonably request for the purpose of
enabling them to pass upon such matters.
(d) The Seller shall have furnished to the
Underwriters a certificate of the Seller, signed by
the President or the Executive Vice President and by
a financial or accounting officer of the Seller,
dated the Closing Date, to the effect that the
signers of such certificate have carefully examined
the Registration Statement, the Prospectus, any
supplement to the Prospectus and this Agreement and
that:
(i) the representations and warranties
of the Seller in this Agreement and in Section
9.1 of the Pooling and Servicing Agreement, and
the representations and warranties of the
Servicer in Section 10.1 of the Pooling and
Servicing Agreement are true and correct in all
material respects on and as of the Closing Date
with the same effect as if made on the Closing
Date and the Seller has complied with all the
agreements and satisfied all the conditions on
its part to be performed or satisfied at or
prior to the Closing Date;
(ii) no stop order suspending the
effectiveness of the Registration Statement has
been issued and no proceedings for that purpose
have been instituted or, to the Seller's
knowledge, threatened; and
(iii) since the dates as of which
information is given in the Prospectus and
except as set forth in or contemplated by the
Prospectus, excluding any amendment or
supplement thereto, there has been no change or
development that materially and adversely
affects the Purchased Assets or the ability of
the Seller to perform its obligations under the
Pooling and Servicing Agreement.
16
<PAGE>
(e) At the Execution Time and at the Closing
Date, Coopers & Lybrand shall have furnished to the
Underwriters letters, dated respectively as of the
Execution Time and as of the Closing Date, in form
and substance satisfactory to the Underwriters,
confirming that they are independent accountants
within the meaning of the Act and the applicable
published rules and regulations thereunder and
stating that they have performed certain specified
procedures as a result of which they determined that
certain information of an accounting, financial or
statistical nature (which is limited to accounting,
financial or statistical information derived from
the general accounting records of the Seller and its
subsidiaries) set forth in the Registration
Statement and the Prospectus, including information
specified by the Underwriters and set forth under
the captions "Prospectus Summary," "The Tariff and
the Trust Assets," "Puget Customers and Collections,
and "Description of the Certificates" in the
Prospectus, agrees with the accounting records of
the Seller and its subsidiaries, excluding any
questions of legal interpretation.
References to the Prospectus in this paragraph
(e) include any supplement thereto at the date of
such letter.
(f) Subsequent to the Execution Time or, if
earlier, the dates as of which information is given
in the Registration Statement (exclusive of any
amendment thereof) and the Prospectus (exclusive of
any supplement thereto), there shall not have been
any change, or any development involving a
prospective change, in or affecting the Purchased
Assets or the ability of the Seller to perform its
obligations under the Pooling and Servicing
Agreement the effect of which, is, in the judgment
of the Underwriters, so material and adverse as to
make it impractical or inadvisable to proceed with
the offering or delivery of the Certificates as
contemplated by the Registration Statement
(exclusive of any amendment thereof) and the
Prospectus (exclusive of any supplement thereto).
(g) On or prior to the Closing Date, the
Seller shall not offer, sell, contract to sell or
17
<PAGE>
otherwise dispose of any additional similar asset-
backed securities in a grantor trust or other
special purpose vehicle without the Underwriters'
prior written consent.
(h) The Underwriters shall have received on
the Closing date an opinion letter or letters of
Perkins Coie, counsel to the Seller, dated the
Closing Date, in form and substance reasonably
satisfactory to the Underwriters, (i) with respect
to the characterization of the transfer of the
Purchased Assets by the Seller to the Trust as a
"true sale" for bankruptcy purposes; and (ii) to the
effect that the Trust is a grantor trust and the
Certificateholders own undivided interests in debt.
(i) The Certificates shall have been rated in
the highest long-term rating category by each of the
Rating Agencies.
(j) Prior to the Closing Date, the Seller
shall have furnished to the Underwriters such
further information, certificates and documents as
the Underwriters may reasonably request.
(k) No Rating Agency shall have reduced or
withdrawn its rating, if any, of any debt securities
issued by the Seller.
(l) On or prior to the Closing Date, the
Seller shall have delivered to the Underwriters
evidence, in form and substance satisfactory to the
Underwriters, of the Washington Utilities and
Transportation Commission's approval of the Initial
Commission Order.
The Seller shall furnish the Underwriters with
conformed copies of such opinions, certificates, letters
and documents as the Underwriters reasonably request.
If any of the conditions specified in this
Section 6 shall not have been fulfilled in all material
respects when and as provided in this Agreement, or if
any of the opinions and certificates mentioned above or
elsewhere in this Agreement shall not be in all material
respects reasonably satisfactory in form and substance to
the Underwriters and counsel for the Underwriters, this
18
<PAGE>
Agreement and all obligations of the Underwriters
hereunder may be canceled at, or at any time prior to,
the Closing Date by the Underwriters. Notice of such
cancellation shall be given to the Seller in writing or
by telephone or telegraph confirmed in writing.
The documents required to be delivered by this
Section 6 shall be delivered at the office of Skadden,
Arps, Slate, Meagher & Flom, 919 Third Avenue, New York,
New York, on the Closing Date.
7. REIMBURSEMENT OF UNDERWRITERS' EXPENSES. If
the sale of the Certificates provided for herein is not
consummated for any reason other than by reason of a
default by the Seller or either of the Underwriters, no
party shall have any liability to the other parties
hereto except as provided in Section 5(d) and Section
5(h) and except for the indemnification and contribution
obligations of the parties provided in Section 8.
8. INDEMNIFICATION AND CONTRIBUTION.
(a) The Seller agrees to indemnify and hold
harmless each Underwriter, the directors, officers,
employees and agents of each Underwriter and each
person who controls any Underwriter within the
meaning of either the Act or the Exchange Act
against any and all losses, claims, damages or
liabilities, joint or several, to which they or any
of them may become subject under the Act, the
Exchange Act or other Federal or state statutory law
or regulation, at common law or otherwise, insofar
as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are
based upon any untrue statement or alleged untrue
statement of a material fact contained in the
Registration Statement as originally filed or in any
amendment thereof, or in any Preliminary Prospectus
or the Prospectus, or in any amendment thereof or
supplement thereto, or arise out of or are based
upon the omission or alleged omission to state
therein a material fact required to be stated
therein or necessary to make the statements therein
not misleading, and agrees to reimburse each such
indemnified party, as incurred, for any legal or
other expenses reasonably incurred by them in
connection with investigating or defending any such
loss,
19
<PAGE>
claim, damage, liability or action; PROVIDED,
HOWEVER, that the Seller shall not be liable in any
such case to the extent that any such loss, claim,
damage or liability arises out of or is based upon
any such untrue statement or alleged untrue
statement or omission or alleged omission made
therein in reliance upon and in conformity with
written information relating to any Underwriter
furnished to the Seller by or on behalf of such
Underwriter specifically for inclusion therein.
This indemnity agreement shall be in addition to any
liability which the Seller may otherwise have.
(b) Each Underwriter severally agrees to
indemnify and hold harmless the Seller, each of its
directors, each of its officers who signs the
Registration Statement, and each person who controls
the Seller within the meaning of either the Act or
the Exchange Act, to the same extent as the
foregoing indemnity from the Seller to each
Underwriter, but only with reference to written
information relating to such Underwriter furnished
to the Seller by or on behalf of such Underwriter
specifically for inclusion in the documents referred
to in the foregoing indemnity. The Seller
acknowledges that the statements set forth in the
last paragraph of the cover page and under the
heading "Underwriting" in any Preliminary Prospectus
and the Prospectus constitute the only information
furnished in writing by or on behalf of the several
Underwriters for inclusion in any Preliminary
Prospectus or the Prospectus, and you, as the
Underwriters, confirm that such statements are
correct.
(c) Promptly after receipt by an indemnified
party under this Section 8 of notice of the
commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made
against the indemnifying party under this Section 8,
notify the indemnifying party in writing of the
commencement thereof; but the failure so to notify
the indemnifying party (i) shall not relieve it from
liability under paragraph (a) or (b) above unless
and to the extent it did not otherwise learn of such
action and such failure results in the forfeiture by
the indemnifying party of substantial rights and
defenses and (ii) shall not, in any event relieve
20
<PAGE>
the indemnifying party from any obligations to any
indemnified party other than the indemnification
obligation provided in paragraph (a) or (b) above.
The indemnifying party shall be entitled to appoint
counsel of the indemnifying party's choice at the
indemnifying party's expense to represent the
indemnified party in any action for which
indemnification is sought (in which case the
indemnifying party shall not thereafter be
responsible for the fees and expenses of any
separate counsel retained by the indemnified party
or parties except as set forth below); PROVIDED,
HOWEVER, that such counsel shall be satisfactory to
the indemnified party. Notwithstanding the
indemnifying party's election to appoint counsel to
represent the indemnified party in an action, the
indemnified party shall have the right to employ
separate counsel (including local counsel), and the
indemnifying party shall bear the reasonable fees,
costs and expenses of such separate counsel if (i)
the use of counsel chosen by the indemnifying party
to represent the indemnified party would present
such counsel with a conflict of interest, (ii) the
actual or potential defendants in, or targets of,
any such action include both the indemnified party
and the indemnifying party and the indemnified party
shall have reasonably concluded that there may be
legal defenses available to it and/or other
indemnified parties which are different from or
additional to those available to the indemnifying
party, (iii) the indemnifying party shall not have
employed counsel satisfactory to the indemnified
party to represent the indemnified party within a
reasonable time after notice of the institution of
such action or (iv) the indemnifying party shall
authorize the indemnified party to employ separate
counsel at the expense of the indemnifying party.
An indemnifying party shall not, without the prior
written consent of the indemnified parties, settle
or compromise or consent to the entry of any
judgment with respect to any pending or threatened
claim, action, suit or proceeding in respect of
which indemnification or contribution may be sought
hereunder (whether or not the indemnified parties
are actual or potential parties to such claim or
action) unless such settlement, compromise or
consent includes an unconditional release of each
21
<PAGE>
indemnified party from all liability arising out of
such claim, action, suit or proceeding.
(d) In the event that the indemnity provided
in paragraph (a) or (b) of this Section 8 is
unavailable to or insufficient to hold harmless an
indemnified party for any reason, the Seller and the
Underwriters agree to contribute to the aggregate
losses, claims, damages and liabilities (including
legal or other expenses reasonably incurred in
connection with investigating or defending same)
(collectively "Losses") to which the Seller and one
or more of the Underwriters may be subject in such
proportion as is appropriate to reflect the relative
benefits received by the Seller and by the
Underwriters from the offering of the Certificates;
PROVIDED, HOWEVER, that in no case shall any
Underwriter (except as may be provided in any
agreement among underwriters relating to the
offering of the Certificates) be responsible for any
amount in excess of the underwriting discount or
commission applicable to the Certificates purchased
by such Underwriter hereunder. If the allocation
provided by the immediately preceding sentence is
unavailable for any reason, the Seller and the
Underwriters shall contribute in such proportion as
is appropriate to reflect not only such relative
benefits but also the relative fault of the Seller
and of the Underwriters in connection with the
statements or omissions which resulted in such
Losses as well as any other relevant equitable
considerations. Benefits received by the Seller
shall be deemed to be equal to the total net
proceeds from the offering (before deducting
expenses), and benefits received by the Underwriters
shall be deemed to be equal to the total
underwriting discounts and commissions, in each case
as set forth on the cover page of the Prospectus.
Relative fault shall be determined by reference to
whether any alleged untrue statement or omission
relates to information provided by the Seller or the
Underwriters. The Seller and the Underwriters agree
that it would not be just and equitable if
contribution were determined by pro rata allocation
or any other method of allocation which does not
take account of the equitable considerations
referred to above. Notwithstanding the provisions
of this paragraph (d), no person guilty
22
<PAGE>
of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of
such fraudulent misrepresentation. For purposes of
this Section 8, each person who controls an
Underwriter within the meaning of either the Act or
the Exchange Act and each director, officer,
employee and agent of an Underwriter shall have the
same rights to contribution as such Underwriter, and
each person who controls the Seller within the
meaning of either the Act or the Exchange Act, each
officer of the Seller who shall have signed the
Registration Statement and each director of the
Seller shall have the same rights to contribution as
the Seller, subject in each case to the applicable
terms and conditions of this paragraph (d).
9. DEFAULT BY AN UNDERWRITER. If either of
the Underwriters shall fail to purchase and pay for any
of the Certificates agreed to be purchased by such
Underwriter hereunder and such failure to purchase shall
constitute a default in the performance of its
obligations under this Agreement, the nondefaulting
Underwriter shall have the right to purchase all, but
shall not be under any obligation to purchase any, of the
Certificates, and if such nondefaulting Underwriter does
not purchase all the Certificates, this Agreement shall
terminate without liability to such nondefaulting
Underwriter, the Trust or the Seller. In the event of a
default by either Underwriter as set forth in this
Section 9, the Closing Date shall be postponed for such
period, not exceeding seven days, as the nondefaulting
Underwriter shall determine in order that the required
changes in the Registration Statement and the Prospectus
or in any other documents or arrangements may be
effected. Nothing contained in this Agreement shall
relieve any defaulting Underwriter of its liability, if
any, to the Seller and any nondefaulting Underwriter for
damages occasioned by its default hereunder.
10. TERMINATION. This Agreement shall be
subject to termination in the absolute discretion of the
Underwriters, by notice given to the Seller prior to
delivery of and payment for the Certificates, if prior to
such time (i) trading in the Seller's Common Stock shall
have been suspended by the Commission or the New York
Stock Exchange or trading in securities generally on the
23
<PAGE>
New York Stock Exchange shall have been suspended or
limited or minimum prices shall have been established on
such Exchange, (ii) a banking moratorium shall have been
declared either by Federal, New York State or Washington
State authorities or (iii) there shall have occurred any
outbreak or material escalation of hostilities,
declaration by the United States of a national emergency
or war or other calamity or crisis the effect of which on
financial markets of the United States is such as to make
it, in the judgment of the Underwriters, impracticable or
inadvisable to proceed with the offering or delivery of
the Certificates as contemplated by the Prospectus
(exclusive of any supplement thereto).
11. SURVIVAL OF CERTAIN REPRESENTATIONS AND
OBLIGATIONS. The respective indemnities, agreements,
representations, warranties and other statements of the
Seller or its officers and of the Underwriters set forth
in or made pursuant to this Agreement shall remain in
full force and effect, regardless of any investigation,
or statement as to the results thereof, made by or on
behalf of the Underwriters or the Seller or any of their
officers or directors or any controlling persons, and
shall survive delivery of and payment for the
Certificates. The provisions of Sections 7 and 8 hereof
shall survive the termination and cancellation of this
Agreement.
12. NOTICES. All communications hereunder
shall be in writing, and, if sent to the Underwriters
shall be mailed, delivered or sent by facsimile
transmission and confirmed to Salomon Brothers Inc, Seven
World Trade Center, New York, New York 10048; Attention:
Curtis S. Probst, facsimile (212) 738-3848 with a copy to
Paul B. Young, facsimile (212) 783-4120, or if sent to
the Seller shall be mailed, delivered or sent by
facsimile transmission and confirmed to it at 411 108th
Avenue N.E., Bellevue, Washington 98004, Attention:
Chief Financial Officer, facsimile (206) 462-3300.
13. SUCCESSORS. This Agreement shall inure to
the benefit of and be binding upon the parties hereto and
their respective successors and the officers and
directors and controlling person referred to in Section
8, and no other person shall have any right or obligation
hereunder.
24
<PAGE>
14. APPLICABLE LAW. This Agreement shall be
governed by and construed in accordance with the laws of
the State of New York.
15. STRUCTURING FEE. Upon the closing of the
transactions contemplated hereby, the Seller will pay to
Salomon Brothers Inc a structuring fee in the amount of
$_________.
16. COUNTERPARTS. This Agreement may be
signed in any number of counterparts, each of which shall
be deemed an original, which taken together shall
constitute one and the same instrument.
**************************
25
<PAGE>
If the foregoing is in accordance with your
understanding of our agreement, kindly sign and return to
us the enclosed duplicate hereof, whereupon it shall
become a binding agreement between the Seller and you in
accordance with its terms.
Very truly yours,
PUGET SOUND POWER & LIGHT COMPANY,
as Seller and Servicer
By:________________________________
The foregoing Underwriting Agreement
is hereby confirmed and accepted as
of the date first above written.
SALOMON BROTHERS INC
CHEMICAL SECURITIES INC.
By: SALOMON BROTHERS INC
By:_______________________
26
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
Principal Amount
of Certificates
Underwriters to Be Purchased
------------ ---------------
<S> <C>
Salomon Brothers Inc . . . . . . . . . .
Chemical Securities Inc. . . . . . . . .
---------------
Total. . . . . . . . . . . . . .
---------------
---------------
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
PUGET SOUND POWER & LIGHT COMPANY,
Seller and Servicer
and
CHEMICAL BANK,
a New York banking corporation
Trustee
on behalf of the Certificateholders
--------------------------------------------
POOLING AND SERVICING AGREEMENT
Dated as of June __, 1995
--------------------------------------------
$202,300,000
Puget Power Conservation Grantor Trust 1995-1
[ ]% Conservation Certificates
- --------------------------------------------------------------------------------
<PAGE>
CONTENTS
SECTION 1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.2 Usage of Terms . . . . . . . . . . . . . . . . . . . . . . .14
Section 1.3 References . . . . . . . . . . . . . . . . . . . . . . . . .14
Section 1.4 Headings . . . . . . . . . . . . . . . . . . . . . . . . . .14
SECTION 2 Creation of Trust . . . . . . . . . . . . . . . . . . . . . . . . .14
SECTION 3 Transfer of Property . . . . . . . . . . . . . . . . . . . . . . . .14
Section 3.1 Transfer of Property to the Trust . . . . . . . . . . . . . .14
Section 3.2 Commercial Law and Statutory Characterization of Transaction 15
Section 3.3 Certain Further Assurances . . . . . . . . . . . . . . . . .15
Section 3.4 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . .16
SECTION 4 Acceptance by Trustee . . . . . . . . . . . . . . . . . . . . . . .16
SECTION 5 Custody of Purchased Assets Documentation . . . . . . . . . . . . .16
Section 5.1 Purchased Assets Documentation . . . . . . . . . . . . . . .16
Section 5.2 Appointment as Custodian; Acceptance of Custodial
Responsibility . . . . . . . . . . . . . . . . . . . . . . .16
Section 5.3 Duties of Servicer as Custodian . . . . . . . . . . . . . . .17
Section 5.4 Instructions; Authority to Act . . . . . . . . . . . . . . .17
Section 5.5 Indemnification Regarding Custodial Obligations . . . . . . .18
Section 5.6 Effective Period and Termination . . . . . . . . . . . . . .18
SECTION 6 Administration and Servicing of Purchased Assets . . . . . . . . . .18
Section 6.1 Appointment of Servicer; Acceptance of Appointment . . . . .18
Section 6.2 Duties of Servicer . . . . . . . . . . . . . . . . . . . . .18
Section 6.3 Collection of Certain Purchased Assets and Related Matters .19
Section 6.4 Realization Upon, and Maintenance of, Purchased Assets . . .19
Section 6.5 Rate Adjustment Mechanism . . . . . . . . . . . . . . . . . .20
Section 6.6 Maintenance of Filings in Respect of Purchased Assets . . . .21
Section 6.7 Dominion and Control of the Purchased Assets; Covenant of
Servicer . . . . . . . . . . . . . . . . . . . . . . . . . .22
Section 6.8 Servicing Fee . . . . . . . . . . . . . . . . . . . . . . . .22
Section 6.9 Monthly Servicer's Certificate . . . . . . . . . . . . . . .22
Section 6.10 Statement as to Compliance . . . . . . . . . . . . . . . . .22
Section 6.11 Annual Report By Independent Public Accountants. .23
Section 6.12 Access to Certain Documentation and Information Regarding
Purchased Assets . . . . . . . . . . . . . . . . . . . . . .23
Section 6.13 Reports to Certificateholders, Certificate Owners
and the Rating Agencies . . . . . . . . . . . . . . . . . .23
SECTION 7 Distributions; Statements to Parties . . . . . . . . . . . . . . . .24
Section 7.1 Collection Account . . . . . . . . . . . . . . . . . . . . .24
Section 7.2 Collections . . . . . . . . . . . . . . . . . . . . . . . . .24
Section 7.3 Distributions . . . . . . . . . . . . . . . . . . . . . . . .25
Section 7.4 Calculation of Bondable Conservation Investment Balance . . .26
Section 7.5 Certificate Regarding Servicing Fee . . . . . . . . . . . . .26
Section 7.6 Certificates . . . . . . . . . . . . . . . . . . . . . . . .26
SECTION 8 The Certificates . . . . . . . . . . . . . . . . . . . . . . . . . .28
Section 8.1 The Certificates . . . . . . . . . . . . . . . . . . . . . .28
Section 8.2 Execution, Authentication and Delivery of Certificates . . .28
Section 8.3 Registration of Transfer and Exchange of Certificates . . . .28
Section 8.4 Mutilated, Destroyed, Lost or Stolen Certificates . . . . . .30
Section 8.5 Persons Deemed Owners of Certificate . . . . . . . . . . . .30
Section 8.6 Access to List of Certificateholders' Names and Addresses . .30
Section 8.7 Maintenance of Office or Agency . . . . . . . . . . . . . . .31
PAGE i
<PAGE>
Section 8.8 Book-Entry Certificates . . . . . . . . . . . . . . . . . . .31
Section 8.9 Notices to Clearing Agency . . . . . . . . . . . . . . . . .32
Section 8.10 Definitive Certificates . . . . . . . . . . . . . . . . . .33
Section 8.11 Appointment of Paying Agent . . . . . . . . . . . . . . . .33
Section 8.12 Authenticating Agent . . . . . . . . . . . . . . . . . . . .34
Section 8.13 Actions of Certificateholders . . . . . . . . . . . . . . .36
SECTION 9 The Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36
Section 9.1 Representations and Warranties of Seller . . . . . . . . . .36
Section 9.2 Liability of Seller; Indemnities . . . . . . . . . . . . . .38
Section 9.3 Merger or Consolidation of Seller . . . . . . . . . . . . . .39
Section 9.4 Limitation on Liability of Seller and Others . . . . . . . .40
SECTION 10 The Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . .40
Section 10.1 Representations and Warranties of Servicer . . . . . . . . .40
Section 10.2 Liability of Servicer; Indemnities . . . . . . . . . . . . .41
Section 10.3 Merger or Consolidation of Servicer . . . . . . . . . . . .42
Section 10.4 Limitation on Liability of Servicer and Others . . . . . . .43
Section 10.5 Servicer Not to Resign . . . . . . . . . . . . . . . . . . .43
Section 10.6 Delegation of Duties . . . . . . . . . . . . . . . . . . . .44
Section 10.7 Certain Covenants of Servicer . . . . . . . . . . . . . . .44
SECTION 11 Defaults and Remedies . . . . . . . . . . . . . . . . . . . . . . .44
Section 11.1 Events of Default . . . . . . . . . . . . . . . . . . . . .44
Section 11.2 Notification to Certificateholders . . . . . . . . . . . . .46
Section 11.3 Proceedings by Trustee . . . . . . . . . . . . . . . . . . .46
Section 11.4 Direction of Proceedings and Waiver of Past Defaults . . . .47
Section 11.5 Limitation on Suits by Certificateholders . . . . . . . . .47
SECTION 12 The Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . .48
Section 12.1 No Power to Engage in Business or to Vary Investments . . .48
Section 12.2 Duties of Trustee . . . . . . . . . . . . . . . . . . . . .48
Section 12.3 Certain Matters Affecting the Trustee . . . . . . . . . . .50
Section 12.4 Trustee Not Liable for Certificates or Purchased Assets . .52
Section 12.5 Trustee May Own Certificates . . . . . . . . . . . . . . . .52
Section 12.6 Trustee's Fees and Expenses . . . . . . . . . . . . . . . .52
Section 12.7 Eligibility Requirements for Trustee . . . . . . . . . . . .53
Section 12.8 Resignation or Removal of Trustee . . . . . . . . . . . . .53
Section 12.9 Successor Trustee . . . . . . . . . . . . . . . . . . . . .54
Section 12.10 Merger or Consolidation of Trustee . . . . . . . . . . . .55
Section 12.11 Appointment of Co-Trustee or Separate Trustee . . . . . . .55
Section 12.12 Tax Returns . . . . . . . . . . . . . . . . . . . . . . . .56
Section 12.13 Trustee May Enforce Claims Without Possession of
Certificates . . . . . . . . . . . . . . . . . . . . . . .57
Section 12.14 Maintenance of Office or Agency . . . . . . . . . . . . . .57
SECTION 13 Termination of the Trust . . . . . . . . . . . . . . . . . . . . .57
SECTION 14 Miscellaneous Provisions . . . . . . . . . . . . . . . . . . . . .58
Section 14.1 Amendment . . . . . . . . . . . . . . . . . . . . . . . . .58
Section 14.2 Protection of Title to Trust . . . . . . . . . . . . . . . .60
Section 14.3 Limitation on Rights of Certificateholders . . . . . . . . .61
Section 14.4 Governing Law . . . . . . . . . . . . . . . . . . . . . . .61
Section 14.5 Notices . . . . . . . . . . . . . . . . . . . . . . . . . .61
Section 14.6 Severability of Provisions . . . . . . . . . . . . . . . . .62
Section 14.7 Assignment . . . . . . . . . . . . . . . . . . . . . . . . .62
Section 14.8 Certificates Nonassessable and Fully Paid . . . . . . . . .62
Section 14.9 Third-Party Beneficiaries . . . . . . . . . . . . . . . . .62
Section 14.10 Certificates Owned by Servicer . . . . . . . . . . . . . .63
PAGE ii
<PAGE>
EXHIBITS
Exhibit A Form of Bill of Sale
Exhibit B Form of Tariff
Exhibit C Form of Initial Commission Order
Exhibit D Forms of (x) Procedures for Implementation of Revised Tariff,
(y) Periodic Adjustment Application, and (z) Periodic Commission
Order
Exhibit E Form of Conservation Certificate
Exhibit F Form of Monthly Servicer's Certificate
Exhibit G Form of Trustee's Certificate
SCHEDULES
Schedule A Commission Approval of Bondable Conservation Investments
Schedule B Pro Forma Schedule
PAGE iii
<PAGE>
POOLING AND SERVICING AGREEMENT
This Pooling and Servicing Agreement (this "AGREEMENT"), dated as of June
__, 1995, is made with respect to the formation of the Puget Power Conservation
Grantor Trust 1995-1 (the "TRUST"), between Puget Sound Power & Light Company, a
Washington corporation (the "SELLER" and the "SERVICER" in its respective
capacities as such), and Chemical Bank, as trustee (the "TRUSTEE").
WITNESSETH
WHEREAS, the Seller, as provider and distributor of energy resources to
Customers (defined below), has obtained certain assets through, among other
things, its investments in a variety of programs designed to conserve energy
resources by financially assisting Customers with their acquisition and
installation of a range of energy-efficient equipment;
WHEREAS, pursuant to the Statute (defined below), the State of Washington
has enacted legislation that enables the Seller to sell the Purchased Assets
(defined below), pursuant to the transaction contemplated hereby, in order to
reduce the overall costs to Customers of programs designed to promote the
efficient use of energy resources;
WHEREAS, the Seller desires to establish the Trust for the purposes of
effectuating the sale of the Purchased Assets by granting and conveying to the
Trust the Purchased Assets, and causing the Trust to, among other things,
distribute payments received in respect of the Purchased Assets and to issue
Certificates (defined below) representing undivided fractional interests in the
assets of the Trust;
WHEREAS, the Seller, the Servicer and the Trustee desire to set forth in
this Agreement the assets that will be conveyed to the Trust for the benefit of
the Certificateholders (defined below), the rights of the Certificateholders and
the rights and obligations of the Seller, as grantor and originator of the
Trust, of the Servicer, as servicer, and of the Trustee, as trustee for the
Certificateholders; and
NOW, THEREFORE, in consideration of the foregoing premises and of the
mutual agreements herein contained, the parties hereto agree as follows:
PAGE 1
<PAGE>
SECTION 1. DEFINITIONS
SECTION 1.1 DEFINITIONS
Whenever used in this Agreement, the following words and phrases, unless
the context otherwise requires, shall have the following meanings:
"AFFECTED CUSTOMERS" shall have the meaning set forth in the definition of
Equipment Sale Contracts.
"AGGREGATE CERTIFICATE AMOUNT" means $202,300,000.
"AGGREGATE CERTIFICATE BALANCE" means, as of any date of determination, the
aggregate Certificate Balance of all of the Certificates.
"AGGREGATE REMITTANCE AMOUNT" means, in respect of each Collection Period,
the aggregate amount of (x) all Allocated Conservation Amounts received by the
Servicer during such Collection Period, PLUS (y) all Termination Fees received
by the Servicer during such Collection Period, PLUS (z) all Allocated Sale
Amounts received by the Servicer during such Collection Period.
"ALLOCATED CONSERVATION AMOUNTS" means that amount of each payment to be
made by or on behalf of the Customers allocated to the Trust pursuant to the
Tariff or any Revised Tariff, as the case may be. The amount of each payment
made by or on behalf of a Customer to be allocated to the Trust on any given
date shall be the amount applicable to such Customer set forth in the Tariff or
any Revised Tariff that is in effect during the Regulatory Year (or the
applicable portion thereof) in which the payment was billed. If a Customer pays
an amount (such paid amount, the "AMOUNT PAID") less than the amount billed to
such Customer (such billed amount, the "AMOUNT BILLED") in respect of any
billing period, the "ALLOCATED CONSERVATION AMOUNT" for such billing period
shall be equal to the product of (i) the Allocated Conservation Amount allocated
by the Tariff or any Revised Tariff and (ii) the quotient obtained by dividing
the Amount Paid by the Amount Billed. If the amount billed to a Customer in
respect of any billing period is less than the amount allocated to the Trust by
the Tariff or any Revised Tariff, then the Allocated Conservation Amount shall
be 100% of the amount billed.
"ALLOCATED SALE AMOUNTS" shall mean the amount of the Bondable Conservation
Investments that the Commission, in accordance with the provisions of
RCW 80.28.303(6)(a)(ii), removes from the rate base of the Servicer as a result
of any sale or transfer pursuant to an Equipment Sale Contract.
PAGE 2
<PAGE>
"AMOUNT BILLED" shall have the meaning set forth in the definition of
Allocated Conservation Amounts.
"AMOUNT PAID" shall have the meaning set forth in the definition of
Allocated Conservation Amounts.
"AUTHENTICATING AGENT" shall have the meaning set forth in Section 8.12.
"BILL OF SALE" means that certain bill of sale, dated as of the Closing
Date, between the Seller and the Trustee, substantially in the form of
Exhibit A.
"BONDABLE CONSERVATION INVESTMENT AMOUNT" means $202,494,850, the
unamortized balance of amounts invested by the Seller in the Bondable
Conservation Investments as reflected on the books of the Seller as of the
Closing Date.
"BONDABLE CONSERVATION INVESTMENT BALANCE" means (a) on the Closing Date,
the Bondable Conservation Investment Amount or (b) on the last day of any
Distribution Period, the balance calculated pursuant to Section 7.4.
