<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 7, 1998
REGISTRATION NO. 333-51241
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
POTOMAC ELECTRIC POWER DISTRICT OF COLUMBIA AND 53-0127880
COMPANY VIRGINIA NOT APPLICABLE
POTOMAC ELECTRIC POWER DELAWARE (I.R.S. EMPLOYER
COMPANY TRUST I (STATE OR OTHER IDENTIFICATION NO.)
(EXACT NAME OF ISSUER AS JURISDICTION OF
SPECIFIED IN ITS CHARTER) INCORPORATION OR
ORGANIZATION)
--------------
1900 PENNSYLVANIA AVENUE, N.W.
WASHINGTON, D.C. 20068
(202) 872-2000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
PRINCIPAL EXECUTIVE OFFICES)
--------------
ELLEN SHERIFF ROGERS
ASSOCIATE GENERAL COUNSEL, SECRETARY AND ASSISTANT TREASURER
POTOMAC ELECTRIC POWER COMPANY
1900 PENNSYLVANIA AVENUE, N.W.
WASHINGTON, D.C. 20068
(202) 872-3526
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
--------------
COPIES TO:
D. MICHAEL LEFEVER, ESQ. VINCENT J. PISANO, ESQ.
COVINGTON & BURLING SKADDEN, ARPS, SLATE,
1201 PENNSYLVANIA AVENUE, N.W. MEAGHER & FLOM LLP
WASHINGTON, D.C. 20004 919 THIRD AVENUE
(202) 662-6000 NEW YORK, NY 10022
(212) 735-3000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after the effective date of this Registration Statement.
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If the only securities being registered on this Form are to be offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, please check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier registration statement for the
same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
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 IN THIS PRELIMINARY PROSPECTUS SUPPLEMENT IS SUBJECT TO +
+COMPLETION OR AMENDMENT. THIS PRELIMINARY PROSPECTUS SUPPLEMENT AND THE +
+ACCOMPANYING PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE +
+SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS SUPPLEMENT DATED MAY 7, 1998
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED , 1998)
5,000,000 PREFERRED SECURITIES
POTOMAC ELECTRIC POWER COMPANY TRUST I
% TRUST ORIGINATED PREFERRED SECURITIESSM ("TOPRSSM")
(LIQUIDATION AMOUNT $25 PER PREFERRED SECURITY)
FULLY AND UNCONDITIONALLY GUARANTEED BY
POTOMAC ELECTRIC POWER COMPANY
--------------
The % Trust Originated Preferred SecuritiesSM (the "TOPrSSM" or the
"Preferred Securities") offered hereby constitute preferred securities of, and
represent undivided preferred beneficial interests in the assets of, Potomac
Electric Power Company Trust I, a statutory business trust formed under the
laws of the State of Delaware (the "Trust"). Potomac Electric Power Company, a
District of Columbia and Virginia corporation ("PEPCO"), will own all of the
common securities representing undivided beneficial interests in the assets of
the Trust (the "Common Securities" and, together with the Preferred Securities,
the "Trust Securities"). The Trust exists for the sole purpose of issuing the
Trust Securities and investing the proceeds thereof in an equivalent amount of
% Junior Subordinated Deferrable Interest Debentures due 2038 (the "Junior
Subordinated Debentures") of PEPCO. The Junior Subordinated Debentures will
mature on , 2038 (the "Stated Maturity").
(continued on next page)
--------------
SEE "RISK FACTORS" BEGINNING ON PAGE S-4 OF THIS PROSPECTUS SUPPLEMENT FOR
CERTAIN INFORMATION RELEVANT TO AN INVESTMENT IN THE PREFERRED SECURITIES,
INCLUDING THE PERIOD AND CIRCUMSTANCES DURING AND UNDER WHICH PAYMENTS OF
DISTRIBUTIONS ON THE PREFERRED SECURITIES MAY BE DEFERRED AND THE RELATED
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF SUCH DEFERRAL.
Application will be made to list the Preferred Securities on the New York
Stock Exchange (the "NYSE"). Trading of the Preferred Securities on the NYSE is
expected to commence within a 30-day period after the initial delivery of the
Preferred Securities. See "Underwriting."
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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 SUPPLEMENT OR THE PROSPECTUS TO WHICH
IT RELATES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO THE
PRICE TO PUBLIC(1) COMMISSION(2) TRUST(3)(4)
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<S> <C> <C> <C>
Per Preferred Security....... $25 (3) $25
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Total........................ $125,000,000 (3) $125,000,000
</TABLE>
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(1) Plus accrued distributions, if any, from , 1998.
(2) The Trust and PEPCO have agreed to indemnify the several Underwriters
against certain liabilities, including liabilities under the Securities Act
of 1933, as amended. See "Underwriting."
(3) In view of the fact that the proceeds of the sale of the Preferred
Securities will be invested in the Junior Subordinated Debentures, PEPCO
has agreed to pay to the Underwriters as compensation (the "Underwriters'
Compensation") for their arranging the investment therein of such proceeds
$ per Preferred Security ($ in the aggregate). See "Underwriting."
(4) Before deducting expenses of the offering which are payable by PEPCO
estimated at $350,000.
--------------
The Preferred Securities offered hereby are offered severally by the
Underwriters, as specified herein, subject to receipt and acceptance by them
and subject to their right to reject any order in whole or in part. It is
expected that delivery of the Preferred Securities, which will be made only in
book-entry form through the facilities of The Depository Trust Company, will
occur on or about , 1998.
--------------
MERRILL LYNCH & CO.
A.G. EDWARDS & SONS, INC.
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
SALOMON SMITH BARNEY
--------------
The date of this Prospectus Supplement is , 1998.
(SM)"Trust Originated Preferred Securities" and "TOPrS" are service marks of
Merrill Lynch & Co.
<PAGE>
(Continued from previous page)
The Junior Subordinated Debentures will be unsecured obligations of PEPCO
and will be subordinate and junior in right of payment to certain other
indebtedness of PEPCO, as described herein. Upon an event of default under the
Declaration (as defined herein), the holders of Preferred Securities will have
a preference over the holders of the Common Securities with respect to
distributions and payments upon redemption, liquidation and otherwise.
The Preferred Securities will be represented by one or more Global
Certificates (as defined herein) registered in the name of the nominee of The
Depository Trust Company ("DTC"), and interests in the Preferred Securities
will be shown on, and transfers thereof will be effected only through, records
maintained by DTC and its participants. Except as otherwise described herein,
Preferred Securities in certificated form will not be issued. Settlement for
the Preferred Securities will be made in immediately available funds. The
Preferred Securities will trade in DTC's Same-Day Funds Settlement System, and
secondary market trading activity for the Preferred Securities will therefore
settle in immediately available funds. See "Description of the Preferred
Securities--Book-Entry Only Issuance--The Depository Trust Company."
Holders of the Preferred Securities are entitled to receive cumulative cash
distributions at an annual rate of % of the liquidation amount of $25 per
Preferred Security, accruing from the date of original issuance and payable
quarterly in arrears on March 1, June 1, September 1 and December 1 of each
year, commencing September 1, 1998. The payment of distributions out of moneys
held by the Trust and payments on liquidation of the Trust or the redemption
of Preferred Securities are guaranteed by PEPCO to the extent described herein
and under "Description of the Preferred Securities Guarantee" in the
accompanying Prospectus (the "Guarantee"). The Guarantee covers payments of
distributions and other payments on the Preferred Securities only if and to
the extent that the Trust has funds available therefor, which will not be the
case unless PEPCO has made a payment of principal or interest on the Junior
Subordinated Debentures held by the Trust as its sole asset. The Guarantee,
when taken together with PEPCO's obligations under the Junior Subordinated
Debentures and the Indenture (as defined herein) and its obligations under the
Declaration, including its obligation to pay costs, expenses, debts and
liabilities of the Trust (other than with respect to the Trust Securities),
provides a full and unconditional guarantee on a subordinated basis of amounts
payable on the Preferred Securities. See "Risk Factors--Rights Under the
Guarantee" herein. The obligations of PEPCO under the Guarantee are
subordinate and junior in right of payment to all other liabilities of PEPCO
(except those made pari passu or subordinate by their terms) and rank pari
passu with the most senior preferred or preference stock, if any, issued from
time to time by PEPCO. The obligations of PEPCO under the Junior Subordinated
Debentures are subordinate and junior in right of payment to all present and
future Senior Indebtedness and Other Financial Obligations (each as defined
herein) of PEPCO, which aggregated approximately $2.3 billion at December 31,
1997, and rank pari passu with PEPCO's obligations to its other general
unsecured creditors. The Junior Subordinated Debentures purchased by the Trust
may be subsequently distributed pro rata to holders of the Preferred
Securities and Common Securities in connection with the liquidation of the
Trust.
The distribution rate and the distribution payment date and other payment
dates for the Preferred Securities will correspond to the interest rate and
interest payment date and other payment dates on the Junior Subordinated
Debentures, which will be the sole assets of the Trust. As a result, if
principal or interest is not paid on the Junior Subordinated Debentures, no
amounts will be paid on the Preferred Securities. If PEPCO does not make
principal or interest payments and other payments on the Junior Subordinated
Debentures, the Trust will not have sufficient funds to make distributions and
other payments on the Preferred Securities. In such event, the Guarantee will
not apply to such distributions and other payments until the Trust has
sufficient funds available therefor.
So long as PEPCO shall not be in default in the payment of interest on the
Junior Subordinated Debentures, PEPCO has the right to defer payments of
interest on the Junior Subordinated Debentures by extending from time to time
the interest payment period on the Junior Subordinated Debentures for up to 20
consecutive quarters (each, an "Extension Period"), provided that an Extension
Period may not extend beyond the Stated Maturity of the Junior Subordinated
Debentures. If interest payments are so deferred, distributions on the
Preferred Securities
S-2
<PAGE>
correspondingly will be deferred. During such Extension Period, interest on
the Junior Subordinated Debentures will continue to accrue, together with
interest thereon (to the extent permitted by applicable law) at an annual rate
of % per annum, compounded quarterly, and holders of Preferred Securities
will be required to include such accrued amounts in their gross income for
United States federal income tax purposes in advance of receipt of the cash
distributions with respect to such deferred interest. See "United States
Federal Income Taxation--Interest Income and Original Issue Discount." There
can be multiple Extension Periods of varying lengths throughout the term of
the Junior Subordinated Debentures. See "Description of the Junior
Subordinated Debentures--Option to Extend Interest Payment Period" and "Risk
Factors--Option to Extend Interest Payment Period."
The Trust Securities will be subject to mandatory redemption (i) in whole
but not in part, on repayment of the Junior Subordinated Debentures at Stated
Maturity, (ii) in whole or in part, on or after , 2003, contemporaneously with
the optional prepayment by PEPCO of an equivalent amount of the Junior
Subordinated Debentures and (iii) in whole but not in part, at any time prior
to , 2003, contemporaneously with the optional prepayment of the Junior
Subordinated Debentures within 90 days after the occurrence of a Tax Event (as
defined herein), in each case at a redemption price of $25 per Trust Security,
plus accrued and unpaid distributions thereon to the date of payment. The
Junior Subordinated Debentures will be prepayable prior to the Stated Maturity
at the option of PEPCO (i) in whole or in part, from time to time, on or after
, 2003, or (ii) in whole but not in part, at any time prior to ,
2003, within 90 days after the occurrence of a Tax Event, in either case at a
prepayment price equal to 100% of the principal amount thereof (the
"Prepayment Price"), plus accrued and unpaid interest thereon to the date of
prepayment. See "Description of the Junior Subordinated Debentures--Optional
Prepayment."
PEPCO will have the right at any time to liquidate the Trust and cause the
Junior Subordinated Debentures to be distributed to the holders of the Trust
Securities. PEPCO has no present intention to take such action. If the Junior
Subordinated Debentures are distributed to the holders of the Preferred
Securities, PEPCO will use its best efforts to have the Junior Subordinated
Debentures listed on the NYSE or on such other exchange as the Preferred
Securities are then listed. See "Description of the Preferred Securities--
Distribution of the Junior Subordinated Debentures" and "Description of the
Junior Subordinated Debentures."
In the event of the involuntary or voluntary dissolution, winding-up or
termination of the Trust, the holders of the Preferred Securities will be
entitled to receive for each Preferred Security a liquidation amount of $25,
plus accrued and unpaid distributions thereon to the date of payment, unless,
in connection therewith, the Junior Subordinated Debentures are distributed to
the holders of the Preferred Securities. See "Description of the Preferred
Securities--Liquidation Distribution Upon Dissolution."
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE PREFERRED
SECURITIES. SUCH TRANSACTIONS MAY INCLUDE STABILIZING TRANSACTIONS, THE
PURCHASE OF PREFERRED SECURITIES TO COVER SYNDICATE SHORT POSITIONS AND THE
IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
The information contained in this Prospectus Supplement supplements, and
should be read in conjunction with, the information contained in the
accompanying Prospectus.
S-3
<PAGE>
RISK FACTORS
Prospective purchasers of Preferred Securities should carefully review the
information contained elsewhere in this Prospectus Supplement and in the
accompanying Prospectus and should particularly consider the following
matters.
RANKING OF SUBORDINATE OBLIGATIONS UNDER THE GUARANTEE AND JUNIOR SUBORDINATED
DEBENTURES
PEPCO's obligations under the Guarantee are unsecured and rank subordinate
and junior in right of payment to all other liabilities of PEPCO (except those
made pari passu or subordinate by their terms) and rank pari passu with the
most senior preferred or preference stock, if any, issued from time to time by
PEPCO. The obligations of PEPCO under the Junior Subordinated Debentures are
subordinate and junior in right of payment to all present and future Senior
Indebtedness and Other Financial Obligations of PEPCO and rank pari passu with
PEPCO's obligations to its other general unsecured creditors. No payment may
be made of the principal or interest on the Junior Subordinated Debentures, or
in respect of any redemption, retirement, purchase or other acquisition of any
of the Junior Subordinated Debentures, at any time when (i) there is a default
in the payment of the principal of, premium, if any, interest on or otherwise
in respect of any Senior Indebtedness, whether at maturity or at a date fixed
for prepayment or by declaration or otherwise, or (ii) any event of default
with respect to any Senior Indebtedness has occurred and is continuing, or
would occur as a result of such payment on the Junior Subordinated Debentures
or any redemption, retirement, purchase or other acquisition of any of the
Junior Subordinated Debentures, permitting the holders of such Senior
Indebtedness (or a trustee on behalf of the holders thereof) to accelerate the
maturity thereof. As of December 31, 1997, Senior Indebtedness and Other
Financial Obligations of PEPCO aggregated approximately $2.3 billion. There
are no terms in the Preferred Securities, the Junior Subordinated Debentures
or the Guarantee that limit PEPCO's ability to incur additional indebtedness,
including indebtedness which ranks senior to the Junior Subordinated
Debentures and the Guarantee. See "Description of the Preferred Securities
Guarantee--Status of the Preferred Securities Guarantee" and "Description of
the Junior Subordinated Debentures" in the accompanying Prospectus, and
"Description of the Junior Subordinated Debentures--Subordination" herein.
RIGHTS UNDER THE GUARANTEE
The Guarantee will be qualified as an indenture under the Trust Indenture
Act (as defined herein). The Bank of New York will act as indenture trustee
under the Guarantee for the purposes of compliance with the provisions of the
Trust Indenture Act (the "Guarantee Trustee"). The Guarantee Trustee will hold
the Guarantee for the benefit of the holders of the Preferred Securities.
The Guarantee guarantees to the holders of the Preferred Securities the
payment by PEPCO of (i) any accrued and unpaid distributions that are required
to be paid on the Preferred Securities, to the extent the Trust has funds
available therefor, (ii) the redemption price and all accrued and unpaid
distributions to the date of payment with respect to Preferred Securities
called for redemption by the Trust, to the extent the Trust has funds
available therefor, and (iii) upon a voluntary or involuntary dissolution,
winding-up or termination of the Trust (other than in connection with the
distribution of Junior Subordinated Debentures to the holders of Preferred
Securities or the redemption of all the Preferred Securities), the lesser of
(a) the aggregate liquidation amount and all accrued and unpaid distributions
on the Preferred Securities to the date of the payment, to the extent the
Trust has funds available therefor and (b) the amount of assets of the Trust
remaining available for distribution to holders of the Preferred Securities in
liquidation of the Trust. The holders of a majority in liquidation amount of
the Preferred Securities have the right to direct the time, method and place
of conducting any proceeding for any remedy available to the Guarantee Trustee
or to direct the exercise of any trust or power conferred upon the Guarantee
Trustee under the Guarantee. Notwithstanding the foregoing, any holder of
Preferred Securities may institute a legal proceeding directly against PEPCO
to enforce the Guarantee Trustee's rights and the obligations of PEPCO under
the Guarantee without first instituting a legal proceeding against the Trust,
the Guarantee Trustee or any other person or entity. If PEPCO were to default
on its obligation to pay amounts payable on the Junior Subordinated
Debentures, the Trust would lack available funds for the payment of
distributions or
S-4
<PAGE>
amounts payable on redemption of the Preferred Securities and, in such event,
holders of the Preferred Securities would not be able to rely upon the
Guarantee for payment of such amounts. Instead, each holder of the Preferred
Securities would rely on the enforcement (1) by the Institutional Trustee (as
defined herein) of its rights as registered holder of the Junior Subordinated
Debentures against PEPCO pursuant to the terms of the Indenture and the Junior
Subordinated Debentures or (2) by such holder of its right against PEPCO to
enforce payments on the Junior Subordinated Debentures. See "Description of
the Preferred Securities Guarantee" and "Description of the Junior
Subordinated Debentures" in the accompanying Prospectus. The Declaration
provides that each holder of Preferred Securities, by acceptance thereof,
agrees to the provisions of the Guarantee, including the subordination
provisions thereof, and of the Indenture.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF PREFERRED SECURITIES
If a Declaration Event of Default (as defined herein) occurs and is
continuing, then the holders of Preferred Securities would rely on the
enforcement by the Institutional Trustee, as a holder of the Junior
Subordinated Debentures, of its rights against PEPCO. In addition, the holders
of a majority in liquidation amount of the Preferred Securities will have the
right to direct the time, method, and place of conducting any proceeding for
any remedy available to the Institutional Trustee or to direct the exercise of
any trust or power conferred upon the Institutional Trustee under the
Declaration, including the right to direct the Institutional Trustee to
exercise the remedies available to it as a holder of the Junior Subordinated
Debentures. If the Institutional Trustee fails to enforce its rights under the
Junior Subordinated Debentures, after a holder of Preferred Securities has
made a written request, such holder of Preferred Securities may institute a
legal proceeding directly against PEPCO to enforce the Institutional Trustee's
rights under the Junior Subordinated Debentures without first instituting any
legal proceeding against the Institutional Trustee or any other person or
entity. Notwithstanding the foregoing, if a Declaration Event of Default has
occurred and is continuing, and such event is attributable to the failure of
PEPCO to pay interest or principal on the Junior Subordinated Debentures on
the date such interest or principal is otherwise payable (or in the case of
redemption, on the redemption date), then a holder of Preferred Securities may
directly institute a proceeding for enforcement of payment to such holder of
the principal of or interest on the Junior Subordinated Debentures having a
principal amount equal to the aggregate liquidation amount of the Preferred
Securities of such holder (a "Direct Action"). Except as provided in the
Guarantee, the holders of Preferred Securities will not be able to exercise
directly any other remedy available to the holders of the Junior Subordinated
Debentures. See "Description of the Preferred Securities--Declaration Events
of Default."
OPTION TO EXTEND INTEREST PAYMENT PERIOD
So long as PEPCO shall not be in default in the payment of interest on the
Junior Subordinated Debentures, PEPCO has the right under the Indenture to
defer payments of interest on the Junior Subordinated Debentures by extending
from time to time the interest payment period on the Junior Subordinated
Debentures. As a consequence of such an extension, quarterly distributions on
the Preferred Securities would be deferred during any such Extension Period
(but would continue to accrue, despite such deferral, with interest thereon at
an annual rate of % per annum, compounded quarterly). Any such extension of
the interest payment period for the Junior Subordinated Debentures may
continue for up to 20 consecutive quarters, but may not extend beyond the
Stated Maturity of the Junior Subordinated Debentures. During any Extension
Period, (i) PEPCO shall not declare or pay any dividend on, make any
distribution with respect to, or redeem, purchase or acquire or make a
liquidation payment with respect to, any of its capital stock (other than
(a) purchases or acquisitions of shares of the common stock, par value $1.00
per share, of PEPCO (the "PEPCO Common Stock"), in connection with the
satisfaction by PEPCO of its obligations under any employee benefit plans or
any other contractual obligation of PEPCO (other than a contractual obligation
ranking pari passu with or junior to the Junior Subordinated Debentures) or
(b) the purchase of fractional interests in shares of PEPCO's capital stock
pursuant to the conversion or exchange provisions of such PEPCO capital stock
or the security being converted or exchanged), (ii) PEPCO shall not make any
payment of interest, principal or premium, if any, on or repay, repurchase or
redeem any debt securities issued by PEPCO that rank pari passu with or junior
to the Junior Subordinated Debentures and (iii) PEPCO shall not make any
guarantee payments with respect to the foregoing (other than pursuant to the
Guarantee). Prior to the termination of any such Extension Period, PEPCO may
further defer payments by extending the interest payment
S-5
<PAGE>
period; provided that such Extension Period, including all such previous and
further extensions thereof, may not exceed 20 consecutive quarters or extend
beyond the Stated Maturity of the Junior Subordinated Debentures. Upon the
termination of any Extension Period and the payment of all amounts then due,
PEPCO may commence a new Extension Period. See "Description of the Preferred
Securities--Distributions" and "Description of the Junior Subordinated
Debentures--Option to Extend Interest Payment Period."
Should PEPCO exercise its right to defer payments of interest by extending
the interest payment period, each holder of Preferred Securities will be
required to accrue income (as original issue discount ("OID")) in respect of
the deferred stated interest allocable to its Preferred Securities for United
States federal income tax purposes, which will be allocated but not
distributed to holders of record of Preferred Securities. As a result, each
such holder of Preferred Securities will recognize income for United States
federal income tax purposes in advance of the receipt of cash and will not
receive the cash from the Trust related to such income if such holder disposes
of its Preferred Securities prior to the record date for the date on which
distributions of such amounts are made. PEPCO has no current intention of
exercising its right to defer payments of interest by extending the interest
payment period on the Junior Subordinated Debentures. However, should PEPCO
determine to exercise such right in the future, the market price of the
Preferred Securities is likely to be affected. A holder that disposes of its
Preferred Securities during an Extension Period, therefore, might not receive
the same return on its investment as a holder that continues to hold its
Preferred Securities. In addition, as a result of the existence of PEPCO's
right to defer interest payments, the market price of the Preferred Securities
(which represent an undivided beneficial interest in the Junior Subordinated
Debentures) may be more volatile than other securities on which OID accrues.
See "United States Federal Income Taxation--Sales of Preferred Securities."
DISTRIBUTION OR REDEMPTION OF THE JUNIOR SUBORDINATED DEBENTURES
PEPCO will have the right at any time to terminate the Trust and, after
satisfaction of claims of creditors as provided by applicable law, to cause
the Junior Subordinated Debentures to be distributed to the holders of the
Trust Securities. In certain circumstances, PEPCO also will have the right to
redeem the Junior Subordinated Debentures, in whole or in part, in which event
the Trust is obligated redeem the Trust Securities on a pro rata basis to the
same extent as the Junior Subordinated Debentures are redeemed by PEPCO.
Under current United States federal income tax law, a distribution of Junior
Subordinated Debentures upon the liquidation of the Trust would not be a
taxable event to holders of the Preferred Securities. If, however, the Trust
is characterized for United States federal income tax purposes as an
association taxable as a corporation at the time of dissolution of the Trust,
the distribution of the Junior Subordinated Debentures may constitute a
taxable event to holders of Preferred Securities. A liquidation of the Trust
in which holders of the Preferred Securities receive cash would be a taxable
event to such holders. See "United States Federal Income Taxation--Receipt of
Junior Subordinated Debentures or Cash Upon Liquidation of the Trust."
There can be no assurance as to the market prices of the Junior Subordinated
Debentures that may be distributed in exchange for Preferred Securities if a
liquidation of the Trust were to occur. Accordingly, the Junior Subordinated
Debentures may trade at a discount to the price that the investor paid to
purchase the Preferred Securities offered hereby. Because holders of Preferred
Securities may receive Junior Subordinated Debentures, prospective purchasers
of Preferred Securities are also making an investment decision with regard to
the Junior Subordinated Debentures and should carefully review all the
information regarding the Junior Subordinated Debentures contained herein and
in the accompanying Prospectus. See "Description of the Preferred Securities--
Distribution of the Junior Subordinated Debentures" herein and "Description of
the Junior Subordinated Debentures" herein and in the accompanying Prospectus.
S-6
<PAGE>
LIMITED VOTING RIGHTS
Holders of Preferred Securities will have only limited voting rights and
will not be entitled to vote to appoint, remove or replace, or to increase or
decrease the number of, Trustees (as defined herein) of the Trust, which
voting rights are vested exclusively in PEPCO, as the holder of the Common
Securities. See "Description of the Preferred Securities--Voting Rights."
TRADING PRICE
The Preferred Securities may trade at a price that does not fully reflect
the value of accrued but unpaid interest with respect to the underlying Junior
Subordinated Debentures. A holder who uses the accrual method of accounting
for tax purposes (and a cash method holder, if the Junior Subordinated
Debentures are treated as issued with OID) and who disposes of his Preferred
Securities between record dates for payments of distributions thereon will be
required to include accrued but unpaid interest on the Junior Subordinated
Debentures through the date of disposition in income as ordinary income (i.e.,
interest or, possibly, OID), and to add such amount to his adjusted tax basis
in his pro rata share of the underlying Junior Subordinated Debentures deemed
disposed of. To the extent the selling price is less than the holder's
adjusted tax basis (which will include all accrued but unpaid interest), a
holder will recognize a capital loss. Subject to certain limited exceptions,
capital losses cannot be applied to offset ordinary income for United States
federal income tax purposes. See "United States Federal Income Taxation--
Interest Income and Original Issue Discount" and "--Sales of Preferred
Securities."
LACK OF ESTABLISHED TRADING MARKET FOR PREFERRED SECURITIES
The Preferred Securities constitute a new issue of securities with no
established trading market. Application will be made to list the Preferred
Securities on the NYSE. Trading of the Preferred Securities on the NYSE is
expected to commence within a 30-day period after the initial delivery of the
Preferred Securities. There can be no assurance that an active market for the
Preferred Securities will develop or be sustained in the future on such
exchange. Although the Underwriters have indicated to PEPCO and the Trust that
they intend to make a market in the Preferred Securities, as permitted by
applicable laws and regulations prior to the commencement of trading on the
NYSE, they are not obligated to do so and may discontinue any such
marketmaking at any time without notice. Accordingly, no assurance can be
given as to the liquidity of, or trading markets for, the Preferred
Securities.
CONSEQUENCES OF HIGHLY LEVERAGED TRANSACTION
The Indenture does not contain provisions that afford holders of the Junior
Subordinated Debentures protection in the event of a highly leveraged
transaction, including a change of control, or other similar transactions
involving PEPCO that may adversely affect such holders.
S-7
<PAGE>
POTOMAC ELECTRIC POWER COMPANY
GENERAL
Potomac Electric Power Company, a District of Columbia and Virginia
corporation, is engaged in the generation, transmission, distribution and sale
of electric energy in the Washington, D.C. metropolitan area, including the
District of Columbia and major portions of Montgomery and Prince George's
Counties in Maryland. It also supplies, at wholesale, electric energy to the
Southern Maryland Electric Cooperative, Inc., which distributes electricity in
Calvert, Charles, Prince George's and St. Mary's Counties in southern
Maryland. PEPCO's wholly-owned nonutility subsidiary, Potomac Capital
Investment Corporation ("PCI"), was organized in late 1983 to provide a
vehicle to conduct PEPCO's ongoing nonutility business and investment
programs. PCI's principal investments consist of equipment leases and
marketable securities, primarily preferred stock with mandatory redemption
features, and real estate. PCI is also involved with activities which provide
telecommunication and energy services. The mailing address of PEPCO's
executive offices is 1900 Pennsylvania Avenue, N.W., Washington, D.C. 20068,
and its telephone number is (202) 872-2000.
THE TRUST
The Trust is a statutory business trust formed under the Delaware Business
Trust Act (the "Business Trust Act") pursuant to (i) a declaration of trust,
dated as of April 24, 1998, executed by PEPCO, as sponsor (the "Sponsor"), and
the trustees of the Trust (the "Trustees") and (ii) the filing of a
certificate of trust with the Secretary of State of the State of Delaware on
April 24, 1998. Such declaration will be amended and restated in its entirety
(as so amended and restated, the "Declaration"), substantially in the form
filed as an exhibit to the Registration Statement of which this Prospectus
Supplement and the accompanying Prospectus form a part. The Declaration will
be qualified as an indenture under the Trust Indenture Act of 1939, as amended
(the "Trust Indenture Act"). Upon issuance of the Preferred Securities, the
purchasers thereof will own all of the outstanding Preferred Securities. See
"Description of the Preferred Securities--Book-Entry Only Issuance--The
Depository Trust Company." PEPCO will directly or indirectly acquire Common
Securities in an aggregate liquidation amount equal to at least three percent
of the total capital of the Trust. The Trust exists for the exclusive purposes
of (i) issuing the Trust Securities representing undivided beneficial
interests in the assets of the Trust, (ii) investing the gross proceeds from
the sale of the Trust Securities in the Junior Subordinated Debentures and
(iii) engaging in only those other activities necessary or incidental thereto.
Pursuant to the Declaration, the number of Trustees will initially be five.
Three of the Trustees (the "Regular Trustees") will be persons who are
employees or officers of PEPCO. The fourth trustee will be a financial
institution that is unaffiliated with PEPCO, which will serve as the
institutional trustee under the Declaration and as indenture trustee for the
purposes of compliance with the provisions of the Trust Indenture Act (the
"Institutional Trustee"). Initially, The Bank of New York will be the
Institutional Trustee. For purposes of compliance with the provisions of the
Trust Indenture Act, The Bank of New York also will act as the Guarantee
Trustee and as Debt Trustee (as defined herein) under the Indenture. The fifth
trustee will be an entity that maintains its principal place of business in
the state of Delaware (the "Delaware Trustee"). Initially, The Bank of New
York (Delaware), an affiliate of the Institutional Trustee, will act as
Delaware Trustee. See "Description of the Preferred Securities Guarantee" in
the accompanying Prospectus and "Description of the Preferred Securities--
Voting Rights" herein.