"BONDABLE CONSERVATION INVESTMENTS" means the investments and expenditures
of the Seller, approved by the Commission for inclusion in rate base and set
forth in Schedule A, made in connection with energy conservation programs and
meeting the requirements of "bondable conservation investments" as set forth in
the Statute.
"BOOK-ENTRY CERTIFICATES" means any Certificates registered in the name of
a Clearing Agency or its nominee.
"BUSINESS DAY" means a day, other than a Saturday or a Sunday, on which the
Trustee and banks located in New York, New York and Seattle, Washington are open
for the purpose of conducting commercial banking business.
"CALCULATION DATE" means September 30 in each year from and including 1996
to and including 2003, and March 31, 2004; PROVIDED, HOWEVER, that if any such
day is not a Business Day, "Calculation Date" shall mean the next Business Day
succeeding such day.
"CERTIFICATE" means a certificate evidencing a fractional undivided
interest in the Trust executed on behalf of the Trust, and authenticated, by the
Trustee substantially in the form of Exhibit E.
"CERTIFICATE AMOUNT" means, with respect to a Certificate, the initial
stated amount of such Certificate.
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"CERTIFICATE BALANCE" means, with respect to a Certificate and as of any
date of determination, the difference with respect to such Certificate between
(x) the Certificate Amount of such Certificate and (y) the sum of all amounts
previously paid by the Trustee to the holder of such Certificate pursuant to
Section 7.3(a)(iv).
"CERTIFICATE OWNER" means, with respect to a Book-Entry Certificate, the
Person who is the owner of such Book-Entry Certificate, as reflected on the
books of the Clearing Agency or on the books of a direct or indirect Clearing
Agency Participant.
"CERTIFICATE PAYMENT ACCOUNT" means the segregated trust account opened in
the name of Chemical Bank, for the benefit of the Certificateholders, into which
the Trustee initially distributes amounts pursuant to Section 7.3(a)(iii) and
(iv).
"CERTIFICATE RATE" means [___]% per annum.
"CERTIFICATE REGISTER" means the register maintained pursuant to
Section 8.3.
"CERTIFICATEHOLDER" or "HOLDER" means the Person in whose name a
Certificate is registered in the Certificate Register.
"CLEARING AGENCY" means an organization registered as a "clearing agency"
pursuant to Section 17A of the Securities Exchange Act of 1934, as amended. The
initial Clearing Agency shall be The Depository Trust Company.
"CLEARING AGENCY PARTICIPANT" means a broker, dealer, bank, other financial
institution or other Person for whom from time to time a Clearing Agency effects
book-entry transfers of securities deposited with the Clearing Agency.
"CLOSING DATE" means June __, 1995.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COLLECTION ACCOUNT" means the segregated trust account opened in the name
of the Trustee, as trustee, for the benefit of the Certificateholders (a) into
which the Servicer shall make remittances on each Remittance Date pursuant to
Section 7.2 and (b) from which the Trustee shall make distributions pursuant to
Section 7.3(a).
"COLLECTION PERIOD" means a period of time equal to one calendar month,
except that the first Collection Period will commence on the Closing Date and
end on the last day of the calendar month in which the Closing Date occurs. The
last Collection Period will end on March 31, 2005; provided, however, that if
the Tariff Termination Date is extended beyond September 30, 2004, the last
Collection Period
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shall end on the last day of the sixth calendar month after the month in which
the Tariff Termination Date occurs and in no event later than January 31, 2006.
"COMMISSION" means the Washington Utilities and Transportation Commission
or any successor governmental agency which has regulatory authority over rates
chargeable to Customers in connection with the provision and distribution of
electric energy and other services to such Customers.
"COMMISSION ORDERS" means the Initial Commission Order and the Periodic
Commission Orders.
"CONSERVATION ASSET TRANSACTION" means the transaction contemplated by this
Agreement, the Exhibits hereto, the Underwriting Agreement and the other
documents and instruments executed and delivered in connection herewith and
therewith.
"CONSERVATION ASSET TRANSACTION AMOUNT" means an aggregate amount
recoverable by the Trust under the Tariff representing the sum of (i) the
Bondable Conservation Investment Amount and (ii) interest on the Bondable
Conservation Investment Balance, at the Certificate Rate, for the period
commencing on the Closing Date and ending on the Tariff Termination Date.
"CONSERVATION REPAYMENT CONTRACT" means any contract between the Seller and
any Customer imposing an obligation on the Customer to pay a Termination Fee in
respect of all or part of the Bondable Conservation Investments for conservation
measures installed on the Customer's properties in the event such Customer
changes energy suppliers.
"CORPORATE TRUST OFFICE" means the office of the Trustee at which its
corporate trust business shall be principally administered, which office shall
be the office specified as such in this Agreement, or such office at some other
address as the Trustee may designate from time to time by notice to the
Certificateholders, the Seller, the Servicer, the Paying Agent and the Transfer
Agent and Certificate Registrar.
"CUSTOMER" means each retail customer of Puget Sound Power & Light Company
or its successors or assigns obligated pursuant to the Tariff or the Revised
Tariff, as the case may be, to pay Allocated Conservation Amounts to Puget Sound
Power & Light Company or its successors or assigns in connection with the
distribution and provision of energy to such Customer, or any other Person who
owes or may be liable for such Allocated Conservation Amounts.
"DEFINITIVE CERTIFICATES" shall have the meaning set forth in Section 8.8.
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"DEPOSIT DATE" means the Business Day immediately preceding each
Distribution Date.
"DISTRIBUTION DATE" means, for each Distribution Period, the 11th calendar
day (or if such 11th calendar day is not a Business Day, the Business Day
immediately succeeding such 11th calendar day) immediately succeeding the last
day of such Distribution Period, provided, however, that such date must be at
least one Business Day following the related Remittance Date.
"DISTRIBUTION PERIOD" means the period from and including the Closing Date
to and including September 30, 1995 and, thereafter, each of the following
periods in each year ending on March 31, 2005 (and, if the Tariff Termination
Date is after September 30, 2004, each additional such period after March 31,
2005 through the month in which the last Collection Period ends, but in no
event later than March 31, 2006):
January 1 to and including March 31;
April 1 to and including June 30;
July 1 to and including September 30; and
October 1 to and including December 31.
"EQUIPMENT SALE CONTRACTS" means any contract of the Servicer, or
governmental judgment, order or decree, resulting in (a) the sale or transfer
(whether voluntary or involuntary) of any property of the Servicer used by the
Servicer to serve any Customers, (b) such Customers (the "AFFECTED CUSTOMERS")
no longer constituting "Customers" of the Servicer, and (c) the Commission
removing a portion of the Bondable Conservation Investments from the Servicer's
rate base in accordance with the provisions of RCW 80.28.303(6)(a)(ii).
"EVENT OF DEFAULT" shall have the meaning set forth in Section 11.1.
"EVENT OF SERVICING TERMINATION" shall have the meaning set forth in
Section 11.1.
"GENERAL TARIFF" means the general tariff system in effect in respect of
rates which the Commission approves as chargeable by the Servicer to Customers
in connection with the provision and distribution of electric energy and other
services to such Customers.
"INDEPENDENT PUBLIC ACCOUNTANTS" means any of Arthur Andersen LLP, Deloitte
& Touche LLP, Coopers & Lybrand L.L.P., Ernst & Young LLP, KPMG Peat Marwick
LLP, Price Waterhouse LLP and the successor firms of each of them, or
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any other nationally recognized accounting firm acceptable to the Rating
Agencies; provided that such firm is independent with respect to the Servicer
within the meaning of the Securities Act of 1933.
"INITIAL COMMISSION ORDER" means that certain Supplemental Order of the
Commission, issued in Docket No. UE--950195 and approving, among other things,
the Tariff and the Conservation Asset Transaction, substantially in the form of
Exhibit C.
"MONTHLY SERVICER'S CERTIFICATE" means a certificate, substantially in the
form of Exhibit F, completed and executed by the Servicer by its chairman of the
board, president, treasurer or controller or any executive vice president,
senior vice president or vice president pursuant to Sections 6.9 and 7.6(a).
"OPINION OF COUNSEL" means a written opinion of counsel in form and
substance reasonably satisfactory to the recipient of such opinion of counsel.
"PAYING AGENT" shall have the meaning set forth in Section 8.11 and shall
initially be Chemical Bank.
"PERIODIC ADJUSTMENT APPLICATION" means each application of the Servicer to
the Commission seeking approval of the terms of each Revised Tariff, the form of
which is contained in Exhibit D.
"PERIODIC COMMISSION ORDER" means each Supplemental Order of the Commission
approving a Revised Tariff, a pro forma copy of which is contained in Exhibit D.
"PERMITTED INVESTMENTS" means, at any time, any one or more of the
following obligations and securities maturing at least one Business Day prior to
the immediately succeeding Distribution Date:
(i) obligations of the United States of America or any agency
thereof, provided such obligations are backed by the full faith and credit
of the United States of America;
(ii) general obligations of or obligations guaranteed as to the timely
payment of interest and principal by any state of the United States of
America or the District of Columbia then rated in the highest long-term
rating category by each of the Rating Agencies or such lower ratings (as
confirmed in writing by each of the Rating Agencies) as will not result in
the qualification, downgrading or withdrawal of the ratings then assigned
to the Certificates by any of the Rating Agencies;
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(iii) commercial paper which is then rated in the highest short-term
rating category by each of the Rating Agencies or such lower rating
categories (as confirmed in writing by each of the Rating Agencies) as will
not result in the qualification, downgrading or withdrawal of the ratings
then assigned to the Certificates by any of the Rating Agencies;
(iv) certificates of deposit, demand or time deposits, federal funds
or banker's acceptances issued by any depository institution or trust
company (including the Trustee acting in its commercial banking capacity)
incorporated under the laws of the United States or of any state thereof or
incorporated under the laws of a foreign jurisdiction with a branch or
agency located in the United States of America and subject to supervision
and examination by federal or state banking authorities, provided that the
short-term unsecured deposit obligations of such depository institution or
trust company is then rated in the highest short-term rating category by
each of the Rating Agencies or such lower rating categories (as confirmed
in writing by each of the Rating Agencies) as will not result in the
qualification, downgrading or withdrawal of the ratings then assigned to
the Certificates by any of the Rating Agencies;
(v) demand or time deposits of, or certificates of deposit issued by,
any bank, trust company, savings bank or other savings institution provided
that such deposits or certificates of deposit are fully insured by the
FDIC;
(vi) guaranteed reinvestment agreements issued by any bank, insurance
company or other corporation (A) the short-term unsecured debt or deposits
of which are rated in the highest short-term rating category by each of the
Rating Agencies or the long-term unsecured debt of which is rated in the
highest long-term rating category by each of the Rating Agencies or
(B) that are otherwise confirmed in writing by each of the Rating Agencies
as investments that will not result in the qualification, downgrading or
withdrawal of the ratings then assigned to the Certificates by any of the
Rating Agencies;
(vii) repurchase obligations with respect to any security described in
clause (i), (ii) or (ix) herein or any other security issued or guaranteed
by the FHLMC, the FNMA or any other agency or instrumentality of the United
States of America that is backed by the full faith and credit of the United
States of America, in either case entered into with a federal agency or a
depository institution or trust company (acting as principal) described in
(iv) above or a corporation (acting as principal) described in (vi) above;
(viii) investments in money market funds, which funds are (A) not
subject to any sales, load or other similar charge; (B) rated in the
highest rating
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category by each of the Rating Agencies; and (C) invested solely in
obligations described in clauses (i) through (vii) above.
(ix) interests in any open-end or closed-end management type
investment company or investment trust (A) registered under the Investment
Company Act of 1940, as from time to time amended, the portfolio of which
is limited to obligations of the United States or obligations guaranteed by
the United States and to agreements to repurchase such obligations, which
agreements, with respect to principal and interest, are at least 100%
collateralized by such obligations marked to market on a daily basis and
pursuant to which the investment company or investment trust is required to
take delivery of such obligations either directly or through an independent
custodian designated in accordance with the Investment Company Act of 1940,
as from time to time amended and (B) acceptable to each of the Rating
Agencies (as confirmed in writing by each of the Rating Agencies) as
collateral for securities having ratings equivalent to the ratings of the
Certificates on the Closing Date; and
(x) such other investments where either (A) the short-term unsecured
debt or deposits of the obligor on such investments are rated in the
highest short-term rating category by each of the Rating Agencies or
(B) such investments are acceptable to, and confirmed in writing by, each
of the Rating Agencies and will not result in the qualification,
downgrading or withdrawal of the ratings then assigned to the Certificates
by any of the Rating Agencies.
"PERSON" means a legal person, including any individual, corporation,
estate, partnership, limited liability company, joint venture, association,
joint stock company, trust, unincorporated organization, or government or any
agency or political subdivision thereof, or any other entity of whatever nature.
"PRELIMINARY PROSPECTUS" means that certain preliminary prospectus issued
in connection with the prospective purchase and sale of the Certificates.
"PRO FORMA SCHEDULE" means the pro forma schedule of Projected Bondable
Conservation Investment Balances set forth in Schedule B.
"PROJECTED BONDABLE CONSERVATION INVESTMENT BALANCE" means, in respect of
September 30, 1995 and each Calculation Date, the amount set forth in respect
of such date in the Pro Forma Schedule.
"PROSPECTUS" means that certain final prospectus issued in connection with
the purchase and sale of the Certificates.
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"PURCHASED ASSET DOCUMENTATION" shall have the meaning set forth in
Section 5.1.
"PURCHASED ASSETS" means, collectively, the Purchased Conservation
Investment Assets, the Purchased Contract Rights and the Purchased Sale
Proceeds.
"PURCHASED CONSERVATION INVESTMENT ASSETS" means, collectively, (i) all of
the Seller's right, title and interest in and to, and to receive, the Allocated
Conservation Amounts in accordance with the Tariff and Commission Orders and
(ii) all of the Seller's rights to have the Conservation Asset Transaction
Amount recoverable through Rates pursuant to and in accordance with the Statute.
"PURCHASED CONTRACT RIGHTS" means all of the Seller's right, title and
interest under the Conservation Repayment Contracts in and to the Termination
Fees.
"PURCHASED SALE PROCEEDS" means all of the Seller's right, title and
interest to the portion of the price paid to the Servicer, or the governmental
award or payment in favor of the Servicer, in connection with any Equipment Sale
Contract relating to the Bondable Conservation Investments allocable to the
Affected Customers, such portion of such price or award to equal, for all
purposes of this Agreement, the Allocated Sale Amounts.
"QUALIFIED TRUST INSTITUTION" means an institution organized under the laws
of the United States of America or one of the states thereof or incorporated
under the laws of a foreign jurisdiction with a branch or agency located in the
United States of America and subject to supervision and examination by federal
or state banking authorities which at all times (i) is authorized under such
laws to act as a trustee or in any other fiduciary capacity, (ii) has not less
than $500,000,000 in assets under fiduciary management, (iii) has a minimum net
worth of at least $50,000,000, and (iv) has a long-term deposits rating in one
of the three highest rating categories by each of the Rating Agencies rating
such institution.
"RATE ADJUSTMENT" means each adjustment to the revenues allocated to the
Trust in respect of the Conservation Asset Transaction Amount pursuant to which
(a) in the case where immediately prior to any such adjustment the Tariff was in
effect, a Revised Tariff shall take effect or (b) in the case where immediately
prior to any such adjustment a Revised Tariff was in effect, a subsequent
Revised Tariff shall take effect.
"RATE ADJUSTMENT MECHANISM" shall have the meaning set forth in
Section 6.5(b).
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"RATES" means the schedule of rates that the Seller is authorized to bill
Customers from the Closing Date through the Tariff Termination Date in exchange
for the Seller's provision and distribution of power to such Customers.
"RATING AGENCIES" means the nationally recognized statistical rating
organizations initially rating the Certificates.
"RATING AGENCY CONDITION" means the rating by any of the Rating Agencies of
the Servicer's long-term first mortgage bonds being below the fourth highest
rating category of such Rating Agency.
"RECORD DATE" means, with respect to any Distribution Date, the Business
Day prior to such Distribution Date unless Definitive Certificates are issued,
in which case "RECORD DATE" shall mean the last day of the immediately preceding
calendar month.
"REGISTRATION STATEMENT" means the Form S-1 registration statement
(Registration No. 33-87784) filed with the Securities and Exchange Commission by
the Seller, as registrant, in respect of the Certificates issued by the Trust.
"REGULATORY YEAR" means (i) the period from but excluding the Closing Date
through and including September 30, 1995 (the "Initial Regulatory Year") and
(ii) for each period following the Initial Regulatory Year until the Tariff
Termination Date, the period from and including October 1st of each year
through and including September 30th of the following year (or, if sooner,
through and including the Tariff Termination Date).
"REMITTANCE DATE" means, for each Collection Period, the 10th calendar day
(or, if such 10th calendar day is not a Business Day, the Business Day
immediately succeeding such 10th calendar day) immediately succeeding the end of
such Collection Period, except as set forth in Section 7.2.
"RESPONSIBLE OFFICER" means any officer within the Corporate Trust Office
of the Trustee including any Assistant Vice President, Trust Officer or
Assistant Trust Officer or any other officer of the Trustee customarily
performing functions similar to those performed by any of the above designated
officers.
"REVISED TARIFF" means any schedule to the General Tariff, in replacement
of the Tariff (or any Revised Tariff then in effect), allocating revenues to the
Trust in respect of the Conservation Asset Transaction Amount, in an amount
equal to the Revised Tariff Amount, and put into effect from time-to-time by the
Commission's issuance of a Periodic Commission Order, such that, taking into
account from the effective date of the Revised Tariff the then expected rate of
delinquencies and expected numbers of Customers, (i) upon the next Calculation
Date (or on September 30, 2004 in the case of a Revised Tariff in respect of a
Variance at the September 30,
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2003 Calculation Date or on the Tariff Termination Date in the case of a Revised
Tariff taking effect after March 31, 2004), the Bondable Conservation Investment
Balance is anticipated to be equal to the Projected Bondable Conservation
Investment Balance as of such date, (ii) thereafter, the Bondable Conservation
Investment Balance is anticipated to be amortized in accordance with the Pro
Forma Schedule and (iii) revenues allocated to the Trust will be sufficient for
the payment of interest at the Certificate Rate on the Bondable Conservation
Investment Balance. Notwithstanding the foregoing determination, no Revised
Tariff shall obligate the Trust to, and the Trustee shall not, return any
revenues that were allocated to the Trust under the Tariff or any previous
Revised Tariff.
"REVISED TARIFF AMOUNT" means, at any date of determination, an amount,
determined by the Servicer taking into account (from the effective date of the
Revised Tariff) the then expected rate of delinquencies and the expected numbers
of Customers, such that (assuming effectuation of such tariff) (i) upon the next
Calculation Date (or on September 30, 2004 in the case of a Revised Tariff in
respect of a Variance at the September 30, 2003 Calculation Date or on the
Tariff Termination Date in the case of a Revised Tariff taking effect after
March 31, 2004), the Bondable Conservation Investment Balance is anticipated to
be equal to the Projected Bondable Conservation Investment Balance as of such
date, (ii) thereafter, the Bondable Conservation Investment Balance is
anticipated to be amortized in accordance with the Pro Forma Schedule and (iii)
revenues allocated to the Trust will be sufficient for the payment of interest
at the Certificate Rate on the Bondable Conservation Investment Balance.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SELLER" means Puget Sound Power & Light Company, solely in its capacity as
the seller of the Purchased Assets under this Agreement, and each successor to
Puget Sound Power & Light Company (in the same capacity) pursuant to
Section 9.3.
"SERVICER" means Puget Sound Power & Light, solely in its capacity as the
servicer of the Purchased Assets under this Agreement, each successor to Puget
Sound Power & Light Company (in the same capacity) pursuant to Section 10.3,
each successor Servicer pursuant to Section 11.1 and each permitted assignee
pursuant to Section 14.7.
"SERVICING FEE" means, with respect to each Distribution Period, the fee
payable to the Servicer pursuant to Section 7.3(a)(ii) for services rendered
during such Distribution Period, in an amount equal to the sum of (i) $_________
in respect of the first Distribution Period and $_________ in respect of all
subsequent Distribution Periods and (ii) the investment earnings on amounts
deposited in the Collection Account during such Distribution Period.
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"STATUTE" means ch. 268 of Laws of Washington 1994, codified at
RCW 80.28.005, RCW 80.28.303, RCW 80.28.306 and RCW 80.28.309.
"TARIFF" means Schedule 102 (Designation of Revenues Allocable to
Bondable Conservation Investments) to the General Tariff, substantially in
the form of Exhibit B, as the same shall be adjusted in accordance with the
terms thereof allocating revenues to the Trust in respect of the Conservation
Asset Transaction Amount, in an amount equal to the Tariff Amount, and put
into effect by the Commission's issuance of an Initial Commission Order such
that, taking into account from the effective date of the Tariff the then
expected rate of delinquencies and expected numbers of Customers, the Bondable
Conservation Investment Balance is anticipated to be amortized in accordance
with the Pro Forma Schedule.
"TARIFF AMOUNT" means an amount determined by the Servicer taking into
account (from the effective date of the Tariff) the then expected rate of
delinquencies and the expected numbers of Customers such that the Bondable
Conservation Investment Balance is anticipated to be amortized in accordance
with the Pro Forma Schedule.
"TARIFF TERMINATION DATE" means September 30, 2004, except that if a
Variance exists on September 30, 2003 or March 31, 2004 and the Commission takes
more than 30 days to approve a Revised Tariff in respect of such a Variance
after receipt of the Servicer's application therefor, that Revised Tariff shall
remain in effect for such period of time after September 30, 2004 as corresponds
to the delay beyond 30 days in approval of the latest of such Revised Tariffs
that has been so delayed; provided, however, that in no event shall the Tariff
Termination Date be later than July 31, 2005.
"TERMINATION FEES" means all amounts paid by Customers under Conservation
Repayment Contracts.
"TRANSFER AGENT AND CERTIFICATE REGISTRAR" shall have the meaning set forth
in Section 8.3 and shall initially be Chemical Bank.
"TRUST" means the trust created by this Agreement, the estate of which
shall consist of the property transferred thereto pursuant to this Agreement,
together with funds deposited in the Collection Account and proceeds thereof.
"TRUSTEE" means Chemical Bank, solely in its capacity as Trustee hereunder,
its successor in interest pursuant to Section 12.10, and any successor Trustee
pursuant to Section 12.9.
"TRUSTEE FEE" means, with respect to each Distribution Period, the fee
payable to the Trustee pursuant to Section 7.3(a)(i) for services rendered
during the Distribution Period, in an amount equal to $3,750. The Trustee Fee
is intended to cover the Trustee's anticipated and ordinary expenses incurred in
the administration of its trusts hereunder.
"TRUSTEE'S CERTIFICATE" means a certificate, substantially in the form of
Exhibit G, completed and executed by a Responsible Officer pursuant to
Section 7.6(b).
"UCC" means the Uniform Commercial Code as in effect in the State of
Washington.
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"UNDERWRITING AGREEMENT" means that certain Underwriting Agreement in
respect of the issuance and sale of the Certificates among Puget Sound Power &
Light Company, Salomon Brothers Inc and Chemical Securities Inc.
"VARIANCE" shall occur on each Calculation Date on which the Bondable
Conservation Investment Balance shall be more than two percent (2%) greater or
lower than the Projected Bondable Conservation Investment Balance as of such
date.
SECTION 1.2 USAGE OF TERMS
With respect to all terms in this Agreement, the singular includes the
plural and the plural the singular; words importing any gender include the other
gender; references to "writing" include printing, typing, lithography and other
means of reproducing words in a visible form; references to agreements and other
contractual instruments include all subsequent amendments thereto or changes
therein effected in accordance with their respective terms and not prohibited by
this Agreement; references to Persons include their permitted successors and
assigns; and the term "including" means "including, without limitation."
SECTION 1.3 REFERENCES
All references to the Record Date prior to the first Record Date in the
life of the Trust shall be deemed to be references to the Closing Date. All
references to "as of a Record Date" shall refer to the close of business on such
Record Date.
SECTION 1.4 HEADINGS
The headings herein are for purposes of reference only and shall not
otherwise affect the meaning or interpretation of any provision hereof.
SECTION 2. CREATION OF TRUST
Upon the execution of this Agreement by the parties hereto, there is hereby
created the Puget Power Conservation Grantor Trust 1995-1.
SECTION 3. TRANSFER OF PROPERTY
SECTION 3.1 TRANSFER OF PROPERTY TO THE TRUST
In consideration of the Trustee's delivery to the Seller of authenticated
Certificates, in authorized denominations, in an aggregate amount equal to the
Aggregate Certificate Amount, the Seller hereby agrees, pursuant to the Bill of
Sale, to absolutely, unconditionally and irrevocably transfer, assign and
otherwise convey to the Trustee on behalf of the Trust, without recourse or
reversion, and the Trustee
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agrees, on behalf of the Trust, to acquire from the Seller all right, title and
interest of the Seller in and to (i) the Purchased Conservation Investment
Assets, (ii) the Purchased Contract Rights, (iii) the Purchased Sale Proceeds,
and (iv) all proceeds of the foregoing items described in clauses (i), (ii) and
(iii).
SECTION 3.2 COMMERCIAL LAW AND STATUTORY CHARACTERIZATION OF TRANSACTION
The Seller and the Trustee expressly state, for purposes of
RCW 80.28.306(5), and for commercial law purposes, that the Conservation Asset
Transaction shall constitute a "sale or other absolute transfer" of the
Purchased Conservation Investment Assets by the Seller to a "finance subsidiary"
(as defined in RCW 80.28.005(4)). It is the intention of the parties hereto and
the Trust that the Purchased Assets will not be property of the estate created
in the event the Seller becomes the subject of bankruptcy or similar
proceedings. In the event that, notwithstanding the foregoing, the Conservation
Asset Transaction is recharacterized as a pledge to secure a loan or other
obligation to make payments to the Trust, the Seller hereby grants to the
Trustee on behalf of the Trust for the benefit of the Certificateholders a
security interest in all of the Seller's right, title and interest in the
Purchased Assets and all revenues and proceeds arising with respect thereto and
in the cash and deposit accounts of the Seller/Servicer specified in RCW
80.28.306(3) (to the extent provided therein) to secure the loan or such other
obligation deemed to be made in connection with such pledge. In such event,
this Agreement shall constitute a security agreement creating a security
interest pursuant to RCW 80.28.306(2) and the Uniform Commercial Code as enacted
in the State of Washington, as applicable, which security interest, upon
approval of this Agreement by the Commission and the filing of a UCC-1 financing
statement with the Department of Licensing of the State of Washington as
required by RCW 80.28.306(2) and the Uniform Commercial Code, shall constitute a
first-priority perfected security interest in the Purchased Assets and all
revenues and proceeds arising with respect thereto and in the cash and deposit
accounts of the Seller/Servicer specified in RCW 80.28.306(3) (to the extent
provided therein), whether or not such revenues have accrued, prior to all other
liens, claims, encumbrances, rights of offset and security interests on or with
respect to all such assets.
SECTION 3.3 CERTAIN FURTHER ASSURANCES
In connection with the sale of the Purchased Assets, the Seller agrees to
record and file financing statements with respect to the Purchased Assets
meeting the requirements of applicable state law in Washington in such manner,
and to take such other actions as may be necessary under Washington law, as is
necessary to perfect the sale and assignment of the Purchased Assets to the
Trust.
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SECTION 3.4 CLOSING
The closing of the purchase and sale of the Purchased Assets and transfer
of the Certificates under this Agreement shall occur at 9:00 a.m. on the Closing
Date at the offices of Perkins Coie, 1201 Third Avenue, 40th Floor, Seattle,
Washington, or at such other time and place as the parties may agree.
SECTION 4. ACCEPTANCE BY TRUSTEE
The Trustee does hereby accept on behalf of the Trust all consideration
transferred and conveyed by the Seller pursuant to Section 3.1, and to be
transferred and conveyed pursuant to the Bill of Sale, and declares that the
Trustee shall hold such consideration upon the trusts herein set forth for the
benefit of the Certificateholders, subject to the terms and provisions of this
Agreement.
SECTION 5. CUSTODY OF PURCHASED ASSETS DOCUMENTATION
SECTION 5.1 PURCHASED ASSETS DOCUMENTATION
To assure uniform quality in servicing the Purchased Assets and to reduce
administrative costs, the Trustee, upon the execution and delivery of this
Agreement, agrees to have the Servicer hold, and act as custodian of, the
following documents or instruments, copies of which are hereby constructively
delivered to the Trustee: (i) the original executed Conservation Repayment
Contracts or, if no such original exists, a copy of such original executed
Conservation Repayment Contract; and (ii) all other material documents that the
Seller or Servicer, as the case may be, shall keep on file, in accordance with
its customary procedures, relating specifically and exclusively to the Purchased
Assets including copies of all material documents filed with the Commission in
connection with any Rate Adjustment (such documents and instruments,
collectively, the "PURCHASED ASSET DOCUMENTATION").
SECTION 5.2 APPOINTMENT AS CUSTODIAN; ACCEPTANCE OF CUSTODIAL
RESPONSIBILITY
Subject to Section 5.6, the Servicer is hereby irrevocably appointed as the
agent of the Trust to serve as custodian of the Purchased Asset Documentation,
such irrevocable appointment being coupled with an interest. Such appointment
may not be revoked except in accordance with the express terms hereof. The
Trustee shall have no responsibility to monitor the Servicer's performance as
custodian and shall have no liability in connection with the Servicer's
performance of such duties hereunder. Subject to Section 5.6, the Servicer
hereby accepts the foregoing appointment as custodian, and agrees to act as
custodian of the Purchased Asset Documentation pursuant to and in accordance
with the terms of this Agreement.
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SECTION 5.3 DUTIES OF SERVICER AS CUSTODIAN
(a) SAFEKEEPING
The Servicer, in its capacity as custodian, shall hold the Purchased Asset
Documentation for the benefit of the Trust and all present and future
Certificateholders, and shall maintain such accurate and complete accounts,
records and computer systems pertaining to the Purchased Asset Documentation as
shall enable the Trustee to comply with its obligations pursuant to this
Agreement. In performing its duties as custodian, the Servicer shall act with
reasonable care, using that degree of skill and attention that the Servicer
exercises with respect to the assets that the Servicer services for itself. The
Servicer shall promptly report to the Trustee any failure on its part to hold
the Purchased Asset Documentation and maintain its accounts, records and
computer systems as herein provided, and promptly take appropriate action to
remedy any such failure.
(b) MAINTENANCE OF AND ACCESS TO RECORDS
The Servicer shall maintain the Purchased Asset Documentation at its head
office, Puget Sound Power & Light Company, One Bellevue Center, 411 - 108th
Avenue N.E., Bellevue, Washington 98004, or at such other office as shall be
specified to the Trustee by 30 days' prior written notice. The Servicer shall,
at the request of the Trustee, make available for inspection to the Trustee or
its duly authorized representatives, attorneys or auditors the Purchased Asset
Documentation at such times during normal operating hours as the Trustee shall
reasonably instruct which does not unreasonably interfere with the Servicer's
normal operations.
(c) FINAL INSPECTION OF DOCUMENTS
Upon termination of the custodial agreement set forth in Section 5.1 and
instruction from the Trustee, the Servicer shall, at the request of the Trustee,
make available for final inspection any portion of the Purchased Asset
Documentation to the Trustee, the Trustee's agent or the Trustee's designee, as
the case may be, at such place or places as the Trustee may reasonably designate
as soon as reasonably practicable to the extent it does not unreasonably
interfere with the Servicer's normal operations. The Servicer shall not be
responsible for any loss occasioned by the failure of the Trustee, its agent or
its designee to conduct such an inspection or any delay in doing so.
SECTION 5.4 INSTRUCTIONS; AUTHORITY TO ACT
The Servicer shall be deemed to have received proper instructions with
respect to the Purchased Asset Documentation upon its receipt of written
instructions signed
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by a Responsible Officer. A certified officer's certificate shall constitute
conclusive evidence of the authority of any such Responsible Officer to act and
shall be considered in full force and effect until receipt by the Servicer of
written notice to the contrary given by the Trustee.
SECTION 5.5 INDEMNIFICATION REGARDING CUSTODIAL OBLIGATIONS
The Servicer, as custodian, shall indemnify the Trustee and its officers,
directors, employees and agents for any and all liabilities, losses or damages
(including any property, excise, sales or similar taxes) that may be imposed on
or incurred or asserted against the Trustee or its officers, directors,
employees or agents as the sole and direct result of any material breach of the
Servicer's obligations as custodian of the Purchased Asset Documentation;
PROVIDED, HOWEVER, that the Servicer shall not be liable for any portion of any
such amount resulting from the willful misfeasance, bad faith or negligence of
the Trustee.
SECTION 5.6 EFFECTIVE PERIOD AND TERMINATION
(a) The Servicer's appointment as custodian shall become effective as of
the Closing Date and shall continue in full force and effect until the earlier
of (i) the termination of the Trust or (ii) the appointment of a successor
Servicer pursuant to Section 10.5 or 11.1.
SECTION 6. ADMINISTRATION AND SERVICING OF PURCHASED ASSETS
SECTION 6.1 APPOINTMENT OF SERVICER; ACCEPTANCE OF APPOINTMENT
Subject to Section 11.1, the Servicer is hereby irrevocably appointed as
the agent of the Trust to service the Purchased Assets pursuant to the terms
hereof, such irrevocable appointment being coupled with an interest. Such
appointment may not be revoked except in accordance with the express terms
hereof. Subject to Section 10.5, the Servicer hereby accepts the foregoing
appointment as servicing agent pursuant to the terms hereof.
SECTION 6.2 DUTIES OF SERVICER
The Servicer shall manage, service, administer and make collections on the
Purchased Assets with reasonable care and in accordance with applicable law,
using that degree of skill and attention that the Servicer exercises with
respect to assets that the Servicer services for itself. The Servicer's duties
shall include billing, collection and posting of all payments, responding to
inquiries by Customers or by the Commission, federal, local or other state
governmental authorities with respect to the Purchased Assets, investigating
delinquencies, accounting for collections, furnishing
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quarterly and annual statements to the Trustee with respect to distributions,
and taking action in connection with the Rate Adjustment Mechanism to the extent
expressly set forth in Section 6.5. The Servicer shall follow its customary
standards, policies and procedures in performing its duties as Servicer.
Without limiting the generality of the foregoing, the Servicer shall be, and is
hereby, authorized and empowered by the Trust to (a) execute and deliver, on
behalf of itself, the Trust, the Trustee, the Certificateholders or any of them,
any and all instruments, documents or notices and (b) on behalf of itself, the
Trust, the Trustee, the Certificateholders or any of them, make any filing with
and to participate in proceedings of any kind with any governmental authorities
(including with the Commission), in each case in respect of any of the Purchased
Assets. The Trustee shall furnish the Servicer with such documents as have been
prepared by the Servicer for execution by the Trustee and as are necessary or
appropriate to enable the Servicer to carry out its servicing and administrative
duties hereunder.
SECTION 6.3 COLLECTION OF CERTAIN PURCHASED ASSETS AND RELATED MATTERS
(a) The Servicer shall use all reasonable efforts to collect all Allocated
Conservation Amounts, Allocated Sale Amounts and Termination Fees as and when
the same shall become due, and shall follow such collection procedures as it
follows with respect to comparable assets that it services for itself. The
Servicer shall not change the amount of or reschedule the due date of any
scheduled payment of any Allocated Conservation Amount or Termination Fee or
change any material term of any Purchased Asset, except as provided by the terms
of the Purchased Asset or as contemplated by this Agreement or as required by
law or court order; provided, however, that the Servicer may take any of the
foregoing actions to the extent that such action would be in accordance with
customary practices of the Servicer with respect to comparable assets that it
services for itself and such action would not materially adversely affect the
Certificateholders.
(b) The Servicer shall allocate all payments received by the Servicer
through the end of the last Collection Period from Customers in respect of bills
sent by the Servicer to Customers during the period commencing on the first
Business Day following the Closing Date and ending on the Tariff Termination
Date, as between the Servicer and the Trust, in accordance with the terms of the
Tariff or any Revised Tariff, as the case may be, in effect from time to time.
SECTION 6.4 REALIZATION UPON, AND MAINTENANCE OF, PURCHASED ASSETS
On behalf of the Trust, the Servicer shall use all reasonable efforts,
consistent with its customary servicing procedures, (a) to enforce, and maintain
rights in respect
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of, the Purchased Assets, in each case to the same extent that it services
comparable assets that it services for itself and (b) to maintain the aggregate
amount of revenues allocated to the Trust pursuant to the Tariff or any Revised
Tariff, as the case may be, by making necessary filings or refilings with the
Commission (including in connection with any general resetting,
recategorization, reclassification or reallocation of revenues or rates). The
Servicer shall follow such customary and usual practices and procedures as it
shall deem necessary or advisable in its servicing of any of the Purchased
Assets, which, in the Servicer's judgment, may include the taking of legal
action.
SECTION 6.5 RATE ADJUSTMENT MECHANISM
(a) The Servicer shall calculate the Bondable Conservation Investment
Balance as of each Calculation Date and shall deliver a written copy of such
calculation in reasonable detail to the Trustee not later than two Business Days
prior to the Distribution Date immediately following such Calculation Date. The
written copy shall compare the Bondable Conservation Investment Balance to the
Projected Bondable Conservation Investment Balance. Based solely upon such
written report from the Servicer (upon which the Trustee may conclusively rely
in the absence of manifest error), the Trustee shall promptly notify the
Servicer of the occurrence, and the amount, of any Variance. Within 30 days
following the Calculation Date to which a Variance relates, the Servicer shall
apply with the Commission for a Rate Adjustment which, upon approval thereof by
the Commission, shall remain in effect until the earlier of (i) the next Rate
Adjustment and (ii) the Tariff Termination Date.
(b) In connection with each such Rate Adjustment, the Servicer shall
(i) calculate the relevant Revised Tariff Amount for the then-current Regulatory
Year and each subsequent Regulatory Year, (ii) file an application substantially
in the form of the Periodic Adjustment Application with the Commission (such
application, together with the Rate Adjustment contemplated thereby,
collectively, the "RATE ADJUSTMENT MECHANISM"), (iii) take all reasonable
actions and make all reasonable efforts in order to effectuate the Rate
Adjustment Mechanism and to enforce the provisions of the Statute which obligate
the Commission to approve rates at levels sufficient to recover the Conservation
Asset Transaction Amount in accordance with this Agreement, and (iv) send to the
Trustee copies of all notices and documents, in Servicer's reasonable judgment,
material to the Rate Adjustment Mechanism, including, without limitation,
reasonable detail with respect to the Servicer's calculation of the Revised
Tariff Amount. The Servicer shall promptly notify the Rating Agencies of the
filing with the Commission of each Periodic Adjustment Application and of the
approval of each Revised Tariff by the Commission.
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(c) It is expressly agreed and acknowledged by the Trustee, on behalf of
itself, the Trust and each of the Certificateholders, that (i) in connection
with any Rate Adjustment Mechanism, the Servicer is acting solely in its
capacity as servicing agent hereunder, (ii) neither the Servicer nor the Trustee
is responsible in any manner for, and shall have no liability whatsoever as a
result of any action, decision, ruling or other determination made or not made,
or any delay (other than any delay resulting from the Servicer's failure to file
the applications required by Section 6.5(b)(ii) in a timely manner), by the
Commission in any way related to the Purchased Conservation Investment Assets or
in connection with any Rate Adjustment Mechanism, the subject of any filings
under Section 6.4, any proposed Rate Adjustment, or the approval of any Revised
Tariff or any Revised Tariff Amount and the scheduled adjustments thereto, and
(iii) the Servicer shall have no liability whatsoever relating to the
calculation of the Revised Tariff Amount and the scheduled adjustments thereto
(including as a result of any inaccuracy of any of the assumptions made in such
calculation regarding expected delinquencies and expected numbers of customers)
or as a result of any person (including the Certificateholders) not receiving
any payment, amount or return anticipated or expected during any Distribution
Period or in respect of any Certificate generally, except only to the extent
that the same is directly caused by a computational error in calculating the
Revised Tariff Amount attributable to the Servicer's gross negligence. The
foregoing is not intended to, and shall not, relieve the Seller of liability for
any misrepresentation under Section 9.1(b)-(f). The Servicer hereby
acknowledges that the terms of this Section 6.5(c) are not intended to, and
shall not, relieve the Servicer of liability for any misrepresentation by the
Servicer under Section 10 or the breach by the Servicer of its other obligations
under this Agreement.
SECTION 6.6 MAINTENANCE OF FILINGS IN RESPECT OF PURCHASED ASSETS
(a) The Servicer shall take such steps as are necessary to maintain the
perfection of the Trust's interest in the Purchased Assets including the filing
of financing statements and continuation statements.
(b) The Servicer shall file with the Securities and Exchange Commission on
behalf of the Trust such periodic reports as are required from time to time
under Section 13 of the Securities Exchange Act of 1934, as amended. The
Trustee shall, at the Servicer's request, provide the Servicer with information
necessary for the Servicer to file such reports.
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SECTION 6.7 DOMINION AND CONTROL OF THE PURCHASED ASSETS; COVENANT OF
SERVICER
Notwithstanding any other provision herein, the Servicer and the Trustee on
behalf of the Trust agree that the Trustee shall have dominion and control over
the Purchased Assets, and the Servicer, in accordance with the terms hereof, is
acting solely as the servicing agent and custodian for the Trust with respect to
the Purchased Assets. The Servicer hereby agrees that it shall not take any
action that is not authorized by this Agreement, and which is not consistent
with its customary procedures and practices, that shall impair the rights of the
Trust in the Purchased Assets unless such action is required by law or court or
regulatory order.
SECTION 6.8 SERVICING FEE
In consideration for its services hereunder, the Servicer shall receive the
Servicing Fee as set forth in Section 7.3(a)(ii). The Servicer shall be
required to pay from its own account all expenses incurred by it in connection
with its activities hereunder.
SECTION 6.9 MONTHLY SERVICER'S CERTIFICATE
On or before each Remittance Date and at least three Business Days prior to
each Distribution Date, the Servicer, in accordance with Section 7.6(a), shall
deliver to the Trustee, the Paying Agent and each Rating Agency a Monthly
Servicer's Certificate for the Collection Period preceding such Remittance Date.
The Servicer shall deliver to the Trustee and each Rating Agency any public
financial information in respect of the Servicer, or any material information
regarding the Purchased Assets to the extent it is available to the Servicer, in
each case that the Trustee and each Rating Agency reasonably requests in order
to monitor the performance by the Servicer hereunder.
SECTION 6.10 STATEMENT AS TO COMPLIANCE
The Servicer shall deliver to the Trustee on or before April 30 of each
year commencing April 30, 1996 to and including the April 30 succeeding the
termination of the Trust, a certificate signed by the chairman of the board, the
president, the treasurer, the controller, any executive or senior vice president
or any vice president of the Servicer, stating that (A) a review of the
activities of the Servicer during the year ended the preceding December 31 (or
shorter period in the case of the first such certificate) and of its performance
under this Agreement has been made under such officer's supervision and (B) to
the best of such officer's knowledge, based on such review, the Servicer has
fulfilled all of its material obligations in all material respects under this
Agreement throughout such year, or, if there has been a material default in
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the fulfillment of any such material obligation, specifying each such default
known to such officer and the nature and status thereof.
SECTION 6.11 ANNUAL REPORT BY INDEPENDENT PUBLIC ACCOUNTANTS
(a) The Servicer shall cause a firm of Independent Public Accountants
(which may provide other services to the Servicer) to prepare, and the Servicer
shall deliver to the Trustee, a report addressed to the Servicer, which may be
included as part of the Servicer's customary auditing activities, for the
information and use of the Trustee on or before May 31 of each year, beginning
May 31, 1996 to and including the May 31 succeeding the termination of the
Trust, to the effect that such firm has performed certain procedures in
connection with the Servicer's compliance with the servicing procedures of this
Agreement, identifying the results of such procedures and including any
exceptions noted.
(b) The report of the Independent Public Accountants shall also indicate
that such accounting firm is independent of the Servicer within the meaning of
the Code of Professional Ethics of the American Institute of Certified Public
Accountants.
SECTION 6.12 ACCESS TO CERTAIN DOCUMENTATION AND INFORMATION REGARDING
PURCHASED ASSETS
The Servicer shall provide to the Certificateholders access to the
Purchased Asset Documentation in such cases, but only in such cases, where the
Certificateholders shall be required by applicable statutes or regulations to
have access to such documentation. Access by the Certificateholders shall be
afforded without charge, but only upon reasonable request and during normal
business hours which do not unreasonably interfere with the Servicer's normal
operations. Nothing in this Section 6.12 shall affect the obligation of the
Servicer to observe any applicable law prohibiting disclosure of information
regarding Customers, and the failure of the Servicer to provide access to
information as a result of such obligation shall not constitute a breach of this
Section 6.12.
SECTION 6.13 REPORTS TO CERTIFICATEHOLDERS, CERTIFICATE OWNERS AND THE
RATING AGENCIES
(a) The Servicer and the Trustee shall provide free of charge to any
Certificateholder who so requests in writing (addressed to the Corporate Trust
Office, in the case of a request to the Trustee) a copy of each Monthly
Servicer's Certificate described in Section 6.9, the annual compliance statement
described in Section 6.10, or the annual accountants' report described in
Section 6.11.
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(b) The Trustee shall promptly forward to the Rating Agencies the
statements and reports referred to in Section 6.13(a), the statements to
Certificateholders described in Sections 7.6(a) and (b), and any other reports
from the Servicer with respect to the Purchased Assets it may receive pursuant
to this Agreement.
SECTION 7. DISTRIBUTIONS; STATEMENTS TO PARTIES
SECTION 7.1 COLLECTION ACCOUNT
(a) The Servicer shall establish the Collection Account in the name of the
Trustee for the benefit of the Certificateholders. The Collection Account shall
be a segregated identifiable trust account established in the trust department
of a Qualified Trust Institution. The Collection Account shall be maintained by
the Trustee so long as the Trustee is a Qualified Trust Institution.
(b) Should any depositary of the Collection Account cease to be a
Qualified Trust Institution, then the Servicer shall, at the instruction of the
Trustee, cause the Collection Account to be moved to a Qualified Trust
Institution within 10 Business Days after receipt of such instruction, unless
the Servicer provides the Trustee with a letter from each Rating Agency to the
effect that the then current ratings assigned to the Certificates by the Rating
Agencies will not be adversely affected by such depositary's ceasing to be a
Qualified Trust Institution.
(c) All amounts held in the Collection Account shall be invested by the
bank or trust company then maintaining the account at the written direction of
the Servicer in Permitted Investments that mature on a date proximate to but not
later than the Deposit Date next succeeding the date of investment; PROVIDED,
HOWEVER, that if the Collection Account is maintained with the Trustee, such
Permitted Investments may mature on the Distribution Date next succeeding the
date of investment, if the Trustee is the obligor on such investments (including
repurchase agreements on which the Trustee in its commercial capacity is liable
as principal).
SECTION 7.2 COLLECTIONS
The Servicer shall remit to the Collection Account, on each Remittance
Date, the Aggregate Remittance Amount received by the Servicer from or on behalf
of Customers during the immediately preceding Collection Period (whether
attributable to that period or any prior period). Any such collections remitted
to the Collection Account shall be in immediately available funds and shall be
remitted no later than 1:00 p.m., New York City time, on or before the
Remittance Date. Notwithstanding the foregoing, during any period in which
there exists a Rating Agency Condition, the Servicer shall remit to the
Collection Account all Allocated Conservation Amounts,
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Termination Fees and Allocated Sale Amounts within two Business Days after their
receipt by the Servicer.
SECTION 7.3 DISTRIBUTIONS
(a) On each Distribution Date, the Trustee shall cause to be made the
following distributions, to the extent of the funds in the Collection Account,
in the following order of priority and in the amounts set forth in the
applicable Trustee's Certificate:
(i) to itself, as Trustee, the sum of (x) the Trustee Fee for such
Distribution Period PLUS (y) the amount, of any Trustee Fee previously due
but not paid to the Trustee under Section 7.3(a)(i)(x) in respect of any
previous Distribution Periods;
(ii) to the Servicer, by wire transfer of immediately available funds
the sum of (x) the Servicing Fee for such Distribution Period PLUS (y) the
amount, if any, of any Servicing Fee previously due but not paid to the
Servicer under Section 7.3(a)(ii)(x) in respect of any previous
Distribution Period;
(iii) to each Certificateholder, through an intermediary transfer to
the Certificate Payment Account, by check mailed by or on behalf of the
Paying Agent (in the case of Definitive Certificates) to each
Certificateholder's respective address of record (or in the case of
Certificates registered in the name of a Clearing Agency, by wire transfer
of immediately available funds), for an amount equal to the sum of (x) the
product of (I) the Certificate Rate (calculated on the basis of a
360-day year comprised of twelve 30-day months), (II) the quotient
obtained by dividing the number of days in such Distribution Period by 360
and (III) the total Certificate Balance of all Certificates held by such
Certificateholder as of the first day of such related Distribution Period
PLUS (y) the amounts, if any, previously due in respect of such
Certificates but not paid to such Certificateholder under Section
7.3(a)(iii)(x) in respect of any previous Distribution Periods PLUS
(z) the product of (IV) the Certificate Rate (calculated on the basis of
a 360-day year comprised of twelve 30-day months), (V) the quotient
obtained by dividing the number of days in such Distribution Period by 360
and (VI) the amount, if any, previously due and not paid in respect of
such Certificates under Section 7.3(a)(iii)(x); and
(iv) to each Certificateholder, through an intermediary transfer to
the Certificate Payment Account, by check mailed by or on behalf of the
Paying Agent (in the case of Definitive Certificates) to each
Certificateholder's respective address of record (or in the case of
Certificates registered in the name of the Clearing Agency, by wire
transfer of immediately available funds), the proportion of the balance of
the Collection Account as of such Distribution Date, after giving effect to
all distributions made or to be made pursuant to
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Sections 7.3(a)(i), 7.3(a)(ii) and 7.3(a)(iii), equal to the ratio of the
total Certificate Balance of the Certificates held by such
Certificateholder to the Aggregate Certificate Balance.
(b) To the extent that the Paying Agent wires funds to a Clearing Agency,
the Paying Agent will request the Qualified Trust Institution then maintaining
the Collection Account to make such wire distribution, and the Qualified Trust
Institution then maintaining the Collection Account shall promptly deliver to
the Paying Agent a confirmation of such wire distribution. The Paying Agent
shall have no liability in connection with any failure by the Qualified Trust
Institution to make such distribution.
SECTION 7.4 CALCULATION OF BONDABLE CONSERVATION INVESTMENT BALANCE
On each Distribution Date, the Trustee shall calculate the Bondable
Conservation Investment Balance in the manner set forth below. On the last day
of the Distribution Period immediately preceding each Distribution Date, the
Bondable Conservation Investment Balance, as of such date, shall equal (i) the
Bondable Conservation Investment Balance as of the last day of the immediately
preceding Distribution Period (or, in the case of the first Distribution Period,
as of the Closing Date), MINUS (ii) the excess of (a) the amounts remitted by
the Servicer to the Collection Account, pursuant to Section 7.2, during the
Distribution Period to which such Distribution Date relates (including all
interest accruing on such remitted amounts) over (b) the amounts payable to the
Certificateholders pursuant to Section 7.3(a)(iii) on such Distribution Date,
plus the amounts payable to the Trustee pursuant to Section 7.3(a)(i) on such
Distribution Date, plus the amounts payable to the Servicer pursuant to Section
7.3(a)(ii) on such Distribution Date. Such calculations shall not in any way
affect the order and priority of the distributions as set forth in Section 7.3.
SECTION 7.5 CERTIFICATE REGARDING SERVICING FEE
Within five days after the last date of each Distribution Period, the
Trustee shall prepare and furnish to the Servicer a certificate setting forth
the amount to be distributed on the Distribution Date in respect of such
Distribution Period pursuant to Section 7.3(a)(ii) and the component parts
thereof.
SECTION 7.6 CERTIFICATES
(a) On or before each Remittance Date and at least three Business Days
prior to each Distribution Date, the Servicer shall prepare and furnish to the
Trustee a Monthly Servicer's Certificate for the related Collection Period
setting forth the
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Aggregate Remittance Amount, and the component parts thereof (i.e., the amount
of received Allocated Conservation Amounts, any Allocated Sale Amounts and any
Termination Fees).
(b) On each Distribution Date, the Trustee shall prepare and furnish to
the Paying Agent, and the Paying Agent shall include with the distribution to
each Certificateholder, a Trustee's Certificate, based solely on information in
the Monthly Servicer's Certificate (upon which the Trustee may conclusively rely
in the absence of manifest error) furnished pursuant to Sections 6.9 and 7.6(a),
setting forth for the related Distribution Period, in addition to the
information set forth in Section 7.6(a), the following information:
(i) the amounts to be distributed pursuant to Section 7.3(a), and the
component parts thereof (i.e., the amounts to be distributed pursuant to
Sections 7.3(a)(i), (ii), (iii) and (iv)), both in the aggregate and per
$1,000 original Certificate Amount;
(ii) the amount of the Aggregate Certificate Balance and the
Certificate Balance per $1,000 original Certificate Amount (after giving
effect to payments described in Section 7.3(a)(iv));
(iii) the Bondable Conservation Investment Balance, both in the
aggregate and per $1,000 original Certificate Amount, as of the last day of
the preceding Distribution Period (as determined pursuant to Section 7.4);
and
(iv) if such Distribution Date relates to a Distribution Period the
last day of which is a Calculation Date, the Trustee shall also prepare and
furnish, in accordance with Section 7.6(b), a comparison between the
Bondable Conservation Investment Balance and the Projected Bondable
Conservation Investment Balance as of such Calculation Date, both in the
aggregate and per $1,000 original Certificate Amount, together with a
statement indicating whether or not a Variance exists as of such
Calculation Date.
(c) Within a reasonable period of time after the end of each calendar
year, but not later than the latest date permitted by law, the Trustee shall
prepare and furnish to the Paying Agent, and the Paying Agent shall furnish to
each Person who at any time during such calendar year shall have been a
Certificateholder, a statement containing the aggregate amounts determined in
Section 7.6(b)(i) for such calendar year, for the purposes of such
Certificateholder's preparation of federal income tax returns.
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SECTION 8. THE CERTIFICATES
SECTION 8.1 THE CERTIFICATES
The Certificates shall be issued in denominations of $1,000 and integral
multiples thereof. The Certificates shall be executed on behalf of the Trust by
manual signature of a Responsible Officer or other authorized signatory of the
Trustee. Certificates bearing the manual signatures of individuals who were, at
the time when such signatures shall have been affixed, authorized to sign on
behalf of the Trust, shall be valid and binding obligations of the Trust,
notwithstanding that such individuals shall have ceased to be so authorized
prior to the execution, authentication and delivery of such Certificates or did
not hold such offices or positions at the date of such Certificates. No
Certificate shall entitle the Certificateholder to any benefit under this
Agreement, or shall be valid for any purpose, unless there shall appear on such
Certificate an authentication substantially in the form of Exhibit E executed by
the Trustee by manual signature; such authentication shall constitute conclusive
evidence that such Certificate has been duly authenticated and delivered
hereunder. All Certificates shall be dated the date of their authentication.
SECTION 8.2 EXECUTION, AUTHENTICATION AND DELIVERY OF CERTIFICATES
In exchange for the Purchased Assets and the other assets of the Trust,
simultaneously with the sale, assignment and transfer to the Trustee of the
Purchased Assets and the delivery to the Trustee of the other components of the
Trust, the Trustee shall deliver to, or upon the order of, the Seller,
Certificates duly executed by the Trustee, on behalf of the Trust, and
authenticated by the Trustee in accordance with the written instructions of the
Seller in authorized denominations equaling the Aggregate Certificate Amount,
and evidencing the entire ownership of the Trust.
SECTION 8.3 REGISTRATION OF TRANSFER AND EXCHANGE OF CERTIFICATES
(a) The Trustee shall cause to be kept at the office or agency to be
maintained by a transfer agent and certificate registrar (the "TRANSFER AGENT
AND CERTIFICATE REGISTRAR"), in accordance with the provisions of Section 8.7, a
register (the "CERTIFICATE REGISTER") in which, subject to such reasonable
regulations as it may prescribe, the Transfer Agent and Certificate Registrar
shall provide for the registration of Certificates and of transfers and
exchanges of Certificates as herein provided. The Certificate Register shall
list the names of the Certificateholders and their respective ownership
interests in the Trust, and shall be treated as definitive and binding for all
purposes hereunder. Only those persons registered as Certificateholders in the
Certificate Register shall be recognized as having any interest in the Trust or
as possessing the rights of a Certificateholder hereunder. A transfer of
ownership of a Certificate shall be effectuated only by an appropriate entry in
the
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Certificate Register. The Trustee is hereby initially appointed Transfer Agent
and Certificate Registrar for the purpose of registering Certificates and
transfers and exchanges of Certificates as herein provided. In the event that,
subsequent to the date of issuance of the Certificates, the Trustee is unable to
act as Transfer Agent and Certificate Registrar, the Trustee shall, with the
consent of the Seller, appoint another bank or trust company, having an office
or agency located in New York City and which agrees to act in accordance with
the provisions of this Agreement applicable to it, to act, as successor Transfer
Agent and Certificate Registrar under this Agreement.
(b) The Trustee shall be permitted to resign as Transfer Agent and
Certificate Registrar upon 30 days' written notice to the Servicer; PROVIDED,
HOWEVER, that such resignation shall not be effective and the Trustee shall
continue to perform its duties as Transfer Agent and Certificate Registrar until
the Trustee has appointed a successor Transfer Agent and Certificate Registrar
with the consent of the Servicer.
(c) Upon surrender for registration of transfer of any Certificate at the
office or agency of the Transfer Agent and Certificate Registrar maintained
pursuant to Section 8.7, the Transfer Agent and Certificate Registrar shall make
an appropriate entry in the Certificate Register to reflect such transfer, and
the Trustee shall execute, authenticate and (if the Transfer Agent and
Certificate Registrar is different than the Trustee, then the Transfer Agent and
Certificate Registrar shall) deliver, in the name of the designated transferee
or transferees, one or more new Certificates in authorized denominations of a
like aggregate amount. At the option of a Certificateholder, Certificates may
be exchanged for other Certificates of authorized denominations of a like
aggregate amount at such office or agency.
(d) Whenever any Certificate is surrendered for exchange, the Trustee
shall execute, authenticate and (if the Transfer Agent and Certificate Registrar
is different from the Trustee, then the Transfer Agent and Certificate Registrar
shall) deliver the Certificates which the Certificateholder making the exchange
is entitled to receive. Every Certificate presented or surrendered for
registration of transfer or exchange shall be accompanied by a written
instrument of transfer in form satisfactory to the Trustee and the Transfer
Agent and Certificate Registrar duly executed by the Certificateholder, which
signature on such assignment must be guaranteed by a member of the New York
Stock Exchange or a commercial bank or trust company with an office or agency in
New York City.
(e) Each Certificate surrendered for registration of transfer or exchange
shall be canceled by the Transfer Agent and Certificate Registrar or retained in
accordance with its standard retention policy and disposed of or retained in a
manner satisfactory to the Trustee.
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(f) No service charge shall be made for any registration of transfer or
exchange of Certificates, but the Transfer Agent and Certificate Registrar may
require payment of a sum by such Certificateholder sufficient to cover any tax
or governmental charge that may be imposed in connection with any transfer or
exchange of Certificates.
SECTION 8.4 MUTILATED, DESTROYED, LOST OR STOLEN CERTIFICATES
If (A) any mutilated Certificate shall be surrendered to the Transfer Agent
and Certificate Registrar, or if the Transfer Agent and Certificate Registrar
shall receive evidence to its satisfaction of the destruction, loss, or theft of
any Certificate and (B) there shall be delivered to the Trustee and the Transfer
Agent and Certificate Registrar such security or indemnity as may be required to
save each of them and the Trust harmless, then, in the absence of notice to the
Trustee that such Certificate shall have been acquired by a bona fide purchaser,
the Trustee on behalf of the Trust shall execute, authenticate and (if the
Transfer Agent and Certificate Registrar is different from the Trustee, then
Transfer Agent and Certificate Registrar shall) deliver, in exchange for or in
lieu of any such mutilated, destroyed, lost or stolen Certificate, a new
Certificate of like tenor and denomination but bearing a number not
contemporaneously outstanding. In connection with the issuance of any new
Certificate under this Section 8.4, the Trustee or the Transfer Agent and
Certificate Registrar, as the case may be, may require the payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection therewith. Any duplicate Certificate issued pursuant to this
Section 8.4 shall constitute conclusive evidence of ownership in the Trust, as
if originally issued, whether or not a lost, stolen or destroyed Certificate
shall be found at any time.
SECTION 8.5 PERSONS DEEMED OWNERS OF CERTIFICATE
Prior to due presentation of a Certificate for registration of transfer,
the Trustee, the Paying Agent, the Transfer Agent and Certificate Registrar or
any agent of any of them may treat the Person in whose name any Certificate
shall be registered as the owner of such Certificate for the purpose of
receiving distributions pursuant to Section 7.3 and for all other purposes
whatsoever, and none of the Trustee, the Paying Agent, the Transfer Agent and
Certificate Registrar or any agent of any of them shall be bound by any notice
to the contrary.
SECTION 8.6 ACCESS TO LIST OF CERTIFICATEHOLDERS' NAMES AND ADDRESSES
The Transfer Agent and Certificate Registrar shall furnish to the Servicer
or the Paying Agent (or to the Trustee if the Trustee is not the Transfer Agent
and Certificate Registrar), within 15 days after receipt by the Transfer Agent
and Certificate Registrar
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of a request therefor from the Servicer, the Trustee or the Paying Agent in
writing, a list of the names and addresses of the Certificateholders as of the
most recent Record Date, in such form as the Servicer, the Trustee or the Paying
Agent may reasonably require. If, at such time, if any, as Definitive
Certificates have been issued, three or more Certificateholders, or one or more
Certificateholders aggregating not less than 25% of the Aggregate Certificate
Balance apply in writing to the Transfer Agent and Certificate Registrar (or the
Trustee if the Trustee is acting as the Transfer Agent and Certificate
Registrar), and such application states that the applicants desire to
communicate with other Certificateholders with respect to their rights under
this Agreement or under the Certificates, and such application is accompanied by
a copy of the communication that such applicants propose to transmit, then the
Transfer Agent and Certificate Registrar (or the Trustee, as the case may be)
shall, within five Business Days after the receipt of such application, afford
such applicants access during normal business hours to the current list of
Certificateholders. Each Certificateholder, by receiving and holding a
Certificate, shall be deemed to have agreed not to hold any of the Servicer, the
Trustee, the Transfer Agent, the Paying Agent and Certificate Registrar or any
of their respective agents accountable by reason of the disclosure of its name
and address, regardless of the source from which such information was derived.