The Institutional Trustee will hold title to the Junior Subordinated
Debentures for the benefit of the holders of the Trust Securities and will
have the power to exercise all rights, powers and privileges under the
Indenture of the holder of the Junior Subordinated Debentures. In addition,
the Institutional Trustee will maintain exclusive control of a segregated,
non-interest bearing bank account (the "Institutional Account") that will
hold, for the
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<PAGE>
benefit of the holders of the Trust Securities, all payments made by PEPCO in
respect of the Junior Subordinated Debentures. The Institutional Trustee will
make payments of distributions and payments on liquidation, redemption and
otherwise to the holders of the Trust Securities out of funds from the
Institutional Account. The Guarantee Trustee will hold the Guarantee for the
benefit of the holders of the Preferred Securities. PEPCO, as the holder of
all the Common Securities, will have the right to appoint, remove or replace
any Trustee and to increase or decrease the number of Trustees. PEPCO will pay
all fees and expenses related to the Trust and of the offering of the Trust
Securities.
The rights of the holders of the Preferred Securities, including economic
rights, rights to information and voting rights, are set forth in the
Declaration, the Business Trust Act and the Trust Indenture Act. See
"Description of the Preferred Securities."
S-9
<PAGE>
SELECTED FINANCIAL INFORMATION
The following is a selection of certain consolidated financial information
of the Company which was derived from, and is qualified in its entirety by,
the audited consolidated financial statements contained in the Company's
Annual Report on Form 10-K for the year ended December 31, 1997, which is
available as described herein under "Incorporation of Certain Documents by
Reference."
<TABLE>
<CAPTION>
12 MONTHS ENDED
--------------------------------------------
DEC. 31, DEC. 31, DEC. 31,
1997 1996 1995
-------------- -------------- --------------
(THOUSANDS OF DOLLARS EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Income Statement Data:
Total Revenue.................... $ 1,863,510 $ 2,010,311 $ 1,876,102
Operating Revenue................ 1,810,829 1,834,857 1,822,432
Net Income....................... 181,830 236,960 94,391
Earnings for Common Stock........ 165,251 220,356 77,540
Basic Earnings Per Share of
Common Stock.................... 1.39 1.86 .65
Diluted Earnings Per Share of
Common Stock.................... 1.38 1.82 .65
Balance Sheet Data at end of
period:
Property and Plant, net.......... $ 4,486,334 $ 4,423,249 $ 4,400,311
</TABLE>
<TABLE>
<CAPTION>
DEC. 31,
1997
-----------------
AMOUNT RATIO
----------- -----
(THOUSANDS)
<S> <C> <C>
Capital Structure (excluding nonutility subsidiary debt and
current maturities):
Long-Term Debt............................................ $1,901,486 47.2%
Preferred Stock........................................... 266,290 6.6
Common Equity............................................. 1,863,028 46.2
---------- -----
Total Capitalization..................................... $4,030,804 100.0%
==========
Parent Company Long-Term Debt and Preferred Stock
Redemption Due in One Year and Short-Term Debt............ $ 183,429
==========
</TABLE>
RATIOS OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
12 MONTHS ENDED
--------------------------------------------
DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31,
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Parent company only................ 2.54 3.08 3.05 3.23 3.20
Fully consolidated................. 2.03 2.24 1.52 2.37 2.31
</TABLE>
For purposes of computing the ratio of earnings to fixed charges for rate-
regulated public utilities, earnings represent net income before cumulative
effect of accounting changes plus income taxes and fixed charges. Fixed
charges represent interest charges on debt (exclusive of credits arising from
the allowance for funds used during construction) and the portion of rentals
deemed representative of the interest factor.
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<PAGE>
ACCOUNTING TREATMENT
The financial statements of the Trust will be consolidated into PEPCO's
consolidated financial statements. The Preferred Securities will be presented
as a separate line item in the consolidated balance sheets of PEPCO entitled
"Company obligated mandatorily redeemable preferred securities of subsidiary
holding solely parent debentures". PEPCO will record distributions payable on
the Preferred Securities as an expense in the consolidated statements of
income. The financial statement footnotes of PEPCO will reflect that the sole
asset of the Trust will be $128,865,980 principal amount of the Junior
Subordinated Debentures, bearing interest at % and maturing on , 2038.
All future reports filed by PEPCO under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), will present information regarding the Trust
in the manner described above. In addition, a footnote to PEPCO's audited
financial statements will be added to reflect that (i) all of the Common
Securities of the Trust are owned by PEPCO, (ii) the sole assets of the Trust
are the Junior Subordinated Debentures and (iii) the Guarantee, when taken
together with PEPCO's obligations under the Junior Subordinated Debentures and
the Indenture and its obligations under the Declaration, including its
obligations to pay costs, expenses, debts and liabilities of the Trust (other
than with respect to the Trust Securities), provide a full and unconditional
guarantee on a subordinated basis of amounts payable on the Preferred
Securities.
USE OF PROCEEDS
The Trust will use the proceeds of the sale of the Trust Securities to
acquire Junior Subordinated Debentures from PEPCO. PEPCO intends to apply the
net proceeds from the sale of the Junior Subordinated Debentures to redeem the
following series of its Serial Preferred Stock: (i) the $3.82 Series of 1969,
having an aggregate redemption amount of $25,500,000, (ii) the $3.37 Series of
1987, having an aggregate redemption amount of $42,865,856 and (iii) the $3.89
Series of 1991, having an aggregate redemption amount of $53,890,000. The
remaining proceeds will be used to refund short-term debt incurred primarily
to finance, on a temporary basis, PEPCO's utility construction program and
operations. Proceeds may be temporarily placed in short-term investments
pending the application of the proceeds as stated above.
S-11
<PAGE>
DESCRIPTION OF THE PREFERRED SECURITIES
The Preferred Securities will be issued pursuant to the terms of the
Declaration. The Declaration will be qualified as an indenture under the Trust
Indenture Act. The Bank of New York, as the Institutional Trustee, will act as
indenture trustee for the Preferred Securities under the Declaration for
purposes of compliance with the provisions of the Trust Indenture Act. The
terms of the Preferred Securities will include those stated in the Declaration
and those made part of the Declaration by the Trust Indenture Act. The
following summary of the material terms and provisions of the Preferred
Securities supplements and, to the extent inconsistent, replaces the
description set forth under the caption "Description of the Preferred
Securities" in the accompanying Prospectus. This summary, which describes the
material provisions of the Preferred Securities, does not purport to be
complete and is subject to, and qualified in its entirety by reference to, the
Declaration, a copy of which is filed as an exhibit to the Registration
Statement of which this Prospectus Supplement is a part, the Business Trust
Act and the Trust Indenture Act.
GENERAL
The Declaration authorizes the Regular Trustees to issue Trust Securities on
behalf of the Trust. All Trust Securities will represent undivided beneficial
interests in the assets of the Trust. All of the Common Securities will be
owned, directly or indirectly, by PEPCO. The Common Securities rank pari
passu, and payments will be made thereon on a pro rata basis, with the
Preferred Securities, except that upon the occurrence and during the
continuance of a Declaration Event of Default, the rights of the holders of
the Common Securities to receive distributions and payments upon liquidation,
redemption and otherwise will be subordinated to the rights of the holders of
the Preferred Securities. The Declaration does not permit the issuance by the
Trust of any securities other than the Trust Securities or the incurrence by
the Trust of any indebtedness. Pursuant to the Declaration, the Institutional
Trustee will own the Junior Subordinated Debentures purchased by the Trust for
the benefit of the holders of the Trust Securities. The payment of
distributions out of money held by the Trust, and payments upon redemption of
the Preferred Securities or liquidation of the Trust, are guaranteed by PEPCO
to the extent described under "Description of the Preferred Securities
Guarantee" in the accompanying Prospectus. The Guarantee will be held by The
Bank of New York, as Guarantee Trustee, for the benefit of the holders of the
Preferred Securities. The Guarantee does not cover payment of distributions or
other payments when the Trust does not have sufficient funds available to pay
such distributions or other payments. In such event, the remedy of a holder of
Preferred Securities is to vote to direct the Institutional Trustee to enforce
the Institutional Trustee's rights under the Junior Subordinated Debentures,
except that, in the circumstances in which there is a default in the payment
of distributions or other payments, including when the Trust does not have
sufficient available funds to pay such distributions or other payments a
holder may take Direct Action. See "Declaration Events of Default" and "Voting
Rights" below.
DISTRIBUTIONS
Distributions on the Preferred Securities will be fixed at a rate per annum
of % (the "Coupon Rate") of the stated liquidation amount of $25 per
Preferred Security (equivalent to $ per annum). Distributions in arrears for
more than one quarter will bear interest thereon (to the extent permitted by
applicable law), compounded quarterly, at a rate equal to the Coupon Rate. The
amount of distributions payable for any full quarterly period will be computed
on the basis of a 360-day year of twelve 30-day months and for any shorter
period will be computed on the basis of the actual number of days elapsed.
Distributions on the Preferred Securities will be cumulative, will accrue
from , 1998, and, except during an Extension Period, will be payable
quarterly in arrears on March 1, June 1, September 1 and December 1 of each
year, commencing September 1, 1998, when, as and if available for payment. The
initial distribution will be $ per Preferred Security and will be payable
on September 1, 1998.
So long as PEPCO shall not be in default in the payment of interest on the
Junior Subordinated Debentures, PEPCO has the right under the Indenture to
defer payments of interest on the Junior Subordinated Debentures by extending
from time to time the interest payment period on the Junior Subordinated
Debentures, which, if
S-12
<PAGE>
exercised, will correspondingly defer quarterly distributions on the Preferred
Securities. Any such extension of the interest payment period for the Junior
Subordinated Debentures may continue for up to 20 consecutive quarters, but
may not extend beyond the Stated Maturity of the Junior Subordinated
Debentures. See "Description of Junior Subordinated Debentures--Option to
Extend Interest Payment Period." During any such Extension Period, interest
will continue to accrue on the Junior Subordinated Debentures. At the end of
the Extension Period, PEPCO will be required to pay all interest then accrued,
together with interest on such deferred interest (to the extent permitted by
applicable law) at the same rate as the rate of interest on the Junior
Subordinated Debentures, compounded quarterly. Correspondingly, the quarterly
distributions on the Preferred Securities will continue to accrue, together
with interest on the deferred distributions (to the extent permitted by
applicable law) at a rate equal to the Coupon Rate, compounded quarterly. In
the event that PEPCO exercises this deferral right, then during the Extension
Period (i) PEPCO shall not declare or pay any dividend on, make any
distribution with respect to, or redeem, purchase or acquire, or make a
liquidation payment with respect to, any of its capital stock (other than (a)
purchases or acquisitions of shares of PEPCO Common Stock in connection with
the satisfaction by PEPCO of its obligations under any employee benefit plans
or any other contractual obligation of PEPCO (other than a contractual
obligation ranking pari passu with or junior to the Junior Subordinated
Debentures) or (b) the purchase of fractional interests in shares of PEPCO's
capital stock pursuant to the conversion or exchange provisions of such PEPCO
capital stock or the security being converted or exchanged), (ii) PEPCO shall
not make any payment of interest, principal or premium, if any, on or repay,
repurchase or redeem any debt securities issued by PEPCO that rank pari passu
with or junior to such Junior Subordinated Debentures and (iii) PEPCO shall
not make any guarantee payments with respect to the foregoing (other than
pursuant to the Guarantee). Prior to the termination of any such Extension
Period, PEPCO may further defer interest payments on the Junior Subordinated
Debentures by extending the interest payment period; provided that such
Extension Period, including all such previous and further extensions thereof,
may not exceed 20 consecutive quarters or extend beyond the Stated Maturity of
the Junior Subordinated Debentures. Upon the termination of any Extension
Period and the payment of all amounts then due, PEPCO may commence a new
Extension Period. See "Description of the Junior Subordinated Debentures--
Interest" and "--Option to Extend Interest Payment Period." If distributions
are deferred, the deferred distributions, and accrued but unpaid interest
thereon, will be paid on the first distribution payment date after the
Extension Period to holders of record of the Preferred Securities as they
appear on the books and records of the Trust on the record date for such
payment.
Distributions on the Preferred Securities must be paid on the dates payable
to the extent that the Trust has funds available for the payment of such
distributions in the Institutional Account. The funds available to the Trust
for distribution to the holders of the Preferred Securities will be limited to
payments received from PEPCO on the Junior Subordinated Debentures. See
"Description of the Junior Subordinated Debentures--Interest." The payment of
distributions out of moneys held by the Trust is guaranteed by PEPCO to the
extent set forth under "Description of the Preferred Securities Guarantees" in
the accompanying Prospectus.
Distributions on the Preferred Securities will be payable to the holders
thereof as they appear on the books and records of the Trust on the relevant
record dates, which will be, as long as the Preferred Securities remain in
book-entry form, one Business Day prior to the relevant payment date and, in
the event the Preferred Securities are not in book-entry form, the tenth day
of the month prior to the month in which the relevant payment date occurs.
Distributions payable on any Preferred Securities that are not punctually paid
on the applicable distribution date, as a result of PEPCO having failed to
make the corresponding interest payment on the Junior Subordinated Debentures,
will cease to be payable to the persons in whose names such Preferred
Securities are registered on the relevant record date, and such defaulted
distribution will instead be payable to the persons in whose names such
Preferred Securities are registered on the special record date established by
the Regular Trustees, which record date shall be the same date as the special
record date or other specified date established for the payment of defaulted
interest in accordance with the Indenture. Distributions on the Preferred
Securities will be paid through the Institutional Trustee, who will hold
amounts received in respect of the Junior Subordinated Debentures in the
Institutional Account for the benefit of the holders of the Trust Securities.
Subject to any applicable laws and regulations and the provisions of the
Declaration, each such payment will be made as described under "Book-Entry
Only Issuance--The Depository Trust Company" below. In the event that any
S-13
<PAGE>
date on which a distribution is to be made on the Preferred Securities is not
a Business Day, then payment of the distribution payable on such date will be
made on the next succeeding day that is a Business Day (and without any
interest or other payment in respect of any such delay), except that, if such
Business Day is in the next succeeding calendar year, such payment shall be
made on the immediately preceding Business Day, in each case with the same
force and effect as if made on the date such distribution otherwise would have
been payable. A "Business Day" shall mean any day other than Saturday, Sunday
or any other day on which banking institutions in New York, New York, are
authorized or obligated by any law, executive order or regulation to close.
REDEMPTION
The Stated Maturity of the Junior Subordinated Debentures is , 2038.
Upon the repayment of the Junior Subordinated Debentures at maturity, the
proceeds from such repayment will simultaneously be applied to redeem Trust
Securities having an aggregate liquidation amount equal to the aggregate
principal amount of the Junior Subordinated Debentures so repaid at a
redemption price of $25 per Trust Security, plus accrued and unpaid
distributions thereon to the date of payment (the "Redemption Price").
The Junior Subordinated Debentures will be prepayable prior to the Stated
Maturity at the option of PEPCO (i) in whole or in part, from time to time, on
or after , 2003, or (ii) in whole but not in part, at any time prior to
, 2003, within 90 days after the occurrence of a Tax Event, in either
case at the Prepayment Price equal to 100% of the principal amount thereof,
plus accrued and unpaid interest thereon to the date of prepayment. See
"Description of the Junior Subordinated Debentures--Optional Prepayment." Upon
such prepayment of the Junior Subordinated Debentures, the proceeds shall
simultaneously be applied to redeem Trust Securities having an aggregate
liquidation amount equal to the aggregate principal amount of the Junior
Subordinated Debentures so repaid at the Redemption Price. Not less than 30
nor more than 60 days' notice is required to be given for any redemption of
Preferred Securities. See "Description of the Junior Subordinated Debentures--
Optional Prepayment." In the event that fewer than all of the outstanding
Preferred Securities are to be redeemed, the Preferred Securities will be
redeemed pro rata as described under "Book-Entry Only Issuance--The Depository
Trust Company" below.
REDEMPTION PROCEDURES
The Trust may not redeem fewer than all of the outstanding Preferred
Securities unless all accrued and unpaid distributions have been paid on all
Trust Securities for all quarterly distribution periods terminating on or
prior to the date of redemption.
If the Trust gives a notice of redemption in respect of Preferred Securities
(which notice will be irrevocable), then on and after the redemption date,
provided that PEPCO has deposited with the Trust a sufficient amount of cash
in connection with the related maturity or redemption of the Junior
Subordinated Debentures, distributions will cease to accrue on the Preferred
Securities called for redemption, such Preferred Securities shall no longer be
deemed to be outstanding and all rights of holders of such Preferred
Securities so called for redemption will cease, except the right of the
holders of such Preferred Securities to receive the Redemption Price. If any
date fixed for redemption of Preferred Securities is not a Business Day, then
payment of the Redemption Price payable on such date will be made on the next
succeeding day that is a Business Day (and without any interest or other
payment in respect of any such delay) except that, if such Business Day falls
in the next calendar year, such payment will be made on the immediately
preceding Business Day, in each case with the same force and effect as if made
on the date fixed for redemption. If PEPCO fails to repay Junior Subordinated
Debentures at Stated Maturity or on the date fixed for prepayment thereof, or
if payment of the Redemption Price in respect of Preferred Securities is
improperly withheld or refused and not paid either by the Trust or by PEPCO
pursuant to the Guarantee, the distributions on such Preferred Securities will
continue to accrue to the date of actual payment.
The Trust is not required to (i) register the transfer or exchange of any
Trust Securities during a period beginning at the opening of business 15 days
before the mailing of a notice of redemption of Trust Securities and ending at
the close of business on the day of the mailing of a notice of redemption or
(ii) register the transfer
S-14
<PAGE>
or exchange of any Trust Securities so selected for redemption, in whole or in
part, except for the unredeemed portion of any Trust Securities being redeemed
in part.
Subject to applicable law, PEPCO or its subsidiaries may at any time, and
from time to time, purchase outstanding Preferred Securities by tender, in the
open market or by private agreement.
DISTRIBUTION OF THE JUNIOR SUBORDINATED DEBENTURES
PEPCO will have the right at any time to direct the Trustees to liquidate
the Trust and distribute the Junior Subordinated Debentures to the holders of
the Trust Securities. In such case, PEPCO will use its best efforts to cause
the Junior Subordinated Debentures to be listed on the NYSE or on such other
exchanges as the Preferred Securities are then listed.
On the date for any distribution of Junior Subordinated Debentures, (i) the
Trust Securities will no longer be deemed to be outstanding, (ii) PEPCO will
issue to the Depositary (as defined herein) or its nominee, as a recordholder
of the Trust Securities, a registered global certificate or certificates
representing the Junior Subordinated Debentures to be delivered to the
Depository or its nominee upon such distribution and (iii) any certificates
representing Trust Securities not held by the Depositary or its nominee will
be deemed to represent Junior Subordinated Debentures having an aggregate
principal amount equal to the aggregate stated liquidation amount of such
Trust Securities until such certificates are presented to PEPCO or its agent
for transfer or in exchange for Junior Subordinated Debentures.
There can be no assurance as to the market prices for either the Preferred
Securities or the Junior Subordinated Debentures that may be distributed in
exchange for the Preferred Securities if a dissolution and liquidation of the
Trust were to occur. Accordingly, the Preferred Securities or the Junior
Subordinated Debentures may trade at a discount to the price that the investor
paid to purchase the Preferred Securities.
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
In the event of any voluntary or involuntary liquidation, dissolution,
winding-up or termination of the Trust (each a "Liquidation"), the then
holders of the Preferred Securities will be entitled to receive out of the
assets of the Trust, after satisfaction of liabilities to creditors, if any,
distributions in an amount equal to the aggregate of the stated liquidation
amount of $25 per Preferred Security, plus accrued and unpaid distributions
thereon to the date of payment (the "Liquidation Distribution"), unless, in
connection with such Liquidation, Junior Subordinated Debentures in an
aggregate stated principal amount equal to the aggregate stated liquidation
amount of, and accrued and unpaid interest equal to accrued and unpaid
distributions on, the Preferred Securities shall be distributed on a pro rata
basis to the holders of the Preferred Securities.
If, upon any such Liquidation, the Liquidation Distribution can be paid only
in part because the Trust has insufficient assets available to pay in full the
aggregate Liquidation Distribution, then the amounts payable directly by the
Trust on the Preferred Securities shall be paid on a pro rata basis. The
holders of the Common Securities will be entitled to receive distributions
upon a Liquidation pro rata with the holders of the Preferred Securities,
except that if a Declaration Event of Default has occurred and is continuing,
the Preferred Securities will have a preference over the Common Securities
with regard to Liquidation Distributions.
Pursuant to the Declaration, the Trust shall terminate (i) on , 2043,
the expiration of the term of the Trust, (ii) upon the bankruptcy of PEPCO or
the Trust, (iii) upon the filing of a certificate of dissolution or its
equivalent with respect to PEPCO, the filing of a certificate of cancellation
with respect to the Trust after obtaining the consent of the holders of at
least a majority in liquidation amount of the Trust Securities, voting
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<PAGE>
together as a single class to file such certificate of cancellation, or the
revocation of the charter of PEPCO and the expiration of 90 days after the
date of revocation without a reinstatement thereof, (iv) upon the distribution
of Junior Subordinated Debentures to the holders of the Trust Securities,
(v) upon the entry of a decree of a judicial dissolution of PEPCO or the
Trust, or (vi) upon the redemption of all the Trust Securities.
DECLARATION EVENTS OF DEFAULT
An Indenture Event of Default (as defined in the accompanying Prospectus)
also constitutes an event of default under the Declaration with respect to the
Trust Securities (a "Declaration Event of Default"); provided, that pursuant
to the Declaration, the holder of the Common Securities will be deemed to have
waived any Declaration Event of Default with respect to the Common Securities
until all Declaration Events of Default with respect to the Preferred
Securities have been cured, waived or otherwise eliminated. Until a
Declaration Event of Default with respect to the Preferred Securities has been
cured, waived or otherwise eliminated, the Institutional Trustee will be
deemed to be acting solely on behalf of the holders of the Preferred
Securities and only the holders of the Preferred Securities will have the
right to direct the Institutional Trustee with respect to matters in
connection therewith as provided in the Declaration. If a Declaration Event of
Default with respect to the Preferred Securities is waived by holders of
Preferred Securities, such waiver will also constitute the waiver of such
Declaration Event of Default with respect to the Common Securities for all
purposes under the Declaration, without any further act, vote or consent of
the holders of the Common Securities.
If the Institutional Trustee fails to enforce its rights under the Junior
Subordinated Debentures after a holder of Preferred Securities has made a
written request, such holder of Preferred Securities may institute a legal
proceeding directly against PEPCO to enforce the Institutional Trustee's
rights under the Junior Subordinated Debentures without first instituting any
legal proceeding against the Institutional Trustee or any other person or
entity. Notwithstanding the foregoing, if a Declaration Event of Default has
occurred and is continuing and such event is attributable to the failure of
PEPCO to pay interest or principal on the Junior Subordinated Debentures on
the date such interest or principal is otherwise payable (or in the case of
redemption, the redemption date), then a holder of Preferred Securities may
institute a Direct Action for enforcement of payment to such holder of the
principal of or interest on Junior Subordinated Debentures having a principal
amount equal to the aggregate liquidation amount of the Preferred Securities
of such holder on or after the respective due dates specified in the Junior
Subordinated Debentures. PEPCO will be subrogated to the rights of such holder
of Preferred Securities under the Declaration to the extent of any payment
made by PEPCO to such holder of Preferred Securities in a Direct Action. The
holders of Preferred Securities will not be able under the Declaration to
exercise directly any other remedy available to the holders of the Junior
Subordinated Debentures.
Upon the occurrence of a Declaration Event of Default, the Institutional
Trustee as the sole holder of the Junior Subordinated Debentures will have the
right under the Indenture to declare the principal of and interest on the
Junior Subordinated Debentures to be immediately due and payable. PEPCO and
the Trust are each required to file annually with the Institutional Trustee an
officer's certificate as to its compliance with all conditions and covenants
under the Declaration.
VOTING RIGHTS
Except as described herein and under "Description of the Preferred
Securities Guarantee--Modification of the Preferred Securities Guarantee;
Assignment" in the accompanying Prospectus, and as otherwise required by law
(including the Business Trust Act and the Trust Indenture Act) and the
Declaration, the holders of the Preferred Securities will have no voting
rights.
Subject to the requirement that the Institutional Trustee obtain a tax
opinion in certain circumstances as described in the last sentence of this
paragraph, the holders of a majority in aggregate liquidation amount of the
Preferred Securities, voting separately as a class, have the right to direct
the time, method and place of conducting any proceeding for any remedy
available to the Institutional Trustee, or to direct the exercise of any trust
or power conferred upon the Institutional Trustee under the Declaration,
including the right to direct the
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Institutional Trustee, as holder of the Junior Subordinated Debentures, to (i)
exercise the remedies available to it under the Indenture as a holder of the
Junior Subordinated Debentures, (ii) waive any Indenture Event of Default that
is waivable under the Indenture, (iii) exercise any right to rescind or annul
a declaration that the principal of all the Junior Subordinated Debentures
shall be due and payable or (iv) consent to any amendment, modification or
termination of the Indenture or the Junior Subordinated Debentures where such
consent shall be required; provided, however, that, where a consent or action
under the Indenture would require the consent or act of holders of more than a
majority in principal amount of the Junior Subordinated Debentures (a "Super-
Majority"), only the holders of at least such Super-Majority in aggregate
liquidation amount of the Preferred Securities may direct the Institutional
Trustee to give such consent or take such action; and provided further, that
where a consent or action under the Indenture is only effective against each
holder of Junior Subordinated Debentures who has consented thereto, such
consent or action will only be effective against a holder of Preferred
Securities who directs the Institutional Trustee to give such consent or take
such action. If the Institutional Trustee fails to enforce its rights under
the Junior Subordinated Debentures after a holder of Preferred Securities has
made a written request, such holder of Preferred Securities may institute a
legal proceeding directly against PEPCO to enforce the Institutional Trustee's
rights under the Junior Subordinated Debentures without first instituting any
legal proceeding against the Institutional Trustee or any other person or
entity. Notwithstanding the foregoing, if a Declaration Event of Default has
occurred and is continuing and such event is attributable to the failure of
PEPCO to pay interest or principal on the Junior Subordinated Debentures on
the date such interest or principal is otherwise payable (or in the case of
redemption, on the redemption date), then a holder of Preferred Securities may
institute a Direct Action for enforcement of payment to such holder of the
principal of or interest on the Junior Subordinated Debentures having a
principal amount equal to the aggregate liquidation amount of the Preferred
Securities of such holder on or after the respective due dates specified in
the Junior Subordinated Debentures. The Institutional Trustee is required to
notify all holders of the Preferred Securities of any notice of default
received from the Debt Trustee with respect to the Junior Subordinated
Debentures. Such notice shall state that such Indenture Event of Default also
constitutes a Declaration Event of Default. Except with respect to directing
the time, method and place of conducting a proceeding for a remedy, the
Institutional Trustee shall not take any of the actions described in clauses
(i), (ii) or (iii) above unless the Institutional Trustee has obtained an
opinion of a nationally recognized tax counsel experienced in such matters to
the effect that, as a result of such action, the Trust will not fail to be
classified as a grantor trust for United States federal income tax purposes. A
waiver of an Indenture Event of Default will constitute a waiver of the
corresponding Declaration Event of Default.
In the event the consent of the Institutional Trustee, as the holder of the
Junior Subordinated Debentures, is required under the Indenture with respect
to any amendment, modification or termination of the Indenture, the
Institutional Trustee is required to request the written direction of the
holders of the Trust Securities with respect to such amendment, modification
or termination and shall vote with respect to such amendment, modification or
termination as directed by a majority in liquidation amount of the Trust
Securities voting together as a single class; provided, however, that where a
consent under the Indenture would require the consent of a Super-Majority, the
Institutional Trustee may only give such consent at the direction of the
holders of at least the proportion in liquidation amount of the Trust
Securities which the relevant Super-Majority represents of the aggregate
principal amount of the Junior Subordinated Debentures outstanding; and
provided, further, that where a consent or action under the Indenture is only
effective against each holder of Junior Subordinated Debentures who has
consented thereto, such consent or action will only be effective against a
holder of Trust Securities who directs the Institutional Trustee to give such
consent or take such action. The Institutional Trustee shall not take any such
action in accordance with the directions of the holders of the Trust
Securities unless the Institutional Trustee has obtained an opinion of a
nationally recognized tax counsel experienced in such matters to the effect
that for the purposes of United States federal income tax the Trust will not
be classified as other than a grantor trust on account of such action.
Any required approval or direction of holders of Preferred Securities may be
given at a separate meeting of holders of Preferred Securities convened for
such purpose, at a meeting of all of the holders of Trust Securities or
pursuant to written consent. The Regular Trustees are required to cause a
notice of any meeting at which
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holders of Preferred Securities are entitled to vote, or of any matter upon
which action by written consent of such holders is to be taken, to be mailed
to each holder of record of Preferred Securities. Each such notice will
include a statement setting forth the following information: (i) the date of
such meeting or the date by which such action is to be taken, (ii) a
description of any resolution proposed for adoption at such meeting on which
such holders are entitled to vote or of such matter upon which written consent
is sought and (iii) instructions for the delivery of proxies or consents. No
vote or consent of the holders of Preferred Securities will be required for
the Trust to redeem and cancel Preferred Securities or to distribute Junior
Subordinated Debentures in accordance with the Declaration and the terms of
the Trust Securities.
Notwithstanding that holders of Preferred Securities are entitled to vote or
consent under any of the circumstances described above, any Preferred
Securities that are owned at such time by PEPCO or any entity directly or
indirectly controlling or controlled by, or under direct or indirect common
control with, PEPCO shall not be entitled to vote or consent and shall, for
purposes of such vote or consent, be treated as if such Preferred Securities
were not outstanding.
The procedures by which holders of Preferred Securities may exercise their
voting rights are described below. See "Book-Entry Only Issuance--The
Depository Trust Company" below.
Holders of the Preferred Securities will have no rights to appoint, remove
or replace the Trustees, who may be appointed, removed or replaced solely by
PEPCO as the holder of the Common Securities.