SECTION 8.7 MAINTENANCE OF OFFICE OR AGENCY
The Transfer Agent and Certificate Registrar shall maintain in New York,
New York an office or offices or agency or agencies where Certificates may be
surrendered for registration of transfer or exchange. The Transfer Agent and
Certificate Registrar initially designates its agency located at its office at
450 West 33rd Street, 15th Floor, New York, New York 10001 for such purposes.
The Transfer Agent and Certificate Registrar shall give prompt written notice to
the Trustee, the Servicer and to Certificateholders of any change in the
location of such office or agency.
SECTION 8.8 BOOK-ENTRY CERTIFICATES
The Certificates, upon original issuance, shall be issued in the form of
typewritten Certificates representing the Book-Entry Certificates, to be
delivered to The Depository Trust Company, the initial Clearing Agency, by the
Seller or on its behalf. The Certificates shall initially be registered on the
Certificate Register in the name of Cede & Co., the nominee of the initial
Clearing Agency, and no Certificate Owner will receive a definitive certificate
representing such Certificate Owner's interest in the Certificates, except as
provided in Section 8.10. Unless and until definitive, fully registered
Certificates ("DEFINITIVE CERTIFICATES") have been issued to Certificateholders
pursuant to Section 8.10:
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(i) the provisions of this Section 8.8 shall be in full force and
effect;
(ii) the Seller, the Servicer, the Paying Agent, the Transfer Agent
and Certificate Registrar and the Trustee may deal with the Clearing Agency
and the Clearing Agency Participants for all purposes (including the making
of distributions in respect of the Certificates and the taking of actions
by the Certificateholders) as the authorized representatives of the
Certificate Owners;
(iii) to the extent that the provisions of this Section 8.8
conflict with any other provisions of this Agreement, the provisions of
this Section 8.8 shall control;
(iv) the rights of Certificate Owners shall be exercised only through
the Clearing Agency (or to the extent Certificate Owners are not Clearing
Agency Participants through the Clearing Agency Participants through which
such Certificate Owners own Book-Entry Certificates) and shall be limited
to those established by law and agreements between such Certificate Owners
and the Clearing Agency and/or the Clearing Agency Participants and all
references in this Agreement to actions by Certificateholders shall refer
to actions taken by the Clearing Agency upon instructions from the Clearing
Agency Participants, and all references in this Agreement to distributions,
notices, reports and statements to Certificateholders shall refer to
distributions, notices, reports and statements to the Clearing Agency or
its nominee, as Holder of the Certificates, as the case may be, for
distribution to Certificate Owners in accordance with the procedures of the
Clearing Agency; and
(v) pursuant to the Depository Agreement, the initial Clearing
Agency will make book-entry transfers among the Clearing Agency
Participants and receive and transmit distributions of principal and
interest on the Certificates to the Clearing Agency Participants, for
distribution by such Clearing Agency Participants to the Certificate
Owners or their nominees.
None of the Seller, the Servicer, the Trustee or any of their respective
agents or employees shall be liable for any actions taken by the Clearing Agency
or its nominee.
SECTION 8.9 NOTICES TO CLEARING AGENCY
Whenever notice or other communication to the Certificateholders is
required under this Agreement, unless and until Definitive Certificates shall
have been issued to Certificate Owners pursuant to Section 8.10, the Trustee and
the Paying Agent shall give all such notices and communications specified herein
to be given by it to Certificateholders to the Clearing Agency.
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SECTION 8.10 DEFINITIVE CERTIFICATES
If (i) (A) the Trustee advises the Servicer in writing that the Clearing
Agency is no longer willing or able to properly discharge its responsibilities
under the Depository Agreement and (B) the Servicer is unable to locate a
qualified successor or (ii) Certificate Owners representing beneficial interests
aggregating greater than 50% of the Aggregate Certificate Balance advise the
Clearing Agency and the Trustee (and the Clearing Agency shall notify the
Trustee in writing thereof) through the Clearing Agency Participants in writing
that the continuation of the book-entry system through the Clearing Agency is no
longer in the interests of the Certificate Owners, or (iii) after the Servicer
becomes subject to insolvency proceedings, Certificate Owners representing
beneficial interests aggregating greater than 50% of the Aggregate Certificate
Balance advise the Clearing Agency and the Trustee (and the Clearing Agency
shall notify the Trustee in writing thereof) through the Clearing Agency
Participants in writing that the continuation of a book-entry system through the
Clearing Agency is no longer in the best interests of the Certificate Owners,
the Trustee shall notify the Clearing Agency of the occurrence of any event
described in clauses (i) and (ii) above and of the availability of Definitive
Certificates to Certificate Owners requesting the same. Upon surrender to the
Transfer Agent and Certificate Registrar by the Clearing Agency of Certificates
registered in the name of such Clearing Agency or its nominee, accompanied by
re-registration instructions from the Clearing Agency for registration of the
Definitive Certificates (upon which the Trustee may conclusively rely), the
Trustee shall execute, authenticate and (if the Transfer Agent and Certificate
Registrar is different from the Trustee, then the Transfer Agent and Certificate
Registrar shall) deliver Definitive Certificates. The Trustee shall arrange
for, and will bear all costs of, the printing and issuance of such Definitive
Certificates. None of the Seller, the Servicer, the Transfer Agent and
Certificate Registrar or the Trustee shall be liable for any delay in delivery
of such instructions and may conclusively rely on, and shall be protected in
relying on such instruction. Upon the issuance of Definitive Certificates, all
references herein to obligations imposed upon or to be performed by the Clearing
Agency shall be deemed to be imposed upon and performed by the Transfer Agent
and Certificate Registrar, to the extent applicable with respect to such
Definitive Certificates and the Trustee, the Paying Agent and the Transfer Agent
and Certificate Registrar shall recognize the Holders of the Definitive
Certificates as Certificateholders hereunder.
SECTION 8.11 APPOINTMENT OF PAYING AGENT
(a) The Paying Agent shall have the revocable power to withdraw funds from
the Certificate Payment Account and make distributions to the
Certificateholders. The Trustee may revoke such power and remove the Paying
Agent, if the Trustee receives notice that the Paying Agent shall have failed to
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perform its obligations under this Agreement in any material respect or for
other cause. The Paying Agent shall initially be the Trustee. The Paying Agent
shall be permitted to resign as Paying Agent upon 30 days' written notice to the
Servicer (and the Trustee, in case any party other than the Trustee is acting as
Paying Agent). In the event that the Trustee shall no longer be the Paying
Agent, the Trustee shall appoint a successor to act as Paying Agent, which shall
be a bank or trust company. If at any time the Trustee shall be acting as the
Paying Agent, the provisions of Sections 12.2, 12.3 and 12.4 shall apply to the
Trustee in its role as Paying Agent.
(b) The Trustee shall cause the Paying Agent (if other than itself) to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee that such Paying Agent will hold all sums, if any,
held by it for payment to the Certificateholders in trust for the benefit of the
Certificateholders or other party entitled thereto until such sums shall be paid
to such Certificateholders or other party entitled thereto and shall agree, and
if the Trustee is the Paying Agent it hereby agrees, that it shall comply with
all requirements of the Code regarding the withholding by the Trustee of
payments in respect of federal income taxes due from Certificate Owners.
(c) The Trustee in its capacity as initial Paying Agent hereunder agrees
that it (i) will hold all sums held by it hereunder for payment to the
Certificateholders in trust for the benefit of the Certificateholders or other
party entitled thereto until such sums shall be paid to such Certificateholders
or other party entitled thereto and (ii) shall comply with all requirements of
the Code regarding the withholding by the Trustee of payments in respect of
federal income taxes due from Certificate Owners.
SECTION 8.12 AUTHENTICATING AGENT
(a) The Trustee may appoint one or more authenticating agents with respect
to the Certificates who shall be authorized to act on behalf of the Trustee in
authenticating the Certificates in connection with the issuance, delivery,
registration of transfer, exchange or repayment of the Certificates. Whenever
reference is made in this Agreement to the authentication of Certificates by the
Trustee or the Trustee's certificate of authentication, such reference shall be
deemed to include authentication on behalf of the Trustee by an authenticating
agent and a certificate of authentication executed on behalf of the Trustee by
an authenticating agent.
(b) Any institution succeeding to the corporate agency business of an
authenticating agent shall continue to be an authenticating agent without the
execution or filing of any paper or any further act on the part of the Trustee
or such authenticating agent.
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(c) An authenticating agent may at any time resign by giving written
notice of resignation to the Trustee and the Servicer. The Trustee may at any
time terminate the agency of an authenticating agent by giving notice of
termination to such authenticating agent and to the Servicer. Upon receiving
such a notice of resignation or upon such a termination, or in case at any time
an authenticating agent shall cease to be acceptable to the Trustee or the
Servicer, the Trustee may promptly appoint a successor authenticating agent.
Any successor authenticating agent upon acceptance of its appointment hereunder
shall become vested with all the rights, powers and duties of its predecessor
hereunder, with like effect as if originally named as an authenticating agent.
(d) The Servicer shall pay from its own account, from time to time,
reasonable compensation to the Authenticating Agent for its services under this
Section 8.12.
(e) The provisions of Sections 12.2, 12.3 and 12.4 shall be applicable to
any authenticating agent.
(f) Pursuant to an appointment made under this Section 8.13, the
Certificates may have endorsed thereon, in lieu of the Trustee's certificate of
authentication, an alternate certificate of authentication in substantially the
following form:
This is one of the certificates referred to in the within mentioned
Agreement.
CHEMICAL BANK
as Trustee
By:
---------------------------------
Authorized Signatory
or
-------------------------------------
as Authenticating Agent
for the Trustee,
By:
----------------------------------
Authorized Signatory
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SECTION 8.13 ACTIONS OF CERTIFICATEHOLDERS
(a) Any request, demand, authorization, direction, notice, consent, waiver
or other action provided by this Agreement to be given or taken by
Certificateholders may be embodied in and evidenced by one or more instruments
of substantially similar tenor signed by such Certificateholders in person or by
an agent duly appointed in writing; and except as herein otherwise expressly
provided, such action shall become effective when such instrument or instruments
are delivered to the Trustee and, when required, to the Seller or the Servicer.
Proof of execution of any such instrument or of a writing appointing any such
agent shall be sufficient for any purpose of this Agreement and conclusive in
favor of the Trustee, the Seller and the Servicer, if made in the manner
provided in this Section 8.13.
(b) The fact and date of the execution by any Certificateholder of any
such instrument or writing may be proved in any reasonable manner which the
Trustee deems satisfactory.
(c) Any request, demand, authorization, direction, notice, consent, waiver
or other act by a Certificateholder shall bind every Holder of every Certificate
issued upon the registration of transfer thereof or in exchange therefor or in
lieu thereof, in respect of anything done, or omitted to be done, by the
Trustee, the Seller or the Servicer in reliance thereon, whether or not notation
of such action is made upon such Certificate.
(d) The Trustee may require such additional proof of any matter referred
to in this Section 8.13 as it shall deem necessary.
SECTION 9. THE SELLER
SECTION 9.1 REPRESENTATIONS AND WARRANTIES OF SELLER
The Seller makes the following representations and warranties on which the
Trustee shall rely in accepting the Purchased Assets in trust and authenticating
the Certificates. The representations and warranties shall speak as of the
execution and delivery of this Agreement, and shall survive the sale of the
Purchased Assets to the Trustee.
(a) ORGANIZATION AND GOOD STANDING
The Seller has been duly organized and is in good standing under the laws
of the State of Washington, with power and authority to own its properties and
to conduct its business as such properties are currently owned and such business
is presently conducted.
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(b) POWER AND AUTHORITY
The Seller has the power and authority to execute and deliver this
Agreement and to carry out its terms; the Seller has the power and authority to
sell and assign the Purchased Assets property to be sold and assigned to the
Trustee as part of the Trust; and the execution, delivery and performance of
this Agreement has been duly authorized by the Seller by all necessary corporate
action.
(c) VALIDITY; BINDING OBLIGATIONS
This Agreement constitutes a legal, valid and binding obligation of the
Seller enforceable against the Seller in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization or other
similar laws affecting the enforcement of creditors' rights in general and by
general principles of equity, regardless of whether such enforceability is
considered in a proceeding in equity or at law.
(d) NO VIOLATION
The consummation of the transactions contemplated by this Agreement and the
fulfillment of the terms hereof do not (A) conflict with, result in any breach
of any of the terms and provisions of, or constitute (with or without notice or
lapse of time) a default under the charter or bylaws of the Seller, or conflict
with or breach any of the material terms or provisions of, or constitute (with
or without notice or lapse of time) a default under, any indenture, agreement or
other instrument to which the Seller is a party or by which it is bound,
(B) result in the creation or imposition of any lien upon any of its properties
pursuant to the terms of any such indenture, agreement or other instrument, or
(C) violate any law or any order, rule or regulation applicable to the Seller of
any court or of any federal or state regulatory body, administrative agency or
other governmental instrumentality having jurisdiction over the Seller or its
properties.
(e) NO PROCEEDINGS
There are no proceedings or investigations pending or, to the best of the
Seller's knowledge, threatened before any court, regulatory body, administrative
agency or other governmental instrumentality having jurisdiction over the Seller
or its properties (A) asserting the invalidity of this Agreement or the
Certificates and (B) seeking to prevent the issuance of the Certificates or the
consummation of any of the transactions contemplated by this Agreement.
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(f) GOVERNMENTAL APPROVALS
No authorization or approval or other action by, and no notice to or filing
with, and no consent by, any governmental authority, regulatory body or third
party is required for the due execution and delivery by the Seller of this
Agreement and the Underwriting Agreement and the performance by the Seller of
its obligations under this Agreement except for (i) the Initial Commission Order
and (ii) such authorizations, approvals, notices, consents and filings that have
been duly received or made, as the case may be, as of the date of this
Agreement.
(g) NO LIENS, CLAIMS OR ENCUMBRANCES
There are no liens, claims or encumbrances on any of the Purchased Assets
arising by, through or under the Seller.
SECTION 9.2 LIABILITY OF SELLER; INDEMNITIES
(a) The Seller shall be liable in accordance herewith only to the extent
of the obligations specifically undertaken by the Seller in such capacity under
this Agreement and shall have no other obligations or liabilities hereunder.
(b) The Seller shall indemnify, defend and hold harmless the Trustee, the
Trust and the Certificateholders from and against any taxes that may at any time
be asserted against the Trustee or the Trust with respect to the sale of the
Purchased Assets to the Trust or the issuance and original sale of the
Certificates, including any sales, gross receipts, general corporation, tangible
or intangible personal property, privilege, excise or license taxes (but not any
income taxes, gross receipts taxes (including Washington State business and
occupation tax), franchise taxes or similar taxes imposed on the Trustee, the
Trust or any Certificateholder arising out of the transactions contemplated by
this Agreement), and any utility tax imposed on the Trust with respect to the
Purchased Assets to the extent such taxes have not been imposed on the Seller
with respect to the Purchased Assets, costs and expenses in defending against
the same.
(c) The Seller shall indemnify, defend and hold harmless the Trustee, its
officers, directors, employees and agents, the Trust and the Certificateholders
from and against any loss, liability or expense to the extent that the same is
incurred as the sole and direct result of the Seller's material breach of its
representations contained in Section 9.1 or its covenants and agreements
hereunder.
(d) The Seller agrees to indemnify and hold harmless the Trustee and each
person, if any, who controls the Trustee within the meaning of the Securities
Act , against any losses, claims, damages, liabilities or expenses, joint or
several, to which
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the Trustee or such controlling person (within the meaning of the Securities
Act) may become subject, under the Securities Act, the Securities Exchange Act
of 1934, as amended, the Trust Indenture Act of 1939, as amended, or other
federal, state or foreign statutory law or regulation, or at common law or
otherwise, insofar as such losses, claims, damages, liabilities or expenses
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in the Registration Statement, any Preliminary
Prospectus, the Prospectus, or any amendment or supplement thereto, or arise out
of or are based upon the omission or alleged omission to state in any of them a
material fact required to be stated therein or necessary to make the statements
in any of them not misleading, and the Seller will reimburse the Trustee and
each such controlling person for any legal and other expenses as such expenses
are reasonably incurred by the Trustee or such controlling person in connection
with investigation and defending any such loss, claim, damage, liability,
expense or action.
(e) Indemnification under Section 9.2(b)-(d) shall survive the termination
of this Agreement and the resignation or removal of the Trustee, shall not be
payable from the Purchased Assets, and shall include reasonable fees and
expenses of counsel and expenses of litigation. If the Seller shall have made
any indemnity payments to the Trust or the Trustee pursuant to this Section 9.2
and the Trust or the Trustee thereafter shall collect any of such amounts from
others, the Trust shall repay such amounts to the Seller, without interest.
(f) The Person to be indemnified shall provide the Seller with a
certificate requesting indemnification and setting forth the basis of such
request.
SECTION 9.3 MERGER OR CONSOLIDATION OF SELLER
Any corporation or other entity (i) into which the Seller may be merged or
consolidated, (ii) which may result from any merger, conversion or consolidation
to which the Seller shall be a party and in which the Seller is not the
surviving entity, or (iii) which may succeed to all or substantially all of the
electric utility distribution business of the Seller (whether by merger,
consolidation, sale, conveyance, transfer, lease, reorganization, restructuring,
split up or otherwise), which corporation or other entity shall execute an
agreement of assumption to perform every obligation of the Seller hereunder,
shall be the successor to the Seller hereunder without the execution or filing
of any document or any further act by any of the parties to this Agreement. The
Seller shall give prompt notice of any such merger, consolidation or other
succession to all or substantially all the electric utility distribution
business of the Seller to the Trustee and the Rating Agencies. Any successor to
the Seller shall, in accordance with the Statute, perform and satisfy all
unperformed obligations of the Seller hereunder in the same manner, and to the
same extent, as the previous Seller.
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SECTION 9.4 LIMITATION ON LIABILITY OF SELLER AND OTHERS
The Seller and any director, officer, employee or agent of the Seller may
rely in good faith on the advice of counsel or on any document of any kind,
prima facie properly executed and submitted by any Person respecting any matters
arising hereunder. The Seller shall not be under any obligation under this
Agreement to appear in, prosecute or defend any legal action that shall be
unrelated to its obligations under this Agreement, and that in its opinion may
involve it in any expense or liability.
SECTION 10. THE SERVICER
SECTION 10.1 REPRESENTATIONS AND WARRANTIES OF SERVICER
The Servicer makes the following representations and warranties on which
the Trustee shall rely in accepting the Purchased Assets in trust and
authenticating the Certificates. The representations shall speak as of the
execution and delivery of this Agreement, and shall survive the sale of the
Purchased Assets to the Trustee.
(a) ORGANIZATION AND GOOD STANDING
The Servicer has been duly organized and is in good standing under the laws
of the State of Washington, with power and authority to own its properties and
to conduct its business as such properties are currently owned and such business
is presently conducted.
(b) POWER AND AUTHORITY
The Servicer has the power and authority to execute and deliver this
Agreement and to carry out its terms; and the execution, delivery and
performance of this Agreement has been duly authorized by the Servicer by all
necessary corporate action.
(c) BINDING OBLIGATIONS
This Agreement constitutes a legal, valid and binding obligation of the
Servicer enforceable in accordance with its terms subject, as to enforcement, to
applicable bankruptcy, insolvency, reorganization, liquidation or other similar
laws and equitable principles relating to or affecting the enforcement of
creditors' rights in general and by general principles of equity, regardless of
whether such enforceability is considered in a proceeding in equity or law.
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(d) NO VIOLATION
The consummation of the transactions contemplated by this Agreement and the
fulfillment of the terms hereof do not (A) conflict with, result in any breach
of any of the terms and provisions of, or constitute (with or without notice or
lapse of time) a default under the articles of incorporation or bylaws of the
Servicer, or conflict with or breach any of the material terms or provisions of,
or constitute (with or without notice or lapse of time) a default under, any
indenture, agreement or other instrument to which the Servicer is a party or by
which it is bound, (B) result in the creation or imposition of any lien upon any
of its properties pursuant to the terms of any such indenture, agreement or
other instrument, or (C) violate any law or any order, rule or regulation
applicable to the Servicer of any court or of any federal or state regulatory
body, administrative agency or other governmental instrumentality having
jurisdiction over the Servicer or its properties.
(e) NO PROCEEDINGS
There are no proceedings or investigations pending or, to the best of the
Servicer's knowledge, threatened before any court, regulatory body,
administrative agency or other governmental instrumentality having jurisdiction
over the Servicer or its properties (A) asserting the invalidity of this
Agreement or the Certificates and (B) seeking to prevent the issuance of the
Certificates or the consummation of any of the transactions contemplated by this
Agreement.
(f) GOVERNMENTAL APPROVALS
No authorization or approval or other action by, and no notice to or filing
with, or consent by, any governmental authority, regulatory body or third party
is required for the due execution and delivery by the Servicer of this Agreement
and the Underwriting Agreement and the performance by the Servicer of its
obligations under this Agreement except for (i) the Initial Commission Order and
(ii) such authorizations, approvals, notices and filings that have been duly
received or made, as the case may be, as of the date of this Agreement.
SECTION 10.2 LIABILITY OF SERVICER; INDEMNITIES
(a) The Servicer shall be liable in accordance herewith only to the extent
of the obligations specifically undertaken by the Servicer under this Agreement
and shall have no other obligations or liabilities hereunder.
(b) The Servicer shall indemnify, defend and hold harmless the Trustee,
its officers, directors, employees and agents, the Trust and the
Certificateholders from and against any and all costs, expenses, losses, claims,
damages and liabilities to the
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extent that the same is incurred as the sole and direct result of the material
breach by the Servicer of its duties under Section 5.3 or Section 6, its
representations under Section 10.1 or its covenants under Section 10.7.
(c) The Servicer shall indemnify, reimburse, defend and hold harmless the
Trustee, its officers, directors, employees and agents, from and against any
loss, liability or expenses incurred or paid to third parties in connection with
the administration of its trusts hereunder (except anticipated and ordinary
expenses intended to be covered by the Trustee Fee), other than any loss,
liability, or expense incurred by reason of willful misfeasance, bad faith or
negligence in the performance of the Trustee's duties hereunder.
(d) Indemnification under this Section 10.2 shall include reasonable fees
and expenses of counsel and expenses of litigation, and shall not be payable out
of the Purchased Assets. If the Servicer shall have made any indemnity payments
pursuant to this Section 10.2 and the recipient thereafter collects any of such
amounts from others, the recipient shall promptly repay such amounts to the
Servicer, without interest. The indemnification obligations of the Servicer set
forth in this Section 10.2 shall survive the termination of this Agreement, the
termination of the Servicer with respect to any act or failure to act which
occurs prior to such Servicer's termination and the resignation or removal of
the Trustee.
(e) The Person to be indemnified shall provide the Servicer with a
certificate and accompanying Opinion of Counsel requesting indemnification and
setting forth the basis of such request.
SECTION 10.3 MERGER OR CONSOLIDATION OF SERVICER
Any corporation or other entity (i) into which the Servicer may be merged
or consolidated, (ii) which may result from any merger, conversion or
consolidation to which the Servicer shall be a party and in which the Seller is
not the surviving entity, or (iii) which may succeed to all or substantially all
of the electric utility distribution business of the Servicer (whether by
merger, consolidation, sale, conveyance, transfer, lease, reorganization,
restructuring, split up or otherwise), which corporation or other entity shall
execute an agreement of assumption to perform every obligation of the Servicer
hereunder, shall be the successor to the Servicer hereunder without the
execution or filing of any document or any further act by any of the parties to
this Agreement. The Servicer shall give prompt written notice of any such
merger, consolidation or other succession to all or substantially all the
electric utility distribution business of the Servicer to the Trustee and the
Rating Agencies. Any successor to the Servicer shall, in accordance with the
Statute, perform and satisfy all
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unperformed obligations of the Servicer hereunder in the same manner, and to the
same extent, as the previous Servicer.
SECTION 10.4 LIMITATION ON LIABILITY OF SERVICER AND OTHERS
Neither the Servicer nor any of the directors or officers or employees or
agents of the Servicer shall be under any liability to the Trust, the Trustee or
the Certificateholders (except in the case of the Servicer to the extent
otherwise provided under this Agreement, including without limitation the
indemnification obligations of the Servicer to the Trustee pursuant to Sections
5.5, 10.2 and 12.6) for any action taken or for refraining from the taking of
any action pursuant to this Agreement or for errors in judgment; PROVIDED,
HOWEVER, that this provision shall not protect the Servicer against any
liability that would otherwise be imposed by reason of the breach by the
Servicer of its obligations and duties under this Agreement. The Servicer and
any director, officer, employee or agent of the Servicer may rely in good faith
on the advice of counsel or on any document of any kind, prima facie properly
executed and submitted by any Person respecting any matters arising hereunder.
Except to the extent provided in Section 6.4, the Servicer shall not have
any obligation under this Agreement to appear in, prosecute or defend any legal
action; PROVIDED, HOWEVER, that the Servicer may undertake any reasonable action
that it may deem necessary or desirable in respect of this Agreement and the
rights and duties of the parties to this Agreement and the interests of the
Certificateholders under this Agreement.
SECTION 10.5 SERVICER NOT TO RESIGN
The Servicer shall not resign from its obligations and duties under this
Agreement except (i) in the event of the appointment of a successor Servicer
pursuant to Section 11.1 and (ii) upon receipt by the Trustee of notice from
each of the Rating Agencies to the effect that the rating then assigned to the
Certificates by each respective Rating Agency will not be withdrawn or reduced
as a result of such resignation and such appointment. Notice of any such
determination permitting the resignation of Puget Sound Power & Light Company or
any successor Servicer shall be communicated to the Trustee and the Rating
Agencies at the earliest practicable time (and, if such communication is not in
writing, shall be confirmed in writing at the earliest practicable time). No
such resignation shall become effective, except as provided in Section 10.3,
until a successor Servicer shall have assumed by written statement the
responsibilities and obligations of the Servicer and, in connection with any
resignation permitted by clause (ii) above, the Trustee shall have received
written confirmation from each of the Rating Agencies that the rating then
assigned to the Certificates shall remain in effect.
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SECTION 10.6 DELEGATION OF DUTIES
So long as Puget Sound Power & Light Company acts as Servicer, the Servicer
shall have the right, in the ordinary course of its business, to delegate any of
its duties under this Agreement to any Person. Any compensation payable to such
Person shall be paid by the Servicer from its own funds and none of the Trust,
the Trustee or the Certificateholders shall have any liability to such Person
with respect thereto. Notwithstanding any delegation of duties by the Servicer
pursuant to this Section 10.6, the Servicer shall not be relieved of its
liability and responsibility with respect to such duties, and any such
delegation shall not constitute a resignation within the meaning of
Section 10.5. Any agreement that may be entered into by the Servicer and a
Person that provides for any delegation of the Servicer's duties hereunder shall
be deemed to be between the Servicer and such Person alone, and the Trustee and
the Certificateholders shall not be deemed parties thereto and shall have no
claims, rights, obligations, duties or liabilities with respect thereto.
SECTION 10.7 CERTAIN COVENANTS OF SERVICER
(a) The Servicer covenants and agrees, in servicing the Purchased Assets
as contemplated by Section 6, to comply with all laws applicable to, and binding
upon, the Servicer and relating to such Purchased Assets the noncompliance with
which would have a material adverse effect on the value of the Purchased Assets;
PROVIDED, HOWEVER, that the foregoing is not intended to, and shall not, impose
any liability on the Servicer for noncompliance with any law that the Servicer
is contesting in good faith in accordance with its customary standards and
procedures.
(b) The Servicer covenants to use all reasonable efforts to include in the
purchase price of any voluntary sale constituting an Equipment Sale Contract, or
to seek to recover as part of any governmental award or payment in connection
with any involuntary sale, transfer or condemnation constituting an Equipment
Sale Contract, an amount equal to the portion of the Bondable Conservation
Investments allocable to the Affected Customers.
SECTION 11. DEFAULTS AND REMEDIES
SECTION 11.1 EVENTS OF DEFAULT
In case one or more of the following Events of Default shall have occurred
and be continuing:
(a) If the Servicer fails to make remittances required by Section 7.2
and such failure continues unremedied for a period of five Business
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Days after the date on which notice of such failure, requiring the same to
be remedied, shall have been given to the Servicer by the Trustee; or
(b) If the Servicer fails duly to observe and perform in all material
respects any other of the covenants or agreements on the part of the
Servicer under this Agreement and such failure continues unremedied
for a period of 30 days after the date on which notice of such
failure, requiring the same to be remedied, shall have been given to
the Servicer by the Trustee, or to the Servicer and the Trustee by the
Holders of Certificates evidencing not less than 25% of the Aggregate
Certificate Balance; or
(c) If any representation or warranty made by the Servicer in this
Agreement shall prove to have been incorrect when made, which has a
material adverse effect on the Certificate Owners and which material
adverse effect continues for a period of 30 days after the date on
which notice thereof, requiring the same to be remedied, shall have
been given to the Servicer by the Trustee, or to the Servicer and the
Trustee by the Holders of Certificates evidencing not less than 25% of
the Aggregate Certificate Balance;
then, for so long as such failure shall not have been remedied, the Holders
of Certificates evidencing not less than 75% of the Aggregate Certificate
Balance, by notice given in writing to the Servicer and to the Trustee may
terminate all of the rights and obligations of the Servicer under this Agreement
provided that (i) a successor Servicer shall have been appointed by the Holders
of Certificates evidencing not less than 75% of the Aggregate Certificate
Balance and (ii) the Trustee shall have received notice from each of the Rating
Agencies to the effect that the rating then assigned to the Certificates by each
respective Rating Agency will not be withdrawn or reduced as a result of such
termination of the Servicer and appointment of the successor Servicer (such
event, the "Event of Servicing Termination"). The predecessor Servicer shall
cooperate with the successor Servicer and the Trustee in effecting the
termination of the responsibilities and rights of the predecessor Servicer under
this Agreement, including the transfer to the successor Servicer for
administration by it of all cash amounts that shall at the time be held by the
predecessor Servicer for remittance, shall have been remitted by the Servicer in
the Collection Account, or shall thereafter be received with respect to a
Purchased Asset. All reasonable costs and expenses (including attorneys' fees
and disbursements) incurred in connection with transferring the Purchased Asset
Documentation to the successor Servicer and amending this Agreement to reflect
such succession as Servicer pursuant to this Section 11.1 shall be paid by the
predecessor Servicer upon presentation of reasonable documentation of such cost
and expenses.
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In furtherance and not in limitation of the foregoing, the Servicer agrees
to provide any successor Servicer with such information regarding the Purchased
Assets and such access to the Servicer's books and records as the successor
Servicer shall reasonably require to enable the successor Servicer to identify
the Purchased Assets, including those portions of amounts billed to and received
from Customers allocated to the Trust pursuant to the Tariff or any Revised
Tariff, and the Servicer hereby grants to any such successor Servicer, acting on
behalf and for the benefit of the Trust and the Certificateholders, a power of
attorney, which power is coupled with an interest for the benefit of such
successor Servicer, the Trust and the Certificateholders, to take those steps in
the name of the Servicer necessary for the successor Servicer to carry out the
duties and obligations of the Servicer under this Agreement.
For purposes of this Section 11.1, the Trustee shall not be deemed to have
knowledge of any Event of Default unless a Responsible Officer of the Trustee
has actual knowledge thereof or unless notice of any event which is in fact such
an Event of Default is received by the Trustee and such notice references the
Certificates, the Trust or this Agreement.
SECTION 11.2 NOTIFICATION TO CERTIFICATEHOLDERS
(a) Upon delivery of written notice by the Trustee to the Servicer of an
Event of Servicing Termination or upon any Servicer termination, or appointment
of a successor Servicer pursuant to this Section 11, the Trustee shall give
prompt written notice thereof to Certificateholders at their respective
addresses of record, and to the Rating Agencies.
(b) The Trustee shall, within 30 days after the occurrence of an Event of
Default, mail to all Holders of Certificates notice of all defaults actually
known to the Trustee, unless such defaults shall have been cured or waived
before the giving of such notice.
SECTION 11.3 PROCEEDINGS BY TRUSTEE
In case of an Event of Default the Trustee shall seek advice of counsel and
may proceed to protect and enforce the rights vested in it by this Agreement by
such appropriate judicial proceedings as the Trustee may take, consistent with
such advice, to protect and enforce any of such rights, either by suit in equity
or by action at law or by proceeding in bankruptcy or otherwise, whether for
specific enforcement of any covenant or agreement contained in the Agreement or
in aid of the exercise of any power granted in this Agreement, or to enforce any
other legal or equitable right vested in the Trustee by this Agreement or by
law.
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SECTION 11.4 DIRECTION OF PROCEEDINGS AND WAIVER OF PAST DEFAULTS
The Holders of Certificates evidencing not less than 51% of the Aggregate
Certificate Balance shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on the Trustee; provided, however, that (a) such
direction shall not be in conflict with any rule of law or with this Agreement,
and (b) the Trustee may take any other action deemed proper by the Trustee which
is not inconsistent with such direction. The Holders of Certificates evidencing
not less than 51% of the Aggregate Certificate Balance may, on behalf of all
Certificateholders, waive any default by the Servicer in the performance of its
obligations hereunder and its consequences, except a default under Section 7.2
(waiver of which shall require 100% of the Certificateholders). Upon any such
waiver of a past default, such default shall cease to exist, and any Event of
Default and any Event of Servicing Termination arising therefrom shall be deemed
to have been remedied for every purpose of this Agreement. No such waiver shall
extend to any subsequent or other default or impair any right consequent thereon
except to the extent expressly so waived.
SECTION 11.5 LIMITATION ON SUITS BY CERTIFICATEHOLDERS
No Certificateholder shall have any right by virtue or by availing itself
of any provision of this Agreement to institute any suit, action or proceeding
in equity or at law upon or under or with respect to this Agreement, unless an
Event of Default has occurred and is continuing, such Certificateholder
previously shall have given to the Trustee a written notice of such Event of
Default and of the continuance thereof, as hereinbefore provided, and unless
also the Holders of Certificates evidencing not less than 51% of the Aggregate
Certificate Balance shall have made written request upon the Trustee to
institute such action, suit or proceeding in its own name as Trustee under this
Agreement and shall have offered to the Trustee such reasonable indemnity as it
may require against the costs, expenses and liabilities to be incurred therein
or thereby, and the Trustee, for 60 days after its receipt of such notice,
request and offer of indemnity, shall have either neglected or refused to
institute any such action, suit or proceeding. No one or more
Certificateholders shall have any right in any manner whatever by virtue or by
availing itself or themselves of any provisions of this Agreement to affect,
disturb or prejudice the rights of any other of the Certificateholders, or to
obtain or seek to obtain priority over or preference to any other such
Certificateholder, or to enforce any right, under this Agreement, except in the
manner provided in this Agreement and for the equal, ratable and common benefit
of all Certificateholders.
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SECTION 12. THE TRUSTEE
SECTION 12.1 NO POWER TO ENGAGE IN BUSINESS OR TO VARY INVESTMENTS
Notwithstanding any provision or agreement to the contrary in this
Agreement or in any other agreement, the Trustee, acting on behalf of the Trust
(but not individually), shall not have any power to engage in any business,
commercial or other activity for profit, and the Trustee shall not have any
power to vary the Trust estate, whether consisting of a Purchased Asset, a
Permitted Investment or any other amount in any account maintained for the
benefit of the Trust or the Certificateholders or Certificate Owners, by
disposition of said property, investment or amount and the reinvestment of the
proceeds realized or by any other action calculated to take advantage of any
variation or change in the market or in market conditions, for the purpose of
improving the investment or return of the Certificateholders or Certificate
Owners.
SECTION 12.2 DUTIES OF TRUSTEE
(a) The Trustee, prior to the occurrence of an Event of Default and after
the curing of all Events of Default which may have occurred, undertakes to
perform such duties and only such duties as are specifically set forth in this
Agreement. If an Event of Default occurs and is continuing, the Trustee shall
exercise such of the rights and powers vested in it by this Agreement, and use
the same degree of care and skill in their exercise, as a prudent man would
exercise or use under the circumstances in the conduct of his own affairs. Any
permissive right of the Trustee enumerated in this Agreement shall not be
construed as a duty. The Trustee shall not be deemed to have breached any
obligation hereunder as a result of a failure to make or delay in making any
distribution as and when required hereunder caused by the failure of the
Servicer to remit any amounts or to deliver any documents with respect to the
Purchased Assets.
(b) The Trustee, upon receipt of any resolutions, certificates,
statements, opinions, reports, documents, orders or other instruments furnished
to the Trustee that shall be specifically required to be furnished pursuant to
any provision of this Agreement, shall examine them to determine whether they
conform to the requirements of this Agreement; PROVIDED, HOWEVER, that the
Trustee shall not be responsible for the accuracy or content of any such
resolution, certificate, statement, opinion, report, document, order or other
instrument furnished by the Servicer to the Trustee pursuant to this Agreement.
(c) No provision of this Agreement shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act, or its own bad faith or willful misfeasance; PROVIDED, HOWEVER, that:
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(i) The Trustee shall not be liable except for the performance of
such duties and obligations as shall be specifically set forth in this
Agreement, no implied covenants or obligations shall be read into this
Agreement against the Trustee, the permissible right of the Trustee to do
things enumerated in this Agreement shall not be construed as a duty and,
in the absence of bad faith on the part of the Trustee, or manifest error,
the Trustee may conclusively rely upon any certificates or opinions
furnished to the Trustee and conforming to the requirements of this
Agreement as to the truth of the statements made and the correctness of the
opinions expressed therein;
(ii) The Trustee shall not be personally liable for an error of
judgment made in good faith by a Responsible Officer of the Trustee, unless
it shall be proved that the Trustee shall have been negligent in
ascertaining the pertinent facts; and
(iii) The Trustee shall not be personally liable with respect to any
action taken, suffered or omitted to be taken in good faith in accordance
with this Agreement or at the direction of the Holders of Certificates
evidencing not less than 25% of the Aggregate Certificate Balance relating
to the time, method and place of conducting any proceeding or any remedy
available to the Trustee, or exercising any trust or power conferred upon
the Trustee, under this Agreement.
(d) The Trustee shall not be required to expend or risk its own funds or
otherwise incur financial liability in the performance of any of its duties
hereunder, or in the exercise of any of its rights or powers, if there shall be
reasonable ground for believing that the repayment of such funds or adequate
indemnity against such risk or liability shall not be reasonably assured to it,
and none of the provisions contained in this Agreement shall in any event
require the Trustee to perform, or be responsible for the manner of performance
of, any of the obligations of the Servicer (including its obligations as
custodian) under this Agreement.
(e) The Trustee shall not be charged with knowledge of an Event of Default
until such time as a Responsible Officer shall have actual knowledge or have
received written notice thereof.
(f) Except for actions expressly authorized by this Agreement or, based
upon an Opinion of Counsel, in the best interests of Certificateholders, the
Trustee shall not knowingly take any action reasonably likely to impair the
security interests, if any, created or existing in respect of any Purchased
Asset or to impair the value of any Purchased Asset.
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(g) In the event that the Paying Agent or the Transfer Agent and
Certificate Registrar shall fail to perform any obligation, duty or agreement in
the manner or on the day required to be performed by the Paying Agent or the
Transfer Agent and Certificate Registrar, as the case may be, under this
Agreement, the Trustee shall be obligated promptly upon a Responsible Officer
obtaining knowledge thereof to perform such obligation, duty or agreement in the
manner so required to the extent the information necessary to such performance
is reasonably available to the Trustee after the Trustee has made a reasonable
effort to obtain such information. The Trustee shall not be liable for the acts
or omissions of any Paying Agent, any Authenticating Agent or the Transfer Agent
and Certificate Registrar appointed hereunder with due care by the Trustee
hereunder.
(h) As soon as practicable upon the commencement by or against the Seller
of proceedings under the United States Bankruptcy Code or any similar Federal or
state law, the Trustee, on behalf of the Trust and the Certificateholders, shall
forthwith (A) make application to the Commission for an order to cause the
sequestration and payment to the Trustee of revenues arising with respect to the
Purchased Assets pursuant to RCW 80.28.306(3) and (B) seek orders from the court
having jurisdiction over such proceedings (i) to lift any stay of any action by
the Commission ordering the sequestration and payment to the Trustee of revenues
from the Purchased Assets and (ii) to require an accounting and segregation of
the revenues from the Purchased Assets.
SECTION 12.3 CERTAIN MATTERS AFFECTING THE TRUSTEE
Except as otherwise provided in Section 12.2:
(a) The Trustee may request, and may rely and shall be protected in acting
or refraining from acting upon, any resolution, certificate of auditors or
certificate, statement, instrument, opinion, report, notice, request, consent,
order, appraisal, bond or other paper or document (including the annual
auditor's report and the letter of Independent Public Accountants described in
Section 6.11, the Monthly Servicer's Certificate described in Section 7.6(a),
and the annual compliance statement described in Section 6.10) believed by it to
be genuine and to have been signed or presented by the proper party or parties.
(b) The Trustee may consult with counsel and any advice or Opinion of
Counsel shall be full and complete authorization and protection in respect of
any action taken or suffered or omitted by it under this Agreement in good faith
and in accordance with such advice or Opinion of Counsel, which counsel has been
selected by the Trustee with due care.
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(c) The Trustee shall be under no obligation to exercise any of the rights
or powers vested in it by this Agreement, or to make an investigation of matters
hereunder or to institute, conduct or defend any litigation under this Agreement
or in relation to this Agreement, at the request, order or direction of any of
the Certificateholders pursuant to the provisions of this Agreement, unless such
Certificateholders shall have offered to the Trustee reasonable security or
indemnity against the costs, expenses and liabilities that may be incurred
therein or thereby; PROVIDED, HOWEVER, that the Trustee shall have the right to
decline to follow any such request, order or direction if the Trustee, in
accordance with an Opinion of Counsel determines that the action or proceeding
may not lawfully be taken or if the Trustee in good faith determines that the
action or proceeding so directed would involve it in personal liability or be
unjustly prejudicial to the nonassenting Certificateholders; nothing contained
herein shall, however, relieve the Trustee of the obligation, upon the
occurrence of an Event of Default (which has not been cured), to exercise such
of the rights and powers vested in it by this Agreement, and to use the same
degree of care and skill in their exercise, as a prudent man would exercise or
use under the circumstances in the conduct of his own affairs.
(d) The Trustee shall not be personally liable for any action taken,
suffered or omitted by it in good faith and without negligence and believed by
it to be authorized or within the discretion or rights or powers conferred upon
it by this Agreement.
(e) The Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, approval, bond or other paper
or document, unless requested in writing to do so by Holders of Certificates
evidencing not less than 25% of the Aggregate Certificate Balance; PROVIDED,
HOWEVER, that if the payment within a reasonable time to the Trustee of the
costs, expenses or liabilities likely to be incurred by it in the making of such
investigation shall be, in the opinion of the Trustee, not reasonably assured to
the Trustee by the security afforded to it by the terms of this Agreement, the
Trustee may require reasonable indemnity against such cost, expense or liability
or payment of such expenses as a condition precedent to so proceeding. Nothing
in this clause (e) shall affect the obligation of the Servicer to observe any
applicable law prohibiting disclosure of information regarding Customers.
(f) The Trustee may execute any of the trusts or powers hereunder or
perform any duties under this Agreement either directly or by or through agents
or attorneys or a custodian, which agents or attorneys shall have any or all of
the rights, powers, duties and obligations of the Trustee conferred on them by
such appointment.
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SECTION 12.4 TRUSTEE NOT LIABLE FOR CERTIFICATES OR PURCHASED ASSETS
The recitals contained herein and in the Certificates, other than the
signature of the Trustee on the Certificates and the certificate of
authentication, shall be taken as the statements of the Seller or the Servicer,
as the case may be, and the Trustee assumes no responsibility for their
correctness. The Trustee shall make no representations as to the validity or
sufficiency of this Agreement or of the Certificates, or of any Purchased Asset
or related document. The Trustee shall have no obligation or liability (i) to
perform any of the duties of the Seller or Servicer, (ii) for the preparation or
filing of any report or statement with the Securities and Exchange Commission,
(iii) for the efficacy of the Trust or its ability to generate the payments to
be distributed to Certificateholders hereunder, (iv) in respect of the validity
of the assignment of any Purchased Asset to the Trust or of any intervening
assignment (unless it is the assignor), (v) in respect of the compliance by the
Seller or the Servicer with any warranty or representation made under this
Agreement or in any related document and the accuracy of any such warranty or
representation (except after the Trustee's receipt of notice or other discovery
of any noncompliance therewith or any breach thereof or as otherwise provided
herein), (vi) in respect of the satisfaction of any condition relating to the
Purchased Assets, (vii) in connection with any investment of funds by the
Servicer or any loss resulting therefrom (it being understood that the Trustee
shall remain responsible for any Trust property that it may hold), (viii) for
the acts or omissions of the Seller, the Servicer (including in its capacity as
custodian hereunder) or any Customer, (ix) for any action of the Servicer taken
in the name of the Trustee, or (x) for any action by the Trustee taken at the
instruction of the Servicer; PROVIDED, HOWEVER, that the foregoing shall not
relieve the Trustee of its obligation to perform its duties under this
Agreement.
SECTION 12.5 TRUSTEE MAY OWN CERTIFICATES
The Trustee in its individual or any other capacity may become the owner or
pledgee of Certificates and may deal with the Seller and the Servicer in banking
transactions with the same rights as it would have if it were not Trustee.
SECTION 12.6 TRUSTEE'S FEES AND EXPENSES
As compensation for its services and expenses hereunder, the Trustee shall
be paid the Trustee Fee pursuant to Section 7.3. The Trustee shall be
indemnified by the Servicer and held harmless against any loss, liability or
expense incurred or paid to third parties, including without limitation the fees
and expenses of counsel to the Trustee, (which expenses shall not include
salaries paid to employees, or allocable overhead, of the Trustee or anticipated
and ordinary expenses intended to be covered by the Trustee Fee) in connection
with the administration of its trusts hereunder, other
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than any loss, liability or expense incurred by reason of willful misfeasance,
bad faith or negligence in the performance of its duties hereunder. The
indemnification obligations of the Servicer set forth in this Section 12.6 shall
survive the termination of this Agreement, the termination of the Servicer with
respect to any act or failure to act which occurs prior to such Servicer's
termination and the resignation or removal of the Trustee.
SECTION 12.7 ELIGIBILITY REQUIREMENTS FOR TRUSTEE
The Trustee shall at all times be a state banking corporation or national
banking association organized and doing business under the laws of such state or
the United States of America; authorized under such laws to exercise corporate
trust powers; and having a combined capital and surplus of at least $100,000,000
as of the last day of the most recent fiscal quarter for such institution and
subject to supervision or examination by federal or state authorities. If such
state banking corporation or national banking association shall publish reports
of condition at least annually, pursuant to law or to the requirements of the
aforesaid supervising or examining authority, then for the purpose of this
Section 12.7, the combined capital and surplus of such corporation shall be
deemed to be its combined capital and surplus as set forth in its most recent
report of condition so published. The Trustee shall at all times be rated in
one of the four highest rating categories by each Rating Agency that publishes a
rating of the Trustee, or such other rating as each of the Rating Agencies
notifies the Trustee will not result in the rating then assigned to the
Certificates being withdrawn or reduced. In case at any time the Trustee shall
cease to be eligible in accordance with the provisions of this Section 12.7, the
Trustee shall resign immediately in the manner and with the effect specified in
Section 12.8.
SECTION 12.8 RESIGNATION OR REMOVAL OF TRUSTEE
(a) The Trustee may at any time resign and be discharged from the trust
hereby created by giving written notice thereof to the Servicer. Upon giving
such notice of resignation, the Holders of Certificates aggregating not less
than 51% of the Aggregate Certificate Balance may appoint a successor Trustee by
written instrument which instrument shall be delivered to the successor Trustee.
If no successor Trustee shall have been so appointed and have accepted
appointment within 30 days after the giving of such notice of resignation, the
resigning Trustee may petition any court of competent jurisdiction for the
appointment of a successor Trustee.
(b) If at any time the Trustee shall cease to be eligible in accordance
with the provisions of Section 12.7 or shall be legally unable to act, or shall
be adjudged bankrupt or insolvent, or a receiver of the Trustee or of its
property shall be appointed, or any public officer shall take charge or control
of the Trustee or of its
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property or affairs for the purpose of rehabilitation, conservation or
liquidation, then, at the instruction of the Holders of Certificates aggregating
not less than 51% of the Aggregate Certificate Balance, the Trustee shall
promptly resign. The Holders of Certificates aggregating not less than 51% of
the Aggregate Certificate Balance shall promptly appoint a successor Trustee by
written instrument which instrument shall be delivered to the successor Trustee.
If the Trustee fails to resign, the Certificateholders shall remove the Trustee
and appoint a successor Trustee by written instrument in duplicate, one copy of
which instrument shall be delivered to the Trustee so removed and one copy to
the successor Trustee.
(c) The Holders of Certificates aggregating not less than 51% of the
Aggregate Certificate Balance may remove the Trustee without cause.
(d) Any resignation or removal of the Trustee and appointment of a
successor Trustee pursuant to any of the provisions of this Section 12.8 shall
not become effective until acceptance of appointment by the successor Trustee
pursuant to Section 12.9.
SECTION 12.9 SUCCESSOR TRUSTEE
(a) Any successor Trustee appointed pursuant to Section 12.8 shall
execute, acknowledge and deliver to the Servicer and to its predecessor Trustee
an instrument accepting such appointment under this Agreement, and thereupon the
resignation or removal of the predecessor Trustee shall become effective and
such successor Trustee, without any further act, deed or conveyance, shall
become fully vested with all the rights, powers, duties and obligations of its
predecessor under this Agreement with like effect as if originally named as
Trustee. The predecessor Trustee shall deliver to the successor Trustee all
documents and statements held by it under this Agreement and the Servicer and
the predecessor Trustee shall execute and deliver such instruments and do such
other things as may reasonably be required for fully and certainly vesting and
confirming in the successor Trustee all such rights, powers, duties, and
obligations.
(b) No successor Trustee shall accept appointment as provided in this
Section 12.9 unless at the time of such acceptance such successor Trustee shall
be eligible pursuant to Section 12.7.
(c) Upon acceptance of appointment by a successor Trustee pursuant to this
Section 12.9, the successor Trustee shall mail notice of the successor of such
Trustee under this Agreement to all Certificateholders at their respective
addresses of record, to the Rating Agencies.
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SECTION 12.10 MERGER OR CONSOLIDATION OF TRUSTEE
Any corporation or other entity (i) into which the Trustee may be merged or
consolidated, (ii) which may result from any merger, conversion or consolidation
to which the Trustee shall be a party, or (iii) which may succeed to all or
substantially all of the corporate trust business of the Trustee, which
corporation or other entity executes an agreement of assumption to perform every
obligation of the Trustee under this Agreement, shall be the successor of the
Trustee hereunder, provided such corporation or other entity shall be eligible
pursuant to Section 12.7, without the execution or filing of any instrument or
any further act on the part of any of the parties hereto. The Trustee shall
provide prompt written notice of any merger or consolidation to the Seller, the
Servicer and the Rating Agencies.
SECTION 12.11 APPOINTMENT OF CO-TRUSTEE OR SEPARATE TRUSTEE
(a) Notwithstanding any other provisions of this Agreement, at any time,
for the purpose of meeting any legal requirements of any jurisdiction in which
any part of the Trust or any Purchased Asset may at the time be located, the
Servicer and the Trustee acting jointly shall have the power and shall execute
and deliver all instruments to appoint one or more Persons approved by the
Trustee to act as co-trustee, jointly with the Trustee, or separate trustee or
separate trustees, of all or any part of the Trust, and to vest in such Person,
in such capacity and for the benefit of the Certificateholders, such title to
the Trust, or any part thereof, and, subject to the other provisions of this
Section 12.11, such powers, duties, obligations, rights and trusts as the
Servicer and the Trustee may consider necessary or desirable. The appointment
of any separate trustee or co-trustee shall not absolve the Trustee of its
obligations under this Agreement. If the Servicer shall not have joined in such
appointment within 15 days after the receipt by it of a request so to do, or in
the case an Event of Servicing Termination shall have occurred and be
continuing, the Trustee alone shall have the power to make such appointment. No
notice to Certificateholders of the appointment of any co-trustee or separate
trustee or separate trustees shall be required pursuant to Section 12.9.
(b) Each separate trustee and co-trustee shall, to the extent permitted by
law, be appointed and act subject to the following provisions and conditions:
(i) All rights, powers, duties and obligations conferred or imposed
upon the Trustee shall be conferred upon and exercised or performed by the
Trustee and such separate trustee or co-trustee jointly (it being
understood that such separate trustee or co-trustee is not authorized to
act separately without the Trustee joining in such act), except to the
extent that under any law of any jurisdiction in which any particular act
or acts are to be performed (whether as
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<PAGE>
Trustee under this Agreement or as successor to the Servicer under this
Agreement), the Trustee shall be incompetent or unqualified to perform such
act or acts, in which event such rights, powers, duties and obligations
(including the holding of title to the Trust or any portion thereof in any
such jurisdiction) shall be exercised and performed singly by such separate
trustee or co-trustee, but solely at the direction of the Trustee.
(ii) No trustee under this Agreement shall be personally liable by
reason of any act or omission of any other trustee under this Agreement.
(iii) The Trustee may at any time accept the resignation of or remove
any separate trustee or co-trustee.
(c) Any notice, request or other writing given to the Trustee shall be
deemed to have been given to each of the then separate trustees and co-trustees,
as effectively as if given to each of them. Every instrument appointing any
separate trustee or co-trustee shall refer to this Agreement and the conditions
of this Section 12.11. Each separate trustee and co-trustee, upon its
acceptance of the trusts conferred, shall be vested with the estates or
properties specified in its instrument of appointment, either jointly with the
Trustee or separately, as may be provided therein, subject to all the provisions
of this Agreement, specifically including every provision of this Agreement
relating to the conduct of, affecting the liability of, or affording protection
to, the Trustee. Each such instrument shall be filed with the Trustee and a
copy thereof given to the Servicer.
(d) Any separate trustee or co-trustee may at any time appoint the Trustee
or its agent or attorney-in-fact with full power and authority, to the extent
not prohibited by law, to do any lawful act under or in respect of this
Agreement on its behalf and in its name. If any separate trustee or co-trustee
shall die, become incapable of acting, resign or be removed, all of its estates,
properties, rights, remedies and trusts shall vest in and be exercised by the
Trustee, to the extent permitted by law, without the appointment of a new or
successor Trustee.
SECTION 12.12 TAX RETURNS
(a) The Servicer shall be entitled to review drafts of any federal tax
returns required to be filed by the Trust, it being understood that the Trustee
shall not file any returns inconsistent with the return position of the Seller
with respect to the Purchased Assets. The Trustee shall provide evidence that
Certificateholders have received any information required by the Code or the
regulations thereunder in light of those return purposes. The Trustee, upon
request, will furnish the Servicer with all such information known to the
Trustee as may be reasonably required in connection with
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the preparation of all tax returns of the Trust, and shall, upon request,
execute such returns.
(b) The Paying Agent shall be responsible for the withholding and payment
of any United States withholding taxes imposed with respect to the payment of
distributions to Certificateholders or Certificate Owners.
SECTION 12.13 TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF
CERTIFICATES
All rights of action and claims under this Agreement or the Certificates
may be prosecuted and enforced by the Trustee without the possession of any of
the Certificates or the production thereof in any proceeding relating thereto,
and any such proceeding instituted by the Trustee shall be brought in its own
name or in its capacity as Trustee. Any recovery of judgment shall, after
provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee and its agents and counsel, be for the
ratable benefit of the Certificateholders in respect of which such judgment has
been recovered.
SECTION 12.14 MAINTENANCE OF OFFICE OR AGENCY
The Trustee shall maintain at its expense in New York, New York, an office
or offices or agency or agencies where notices and demands to or upon the
Trustee in respect of the Certificates and this Agreement may be served. The
Trustee initially designates the Corporate Trust Office as its office for such
purposes. The Trustee will give prompt written notice to the Servicer, the
Paying Agent, the Transfer Agent and Certificate Registrar and the
Certificateholders of any change in the location of such office or agency.
SECTION 13. TERMINATION OF THE TRUST
(a) The Trust, and the respective obligations and responsibilities of the
Seller, the Servicer and the Trustee shall terminate with respect to the
Certificateholders at the close of business on the Distribution Date next
following the final Distribution Period ending on March 31, 2005 (or, if the
Tariff Termination Date is later than September 30, 2004, at the close of
business on the next Distribution Date following the date on which the final
Collection Period ends).
(b) Notice of any termination, specifying the Distribution Date upon which
the Certificateholders may surrender their Certificates to the Transfer Agent
and Certificate Registrar for payment of the final distribution and
cancellation, shall be given promptly by the Trustee by letter to
Certificateholders mailed not earlier than the 15th day and not later than the
25th day of the month next preceding the specified
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Distribution Date stating the amount of any such final payment, and that the
Record Date otherwise applicable to such Distribution Date is not applicable,
payments being made only upon presentation and surrender of the Certificates at
the office of the Transfer Agent and Certificate Registrar therein specified.
The Trustee shall give such notice to the Transfer Agent and Certificate
Registrar, the Paying Agent and the Rating Agencies at the time such notice is
given to Certificateholders. Upon presentation and surrender of the
Certificates, the Paying Agent shall cause to be distributed to
Certificateholders amounts distributable on such Distribution Date pursuant to
Section 7.3.
(c) In the event that all of the Certificateholders shall not surrender
their Certificates for cancellation within six months after the date specified
in the above-mentioned written notice, the Trustee shall give a second written
notice to the remaining Certificateholders upon receipt of the appropriate
records from the Transfer Agent and Certificate Registrar to surrender their
Certificates for cancellation and receive the final distribution with respect
thereto. If within one year after the second notice all the Certificates shall
not have been surrendered for cancellation, the Trustee may take appropriate
steps, or may appoint an agent to take appropriate steps, to contact the
remaining Certificateholders concerning surrender of their Certificates, and the
cost thereof shall be paid out of the funds and other assets that shall remain
subject to this Agreement. Any funds remaining in the Trust after exhaustion of
such remedies and after the payment of all amounts owing to the Trustee and the
Servicer under this Agreement shall be transferred by the Trustee to the
Servicer, which shall be obligated to pay the final distribution without
interest to any remaining Certificateholders which surrender their Certificates
for cancellation prior to the time such funds escheat to the State of Washington
pursuant to applicable law.
(d) All Certificates surrendered for payment of the final distribution
with respect to such Certificates and cancellation shall be canceled by the
Transfer Agent and Certificate Registrar and shall be disposed of in a manner
satisfactory to the Trustee and the Servicer.
SECTION 14. MISCELLANEOUS PROVISIONS
SECTION 14.1 AMENDMENT
(a) This Agreement may be amended by the Seller, the Servicer and the
Trustee, without prior notice to or the consent of any of the
Certificateholders, (i) to cure any ambiguity, to correct or supplement any
provision in this Agreement which may be inconsistent with any other provision
herein or therein, to evidence a succession to the Servicer or the Seller
pursuant to this Agreement or to add any other provisions with respect to
matters or questions arising under this Agreement that shall
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not be inconsistent with the provisions of this Agreement; PROVIDED, HOWEVER,
that such action shall not, as evidenced by an Officer's Certificate or an
Opinion of Counsel delivered to the Trustee, adversely and materially affect the
interests of the Trust or any of the Certificateholders and PROVIDED, FURTHER,
that the Trustee shall deliver written notice of such changes to each Rating
Agency prior to the execution of any such amendment, or (ii) to effect a
transfer or assignment in compliance with Section 14.7(i).
(b) This Agreement may also be amended from time to time by the Seller,
the Servicer and the Trustee, with the consent of the Holders of Certificates
evidencing not less than 51% of the Aggregate Certificate Balance, for the
purpose of adding any provision to or changing in any manner or eliminating any
of the provisions of this Agreement, or of modifying in any manner the rights of
the Certificateholders (including effecting a transfer or assignment in
compliance with Section 14.7(ii)); PROVIDED, HOWEVER, that no such amendment,
except with the consent of the Holders of all Certificates then outstanding,
shall (A) increase or reduce in any manner the amount of, or accelerate or delay
the timing of, collections of payments of Purchased Assets, or distributions
that shall be required to be made on any Certificate (B) be applicable to
Section 11, or (C) reduce the aforesaid percentage of the Aggregate Certificate
Balance required to consent to any such amendment.
(c) Promptly after the execution of any amendment or consent referred to
in this Section 14.1, the Trustee shall furnish a copy of such amendment or
consent to each Certificateholder and to the Rating Agencies.
(d) It shall not be necessary for the consent of Certificateholders
pursuant to this Section 14.1 to approve the particular form of any proposed
amendment or consent, but it shall be sufficient if such consent shall approve
the substance thereof. The manner of obtaining such consents and of evidencing
the authorization of the execution thereof by Certificateholders shall be
subject to such reasonable requirements as the Trustee may prescribe.
(e) Prior to the execution of any amendment to this Agreement, the Trustee
shall be entitled to receive and rely upon an Opinion of Counsel stating that
the execution of such amendment is authorized or permitted by this Agreement.
The Trustee shall not be obligated to enter into any such amendment which
affects the Trustee's own rights, duties or immunities under this Agreement.
(f) Prior to the execution of any amendment to this Agreement, other than
an amendment permitted pursuant to clause (a)(i) of this Section 14.1, the
Servicer shall have received written notice from each of the Rating Agencies
that the rating of the Certificates will not be reduced or withdrawn as a result
of such amendment.
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SECTION 14.2 PROTECTION OF TITLE TO TRUST
(a) The Servicer shall execute and file such financing statements and
continuation statements, all in such manner and in such places as required by
law to protect the interests of the Trust under this Agreement in the Purchased
Assets and in the proceeds thereof. The Servicer shall deliver (or cause to be
delivered) to the Trustee file-stamped copies of, or filing receipts for, such
documents filed as provided above, as soon as available following such filing.