MODIFICATION OF THE DECLARATION
The Declaration may be modified and amended if approved by the Regular
Trustees (and in certain circumstances the Institutional Trustee or the
Delaware Trustee), provided that, if any proposed amendment provides for, or
the Regular Trustees otherwise propose to effect, (i) any action that would
adversely affect the powers, preferences or special rights of the Trust
Securities, whether by way of amendment to the Declaration or otherwise or
(ii) the dissolution, winding-up or termination of the Trust, other than
pursuant to the terms of the Declaration, then the holders of the Trust
Securities voting together as a single class will be entitled to vote on such
amendment or proposal and such amendment or proposal shall not be effective
except with the approval of at least a majority in liquidation amount of the
Trust Securities affected thereby; provided that, if any amendment or proposal
referred to in clause (i) above would adversely affect only the Preferred
Securities or the Common Securities, then only the affected class will be
entitled to vote on such amendment or proposal and such amendment or proposal
shall not be effective except with the approval of a majority in liquidation
amount of such class of Trust Securities.
Notwithstanding the foregoing, no amendment or modification may be made to
the Declaration if such amendment or modification would (i) cause the Trust to
be classified for purposes of United States federal income taxation as other
than a grantor trust, (ii) reduce or otherwise adversely affect the powers of
the Institutional Trustee in contravention of the Trust Indenture Act or (iii)
cause the Trust to be deemed an "investment company" that is required to be
registered under the Investment Company Act of 1940, as amended (the "1940
Act").
MERGERS, CONSOLIDATIONS OR AMALGAMATIONS
The Trust may not consolidate, amalgamate, merge with or into, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to, any corporation or other body, except as
described below. The Trust may, with the consent of the Regular Trustees and
without the consent of the holders of the Trust Securities, the Institutional
Trustee or the Delaware Trustee, consolidate, amalgamate, merge with or into,
or be replaced by a trust organized as such under the laws of any State of the
United States; provided, that (i) if the Trust is not the survivor, such
successor entity either (a) expressly assumes all of the obligations of the
Trust under the Trust Securities or (b) substitutes for the Trust Securities
other securities having substantially the same terms as the Trust Securities
(the "Successor Securities"), so long as the Successor Securities rank the
same as
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the Trust Securities rank with respect to distributions and payments upon
liquidation, redemption and otherwise, (ii) PEPCO expressly acknowledges a
trustee of such successor entity possessing the same powers and duties as the
Institutional Trustee as the holder of the Junior Subordinated Debentures,
(iii) the Preferred Securities or any Successor Securities are listed, or any
Successor Securities will be listed upon notification of issuance, on any
national securities exchange or with another organization on which the
Preferred Securities are then listed or quoted, (iv) such merger,
consolidation, amalgamation or replacement does not cause the Preferred
Securities (or any Successor Securities) to be downgraded by any nationally
recognized statistical rating organization, (v) such merger, consolidation,
amalgamation or replacement does not adversely affect the rights, preferences
and privileges of the holders of the Trust Securities (or any Successor
Securities) in any material respect (other than with respect to any dilution
of the holders' interest in the successor entity), (vi) such successor entity
has a purpose identical to that of the Trust, (vii) prior to such merger,
consolidation, amalgamation or replacement, PEPCO has received an opinion of a
nationally recognized independent counsel to the Trust experienced in such
matters to the effect that, (a) such merger, consolidation, amalgamation or
replacement does not adversely affect the rights, preferences and privileges
of the holders of the Trust Securities (including any Successor Securities) in
any material respect (other than with respect to any dilution of the holders'
interest in the new entity), (b) following such merger, consolidation,
amalgamation or replacement, neither the Trust nor such successor entity will
be required to register as an "investment company" under the 1940 Act and (c)
following such merger, consolidation, amalgamation or replacement, the Trust
or such successor entity will be treated as a grantor trust for United States
federal income tax purposes, and (viii) PEPCO guarantees the obligations of
such successor entity under the Successor Securities at least to the extent
provided by the Guarantee and the Common Securities Guarantee (as described in
the accompanying Prospectus). Notwithstanding the foregoing, the Trust shall
not, except with the consent of holders of 100 percent in liquidation amount
of the Trust Securities, consolidate, amalgamate, merge with or into, or be
replaced by any other entity or permit any other entity to consolidate,
amalgamate, merge with or into, or replace it, if such consolidation,
amalgamation, merger or replacement would cause the Trust or the successor
entity to be classified as other than a grantor trust for United States
federal income tax purposes.
BOOK-ENTRY ONLY ISSUANCE--THE DEPOSITORY TRUST COMPANY
DTC will act as securities depositary for the Preferred Securities. The
Preferred Securities will be issued only as fully-registered securities
registered in the name of Cede & Co. (DTC's nominee). One or more fully-
registered global Preferred Securities certificates (each a "Global
Certificate"), representing the total aggregate number of Preferred
Securities, will be issued and will be deposited with DTC. The following
description of DTC and its procedures have been furnished to PEPCO by DTC and
have not been independently verified by PEPCO.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law,
a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities that its participants ("Participants") deposit with DTC. DTC
also facilitates the settlement among Participants of securities transactions,
such as transfers and pledges, in deposited securities through electronic
computerized book-entry changes in Participants' accounts, thereby eliminating
the need for physical movement of securities certificates. Participants in DTC
include securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations. DTC is owned by a number of its
Participants and by the NYSE, the American Stock Exchange, Inc., and the
National Association of Securities Dealers, Inc. Access to the DTC system is
also available to others, such as securities brokers and dealers, banks and
trust companies that clear transactions through, or maintain a direct or
indirect custodial relationship with, a Participant either directly or
indirectly ("Indirect Participants"). The rules of DTC are on file with the
Securities and Exchange Commission (the "Commission").
Purchases of Preferred Securities within the DTC system must be made by or
through Participants, which will receive a credit for the Preferred Securities
on DTC's records. The ownership interest of each actual
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purchaser of each Preferred Security (a "Beneficial Owner") will in turn to be
recorded on the Participants' and Indirect Participants' records. Beneficial
Owners will not receive written confirmation from DTC of their purchases, but
Beneficial Owners are expected to receive written confirmations providing
details of the transactions, as well as periodic statements of their holdings,
from the Participants or Indirect Participants through which the Beneficial
Owners purchased Preferred Securities. Transfers of ownership interests in the
Preferred Securities are to be accomplished by entries made on the books of
Participants acting directly or indirectly on behalf of Beneficial Owners.
Beneficial Owners will not receive certificates representing their ownership
interests in the Preferred Securities, except in the event that use of the
book-entry system for the Preferred Securities is discontinued.
DTC has no knowledge of the actual Beneficial Owners of the Preferred
Securities. DTC's records reflect only the identity of the Participants to
whose accounts such Preferred Securities are credited, which may or may not be
the Beneficial Owners. The Participants and Indirect Participants will remain
responsible for keeping account of their holdings on behalf of their
customers.
So long as DTC, or its nominee, is the registered owner of a Global
Certificate, DTC or such nominee, as the case may be, will be considered the
sole owner of the Preferred Securities represented thereby for all purposes
under the Declaration and the Preferred Securities. No Beneficial Owner of an
interest in a Global Certificate will be able to transfer that interest except
in accordance with DTC's procedures, in addition to those provided for under
the Declaration.
DTC has advised PEPCO that it will take any action permitted to be taken by
a holder of Preferred Securities (including the presentation of Preferred
Securities for exchange as described below) only at the direction of one or
more Participants to whose accounts interests in Global Certificates are
credited and only in respect of such portion of the aggregate liquidation
amount of Preferred Securities as to which such Participant or Participants
has or have given such direction. However, if there is a Declaration Event of
Default, DTC will exchange the Global Certificates for certificated Preferred
Securities, which it will distribute to its Participants and which will be
legended to give notice of such Declaration Event of Default.
Conveyance of notices and other communications by DTC to Participants, by
Participants to Indirect Participants, and by Participants and Indirect
Participants to Beneficial Owners will be governed by arrangements among them,
subject to any statutory or regulatory requirements as may be in effect from
time to time.
Redemption notices in respect of the Preferred Securities held in book-entry
form will be sent to Cede & Co. If less than all of the Preferred Securities
are being redeemed, DTC will determine the pro rata amount of the interest of
each Participant to be redeemed in accordance with its procedures.
Although voting with respect to the Preferred Securities is limited, in
those cases where a vote is required, neither DTC nor Cede & Co. will itself
consent or vote with respect to Preferred Securities. Under its usual
procedures, DTC would mail an omnibus proxy to the Trust as soon as possible
after the record date. The omnibus proxy assigns Cede & Co.'s consenting or
voting rights to those Participants to whose accounts the Preferred Securities
are credited on the record date (identified in a listing attached to the
omnibus proxy).
Distributions on the Preferred Securities held in book-entry form will be
made to DTC in immediately available funds. DTC's practice is to credit
Participants' accounts on the relevant payment date in accordance with their
respective holdings shown on DTC's records unless DTC has reason to believe
that it will not receive payments on such payment date. Payments by
Participants and Indirect Participants to Beneficial Owners will be governed
by standing instructions and customary practices and will be the
responsibility of such Participants and Indirect Participants and not of DTC,
the Trust or PEPCO, subject to any statutory or regulatory requirements as may
be in effect from time to time. Payment of distributions to DTC is the
responsibility of the Trust, disbursement of such payments to Participants is
the responsibility of DTC, and disbursement of such payments to the Beneficial
Owners is the responsibility of Participants and Indirect Participants.
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Except as provided herein, a Beneficial Owner of an interest in a Global
Certificate will not be entitled to receive physical delivery of Preferred
Securities. Accordingly, each Beneficial Owner must rely on the procedures of
DTC to exercise any rights under the Preferred Securities.
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Certificates among Participants of DTC,
DTC is under no obligation to perform or continue to perform such procedures,
and such procedures may be discontinued at any time. None of PEPCO, the Trust
or the Trustees will have any responsibility for the performance by DTC or its
Participants or Indirect Participants under the rules and procedures governing
DTC. DTC may discontinue providing its services as securities depositary with
respect to the Preferred Securities at any time by giving notice to the Trust.
Under such circumstances, in the event that a successor securities depositary
is not obtained, certificated Preferred Securities are required to be
delivered. Additionally, the Trust (with the consent of PEPCO) may decide to
discontinue use of the system of book-entry transfers through DTC (or a
successor depositary). In that event, certificated Preferred Securities will
be delivered.
The laws of some jurisdictions require that certain purchasers of securities
take physical delivery of securities in certificated form. Such laws may
impair the ability to transfer beneficial interests in Preferred Securities
represented by a Global Certificate.
DISTRIBUTION PAYMENTS
All distribution payments in respect of the Preferred Securities represented
by Global Certificates will be made to DTC, which will credit the accounts of
its Participants on the payment date. Distribution payments on Preferred
Securities not evidenced by a Global Certificate will be made by check mailed
to the address of the holder entitled thereto as such address shall appear on
the records of the registrar and transfer agent.
REGISTRAR, TRANSFER AGENT AND PAYING AGENT
The Bank of New York will act as registrar, transfer agent and, if the
Preferred Securities are not in book-entry form, paying agent (the "Paying
Agent") for the Preferred Securities. The Paying Agent is permitted to resign
as Paying Agent upon 30 days' written notice to the Regular Trustees, in which
event the Regular Trustees are required to appoint a successor bank or trust
company to act as Paying Agent.
Registration of transfers of Preferred Securities that are not in book-entry
form will be effected without charge, but only upon payment (with such
indemnity as the Regular Trustees may require) by the holder of any tax or
other government charges which may be imposed in relation thereto.
INFORMATION CONCERNING THE INSTITUTIONAL TRUSTEE
The Institutional Trustee, prior to the occurrence of a Declaration Event of
Default and after the curing of any Declaration Event of Default that may have
occurred, undertakes to perform only such duties as are specifically set forth
in the Declaration. After a Declaration Event of Default has occurred (of
which a responsible officer of the Institutional Trustee has actual knowledge)
and while it is continuing, the Institutional Trustee is required to exercise
the rights and powers vested in it by the Declaration using the same degree of
care and skill as a prudent person would exercise or use under the
circumstances in the conduct of his own affairs. Subject to such provisions,
the Institutional Trustee is under no obligation to exercise any of the powers
vested in it by the Declaration at the request of any holder of Preferred
Securities unless offered indemnity by such holder against the costs, expenses
and liabilities that might be incurred thereby.
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The Institutional Trustee also serves as Guarantee Trustee, Debt Trustee and
as trustee under other indentures of PEPCO. PEPCO and certain of its
subsidiaries conduct certain banking transactions with the Institutional
Trustee in the ordinary course of their respective businesses.
GOVERNING LAW
The Declaration and the Preferred Securities will be governed by, and
construed in accordance with, the internal laws of the State of Delaware.
MISCELLANEOUS
The Regular Trustees are required to operate the Trust in such a way so that
the Trust will not be required to register as an "investment company" under
the 1940 Act or be characterized as other than a grantor trust for United
States federal income tax purposes. In this connection, the Regular Trustees
are authorized to take any action, not inconsistent with applicable law, that
the Regular Trustees determine in their discretion to be necessary or
desirable to achieve these ends, as long as such action does not adversely
affect the interests of the holders of the Trust Securities.
Holders of the Preferred Securities have no preemptive rights.
DESCRIPTION OF THE GUARANTEE
Pursuant to the Guarantee, PEPCO will agree, to the extent set forth
therein, to pay in full to the holders of the Preferred Securities issued by
the Trust, the Guarantee Payments (as defined in the accompanying Prospectus),
as and when due, regardless of any defense, right of setoff or counterclaim
which the Trust may have or assert. PEPCO may satisfy its obligation to make a
Guarantee Payments either by paying the required amounts directly to the
holders of Preferred Securities or by causing the Trust to pay such amounts to
the holders. The Guarantee, when taken together with PEPCO's obligations under
the Junior Subordinated Debentures and the Indenture and its obligations under
the Declaration, including its obligation to pay costs, expenses, debts and
liabilities of the Trust (other than with respect to the Trust Securities)
provides a full and unconditional guarantee on a subordinated basis by PEPCO
of amounts payable on the Preferred Securities. The Guarantee will be
qualified as an indenture under the Trust Indenture Act. The Bank of New York
will act as Guarantee Trustee. The terms of the Guarantee will be those set
forth in a Preferred Securities Guarantee Agreement executed and delivered by
PEPCO and those made part of such Guarantee by the Trust Indenture Act. The
Guarantee will be held by the Guarantee Trustee for the benefit of the holders
of the Preferred Securities. A summary description of the Guarantee appears in
the accompanying Prospectus under the caption "Description of the Preferred
Securities Guarantee."
DESCRIPTION OF THE JUNIOR SUBORDINATED DEBENTURES
Set forth below is a description of the specific terms of the Junior
Subordinated Debentures in which the Trust will invest the proceeds from the
issuance and sale of the Trust Securities. This description supplements the
description of the general terms and provisions of the Junior Subordinated
Debentures set forth in the accompanying Prospectus under the caption
"Description of the Junior Subordinated Debentures." While the following
description does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, the description in the accompanying
Prospectus and to the terms of the Indenture, dated as of , 1998 (the
"Base Indenture"), between PEPCO and The Bank of New York, as trustee (the
"Debt Trustee"), as supplemented by a First Supplemental Indenture, dated as
of , 1998 (the Base Indenture, as so supplemented, is hereinafter
referred to as the "Indenture"), the forms of which are filed as exhibits to
the Registration Statement of which this Prospectus Supplement and the
accompanying Prospectus form a part, all material terms of the Junior
Subordinated Debentures are set forth herein and in the accompanying
Prospectus.
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GENERAL
The Junior Subordinated Debentures will be issued as unsecured indebtedness
of PEPCO under the Indenture. The Junior Subordinated Debentures will be
limited in aggregate principal amount to $128,865,980, such amount being the
sum of the aggregate stated liquidation value of the Trust Securities.
The Junior Subordinated Debentures are not subject to any sinking fund
provision. The entire principal amount of the Junior Subordinated Debentures
will mature and become due and payable, together with any accrued and unpaid
interest thereon, including Compound Interest (as defined herein) and
Additional Interest (as defined herein), if any, on , 2038.
If Junior Subordinated Debentures are distributed to holders of Preferred
Securities in liquidation of such holders' interests in the Trust, such Junior
Subordinated Debentures will initially be issued as Global Debentures (as
defined herein). As described herein, Junior Subordinated Debentures may be
issued in certificated form in exchange for a Global Debenture. See "Book-
Entry and Settlement" below. In the event that Junior Subordinated Debentures
are issued in certificated form, such Junior Subordinated Debentures will be
in denominations of $25 and integral multiples thereof and may be transferred
or exchanged at the offices described below. Payments on Junior Subordinated
Debentures issued as Global Debentures will be made to DTC or a successor
depositary. In the event Junior Subordinated Debentures are issued in
certificated form, principal and interest will be payable, the transfer of the
Junior Subordinated Debentures will be registrable and Junior Subordinated
Debentures will be exchangeable for Junior Subordinated Debentures of other
denominations of a like aggregate principal amount, at the corporate trust
office of the Debt Trustee, as paying and authenticating agent, in New York,
New York; provided that payment of interest may be made at the option of PEPCO
by check mailed to the address of the holder entitled thereto as it appears on
the security register.
The Indenture does not contain provisions that afford holders of the Junior
Subordinated Debentures protection in the event of a highly leveraged
transaction or other similar transaction involving PEPCO that may adversely
affect such holders.
SUBORDINATION
The Indenture provides that the Junior Subordinated Debentures are
subordinated and junior in right of payment to all present and future Senior
Indebtedness and Other Financial Obligations of PEPCO and rank pari passu with
and equivalent to all other general unsecured claims of creditors against
PEPCO that are not entitled to statutory priority under the United States
Bankruptcy Code or otherwise. No payment may be made of the principal or
interest on the Junior Subordinated Debentures, or in respect of any
redemption, retirement, purchase or other acquisition of any of the Junior
Subordinated Debentures, at any time when (i) there is a default in the
payment of the principal of, premium, if any, interest on or otherwise in
respect of any Senior Indebtedness, whether at maturity or at a date fixed for
prepayment or by declaration or otherwise, or (ii) any event of default with
respect to any Senior Indebtedness has occurred and is continuing, or would
occur as a result of such payment on the Junior Subordinated Debentures or any
redemption, retirement, purchase or other acquisition of any of the Junior
Subordinated Debentures, permitting the holders of such Senior Indebtedness
(or a trustee on behalf of the holders thereof) to accelerate the maturity
thereof. Upon any distribution of assets of PEPCO to creditors upon any
dissolution, winding-up, liquidation or reorganization, whether voluntary or
involuntary, or in bankruptcy, insolvency, receivership or other proceedings,
the holders of all Senior Indebtedness and the holders of Other Financial
Obligations will first be entitled to receive payment in full of all amounts
due thereon before the holders of the Junior Subordinated Debentures will be
entitled to receive any payment in respect of the principal of or interest on
the Junior Subordinated Debentures.
The term "Senior Indebtedness" means (i) the principal, premium, if any, and
interest in respect of (a) indebtedness of PEPCO for money borrowed and (b)
indebtedness evidenced by securities, debentures, bonds or other similar
instruments issued by PEPCO, (ii) all capital lease obligations of PEPCO,
(iii) all obligations of PEPCO issued or assumed as the deferred purchased
price of property, all conditional sale obligations of PEPCO
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and all obligations of PEPCO under any title retention agreement (but
excluding trade accounts payable arising in the ordinary course of business),
(iv) all obligations of PEPCO for the reimbursement of any letter of credit,
banker's acceptance, security purchase facility or similar credit transaction,
(v) all obligations of the type referred to in clauses (i) through (iv) above
of other persons for the payment of which PEPCO is responsible or liable as
obligor, guarantor or otherwise and (vi) all obligations of the type referred
to in clauses (i) through (v) above of other persons secured by any lien on
any property or asset of PEPCO (whether or not such obligation is assumed by
PEPCO), except that Senior Indebtedness does not include (i) any such
indebtedness that is by its terms subordinated to or ranks pari passu with the
Junior Subordinated Debentures and (ii) any indebtedness between and among
PEPCO or its affiliates, including all other debt securities, and guarantees
in respect to those debt securities, issued to any trust, or a trustee of such
trust, partnership or other entity affiliated with PEPCO that is a financing
vehicle of PEPCO (a "financing entity") in connection with the issuance by
such financing entity of preferred securities or other securities that rank
pari passu with or junior to the Preferred Securities.
The term "Other Financial Obligations" means all obligations of PEPCO to
make payment pursuant to the terms of financial instruments, such as (i)
securities contracts and foreign currency exchange contracts, (ii) derivative
instruments, such as swap agreements (including interest rate and foreign
exchange rate swap agreements), cap agreements, floor agreements, collar
agreements, interest rate agreements, foreign exchange rate agreements,
options, commodity futures contracts, commodity option contracts and (iii) in
the case of both (i) and (ii) above, similar financial instruments, other than
(a) obligations on account of Senior Indebtedness and (b) obligations on
account of indebtedness for money borrowed ranking pari passu with or
subordinate to the Junior Subordinated Debentures.
Subject to the payment in full of all Senior Indebtedness and Other
Financial Obligations, the rights of the holders of the Junior Subordinated
Debentures will be subrogated to the rights of the holders of such Senior
Indebtedness and Other Financial Obligations of PEPCO to receive payments or
distributions applicable to such Senior Indebtedness and Other Financial
Obligations until all amounts owing on the Junior Subordinated Debentures are
paid in full.
The Indenture does not limit the aggregate amount of Senior Indebtedness or
Other Financial Obligations that may be issued or entered into by PEPCO. As of
December 31, 1997, Senior Indebtedness and Other Financial Obligations of
PEPCO aggregated approximately $2.3 billion.
OPTIONAL PREPAYMENT
The Junior Subordinated Debentures will be prepayable prior to the Stated
Maturity at the option of PEPCO (i) in whole or in part, from time to time, on
or after , 2003 or (ii) in whole but not in part, at any time prior to
, 2003, within 90 days after the occurrence of a Tax Event (as defined
herein), in either case, upon not less than 30 nor more than 60 days' notice,
at the Prepayment Price equal to 100% of the principal amount thereof, plus
accrued and unpaid interest thereon to the date of prepayment. Following such
prepayment, Trust Securities having an aggregate liquidation amount equal to
the aggregate principal amount of the Junior Subordinated Debentures so repaid
will be redeemed by the Trust.
A "Tax Event" means that the Regular Trustees shall have received an opinion
of nationally recognized independent tax counsel experienced in such matters
to the effect that, as a result of (a) any amendment to, or change (including
any announced prospective change) in, the laws or any regulations thereunder
of the United States or any political subdivision or taxing authority thereof
or therein, or (b) any official administrative pronouncement or judicial
decision interpreting or applying such laws or regulations, which amendment or
change is effective or such pronouncement or decision is announced on or after
the date of original issuance of the Trust Securities, there is more than an
insubstantial risk that (i) the Trust is, or will be within 90 days of the
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date of such opinion, subject to United States federal income tax with respect
to income received or accrued on the Junior Subordinated Debentures, (ii)
interest payable by PEPCO on the Junior Subordinated Debentures is not, or
within 90 days of the date of such opinion will not be, deductible by PEPCO,
in whole or in part, for United States federal income tax purposes or (iii)
the Trust is, or will be within 90 days of the date of such opinion, subject
to more than a de minimis amount of other taxes, duties or other governmental
charges.
INTEREST
The Junior Subordinated Debenture will bear interest at the rate of % per
annum from the date of original issuance, payable quarterly in arrears on
March 1, June 1, September 1 and December 1 of each year (each an "Interest
Payment Date"), commencing September 1, 1998, to the persons in whose names
such Junior Subordinated Debentures are registered on the relevant record
date. The record dates for the Junior Subordinated Debentures will be, for so
long as the Junior Subordinated Debentures remain in book-entry form, one
Business Day prior to the relevant Interest Payment Date and, in the event the
Junior Subordinated Debentures are not in book-entry form, the tenth day of
the month prior to the month in which the relevant Interest Payment Date
occurs.
The amount of interest payable for any full quarterly period will be
computed on the basis of a 360-day year of twelve 30-day months. The amount of
interest payable for any period shorter than a full quarterly period will be
computed on the basis of the actual number of days elapsed. In the event that
any date on which interest is payable on the Junior Subordinated Debentures is
not a Business Day, then payment of the interest payable on such date will be
made on the next succeeding day that is a Business Day (and without any
interest or other payment in respect of any such delay), except that, if such
Business Day is in the next succeeding calendar year, then such payment shall
be made on the immediately preceding Business Day, in each case with the same
force and effect as if made on the date that such interest otherwise would
have been payable.
OPTION TO EXTEND INTEREST PAYMENT PERIOD
So long as PEPCO shall not be in default in the payment of interest on the
Junior Subordinated Debentures, PEPCO has the right, at any time and from time
to time during the term of the Junior Subordinated Debentures, to defer
payments of interest by extending the interest payment period for a period
that does not exceed 20 consecutive quarterly periods or extend beyond the
Stated Maturity. During the Extension Period, no interest will be due and
payable on the Junior Subordinated Debentures. At the end of the Extension
Period, PEPCO will be required to pay all interest then accrued and unpaid
(including any Additional Interest), together with interest on such deferred
interest (to the extent permitted by applicable law) at the same rate as the
rate of interest on the Junior Subordinated Debentures, compounded quarterly
("Compound Interest"). During any such Extension Period, (i) PEPCO shall not
declare or pay any dividend on, make any distribution with respect to, or
redeem, purchase, acquire or make a liquidation payment with respect to, any
of its capital stock (other than (a) purchases or acquisitions of shares of
PEPCO Common Stock in connection with the satisfaction by PEPCO of its
obligations under any employee benefit plans or any other contractual
obligation of PEPCO (other than a contractual obligation ranking pari passu
with or junior to the Junior Subordinated Debentures) or (b) the purchase of
fractional interests in shares of PEPCO's capital stock pursuant to the
conversion or exchange provisions of such PEPCO capital stock or the security
being converted or exchanged), (ii) PEPCO shall not make any payment of
interest, principal or premium, if any, on or repay, repurchase or redeem any
debt securities issued by PEPCO that rank pari passu with or junior to the
Junior Subordinated Debentures, and (iii) PEPCO shall not make any guarantee
payments with respect to the foregoing (other than pursuant to the Guarantee).
Prior to the termination of any such Extension Period, PEPCO may further defer
payments of interest by extending the interest payment period; provided that
such Extension Period, including all such previous and further extensions
thereof, may not exceed 20 consecutive quarterly periods or extend beyond the
Stated Maturity of the Junior Subordinated Debentures. Upon the termination of
any Extension Period and the payment of all amounts then due, PEPCO may
commence a new Extension Period.
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PEPCO has no present intention of exercising its right to defer payments of
interest by extending the interest payment period on the Junior Subordinated
Debentures. If the Institutional Trustee is the sole holder of the Junior
Subordinated Debentures, PEPCO is required to give the Regular Trustees, the
Institutional Trustee and the Debt Trustee notice of its selection of an
Extension Period one Business Day prior to the earlier of (i) the next
succeeding date on which a date distribution on the Preferred Securities is
payable or (ii) if the Junior Subordinated Debentures are then listed, the
date the Regular Trustees are required to give notice to the NYSE (or other
applicable self-regulatory organization) or to holders of the Preferred
Securities of the record date or distribution date. The Institutional Trustee
is required to give notice of PEPCO's selection of such Extension Period to
the holders of the Preferred Securities. If the Institutional Trustee is not
the sole holder of the Junior Subordinated Debentures, PEPCO is required to
give the holders of the Junior Subordinated Debentures notice of its selection
of an Extension Period at least ten Business Days prior to the earlier of
(i) the next succeeding Interest Payment Date or (ii) if the Junior
Subordinated Debentures are then listed, the date PEPCO is required to give
notice to the NYSE (or other applicable self-regulatory organization) or to
holders of the Junior Subordinated Debentures of the record or interest
payment date.
ADDITIONAL INTEREST
If, at any time while the Institutional Trustee is the holder of any Junior
Subordinated Debentures, the Trust or the Institutional Trustee shall be
required to pay any taxes, duties, assessments or governmental charges of
whatever nature (other than withholding taxes) imposed by the United States,
or any other taxing authority, then, in any such case, PEPCO will pay as
additional interest ("Additional Interest") on the Junior Subordinated
Debentures held by the Institutional Trustee, such additional amounts as shall
be required so that the net amounts received and retained by the Trust and by
the Institutional Trustee, after paying any such taxes, duties, assessments or
other governmental charges, will be equal to the amounts the Trust and the
Institutional Trustee would have received had no such taxes, duties,
assessments or other governmental charges been imposed.
INDENTURE EVENTS OF DEFAULT
If any Indenture Event of Default shall occur and be continuing, the
Institutional Trustee, as the holder of the Junior Subordinated Debentures,
will have the right to declare the principal of and the interest on the Junior
Subordinated Debentures (including any Compound Interest and Additional
Interest, if any) and any other amounts payable under the Indenture to be
forthwith due and payable and to enforce its rights as a creditor with respect
to the Junior Subordinated Debentures. See "Description of the Junior
Subordinated Debentures--Events of Default, Waiver and Notice" in the
accompanying Prospectus for a description of Indenture Events of Default. An
Indenture Event of Default also constitutes a Declaration Event of Default.
The holders of Preferred Securities in certain circumstances have the right to
direct the Institutional Trustee to exercise its rights as the holder of the
Junior Subordinated Debentures. See "Description of the Preferred Securities--
Declaration Events of Default" and "--Voting Rights."
If the Institutional Trustee fails to enforce its rights under the Junior
Subordinated Debentures after a holder of Preferred Securities has made a
written request, such holder of Preferred Securities may institute a legal
proceeding directly against PEPCO to enforce the Institutional Trustee's
rights under the Junior Subordinated Debentures without first instituting any
legal proceeding against the Institutional Trustee or any other person or
entity. Notwithstanding the foregoing, if a Declaration Event of Default has
occurred and is continuing, and such event is attributable to the failure of
PEPCO to pay interest or principal on the Junior Subordinated Debentures on
the date such interest or principal is otherwise payable (or in the case of
redemption, on the redemption date), then a holder of Preferred Securities may
institute a Direct Action for enforcement of payment to such holder of the
principal of or interest on the Junior Subordinated Debentures having a
principal amount equal to the aggregate liquidation amount of the Preferred
Securities of such holder on or after the respective due dates specified in
the Junior Subordinated Debentures. Notwithstanding any payments made to such
holder of Preferred Securities by PEPCO in connection with a Direct Action,
PEPCO will remain obligated to pay the principal of or interest on the Junior
Subordinated Debentures held by the Institutional Trustee, and PEPCO will be
subrogated to the rights of the holder of such Preferred Securities with
respect to payments on the Preferred Securities to the extent of any payments
made by PEPCO to such holder in any Direct Action. Except as provided in the
Guarantee, the holders of Preferred Securities will not be able to exercise
directly any other remedy available to the holders of the Junior Subordinated
Debentures.