(b) If the Seller changes its name, identity or corporate structure in any
manner that would make any financing statement or continuation statement filed
by the Servicer in accordance with paragraph (a) above seriously misleading as
interpreted pursuant to Section 9-402(7) of the UCC, the Seller shall promptly
file appropriate revised financing statements and continuation statements or
amendments thereto and shall give the Trustee written notice thereof.
(c) If as a result of any relocation of the Seller's chief executive
office the applicable provisions of the UCC would require the filing of any
amendment of any previously filed financing or continuation statement or of any
new financing statement, the Seller shall promptly file such amendment or new
financing statement and shall give the Trustee written notice thereof. The
Servicer shall at all times maintain each office from which it shall service
Purchased Assets, and its principal executive office, within the State of
Washington.
(d) The Servicer shall annually on or before May 31 of each year,
beginning May 31, 1996 to and including the year in which the final Distribution
Date occurs, provide evidence to the Trustee of the Servicer's compliance with
the UCC filing requirements of Sections 14.2 (a), (b) and (c).
(e) The Servicer shall maintain accounts and records as to the Purchased
Assets accurately and in accordance with its standard accounting procedures, and
sufficient detail to permit reconciliation between payments or recoveries on (or
with respect to) the Purchased Assets and the amounts from time to time
deposited in the Collection Account in respect of the Purchased Assets.
(f) For the purpose of facilitating the execution of this Agreement and
for other purposes, this Agreement may be executed simultaneously in any number
of counterparts, each of which counterparts shall be deemed to be an original,
and all of which counterparts shall constitute but one and the same instrument.
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SECTION 14.3 LIMITATION ON RIGHTS OF CERTIFICATEHOLDERS
(a) The death or incapacity of any Certificateholder shall not operate to
terminate this Agreement or the Trust, nor entitle the Certificateholder's legal
representatives or heirs to claim an accounting or to take any action or
commence any proceeding in any court for a partition or winding up of the Trust,
nor otherwise affect the rights, obligations and liabilities of the parties to
this Agreement or any of them.
(b) No Certificateholder shall have any right to vote (except as expressly
provided in this Agreement) or in any manner otherwise control the operation and
management of the Trust, or the obligations of the parties to this Agreement,
nor shall anything set forth in this Agreement or contained in the terms of the
Certificates, be construed so as to constitute the Certificateholders as
partners or members of an association; nor shall any Certificateholder be under
any liability to any third person by reason of any action taken pursuant to any
provision of this Agreement.
SECTION 14.4 GOVERNING LAW
THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF WASHINGTON, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES UNDER
THIS AGREEMENT SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS, WITHOUT REGARD
TO PRINCIPLES OF CONFLICT OF LAWS. NOTWITHSTANDING THE FOREGOING, THE DUTIES,
RIGHTS AND IMMUNITIES OF THE TRUSTEE HEREUNDER SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
SECTION 14.5 NOTICES
All demands, notices and communications under this Agreement shall be in
writing, personally delivered or mailed by certified mail, return receipt
requested, or sent by telecopy or other similar form of rapid transmission and
shall be deemed to have been duly given upon receipt (A) in the case of the
Seller, at 411 108th Avenue N.E., Bellevue, Washington 98004-4415, Attention:
Chief Financial Officer, Telecopy Number: (206) 462-3300, or at such other
address as shall be designated by the Seller in a written notice to the Trustee,
(B) in the case of the Servicer, at 411 108th Avenue N.E., Bellevue, Washington
98004-4415, Attention: Chief Financial Officer, Telecopy Number: (206) 462-3300,
or at such other address as shall be designated by the Servicer in a written
notice to the Trustee, and (C) in the case of the Trustee, at 450 West 33rd
Street, 15th Floor, New York, New York 10001, Attention: Structured Finance
Services (ABS), Telecopy Number: (212) 946-3918. Any notice required or
permitted to be mailed to a Certificateholder shall be given by first class
mail, postage prepaid, at the address of record of such Certificateholder. Any
notice
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to a Certificateholder so mailed within the time prescribed in this Agreement
shall be conclusively presumed to have been duly given, whether or not the
Certificateholder shall receive such notice.
SECTION 14.6 SEVERABILITY OF PROVISIONS
If any one or more of the covenants, agreements, provisions or terms of
this Agreement shall be for any reason whatsoever held invalid, then such
covenants, agreements, provisions or terms shall be deemed severable from the
remaining covenants, agreements, provisions or terms of this Agreement and shall
in no way affect the validity or enforceability of the other provisions of this
Agreement or of the Certificates or the rights of the Certificateholders
thereof.
SECTION 14.7 ASSIGNMENT
Notwithstanding anything to the contrary contained herein, except as
provided in Sections 9.3 and 10.3, neither the Seller nor the Servicer may
transfer or assign all, or a portion of, its rights, obligations and duties
under this Agreement unless (i) such transfer or assignment will not result in a
reduction or withdrawal by the Rating Agencies of the rating then assigned to
the Certificates or (ii) the Trustee and Holders of Certificates evidencing not
less than 75% of the Aggregate Certificate Balance consent thereto. Without
limiting Section 10.5, any transfer or assignment with respect to the Servicer
of all of its rights, obligations and duties will not become effective until a
successor Servicer has assumed the Servicer's rights, duties and obligations
under this Agreement. In the event of a transfer or assignment pursuant to
clause (ii) above, the Rating Agencies shall be provided with notice of such
transfer or assignment.
SECTION 14.8 CERTIFICATES NONASSESSABLE AND FULLY PAID
The interests represented by the Certificates shall be nonassessable for
any losses or expenses of the Trust or for any reason whatsoever, and, upon
authentication thereof by the Trustee pursuant to Section 8.2, each Certificate
shall be deemed fully paid.
SECTION 14.9 THIRD-PARTY BENEFICIARIES
This Agreement will inure to the benefit of and be binding upon the parties
hereto, the Certificateholders and the Certificate Owners and their respective
successors and permitted assigns. Except as otherwise provided in this
Agreement, no other person will have any right or obligation hereunder.
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SECTION 14.10 CERTIFICATES OWNED BY SERVICER
In determining whether the Holders of the requisite percentage of the
Aggregate Certificate Balance have given any request, demand, authorization,
direction, notice, consent or waiver under this Agreement, any Certificates
owned by the Servicer or any Person controlling, controlled by or under common
control with the Servicer shall be disregarded and deemed not to be part of the
Aggregate Certificate Balance.
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IN WITNESS WHEREOF, the parties have caused this Pooling and Servicing
Agreement to be duly executed by their respective officers as of the day and
year first above written.
PUGET SOUND POWER & LIGHT
COMPANY, as Seller
By
----------------------------------
Name:
Title:
CHEMICAL BANK, as Trustee
By
-----------------------------------
Name:
Title:
PUGET SOUND POWER & LIGHT
COMPANY, as Servicer
By
-----------------------------------
Name:
Title:
PAGE 64
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REGISTERED CUSIP NO. [ ]
[Form of Certificate]
CERTIFICATE
[Face of Certificate]
Puget Power Conservation Grantor Trust 1995-1
[ ]% Conservation Pass-Through Certificates,
Series 1995-1
Evidencing an undivided fractional interest in a trust,
the property of which includes assets sold to the trust by
Puget Sound Power & Light Company
(This Certificate does not represent an interest in or
obligation of Puget Sound Power & Light Company or
any Affiliate thereof)
$__________(1)
No. _____ Certificate Amount
THE PORTION OF THE PRINCIPAL BALANCE EVIDENCED BY THIS
CERTIFICATE (THE "CERTIFICATE BALANCE") WILL BE REDUCED BY
DISTRIBUTIONS ON THIS CERTIFICATE ALLOCABLE TO PRINCIPAL.
ACCORDINGLY, FOLLOWING THE INITIAL ISSUANCE OF THE
CERTIFICATES, THE CERTIFICATE BALANCE OF THIS CERTIFICATE WILL
BE DIFFERENT FROM THE ORIGINAL CERTIFICATE AMOUNT SHOWN ABOVE.
ANYONE ACQUIRING THIS CERTIFICATE MAY ASCERTAIN ITS CURRENT
CERTIFICATE BALANCE BY INQUIRY OF THE PAYING AGENT. ON THE
DATE OF THE INITIAL ISSUANCE OF THE CERTIFICATES, THE PAYING
AGENT IS CHEMICAL BANK, 450 WEST 33RD STREET, 15 FLOOR, NEW
YORK, NEW YORK 10001.
This certifies that __________________________ is the
registered owner of an undivided fractional interest (the
"Fractional Interest") in the percentage obtained by dividing
the Certificate Amount of this Certificate by the Aggregate
Certificate Amount of the Certificates in Puget Power
Conservation Grantor Trust 1995-1 (the
_______________________________
(1) Denominations of $1,000 and integral multiples of $1,000
in excess thereof.
<PAGE>
"Trust"). The Trust has been created pursuant to a Pooling and
Servicing Agreement(the "Agreement") dated as of __________, 1995,
between Puget Sound Power & Light Company, as an originator of the
Trust and Servicer of the Purchased Assets (the "Seller" and the
"Servicer" in its respective capacities as such) and Chemical
Bank, as trustee of the Trust (the "Trustee"). The assets of
the Trust include the Purchased Conservation Investment
Assets, the Purchased Contract Rights and the Purchased Sale
Proceeds.
To the extent not defined herein, the capitalized terms
used herein have the meanings assigned in the Agreement. This
Certificate is issued under and is subject to the terms,
provisions and conditions of the Agreement, to which Agreement
the holder of this Certificate by virtue of the acceptance
hereto assents and by which such holder is bound. The
Aggregate Certificate Amount is $202,300,000.
Subject to the terms and conditions of the Agreement
(including the availability of funds for distributions), and
until the obligations created by the Agreement shall have
terminated in accordance therewith, the Paying Agent shall
distribute on each Distribution Date, commencing on
October 11, 1995, to the person in whose name this Certificate
is registered at the Record Date, the Certificateholder's
Fractional Interest of (a) an amount equal to the sum of
(i) the product of the quarterly Certificate Rate and the
Aggregate Certificate Balance as of the first day of the
related Distribution Period PLUS (ii) any amounts previously
due under clause (a)(i) but not paid to Certificateholders in
respect of previous Distribution Periods PLUS (iii) the
product of the quarterly Certificate Rate and the previously
unpaid amount described in clause (a)(ii) and (b) the balance
of the Collection Account as of such Distribution Date after
giving effect to distributions of the Servicing Fee, the
Trustee Fee and the amounts described in clause (a). Such
distribution to the Certificateholder shall be made only from
certain funds, if any, in the Collection Account on such
Distribution Date. The Servicer's obligation to deposit funds
in the Collection Account is limited under the Agreement to
certain amounts received with respect to the Purchased Assets.
This Certificate does not purport to summarize the
Agreement and reference is made to the Agreement for
information with respect to the interests, rights, benefits,
obligations, proceeds and duties evidenced hereby. This
Certificate is issued under and is subject to the terms,
provisions and conditions of the Agreement, to which
Agreement, as amended from time to time, the Certificateholder
by virtue of the acceptance hereof assents and is bound.
Copies of the Agreement and all amendments thereto will be
provided to any Certificateholder free of charge upon written
request to the Trustee, at its principal corporate office,
450 West 33rd Street, 15th Floor, New
-2-
<PAGE>
York, New York 10001. Reference is also hereby made to the
reverse of this Certificate.
Unless this Certificate is presented by an authorized
representative of The Depository Trust Company to the Trustee
or its agent for registration of transfer, exchange or
payment, and any certificate issued is registered by an
authorized representative of The Depository Trust Company and
any payment is made to CEDE & CO., ANY TRANSFER, PLEDGE OR
OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL since the registered owner hereof, CEDE & CO., has an
interest herein.
Unless the certificate of authentication hereon has been
executed by or on behalf of the Trustee, by manual or
facsimile signature, this Certificate shall not be entitled to
any benefit under the Agreement, or be valid for any purpose.
IN WITNESS HEREOF, Puget Power Conservation Grantor Trust
1995-1 has caused this Certificate to be duly executed by the
manual signature of a duly authorized officer of the Trustee
and has caused a facsimile of the Trustee's official seal to
be imprinted hereon, attested by the facsimile signature of an
authorized officer of the Trustee.
Dated: PUGET POWER CONSERVATION
GRANTOR TRUST 1995-1
by CHEMICAL BANK, not in its
individual capacity, but
solely as Trustee
by_______________________________
Authorized Officer
[Seal]
Attest:
_______________________________
Authorized Officer
-3-
<PAGE>
Trustee's Certificate of Authentication:
Chemical Bank, as Trustee, certifies that this is one of
the Certificates referred to in the Agreement.
CHEMICAL BANK, CHEMICAL BANK,
as Trustee as Trustee
by____________________________ OR by [Authenticating Agent],
Authorized Officer
by__________________________
Authorized Officer
-4-
<PAGE>
[Reverse of Certificate]
[ ]% CONSERVATION PASS-THROUGH CERTIFICATES,
SERIES 1995-1
Puget Power Conservation Grantor Trust 1995-1
This Certificate does not represent an obligation of, or
an interest in, the Seller or any of its Affiliates. This
Certificate is limited in right of payment to a portion of
certain collections and other payment respecting the Purchased
Assets, as more specifically set forth herein and in the
Agreement. This Certificate is not insured or guaranteed by
any Person or governmental agency.
The Agreement permits, with certain exceptions therein
provided, the amendment thereof and the modification of the
rights and obligations of the Seller, the Servicer, the
Certificateholders or the Trustee under the Agreement at any
time by the Seller, the Servicer and the Trustee, with the
consent of the Certificateholders holding not less than 51% of
the Aggregate Certificate Balance. Any such amendment and any
such consent by the holder of this Certificate shall be
conclusive and binding on such and upon all future holders of
this Certificate and of any Certificate issued in exchange
hereof or in lieu hereof whether or not notation thereof is
made upon this Certificate. The Agreement also permits, under
certain circumstances, the amendment thereof by the Seller,
the Servicer and the Trustee, without the consent of any of
the Certificateholders.
As provided in the Agreement and subject to certain
limitations therein set forth, the transfer of this
Certificate is registerable in the Certificate Register of the
Transfer Agent and Certificate Registrar upon surrender of
this Certificate of registration of transfer at the office or
agency maintained by the Transfer Agent and Certificate
Registrar in New York, New York, duly endorsed by, and
accompanied by a written instrument of transfer in form
satisfactory to the Trustee and the Transfer Agent and
Certificate Registrar duly executed by, the Certificateholder
or such Certificateholder's attorney duly authorized in
writing, which signature on such assignment must be guaranteed
by a member of the New York Stock Exchange or a commercial
bank or trust company, and thereupon one or more new
Certificates in authorized denominations of a like aggregate
amount will be issued to the designated transferee or
transferees.
The Certificates are issuable only as registered
Certificates without coupons in denominations of $1,000, or
integral multiples thereof (except that a single Certificate
may be issued in a smaller denomination). As provided in the
Agreement and subject to certain limitations therein set
forth, Certificates are exchangeable for new
-5-
<PAGE>
Certificates evidencing a like aggregate amount, as requested
by the Certificateholder surrendering the same.
No service charge may be imposed for any such
registration of transfer or exchange, but the Trustee or the
Servicer may require payment of a sum sufficient to cover any
tax or other governmental charge that may be imposed in
connection therewith.
The Seller, the Servicer, the Trustee and the Transfer
Agent and Certificate Registrar and any agent of any of them
may treat the person in whose name this Certificate is
registered as the owner hereof for all purposes, and none of
the Seller, the Servicer, the Trustee, the Transfer Agent and
Certificate Registrar or any such agent shall be affected by
notice to the contrary.
The Trust and the respective obligations and
responsibilities of the Seller, the Servicer and the Trustee
shall terminate with respect to the Certificateholders at the
close of business on the Distribution Date next following the
final Distribution Period.
-6-
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned, subject to the
provisions of Section 8.3(d) of the Agreement, sells, assigns
and transfers unto (name and address, including zip code and
taxpayer ID or Social Security Number, of assignee)
______________________________________________________________
______________________________________________________________
the within Certificate and does hereby irrevocably constitute
and appoint _________ ______________________________ to
transfer the said Certificate on the books kept for
registration thereof with full power of substitution in the
premises.
Dated: ________________ ________________________(2)
Signature Guaranteed:
_______________________
_______________________________
(2) NOTE: The signature to this assignment must correspond
with the name of the registered owner as it appears on the
face of the within Certificate in every particular, without
alteration, enlargement or any change whatsoever.
<PAGE>
PERKINS COIE
A Law Partnership Including Professional Corporations
1201 Third Avenue, 40th Floor - Seattle, Washington 98101-3099
Telephone: (206) 583-8888 Facsimile: (206) 583-8500
May 15, 1995
Puget Sound Power & Light Company
One Bellevue Center Bldg.
411 108th Avenue NE
Bellevue, WA 98004-5515
RE: PUGET POWER CONSERVATION GRANTOR TRUST 1995-1
Gentlemen and Ladies:
We have acted as counsel to Puget Sound Power & Light Company (the
"Company") in connection with the formation of the Puget Power Conservation
Grantor Trust 1995-1 (the "Trust"), the authorization and issuance by the Trust
of up to $202,300,000 principal amount of ____% Conservation Pass-Through
Certificates, Series 1995-1 (the "Certificates") pursuant to a Pooling and
Servicing Agreement (the "Pooling and Servicing Agreement") between the Company
and Chemical Bank, as Trustee (the "Trustee"), and the preparation and filing of
a registration statement on Form S-1 (File No. 33-87784) under the Securities
Act of 1933, as amended (the "1933 Act"), which you have filed with the
Securities and Exchange Commission with respect to the Certificates (the
"Registration Statement"). We have examined the Registration Statement and such
documents and records of the Company and other documents as we have deemed
necessary for the purpose of this opinion.
Based upon the foregoing, we are of the opinion that upon the happening of
the following events:
(a) the filing of any amendments to the Registration Statement and the
effectiveness of the Registration Statement;
(b) due action by the Company's Board of Directors or a committee thereof
authorizing the transactions contemplated by the Pooling and
Servicing Agreement;
(c) due execution and delivery of the Pooling and Servicing Agreement by
the Company and the Trustee;
<PAGE>
Puget Sound Power & Light Company
May 15, 1995
Page 2
(d) due action by the Washington Utility and Transportation Commission
approving the transactions contemplated by the Pooling and
Servicing Agreement, including the issuance and sale of the
Certificates;
(e) compliance with the terms of the Pooling and Servicing Agreement with
respect to the creation, authentication and delivery of the
Certificates; and
(f) the sale of the Certificates as contemplated by the Registration
Statement;
the Certificates will constitute in the hands of the holders thereof valid and
binding obligations of the Trust in accordance with the terms of the Pooling and
Servicing Agreement.
We hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement and to the reference to us under the heading "Legal
Matters." In giving such consent, we do not thereby admit we are in the
category of persons whose consent is required under Section 7 of the 1933 Act.
Very truly yours,
PERKINS COIE
<PAGE>
PERKINS COIE
A Law Partnership Including Professional Corporations
1201 Third Avenue, 40th Floor - Seattle, Washington 98101-3099
Telephone: (206) 583-8888 Facsimile: (206) 583-8500
May 15, 1995
Puget Sound Power & Light Company
One Bellevue Center Bldg.
411 108th Avenue NE
Bellevue, Washington 98004-5515
RE: PUGET POWER CONSERVATION GRANTOR TRUST 1995-1
Ladies and Gentlemen:
We have acted as counsel to Puget Sound Power & Light Company in connection
with the purchase, ownership and disposition of loan certificates (the
"Certificates") to be issued by the Puget Power Conservation Grantor Trust 1995-
1 (the "Trust"), as described in the Prospectus that is a part of the
Registration Statement on Form S-1 (File No. 33-87784) filed with the Securities
and Exchange Commission with respect to the Certificates. You have asked for
our opinion regarding the material U.S. federal income tax consequences
resulting from the purchase, ownership, and disposition of the Certificates.
Capitalized terms not defined herein have the meanings give them in the
Prospectus.
In writing this opinion, we examined the Prospectus, the Pooling and
Servicing Agreement, the documents described and referred to in the Prospectus
and such other documents as we deemed relevant.
We have relied on the validity of said documents and on the accuracy and
completeness of the facts, circumstances and conclusions set forth therein and
refer to or summarized in this opinion or in the Prospectus.
Based upon the foregoing, and subject to the limitations set forth in the
Prospectus, we believe that the section of the Prospectus entitled "Federal
Income Tax Consequences" and the portion of the Prospectus Summary entitled "Tax
Status" addresses all material tax issues involved in the acquisition of the
Certificates and reflects accurately our opinion as to the matters discussed
therein.
<PAGE>
Puget Sound Power & Light Company
May 15, 1995
Page 2
Please note that we are opining only as to the matters expressly set forth
herein and in the section of the Prospectus entitled "Federal Income Tax
Consequences" and the portion of the Prospectus Summary entitled "Tax Status."
Although we have addressed all material tax issues associated with an investment
in the Certificates, no opinions should be inferred as to any other matters or
as to the tax treatment of the transactions referred to herein under the
provisions of any section of the Code or Treasury Regulations not specifically
covered herein that may also be applicable to this transaction. Also our
opinion is based on the Code and Treasury Regulations as n effect on the date
hereof. And we can give no assurance that the conclusions reached herein will
not be altered by future legislation or judicial or administrative changes.
Further, we caution that our opinion is not binding on the Internal Revenue
Service or the courts.
Very truly yours,
PERKINS COIE
<PAGE>
[Form of Insolvency Opinion]
June __, 1995
Salomon Brothers Inc
Seven World Trade Center
New York, New York 10048
Chemical Securities Inc.
270 Park Avenue
New York, New York 10017
Moody's Investors Service, Inc.
99 Church Street
New York, New York
Standard & Poor's Rating Group
25 Broadway
New York, New York 10004
Fitch Investors Services, Inc.
1 State Street Plaza
New York, New York 10003
Duff & Phelps Credit Rating Company
55 East Monroe Street
Chicago, Illinois 60603
RE: PUGET SOUND POWER & LIGHT COMPANY--SALE OF PURCHASED CONSERVATION
INVESTMENT ASSETS
Ladies and Gentlemen:
We have acted as counsel to Puget Sound Power & Light Company (the "Seller"
and the "Servicer" in its respective capacities as such), in connection with the
sale to Puget Power Conservation Grantor Trust 1995-1 (the "Trust" or the
"Purchaser") of Purchased Conservation Investment Assets pursuant to a Pooling
and
<PAGE>
June __, 1995
Page 2
Servicing Agreement, dated as of ___________, between Puget Sound Power & Light
Company, as Seller and Servicer, and Chemical Bank, as Trustee (the "Pooling and
Servicing Agreement). Terms capitalized and used herein without being defined
shall have the meanings given them in the Pooling and Servicing Agreement. In
that connection, we have examined the documents listed as items (1) through (8)
below (collectively, the "Specified Documents"):
(1) The Pooling and Servicing Agreement;
(2) Schedule 102 (the "Tariff");
(3) The Application;
(4) The Initial Order;
(5) The Periodic Application and Order;
(6) The Procedures for Periodic Revision of Schedule 102;
(7) The UCC-1 Financing Statement (the "UCC-1") to be filed on or about
the Closing Date with the Washington State Department of Licensing; and
(8) The Bill of Sale.
Under the terms of the Conservation Asset Transaction as contemplated by
the Specified Documents (hereinafter, the "Transaction"), the Seller/Servicer
will transfer the Purchased Conservation Investment Assets to Purchaser in
exchange for certificates of beneficial interests (the "Certificates") in the
Trust. The Purchased Conservation Investment Assets include (i) the
Seller/Servicer's right, title and interest in and to, and to receive, the
Allocated Conservation Amounts from Customers in accordance with the Tariff and
orders of the Washington State Utilities and Transportation Commission (the
"Commission") and (ii) all of the Seller/Servicer's rights to have the
Conservation Asset Transaction Amount recoverable through Rates pursuant to and
in accordance with the Statute. The Commission in the Initial Order will
approve the Pooling and Servicing Agreement, the Tariff and other aspects of the
Transaction. The Seller/Servicer will sell the Certificates to investors (the
"Certificateholders") for a fixed dollar amount pursuant to the Statute, as
described in
<PAGE>
June __, 1995
Page 3
Part III.A.1 below. The Certificateholders will pay the entire purchase price
on the Closing Date, with no portion deferred.
The Certificates are intended to return to the Certificateholders through
receipt of the Allocated Conservation Amounts the amount paid for the
Certificates plus a fixed rate of return. The Purchaser may not sell its
interest in the Allocated Conservation Amounts, but individual
Certificateholders may sell their Certificates.
Allocated Conservation Amounts will be collected by the Seller/Servicer as
part of a utility customer's normal bill and then transferred to Purchaser
pursuant to the Pooling and Servicing Agreement. The amount of the Tariff is
not shown on the bill, but the Seller/Servicer will determine the amount from
records it will maintain under the Pooling and Servicing Agreement. The
Seller/Servicer will be paid a fee by the Trust to collect the Allocated
Conservation Amounts under the Pooling and Servicing Agreement. This fee will
be based in part on the investment earnings of the assets held in the Collection
Account. The Seller/Servicer may be replaced as the servicing agent in the case
of a default with the consent of 75 percent of the Certificateholders.
In connection with the Transaction, the parties will file the UCC-1 with
the Washington State Department of Licensing. This filing will show the
Seller/Servicer as "debtor" and the Purchaser as "Secured Party." The UCC-1
does NOT indicate that the parties consider the Transaction to be a secured
loan. Rather, in accordance with RCW 80.28.306(2), and consistent with RCW
62A.9-408, the filing will place third party creditors of the Seller/Servicer on
notice that the Purchased Conservation Investment Assets have been sold to the
Purchaser. However, in the event the Transaction is recharacterized as a pledge
to secure a loan, the Pooling and Servicing Agreement constitutes a security
agreement in accordance with RCW 80.28.306(2), whereby the Seller/Servicer
grants to the Trustee on behalf of the Trust for the benefit of the
Certificateholders a security interest in all of the Seller's right, title and
interest in the Purchased Conservation Investment Assets and all proceeds
thereof.
In connection with the Transaction, you have asked our opinion that, in the
event that Seller/Servicer becomes a debtor in a case under the United States
Bankruptcy Code, 11 U.S.C. SectionSection 101-1330 (the "Bankruptcy Code"), the
sale of the Purchased Conservation Investment Assets to Purchaser pursuant to
the Specified Documents is an absolute sale so that in a bankruptcy case of
Seller/Servicer (i) none
<PAGE>
June __, 1995
Page 4
of the Purchased Conservation Investment Assets (including amounts collected by
the Seller/Servicer under the Tariff and not yet remitted to the Collection
Account) is property of the estate under section 541 of the Bankruptcy Code and
(ii) the automatic stay of section 362 of the Bankruptcy Code is not applicable
to any Purchased Conservation Investment Assets.
This letter is organized into four sections. In Section I, we express two
legal opinions. In Section II, we identify the factual basis for those
opinions, as we understand or assume those facts. In Section III, we discuss
the legal analysis underlying the opinions expressed in Section I. Nothing in
Section II or III is intended to broaden the scope of the opinions expressed in
Section I. In Section IV, we set forth certain qualifications to the opinions
expressed in Section I.
Our opinion is limited to the specific issues addressed and is further
limited, in all respects, to the facts assumed. In addition, except as
otherwise stated, we express no opinion about the effect of the laws of any
jurisdiction other than the laws of the State of Washington and the federal laws
of the United States. In rendering our opinion set forth herein, we have
assumed, with your permission, that the laws of the State of Washington would
apply in all aspects of the Transaction that are governed by state law.
I. OPINIONS EXPRESSED
Based on the reasoning and subject to the assumptions, qualifications and
limitations set forth in this letter, it is our opinion that:
1. In a properly presented and decided case: (i) a court would determine
that the Transaction pursuant to the Specified Documents on the Closing Date
constitutes a sale of the Purchased Conservation Investment Assets to the
Purchaser, as opposed to a loan; and (ii) therefore, in the event of a filing of
a petition for relief by or against Seller/Servicer under the Bankruptcy Code,
the Purchased Conservation Investment Assets and collections thereon (including
amounts collected by the Seller/Servicer under the Tariff and not yet remitted
to the Collection Account) would not be property of Seller/Servicer's bankruptcy
estate, under section 541 of the Bankruptcy Code, and the bankruptcy court would
not compel the turnover of the Purchased Conservation Investment Assets or
collections thereon to Seller/Servicer under section 542 of the Bankruptcy
Code.
<PAGE>
June __, 1995
Page 5
2. As a consequence of our conclusion in paragraph 1, in the event
Seller/Servicer became a debtor in a voluntary or involuntary bankruptcy case
under the Bankruptcy Code, in a properly presented and decided case, the
bankruptcy court would not determine that payments on the Purchased Conservation
Investment Assets should be prevented pursuant to the automatic stay provisions
of section 362(a) of the Bankruptcy Code.
II. ASSUMPTIONS AS TO FACTS
As to all the factual matters material to the opinion set forth herein we
have, with your permission, and without any investigation or independent
confirmation, relied upon and assumed the present and continuing truth and
accuracy of the factual representations made in the Specified Documents.
The opinions set forth herein are based on the following assumptions:
(a) in selecting the laws of the State of Washington to govern the Specified
Documents, the parties to the Transaction acted in good faith and without an
intent to evade the law of any other jurisdiction; (b) all agreements referred
to herein (i) have been duly executed and delivered by all parties thereto and
(ii) constitute legal, valid and binding obligations of all such parties;
(c) all documents submitted to us as originals are authentic; all documents,
including, but not limited to, the Specified Documents, submitted to us as
certified or photostatic copies conform to the original documents and all
signatures on such documents are genuine; (d) the Transaction does not
contravene or conflict with any law, regulation, or rule of any governmental
authority or any agreement, instrument, writ, injunction, decree, or order
binding on any party thereto or relating to any Purchased Conservation
Investment Assets; (e) the terms and conditions as reflected in the Specified
Documents have not been amended, modified or supplemented by any other agreement
or understanding of the parties, and none of the material provisions of the
Specified Documents has been waived; (f) the parties will comply with the
Specified Documents and with the requirements of applicable law; and (g) each
officer and director of Seller/Servicer and the trustee of Purchaser will
discharge his or her respective fiduciary duties and obligations in accordance
with all applicable laws.
<PAGE>
June __, 1995
Page 6
The following additional factual assumptions are based on the certificate
attached as Exhibit I(1) or on the representations, warranties, covenants, or
terms in the Specified Documents:
(i) The Pooling and Servicing Agreement provides for an absolute and
irrevocable assignment, transfer and conveyance by
Seller/Servicer to Purchaser of all of Seller/Servicer's right,
title, and interest in, to, and under the Purchased Conservation
Investment Assets.
(ii) The Pooling and Servicing Agreement provides that as of the
Closing Date, Seller/Servicer relinquishes all right, title and
interest in the Purchased Conservation Investment Assets. Under
financial accounting, regulatory and commercial law standards,
the Transaction is intended by the Purchaser and the
Seller/Servicer to be, and the Specified Documents purport to
effect, an absolute, unconditional and irrevocable transfer that
is treated as a sale for financial accounting, regulatory and
commercial law purposes.