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BOOK-ENTRY AND SETTLEMENT
If distributed to holders of Preferred Securities in connection with the
involuntary or voluntary dissolution, winding-up or liquidation of the Trust,
the Junior Subordinated Debentures will be issued in book-entry form evidenced
by one or more global certificates (each a "Global Debenture") registered in
the name of a securities depositary or its nominee (the "Depositary"). Except
under the limited circumstances described below, Junior Subordinated
Debentures represented by the Global Debenture will not be exchangeable for,
and will not otherwise be issuable as, Junior Subordinated Debentures in
certificated form. Global Debentures may not be transferred, except by the
Depositary to another Depositary or to a successor Depositary.
The laws of some jurisdictions require that certain purchasers of securities
take physical delivery of such securities in certificated form. Such laws may
impair the ability to transfer beneficial interests in Junior Subordinated
Debentures represented by a Global Debenture.
Except as provided below, owners of beneficial interests in a Global
Debenture will not be entitled to receive physical delivery of Junior
Subordinated Debentures in certificated form and will not be considered the
holders thereof for any purpose under the Indenture. Accordingly, each
beneficial owner of Junior Subordinated Debentures must rely on the procedures
of the Depositary, or, if such person is not a participant in the Depositary,
on the procedures of the participant through which such person owns its
interest, to exercise any rights of a holder of Junior Subordinated Debentures
under the Indenture.
THE DEPOSITARY
If Junior Subordinated Debentures are distributed to holders of Preferred
Securities in connection with the involuntary or voluntary dissolution,
winding up or liquidation of the Trust, DTC will act as the Depositary for the
Junior Subordinated Debentures. For a description of DTC and the specific
terms of its depositary arrangements, see "Description of the Preferred
Securities--Book-Entry Only Issuance--The Depository Trust Company." As of the
date of this Prospectus Supplement, the description therein of DTC's book-
entry system and DTC's practices as they relate to purchases, transfers,
notices and payments with respect to the Preferred Securities would apply in
all material respects to any debt obligations represented by one or more
Global Debentures held by DTC. PEPCO may appoint a successor to DTC or any
successor Depositary in the event DTC or such successor Depositary is unable
or unwilling to continue as a depositary for the Global Debentures.
None of PEPCO, the Trust, the Institutional Trustee, any paying agent and
any other agent of PEPCO, or the Debt Trustee will have any responsibility or
liability for any aspect of the records relating to or payments made on
account of beneficial ownership interests in a Global Debenture or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests.
DISCONTINUANCE OF THE DEPOSITARY'S SERVICES
Each Global Debenture will be exchangeable for Junior Subordinated
Debentures registered in the names of persons other than the Depositary or its
nominee only if (i) the Depositary notifies PEPCO that it is unwilling or
unable to continue as a depositary for such Global Debentures and no successor
depositary shall have been appointed, (ii) the Depositary, at any time, ceases
to be a clearing agency registered under the Exchange Act at which time the
Depositary is required to be so registered to act as a depositary and no
successor depositary shall have been appointed, (iii) PEPCO, in its sole
discretion, determines that a Global Debentures shall be so exchangeable or
(iv) there shall have occurred an Indenture Event of Default with respect to
such Junior Subordinated Debentures. Any Global Debenture that is exchangeable
pursuant to the preceding sentence will be exchangeable for Junior
Subordinated Debentures registered in such names as the Depositary shall
direct. It is expected that such instructions will be based upon directions
received by the Depositary from its participants with respect to ownership of
beneficial interests in such Global Debentures.
GOVERNING LAW
The Indenture and the Junior Subordinated Debentures will be governed by,
and construed in accordance with, the internal laws of the State of New York.
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MISCELLANEOUS
The Indenture provides that PEPCO will pay all costs and expenses related to
(i) the offering of the Trust Securities and the Junior Subordinated
Debentures, (ii) the organization, maintenance and dissolution of the Trust
and (iii) the fees and expenses of the Institutional Trustee, the Delaware
Trustee and the Regular Trustees.
The Indenture provides that it may not be assigned by the parties thereto,
except that PEPCO will have the right at all times to assign any of its rights
or obligations under the Indenture to a direct or indirect wholly-owned
subsidiary of PEPCO; provided that, in the event of any such assignment, PEPCO
will remain liable for all of such obligations. Subject to the foregoing, the
Indenture will be binding upon and inure to the benefit of the parties thereto
and their respective successors and assigns.
EFFECT OF OBLIGATIONS UNDER THE
JUNIOR SUBORDINATED DEBENTURES AND THE GUARANTEE
As set forth in the Declaration, the sole purpose of the Trust is to issue
the Trust Securities evidencing undivided beneficial interests in the assets
of the Trust, and to invest the proceeds from the sale in the Junior
Subordinated Debentures.
As long as payments of principal and interest are made when due on the
Junior Subordinated Debentures, such payments will be sufficient to cover
distributions and other payments due on the Trust Securities because of the
following factors: (i) the aggregate principal amount of Junior Subordinated
Debentures will be equal to the sum of the aggregate stated liquidation amount
of the Trust Securities; (ii) the interest rate and the interest and other
payment dates on the Junior Subordinated Debentures will match the
distribution rate and distribution and other payment dates for the Trust
Securities; (iii) PEPCO shall pay, and the Trust shall not be obligated to
pay, directly or indirectly, all costs, expenses, debts, and obligations of
the Trust (other than with respect to the Trust Securities); and (iv) the
Declaration provides that the Regular Trustees shall not take any action, or
cause or permit the Trust, among other things, to engage in any activity, that
is not consistent with the purposes of the Trust.
Payments of distributions (to the extent funds therefor are available) and
other payments that become due on the Preferred Securities (to the extent
funds therefor are available) are guaranteed by PEPCO as and to the extent set
forth under "Description of the Preferred Securities Guarantee" in the
accompanying Prospectus. If PEPCO does not make interest payments on the
Junior Subordinated Debentures purchased by the Trust, the Trust will not have
sufficient funds to pay distributions on the Preferred Securities. The
Guarantee does not apply to any payment of distributions unless and until the
Trust has sufficient funds for the payment of such distributions. The
Guarantee covers the payment of distributions and other payments on the
Preferred Securities if and to the extent that PEPCO has made a payment of
interest or principal on the Junior Subordinated Debentures held by the Trust
as its sole asset. The Guarantee, when taken together with PEPCO's obligations
under the Junior Subordinated Debentures and the Indenture and its obligations
under the Declaration, including its obligation to pay costs, expenses, debts
and liabilities of the Trust (other than with respect to the Trust
Securities), provides a full and unconditional guarantee on a subordinated
basis of amounts payable on the Preferred Securities.
If PEPCO fails to make interest or other payments on the Junior Subordinated
Debentures when due (taking account of any Extension Period), the Declaration
provides a mechanism whereby the holders of the Preferred Securities, using
the procedures described in "Description of the Preferred Securities--Voting
Rights" and "--Book-Entry Only Issuance--The Depository Trust Company," may
direct the Institutional Trustee to enforce its rights under the Junior
Subordinated Debentures. If the Institutional Trustee fails to enforce its
rights under the Junior Subordinated Debentures, a holder of Preferred
Securities may institute a legal proceeding against PEPCO to enforce the
Institutional Trustee's rights under the Junior Subordinated Debentures
without first
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instituting any legal proceeding against the Institutional Trustee or any
other person or entity. Notwithstanding the foregoing, if a Declaration Event
of Default has occurred and is continuing, and such event is attributable to
the failure of PEPCO to pay interest or principal on the Junior Subordinated
Debentures on the date such interest or principal is otherwise payable (or in
the case of redemption, on the redemption date), then a holder of Preferred
Securities may institute a Direct Action for enforcement of payment to such
holder of the principal or interest on the Junior Subordinated Debenture
having a principal amount equal to the aggregate liquidation amount of the
Preferred Securities of such holder on or after the respective due dates
specified in the Junior Subordinated Debentures. In connection with such
Direct Action, PEPCO will be subrogated to the rights of such holder of
Preferred Securities under the Declaration to the extent of any payment made
by PEPCO to such holder of Preferred Securities in such Direct Action. PEPCO,
under the Guarantee, acknowledges that the Guarantee Trustee shall enforce the
Guarantee on behalf of the holders of the Preferred Securities. If PEPCO fails
to make payments under the Guarantee, any holder of Preferred Securities may
institute a Direct Action against PEPCO to enforce the Guarantee Trustee's
rights under the Guarantee without first instituting a legal proceeding
against the Trust, the Guarantee Trustee, or any other person or entity.
UNITED STATES FEDERAL INCOME TAXATION
GENERAL
In the opinion of Covington & Burling, special tax counsel to PEPCO and the
Trust ("Tax Counsel"), the following is a summary of certain of the material
United States federal income tax consequences of the purchase, ownership and
disposition of Preferred Securities held as capital assets by a holder who
purchases such Preferred Securities upon initial issuance. It does not deal
with special classes of holders such as banks, thrifts, real estate investment
trusts, regulated investment companies, insurance companies, dealers in
securities or currencies, tax-exempt investors, or persons that will hold the
Preferred Securities as a position in a "straddle," as part of a "synthetic
security" or "hedge," as part of a "conversion transaction" or other
integrated investment, or as other than a capital asset. This summary also
does not address the tax consequences to persons that have a functional
currency other than the U.S. Dollar or the tax consequences to shareholders,
partners or beneficiaries of a holder of Preferred Securities. Further, it
does not include any description of any alternative minimum tax consequences
or the tax laws of any state or local government or of any foreign government
that may be applicable to the Preferred Securities. This summary is based on
the Internal Revenue Code of 1986, as amended (the "Code"), Treasury
regulations thereunder and administrative and judicial interpretations
thereof, as of the date hereof, all of which are subject to change, possibly
on a retroactive basis.
CLASSIFICATION OF THE JUNIOR SUBORDINATED DEBENTURES
In connection with the issuance of the Junior Subordinated Debentures, Tax
Counsel will render its opinion generally to the effect that under then
current law and assuming full compliance with the terms of the Indenture (and
certain other documents), and based on certain facts and assumptions contained
in such opinion, the Junior Subordinated Debentures will be classified for
United States federal income tax purposes as indebtedness of PEPCO.
CLASSIFICATION OF THE TRUST
In connection with the issuance of the Preferred Securities, Tax Counsel
will render its opinion generally to the effect that, under then current law
and assuming full compliance with the terms of the Declaration and the
Indenture (and certain other documents), and based on certain facts and
assumptions contained in such opinion, the Trust will be classified for United
States federal income tax purposes as a grantor trust and not as an
association taxable as a corporation. Accordingly, for United States federal
income tax purposes, each holder of Preferred Securities generally will be
considered the owner of an undivided interest in the Junior Subordinated
Debentures, and each holder will be required to include in its gross income
any interest (or OID accrued) with respect to its allocable share of those
Junior Subordinated Debentures.
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INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT
Under Treasury regulations promulgated under the OID provisions of the Code
(the "Regulations"), a "remote" contingency that stated interest will not be
timely paid will be ignored in determining whether a debt instrument is issued
with OID. PEPCO believes that the likelihood of its exercising its option to
defer payments of interest is "remote" since exercising that option would
prevent PEPCO from declaring dividends on any class of its equity securities.
Accordingly, PEPCO intends to take the position, based on the advice of Tax
Counsel, that the Junior Subordinated Debentures will not be considered to be
issued with OID and, accordingly, stated interest on the Junior Subordinated
Debentures generally will be taxable to a holder as ordinary income at the
time it is paid or accrued in accordance with such holder's method of
accounting.
Under the Regulations, if PEPCO were to exercise its option to defer
payments of interest, the Junior Subordinated Debentures would at that time be
treated as issued with OID, and all stated interest on the Junior Subordinated
Debentures would thereafter be treated as OID as long as the Junior
Subordinated Debentures remain outstanding. In such event, all of a holder's
taxable interest income with respect to the Junior Subordinated Debentures
would thereafter be accounted for on an economic accrual basis regardless of
such holder's method of tax accounting, and actual distributions of stated
interest would not be reported as taxable income. Consequently, a holder of
Preferred Securities would be required to include in gross income OID even
though PEPCO would not make actual cash payments during an Extension Period.
The Regulations as they pertain to the issues addressed in this section have
not yet been addressed in any rulings or other interpretations by the Internal
Revenue Service (the "IRS"), and it is possible that the IRS could take a
position contrary to Tax Counsel's interpretation herein.
Because income on the Preferred Securities will constitute interest or OID,
corporate holders of the Preferred Securities will not be entitled to a
dividends-received deduction with respect to any income recognized with
respect to the Preferred Securities.
RECEIPT OF JUNIOR SUBORDINATED DEBENTURES OR CASH UPON LIQUIDATION OF THE
TRUST
PEPCO will have the right at any time to liquidate the Trust and cause the
Junior Subordinated Debentures to be distributed to the holders of the Trust
Securities. Under current law, such a distribution, for United States federal
income tax purposes, would be treated as a nontaxable event to each holder,
and each holder would receive an aggregate tax basis in the Junior
Subordinated Debentures equal to such holder's aggregate tax basis in its
Preferred Securities. A holder's holding period in the Junior Subordinated
Debentures so received in liquidation of the Trust would include the period
during which the Preferred Securities were held by such holder. If, however,
the Trust is characterized for United States federal income tax purposes as an
association taxable as a corporation at the time of its dissolution, the
distribution of the Junior Subordinate Debentures may constitute a taxable
event to holders of Preferred Securities.
Under certain circumstances described herein (see "Description of the
Preferred Securities"), the Junior Subordinated Debentures may be redeemed for
cash and the proceeds of such redemption distributed to holders in redemption
of their Preferred Securities. Under current law, such a redemption would, for
United States federal income tax purposes, constitute a taxable disposition of
the redeemed Preferred Securities, and a holder could recognize gain or loss
as if it sold such redeemed Preferred Securities for cash. See "Sales of
Preferred Securities" below.
SALES OF PREFERRED SECURITIES
A holder that sells Preferred Securities (including a redemption of
Preferred Securities) will recognize gain or loss equal to the difference
between its adjusted tax basis in the Preferred Securities and the amount
realized on the sale of such Preferred Securities (other than with respect to
accrued and unpaid interest which has not yet been included in income, which
will be treated as ordinary income). A holder's adjusted tax basis in the
Preferred Securities generally will be its initial purchase price increased by
OID (if any) previously includable in such
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holder's gross income to the date of disposition and decreased by payments
received on the Preferred Securities in respect of OID (if any). Such gain or
loss generally will be a capital gain or loss and generally will be a long-
term capital gain or loss if the Preferred Securities have been held for more
than one year. In the case of individuals, long-term capital gains are taxed
at a lower rate if the holder held the Preferred Securities for more than 18
months.
The Preferred Securities may trade at a price that does not accurately
reflect the value of accrued but unpaid interest with respect to the
underlying Junior Subordinated Debentures. A holder who uses the accrual
method of accounting for tax purposes (and a cash method holder, if the Junior
Subordinated Debentures are deemed to have been issued with OID) and who
disposes of his Preferred Securities between record dates for payments of
distributions thereon will be required to include accrued but unpaid interest
on the Junior Subordinated Debentures through the date of disposition in
income as ordinary income (i.e., interest or, possibly, OID), and to add such
amount to his adjusted tax basis in his pro rata share of the underlying
Junior Subordinated Debentures deemed disposed of. To the extent the selling
price is less than the holder's adjusted tax basis (which will include all
accrued but unpaid interest) a holder will recognize a capital loss. Subject
to certain limited exceptions, capital losses cannot be applied to offset
ordinary income for United States federal income tax purposes.
UNITED STATES ALIEN HOLDERS
For purposes of this discussion, a "United States Alien Holder" is any
corporation, individual, partnership, estate or trust that is not a U.S.
Holder for United States federal income tax purposes.
A "U.S. Holder" is a beneficial owner of Preferred Securities who or which
is (i) a citizen or individual resident (or is treated as a citizen or
individual resident) of the United States for federal income tax purposes,
(ii) a corporation or partnership created or organized in or under the laws of
the United States or any political subdivision thereof, (iii) an estate the
income of which is includable in its gross income for federal income tax
purposes without regard to its source or (iv) a trust if, and only if, (x) a
court within the United States is able to exercise primary supervision over
the administration of the trust and (y) one or more United States trustees
have the authority to control all substantial decisions of the trust.
Under current United States federal income tax law: (i) payments by the
Trust or any of its paying agents to any holder of a Preferred Security who or
which is a United States Alien Holder will not be subject to United States
federal withholding tax; provided that, (a) the beneficial owner of the
Preferred Security does not actually or constructively own 10 percent or more
of the total combined voting power of all classes of stock of PEPCO entitled
to vote, (b) the beneficial owner of the Preferred Security is not a
controlled foreign corporation that is related to PEPCO through stock
ownership, and (c) either (A) the beneficial owner of the Preferred Security
certifies to the Trust or its agent, under penalties of perjury, that it is
not a U.S. Holder and provides its name and address or (B) a securities
clearing organization, bank or other financial institution that holds
customers' securities in the ordinary course of its trade or business (a
"Financial Institution"), and holds the Preferred Security in such capacity,
certifies to the Trust or its agent, under penalties of perjury, that such
statement has been received from the beneficial owner by it or by a Financial
Institution between it and the beneficial owner and furnishes the Trust or its
agent with a copy thereof; and (ii) a United States Alien Holder of a
Preferred Security will not be subject to United States federal withholding
tax on any gain realized upon the sale or other disposition of a Preferred
Security.
INFORMATION REPORTING TO HOLDERS
Generally, income on the Preferred Securities will be reported to holders on
Forms 1099, which forms should be mailed to holders of Preferred Securities by
January 31 following each calendar year.
BACKUP WITHHOLDING
Payments made on, and proceeds from the sale of, the Preferred Securities
may be subject to a "backup" withholding tax of 31 percent unless the holder
complies with certain identification requirements. Any withheld amounts will
be allowed as a credit against the holder's United States federal income tax,
provided the required information is provided to the IRS.
S-31
<PAGE>
THE UNITED STATES FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED
FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A
HOLDER'S PARTICULAR SITUATION. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH
RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND
DISPOSITION OF THE PREFERRED SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER
STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES
IN UNITED STATES FEDERAL OR OTHER TAX LAWS.
ERISA CONSIDERATIONS
Each fiduciary of a pension, profit-sharing or other employee benefit plan
subject to the Employee Retirement Income Security Act of 1974, as amended
("ERISA") (a "Plan"), should consider the fiduciary standards of ERISA in the
context of the Plan's particular circumstances before authorizing an
investment in the Preferred Securities. Accordingly, among other factors, the
fiduciary should consider whether the investment would satisfy the prudence
and diversification requirements of ERISA and would be consistent with the
documents and instruments governing the Plan, and whether such investment
would involve a prohibited transaction under Section 406 of ERISA or Section
4975 of the Code. Each of PEPCO, the obligor with respect to the Junior
Subordinated Debentures held by the Trust, and its affiliates and the
Institutional Trustee may be considered a "party in interest" (within the
meaning of ERISA) or a "disqualified person" (within the meaning of Section
4975 of the Code) with respect to many Plans that are subject to ERISA. The
purchase and/or holding of Preferred Securities by a Plan that is subject to
the fiduciary responsibility provisions of ERISA or the prohibited transaction
provisions of Section 4975 of the Code (including individual retirement
arrangements and other plans described in Section 4975(e)(1) of the Code) and
with respect to which PEPCO, the Institutional Trustee or any affiliate is a
service provider (or otherwise is a party in interest or a disqualified
person) may constitute or result in a prohibited transaction under ERISA or
Section 4975 of the Code, unless such Preferred Securities are acquired
pursuant to and in accordance with an applicable exemption, such as Prohibited
Transaction Class Exemption ("PTCE") 84-14 (an exemption for certain
transactions determined by an independent qualified professional asset
manager), PTCE 91-38 (an exemption for certain transactions involving bank
collective investment funds), PTCE 90-1 (an exemption for certain transactions
involving insurance company pooled separate accounts), PTCE 95-60 (an
exemption for transactions involving certain insurance company general
accounts) or PTE 96-23 (an exemption for plan asset transactions managed by
in-house asset managers).
Any purchaser proposing to acquire Preferred Securities with assets of any
Plan should consult with its ERISA counsel.
S-32
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in a purchase agreement (the
"Underwriting Agreement"), the Trust has agreed to sell to each of the
Underwriters named below, and each of the Underwriters, for whom Merrill
Lynch, Pierce, Fenner & Smith Incorporated, A.G. Edwards & Sons, Inc.,
PaineWebber Incorporated, Prudential Securities Incorporated and Smith Barney,
Inc. are acting as Representatives (the "Representatives"), has severally
agreed to purchase the number of Preferred Securities set forth opposite its
name below. In the Underwriting Agreement, the several Underwriters have
agreed, subject to the terms and conditions set forth therein, to purchase all
the Preferred Securities offered hereby if any of the Preferred Securities are
purchased. In the event of default by an Underwriter, the Underwriting
Agreement provides that, in certain circumstances, the purchase commitments of
the non-defaulting Underwriters may be increased or the Underwriting Agreement
may be terminated.
<TABLE>
<CAPTION>
NUMBER OF
PREFERRED
UNDERWRITERS SECURITIES
------------ ----------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.............................................
A.G. Edwards & Sons, Inc..........................................
PaineWebber Incorporated..........................................
Prudential Securities Incorporated................................
Smith Barney, Inc. ...............................................
----
Total.............................................................
====
</TABLE>
The Underwriters propose to offer the Preferred Securities, in part,
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus Supplement, and, in part, to certain securities
dealers at such price less a concession of $ per Preferred Security. The
Underwriters may allow, and such dealers may reallow, a concession not in
excess of $ per Preferred Security to certain brokers and dealers. After
the Preferred Securities are released for sale to the public, the offering
price and other selling terms may be changed.
In view of the fact that the proceeds of the sale of the Preferred
Securities will be used to purchase the Junior Subordinated Debentures of
PEPCO, the Underwriting Agreement provides that PEPCO will pay as compensation
("Underwriters' Compensation") to the Underwriters arranging the investment
therein of such proceeds, an amount in immediately available funds of $ per
Preferred Security (or $ in the aggregate) for the accounts of the several
Underwriters.
During a period of 30 days from the date of the Prospectus Supplement,
neither the Trust nor PEPCO will, without the prior written consent of the
Underwriters, directly or indirectly, sell, offer to sell, grant any option
for sale of, or otherwise dispose of, any Preferred Securities, any security
convertible into or exchangeable into or exercisable for Preferred Securities
or Junior Subordinated Debentures or any debt securities substantially similar
to the Junior Subordinated Debentures or equity securities substantially
similar to the Preferred Securities (except for the Junior Subordinated
Debentures and the Preferred Securities offered hereby).
The Preferred Securities constitute a new issue of securities of the Trust
with no established trading market. Application will be made to list the
Preferred Securities on the NYSE. Trading of the Preferred Securities on the
NYSE is expected to commence within a 30-day period after the initial delivery
of the Preferred Securities. There can be no assurance that an active market
for the Preferred Securities will develop or be sustained in the future on
such exchange. Although the Underwriters have indicated to PEPCO and the Trust
that they intend to make a market in the Preferred Securities, as permitted by
applicable laws and regulations prior to the commencement of trading on the
NYSE, they are not obligated to do so and may discontinue any such
marketmaking at any time without notice. Accordingly, no assurance can be
given as to the liquidity of, or trading markets for, the Preferred
Securities.
S-33
<PAGE>
The Trust and PEPCO have agreed to indemnify the Underwriters against, or
contribute to payments that the Underwriters may be required to make in
respect of, certain liabilities, including liabilities under the Securities
Act of 1933, as amended.
Until the distribution of the Preferred Securities is completed, rules of
the Commission may limit the ability of the Underwriters and any selling group
members to bid for and purchase the Preferred Securities. As an exception to
these rules, the Representatives are permitted to engage in certain
transactions that stabilize the price of the Preferred Securities. Such
transactions consist of bids or purchases for the purposes of pegging, fixing
or maintaining the price of the Preferred Securities.
If the Underwriters create a short position in the Preferred Securities in
connection with the offering (i.e., if they sell more Preferred Securities
than are set forth on the cover page of this Prospectus Supplement), the
Underwriters may reduce the short position by purchasing Preferred Securities
in the open market.
The Representatives may also impose a penalty bid on certain Underwriters
and selling group members. This means that if the Representatives purchase
Preferred Securities in the open market to reduce the Underwriters' short
position or to stabilize the price of the Preferred Securities, they may
reclaim the amount of the selling concession from the Underwriters and selling
group members who sold those Preferred Securities as part of the offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher
than it might be in the absence of such purchases. The imposition of a penalty
bid might also have an effect on the price of a security to the extent that it
were to discourage resales of the security.
None of PEPCO, the Trust nor any of the Underwriters makes any
representation or prediction as to the direction or magnitude of any effect
that the transactions described above may have on the price of the Preferred
Securities. In addition, none of PEPCO, the Trust nor any of the Underwriters
makes any representation that the Representatives will engage in such
transactions or that such transactions, once commenced, will not be
discontinued without notice.
Certain of the Underwriters engage in transactions with, and, from time to
time, have performed services for, PEPCO and its subsidiaries in the ordinary
course of business.
S-34
<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. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
PROSPECTUS PRELIMINARY PROSPECTUS DATED MAY 7, 1998
POTOMAC ELECTRIC POWER COMPANY TRUST I
PREFERRED SECURITIES
FULLY AND UNCONDITIONALLY GUARANTEED BY
POTOMAC ELECTRIC POWER COMPANY
Potomac Electric Power Company Trust I (the "Trust"), a statutory business
trust formed under the laws of the State of Delaware by Potomac Electric Power
Company, a District of Columbia and Virginia corporation ("PEPCO" or the
"Company"), is offering preferred securities representing undivided beneficial
interests in the assets of the Trust ("Preferred Securities"). The payment of
periodic cash distributions ("distributions") with respect to Preferred
Securities out of moneys held by the Trust, and payments on liquidation,
redemption or otherwise with respect to such Preferred Securities, will be
guaranteed by PEPCO to the extent described herein (the "Preferred Securities
Guarantee"). See "Description of the Preferred Securities Guarantee." PEPCO's
obligations under the Preferred Securities Guarantee will be subordinate and
junior in right of payment to all other liabilities of PEPCO and will rank pari
passu with the most senior preferred or preference stock, if any, issued from
time to time by PEPCO. The Trust will invest the proceeds from the offering of
Preferred Securities and Common Securities (as defined herein) in subordinated
debt securities ("Junior Subordinated Debentures") issued by PEPCO. The Junior
Subordinated Debentures purchased by the Trust may be subsequently distributed
pro rata to holders of Preferred Securities and Common Securities in connection
with the dissolution of the Trust upon the occurrence of certain events as
described in an accompanying Prospectus Supplement (the "Prospectus
Supplement"). The Preferred Securities, the Preferred Securities Guarantee and
the Junior Subordinated Debentures are sometimes collectively referred to
hereafter as the "Offered Securities."
The form in which the Offered Securities are to be issued, their specific
designation, aggregate principal amount or liquidation value or aggregate
initial offering price, maturity, if any, rate and times of payment of interest
or dividends, if any, redemption, conversion, and sinking fund terms, if any,
voting or other rights, if any, exercise price and detachability, if any, and
other specific terms will be set forth in the Prospectus Supplement, together
with the terms of offering of such Offered Securities. Any such Prospectus
Supplement will also contain information, as applicable, about certain material
United States federal income tax considerations relating to the particular
Offered Securities offered thereby.
PEPCO and/or the Trust may sell the Offered Securities directly, through
agents designated from time to time, or through underwriters or dealers. See
"Plan of Distribution." If any agents of PEPCO and/or the Trust or any
underwriters or dealers are involved in the sale of the Offered Securities, the
names of such agents, underwriters or dealers and any applicable commissions
and discounts will be set forth in any related Prospectus Supplement.
This Prospectus may not be used to consummate sales of securities unless
accompanied by a Prospectus Supplement.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
-----------
The date of this Prospectus is , 1998
<PAGE>
AVAILABLE INFORMATION
This Prospectus constitutes a part of a combined Registration Statement on
Form S-3 (together with all amendments and exhibits thereto, the "Registration
Statement") filed by PEPCO and the Trust with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended
(the "Securities Act"), with respect to the Offered Securities. This
Prospectus does not contain all of the information set forth in such
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission, although it does include a
summary of the material terms of the Indenture and the Declaration (each as
defined herein). Reference is made to such Registration Statement and to the
exhibits thereto for further information with respect to the Company, the
Trust and the Offered Securities. Any statements contained herein concerning
the provisions of any document filed as an exhibit to the Registration
Statement or otherwise filed with the Commission or incorporated by reference
herein are not necessarily complete, and, in each instance, reference is made
to the copy of such document so filed for a more complete description of the
matter involved. Each such statement is qualified in its entirety by such
reference.
PEPCO 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
Commission. Proxy statements, reports and other information concerning PEPCO
can be inspected and copied at the Commission's office at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and the Commission's
Regional Offices in New York (Suite 1300, Seven World Trade Center, New York,
New York 10048) and Chicago (Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661), and copies of such material can
be obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates, or by accessing the
Commission's World Wide Web site at http://www.sec.gov. The common stock,
$1.00 par value, of PEPCO (the "Common Stock") and other securities of PEPCO
are listed on the New York Stock Exchange ("NYSE"). Reports, proxy material
and other information concerning PEPCO also may be inspected at the offices of
the NYSE, 20 Broad Street, New York, New York 10005.
No separate financial statements of the Trust have been included herein.
PEPCO does not consider that such financial statements would be material to
holders of the Preferred Securities because (i) all of the voting securities
of the Trust will be owned, directly or indirectly, by PEPCO, a reporting
company under the Exchange Act, (ii) the Trust has no independent operations
but exists for the sole purpose of issuing securities representing undivided
beneficial interests in the assets of the Trust and investing the proceeds
thereof in Junior Subordinated Debentures issued by PEPCO, and (iii) PEPCO's
obligations described herein and in any accompanying Prospectus Supplement to
provide certain indemnities in respect of, and be responsible for, certain
costs, expenses, debts and liabilities of the Trust under the Indenture and
any supplemental indenture thereto and pursuant to the Declaration, the
Preferred Securities Guarantee issued with respect to Preferred Securities,
the Junior Subordinated Debentures purchased by the Trust and the Indenture,
taken together, constitute a full and unconditional guarantee of payments due
on the Preferred Securities. See "Description of the Junior Subordinated
Debentures" and "Description of the Preferred Securities Guarantee."
The Trust is not currently subject to the informational requirements of the
Exchange Act. The Trust will become subject to such requirements upon the
effectiveness of the Registration Statement, although it intends to seek and
expects to receive an exemption therefrom.
2
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following document filed with the Commission by PEPCO is incorporated by
reference in this Prospectus:
Annual Report on Form 10-K for the year ended December 31, 1997.
All documents filed with the Commission by PEPCO pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of the offering of the Offered
Securities shall be deemed to be incorporated by reference in this Prospectus
and to be a part hereof from the date of filing of such documents. Any
statement contained in this Prospectus or in a document incorporated or deemed
to be incorporated by reference herein or in any Prospectus Supplement shall
be deemed to be modified or superseded for purposes of this Prospectus or any
Prospectus Supplement to the extent that a statement contained herein or
therein (or in any subsequently filed document that also is or is deemed to be
incorporated by reference herein or therein) modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this Prospectus or any
Prospectus Supplement.
The Company hereby undertakes to furnish, without charge, to each person,
including any beneficial owner, to whom a copy of this Prospectus has been
delivered, on the written or oral request of any such person, a copy of any or
all of the documents referred to above which have been or may be incorporated
by reference in this Prospectus, other than exhibits to such documents.
Requests for such documents should be directed to Ellen Sheriff Rogers,
Associate General Counsel, Secretary and Assistant Treasurer, Potomac Electric
Power Company, 1900 Pennsylvania Avenue, N.W., Washington, D.C. 20068, (202)
872-3526.
POTOMAC ELECTRIC POWER COMPANY
Potomac Electric Power Company, a District of Columbia and Virginia
corporation, is engaged in the generation, transmission, distribution and sale
of electric energy in the Washington, D.C. metropolitan area, including the
District of Columbia and major portions of Montgomery and Prince George's
Counties in Maryland. It also supplies, at wholesale, electric energy to the
Southern Maryland Electric Cooperative, Inc., which distributes electricity in
Calvert, Charles, Prince George's and St. Mary's Counties in southern
Maryland. PEPCO's wholly owned nonutility subsidiary, Potomac Capital
Investment Corporation ("PCI"), was organized in late 1983 to provide a
vehicle to conduct PEPCO's ongoing nonutility business and investment
programs. PCI's principal investments consist of equipment leases and
marketable securities, primarily preferred stock with mandatory redemption
features, and real estate. PCI is also involved with activities which provide
telecommunication and energy services. The mailing address of PEPCO's
executive offices is 1900 Pennsylvania Avenue, N.W., Washington, D.C. 20068,
and its telephone number is (202) 872-2000.
3
<PAGE>
THE TRUST
The Trust is a statutory business trust formed under Delaware law pursuant
to (i) a declaration of trust executed by PEPCO, as sponsor for the Trust (the
"Sponsor"), and the Trustees (as defined herein) of the Trust, as amended and
restated from time to time (the "Declaration"), and (ii) the filing of a
certificate of trust with the Delaware Secretary of State. The Trust exists
for the exclusive purposes of (i) issuing the Preferred Securities and common
securities representing undivided beneficial interests in the assets of the
Trust (the "Common Securities" and, together with the Preferred Securities,
the "Trust Securities"), (ii) investing the gross proceeds from the sale of
the Trust Securities in Junior Subordinated Debentures, and (iii) engaging in
only those other activities necessary or incidental thereto. All of the Common
Securities will be directly or indirectly owned by PEPCO. The Common
Securities will rank pari passu, and payments will be made thereon pro rata,
with the Preferred Securities, except that upon an event of default under the
Declaration with respect thereto, the rights of the holders of the Common
Securities to payment in respect of distributions and to payments upon
liquidation, redemption and otherwise will be subordinated to the rights of
the holders of the Preferred Securities. PEPCO will, directly or indirectly,
acquire Common Securities in an aggregate liquidation amount equal to at least
3 percent of the total capital of the Trust.
The Trust has a term of approximately 50 years, but may terminate earlier as
provided in the Declaration. The Trust's business and affairs will be
conducted by the trustees (the "Trustees") appointed by PEPCO, as the direct
or indirect holder of all the Common Securities. The holder of the Common
Securities will be entitled to appoint, remove or replace any of, or increase
or reduce the number of, the Trustees. The duties and obligations of the
Trustees shall be governed by the Declaration. One or more of the Trustees
will be persons who are employees or officers of PEPCO (the "Regular
Trustees"). One Trustee will be a financial institution which will be
unaffiliated with PEPCO and which shall act as institutional trustee under the
Declaration and as indenture trustee for purposes of the Trust Indenture Act
of 1939, as amended (the "Trust Indenture Act"), pursuant to the terms set
forth in a Prospectus Supplement (the "Institutional Trustee"). In addition,
unless the Institutional Trustee maintains a principal place of business in
the State of Delaware, and otherwise meets the requirements of applicable law,
one Trustee will have its principal place of business or reside in the State
of Delaware (the "Delaware Trustee"). PEPCO will pay all fees and expenses
related to the Trust and the offering of Trust Securities.
DESCRIPTION OF THE JUNIOR SUBORDINATED DEBENTURES
The Junior Subordinated Debentures will be issued under an indenture, as it
may be supplemented from time to time (the "Indenture"), between the Company
and The Bank of New York, as trustee (the "Debt Trustee"). The form of the
Indenture has been filed as an exhibit to the Registration Statement of which
this Prospectus is a part. The terms of the Junior Subordinated Debentures
will include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act. While the following summary
of the material terms does not purport to be complete and is subject in all
respects to the provisions of, and is qualified in its entirety by reference
to, the Indenture and the Trust Indenture Act, all material terms of the
Junior Subordinated Debentures are set forth herein and in any Prospectus
Supplement relating to the particular Junior Subordinated Debentures being
offered thereby.
GENERAL
The Junior Subordinated Debentures will be unsecured obligations of the
Company. The Indenture does not limit the aggregate principal amount of Junior
Subordinated Debentures which may be issued thereunder and provides that the
Junior Subordinated Debentures may be issued from time to time in one or more
series.
The Junior Subordinated Debentures may be distributed pro rata to the
holders of the Trust Securities in connection with the liquidation of the
Trust upon the occurrence of certain events described in the Prospectus
Supplement.
4
<PAGE>
Reference is made to the Prospectus Supplement relating to the particular
Junior Subordinated Debentures being offered thereby for the following terms:
(1) the designation of such Junior Subordinated Debentures; (2) the aggregate
principal amount of such Junior Subordinated Debentures; (3) the percentage of
their principal amount at which such Junior Subordinated Debentures will be
issued; (4) the date or dates on which such Junior Subordinated Debentures
will mature and the right, if any, to shorten or extend such date or dates;
(5) the rate or rates, if any, per annum, at which such Junior Subordinated
Debentures will bear interest, or the method of determination of such rate or
rates; (6) the date or dates from which such interest shall accrue, the
interest payment dates on which such interest will be payable or the manner of
determination of such interest payment dates and the record dates for the
determination of holders to whom interest is payable on any such interest
payment dates; (7) the right, if any, to extend the interest payment periods
and the duration of such extension; (8) provisions, if any, for a sinking
purchase or other analogous fund; (9) the period or periods, if any, within
which, the price or prices of which, and the terms and conditions upon which
such Junior Subordinated Debentures may be redeemed, in whole or in part, at
the option of PEPCO or the holder; (10) the form of such Junior Subordinated
Debentures; and (11) any other specific terms of the Junior Subordinated
Debentures.
The covenants contained in the Indenture would not necessarily afford
protection to holders of the Junior Subordinated Debentures in the event of a
decline in credit quality resulting from takeovers, recapitalizations or
similar restructurings.
FORM, EXCHANGE, REGISTRATION, TRANSFER AND PAYMENT
Unless otherwise specified in the Prospectus Supplement, the Junior
Subordinated Debentures will be issued in fully registered form without
coupons and in denominations of $1,000 and multiples of $1,000. No service
charge will be made for any transfer or exchange of the Junior Subordinated
Debentures, but the Company or the Debt Trustee may require payment of a sum
sufficient to cover any tax or other government charge payable in connection
therewith.
Unless otherwise provided in the Prospectus Supplement, principal and
premium, if any, or interest, if any, will be payable and the Junior
Subordinated Debentures may be surrendered for payment or transferred at the
offices of the Debt Trustee as paying and authenticating agent, provided that
payment of interest on Junior Subordinated Debentures that are not held by the
Trust may be made at the option of PEPCO by check mailed to the address of the
person entitled thereto as it appears in the security register.
BOOK-ENTRY JUNIOR SUBORDINATED DEBENTURES
The Junior Subordinated Debentures of a series may be issued, in whole or in
part, in the form of one or more instruments that will be deposited with, or
on behalf of, a depositary (the "Global Depositary"), or its nominee,
identified in the Prospectus Supplement relating to such series (a "Global
Debenture"). In such a case, one or more Global Debentures will be issued in a
denomination or aggregate denomination equal to the portion of the aggregate
principal amount of outstanding Junior Subordinated Debentures of the series
to be represented by such Global Security. Unless and until it is exchanged in
whole or in part for Junior Subordinated Debentures in definitive registered
form, a Global Debenture may not be registered for transfer or exchange,
except as a whole by the Global Depositary to a nominee for such Global
Depositary and except in the circumstances described in the Prospectus
Supplement.
The specific terms of the depositary arrangement with respect to any portion
of the Junior Subordinated Debentures to be represented by a Global Debenture
and a description of the Global Depositary will be provided in the Prospectus
Supplement.
SUBORDINATION
The Junior Subordinated Debentures will be subordinated and junior in right
of payment to certain other indebtedness of PEPCO to the extent set forth in
the Prospectus Supplement.
5
<PAGE>
CERTAIN COVENANTS OF PEPCO
If (i) there shall have occurred any event that would constitute an
Indenture Event of Default (as defined herein), (ii) PEPCO shall be in default
with respect to its payment of any obligations under the related Preferred
Securities Guarantee or Common Securities Guarantee (as defined herein), or
(iii) PEPCO shall have given notice of its election to defer payments of
interest on such Junior Subordinated Debentures by extending the interest
payment period as provided in the Supplemental Indenture and such period, or
any extension thereof, shall be continuing, then (a) PEPCO shall not declare
or pay any dividend on, make any distributions with respect to, or redeem,
purchase, acquire or make a liquidation payment with respect to, any of its
capital stock (other than (y) purchases or acquisitions of shares of Common
Stock in connection with the satisfaction by PEPCO of its obligations under
any employee benefit plans or any other contractual obligation of PEPCO (other
than a contractual obligation ranking pari passu with or junior to the Junior
Subordinated Debentures) or (z) the purchase of fractional interests in shares
of PEPCO capital stock pursuant to the conversion or exchange provisions of
such PEPCO capital stock or the security being converted or exchanged), (b)
PEPCO shall not make any payment of interest, principal or premium, if any, on
or repay, repurchase or redeem any debt securities issued by PEPCO which rank
pari passu with or junior to such Junior Subordinated Debentures and (c) PEPCO
shall not make any guarantee payments with respect to the foregoing (other
than pursuant to the Preferred Securities Guarantee).
For so long as the Trust Securities remain outstanding, PEPCO will covenant
(i) directly or indirectly to maintain 100 percent ownership of the Common
Securities; provided, however, that any permitted successor of PEPCO under the
Indenture may succeed to PEPCO's ownership of such Common Securities, (ii) to
use its reasonable efforts to cause the Trust (a) to remain a statutory
business trust, except in connection with the distribution of Junior
Subordinated Debentures to the holders of Trust Securities in liquidation of
the Trust, the redemption of all of the Trust Securities, or certain mergers,
consolidations or amalgamations, each as permitted by the Declaration, and (b)
otherwise to continue not to be treated as an association taxable as a
corporation or a partnership for United States federal income tax purposes and
(iii) to use its reasonable efforts to cause each holder of Trust Securities
to be treated as owning an undivided beneficial interest in the Junior
Subordinated Debentures.
LIMITATION ON MERGERS AND SALES OF ASSETS
PEPCO shall not consolidate with, or merge into, any corporation or convey
or transfer its properties and assets substantially as an entirety to any
person or entity unless (a) the successor shall be a corporation organized
under the laws of any domestic jurisdiction and shall expressly assume the
obligations of PEPCO under the Indenture and (b) after giving effect thereto,
no default under the Indenture shall have occurred and be continuing under the
Indenture.
EVENTS OF DEFAULT, WAIVER AND NOTICE
The Indenture provides that any one or more of the following described
events which has occurred and is continuing constitutes an event of default
with respect to each series of Junior Subordinated Debentures (an "Indenture
Event of Default"):
(a) default for 30 days in payment of any interest on the Junior
Subordinated Debentures of that series, when due; provided, however, that a
valid extension of the interest payment period by the Company shall not
constitute a default in the payment of interest for this purpose; or
(b) default in payment of principal of, or premium, if any, on, the
Junior Subordinated Debentures of that series when due either at maturity,
upon redemption, by declaration or otherwise; provided, however, that a
valid extension of the maturity of such Junior Subordinated Debentures
shall not constitute a default for this purpose; or
(c) default by the Company in the performance of any other of the
covenants or agreements in the Indenture which shall not have been remedied
for a period of 90 days after notice to PEPCO; or
(d) certain events of bankruptcy, insolvency or reorganization of PEPCO;
or
6
<PAGE>
(e) after Junior Subordinated Debentures are issued to the Trust in
connection with the issuance of Trust Securities by the Trust, the
voluntary or involuntary dissolution, winding-up or termination of the
Trust, except in connection with the distribution of Junior Subordinated
Debentures to the holders of Trust Securities in liquidation of the Trust,
the redemption of all of the Trust Securities, or certain mergers,
consolidations or amalgamations, each as permitted by the Declaration.
The Indenture provides that, if an Indenture Event of Default on any series
of Junior Subordinated Debentures shall have occurred and be continuing,
either the Debt Trustee or the holders of not less than 25 percent in
aggregate principal amount of the Junior Subordinated Debentures of such
series then outstanding may declare the principal of all such Junior
Subordinated Debentures of such series to be due and payable immediately. The
holders of a majority in aggregate outstanding principal amount of such series
of Junior Subordinated Debentures may annul such declaration and waive the
default if the default (other than the non-payment of the principal of such
series of Junior Subordinated Debentures which has become due solely by such
acceleration) has been cured and a sum sufficient to pay all matured
installments of interest and principal due otherwise than by acceleration has
been deposited with the Debt Trustee.
The holders of a majority in principal amount of the Junior Subordinated
Debentures of any or all series affected and then outstanding shall have the
right to direct the time, method and place of conducting any proceeding for
any remedy available to the Debt Trustee under the Indenture, provided that
the holders of the Junior Subordinated Debentures shall have offered to the
Debt Trustee reasonable indemnity against expenses and liabilities.
Notwithstanding the foregoing, the right of any holder of Junior Subordinated
Debentures to receive payment of the principal of and interest on such Junior
Subordinated Debentures on or after the due dates therefor, as the same may be
extended in accordance with the terms of such Junior Subordinated Debentures,
or to institute suit for the enforcement of any such payment provisions, shall
not be impaired or affected without the consent of such holder.
The Indenture requires the annual filing by PEPCO with the Debt Trustee of a
certificate as to the absence of defaults under the Indenture.
The Indenture provides that the Debt Trustee may withhold notice to the
holders of a series of Junior Subordinated Debentures of an Indenture Event of
Default (except a default in payment of principal of, or of interest or
premium on, the Junior Subordinated Debentures) if the Debt Trustee in good
faith determines that the withholding of such notice is in the interest of the
holders.
MODIFICATION OF THE INDENTURE
The Indenture contains provisions permitting the Company and the Debt
Trustee, with the consent of the holders of not less than a majority in
principal amount of the Junior Subordinated Debentures of all series affected
by such modification at the time outstanding, and the holders of a majority in
aggregate liquidation amount of the related Preferred Securities, to modify
the Indenture or any supplemental indenture or the rights of the holders of
the Junior Subordinated Debentures; provided that no such modification shall,
without the consent of the holders of each Junior Subordinated Debenture (and
each Preferred Security, if applicable) affected thereby, (i) extend the fixed
maturity of any Junior Subordinated Debenture, or reduce the principal amount
thereof or any premium thereon, or reduce any amount payable on redemption
thereof, or reduce the rate or extend the time of payment of interest thereon,
or make the principal of, or interest or premium on, the Junior Subordinated
Debentures payable in any coin or currency other than that provided in the
Junior Subordinated Debentures, or impair or affect the right of any holder of
Junior Subordinated Debentures to institute suit for the payment thereof or
the right of repayment, if any, at the option of the holder, (ii) reduce the
aforesaid percentage of Junior Subordinated Debentures the consent of the
holders of which is required for any such modification or (iii) otherwise
materially adversely affect the interest of the holders of any series of
Junior Subordinated Debentures.
DEFEASANCE AND DISCHARGE
The Indenture provides that PEPCO, at PEPCO's option, will be discharged
from any and all obligations in respect of the Junior Subordinated Debentures
of a series (except for certain obligations to register the transfer
7
<PAGE>
or exchange of Junior Subordinated Debentures, replace destroyed, lost, stolen
or mutilated Junior Subordinated Debentures, maintain paying agencies and hold
moneys for payment in trust) if PEPCO deposits, in trust with the Debt Trustee
or a defeasance agent, money or U.S. government obligations which through the
payment of interest thereon and principal thereof in accordance with their
terms will provide money, in an amount sufficient to pay all the principal
(including any mandatory sinking fund payments) of, and interest and premium,
if any, on, the Junior Subordinated Debentures of such series on the dates
such payments are due in accordance with the terms of such Junior Subordinated
Debentures. To exercise any such option, PEPCO is required to deliver to the
Debt Trustee and the defeasance agent, if any, an opinion of counsel to the
effect that (i) the deposit and related defeasance would not cause the holders
of the Junior Subordinated Debentures of such series to recognize income, gain
or loss for U.S. federal income tax purposes, accompanied by a private letter
ruling to that effect received by PEPCO from the United States Internal
Revenue Service or a revenue ruling pertaining to a comparable form of
transaction to that effect published by the United States Internal Revenue
Service, and (ii) if listed on any national securities exchange, such Junior
Subordinated Debentures would not be delisted from such exchange as a result
of the exercise of such option.
GOVERNING LAW
The Indenture and the Junior Subordinated Debentures will be governed by,
and construed in accordance with, the internal laws of the State of New York.
THE DEBT TRUSTEE
PEPCO and its affiliates maintain certain accounts and other banking
relationships with the Debt Trustee and its affiliates in the ordinary course
of business. The Debt Trustee also serves as the Preferred Guarantee Trustee
and as trustee under other indentures of PEPCO.
DESCRIPTION OF THE PREFERRED SECURITIES
The Trust may issue only one series of Preferred Securities. The Preferred
Securities will have the terms described in the Prospectus Supplement. The
Declaration will be qualified as an indenture under the Trust Indenture Act.
The Preferred Securities will have such terms, including distributions,
redemption, voting, liquidation rights and such other preferred, deferred or
other special rights or such restrictions as shall be set forth in the
Declaration or made part of the Declaration by the Trust Indenture Act and
which will mirror the terms of the Junior Subordinated Debentures held by the
Trust and described in the Prospectus Supplement. Reference is made to the
Prospectus Supplement for specific terms, including (i) the distinctive
designation of such Preferred Securities; (ii) the number of Preferred
Securities issuable by the Trust; (iii) the distribution rate (or method of
determining such rate) and the date or dates upon which such distributions
shall be payable; (iv) whether distributions shall be cumulative, and, in the
case of Preferred Securities having such cumulative distribution rights, the
date or dates or method of determining the date or dates from which
distributions shall be cumulative; (v) the amount or amounts which shall be
paid out of the assets of the Trust to the holders of Preferred Securities
upon voluntary or involuntary dissolution, winding-up or termination of the
Trust; (vi) the obligation, if any, of the Trust to purchase or redeem
Preferred Securities and the price or prices at which, the period or periods
within which, and the terms and conditions upon which, Preferred Securities
shall be purchased or redeemed, in whole or in part, pursuant to such
obligation; (vii) the voting rights, if any, of holders of Preferred
Securities in addition to those required by law, including the number of votes
per Preferred Security and any requirement for the approval by the holders of
Preferred Securities as a condition to specified action or amendments to the
Declaration; (viii) the terms and conditions, if any, upon which the Junior
Subordinated Debentures owned by the Trust may be distributed to holders of
Preferred Securities; (ix) if applicable, any securities exchange upon which
the Preferred Securities shall be listed; and (x) any other relevant rights,
preferences, privileges, limitations or restrictions of Preferred Securities
not inconsistent with the Declaration or
8
<PAGE>
with applicable law. All Preferred Securities offered hereby will be
guaranteed by PEPCO to the extent set forth below under "Description of the
Preferred Securities Guarantee." Certain United States federal income tax
considerations applicable to any offering of Preferred Securities will be
described in the Prospectus Supplement.
In connection with the issuance of Preferred Securities, the Trust will
issue one series of Common Securities. The Declaration authorizes the Regular
Trustees of the Trust to issue on behalf of the Trust one series of Common
Securities having such terms including distributions, redemption, voting,
liquidation rights or such restrictions as shall be set forth therein. Except
for voting rights, the terms of the Common Securities will be substantially
identical to the terms of the Preferred Securities and the Common Securities
will rank pari passu, and payments will be made thereon pro rata, with the
Preferred Securities, except that, upon an event of default under the
Declaration, the rights of the holders of the Common Securities to payment in
respect of distributions and payments upon liquidation, redemption and
otherwise will be subordinated to the rights of the holders of the Preferred
Securities. Except in certain limited circumstances, the Common Securities
will also carry the right to vote to appoint, remove or replace any of the
Trustees of the Trust. All of the Common Securities of the Trust will be owned
directly or indirectly by PEPCO.
DESCRIPTION OF THE PREFERRED SECURITIES GUARANTEE
PEPCO will execute and deliver the Preferred Securities Guarantee for the
benefit of the holders from time to time of Preferred Securities. The
Preferred Securities Guarantee will be qualified as an indenture under the
Trust Indenture Act. The Bank of New York will act as indenture trustee under
the Preferred Securities Guarantee for purposes of the Trust Indenture Act
(the "Preferred Guarantee Trustee"). The terms of the Preferred Securities
Guarantee will be those set forth in the Preferred Securities Guarantee and
those made part of such Preferred Securities Guarantee by the Trust Indenture
Act. While the following summary of the material terms of the Preferred
Securities Guarantee does not purport to be complete and is subject in all
respects to the provisions of, and is qualified in its entirety by reference
to, the form of Preferred Securities Guarantee, which is filed as an exhibit
to the Registration Statement of which this Prospectus forms a part, and the
Trust Indenture Act, all material terms of the Preferred Securities Guarantee
are set forth herein and in the Prospectus Supplement relating to the
particular Preferred Securities being offered thereby. The Preferred
Securities Guarantee will be held by the Preferred Guarantee Trustee for the
benefit of the holders of the Preferred Securities.
GENERAL
Pursuant to the Preferred Securities Guarantee, PEPCO will agree, to the
extent set forth therein, to pay in full, to the holders of the Preferred
Securities, the Guarantee Payments (as defined herein), as and when due,
regardless of any defense, right of set-off or counterclaim which the Trust
may have or assert. The following payments with respect to Preferred
Securities to the extent not paid by the Trust (the "Guarantee Payments"),
will be covered by the Preferred Securities Guarantee (without duplication):
(i) any accrued and unpaid distributions which are required to be paid on such
Preferred Securities, to the extent the Trust shall have funds available
therefor; (ii) the redemption price, including all accrued and unpaid
distributions to the date of payment (the "Redemption Price"), to the extent
the Trust has funds available therefor, with respect to any Preferred
Securities called for redemption by the Trust; and (iii) upon a voluntary or
involuntary dissolution, winding-up or termination of the Trust (other than in
connection with the distribution of Junior Subordinated Debentures to the
holders of Preferred Securities or the redemption of all of the Preferred
Securities), the lesser of (a) the aggregate of the liquidation amount and all
accrued and unpaid distributions on such Preferred Securities to the date of
payment, to the extent the Trust has funds available therefor, and (b) the
amount of assets of the Trust remaining available for distribution to holders
of such Preferred Securities in liquidation of the Trust. The redemption price
and liquidation amount will be fixed at the time the Preferred Securities are
issued. PEPCO's obligation to make a Guarantee Payment may be satisfied by
direct payment of the required amounts by PEPCO to the holders of Preferred
Securities or by causing the Trust to pay such amounts to such holders.
9
<PAGE>
The Preferred Securities Guarantee will not apply to any Guarantee Payment,
except to the extent the Trust shall have funds available therefor. If PEPCO
does not make interest payments on the Junior Subordinated Debentures
purchased by the Trust, the Trust will not pay distributions on the Preferred
Securities issued by the Trust and will not have funds available therefor.
The Preferred Securities Guarantee, when taken together with PEPCO's
obligations under the Junior Subordinated Debentures, the Indenture, and the
Declaration, including its obligations to pay costs, expenses, debts and
liabilities of the Trust (other than with respect to the Trust Securities),
will provide a full and unconditional guarantee on a subordinated basis by
PEPCO of payments due on the Preferred Securities.
PEPCO has also agreed separately to guarantee irrevocably and
unconditionally the obligations of the Trust with respect to the Common
Securities (the "Common Securities Guarantee") to the same extent as the
Preferred Securities Guarantee, except that upon an event of default under the
Declaration, holders of Preferred Securities shall have priority over holders
of Common Securities with respect to distributions and payments on
liquidation, redemption or otherwise.
CERTAIN COVENANTS OF PEPCO
In the Preferred Securities Guarantee, PEPCO will covenant that, so long as
any Preferred Securities issued remain outstanding, if there shall have
occurred any event that would constitute an event of default under the
Preferred Securities Guarantee or the Declaration, or if PEPCO has exercised
its option to defer interest payments on the Junior Subordinated Debentures by
extending the interest payment period and such period or extension thereof
shall be continuing, then (a) PEPCO shall not declare or pay any dividend on,
make any distributions with respect to, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of its capital stock (other than (i)
purchases or acquisitions of shares of Common Stock in connection with the
satisfaction by PEPCO of its obligations under any employee benefit plans or
any other contractual obligation of PEPCO (other than a contractual obligation
ranking pari passu with or junior to the Junior Subordinated Debentures) or
(ii) the purchase of fractional interests in shares of PEPCO capital stock
pursuant to the conversion or exchange provisions of such PEPCO capital stock
or the security being converted or exchanged), (b) PEPCO shall not make any
payment of interest, principal or premium, if any, on or repay, repurchase or
redeem any debt securities issued by PEPCO which rank pari passu with or
junior to such Junior Subordinated Debentures and (c) PEPCO shall not make any
guarantee payments with respect to the foregoing (other than pursuant to such
Preferred Securities Guarantee).
MODIFICATION OF THE PREFERRED SECURITIES GUARANTEE; ASSIGNMENT
Except with respect to any changes which do not adversely affect the rights
of holders of Preferred Securities (in which case no consent will be
required), the Preferred Securities Guarantee may be amended only with the
prior approval of the holders of at least a majority in liquidation amount of
the outstanding Preferred Securities. The manner of obtaining any such
approval of holders of such Preferred Securities will be as set forth in an
accompanying Prospectus Supplement. All guarantees and agreements contained in
the Preferred Securities Guarantee shall bind the successors, assigns,
receivers, trustees and representatives of PEPCO and shall inure to the
benefit of the holders of the Preferred Securities then outstanding. Except in
connection with any merger or consolidation of PEPCO with or into another
entity or any sale, transfer or lease of PEPCO's assets to another entity,
each as permitted by the Indenture, PEPCO may not assign its rights or
delegate its obligations under such Preferred Securities Guarantee without the
prior approval of the holders of at least a majority in liquidation amount of
the outstanding Preferred Securities.
TERMINATION
The Preferred Securities Guarantee will terminate as to the Preferred
Securities (a) upon full payment of the Redemption Price of all Preferred
Securities, (b) upon distribution of the Junior Subordinated Debentures held
by the Trust to the holders of the Trust Securities or (c) upon full payment
of the amounts payable in accordance with the Declaration upon liquidation of
the Trust. Notwithstanding the foregoing, the Preferred Securities
10
<PAGE>
Guarantee will continue to be effective or will be reinstated, as the case may
be, if at any time any holder of Preferred Securities issued by the Trust must
restore payment of any sums paid under such Preferred Securities or such
Preferred Securities Guarantee.
EVENTS OF DEFAULT
An event of default under a Preferred Securities Guarantee will occur upon
the failure of the Company to perform any of its payment or other obligations
thereunder.
The holders of a majority in liquidation amount of the Preferred Securities
have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Preferred Guarantee Trustee in
respect of the Preferred Securities Guarantee or to direct the exercise of any
trust or power conferred upon the Preferred Guarantee Trustee under the
Preferred Securities Guarantee. Any holder of Preferred Securities may
institute a legal proceeding directly against PEPCO to enforce the Preferred
Guarantee Trustee's rights and the obligations of PEPCO under the Preferred
Securities Guarantee, without first instituting a legal proceeding against the
Trust, the Preferred Guarantee Trustee or any other person or entity.
STATUS OF THE PREFERRED SECURITIES GUARANTEE
The Preferred Securities Guarantee will constitute an unsecured obligation
of PEPCO and will rank (i) subordinate and junior in right of payment to all
other liabilities of PEPCO, except those made pari passu or subordinate by
their terms, (ii) pari passu with the most senior preferred or preference
stock now or hereafter issued by PEPCO and with any guarantee now or hereafter
entered into by PEPCO in respect of any preferred or preference stock of any
affiliate of PEPCO, and (iii) senior to the Common Stock. The terms of the
Preferred Securities provide that each holder of Preferred Securities by
acceptance thereof agrees to the subordination provisions and other terms of
the Preferred Securities Guarantee relating thereto.