(iii) After the Closing Date, the Specified Documents will not provide
for the retention by Seller/Servicer of, and Seller/Servicer will
claim no legal or equitable interest in, the Purchased
Conservation Investment Assets. Seller/Servicer will have
control over the Purchased Conservation Investment Assets only to
the extent necessary to fulfill Seller/Servicer's obligations
under the Servicing Agreement, and those obligations are such as
would reasonably be required of a third-party servicer in the
context of servicing those assets under the Statute.
(iv) Seller/Servicer will make appropriate recordings in public
records to provide public notice of the Conservation Asset
Transaction, including, without limitation, filing before the
Closing Date a UCC-1.
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(1) Note that the certificate provides that the Seller/Servicer expects
that, under federal income tax provisions. Seller/Servicer will be viewed as
having retained a beneficial ownership interest in the Purchased Conservation
Investment Assets. The treatment of the transaction for federal tax purposes as
a loan, and the impact of that on the true sale analysis, is discussed on page
__.
<PAGE>
June __, 1995
Page 7
under the name of the Seller/Servicer with the Washington State
Department of Licensing.
(v) Seller/Servicer was not and will not be named, and has not
entered into and will not enter into an agreement to be named, as
a direct or contingent beneficiary or loss payee on any insurance
policy covering the Purchased Conservation Investment Assets.
(vi) Purchaser will take the economic risk of noncollection from the
obligors on the Purchased Conservation Investment Assets and
Purchaser will have no recourse against Seller/Servicer or any of
its assets in respect of the Purchased Conservation Investment
Assets.
(vii) Seller/Servicer will have no right or obligation to redeem or
repurchase the Purchased Conservation Investment Assets from the
Purchaser. Purchaser will have no right or obligation to require
that Seller/Servicer redeem or repurchase the Purchased
Conservation Investment Assets.
(viii) Seller/Servicer has not agreed and will not agree, as part of the
Transaction, to defer any portion of the purchase price for the
Purchased Conservation Investment Assets from Purchaser.
(ix) After the Closing Date, no financial statement of Seller/Servicer
will show any interest in the Purchased Conservation Investment
Assets.
(x) Purchaser will prepare financial statements that will note the
ownership of the Purchased Conservation Investment Assets by
Purchaser. The Transaction has been booked, filed, reported, and
disclosed by Seller as a fair-market-value sale and an absolute,
irrevocable and final sale for accounting, but not tax, purposes.
(xi) Seller/Servicer is entering into the Transaction and consummating
the Transaction in reliance on the identity of Purchaser as a
separate legal entity.
(xii) The Trustee on behalf of Purchaser will accept such conveyances
of Purchased Conservation Investment Assets in good faith and
will
<PAGE>
June __, 1995
Page 8
receive and hold title to the Purchased Conservation Investment
Assets. The Specified Documents reflect bona fide transactions
that will be undertaken in good faith for legitimate business
purposes.
(xiii) Seller/Servicer did not agree to sell the Purchased Conservation
Investment Assets with any intent to, and did not, hinder, delay
or defraud any of Seller/Servicer's creditors. Seller/Servicer
will not make any conveyance or transfer, nor will it incur any
obligation to or for the benefit of Purchaser, with any intent to
hinder, delay or defraud any creditor of Seller/Servicer or
Purchaser. Purchaser will not make any conveyance or transfer
and will not incur any obligation with any intent to hinder,
delay or defraud any creditor of Seller/Servicer or Purchaser.
(xiv) Seller/Servicer will engage in business transactions with
Purchaser only on terms and conditions that it believes are at
arm's-length and commercially reasonable. Purchaser will engage
in business transactions with Seller/Servicer only on terms and
conditions that the Trustee, acting on behalf of Purchaser,
believes are at arm's-length and commercially reasonable.
(xv) Seller/Servicer will not be insolvent at the time any conveyance,
transfer or obligation is made or incurred by it to or for the
benefit of Purchaser, and Seller/Servicer will not be rendered
insolvent as a result thereof. Seller/Servicer will not engage
in any business or transaction with Purchaser after which the
property remaining with Seller/Servicer will be unreasonably
small in relation to its business. At the time of any transfer
to or for the benefit of Purchaser, Seller/Servicer will not
intend to incur, and will not incur, debts that would be beyond
the ability of Seller/Servicer to pay as such debts matured.
Purchaser will not be insolvent at the time any conveyance,
transfer or obligation is made or incurred by Purchaser to or for
the benefit of Seller/Servicer, and Purchaser will not be
rendered insolvent as a result thereof. Purchaser will not
engage in any business or transaction with Seller/Servicer after
which the property remaining with Purchaser or Seller/Servicer
will be unreasonably small in relation to the business of
Purchaser or
<PAGE>
June __, 1995
Page 9
Seller/Servicer. At the time of any transfer to or for the
benefit of Seller/Servicer or Purchaser, neither Seller/Servicer
nor Purchaser will intend to incur, or will incur, debts that
would be beyond the ability of Seller/Servicer or Purchaser to
pay as such debts matured.
(xvi) When Seller/Servicer effects any conveyance, transfer, or
obligation to or for the benefit of Purchaser, Seller/Servicer
will receive fair consideration and reasonably equivalent value
in exchange for such conveyance, transfer or obligation.
Purchaser will receive fair consideration and reasonably
equivalent value in exchange for any conveyance, transfer or
obligation to or for the benefit of Seller/Servicer.
(xvii) Seller/Servicer and Purchaser have not concealed and will not
conceal from any interested party any transfers of the Purchased
Conservation Investment Assets. Seller/Servicer and Purchaser
have not removed or concealed, and will not remove or conceal,
from creditors any of the Purchased Conservation Investment
Assets and have not participated and will not participate in
removing or concealing the assets of any other entity.
Seller/Servicer and Purchaser are not entering into the
Transaction with the intent of hindering, delaying, or defrauding
any of their respective creditors.
(xviii) There is not and will not be any other agreement between
Seller/Servicer and Purchaser that supplements or otherwise
modifies the agreements of Seller/Servicer and Purchaser as
expressed in the Specified Documents.
III. DISCUSSION
A. TRUE SALE
The commencement of a bankruptcy case creates an estate.(2) As a general
rule, a debtor's estate is comprised of all legal and equitable interests of the
debtor, as of
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(2) 11 U.S.C. Section 541(a)
<PAGE>
June __, 1995
Page 10
the commencement of .the case.(3) The converse of this rule is that property in
which the debtor holds no legal or equitable interest, as of the commencement of
the case, is not property of the estate(4) and, absent some other basis for the
court's jurisdiction, is not subject to the jurisdiction of the bankruptcy
court.(5)
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(3) ID. For a general discussion of the concept of property of the estate,
SEE 4 COLLIER ON BANKRUPTCY ch. 541, at 541-1 to 541-20 (15th ed.).
(4) Indeed, the legislative history of section 541(a)(1) of the Code
contains many references to the so-called "shelter principle" of property law--
that the transferee takes no greater interest than that held by the transferor.
Discussing claims that the debtor holds against others that are transferred to
the bankruptcy estate, the House and Senate reports comment:
For example, if the debtor has a claim that is barred at the
time of commencement of the case by the statute of
limitations, then the trustee would not be able to pursue that
claim, because he too would be barred. HE COULD TAKE NO
GREATER RIGHTS THAN THE DEBTOR HIMSELF HAD.
H.R. Rep. No. 595, 95th Cong., 1st Sess. 367-68 (1977) ("House Report"); Senate
Report at 82 (emphasis added). "To the extent [a legal or equitable interest]
is limited in the hands of the debtor, it is equally limited in the hands of the
estate." Senate Debate on Compromise Bill, 124 Cong. Rec. S17413 (daily ed.
October 6, 1978) (statement of Sen. DeConcini). SEE also 11 U.S.C.
SectionSection 541(b), (d). Section 541(d) provides that if a debtor has only
legal title to property only that interest becomes property of its bankruptcy
estate. However, some courts have held that the debtor's estate can be expanded
through the bankruptcy trustee's use of section 544(a) of the Bankruptcy Code
even if the debtor has only legal title in the property in question. SEE, E.G.,
BELISLE V. PLUNKETT, 877 F.2d 512 (7th Cir.), CERT. DENIED, 110 S. Ct. 241
(1989); BUT SEE IN RE QUALITY HOLSTEIN LEASING, 752 F.2d 1009 (5th Cir. 1985).
(5) COMPARE IN RE CONTRACTORS EQUIP. SUPPLY CO., 861 F.2d 241, 245 (9th
Cir. 1988) ("Because the assignment involved only a security interest and did
not transfer title, [the debtor] retained an interest in the account receivable
even after [the secured creditor's] notice to [the account debtor]. This
interest was sufficient to bring the account receivable into the debtor's
reorganization estate.") (citation and footnote omitted) WITH IN RE SOUTHWEST
FREIGHT LINES. INC., 100 B.R. 551, 555 (D. Kan. 1989) (where debtor effectively
conveyed its accounts receivable to creditor pre-petition and confirmed
postpetition that it had no equity in such accounts receivable, the bankruptcy
court "was correct in holding that it lacked subject matter jurisdiction over
the accounts and that the [bankruptcy] Trustee lacked standing to bring the
adversary proceedings" to attempt to collect the accounts).
<PAGE>
June __, 1995
Page 11
Whether and the extent to which a debtor's interest in property is part of
its bankruptcy estate are governed by the Bankruptcy Code.(6) The substantive
parameters of such legal and equitable interests, however, are generally
governed by applicable nonbankruptcy law.(7) Thus, whether a transaction
constitutes a true sale of assets to another entity or a secured loan to or from
that entity will be determined not by the provisions of the Bankruptcy Code but,
instead, by applicable state or other nonbankruptcy law. Therefore, the
determination of whether the bankruptcy estate of Seller/Servicer would include
the Purchased Conservation
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(6) SEE, E.G., IN RE CRYSEN/MONTENAY ENERGY CO., 902 F.2d 1098, 1101 (2d
Cir. 1990) (citing IN RE HOWARD'S APPLIANCE CORP., 874 F.2d 88, 93 (2d Cir.
1989)).
(7) This principle that the bankruptcy estate is comprised of the property
interests that the debtor has under state law is firmly rooted in the cases. In
BUTNER V. UNITED STATES, 440 U.S. 48 (1979), a case under the former Bankruptcy
Act, a bankruptcy trustee disputed a second position mortgage holder's right to
rents. The trustee argued that a federal rule of equity should give the
bankruptcy estate the right to keep the rents. The Supreme Court disagreed:
Property interests are created and defined by state law.
Unless some federal interest requires a different result,
there is no reason why such interests should be analyzed
differently simply because an interested party is involved in
a bankruptcy proceeding. Uniform treatment of property
interests by both state and federal courts within a State
serves to reduce uncertainty, to discourage forum shopping,
and to prevent a party from receiving a "windfall merely by
reason of the happenstance of bankruptcy."
BUTNER, 440 U.S. at 55 (quoting LEWIS V. MANUFACTURERS NATIONAL BANK, 364 U.S.
603, 609 (1961)). The principle of BUTNER, that state law defines interests
included in property of the bankruptcy estate, is well recognized under the
Code. SEE PATTERSON V. SHUMATE, 112 S. Ct. 2242, 2246-47 (1992); BARNHILL V.
JOHNSON, 112 S. Ct. 1386, 1389 (1992) ("[i]n the absence of any controlling
federal law, 'property' and 'interests in property' are creatures of state
law"); IN RE CRYSEN/MONTENAY ENERGY CO., 902 F.2d at 1101 ("whereas federal law
instructs us that the action for the missing oil may constitute property of
Crysen's estate, state law determines whether Crysen's interest in the cause of
action is sufficient to confer on the estate a property right in the action");
CONTRACTORS EQUIP. SUPPLY, at n.4, 861 F.2d at 244 ("[w]hether a debtor in
possession has an interest in property is determined by state law") (citation
omitted); OCTAGON GAS SYSTEMS, INC. V. RIMMER, 995 F.2d 948 (10th Cir. 1993)
(characterization of interests are matters of state law); WILSON V. BARRY
ENTERPRISES, Inc., 822 F.2d 859, 861 (9th Cir. 1987) (holding that debtor's
right under California law to seek relief from forfeiture of its lease was
property of the estate). SEE ALSO Report of the Commission on the Bankruptcy
Laws of the United States, H.R. Doc. No. 93-137, 93rd Cong., 1st Sess., Pt. 1 at
194 (1973) ("[R]eference to state law is still necessary to determine property
of the debtor.").
<PAGE>
June __, 1995
Page 12
Investment Assets depends upon whether Seller/Servicer retained any interest in
those Purchased Conservation Investment Assets, under applicable nonbankruptcy
law, after Seller/Servicer sells its interests in the Purchased Conservation
Investment Assets to Purchaser.
We have determined that there is not any definitive judicial authority
conclusively characterizing transactions such as the sale of Purchased
Conservation Investment Assets by Seller/Servicer to Purchaser as a "true sale,"
on the one hand, or as a loan or some other transaction, on the other hand, and
thus our opinion in Paragraph 1 of Section I above is based on the reasoning and
subject to the limitations and qualifications in the following paragraphs. In
the absence of any such clear authority, we believe that a court would analyze
the issue under either or both of the following: (1) the principles set forth in
chapter 268 of Laws of Washington 1994, (the "Statute") codified at the Gas,
Electrical, and Water Companies Act, Sections 80.28.005, 80.28.303, 80.28.306,
and 80.28.309 of the Revised Code of Washington, and (2) general principles
enunciated in "true sale" decisions.
1. GAS, ELECTRICAL, AND WATER COMPANIES ACT, CHAPTER 80.28 REVISED CODE
OF WASHINGTON
Prior to enactment of the Statute, the Commission, as an administrative
matter, permitted a utility to spend money on qualified conservation or demand
side management expenditures ("Conservation Expenditures") for its customers and
to recover such expenditures by including them in the rate base over a 10-year
period.
Now, under the Statute, utilities may recover the Conservation Expenditures
by obtaining Commission approval of the issuance of "conservation bonds" secured
by a statutory, not regulatory, promise that the state will enforce collection
against the utility's entire customer base of all costs required to repay the
conservation bonds. The Certificates are "conservation bonds" within the
meaning of the Statute. Under the Statute, the Commission establishes a tariff
(the "Tariff") in an amount necessary to create sufficient revenues from
Customers ("Allocated Conservation Amounts") to cover all of the financing costs
of the conservation bonds. The Tariff is subject to periodic adjustment to
reflect changes in customer payment delinquencies or changes in the customer
base from those projected in establishing the Tariff. .
Under the Statute, the transfer of Purchased Conservation Investment Assets
by a utility to a "finance subsidiary" such as the Trust or the sale of the
beneficial interests in that "finance subsidiary" will be respected as a sale if
the parties so treat it
<PAGE>
June __, 1995
Page 13
in the governing documentation. True sale treatment enables the Seller/Servicer
to remove both the Purchased Conservation Investment Assets and the related
financing cost from its books for financial accounting and regulatory purposes,
which should result in lower rates to customers.
From a bankruptcy perspective, such true sale treatment is necessary to
insulate the Certificateholders from the risk that, if the Seller/Servicer seeks
bankruptcy protection, the Purchased Conservation Investment Assets could be
construed as the property of the Seller/Servicer's bankruptcy estate.
In assessing the Transaction, we believe that a bankruptcy court would
consider whether as a matter of nonbankruptcy law the Transaction is considered
a sale in light of the Statute. The Statute provides that:
[a] transfer of conservation investment assets by an electrical, gas,
or water company to a finance subsidiary, which such parties have in
the governing documentation expressly stated to be a sale or other
absolute transfer, in a transaction approved in an order issued by the
commission and in connection with the issuance by such finance
subsidiary of conservation bonds, shall be treated as a sale, and not
as a pledge or other financing, of such conservation investment
assets.
RCW Section 80.28.306(5).
The Seller/Servicer is an electrical company, and the Purchaser is a
"finance subsidiary" as that term is defined in the Statute. Under the terms of
the Pooling and Servicing Agreement, the Seller/Servicer will make, in exchange
for the Certificates, an absolute transfer of the Purchased Conservation
Investment Assets to the Trust. The Transaction will have been approved by an
order of the Commission in connection with the issuance by the Purchaser as a
finance subsidiary of conservation bonds. The Pooling and Servicing Agreement
provides that the Seller/Servicer will absolutely, unconditionally, and
irrevocably transfer any right, title or interest in the Purchased Conservation
Investment Assets to the Purchaser by relinquishing the Certificates in exchange
for payment of the purchase price, and the Pooling and Servicing Agreement
expressly states that the transfer of any right, title, or interest in the
Purchased Conservation Investment Assets to the Purchaser is a sale or other
<PAGE>
June __, 1995
Page 14
absolute transfer. As of the Closing Date, the Seller/Servicer will no longer
have any right, title or interest in the Purchased Conservation Investment
Assets other than the right to receive Servicing Fees and certain other
interests as the Servicer of the Purchased Conservation Investment Assets on
behalf of the Purchaser. As a result, a bankruptcy court properly applying the
Statute to the Transaction should come to the conclusion that the transfer of
the Purchased Conservation Investment Assets by the Seller/Servicer is "treated
as a sale, and not as a pledge or other financing" under the governing law in
Washington State. There is no case law indicating whether or not a bankruptcy
court would honor the Statute's provision for true sale treatment without
examining the underlying characteristics of the transaction.
The Statute addresses the security interest created by the Pooling and
Servicing Agreement in the event that the Transaction is recharacterized as a
pledge to secure a loan. "According the holders of conservation bonds a
preferred right to revenues of the electrical, gas, or water company, or the
provision by such company of other credit enhancement with respect to such
conservation bonds, does not impair or negate the characterization of any such
transfer as a true sale." RCW Section 80.28.306(5). The Statute is consistent
with commercial law principles that filing a UCC financing statement, for
example, may be done "for safety" while contending that the transaction is one
for which no filing is required. SEE U.C.C. Section 9-408, Comment 2.
2. "TRUE SALE" DECISIONS
We believe that a bankruptcy court may look to "true sale" nonbankruptcy
case law for guidance in determining whether or not the Transaction constituted
a true sale. Although bankruptcy courts routinely refer to state law in
deciding whether a transaction constitutes a true sale as opposed to a secured
financing, it is not always clear whether those courts are applying state law or
whether they are applying generalized principles incorporated from state law
doctrines. In addition to reviewing decisions of the Washington state courts,
we have reviewed decisions of the bankruptcy courts, and their appellate courts,
to assess and apply the principles typically applied by such courts.
Judicial reasoning in decisions that analyze the issue of whether a given
transaction constitutes a true sale or a secured loan tends to be fact-specific.
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June __, 1995
Page 15
However, two primary approaches can be distinguished.(8) Several courts have
given presumptive weight to the intent of the parties (the "First Approach").(9)
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(8) In OCTAGON GAS SYSTEMS, INC. V. RIMMER, 995 F.2d 948 (10th Cir. 1993),
the Tenth Circuit used a third approach. It found that regardless of the
parties' intent or any manifestation of objective criteria, the Article 9
characterization of the subject of a sale was dispositive: "We hold that
because, under Article 9, a sale of accounts is treated as if it creates a
security interest in the accounts, accounts sold by a debtor prior to filing for
bankruptcy remain property of the debtor's bankruptcy estate." This conclusion
is unlikely to be followed by courts in the Ninth Circuit applying existing
precedents to this transaction for at least the following reasons: (i) the
OCTAGON court ignored the parties' intent and conduct that a true sale and its
benefits be effected (SEE CONTRACTORS EQUIP. SUPPLY, 861 F.2d at 244-45); (ii)
the OCTAGON court did not observe the distinctions between true sales and
transfers for purposes of security contemplated by section 9-502(2) and 9-504(2)
of the Uniform Commercial Code and Official Comments 2 and 4 to section 9-502;
and (iii) the practical effect of a generalization of OCTAGON would be to
devastate many businesses by removing commercial certainty from a whole host of
transactions. Further, the Permanent Editorial Board for the Uniform Commercial
Code recently rejected the OCTAGON analysis through an amendment to Official
Comment 2 to section 9-102. The amendment provides in part that "[t]he
determination of whether a particular transfer of accounts or chattel paper
constitutes a sale or a transfer for security purposes (such as in connection
with a loan) is not governed by Article 9." Finally, the OCTAGON holding, based
on Article 9 of the Uniform Commercial Code, is not directly applicable to the
Transaction, where the Statute has displaced Article 9. SEE
RCW Section 80.28.306(4).
(9) Generally, with regard to courts that have adopted the First Approach,
where commercially sophisticated parties have characterized transactions as
sales and have acted consistently with that characterization, courts have been
unwilling to disturb that characterization even though the transactions may also
bear certain attributes of secured loans. Thus in IN RE KASSUBA, 562 F.2d 511
(7th Cir. 1977), the court concluded, in upholding the transaction at issue as a
sale, that the "real" intent of the parties is controlling as long as the
characterization of the transaction by the parties is supported by the facts.
Similarly, in WAKEFIELD V. GREENWAY, 141 Wash. 204 (1926), the court, in
upholding that transaction as a sale, concluded that the key factual issue was
the intent of the parties. The absolute nature of the sale, as shown by the
written instruments, would have to be rebutted by "clear and convincing"
evidence that the transaction was intended by the parties to be a secured
financing. Other Washington cases have applied this standard. E.G., PHILLIPS
V. BLASER, 13 Wn.2d 439 (1942); ALLEN V. GRAAF, 179 Wash. 431 (1934); PITTWOOD
V. SPOKANE SAVINGS AND LOAN SOCIETY, 141 Wash. 229 (1926); BEVERLY V. DAVIS, 79
Wash. 537 (1914); PARKER V. SPEEDY RE-FINANCE, 23 Wn. App. 64 (1979). Although
this standard suggests that where the parties intend a true sale, courts will
uphold the characterization of the transaction by the parties, it does leave
room for the court to analyze each such transaction on a case-by-case basis.
FOX V. PECK IRON & METAL CO., 25 B.R. 674 (Bankr. S.D. Cal. 1982). In FOX, a
court looking to the intent of the parties and using the clear and convincing
evidence test nevertheless found that the transaction at issue was a secured
financing. SEE ALSO IN RE NITE LITE INNS, 13 B.R. 900 (Bankr. S.D. Cal. 1981).
See D. de Hoyos, "The Intent of the Parties as the Primary Determinant" in
SECURITIZATION OF FINANCIAL ASSETS Section 5.03[C] (J. Kravitt, ed., 1991)
(hereinafter cited as the "Treatise") for a detailed discussion of this First
Approach.
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June __, 1995
Page 16
Other courts, seeking the "true nature" of a transaction, have regarded the
parties' intent as only one attribute of a transaction and have adopted an
approach that balances those attributes of a transaction indicative of a true
sale against those attributes indicative of a secured loan, in order to
determine whether the transaction more nearly resembles a true sale or a secured
loan (the "Second Approach").(10) Among such factors considered are: the
amount of recourse, if any, to the seller for credit and interest rate risk; the
right or obligation, if any, of the seller to repurchase the assets; and the
amount of control the seller retains, or is perceived to retain, over the
administration of the assets, post-closing. In determining how to characterize
a transaction, courts have varied in the importance attributed to each of the
foregoing factors. Courts have found transactions to be true sales, despite the
absence of notice to obligors and the continued servicing of the financial
assets by the seller.(11) Other courts, however, although usually relying on the
presence of full recourse, cited these factors in finding purported transfers to
be secured loans.(12) We are aware of only two
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(10) The court looked at the true nature of the transaction in MAJOR'S
FURNITURE MART. INC. V. CASTLE CREDIT CORP., 602 F.2d 538 (3d Cir. 1979) (where
the court concluded that the facts were indicative of a financing rather than a
true sale). Another court, IN RE EVERGREEN VALLEY RESORT, INC., 23 B.R. 659
(Bankr. D. Me. 1982), attempted to identify those factors indicative of a
security interest and those indicative of an ownership interest. Both of these
courts engaged in an analysis that balanced those attributes of the transaction
indicative of a sale against those attributes of the transaction indicative of a
secured loan. SEE Treatise Section 5.03[D] for a detailed discussion of the
Second Approach.
(11) SEE BEAR V. COBEN (IN RE GOLDEN PLAN OF CAL.), 829 F.2d 705, 709 (9th
Cir. 1986) (nonrecourse sale of financial assets; seller received fee for
servicing); STRATFORD FINANCIAL CORP. V. FINEX CORP., 367 F.2d 569, 571 (2d Cir.
1966) (full recourse sale; seller bore costs of servicing); IN RE MORTGAGE
FUNDING INC., 48 Bankr. 152, 153 (Bankr. D. Nev. 1985) (full recourse sale;
seller received fee for servicing); DEUTSCHER V. TENNESCO. INC. (IN RE SO.
INDUS. BANKING CORP.), 45 Bankr. 97 (Bankr. E.D. Tenn. 1984) (nonrecourse sale
of financial assets; seller received fee for servicing); IN RE FEDERATED DEP'T
STORES. INC. & ALLIED STORES CORP., No. 1-90-00130, slip op., at 3-4 (Bankr.
S.D. Ohio, July 26, 1990) (court noted "valid business reasons" not to notify
obligors); IN RE CARTER HAWLEY HALE STORES, No. LA 91-64140 JD, slip op. at 8
(Bankr. C.D. Cal., Apr. 8, 1991) (court noted the purchaser's ability to remove
the seller as servicer in agreed-upon circumstances); and A.B. LEWIS CO. V.
NATIONAL INVEST. CORP. OF HOUSTON, 421 S.W.2d 723, 726, 728 (Tex. Civ. App. -
Houston [14th Dist.] 1967) (full recourse sale; court noted testimony as to
seller's desire to perform servicing in order to keep in contact with customers,
in the hope of obtaining repeat business).
(12) SEE BLACKFORD V. COMMERCIAL CREDIT CORP., 263 F.2d 97, 106 (5th Cir.)
(servicing by seller is one of several factors mentioned, including full
recourse and a guaranteed rate of return), CERT. DENIED, 361 U.S. 825 (1959); IN
RE AMERICAN FIBRE CO., 206 F. 309, 317 (E.D. Ky. 1913) (full recourse sale;
court noted that the
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June __, 1995
Page 17
reported decisions holding that a transfer without any credit recourse was a
secured loan.(13)
We would expect that a court analyzing the Transaction in accordance with
the First Approach would emphasize the following, among other things:
(i) the parties to the Specified Documents have stated that they
intend the sale of the Purchased Conservation Investment Assets pursuant
thereto to be a true sale;
(ii) the Transaction is premised on the sale of Purchased Conservation
Investment Assets, pursuant to the Specified Documents, constituting a true
sale;
(iii) Seller/Servicer and Purchaser will treat such Transaction as a
sale in their financial statements and accounting records;
(iv) the parties to the Specified Documents executed the Pooling and
Servicing Agreement that conveys the Conservation Investment Assets to the
Purchaser, as opposed to security agreements, pledges, or other security
instruments to memorialize the Transaction;
(v) the parties entered into the Transaction pursuant to the Statute,
which explicitly provides that true sale treatment in the governing
documents will be honored. SEE RCW Section 80.28.306(5); and
(vi) for the reasons set forth below, the other aspects of the
Transaction are consistent with it being a true sale.
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seller bore all costs of servicing), AFF'D, 239 U.S. 568 (1916); ABELOFF V. OHIO
FIN. CO., 313 Mich. 568, 21 N.W.2d 856, 857, 861 (1946) (full recourse sale;
court noted that the seller bore all costs of servicing).
(13) IN RE ALDA COMMERCIAL CORP., 327 F. Supp. 1315 (S.D.N.Y. 1971) (even
though the purchaser had no recourse to seller for credit quality or for yield
on defaulted receivables, court found loan to have been made, apparently based
on (i) seller's control of servicing and collections, (ii) absence of notice to
obligors of the transfer, and (iii) right of the purchaser to receive a fixed
rate of return in respect of the underlying non-defaulted floating rate
receivables (i.e., a limited recourse for yield)); OCTAGON GAS SYSTEMS, INC. V.
RIMMER, 995 F.2d 948 (10th Cir. 1993) (nonrecourse nature of sale was irrelevant
to court's decision; see fn. 7 above).
<PAGE>
June __, 1995
Page 18
Accordingly, such a court would consider the sale of the Purchased Conservation
Investment Assets pursuant to the Specified Documents to be a true sale.
The following constitutes our analysis of the principal attributes of the
Transaction, pursuant to the Specified Documents, in terms similar to those we
would expect a court taking the Second Approach to adopt. Most material
attributes of the sale of Purchased Conservation Investment Assets pursuant to
the Specified Documents are indicative of a true sale under the Second Approach
as follows.
1. The Specified Documents provide that they are a true sale. Generally,
the parties' characterization of the transactions will control if supported by
the facts. See above discussion of First Approach and footnote 7.
2. The sale of the Purchased Conservation Investment Assets to Purchaser
pursuant to the Specified Documents will be booked, filed, reported, and
disclosed as a fair-market-value sale and an absolute, irrevocable and final
sale for accounting and regulatory purposes.
3. Purchaser has no recourse (save for warranties of title) to
Seller/Servicer for anything related to the acquisition of the Purchased
Conservation Investment Assets.(14)
4. The sale of the Purchased Conservation Investment Assets by
Seller/Servicer is irrevocable.
5. None of the purchase price for the Purchased Conservation Investment
Assets is deferred.
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(14) The existence of a large reserve and full recourse was important to
the MAJOR'S court in determining that the transaction in that case resembled a
secured financing. MAJOR'S FURNITURE MART. INC. V. CASTLE CREDIT CORP., SUPRA.
The MAJOR'S court indicated, however, that it was not the existence of recourse
but rather the nature and extent of such recourse that was determinative. There
are a few cases where a court has found the presence of full recourse not to
disqualify the transaction from being a true sale. SEE SAVINGS BANK V.
F.D.I.C., 668 F. Supp. 799 (S.D.N.Y. 1987); A.B. LEWIS V. NATIONAL INVESTMENT
CORP. OF HOUSTON, 421 S.W.2d 723 (Tex. Civ. Ct. App. 1967). BUT SEE 2 Gilmore,
SECURITY INTERESTS IN PERSONAL PROPERTY Section 44.4, at 1230 (1965) (where the
author says that recourse causes sale to be loan). It should be noted that
Official Comment 4 to Section 9-502 of the UCC provides "that there may be a
sale of accounts even though recourse exists."
<PAGE>
June __, 1995
Page 19
6. Specifically identifiable Purchased Conservation Investment Assets are
sold to Purchaser.
7. Seller/Servicer has no right to redeem the Purchased Conservation
Investment Assets.
8. Purchaser cannot force Seller/Servicer to repurchase the Purchased
Conservation Investment Assets.
9. It would be inequitable to Purchaser to recharacterize as a loan
Seller/Servicer's sale of Purchased Conservation Investment Assets to Purchaser.
10. The parties entered into the Transaction pursuant to the Statute,
which explicitly provides that true sale treatment in the governing documents
will be honored. SEE RCW Section 80.28.306(5)
However, a court might find that certain attributes of the Transaction
indicate that Seller/Servicer's purported sale to Purchaser should be
recharacterized as a loan. Such attributes could include the following:
(i) The Seller will also act as Servicer;
(ii) The obligors may be unaware of the transfer;
(iii) Prior to remitting collections to the Trust on a monthly basis
(or two business days after their receipt if the Seller/Servicer's long-
term debt is downgraded below investment grade), the Seller/Servicer will
have temporary possession of Trust assets;
(iv) The Seller/Servicer will collect a Servicing Fee based in part on
the investment earnings of the assets held in the Collection Account;
(v) The Seller/Servicer will have a continuing obligation to provide
utility services in order to generate the Allocated Conservation Amounts;
and
(vi) The Seller/Servicer will treat the transaction as a loan for tax
purposes.