The Preferred Securities Guarantee will constitute a guarantee of payment
and not of collection (that is, the guaranteed party may institute a legal
proceeding directly against PEPCO to enforce its rights under the Preferred
Securities Guarantee without instituting a legal proceeding against any other
person or entity).
INFORMATION CONCERNING THE PREFERRED GUARANTEE TRUSTEE
The Preferred Guarantee Trustee, prior to the occurrence of a default with
respect to the Preferred Securities Guarantee and after the curing of any such
defaults that may have occurred, undertakes to perform only such duties as are
specifically set forth in such Preferred Securities Guarantee. After such a
default has occurred (of which a responsible officer of the Preferred
Guarantee Trustee has actual knowledge) and is continuing, the Preferred
Guarantee Trustee is required to exercise the rights and powers vested in it
by the Preferred Securities Guarantee using the same degree of care and skill
as a prudent person would exercise or use under the circumstances in the
conduct of his own affairs. Subject to such provisions, the Preferred
Guarantee Trustee is under no obligation to exercise any of the powers vested
in it by the Preferred Securities Guarantee at the request of any holder of
Preferred Securities, unless offered reasonable indemnity against the costs,
expenses and liabilities that might be incurred thereby.
PEPCO and its affiliates maintain certain accounts and other banking
relationships with the Preferred Guarantee Trustee and its affiliates in the
ordinary course of business. The Preferred Guarantee Trustee also serves as
the Debt Trustee and as trustee under other indentures of PEPCO.
GOVERNING LAW
The Preferred Securities Guarantee will be governed by and construed in
accordance with the internal laws of the State of New York.
11
<PAGE>
PLAN OF DISTRIBUTION
PEPCO and the Trust may sell the Offered Securities in any of, or any
combination of, the following ways: (i) directly to purchasers, (ii) through
agents and (iii) through underwriters or dealers.
Offers to purchase Offered Securities may be solicited directly by PEPCO
and/or the Trust, as the case may be, or by agents designated by PEPCO and/or
the Trust, as the case may be, from time to time. Any such agent, who may be
deemed to be an underwriter as that term is defined in the Securities Act,
involved in the offer or sale of the Offered Securities in respect of which
this Prospectus is delivered will be named, and any commissions payable by
PEPCO to such agent will be set forth, in the Prospectus Supplement. Unless
otherwise indicated in the Prospectus Supplement, any such agent will be
acting on a best efforts basis for the period of its appointment (ordinarily
five business days or less). Agents, dealers and underwriters may be customers
of, engage in transactions with, or perform services for PEPCO in the ordinary
course of business.
If an underwriter or underwriters are utilized in the sale, PEPCO will
execute an underwriting agreement with such underwriters at the time of sale
to them and the names of the underwriters and the terms of the transaction
will be set forth in the Prospectus Supplement, which will be used by the
underwriters to make releases of the Offered Securities in respect of which
this Prospectus is delivered to the public.
If a dealer is utilized in the sale of the Offered Securities in respect of
which this Prospectus is delivered, PEPCO and/or the Trust, as the case may
be, will sell such Offered Securities to the dealer, as principal. The dealer
may then resell such Offered Securities to the public at varying prices to be
determined by such dealer at the time of resale. The name of the dealer and
the terms of the transaction will be set forth in the Prospectus Supplement.
Agents, underwriters, and dealers may be entitled under the relevant
agreements to indemnification by PEPCO and/or the Trust, as the case may be,
against certain liabilities, including liabilities under the Securities Act.
Underwriters, agents or their controlling persons may engage in transactions
with and perform services for PEPCO in the ordinary course of business.
LEGAL MATTERS
Certain matters of Delaware law relating to the validity of the Preferred
Securities will be passed upon on behalf of the Trust by Skadden, Arps, Slate,
Meagher & Flom LLP, Wilmington, Delaware, special Delaware counsel to the
Trust. The validity of the Junior Subordinated Debentures and the Preferred
Securities Guarantee and certain legal matters relating thereto will be passed
upon for the Company by Covington & Burling, Washington, D.C.. Certain legal
matters will be passed upon for the Underwriters by Skadden, Arps, Slate,
Meagher & Flom LLP, New York, New York.
EXPERTS
The consolidated financial statements incorporated in this Prospectus by
reference to the Company's Annual Report on Form 10-K for the year ended
December 31, 1997 have been so incorporated in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of said firm
as experts in auditing and accounting.
12
<PAGE>
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NO DEALER, SALESPERSON OR ANY OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IN
CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS SUPPLEMENT AND THE PROSPEC-
TUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RE-
LIED UPON AS HAVING BEEN AUTHORIZED BY POTOMAC ELECTRIC POWER COMPANY, THE
TRUST OR THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT
AND THE PROSPECTUS NOR ANY SALE MADE HEREUNDER AND THEREUNDER SHALL UNDER ANY
CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AF-
FAIRS OF POTOMAC ELECTRIC POWER COMPANY OR THE TRUST SINCE THE DATE THEREOF.
THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER OR
SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS
NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION.
---------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGES
PROSPECTUS SUPPLEMENT -----
<S> <C>
Risk Factors............................................................ S-4
Potomac Electric Power Company.......................................... S-8
The Trust............................................................... S-8
Selected Financial Information.......................................... S-10
Ratios of Earnings to Fixed Charges .................................... S-10
Accounting Treatment.................................................... S-11
Use of Proceeds......................................................... S-11
Description of the Preferred Securities................................. S-12
Description of the Guarantee............................................ S-22
Description of the Junior Subordinated Debentures....................... S-22
Effect of Obligations Under the Junior Subordinated Debentures and the
Guarantee.............................................................. S-28
United States Federal Income Taxation................................... S-29
ERISA Considerations.................................................... S-32
Underwriting............................................................ S-33
PROSPECTUS
Available Information................................................... 2
Incorporation of Certain Documents by Reference......................... 3
Potomac Electric Power Company.......................................... 3
The Trust............................................................... 4
Description of the Junior Subordinated Debentures....................... 4
Description of the Preferred Securities................................. 8
Description of the Preferred Securities Guarantee....................... 9
Plan of Distribution.................................................... 12
Legal Matters........................................................... 12
Experts................................................................. 12
</TABLE>
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- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
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5,000,000 PREFERRED SECURITIES
POTOMAC ELECTRIC POWER COMPANY TRUST I
% TRUST ORIGINATED
PREFERRED SECURITIESSM
("TOPRSSM")
FULLY AND UNCONDITIONALLY
GUARANTEED BY
POTOMAC ELECTRIC POWER COMPANY
-------------
PROSPECTUS SUPPLEMENT
-------------
MERRILL LYNCH & CO.
A.G. EDWARDS & SONS, INC.
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
SALOMON SMITH BARNEY
, 1998
SM"TRUST ORIGINATED PREFERRED SECURITIES" AND "TOPRS" ARE SERVICE MARKS OF
MERRILL LYNCH & CO.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Estimated expenses relating to the Offered Securities (assuming an aggregate
issuance of $125,000,000) are as follows:
<TABLE>
<S> <C>
Registration fee................................................... $ 36,875
Rating Agency fees................................................. 44,250
Printing........................................................... 90,000
Trustee's fees and expenses........................................ 20,000
Fee of independent accountants..................................... 22,500
Fees of counsel.................................................... 100,000
Expenses incidental to qualification under Blue Sky Laws........... 10,000
Miscellaneous...................................................... 26,375
--------
Total............................................................ $350,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Section 29-304(1b) of the District of Columbia Business Corporation
Act, a corporation may indemnify against expenses any directors or officers
made party to a proceeding by reason of his service as such, except in
relation to matters as to which any such director or officer shall be adjudged
to be liable for negligence or misconduct in the performance of duty. Such
indemnification is not exclusive of any other rights to which those
indemnified may be entitled under any by-law, agreement, vote of shareholders
or otherwise.
Under Section 13.1-697 of the Virginia Stock Corporation Act ("VSCA"), a
Virginia corporation may indemnify a director who was, is or is threatened to
be made a party to any proceeding if the director acted in good faith and (i)
he believed, in the case of conduct in his official capacity with the
corporation, that his conduct was in the best interests of the corporation or,
in the case of other conduct, that his conduct was at least not opposed to the
best interests of the corporation, or (ii) in the case of a criminal
proceeding, he had no reasonable cause to believe his conduct was unlawful. A
corporation may not indemnify a director in connection with (i) a proceeding
by or in the right of the corporation in which the director was found liable
to the corporation or (ii) any other proceeding charging improper personal
benefit to him, whether or not involving action in his official capacity, in
which he was adjudged liable on the basis that personal benefit was improperly
received. Indemnification permitted under this section of the VSCA in
connection with a proceeding by or in the right of the corporation is limited
to reasonable expenses incurred in connection with the proceeding.
Under Section 13.1-698, unless limited by its Articles of Incorporation, a
corporation must indemnify against reasonable expenses a director who entirely
prevails in the defense of any proceeding to which he was a party because he
is or was a director of the corporation.
Under Section 13.1-700.1, a court of appropriate jurisdiction, upon the
application of a director, may order a corporation to advance or reimburse
expenses or provide indemnification if the court determines that the director
is so entitled. With respect to a proceeding by or in the right of the
corporation, a court may order indemnification of the director to the extent
of his reasonable expenses even though he was adjudged liable to the
corporation.
Under Section 13.1-699, a corporation may advance reasonable expenses to a
director made a party to a proceeding under certain circumstances, including
the furnishing by the director of (i) a written statement of his good faith
belief that he has met the standard of conduct necessary to obtain
indemnification and (ii) a written undertaking to repay the advance if it is
ultimately determined that he did not meet that standard. Under Section
II-1
<PAGE>
13.1-702, a corporation may indemnify an officer, employee or agent of a
corporation to the same extent as a director. Under Section 13.1-704, a
corporation may provide indemnification in addition to that provided by
statute if authorized by its Articles of Incorporation, a bylaw made by the
shareholders, or any resolution adopted by the shareholders, except
indemnification against willful misconduct or a knowing violation of the
criminal law.
The By-Laws of the Company provide that the Company shall indemnify each
director or officer and each former director and officer of the Company
against expenses actually and reasonably incurred in connection with the
defense of any action, suit or proceeding by reason of his or her being or
having been such director or officer, including liabilities incurred under the
Securities Act of 1933, as amended, except in relation to matters as to which
such director or officer shall be finally adjudged in such action, suit or
proceeding to have knowingly violated the criminal law or to be liable for
willful misconduct in the performance of his or her duty to the Company; and
that such indemnification shall be in addition to, and not exclusive of, any
other rights to which those indemnified may be entitled under any by-law,
agreement, vote of stockholders, or otherwise.
In the Underwriting Agreement, the underwriters and agents will agree to
indemnify the Company, its directors, officers and controlling persons against
certain civil liabilities that may arise under the Securities Act of 1933 in
connection with this offering.
The Company also has policies of insurance which insure officers and
directors against certain liabilities and expenses incurred by them in such
capacities.
ITEM 16. EXHIBITS.
<TABLE>
<C> <S>
1 --Form of Purchase Agreement (1)
4.1 --Certificate of Trust of Potomac Electric Power Company Trust I (2)
4.2 --Declaration of Trust of Potomac Electric Power Company Trust I (2)
4.3 --Form of Amended and Restated Declaration of Trust to be used in
connection with the issuance of the Preferred Securities (1)
4.4 --Form of Indenture between PEPCO and The Bank of New York, as Trustee
(1)
4.5 --Form of Supplemental Indenture to be used in connection with the
issuance of the Junior Subordinated Debentures (1)
4.6 --Form of Preferred Security (included in Exhibit 4.3)
4.7 --Form of Junior Subordinated Debenture (included in Exhibit 4.5)
4.8 --Form of Preferred Securities Guarantee Agreement (1)
5.1 --Opinion of Covington & Burling (1)
5.2 --Opinion of Skadden, Arps, Slate, Meagher & Flom LLP (1)
8 --Tax Opinion of Covington & Burling (1)
12 --Computation of Ratio of Earnings to Fixed Charges (1)
23.1 --Consent of Price Waterhouse LLP (1)
23.2 --Consent of Covington & Burling (included in Exhibit 5.1)
23.3 --Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in
Exhibit 5.2)
23.4 --Consent of Covington & Burling (included as Exhibit 8)
24 --Powers of Attorney for PEPCO (2)
25.1 --Form T-1 Statement of Eligibility and Qualification under the Trust
Indenture Act of 1939, of The Bank of New York (Delaware), as
Institutional Trustee (1)
25.2 --Form T-1 Statement of Eligibility and Qualification under the Trust
Indenture Act of 1939, of The Bank of New York, as Debt Trustee (1)
25.3 --Form T-1 Statement of Eligibility and Qualification under the Trust
Indenture Act of 1939, of The Bank of New York, as Preferred Guarantee
Trustee (1)
</TABLE>
- --------
(1) Filed herewith.
(2) Previously filed.
ITEM 17. UNDERTAKINGS.
The undersigned Registrants hereby undertake:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
II-2
<PAGE>
(i) To include any prospectus required in section 10(a)(3) of the
Securities Act of 1933 (the "1933 Act");
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement;
provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the Company pursuant to section 13 or section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in this
Registration Statement;
(2) That, for the purpose of determining any liability under the 1933
Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof; and
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrants hereby undertake that for purposes of
determining any liability under the 1933 Act, each filing of the Company's
annual report pursuant to section 13(a) or 15(d) of the Securities Exchange
Act of 1934 that is incorporated by reference in this Registration Statement
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the 1933 Act
may be permitted to directors, officers and controlling persons of the
Registrants pursuant to the provisions described under Item 15 above, or
otherwise, the Registrants have been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the 1933 Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Registrants of expenses incurred or paid by a director,
officer or controlling person of the Registrants in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrants will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the 1933 Act and will be governed by the final
adjudication of such issue.
(d) The undersigned Registrants hereby undertake that:
(1) For purposes of determining any liability under the 1933 Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrants pursuant to Rule 424(b)(1) or (4)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the 1933 Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all
requirements for filing on Form S-3 and has duly caused this Amendment No. 1
to Form S-3 Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Washington, the District
of Columbia, on May 7, 1998.
Potomac Electric Power Company
By: /s/ A.J. Kamerick
-----------------------------------
ANTHONY J. KAMERICK
VICE PRESIDENT AND TREASURER
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to Form S-3 Registration Statement has been signed by the following
persons in the capacities indicated on May 7, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
* President, Chief Executive May 7, 1998
- ------------------------------- Officer and Director
JOHN M. DERRICK, JR. (principal executive officer)
* Senior Vice President, Chief May 7, 1998
- ------------------------------- Financial Officer and
DENNIS R. WRAASE Director (principal financial
officer and principal
accounting officer)
* Director May 7, 1998
- -------------------------------
ROGER R. BLUNT, SR.
* Director May 7, 1998
- -------------------------------
EDMUND B. CRONIN, JR.
* Director May 7, 1998
- -------------------------------
RICHARD E. MARRIOTT
* Director May 7, 1998
- -------------------------------
DAVID O. MAXWELL
* Director May 7, 1998
- -------------------------------
FLORETTA D. MCKENZIE
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
* Director May 7, 1998
- -------------------------------
ANN D. MCLAUGHLIN
* Director May 7, 1998
- -------------------------------
EDWARD F. MITCHELL
* Director May 7, 1998
- -------------------------------
PETER F. O'MALLEY
Director May 7, 1998
- -------------------------------
LOUIS A. SIMPSON
* Director May 7, 1998
- -------------------------------
A. THOMAS YOUNG
*By: /s/ Ellen Sheriff Rogers
---------------------------
ELLEN SHERIFF ROGERS,
ATTORNEY-IN-FACT
</TABLE>
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Trust has
duly caused this Amendment No. 1 to Form S-3 Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Washington, the District of Columbia, on May 7, 1998.
Potomac Electric Power Company Trust I
By: /s/Anthony J. Kamerick
-----------------------------------
Anthony J. Kamerick
Trustee
II-6
<PAGE>
================================================================================
POTOMAC ELECTRIC POWER COMPANY
(a District of Columbia and Virginia corporation) and
POTOMAC ELECTRIC POWER COMPANY TRUST I
(a Delaware statutory business trust)
5,000,000 Preferred Securities
[_]% Trust Originated Preferred Securities(SM)
(Liquidation Amount $25 Per Preferred Security)
PURCHASE AGREEMENT
Dated: ___________, 1998
================================================================================
(SM) "Trust Originated Preferred Securities" is a service mark of Merrill Lynch
& Co.
<PAGE>
Table of Contents
PURCHASE AGREEMENT.............................................................1
SECTION 1. Representations and Warranties.....................................4
(a) Representations and Warranties by the Company and the Trust........4
(i) Compliance with Registration Requirements..............4
(ii) Incorporated Documents.................................5
(iii) Independent Accountants................................5
(iv) Financial Statements...................................5
(v) No Material Adverse Change in Business.................5
(vi) Good Standing of the Company...........................6
(vii) Existence of Trust.....................................6
(viii) Common Securities......................................6
(ix) Authorization of Declaration...........................6
(x) Guarantee Agreement....................................7
(xi) Preferred Securities...................................7
(xii) Authorization of Indenture.............................7
(xiii) Authorization of Debentures............................7
(xiv) Authorization of Agreement.............................8
(xv) Absence of Defaults and Conflicts......................8
(xvi) Absence of Proceedings.................................8
(xvii) Possession of Licenses and Permits.....................9
(xviii) Compliance with Cuba Act...............................9
(xix) Investment Company Act.................................9
(xx) Contracts..............................................9
(xxi) Environmental Laws.....................................9
(b) Officer's Certificates.............................................9
SECTION 2. Sale and Delivery to Underwriters; Closing.........................9
(a) Preferred Securities...............................................9
(b) Payment...........................................................10
(c) Denominations; Registration.......................................10
SECTION 3. Covenants of the Company and the Trust............................10
(a) Compliance with Securities Regulations and Commission Requests....10
(b) Filing of Amendments..............................................11
(c) Delivery of Registration Statement................................11
(d) Delivery of Prospectuses..........................................11
(e) Continued Compliance with Securities Laws.........................12
(f) Blue Sky Qualifications...........................................12
(g) Rule 158..........................................................13
i
<PAGE>
(h) Restriction on Sale of Securities.................................13
(i) Reporting Requirements............................................13
(j) Listing...........................................................13
SECTION 4. Payment of Expenses...............................................13
(a) Expenses..........................................................13
(b) Termination of Agreement..........................................14
SECTION 5. Conditions of Underwriters' Obligations...........................14
(a) Effectiveness of Registration Statement...........................14
(b) Opinions of Counsel for Company...................................14
(c) Opinion of Special Delaware Counsel for the Trust.................14
(d) Opinion of Counsel for Underwriters...............................15
(e) Officers' Certificates............................................15
(f) Accountant's Comfort Letter.......................................16
(g) Regulatory Approval...............................................16
(h) Maintenance of Rating.............................................16
(i) Additional Documents..............................................16
(j) Termination of Agreement..........................................16
SECTION 6. Indemnification...................................................17
(a) Indemnification of Underwriters...................................17
(b) Indemnification of Trust by Company...............................18
(c) Indemnification of Trust, Company, Directors and Officers.........18
(d) Actions against Parties; Notification.............................18
SECTION 7. Contribution......................................................19
SECTION 8. Representations, Warranties and Agreements to Survive Delivery....20
SECTION 9. Termination of Agreement..........................................20
(a) Termination; General..............................................20
(b) Liabilities.......................................................21
SECTION 10. Default by One or More of the Underwriters........................21
SECTION 11. Notices...........................................................22
SECTION 12. Parties...........................................................22
SECTION 13. GOVERNING LAW AND TIME............................................22
ii
<PAGE>
SECTION 14. Effect of Headings................................................22
SCHEDULES
Schedule A - List of Underwriters.................................Sch A-1
EXHIBITS
Exhibit A - Form of Opinion of Company's Counsel........................A-1
Exhibit B - Form of Opinion of General Counsel of the Company...........B-1
Exhibit C - Form of Opinion of Trust's Special Delaware Counsel.........C-1
iii
<PAGE>
POTOMAC ELECTRIC POWER COMPANY
(a District of Columbia and Virginia corporation)
POTOMAC ELECTRIC POWER COMPANY TRUST I
(a Delaware statutory business trust)
5,000,000 Preferred Securities
[_]% Trust Originated Preferred Securities
(Liquidation Amount $25 Per Preferred Security)
PURCHASE AGREEMENT
------------------
____________, 1998
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
A.G. Edwards & Sons, Inc.
Paine Webber Incorporated
Prudential Securities Incorporated
Salomon Smith Barney
as Representatives of the several Underwriters
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Ladies and Gentlemen:
Potomac Electric Power Company Trust I (the "Trust"), a statutory business
trust organized under the Business Trust Act of the State of Delaware (Chapter
38, Title 12 of the Delaware Code, 12 Del. C. (S) (S) 3801 et seq.) (the
-- ---
"Delaware Act"), confirms its agreement with Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), and each of the
Underwriters named in Schedule A hereto (collectively the "Underwriters," which
term shall also include any underwriter substituted as hereinafter provided in
Section 10 hereof), for whom Merrill Lynch and A.G. Edwards & Sons, Inc., Paine
Webber Incorporated, Prudential Securities Incorporated and Salomon Smith Barney
are acting as Representatives (in such capacity, the "Representatives") with
respect to the issue and sale by the Trust and the purchase by the Underwriters,
acting severally
<PAGE>
and not jointly, of the respective numbers of [_]% Trust Originated Preferred
Securities (liquidation amount $25 per Preferred Security) ("Preferred
Securities") set forth in said Schedule A hereto. The Preferred Securities are
more fully described in the Prospectus (as defined below).
The Preferred Securities will be guaranteed by Potomac Electric Power
Company, a District of Columbia and Virginia corporation (the "Company"), with
respect to distributions and amounts payable upon liquidation or redemption (the
"Preferred Securities Guarantee"), pursuant to the Preferred Securities
Guarantee Agreement (the "Preferred Securities Guarantee Agreement") to be dated
as of Closing Time (as defined below), executed and delivered by the Company and
The Bank of New York (the "Guarantee Trustee"), a New York banking corporation,
not in its individual capacity but solely as trustee, for the benefit of the
holders from time to time of the Preferred Securities. The Company and the
Trust each understand that the Underwriters propose to make a public offering of
the Preferred Securities as soon as the Representatives deem advisable after
this Agreement has been executed and delivered, and the Declaration (as defined
herein), the Indenture (as defined herein), and the Preferred Securities
Guarantee Agreement have been qualified under the Trust Indenture Act of 1939,
as amended (the "1939 Act"). The entire proceeds from the sale of the Preferred
Securities will be combined with the entire proceeds from the sale by the Trust
to the Company of its common securities (the "Common Securities") guaranteed by
the Company, with respect to distributions and amounts payable upon liquidation
or redemption (the "Common Securities Guarantee" and, together with the
Preferred Securities Guarantee, the "Guarantees") pursuant to the Common
Securities Guarantee Agreement (the "Common Securities Guarantee Agreement" and,
together with the Preferred Securities Agreement, the "Guarantee Agreements"),
to be dated as of Closing Time, executed and delivered by the Company for the
benefit of the holders from time to time of the Common Securities, and will be
used by the Trust to purchase the [_]% Junior Subordinated Deferrable Interest
Debentures due 2038 (the "Debentures") issued by the Company. The Preferred
Securities and the Common Securities will be issued pursuant to the Amended and
Restated Declaration of Trust of the Trust, to be dated as of Closing Time (the
"Declaration"), among the Company, as Sponsor, The Bank of New York, as
institutional trustee (the "Institutional Trustee"), The Bank of New York
(Delaware), as Delaware trustee (the "Delaware Trustee"), and Dennis R. Wraase,
Anthony J. Kamerick and Ellen Sheriff Rogers, as regular trustees (the "Regular
Trustees" and together with the Institutional Trustee and the Delaware Trustee,
the "Trustees"), and the holders from time to time of undivided beneficial
interests in the assets of the Trust. The Debentures will be issued pursuant to
an Indenture, dated as of ________, 1998 (the "Indenture"), between the Company
and The Bank of New York, as trustee (the "Indenture Trustee"), as supplemented
by a Supplemental Indenture to be dated as of Closing Time (the "Supplemental
Indenture"), between the Company and the Indenture Trustee. The Preferred
Securities, the Preferred Securities Guarantee and the Debentures are
collectively referred to herein as the "Securities." Capitalized terms used
herein without definition have the respective meanings specified in the
Prospectus.
The Company and the Trust have filed with the Securities and Exchange
Commission (the "Commission") a shelf registration statement on Form S-3 (No.
333-____), including the preliminary prospectus, covering the registration of
the Securities under the Securities Act of 1933, as amended
2
<PAGE>
(the "1933 Act"), which permits the delayed or continuous offering of securities
pursuant to Rule 415 of the rules and regulations of the Commission under the
1933 Act (the "1933 Act Regulations"). Promptly after execution and delivery of
this Agreement, the Company will either (i) prepare and file a prospectus
(including a prospectus supplement relating to the Securities) in accordance
with the provisions of paragraph (b) of Rule 424 ("Rule 424(b)") of the 1933 Act
Regulations or (ii) if the Company has elected to rely upon Rule 434 ("Rule
434") of the 1933 Act Regulations, prepare and file a term sheet (a "Term
Sheet") in accordance with the provisions of Rule 434 and Rule 424(b). The
information included in such prospectus or in such Term Sheet, as the case may
be, that was omitted from such registration statement at the time it became
effective but that is deemed to be part of such registration statement at the
time it became effective (a) pursuant to paragraph (b) of Rule 430A is referred
to as "Rule 430A Information" or (b) pursuant to paragraph (d) of Rule 434 is
referred to as "Rule 434 Information." Such registration statement, including
all amendments thereto, the exhibits thereto, schedules thereto, if any, and the
documents incorporated by reference therein pursuant to Item 12 of Form S-3
under the 1933 Act, at the time it became effective and including the Rule 430A
Information and the Rule 434 Information, as applicable, is herein called the
"Registration Statement." Any registration statement filed pursuant to Rule
462(b) of the 1933 Act Regulations is herein referred to as the "Rule 462(b)
Registration Statement," and after such filing the term "Registration Statement"
shall include the Rule 462(b) Registration Statement. The final prospectus,
including the documents incorporated by reference therein pursuant to Item 12 of
Form S-3 under the 1933 Act, in the form first furnished to the Underwriters for
use in connection with the offering of the Preferred Securities is herein called
the "Prospectus." For purposes of this Agreement, all references to the
Registration Statement, the Prospectus or any Term Sheet or any amendment or
supplement to any of the foregoing shall be deemed to include the copy filed
with the Commission pursuant to its Electronic Data Gathering, Analysis and
Retrieval system ("EDGAR").
All references in this Agreement to financial statements and schedules and
other information which is "contained," "included" or "stated" in the
Registration Statement or the Prospectus (or other references of like import)
shall be deemed to mean and include all such financial statements and schedules
and other information which is incorporated by reference in the Registration
Statement or the Prospectus, as the case may be; and all references in this
Agreement to amendments or supplements to the Registration Statement or the
Prospectus shall be deemed to mean and include the filing of any document under
the Securities Exchange Act of 1934, as amended (the "1934 Act") which is
incorporated by reference in the Registration Statement or the Prospectus, as
the case may be.
SECTION 1. Representations and Warranties.
(a) Representations and Warranties by the Company and the Trust. The
Company and the Trust jointly and severally represent and warrant to each
Underwriter as of the date hereof, as applicable, and as of the Closing Time
referred to in Section 2(b) hereof, and agrees with each Underwriter, as
follows:
3
<PAGE>
(i) Compliance with Registration Requirements. The Company meets the
-----------------------------------------
requirements for use of Form S-3 under the 1933 Act. The Company and the
Trust have filed with the Commission a shelf registration statement on Form
S-3 (No. 333-_____), including a prospectus, for the registration of the
Securities under the 1933 Act and the qualification of the Indenture under
the 1939 Act. The Registration Statement and any Rule 462(b) Registration
Statement has become effective under the 1933 Act and no stop order
suspending the effectiveness of the Registration Statement or any Rule
462(b) Registration Statement has been issued under the 1933 Act and no
proceedings for that purpose have been instituted or are pending or, to the
knowledge of the Company and the Trust, are contemplated by the Commission,
and any request made to the Company or the Trust by the Commission for
additional information has been complied with.
At the respective times the Registration Statement, any Rule 462(b)
Registration Statement and any post-effective amendments thereto became
effective, at the date hereof, and at the Closing Time, the Registration
Statement, any Rule 462(b) Registration Statement and any amendments and
supplements thereto complied and will comply in all material respects with
the requirements of the 1933 Act and the 1933 Act Regulations and the 1939
Act and the rules and regulations of the Commission under the 1939 Act (the
"1939 Act Regulations") and did not and will not contain an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading. Neither the Prospectus nor any amendments or supplements
thereto, at the time the Prospectus or any such amendment or supplement was
issued and at the Closing Time, included or will include an untrue
statement of a material fact or omitted or will 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. If Rule 434 is
used, the Company and the Trust will comply with the requirements of Rule
434. The representations and warranties in this subsection shall not apply
(A) to statements in or omissions from the Registration Statement, any Rule
462(b) Registration Statement and any supplements or amendments thereto or
the Prospectus and any supplements or amendments thereto made in reliance
upon and in conformity with information furnished to the Trust or the
Company in writing by any Underwriter through Merrill Lynch expressly for
use therein or (B) to that part of the Registration Statement that
constitutes the Statements of Eligibility and Qualification on Form T-1
(the "Forms T-1") under the 1939 Act of the Indenture Trustee, the
Institutional Trustee and the Guarantee Trustee.
Each preliminary prospectus and the prospectus filed as part of the
Registration Statement as originally filed or as part of any amendment
thereto, or filed pursuant to Rule 424 under the 1933 Act, complied when so
filed in all material respects with the 1933 Act Regulations and the
Prospectus delivered to the Underwriters for use in connection with this
offering was identical to the electronically transmitted copy thereof filed
with the Commission pursuant to EDGAR, except to the extent permitted by
Regulation S-T.
4
<PAGE>
(ii) Incorporated Documents. The documents incorporated or deemed
----------------------
to be incorporated by reference in the Registration Statement and the
Prospectus, at the time they were or hereafter are filed with the
Commission, complied and will comply in all material respects with the
requirements of the 1934 Act and the rules and regulations of the
Commission thereunder (the "1934 Act Regulations") and, when read together
with the other information in the Prospectus, at the time the Registration
Statement became effective, at the date hereof, at the time the Prospectus
was issued and at the Closing Time, did not and will not contain an untrue
statement of a material fact or omitted or will omit to state a material
fact required to be stated therein or necessary to make the statements
therein in light of the circumstances under which they were made, not
misleading.
(iii) Independent Accountants. The accountants who certified the
-----------------------
financial statements and supporting schedules included in the Registration
Statement, are independent public accountants as required by the 1933 Act
and the 1933 Act Regulations.
(iv) Financial Statements. The financial statements included in the
--------------------
Registration Statement and the Prospectus, together with the related
schedules and notes, present fairly the financial position of the Company
and its consolidated subsidiaries at the respective dates to which they
apply and the statement of operations, stockholders' equity and cash flows
of the Company and its consolidated subsidiaries for the periods specified;
said financial statements have been prepared in each case in accordance
with generally accepted accounting principles ("GAAP") consistently applied
throughout the periods involved, except as set forth therein. The
supporting schedules, if any, incorporated by reference in the Registration
Statement and the Prospectus present fairly in accordance with GAAP the
information required to be stated therein. The selected financial data and
the summary financial information included in the Prospectus present fairly
the information shown therein.
(v) No Material Adverse Change in Business. Since the respective
--------------------------------------
dates as of which information is given in the Registration Statement and
the Prospectus, and prior to the Closing Time, except as otherwise stated
therein, (A) there has been no material adverse change in the condition,
financial or otherwise, or in the earnings, business affairs or business
prospects of the Company and its subsidiaries considered as one enterprise,
whether or not arising in the ordinary course of business (a "Material
Adverse Effect"), (B) there have been no transactions entered into by the
Company or any of its subsidiaries, other than those in the ordinary course
of business, which are material with respect to the Company and its
subsidiaries considered as one enterprise, and (C) there has been no
dividend or distribution of any kind declared, paid or made by the Company
on any class of its capital stock, except for dividends paid by the Company
in the ordinary course of business consistent with past practice. The
Company has no material contingent obligation which is not disclosed in or
contemplated by the Registration Statement and the Prospectus.
5
<PAGE>
(vi) Good Standing of the Company. The Company has been duly
----------------------------
incorporated and is now validly existing as a corporation in good standing
under the laws of the District of Columbia; is also now validly existing
and in good standing as a domestic corporation of the Commonwealth of
Virginia; has corporate power to carry on the business in which it is now
engaged as described in the Prospectus; is legally qualified to carry on in
the State of Maryland the business in which it is now engaged in said
State; and is legally qualified to carry on business within the
Commonwealth of Pennsylvania, limited, however, to its participation in the
construction, ownership and operation of the Conemaugh generating station
and certain related transmission lines.
(vii) Existence of Trust. The Trust has been duly created and is
------------------
validly existing in good standing as a business trust under the Delaware
Act, is and under current law will be treated as a "grantor trust" for
federal income tax purposes under existing law, has the business trust
power and authority to own property and conduct its business as presently
conducted and as described in the Prospectus and to enter into and perform
its obligations under this Agreement, the Preferred Securities, the Common
Securities and the Declaration, and is not required to be authorized to do
business in any other jurisdiction. The Trust is not a party to or
otherwise bound by any agreement other than those described in the
Prospectus as agreements to which the Trust is or will become a party.
(viii) Common Securities. The Common Securities have been duly
-----------------
authorized by the Declaration and, when issued and delivered by the Trust
to the Company in accordance with the terms of the Declaration and against
payment therefor as described in the Prospectus, will be validly issued and
(subject to the terms of the Declaration) fully paid and nonassessable
undivided beneficial interests in the assets of the Trust; the issuance of
the Common Securities is not subject to preemptive or other similar rights;
no holder thereof will be subject to personal liability by reason of being
such a holder; and at the Closing Time, all of the issued and outstanding
Common Securities of the Trust will be directly owned by the Company free
and clear of any security interest, mortgage, pledge, lien, encumbrance,
claim or equity.
(ix) Authorization of Declaration. The Declaration has been duly
----------------------------
authorized by the Company and duly qualified under the 1939 Act and, when
validly executed and delivered by the Company and the Regular Trustees, and
assuming the due authorization, execution and delivery of the Declaration
by the Delaware Trustee and the Institutional Trustee, the Declaration will
constitute a valid and binding obligation of the Company and the Regular
Trustees, enforceable against the Company and the Regular Trustees in
accordance with its terms, except as enforcement thereof may be limited by
bankruptcy, insolvency (including, without limitation, all laws relating to
fraudulent transfers), reorganization, moratorium or similar laws affecting
enforcement of creditors' rights generally and except as enforcement
thereof is subject to general principles of equity (regardless of whether
enforcement is considered in a proceeding in equity or at law).
6
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(x) Guarantee Agreement. The Preferred Securities Guarantee
-------------------
Agreement has been duly authorized by the Company and duly qualified under
the 1939 Act and, when validly executed and delivered by the Company, and
assuming due authorization, execution and delivery of the Preferred
Securities Guarantee Agreement by the Guarantee Trustee, will constitute a
valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms, except as enforcement thereof may be
limited by bankruptcy, insolvency (including, without limitation, all laws
relating to fraudulent transfers), reorganization, moratorium or similar
laws affecting enforcement of creditors' rights generally and except as
enforcement thereof is subject to general principles of equity (regardless
of whether enforcement is considered in a proceeding in equity or at law).
(xi) Preferred Securities. The Preferred Securities have been duly
--------------------
authorized by the Declaration and, when authenticated in the manner
provided for in the Declaration and issued and delivered pursuant to this
Agreement against payment of the consideration set forth herein, will be
validly issued and (subject to the terms of the Declaration) fully paid and
nonassessable undivided beneficial interests in the assets of the Trust;
the issuance of the Preferred Securities is not subject to preemptive or
other similar rights; and holders of Preferred Securities will be entitled
to the same limitation of personal liability extended to stockholders of
private corporations for profit incorporated under the General Corporation
Law of the State of Delaware.
(xii) Authorization of Indenture. The Indenture has been duly
--------------------------
authorized by the Company and duly qualified under the 1939 Act and, when
duly executed and delivered by the Company, and assuming the due
authorization, execution and delivery of the Indenture by the Indenture
Trustee, will constitute a valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms, except as
enforcement thereof may be limited by bankruptcy, insolvency (including,
without limitation, all laws relating to fraudulent transfers),
reorganization, moratorium or similar laws affecting enforcement of
creditors' rights generally and except as enforcement thereof is subject to
general principles of equity (regardless of whether enforcement is
considered in a proceeding in equity or at law).
(xiii) Authorization of Debentures. The Debentures have been duly
---------------------------
authorized by the Company, and when executed, authenticated, issued and
delivered in the manner provided for in the Indenture and sold and paid for
as provided in this Agreement, the Debentures will constitute valid and
binding obligations of the Company entitled to the benefits of the
Indenture and enforceable against the Company in accordance with their
terms, except as enforcement thereof may be limited by bankruptcy,
insolvency (including, without limitation, all laws relating to fraudulent
transfers), reorganization, moratorium or similar laws affecting
enforcement of creditors' rights generally and except as enforcement
thereof is subject to general principles of equity (regardless of whether
enforcement is considered in a proceeding in equity or at law).
7
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(xiv) Authorization of Agreement. This Agreement has been duly
--------------------------
authorized, executed and delivered by the Company and the Trust.
(xv) Absence of Defaults and Conflicts. The Company is not in
---------------------------------
violation of its Articles of Incorporation or by-laws and the Trust is not
in violation of the Declaration. The execution and delivery by the Company
and the Trust of, and the performance by the Company and the Trust of their
respective obligations under, this Agreement, the execution and delivery by
the Company of, and the performance by the Company of its obligations
under, the Declaration, the Preferred Securities Guarantee Agreement and
the Indenture, the issuance and delivery by the Trust of the Common
Securities and Preferred Securities and the consummation of the sale of the
Preferred Securities and the fulfillment of the terms herein contemplated
will not conflict with or result in a breach of any of the terms or
provisions of, or constitute a default under (in each case material to the
Company and its subsidiaries (including the Trust) considered as a whole or
as to the Trust separately), any indenture, mortgage, deed of trust, loan
agreement, guarantee, lease, financing agreement or other similar agreement
or instrument to which the Company or the Trust is a party or by which the
Company or the Trust is bound or to which any of the property or assets of
the Company or the Trust is subject, nor will such actions result in any
violation of the provisions of the certificate of incorporation or by-laws
of the Company or the Declaration, nor will such actions result in any
violation (in each case material to the Company and its subsidiaries
(including the Trust) considered as a whole or as to the Trust separately)
of any statute or any order, rule or regulation of any court or regulatory
authority or other governmental body having jurisdiction over the Trust or
the Company or any of its properties; and no consent, approval,
authorization or order of, or qualification with, any governmental body or
agency that has not been obtained is required for, and the absence of which
would materially affect, the performance by the Company and the Trust of
their obligations under this Agreement and the issuance and delivery of the
Preferred Securities, except such approvals as will be obtained under the
1933 Act, the 1934 Act or the 1939 Act and as may be required by the
securities or Blue Sky laws of the various states or the securities laws of
non-U.S. jurisdictions in connection with the sale of the Preferred
Securities.
(xvi) Absence of Proceedings. There is no action, suit, proceeding,
----------------------
inquiry or investigation before or brought by any court or governmental
agency or body, domestic or foreign, now pending, or, to the knowledge of
the Company or the Trust, threatened, against or affecting the Company or
any subsidiary, which is required to be disclosed in the Registration
Statement (other than as disclosed therein), or which might reasonably be
expected to result in a Material Adverse Effect, or which might reasonably
be expected to materially and adversely affect the consummation of the
transactions contemplated in this Agreement or the performance by the
Company or the Trust of its obligations hereunder; the aggregate of all
pending legal or governmental proceedings to which the Company or any
subsidiary
8
<PAGE>
is a party or of which any of their respective property or assets is the
subject and which are not described in the Registration Statement,
including ordinary routine litigation incidental to the business, could not
reasonably be expected to result in a Material Adverse Effect.
(xvii) Possession of Licenses and Permits. The Company holds valid
----------------------------------
franchises, permits and other rights adequate for the business of the
Company in the territory which it serves, and such franchises, permits and
other rights contain no unduly burdensome restrictions.
(xviii) Compliance with Cuba Act. The Company and the Trust have
------------------------
complied with, and is and will be in compliance with, the provisions of
that certain Florida act relating to disclosure of doing business with
Cuba, codified as Section 517.075 of the Florida statutes, and the rules
and regulations thereunder (collectively, the "Cuba Act") or is exempt
therefrom.
(xix) Investment Company Act. Neither the Company nor the Trust
----------------------
is, and upon the issuance and sale of the Preferred Securities as herein
contemplated and the application of the net proceeds therefrom as described
in the Prospectus neither will be, an "investment company" or an entity
"controlled" by an "investment company" as such terms are defined in the
Investment Company Act of 1940, as amended (the "1940 Act").
(xx) Contracts. There are no contracts or documents of the
---------
Company or any of its subsidiaries that are required to be filed as
exhibits to the Registration Statement by the 1933 Act or by the 1933 Act
Regulations which have not been so filed.
(xxi) Environmental Laws. Except as described in the Registration
------------------
Statement and except as would not, singly or in the aggregate, result in a
Material Adverse Effect, (A) neither the Company nor the Trust is in
violation of any federal, state, local or foreign statute, law, rule,
regulation, ordinance, code, policy or rule of common law or any judicial
or administrative interpretation thereof, including any judicial or
administrative order, consent, decree or judgment, relating to pollution or
protection of human health, the environment (including, without limitation,
ambient air, surface water, groundwater, land surface or subsurface strata)
or wildlife, including, without limitation, laws and regulations relating
to the release or threatened release of chemicals, pollutants,
contaminants, wastes, toxic substances, hazardous substances, petroleum or
petroleum products (collectively, "Hazardous Materials") or to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Materials (collectively, "Environmental
Laws"), (B) the Company and the Trust have all permits, authorizations and
approvals required under any applicable Environmental Laws and are each in
compliance with their requirements, (C) there are no pending or threatened
administrative, regulatory or judicial actions, suits, demands, demand
letters, claims, liens, notices of noncompliance or violation,
investigation or proceedings relating to any Environmental Law against the
Company or the Trust and (D) there are no events or circumstances that
might reasonably be expected to form
9
<PAGE>
the basis of an order for clean-up or remediation, or an action, suit or
proceeding by any private party or governmental body or agency, against or
affecting the Company or any of its subsidiaries relating to Hazardous
Materials or any Environmental Laws.
(b) Officer's Certificates. Any certificate signed by any officer of the
Company or the Trust delivered to Underwriters or to counsel for the
Underwriters shall be deemed a representation and warranty by the Company or the
Trust, respectively, to each Underwriter as to the matters covered thereby.
SECTION 2. Sale and Delivery to Underwriters; Closing.
------------------------------------------
(a) Preferred Securities. On the basis of the representations and
warranties herein contained and subject to the terms and conditions herein set
forth, the Trust agrees to sell to each Underwriter, severally and not jointly,
and each Underwriter, severally and not jointly, agrees to purchase from the
Company, at the purchase price of $25 per Preferred Security, the number of
Preferred Securities set forth in Schedule A opposite the name of such
Underwriter, plus any additional number of Preferred Securities which such
Underwriter may become obligated to purchase pursuant to the provisions of
Section 10 hereof, subject, in each case, to such adjustments among the
Underwriters as they in their sole discretion shall make to eliminate any sales
or purchases of fractional securities. As compensation to the Underwriters for
their commitments hereunder and in view of the fact that the proceeds of the
sale of the Preferred Securities will be used to purchase the Debentures, the
Company hereby agrees to pay at the Closing Time to the Underwriters a
commission of $[ ] per Preferred Security purchased by the Underwriters.
(b) Payment. Payment of the purchase price for, and delivery of
certificates for, the Preferred Securities shall be made at the offices of
Potomac Electric Power Company, 1900 Pennsylvania Avenue, N.W., Washington,
D.C. 20068, or at such other place as shall be agreed upon by the Underwriters,
the Company and the Trust, at 9:00 A.M. (Eastern time) on the third (fourth, if
the pricing occurs after 4:30 p.m. (Eastern time) on any given day) business day
after the date hereof (unless postponed in accordance with the provisions of
Section 10), or such other time not later than ten business days after such date
as shall be agreed upon by the Underwriters, the Company and the Trust (such
time and date of payment and delivery being herein called "Closing Time").
Payment shall be made to the Trust by wire transfer of immediately
available funds to the order of the Trust, against delivery to the Underwriters
of certificates for the Preferred Securities to be purchased by them. It is
understood that each Underwriter has authorized the Representatives, for its
account, to accept delivery of, receipt for, and make payment of the purchase
price for the Preferred Securities which it has agreed to purchase. Merrill
Lynch, individually and not as representative of the Underwriters, may (but
shall not be obligated to) make payment of the purchase price for the Preferred
Securities to be purchased by any Underwriter whose funds have not been received
by the Closing Time, but such payment shall not relieve such Underwriter from
its obligations hereunder.
10
<PAGE>
At Closing Time the Company will pay, or cause to be paid, the commission
payable at such time under this Section 2 to Merrill Lynch on behalf of the
Underwriters by wire transfer of immediately available funds.
(c) Denominations; Registration. Certificates for the Preferred
Securities shall be in such denominations and registered in such names as the
Representatives may request in writing at least two full business days before
the Closing Time. The certificates for the Preferred Securities will be made
available for examination and packaging by the Representatives in The City of
New York not later than 10:00 A.M. (Eastern time) on the business day prior to
the Closing Time.
SECTION 3. Covenants of the Company and the Trust. The Company and the
--------------------------------------
Trust jointly and severally covenant with each Underwriter as follows:
(a) Compliance with Securities Regulations and Commission
Requests. The Company and the Trust, subject to Section 3(b), will comply
with the requirements of Rule 424 or Rule 434, as applicable, and will
notify the Representatives immediately, and confirm the notice in writing,
(i) when any post-effective amendment to the Registration Statement shall
become effective, or any supplement to the Prospectus or any amended
Prospectus shall have been filed, (ii) of the receipt of any comments from
the Commission, (iii) of any request by the Commission for any amendment to
the Registration Statement or any amendment or supplement to the Prospectus
or for additional information, and (iv) of the issuance by the Commission
of any stop order suspending the effectiveness of the Registration
Statement or of any order preventing or suspending the use of any
prospectus, or of the suspension of the qualification of the Preferred
Securities for offering or sale in any jurisdiction, or of the initiation
or threatening of any proceedings for any of such purposes. The Company and
the Trust will promptly effect the filings necessary pursuant to Rule
424(b) and will take such steps as it deems necessary to ascertain promptly
whether the form of prospectus transmitted for filing under Rule 424(b) was
received for filing by the Commission and, in the event that it was not, it
will promptly file such prospectus. The Company and the Trust will make
every reasonable effort to prevent the issuance of any stop order and, if
any stop order is issued, to obtain the lifting thereof at the earliest
possible moment.
(b) Filing of Amendments. The Company and the Trust will give
the Representatives notice of their intention to file or prepare any
amendment to the Registration Statement (including any filing under Rule
462(b), any Term Sheet or any amendment, supplement or revision to either
the prospectus included in the Registration Statement at the time it became
effective or to the Prospectus, whether pursuant to the 1933 Act, the 1934
Act or otherwise, will furnish the Representatives with copies of any such
documents to, and consult with, the Representatives and their counsel
within a reasonable amount of time prior to such proposed filing or use, as
the case may be, and will not file or use any such document to which the
Representatives or counsel for the Representatives shall reasonably object
in writing; provided, however, that the foregoing shall not apply to any of
-------- -------
the Company's filings with the Commission required to be filed pursuant to
Section 13(a), 13(c), 14 or 15(d)
11
<PAGE>
of the Exchange Act, copies of which such filings the Company will cause to
be delivered to the Representatives promptly after being transmitted for
filing with the Commission.
(c) Delivery of Registration Statement. The Company has furnished or
will deliver to the Representatives and counsel for the Representatives,
without charge, signed copies of the Registration Statement as originally
filed and of each amendment thereto (including exhibits filed therewith or
incorporated by reference therein and, upon request, documents incorporated
or deemed to be incorporated by reference therein), and will also deliver
to the Representatives, without charge, a conformed copy of the
Registration Statement as originally filed and of each amendment thereto
(without exhibits) for each of the Representatives. The copies of the
Registration Statement and each amendment thereto furnished to the
Underwriters will be identical to the electronically transmitted copy
thereof filed with the Commission pursuant to EDGAR, except to the extent
permitted by Regulation S-T.
(d) Delivery of Prospectuses. The Company will deliver to each
Underwriter, without charge, as many copies of the Prospectus as such
Underwriter reasonably requests, and the Company and the Trust hereby
consent to the use of such copies for purposes permitted by the 1933 Act.
The Company will furnish to each Underwriter, without charge, during the
period when the Prospectus is required to be delivered under the 1933 Act
or the 1934 Act, such number of copies of the Prospectus (as amended or
supplemented) as such Underwriter may reasonably request. The Prospectus
and any amendments or supplements thereto furnished to the Underwriters
will be identical to the electronically transmitted copies thereof filed
with the Commission pursuant to EDGAR, except to the extent permitted by
Regulation S-T.
(e) Continued Compliance with Securities Laws. The Company and the
Trust will comply with the 1933 Act and the 1933 Act Regulations and the
1934 Act and the 1934 Act Regulations so as to permit the completion of the
distribution of the Securities as contemplated in this Agreement and in the
Prospectus. If at any time when a prospectus is required by the 1933 Act
to be delivered in connection with sales of the Preferred Securities, any
event shall occur or condition shall exist as a result of which it is
necessary, in the opinion of counsel for the Underwriters and for the
Company or Trust, to amend the Registration Statement or amend or
supplement the Prospectus in order that the Prospectus will not include any
untrue statements of a material fact or omit to state a material fact
necessary in order to make the statements therein not misleading in the
light of the circumstances existing at the time it is delivered to a
purchaser, or if it shall be necessary, in the opinion of such counsel, at
any such time to amend the Registration Statement or amend or supplement
the Prospectus in order to comply with the requirements of the 1933 Act or
the 1933 Act Regulations, the Company and the Trust will promptly prepare
and file with the Commission, subject to Section 3(b), such amendment or
supplement as may be necessary to correct such statement or omission or to
make the Registration Statement or the Prospectus comply with such
requirements, and the Company will furnish to the
12
<PAGE>
Underwriters such number of copies of such amendment or supplement as the
Underwriters may reasonably request.
(f) Blue Sky Qualifications. The Company and the Trust will each
use its best efforts, in cooperation with the Underwriters, to qualify the
Preferred Securities for offering and sale under the applicable securities
laws of such states and other jurisdictions (domestic or foreign) as the
Underwriters may designate and to maintain such qualifications in effect
for a period of not less than one year from the date hereof; provided,
however, that neither the Company nor the Trust shall be obligated to file
any general consent to service of process or to qualify as a foreign
corporation or as a dealer in securities in any jurisdiction in which it is
not so qualified or to subject itself to taxation in respect of doing
business in any jurisdiction in which it is not otherwise so subject. In
each jurisdiction in which the Preferred Securities have been so qualified,
the Company and the Trust will file such statements and reports as may be
required by the laws of such jurisdiction to continue such qualification in
effect for so long as is necessary to complete the offering of the
Securities contemplated hereby. The Company and the Trust will also supply
the Underwriters with such information as is necessary for the
determination of the legality of the Preferred Securities for investment
under the laws of such jurisdictions as the Underwriters may request.
(g) Rule 158. The Company will timely file such reports pursuant to
the 1934 Act as are necessary in order to make generally available to its
securityholders as soon as practicable an earnings statement for the
purposes of, and to provide the benefits contemplated by, the last
paragraph of Section 11(a) of the 1933 Act.
(h) Restriction on Sale of Securities. During a period of 30 days
from the date of the Prospectus, neither the Company nor the Trust will,
without the prior written consent of Merrill Lynch, directly or indirectly,
issue, sell, offer or contract to sell, grant any option entitling the
holder thereof to purchase or otherwise transfer or dispose of, any
Preferred Securities or Debentures (or any equity or debt securities
substantially similar to the Preferred Securities or Debentures,
respectively) of the Company or Trust. The foregoing sentence shall not
apply to the Preferred Securities or Debentures to be sold hereunder.
(i) Reporting Requirements. The Company and the Trust, during the
period when the Prospectus is required to be delivered under the 1933 Act
or the 1934 Act, will file all documents required to be filed with the
Commission pursuant to the 1934 Act within the time periods required by the
1934 Act and the 1934 Act Regulations.
(j) Listing. The Company will use its best efforts to effect the
listing of the Preferred Securities on the New York Stock Exchange.
SECTION 4. Payment of Expenses. (a) Expenses. The Company will pay
-------------------
all expenses incident to the performance of its and the Trust's obligations
under this Agreement, including (i) the
13
<PAGE>
preparation, printing and filing of the Registration Statement (including
financial statements and exhibits) as originally filed and of each amendment
thereto, (ii) the preparation, printing and delivery to the Underwriters of this
Agreement, any Agreement among Underwriters and such other documents as may be
required in connection with the offering, purchase, sale, issuance or delivery
of the Preferred Securities, (iii) the preparation, issuance and delivery of the
certificates for the Preferred Securities to the Underwriters, including any
stock or other transfer taxes and any stamp or other duties payable upon the
sale, issuance or delivery of the Preferred Securities to the Underwriters, (iv)
the fees and disbursements of the Company's and the Trust's counsel, accountants
and other advisors, (v) the qualification of the Preferred Securities under
securities laws in accordance with the provisions of Section 3(f) hereof,
including filing fees and the reasonable fees and disbursements of counsel for
the Underwriters (not to exceed $5,000) in connection therewith and in
connection with the preparation of the Blue Sky Survey and any supplement
thereto, if any, (vi) the printing and delivery to the Underwriters of copies of
each preliminary prospectus, any Term Sheets and of the Prospectus and any
amendments or supplements thereto, (vii) the printing and delivery to the
Underwriters of copies of the Blue Sky Survey and any supplement thereto, if
any, (viii) the fees and expenses of any transfer agent or registrar for the
Preferred Securities, (ix) the fees and expenses of the Indenture Trustee,
including the fees and disbursements of counsel for the Indenture Trustee in
connection with the Indenture and the Debentures, (x) the fees and expenses of
the Delaware Trustee, the Institutional Trustee and the Guarantee Trustee,
including the fees and disbursements of counsel for the Delaware Trustee, the
Institutional Trustee and the Guarantee Trustee, (xi) any fees payable in
connection with the rating of the Preferred Securities and the Debentures, (xii)
the cost and charges associated with the approval of the Preferred Securities by
the Depositary Trust Company for "book-entry" transfer and (xiii) the fees and
expenses incurred in connection with the listing of the Preferred Securities on
the New York Stock Exchange.
(b) Termination of Agreement. If this Agreement is terminated by the
Underwriters in accordance with the provisions of Section 5(j) or Section
9(a)(i) hereof, the Company shall reimburse the Underwriters for all of their
out-of-pocket expenses, including the reasonable fees and disbursements of
counsel for the Underwriters.
SECTION 5. Conditions of Underwriters' Obligations. The obligations of
---------------------------------------
the several Underwriters hereunder are subject to the accuracy of the
representations and warranties of the Company and the Trust contained in Section
1 hereof or in certificates of any officer of the Company or any Trustee
delivered pursuant to the provisions hereof, to the performance by the Company
and the Trust of their respective covenants and other obligations hereunder, and
to the following further conditions:
(a) Effectiveness of Registration Statement. The Registration
Statement, including any Rule 462(b) Registration Statement, has become
effective and at Closing Time no stop order suspending the effectiveness of
the Registration Statement shall have been issued under the 1933 Act or
proceedings therefor initiated or threatened by the Commission, and any
request on the part of the Commission for additional information shall have
been complied with to the reasonable satisfaction of counsel to the
Underwriters. A prospectus
14
<PAGE>
shall have been filed with the Commission in accordance with Rule 424(b)
(or a post-effective amendment providing such information shall have been
filed and declared effective) or, if the Company has elected to rely upon
Rule 434, a Term Sheet shall have been filed with the Commission in
accordance with Rule 424(b).
(b) Opinions of Counsel for Company. At Closing Time, the
Representatives shall have received the favorable opinion, dated as of
Closing Time, of each of Covington & Burling, counsel for the Company, and
William T. Torgerson, Senior Vice President and General Counsel of the
Company, in form and substance satisfactory to counsel for the
Underwriters, together with signed or reproduced copies of such letters for
each of the other Underwriters substantially to the effect set forth in
Exhibits A and B, respectively, hereto and to such further effect as
counsel to the Underwriters may reasonably request. Such counsel may also
state that, insofar as such opinion involves factual matters, they have
relied, to the extent they deem proper, upon certificates of officers of
the Company and its subsidiaries and certificates of public officials.
(c) Opinion of Special Delaware Counsel for the Trust. At Closing
Time, the Representatives shall have received the favorable opinion, dated
as of the Closing Time, of Skadden, Arps, Slate, Meagher & Flom LLP,
special Delaware counsel to the Trust, together with signed or reproduced
copies of such letter for each of the Underwriters to the effect set forth
in Exhibit C hereto and to such further effect as counsel to the
Underwriters may reasonably request.
(d) Opinion of Counsel for Underwriters. At Closing Time, the
Representatives shall have received the favorable opinion, dated as of
Closing Time, of Skadden, Arps, Slate, Meagher & Flom LLP, counsel for the
Underwriters, together with signed or reproduced copies of such letter for
each of the other Underwriters with respect to the validity of the
Preferred Securities, the Registration Statement, the Prospectus and other
related matters as the Underwriters may reasonably request. In giving such
opinion such counsel may rely, as to all matters governed by the laws of
jurisdictions other than the law of the State of New York, the federal law
of the United States, the Delaware Act and the General Corporation Law of
the State of Delaware, upon the opinions of counsel satisfactory to the
Underwriters. Such counsel may also state that, insofar as such opinion
involves factual matters, they have relied, to the extent they deem proper,
upon certificates of officers of the Company and its subsidiaries and
certificates of public officials.
(e) Officers' Certificates. At Closing Time, there shall not have
been, since the date hereof or since the respective dates as of which
information is given in the Prospectus, (A) any material adverse change in
the condition, financial or otherwise, or in the earnings, business affairs
or business prospects of the Company and its subsidiaries considered as one
enterprise, whether or not arising in the ordinary course of business, and
the Representatives shall have received a certificate of the Chairman, the
President, a Vice Chairman or a Vice President of the Company and of the
chief financial or chief accounting officer or the
15
<PAGE>
Treasurer of the Company, dated as of Closing Time, to the effect that (i)
there has been no such material adverse change, (ii) the representations
and warranties in Section 1(a) hereof are true and correct with the same
force and effect as though expressly made at and as of Closing Time (except
for representations or warranties of the Company which by their terms speak
as of a different date or dates), (iii) the Company has complied with all
agreements and satisfied all conditions on its part to be performed or
satisfied at or prior to Closing Time, and (iv) no stop order suspending
the effectiveness of the Registration Statement has been issued and no
proceedings for that purpose have been instituted or are pending or are, to
the best of the Company's knowledge, threatened by the Commission; or (B)
any material adverse change in the condition, financial or otherwise, or in
the earnings, business affairs or business prospects of the Trust, and the
Representatives shall have received a certificate of a Regular Trustee of
the Trust, dated as of Closing Time, to the effect that (i) there has been
no such material adverse change, (ii) the representations and warranties of
the Trust in Section 1(a) hereof are true and correct with the same force
and effect as though expressly made at and as of Closing Time (except for
representations or warranties which by their terms speak as of a different
date or dates), (iii) the Trust has complied with all agreements and
satisfied all conditions on its part to be performed or satisfied at or
prior to Closing Time, and (iv) no stop order suspending the effectiveness
of the Registration Statement has been issued and no proceedings for that
purpose have been instituted or are pending or are, to the best of the
Trust's knowledge, threatened by the Commission.