<PAGE>
June __, 1995
Page 20
Neither the continued servicing of financial assets after the sale nor the
absence of notice of such sale to obligors will necessarily prevent true sale
treatment.(15) Seller/Servicer will have an obligation under the Pooling and
Servicing Agreement to remit all Allocated Conservation Amounts to the Trust,
but such a post-Closing Date obligation is typical of the type of obligation
that would be imposed on any account servicer; it does not constitute recourse
to the Seller/Servicer or change the character of the Transaction as a sale. If
the Purchased Conservation Investment Assets are uncollectable because a
customer fails to pay, the Trust bears the risk of such customer default.
Similarly, the Seller/Servicer's temporary possession of Trust assets and
its right to retain investment earnings as a Servicing Fee should not convince a
bankruptcy court to treat the sale as a loan. Section 541(d) of the Bankruptcy
Code governs property in which the debtor, in the capacity of servicer
subsequent to a sale, holds only legal title but not an equitable interest.
Such property does not become property of the debtor's bankruptcy estate to the
extent the debtor does not hold an equitable interest. In enacting this
section, Congress recognized that the seller of mortgages in the secondary
mortgage market will often retain the servicing function. (16) We believe that
this principle should be extended to sales of other assets whereby the
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(15) See fn.10 above. In the event a Bankruptcy court deemed the Sale to
be a loan, there is a possibility that it might apply the doctrine of BENEDICT
V. RATNER, 268 U.S. 353 (1925), and its Washington progeny, PETERSON V. NATIONAL
DISCOUNT CORP., 179 Wn. 108 (1934) and FALES CO. V. SEIPLE, 171 Wn. 630 (1933).
These cases hold that an otherwise valid security agreement may be deemed
fraudulent, preferential or otherwise invalid against other creditors where the
debtor still exercises "dominion" over the collateral. Section 9-205 of the UCC
explicitly rejected the rule of BENEDICT V. RATNER. See cmts. 1 and 4 to
Section 9-205. However, since the Statute governing this transaction displaces
Article 9, there is a slight risk that a court finding a non-sale transaction
would resuscitate the BENEDICT doctrine. This risk is tempered by the general
recognition that the BENEDICT doctrine is inconsistent with present commercial
practices, as evidenced by the official comments to section 9-205. Even if the
BENEDICT doctrine were applied, the Pooling and Servicing Agreement provides
that the TRUSTEE shall have dominion and control over the Purchased Assets. The
Seller/Servicer will not be given dominion over or unfettered use of these
assets, but rather will merely hold temporary possession of these assets to
collect them and transfer them to the Trust.
(16) "The purpose of section 541(d) as applied to the secondary mortgage
market is therefore to make certain that secondary mortgage market sales as they
are currently structured are not subject to challenge by bankruptcy trustees and
that purchasers or mortgages will be able to obtain the mortgages or interests
in mortgages which they have purchased from trustees WITHOUT THE TRUSTEES
ASSERTING THAT A SALE OF A MORTGAGES IS A LOAN FROM THE PURCHASER TO THE
SELLER." 124 Cong. Rec. S 17,413 (October 6, 1978) (emphasis added).
<PAGE>
June __, 1995
Page 21
seller retains the servicing function.(17) However, section 541(d) will not
protect the investor where the underlying transfer in fact constitutes a
loan.(18)
The fact that the Seller/Servicer will treat the Transaction as a loan for
tax purposes would not prevent true sale treatment for bankruptcy purposes.
Although a transaction's tax consequences may be a factor for bankruptcy
purposes, another factor that the bankruptcy court should have before it would
be the statement in the Statute that a transfer expressly stated in the
governing documentation to be a sale or other absolute transfer shall be treated
as a true sale. RCW Section 80.28.306.5. In light of this state law, we
believe that a bankruptcy court would emphasize factors different from those a
tax court would emphasize, and therefore would not find tax treatment conclusive
on the true sale issue.(19) Accordingly, we do not consider such factors
weighing against a true sale characterization to be persuasive in comparison to
those which support a true sale characterization.
IV. CERTAIN QUALIFICATIONS
We wish to note that the existing reported decisional authority is not
conclusive as to the relative weight to be accorded to the factors present in
the Transaction and does not provide consistently applied general principles or
guidelines with which to analyze all of the factors present in the Transaction.
Instead, judicial decisions in this area are usually made on the basis of an
analysis of the facts and circumstances of the particular case. Furthermore,
there are facts and circumstances present in the Transaction which we believe to
be relevant to our conclusion but which, because of the particular facts at
issue in the reported cases, are not generally
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(17) Courts have recognized that section 541(d) extends beyond the mere
mortgage seller/servicer example. SEE, E.G., VINEYARD V. MCKENZIE (IN RE
QUALITY HOLSTEIN LEASING), 752 F.2d 1009, 1013-14 (5th Cir. 1985); WISCONSIN V.
REESE (IN RE KENNEDY & COHEN, INC., 612 F.2d 963 (5th Cir. 1980), CERT. DENIED,
449 U.S. 833 (1980).
(18) SEE, E.G., FIREMEN'S FUND INSURANCE COS. V. GROVER (IN RE WOODSON
CO.), 813 F.2d 266 (9th Cir. 1987) (finding true debtor-creditor relationship,
with no equitable interests held by investors, where debtor guaranteed investors
against all risks).
(19) SEE, E.G., COMMISSIONER V. LINCOLN SAVINGS & LOAN ASS'N, 403 U.S. 345,
355 (1971); COLORADO SPRINGS NATIONAL BANK V. UNITED STATES, 505 F.2d 1185 (10th
Cir. 1974); IN RE CHATEAUGAY CORP., 102 B.R. 335 (Bankr. S.D.N.Y. 1989).
<PAGE>
June __, 1995
Page 22
discussed in the reported cases as being material factors. Moreover, the
authorities we have examined contain certain cases and authorities that are
arguably inconsistent with our conclusions expressed herein.
In the event that Seller/Servicer were to become a debtor under the
Bankruptcy Code and it were asserted that the beneficial interest in and legal
title to the Purchased Conservation Investment Assets are part of a bankruptcy
estate, we express no opinion as to how long Purchaser could be precluded from
exercising remedies with respect to the Seller/Servicer or with respect to the
Purchased Conservation Investment Assets before the validity of such an
assertion could be finally decided. We also express no opinion as to whether,
in the event it were asserted that the beneficial interest in and legal title to
any of the Purchased Conservation Investment Assets and the collections are part
of Seller/Servicer's bankruptcy estate, a court would permit such entities to
use collections from the Purchased Conservation Investment Assets in
Seller/Servicer's claimed possession without the consent of Purchaser, either
before deciding the issue or pending appeal after a decision adverse to
Purchaser.
Notwithstanding any provisions of the documents in the Transaction, to the
effect that such documents state that they reflect the entire understanding of
the parties with respect to the matters described therein, the courts of the
State of Washington may consider extrinsic evidence of the circumstances
surrounding the entering into of such documents to ascertain the intent of the
parties in using the language employed in the documents, regardless of whether
the meaning of the language used in the documents is plain and unambiguous on
its face, and may determine that additional and supplemental terms can be
incorporated into the Specified Documents or the other documents in the
Transaction.
To the extent that proceeds of the Purchased Conservation Investment Assets
are in the possession of the Seller/Servicer at such time as Seller/Servicer
becomes a debtor under the Bankruptcy Code, the right of Purchaser to take any
action to obtain possession of such Purchased Conservation Investment Assets
from the estate of the Seller/Servicer is subject to Section 362(a)(3) of the
Bankruptcy Code and accordingly relief from Section 362(a)(3) of the Bankruptcy
Code would be required prior to taking such action.
We also express no opinion as to the availability or effect of a
preliminary injunction, temporary restraining order or other such temporary
relief affording delay
<PAGE>
June __, 1995
Page 23
pending a determination on the merits. By such reservation, however, we do not
imply that we believe that such equitable relief would ultimately be available
to prevent enforcement of the Transaction.
All of the foregoing analysis and its conclusions are premised upon, and
limited to, the law and the documents evidencing and governing the Transaction
in effect as of the date of this letter. Furthermore, we note that a court's
decision regarding matters upon which we opine herein is based on the court's
own analysis and interpretation of the factual evidence before the court and of
applicable legal principles.
Our opinions are subject to the effect of general principles of equity,
including, without limitation, limitations on the availability of equitable
remedies and concepts of materiality, reasonableness, good faith and fair
dealing, and other similar doctrines affecting the enforceability of agreements
generally (regardless of whether considered in a proceeding in equity or at
law).
Our opinions are limited to the specific issues addressed and are limited
in all respects to laws and facts existing on the date of this letter. We
express no opinion on any other aspect of federal bankruptcy laws, including,
without limitation, laws of voidable preferences, fraudulent transfers,
unauthorized postpetition transfers, improper setoff, or the like. The opinions
set forth above are given as of the date hereof and we disavow any undertaking
or obligation to advise you of any changes in law or any facts or circumstances
that may hereafter occur or come to our attention that could affect such
opinions. This opinion letter is to be interpreted in accordance with the
special report by the TriBar Opinion Committee, OPINIONS IN THE BANKRUPTCY
CONTEXT: RATING AGENCY, STRUCTURED FINANCING, AND CHAPTER 11 TRANSACTIONS, 46
Bus. Law. 718 (Feb. 1991).
This opinion (1) is being furnished to the parties to whom it is addressed;
(2) may be relied on by the parties to whom it is addressed solely in connection
with statistical ratings of the Certificates; and (3) may not be relied upon by
any such entity in any other context.
Very truly yours,
<PAGE>
BEFORE THE WASHINGTON UTILITIES AND
TRANSPORTATION COMMISSION
In the Matter of the Application of,
DOCKET NO. UE-950195
PUGET SOUND POWER & LIGHT COMMISSION DECISION AND ORDER
COMPANY APPROVING STIPULATION;
GRANTING APPLICATION
For Approval of (1) Conservation
Asset Transaction under the
Washington Conservation
Financing Statute and
(2) Proposed Tariff Revisions
and Rate Mechanism
- -----------------------------------------
SUMMARY
PROCEEDINGS: This application is in two parts: First, a request by Puget
Sound Power & Light Company (Puget or company) for approval of a Conservation
Asset Transaction(1) (Transaction) and a Pooling and Service Agreement
(Agreement); Second, a request by the company for tariff revisions to its
Schedule 80 to support the Transaction. On April 17, 1995, the parties filed a
Stipulation for Approval of Application (Stipulation), stipulating that the
Transaction and Agreement be approved, with a prescribed sharing of the
Transaction benefits, and stipulating that the tariff revisions also be
approved.
HEARINGS: The Commission held a prehearing conference in this matter on
March 23, 1995. The Commission held a hearing to consider the Stipulation on
April 26, 1995, before Chairman Sharon L. Nelson, Commissioner Richard Hemstad,
Commissioner William R. Gillis, and Administrative Law Judge Elmer E. Canfield
of the Office of Administrative Hearings.
APPEARANCES: James M. Van Nostrand, attorney, Bellevue represents
applicant Puget Sound Power and Light Company. Robert D. Cedarbaum, assistant
attorney general, Olympia, represents the Staff of the Washington Utilities and
Transportation Commission. Donald T. Trotter, Assistant Attorney General,
Seattle, appeared as Public Counsel.
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(1) The proposed transaction would implement the Washington Conservation
Financing Statute, Ch. 268, Laws 1994, codified at RCW 80.28.303, and
RCW 80.28.309.
<PAGE>
DOCKET NO. UE-950195 PAGE 2
SUMMARY: The Commission accepts the Stipulation for Approval of
Application as filed, allowing the company to finance the full amount of its
unamortized conservation investment that is being recovered in rates as of the
closing date of the Transaction. Estimated savings from the Transaction are
$22.7 million. $19.9 million, about 87% of the savings, will be passed through
to the company's ratepayers. The remaining savings will benefit shareholders.
MEMORANDUM
I. SCOPE OF PROCEEDINGS
On February 16, 1995, the company filed with the Commission an application
for approval of a proposed Conservation Asset Transaction and a Pooling and
Service Agreement under RCW 80.28.005, .303, and .309. The Transaction includes
the establishment of the Puget Power Conservation Grantor Trust 1995-1(1995-1
Trust), the sale and transfer to the 1995-1 Trust of conservation investment
assets arising from expenditures by the company on customer conservation
measures, and the issuance by the 1995-1 Trust of up to $207,781,412 of
certificates evidencing interests in the conservation investment assets. The
company also requested approval of tariff revisions to Puget's Schedule 80 to
support the proposed Transaction, and a methodology and mechanism for
periodically revising Schedule 80. Finally, the application sought
authorization to defer the costs associated with the Transaction for inclusion
in future rates.
The Commission set the matter for hearing and convened a prehearing
conference on March 23, 1995. A Prehearing Conference Order was served
March 24, 1995, which established an accelerated schedule for the proceeding.
On April 17, 1995, the parties presented a Stipulation for Approval of
Application, which requested a hearing on April 26, 1995, and a Commission order
by May 1, 1995.
II. SETTLEMENT PROPOSAL
The parties' Stipulation for Approval of Application is summarized as
follows:
* The parties agree that approval of the application, subject to
the conditions described below, is in the public interest and will
establish 1) the company's conservation expenditures as bondable
conservation investment, 2) the terms and conditions of the Transaction as
reasonable, and 3) the Transaction as more favorable to the company's
ratepayers than other reasonably available alternatives.
<PAGE>
DOCKET NO. UE-950195 PAGE 3
* The company may include in this financing the full amount of its
unamortized conservation investment that is being recovered in rates as of
the closing date of the Transaction.
* The company estimates that the Transaction will reduce the cost
of financing existing conservation investments by approximately
$22.7 million. Beginning January 1, 1996, the company will reduce monthly
deferrals recorded under the periodic rate adjustment mechanism (PRAM) to
reflect the reduction in financing costs, calculated by taking the
difference between 11.83% and the actual cost rate of the certificates
issued pursuant to the Transaction. About 87% of the savings, or
approximately $19.9 million, will be passed through to ratepayers under
this approach.
* The company is authorized to defer the actual transaction costs
associated with the Transaction. The company shall begin amortizing such
transaction costs as of the date of closing of the Transaction. The
schedule for amortizing such costs shall be directly proportional to the
amortization of the conservation investment refinanced in the Transaction.
* The company will cease to earn a 2% increment above the rate of
return on common equity otherwise allowed by RCW 80.28.260(1) as of the
earlier of October 1, 1995, or the effective date of rates set in the
company's next general rate increase case or PRAM proceeding.
* The company will file tariff revisions to its Schedule 80,
General Rules and Provisions, in the form proposed in the application.
III. COMMISSION DISCUSSION AND DECISION
The Commission acknowledges the time and effort that went into
accomplishing this settlement. The settlement of matters before the Commission
is encouraged because it eliminates the need for protracted litigation, and
saves both time and money for all parties. In this case, especially, earlier
execution of the Transaction will increase its benefits by its earlier
application to a larger amount of conservation expenditures. This is a case of
first impression and we appreciate the thoughtful work of each party in ensuring
that the Commission has a basis for the findings required by statute, and for
the finding that the Transaction will in fact provide benefits to both
ratepayers and shareholders.
The Commission has had the opportunity to examine the Stipulation, the
exhibits submitted into evidence, and the testimony of company and Commission
Staff witnesses, and to ask questions of counsel and the witnesses. The parties
have
<PAGE>
DOCKET NO. UE-950195 PAGE 4
responded to a Commission bench request; their responses establish the factual
basis in this record for the findings required by RCW 81.28.005, .303, and .309.
The Commission believes the proposed Stipulation is consistent with the public
interest, meets the statutory test for bondable conservation investment, and
should be accepted.
FINDINGS OF FACT
1. The Washington Utilities and Transportation Commission is an agency of
the state of Washington, vested by statute with authority to regulate rates,
rules, regulations, practices, accounts, securities, and transfers of public
service companies, including electric companies.
2. Puget Sound Power and Light Company is engaged in the business of
furnishing electric service within the state of Washington.
3. On February 16, 1995, Puget filed an application requesting approval
of a proposed Conservation Asset Transaction and a Pooling and Service Agreement
under RCW 80.28.005, .303, and .309. The company also requested approval of
tariff revisions to its Schedule 80 to support the proposed Transaction, and
approval of a methodology and mechanism for periodically revising Schedule 80.
Finally, the application sought authorization to defer the costs associated with
the Transaction for inclusion in future rates.
4. On April 17, 1995, the parties filed a Stipulation for Approval of
Application. The Stipulation was endorsed by Puget, Commission Staff, and
Public Counsel. The Stipulation recommends the Commission approve the company's
application to establish the 1995-1 Trust and refinance the conservation assets,
subject to certain conditions. The Stipulation is attached as Appendix A and
incorporated by this reference.
5. The conservation assets are bondable conservation investment under
RCW 80.28.005. The conservation measures and services do not produce assets
that would be otherwise bondable under Puget's general utility mortgage.
6. The expenditures were made pursuant to Schedule 83, an approved
conservation service tariff.
7. The amount of the company's unamortized conservation investment being
recovered in rates as of the closing date of the Transaction can be designated
as bondable conservation investment. These expenditures were incurred in
conformity with the requirements of the company's conservation service tariff
(Schedule 83) in effect at the time the costs were incurred. For conservation
investment included in
<PAGE>
DOCKET NO. UE-950195 PAGE 5
rate base in the company's most recent general rate increase case (Docket
Nos. UE-921262, et. al.), the Commission had determined these expenditures to be
prudently incurred when the amounts were included in rate base in prior general
rate increase proceedings of the company. For conservation investment included
in rate base in the PRAM 4 proceeding (Docket No. UE-940728), such expenditures
are designated as bondable conservation investment pursuant to RCW 80.28.309.
The Commission has permitted recovery of conservation investment in rate base
and not as an expense item.
8. The terms and conditions of the financing are reasonable and will
result in financing more favorable to ratepayers than other reasonably available
alternatives and will result in reduced financing costs.
9. The Commission has placed no specific requirements for performance of
the conservation investments.
10. The bonds are issued only to finance the conservation investment found
to be bondable. The bonds rely wholly or in part on the conservation investment
assets and the revenues arising from those assets for repayment.
11. The 1995-1 Trust is a financing subsidiary under RCW 80.28.005(4). It
is an appropriate means of implementing the Washington Conservation Financing
Statute.
12. The form of tariff revisions proposed by the company to Schedule 80
will allocate revenues to the 1995-1 Trust and are necessary to implement the
Statute. To obtain the most favorable financing terms for the company and its
ratepayers, it is necessary to approve a mechanism that will periodically revise
Schedule 80 to reflect a shortfall or surplus in collections. Appendix C to the
company's application sets forth an appropriate methodology and timing mechanism
for performing this periodic tariff revision. Appendix C is also incorporated
by this reference.
13. The proposed Transaction is in the public interest. The specific
terms and conditions of the proposed Transaction, as set forth in the Agreement
and its attachments, and as modified by the Stipulation, are reasonable and will
result in financing more favorable to ratepayers than other reasonably available
alternatives.
CONCLUSIONS OF LAW
1. The Washington Utilities and Transportation Commission has
jurisdiction over the subject matter of this application and the parties.
<PAGE>
DOCKET NO. UE-950195 PAGE 6
2. The conservation assets qualify as bondable conservation investment
under the definitions in chapter 80.28 RCW.
3. The contract selling the conservation assets to the 1995-1 Trust
should be approved.
4. The application should be approved, subject to the conditions set
forth in the parties' Stipulation.
ORDER
THE COMMISSION ORDERS:
1. Subject to the conditions set forth in the Stipulation, the Commission
approves the Conservation Asset Transaction and the Pooling and Service
Agreement proposed by the company under the Washington Conservation Financing
Statute, which includes: the establishment of the 1995-1 Trust; authorization
under chapter 80.12 RCW to sell and transfer to the 1995-1 Trust the purchased
assets; and issuance by the 1995-1 Trust of certificates representing the amount
of the company's unamortized conservation investment being recovered in rates as
of the closing date of the Transaction.
2. Beginning January 1, 1996, the company shall reduce monthly deferrals
recorded under the PRAM to reflect the reduction in financing costs at that time
as a result of the Transaction.
3. The Commission approves the form of tariff revisions proposed by the
company to its Schedule 80 to allocate revenues to the 1995-1 Trust, in an
aggregate amount equal to the Conservation Asset Transaction Amount, in
accordance with the provisions of the Statute. Upon closing of the Transaction,
when the actual terms of the financing are known, the company shall file tariff
revisions in the form proposed in the application.
4. The Commission approves the methodology and mechanism for periodically
revising Schedule 80, as set forth in the Agreement and pursuant to the
procedures set forth in Appendix C to the company's application.
5. The Commission authorizes the company to defer the transaction costs
associated with the Conservation Asset Transaction for inclusion in future
rates, subject to the conditions set forth in paragraph II.4. of the
Stipulation.
6. As to conservation investment incurred prior to 1991, the company
shall cease to earn a 2% increment above the rate of return on common equity
otherwise allowed the company, as authorized by RCW 80.28.260(1), after the
earlier of October 1, 1995, or the effective date of rates set in the company's
next general rate increase case or PRAM proceeding, in accordance with
paragraph II.5. of the Stipulation.
<PAGE>
DOCKET NO. UE-950195 PAGE 7
7. The Commission retains jurisdiction to effectuate the provisions of
this Order.
DATED at Olympia, Washington, and effective this 1st day of May 1995.
WASHINGTON UTILITIES AND
TRANSPORTATION COMMISSION
/s/ Sharon L. Nelson
SHARON L. NELSON, Chairman
/s/ Richard Hemstad
RICHARD HEMSTAD, Commissioner
/s/ William R. Gillis
WILLIAM R. GILLIS, Commissioner
NOTICE TO PARTIES:
THIS IS A FINAL ORDER OF THE COMMISSION. IN ADDITION TO JUDICIAL REVIEW,
ADMINISTRATIVE RELIEF MAY BE AVAILABLE THROUGH A PETITION FOR RECONSIDERATION,
FILED WITHIN 10 DAYS OF THE SERVICE OF THIS ORDER PURSUANT TO RCW 34.05.470 AND
WAC 480-09-810, OR A PETITION FOR REHEARING PURSUANT TO RCW 80.04.200 OR RCW
81.04.200 AND WAC 480-09-820(1).
<PAGE>
APPENDIX A
BEFORE THE
WASHINGTON UTILITIES AND TRANSPORTATION
COMMISSION
In the Matter of the Application of:
DOCKET NO. UE-950195
PUGET SOUND POWER & LIGHT STIPULATION FOR APPROVAL OF
COMPANY APPLICATION
For Approval of (1) Conservation
Asset Transaction under the
Washington Conservation
Financing Statute and
(2) Proposed Tariff Revisions
and Rate Mechanism
- -----------------------------------------
I. INTRODUCTION
On February 16, 1995, Puget Sound Power & Light Company ("the Company")
filed an Application requesting the Washington Utilities and Transportation
Commission to approve a proposed Conservation Asset Transaction (the
"Transaction") and a Pooling and Service Agreement under RCW 80.28.005,
RCW 80.28.303 and RCW 80.28.309. The Transaction includes the establishment of
the Puget Power Conservation Grantor Trust 1995-1 (the "Trust"), the sale and
transfer to the Trust of conservation investment assets arising from
expenditures by the Company on customer conservation measures, and the issuance
by the Trust of up to $207,781,412 of certificates evidencing interests in the
conservation investment assets. The Company's Application also requested
approval of tariff revisions to its Schedule 80 to support the proposed
Transaction, and of a methodology and mechanism for periodically revising
Schedule 80. The Company's Application also sought authorization to defer the
transaction costs associated with the Transaction for inclusion in future rates.
In a Notice of Prehearing Conference issued March 9, 1995, the Commission
set the matter for hearing and convened a Prehearing Conference on March 23 1995
Subsequent to the Prehearing Conference, the Company, Staff and Public Counsel
(individually, a "Party," and collectively, the "Parties") have engaged in
discussions regarding the issues identified by Staff at the Commission's Open
Public Meeting on March 8, 1995 and other issues in this proceeding. The
conditions set forth in this
page 1
<PAGE>
Stipulation are the product of these discussions. The Parties therefore adopt
the following Stipulation for Commission approval of the Company's Application
in this proceeding.
II. STIPULATION
The Parties hereby agree and stipulate as follows:
1. APPROVAL OF TRANSACTION
The Patties recommend that the Commission approve the Company's
Application, subject to the conditions set forth below. A Commission order
approving the Company's Application with these conditions will be in the public
interest, will establish the Company's conservation expenditures as Bondable
Conservation Investment, will establish the terms and conditions of the
Transaction as reasonable, and will establish the Transaction as more favorable
to the Company's customers than other reasonably available alternatives.
2. AMOUNT TO BE FINANCED
The Company may include in this financing the full amount of its
unamortized conservation investment which is being recovered in rates as of the
closing date of the Transaction. The Parties agree that this investment can be
designated as Bondable Conservation Investment inasmuch as:
(a) For conservation investment included in rate base as of the
conclusion of the Company's last general rate case (Docket Nos. UE-921262
et. al.), the Commission determined that the expenditures were prudently
incurred; and
(b) For conservation investment included in the PRAM 4 proceeding
(Docket No. UE-940728), there is a basis for the Commission to find
pursuant to RCW 80.28.309 that such expenditures may be designated as
Bondable Conservation Investment.
3. PASS-THROUGH OF SAVINGS FROM TRANSACTION
The Company estimates that the Transaction will reduce the cost of
financing existing conservation investments by about $22.7 million over the
remaining life of those investments, assuming a cost rate of 8.75% for the
Certificates and a Transaction closing date of July 1, 1995. Beginning
January 1, 1996, the Company shall reduce monthly deferrals recorded under the
PRAM to reflect the reduction in financing costs at that time as a result of the
Transaction, as calculated according to
PAGE 2
<PAGE>
the difference between 11.83%(1) and the actual cost rate of the Certificates
issued pursuant to the Transaction.(2) The cost rate will be derived using a
"yield to maturity" calculation incorporating the Certificate rate and actual
transaction costs (the typical calculation used to derive such a rate). Such
reductions in the deferrals shall continue until the effective date of rates set
in the Company's next general rate proceeding.
4. TRANSACTION COSTS
(a) DEFERRAL AND AMORTIZATION. The Company is authorized to defer the
actual transaction costs associated with the Transaction. The Company shall
begin amortizing such transaction costs as of the date of closing of the
Transaction. The schedule for amortizing such costs shall be directly
proportional to the amortization of the conservation investment refinanced in
the Transaction.
(b) AMOUNT. Transaction costs incurred by the Company in connection with
the Transaction shall be subject to review in the Company's next general rate
proceeding; provided, however, that any adjustment shall be prospective only,
i.e., shall be effective only as to the unamortized balance of such transaction
costs at such time.
5. CONSERVATION INCENTIVE
As to conservation investment incurred prior to 1991, the Company will
cease to earn a 2% increment above the rate of return on common equity otherwise
allowed the Company, as authorized by RCW 80.28.260(1), after the earlier to
occur of (a) October 1, 1995 or (b) the effective date of rates set in the
Company's next general rate or PRAM proceeding.
6. TARIFF REVISIONS
The Company will file tariff revisions to its Schedule 80, General Rules &
Provisions, in the form proposed in the Application. Such tariff revisions will
reflect the actual terms of the Transaction once they are known, and shall
become effective as of the closing date of the Transaction. The Parties agree
to waiver of statutory
- ---------------------------
(1) The Company's pre-tax authorized rate of return.
(2) About 8% of the savings, or approximately $19.9 million, would be
passed through to customers under this approach, using the same assumptions
regarding the cost rate and Transaction closing date.
PAGE 3
<PAGE>
notice to permit such tariff revisions to become effective on less than thirty
(30) days' notice.
7. WAIVER OF NOTICE
The Parties agree to waive any applicable time limits for issuance of a
notice of hearing for presentation of this Stipulation. The Parties request
that a hearing be convened on April 26, 1995 for presentation of the
Stipulation.
8. COMMISSION ACTION ON STIPULATION
This Stipulation is offered in this proceeding as the joint, exclusive
recommendation of the Parties with respect to the issues set forth herein. The
Parties have negotiated this Stipulation as an integrated document, and
therefore recommend that the Commission accept this Stipulation in its entirety.
In the event the Stipulation:
(i) is rejected in its entirety by the Commission, or
(ii) is rejected in part by the Commission and any Party notifies the
Commission and the remaining Parties within two (2) business days
thereafter that the Stipulation is no longer applicable to that Party,
the Parties propose that the following procedures apply and at the following
times after the Rejection Date (rejection under (i) or notification under (ii)
above):
(a) STAFF AND PUBLIC COUNSEL TESTIMONY will be filed one week after
the Rejection Date;
(b) COMPANY REBUTTAL TESTIMONY will be filed two weeks after the
Rejection Date; and
(c) HEARING will be convened (for purposes of receiving all
testimony, with cross-examination, and oral argument) on the later to occur of
(1) one month after the Rejection Date or (2) the originally scheduled hearing
dates in this proceeding (May 23 and May 25).
9. OTHER MATTERS
(a) NO PRECEDENT. This Stipulation is a negotiated settlement which the
Parties agree satisfies the statutory standards of RCW 80.28.005, RCW 80.28.303
and RCW 80.28.309. By executing this Stipulation, no Party shall be deemed to
have accepted or consented to the facts, principles, methods or theories
employed in
PAGE 4
<PAGE>
arriving at such a Stipulation. The Parties agree that terms of this
Stipulation will not be cited by or against any Party in any other proceeding in
which a public service company under Commission jurisdiction seeks to implement
the provisions of these statutes.
(b) EXECUTION. This Stipulation may be executed by the Parties in several
counterparts and as executed shall constitute one agreement.
(c) NECESSARY ACTIONS. Each Party shall take all actions necessary and
appropriate to enable it to carry out this Stipulation.
III. CONCLUSION
The Company, Staff and Public Counsel jointly submit this Stipulation for
Commission Approval of the Application, and request that the Commission issue an
order approving the Application, including the necessary findings, no later than
May 1, 1995. The Parties will present the Stipulation at a hearing which we
request be convened on April 26, 1995. Counsel and representatives from each
Party will be available at that time to respond to questions from the Commission
concerning the Stipulation.
DATED this 17th day of April, 1995.
PUGET SOUND POWER STAFF OF THE WASHINGTON UTILITIES
& LIGHT COMPANY AND TRANSPORTATION COMMISSION
By: /S/ JAMES M. NOSTRAND By: /S/ ROBERT D. CEDARBAUM
----------------------------- -------------------------------
James M. Nostrand Robert D. Cedarbaum
Counsel for Puget Sound Power & Assistant Attorney General
Light Company Counsel for Commission Staff
PUBLIC COUNSEL SECTION,
OFFICE OF THE ATTORNEY
GENERAL
By: /S/ DONALD T. TROTTER
-----------------------------
Donald T. Trotter
Assistant Attorney General
Public Counsel Section
PAGE 5