(f) Accountant's Comfort Letter. At the Closing Time, the
Representatives shall have received from Price Waterhouse LLP a letter
dated such date, in form and substance satisfactory to the Representatives,
together with signed or reproduced copies of such letter for each of the
Underwriters containing statements and information of the type ordinarily
included in accountants' "comfort letters" to underwriters with respect to
the financial statements and certain financial information contained in the
Registration Statement and the Prospectus.
(g) Regulatory Approval. At Closing Time, the Company shall have
received all consents, approvals, authorizations or orders of, or
qualifications with, any governmental body or agency, required for the
performance by the Company and the Trust of their obligations under this
Agreement and the issuance and delivery of the Preferred Securities (except
such approvals that may be required under the securities or "blue sky" laws
of any jurisdiction).
(h) Maintenance of Rating. At Closing Time, the Preferred Securities
shall be rated at least a1 by Moody's Investors Service, Inc. and A- by
Standard & Poor's Ratings Group, a division of McGraw-Hill, Inc., and the
Company shall have delivered to the Underwriters a letter dated the Closing
Time, from each such rating agency, or other evidence satisfactory to the
Representatives, confirming that the Preferred Securities have such
ratings; and since the date of this Agreement, there shall not have
occurred a downgrading in the rating assigned to the Preferred Securities
or any of the Company's
16
<PAGE>
securities by any "nationally recognized statistical rating agency," as
that term is defined by the Commission for purposes of Rule 436(g)(2) under
the 1933 Act, and no such organization shall have publicly announced that
it has under surveillance or review its rating of the Securities or any of
the Company's securities.
(i) Additional Documents. At Closing Time counsel for the
Underwriters shall have been furnished with such documents and opinions as
they may require for the purpose of enabling them to pass upon the issuance
and sale of the Preferred Securities as herein contemplated, or in order to
evidence the accuracy of any of the representations or warranties, or the
fulfillment of any of the conditions, herein contained; and all proceedings
taken by the Company and Trust in connection with the issuance and sale of
the Preferred Securities as herein contemplated shall be reasonably
satisfactory in form and substance to the Representatives and counsel for
the Underwriters.
(j) Termination of Agreement. If any condition specified in this
Section shall not have been fulfilled when and as required to be fulfilled,
this Agreement may be terminated by the Underwriters by notice to the
Company at any time at or prior to Closing Time, and if any condition
specified in Section 5(h) shall not have been fulfilled when and as
required to be fulfilled, this Agreement may be terminated by the Company
by notice to the Representatives at any time prior to the Closing Time, and
in either case such termination shall be without liability of any party to
any other party, except as provided in Section 4 and except that Sections
1, 6, 7 and 8 shall survive any such termination and remain in full force
and effect.
SECTION 6. Indemnification.
---------------
(a) Indemnification of Underwriters. Each of the Company and the Trust
jointly and severally agrees to indemnify and hold harmless each Underwriter and
each person, if any, who controls any Underwriter within the meaning of Section
15 of the 1933 Act or Section 20 of the 1934 Act as follows:
(i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement (or any amendment thereto), including the Rule 430A Information
and the Rule 434 Information, if applicable, or the omission or alleged
omission therefrom of a material fact required to be stated therein or
necessary to make the statements therein not misleading or arising out of
any untrue statement or alleged untrue statement of a material fact
contained in any preliminary prospectus or the Prospectus (or any amendment
or supplement thereto), or the omission or alleged omission therefrom of a
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
17
<PAGE>
(ii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission, provided that any such settlement is
effected with the written consent of the Company; and
(iii) against any and all expense whatsoever, as incurred (including
the fees and disbursements of counsel chosen by Merrill Lynch), reasonably
incurred in investigating, preparing or defending against any litigation,
or any investigation or proceeding by any governmental agency or body,
commenced or threatened, or any claim whatsoever based upon any such untrue
statement or omission, or any such alleged untrue statement or omission, to
the extent that any such expense is not paid under (i) or (ii) above;
provided, however, that this indemnity agreement shall not apply to any loss,
- -------- -------
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by any
Underwriter through Merrill Lynch expressly for use in the Registration
Statement (or any amendment thereto), including the Rule 430A Information and
the Rule 434 Information, if applicable, or any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto).
(b) Indemnification of Trust by Company. The Company agrees to indemnify
the Trust against all loss, liability, claim, damage and expense whatsoever
incurred by the Trust under Section 6(a) hereunder.
(c) Indemnification of Trust, Company, Directors and Officers. Each
Underwriter severally agrees to indemnify and hold harmless the Company and the
Trust, the Company's directors, each of the Company's officers and the Trustee
of the Trust who signed the Registration Statement, and each person, if any, who
controls the Company and the Trust within the meaning of Section 15 of the 1933
Act or Section 20 of the 1934 Act against any and all loss, liability, claim,
damage and expense described in the indemnity contained in subsection (a) of
this Section, as incurred, but only with respect to untrue statements or
omissions, or alleged untrue statements or omissions, made in the Registration
Statement (or any amendment thereto), including the Rule 430A Information and
the Rule 434 Information, if applicable, or any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto) in reliance upon and in
conformity with written information furnished to the Company by such Underwriter
through Merrill Lynch expressly for use in such Registration Statement (or any
amendment thereto) or such preliminary prospectus or the Prospectus (or any
amendment or supplement thereto).
(d) Actions against Parties; Notification. Each indemnified party shall
give notice as promptly as reasonably practicable to each indemnifying party of
any action commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify an indemnifying
18
<PAGE>
party shall not relieve such indemnifying party from any liability hereunder to
the extent it is not materially prejudiced as a result thereof and in any event
shall not relieve it from any liability which it may have otherwise than on
account of this indemnity agreement. In the case of parties indemnified pursuant
to Section 6(a) above, counsel to the indemnified parties shall be selected by
Merrill Lynch, and, in the case of parties indemnified pursuant to Section 6(c)
above, counsel to the indemnified parties shall be selected by the Company, in
each case reasonably acceptable to the indemnifying party. An indemnifying party
may participate at its own expense in the defense of any such action; provided,
however, that counsel to the indemnifying party shall not (except with the
consent of the indemnified party) also be counsel to the indemnified party. In
no event shall the indemnifying parties be liable for fees and expenses of more
than one counsel (in addition to any local counsel) separate from their own
counsel for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances. No indemnifying party shall,
without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry of any judgment with respect to any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever in respect of which
indemnification or contribution could be sought under this Section 6 or Section
7 hereof (whether or not the indemnified parties are actual or potential parties
thereto), unless such settlement, compromise or consent (i) includes an
unconditional release of each indemnified party from all liability arising out
of such litigation, investigation, proceeding or claim and (ii) does not include
a statement as to or an admission of fault, culpability or a failure to act by
or on behalf of any indemnified party.
SECTION 7. Contribution. If the indemnification provided for in
------------
Section 6 hereof is for any reason unavailable to or insufficient to hold
harmless an indemnified party in respect of any losses, liabilities, claims,
damages or expenses referred to therein; then each indemnifying party shall
contribute to the aggregate amount of such losses, liabilities, claims, damages
and expenses incurred by such indemnified party, as incurred, (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company and the Trust on the one hand and the Underwriters on the other hand
from the offering of the Preferred Securities pursuant to this Agreement or (ii)
if the allocation provided by clause (i) is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company and
the Trust on the one hand and of the Underwriters on the other hand in
connection
19
<PAGE>
with the statements or omissions, which resulted in such losses, liabilities,
claims, damages or expenses, as well as any other relevant equitable
considerations.
The relative benefits received by the Company and the Trust on the one hand
and the Underwriters on the other hand in connection with the offering of the
Preferred Securities pursuant to this Agreement shall be deemed to be in the
same respective proportions as the total net proceeds from the offering of the
Preferred Securities pursuant to this Agreement (before deducting expenses)
received by the Company and the total underwriting commission received by the
Underwriters, in each case as set forth on the cover of the Prospectus, or, if
Rule 434 is used, the corresponding location on the Term Sheet, bear to the
aggregate price to the public price of the Securities as set forth on such
cover.
The relative fault of the Company and the Trust on the one hand and the
Underwriters on the other hand shall be determined by reference to, among other
things, whether any such untrue or alleged untrue statement of a material fact
or omission or alleged omission to state a material fact relates to information
supplied by the Company or by the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
The Company, the Trust and the Underwriters agree that it would not be just
and equitable if contribution pursuant to this Section 7 were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this Section 7. The aggregate
amount of losses, liabilities, claims, damages and expenses incurred by an
indemnified party and referred to above in this Section 7 shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue or alleged untrue
statement or omission or alleged omission.
Notwithstanding the provisions of this Section 7, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Securities underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages that such
Underwriter has otherwise been required to pay by reason of any such untrue or
alleged untrue statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 7, each person, if any, who controls an
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act shall have the same rights to contribution as such Underwriter, and
each director of the Company, each officer of the Company
20
<PAGE>
and the Trustee of the Trust who signed the Registration Statement, and each
person, if any, who controls the Company or the Trust within the meaning of
Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same
rights to contribution as the Company. The Underwriters' respective obligations
to contribute pursuant to this Section 7 are several in proportion to the number
of Preferred Securities set forth opposite their respective names in Schedule A
hereto and not joint.
SECTION 8. Representations, Warranties and Agreements to Survive
-----------------------------------------------------
Delivery. All representations, warranties and agreements contained in this
- --------
Agreement or in certificates of officers of the Company or the Trustees of the
Trust or any of its other subsidiaries submitted pursuant hereto, shall remain
operative and in full force and effect, regardless of any investigation made by
or on behalf of any Underwriter or controlling person, or by or on behalf of the
Company, the Trust or controlling person, and shall survive delivery of the
Preferred Securities to the Underwriters.
SECTION 9. Termination of Agreement.
------------------------
(a) Termination; General. The Representatives may terminate this
Agreement, by notice to the Company and the Trust, at any time at or prior to
Closing Time (i) if there has been, since the time of execution of this
Agreement or since the respective dates as of which information is given in the
Prospectus, any material adverse change in the condition, financial or
otherwise, or in the earnings, business affairs or business prospects of the
Company and its subsidiaries considered as one enterprise, whether or not
arising in the ordinary course of business which renders it impracticable to
consummate the sale of the securities, or (ii) if there has occurred, since the
time of execution of this Agreement, any material adverse change in the
financial markets in the United States, any outbreak of hostilities or
escalation thereof or other calamity or crisis or any change or development
involving a prospective change in national or international political, financial
or economic conditions, in each case the effect of which is such as to make it,
in the judgment of the Representatives, impracticable to market the Preferred
Securities or to enforce contracts for the sale of the Preferred Securities, or
(iii) if, since the time of execution of this Agreement, trading in any
securities of the Company has been suspended or materially limited by the
Commission or the New York Stock Exchange, or if trading generally on the
American Stock Exchange or the New York Stock Exchange or in the Nasdaq National
Market has been suspended or materially limited and such suspension or
limitation is continuing, or minimum or maximum prices for trading have been
fixed, or maximum ranges for prices have been required, by any of said exchanges
or by such system or by order of the Commission, the National Association of
Securities Dealers, Inc. or any other governmental authority, or (iv) if a
banking moratorium has been declared by either Federal or New York authorities.
(b) Liabilities. If this Agreement is terminated pursuant to this
Section, such termination shall be without liability of any party to any other
party except as provided in Section 4 hereof, and provided further that Sections
1, 6, 7 and 8 shall survive such termination and remain in full force and
effect.
SECTION 10. Default by One or More of the Underwriters. If one or more
------------------------------------------
of the Underwriters shall fail at Closing Time to purchase the Preferred
Securities which it or they are
21
<PAGE>
obligated to purchase under this Agreement (the "Defaulted Securities"), the
Representatives shall have the right, within 24 hours thereafter, to make
arrangements for one or more of the non-defaulting Underwriters, or any other
underwriters, to purchase all, but not less than all, of the Defaulted
Securities in such amounts as may be agreed upon and upon the terms herein set
forth; if, however, the Representatives shall not have completed such
arrangements within such 24-hour period, then:
(a) if the number of Defaulted Securities does not exceed 10% of the
number of Preferred Securities to be purchased on such date, each of the
non-defaulting Underwriters shall be obligated, severally and not jointly,
to purchase the full amount thereof in the proportions that their
respective underwriting obligations hereunder bear to the underwriting
obligations of all non-defaulting Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of the number of
Preferred Securities to be purchased on such date, this Agreement shall
terminate without liability on the part of any non-defaulting Underwriter.
No action taken pursuant to this Section shall relieve any defaulting
Underwriter from liability in respect of its default.
In the event of any such default which does not result in a termination of
this Agreement either the Representatives or the Company shall have the right to
postpone Closing Time, for a period not exceeding seven days in order to effect
any required changes in the Registration Statement or Prospectus or in any other
documents or arrangements. As used herein, the term "Underwriter" includes any
person substituted for an Underwriter under this Section 10.
SECTION 11. Notices. All notices and other communications hereunder
-------
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the
Representatives shall be directed to Merrill Lynch at North Tower, World
Financial Center, New York, New York 10281-1201, Attention of Syndicate
Operations; notices to the Company and to the Trust shall be directed to Potomac
Electric Power Company, 1900 Pennsylvania Avenue, N.W., Washington, D.C. 20068,
Attention: Treasurer.
SECTION 12. Parties. This Agreement shall inure to the benefit of and
-------
be binding upon the Underwriters, the Company and the Trust and their respective
successors. Nothing expressed or mentioned in this Agreement is intended or
shall be construed to give any person, firm or corporation, other than the
Underwriters, the Company and the Trust and their respective successors and the
controlling persons and officers and directors referred to in Sections 6 and 7
and their heirs and legal representatives, any legal or equitable right, remedy
or claim under or in respect of this Agreement or any provision herein
contained. This Agreement and all conditions and provisions hereof are intended
to be for the sole and exclusive benefit of the Underwriters, the Company and
the Trust and their respective successors, and said controlling persons and
officers and directors and their heirs and legal representatives, and for the
benefit of no other person, firm or corporation. No
22
<PAGE>
purchaser of Securities from any Underwriter shall be deemed to be a successor
by reason merely of such purchase.
SECTION 13. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED BY
----------------------
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. SPECIFIED
TIMES OF DAY REFER TO NEW YORK CITY TIME.
SECTION 14. Effect of Headings. The Article and Section headings herein
------------------
and the Table of Contents are for convenience only and shall not affect the
construction hereof.
23
<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to the Company and the Trust a counterpart hereof,
whereupon this instrument, along with all counterparts, will become a binding
agreement between the Underwriters, the Company and the Trust in accordance with
its terms.
Very truly yours,
POTOMAC ELECTRIC POWER COMPANY
By:
--------------------------------------------
Name:
Title:
POTOMAC ELECTRIC POWER COMPANY
TRUST I
By:
--------------------------------------------
Name:
Title: Regular Trustee
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
A.G. EDWARDS & SONS, INC.
PAINE WEBBER INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
SALOMON SMITH BARNEY
By: MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By
----------------------------------------
Authorized Signatory
<PAGE>
SCHEDULE A
Number of
Name of Underwriter Preferred Securities
- ------------------- --------------------
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...................... [ ]
A.G. Edwards & Sons, Inc.......................... [ ]
Paine Webber Incorporated......................... [ ]
Prudential Securities Incorporated................ [ ]
Salomon Smith Barney.............................. [ ]
Total............................................. [ ]
===
Sch A-1
<PAGE>
Exhibit A
Form of opinion, dated as of Closing Time, of Covington & Burling, counsel
for the Company and the Trust, substantially to the effect that:
(1) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the District of Columbia
and under the laws of the Commonwealth of Virginia, and has the corporate
power and authority to execute the Purchase Agreement and the Indenture and
to issue and sell the Debentures.
(2) The Purchase Agreement has been duly authorized, executed and
delivered by each of the Company and the Trust.
(3) The Indenture and the Supplemental Indenture have been duly and
validly authorized by all necessary corporate action of the Company, have
been duly and validly executed and delivered by the Company, and, as
amended by the Supplemental Indenture, the Indenture, and assuming the due
authorization, execution and delivery of the Indenture and the Supplemental
Indenture by The Bank of New York, constitutes a valid and legally binding
instrument of the Company enforceable against the Company in accordance
with its terms, except as limited by bankruptcy, insolvency, reorganization
or other laws affecting the enforcement of creditors' rights or by general
principles of equity.
(4) The Debentures have been duly and validly authorized by all
necessary corporate action of the Company, have been duly and validly
issued in accordance with the provisions of the Indenture and the
Supplemental Indenture, and constitute the valid and legally binding
obligations of the Company enforceable against the Company in accordance
with their terms, except as limited by bankruptcy, insolvency,
reorganization or other laws affecting enforcement of creditors' rights or
by general principles of equity, and are entitled to the benefit afforded
by the Indenture.
(5) The Declaration has been duly authorized, executed and delivered
by the Company; and, assuming the due authorization, execution and delivery
of the Declaration by Bank of New York and Bank of New York (Delaware), the
Declaration constitutes a valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, except as
limited by bankruptcy, insolvency, reorganization or other laws affecting
the enforcement of creditors' rights or by general principles of equity.
(6) The Preferred Securities Guarantee Agreement has been duly
authorized, executed and delivered by the Company; and, assuming the due
authorization, execution and delivery of the Preferred Securities Guarantee
Agreement by The Bank of New York, constitutes a valid and binding
agreement of the Company enforceable against the Company
A-1
<PAGE>
in accordance with its terms, except as limited by bankruptcy, insolvency,
reorganization or other laws affecting the enforcement of creditors' rights
or by general principles of equity.
(7) Each of the Indenture, Preferred Securities Guarantee Agreement
and the Declaration has been duly qualified under the Trust Indenture Act
of 1939, as amended (the "1939 Act").
(8) The Registration Statement, including any Rule 462(b)
Registration Statement, is effective under the Securities Act of 1933, as
amended (the "1933 Act"); any required filing or the Prospectus pursuant to
Rule 424(b) has been made in the manner and within the time period required
by Rule 424(b); and to the best of our knowledge no stop order suspending
the effectiveness of the Registration Statement has been issued and no
proceedings for that purpose are pending or threatened under Section 8(d)
of the 1933 Act. The Registration Statement, including any Rule 462(b)
Registration Statement, the Rule 430A Information and the Rule 434
Information, as applicable, the Prospectus, excluding the documents
incorporated by reference therein, and each amendment or supplement to the
Registration Statement and Prospectus, excluding the documents incorporated
by reference therein, as of their respective effective or issue dates
(except for the financial statements and other financial data constituting
a part thereof, as to which we express no opinion), complied as to form in
all material respects with the applicable requirements of the 1933 Act and
the 1939 Act, and the applicable rules and regulations of the Securities
and Exchange Commission (the "Commission") thereunder, except that we
express no opinion on the Forms T-1 filed as exhibits to the Registration
Statement. The documents or portions thereof filed with the Commission
pursuant to the Securities Exchange Act of 1934, as amended (the "1934
Act"), and incorporated by reference in the Registration Statement and the
Prospectus, at the times they were filed with the Commission, complied as
to form in all material respects with the 1934 Act, and the rules and
regulations of the Commission thereunder.
(9) The approval of the Public Service Commission of the District of
Columbia which is required for the valid authorization, issuance and sale
of the Preferred Securities and the Debentures in accordance with the
Purchase Agreement has been obtained; to the best of our knowledge, such
approval is in full force and effect; no approval by the State Corporation
Commission of the Commonwealth of Virginia is necessary for the valid
authorization, issuance and sale of the Preferred Securities and the
Debentures in accordance with the Purchase Agreement; and we do not know of
any other approvals, consents or orders of any governmental body that are
legally required as a condition to valid authorization, issuance and sale
of the Preferred Securities and the Debentures in accordance with the
Purchase Agreement (other than in connection or in compliance with the
provisions of the securities or "blue sky" laws of any jurisdiction, as to
which we express no opinion).
(10) The summary of the terms of the Preferred Securities, the Common
Securities, the Debentures, the Preferred Securities Guarantee, the
Indenture, the Declaration and the Preferred Securities Guarantee Agreement
contained in the Registration Statement and the
<PAGE>
Prospectus fairly describes the provisions thereof required to be described
by the registration statement form. The opinion of such counsel set forth
under "United States Federal Income Taxation" in the Registration Statement
and the Prospectus is confirmed.
(11) The holders of outstanding shares of capital stock of the Company
are not entitled to any preemptive rights under the Articles of
Incorporation or By-Laws of the Company or the laws of the District of
Columbia or the Commonwealth of Virginia to subscribe for the Preferred
Securities or the Debentures.
(12) Neither the Company nor the Trust is, and upon the issuance and
sale of the Preferred Securities as contemplated by the Purchase Agreement
and the application of the net proceeds therefrom as described in the
Prospectus, will be, an "investment company" or an entity "controlled" by
an "investment company" as such terms are defined in the Investment Company
Act of 1940, as amended.
Additionally, in giving its opinion, such counsel shall state that in
passing upon the form of the Registration Statement and the form of the
Prospectus, such counsel necessarily assumes the correctness and completeness of
the statements made and information included therein by the Company and takes no
responsibility therefor, except insofar as such statements relate to such
counsel, and as set forth in paragraph 10 above. Such counsel shall state that
in connection with the Company's preparation of the Registration Statement and
the Prospectus, such counsel had discussions with certain of its officers and
representatives and that such counsel's examination of the Registration
Statement and the Prospectus and discussions did not disclose to them any
information which gave such counsel reason to believe that the Registration
Statement or any amendment thereto, including the Rule 430A Information and Rule
434 Information, if applicable, (except for financial statements and schedules
and other financial data included or incorporated by reference therein or
omitted therefrom and the Form T-1, as to which such counsel need make no
statement), at the time such Registration Statement or any such amendment became
effective, it contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading or that the Prospectus or any amendment or
supplement thereto (except for financial statements and schedules and other
financial data included or incorporated by reference therein or omitted
therefrom and the Form T-1, as to which such counsel need make no statement), at
the time it was filed with the Commission pursuant to Rule
A-3
<PAGE>
424(b) or at the date hereof, contained or contains any untrue statement of a
material fact or omitted or omits to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
A-4
<PAGE>
Exhibit B
Form of opinion, dated as of Closing Time, of William T. Torgerson, Senior Vice
President and General Counsel of the Company and the Trust, substantially to
the effect that:
(1) The Company has been duly incorporated and is now validly
existing as a corporation in good standing under the laws of the District of
Columbia; is also now validly existing and in good standing as a domestic
corporation of the Commonwealth of Virginia; has the corporate power to carry on
the business in which it is now engaged as described in the Prospectus; is
legally qualified to carry on in the State of Maryland the business in which it
is now engaged in said State; and is legally qualified to carry on business
within the Commonwealth of Pennsylvania, limited, however, to its participation
in the construction, ownership and operation of the Conemaugh generating station
and certain related transmission lines.
(2) The Purchase Agreement has been duly authorized, executed and
delivered by the Company.
(3) The Indenture has been duly and validly authorized, executed and
delivered by the Company, assuming the due authorization, execution and delivery
of the Indenture by The Bank of New York, and is a valid and legally binding
instrument of the Company enforceable against the Company in accordance with its
terms, except as the same may be limited by bankruptcy, insolvency, fraudulent
conveyance, reorganization, or other laws of general application relating to the
enforcement of creditors' rights.
(4) The Debentures have been duly and validly authorized by all
necessary corporate action of the Company, have been duly and validly issued in
accordance with the provisions of the Indenture and the Supplemental Indenture,
and constitute the valid and legally binding obligations of the Company
enforceable against the Company in accordance with their terms, except as the
same may be limited as set forth in paragraph (3) above, and are entitled to the
benefit afforded by the Indenture.
(5) The Registration Statement, including any Rule 462(b)
Registration Statement, is effective under the Securities Act of 1933, as
amended (the "1933 Act"); any required filing of the Prospectus pursuant to Rule
424(b) has been made in the manner and within the time period required by Rule
424(b); no stop order suspending the effectiveness of the Registration Statement
has been issued and to the best of my knowledge no proceedings for that purpose
are pending or threatened under Section 8(d) of the 1933 Act; the approval of
the Public Service Commission of the District of Columbia which is required for
the valid authorization, issuance and sale of the Preferred Securities and the
Debentures in accordance with the Purchase Agreement, has been obtained and is
in full force and effect; no approval by the State Corporation Commission of
Virginia is necessary for the valid authorization, issuance and sale of the
Preferred Securities and the Debentures in accordance with the Purchase
Agreement; and such counsel does not know of any other approvals of any
governmental body required in that connection (other than in connection or in
compliance with the securities or
B-1
<PAGE>
"blue sky" laws of any jurisdiction, as to which I express no opinion herein).
No approval, consent or order of the Maryland Public Service Commission or any
other regulatory authority of the State of Maryland is required for the valid
authorization, issuance and sale of the Preferred Securities and the Debentures
in accordance with the Purchase Agreement (other than any applicable
requirements of the Maryland Securities Law, as to which I am not required to
express an opinion).
(6) The summary of the terms of the Preferred Securities, the Common
Securities, the Debentures, the Preferred Securities Guarantee, the Indenture,
the Declaration and the Preferred Securities Guarantee Agreement contained in
the Registration Statement and the Prospectus fairly describes the provisions
thereof required to be described by the registration statement form.
(7) The Company holds valid franchises, permits and other rights
adequate for the business of the Company in the territory which it serves, and
such franchises, permits and other rights contain no unduly burdensome
restrictions.
(8) To the best of such counsel's knowledge, there is not pending or
threatened any action, suit, proceeding, inquiry or investigation, to which the
Company or the Trust, or to which the property of the Company or the Trust is
subject, before or brought by any court or governmental agency or body, domestic
or foreign, not described in the Registration Statement which might reasonably
be expected to result in a Material Adverse Effect, or that questions the
validity of the transactions contemplated in the Purchase Agreement.
(9) There is no pending or, to the best knowledge of such counsel,
threatened action, suit or proceeding before any court or governmental agency,
authority or body or any arbitrator involving the Trust, the Company or any of
its subsidiaries, of a character required to be disclosed in the Registration
Statement which is not adequately disclosed in the Prospectus, and 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.
(10) No holders of securities of the Company have rights to the
registration of such securities under the Registration Statement.
Such counsel shall also state that, in such counsel's opinion, the
Registration Statement and the prospectus contained therein, as of the effective
date of such Registration Statement, appeared on its face to be appropriately
responsive in all material respects to the requirements of the 1933 Act, and to
the extent applicable, the Securities Exchange Act of 1934, as amended, and the
applicable rules and regulations of the Securities and Exchange Commission
thereunder and that the Supplemental Indenture appears on its face to be
appropriately responsive in all material respects to the requirements of the
1939 Act and the applicable rules and regulations of the Securities and Exchange
Commission thereunder.
B-2
<PAGE>
Except as specifically noted in the preceding sentence, such counsel is not
passing upon and does not assume any responsibility for the accuracy,
completeness or fairness of the statements contained in the Registration
Statement and Prospectus and make no representations that he has independently
verified the accuracy, completeness or fairness of such statements, except
insofar as such statements relate to such counsel. However, based on such
counsel's examination of the Registration Statement and Prospectus and of the
documents specifically referred to therein and on his general familiarity with
the affairs of the Company and on his participation in conferences with
officials and other representatives of, and other counsel for, the Company, with
Price Waterhouse LLP, the independent accountants of the Company, and with
Underwriters' representatives and Underwriters' counsel, such counsel does not
believe that the Registration Statement at the time of its effectiveness,
contained an untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading or that the Prospectus at the time it was filed with, or
transmitted for filing to, the Commission pursuant to Rule 424 or at the date
hereof contained or contains an untrue statement of a material fact or omitted
or omits 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. Such counsel need not express an opinion or belief, however, as to
the financial statements or other financial data constituting a part of the
Registration Statement or the Prospectus.
Such counsel may assume, with Underwriters' approval, but not
independently verified, that the signatures on all documents examined by such
counsel are genuine.
Such counsel's opinion may state that it is given to the Underwriters
solely for their use in connection with the Purchase Agreement and the
transactions contemplated thereunder and may not be relied upon for any manner
by any other person or for any other purpose, without his prior written consent.
B-3
<PAGE>
Exhibit C
Form of opinion, dated as of Closing Time, of Skadden, Arps, Slate, Meagher
& Flom LLP, special Delaware counsel for the Trust, substantially to the effect
that:
(i) the Trust has been duly created and is validly existing in good
standing as a business trust under the Delaware Act; all filings required under
the laws of the State of Delaware with respect to the creation and valid
existence of the Trust as a business trust have been made; and the Trust has the
trust power and authority to conduct its business, as described in the
Prospectus.
(ii) the Amended and Restated Declaration is a valid and binding
obligation of the Company and the Trustees, enforceable against the Company and
the Trustees in accordance with its terms, except to the extent that enforcement
thereof may be limited by (i) bankruptcy, insolvency (including without
limitation, all laws relating to fraudulent transfers), reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditors' rights generally and (ii) general principles of equity (regardless of
whether enforceability is considered in a proceeding in equity or at law) and
except to the extent that the rights to indemnity and contribution contained
therein may be limited by state or securities laws or the public policy
underlying such laws.
(iii) the Preferred Securities have been duly authorized for issuance
in accordance with the Amended and Restated Declaration and, subject to the
qualifications set forth below, when certificates therefor in the form examined
by us are issued, executed and authenticated in accordance with the Amended and
Restated Declaration and delivered and paid for in accordance with the Purchase
Agreement, will be validly issued, fully paid and non-assessable undivided
beneficial interests in the assets of the Trust and will entitle the holders of
the Preferred Securities to the benefits of the Amended and Restated Declaration
except to the extent that enforcement of the Amended and Restated Declaration
may be limited by (i) bankruptcy, insolvency (including without limitation, all
laws relating to fraudulent transfers), reorganization, moratorium or other
similar laws now or hereafter in effect relating to creditors' rights generally
and (ii) general principles of equity (regardless of whether enforceability is
considered in a proceeding in equity or at law) and except to the extent that
the rights to indemnity and contribution contained therein may be limited by
state or securities laws or the public policy underlying such laws; and the
holders of the Preferred Securities will be entitled to the same limitation of
personal liability extended to stockholders of private corporations for profit
organized under the General Corporation Law of the State of Delaware. We bring
to your attention, however, that the holders of Preferred Securities may be
obligated, pursuant to the Amended and Restated Declaration, to make payments,
including (i) to provide indemnity and/or security in connection with and pay
taxes or governmental charges arising from transfers of Preferred Securities and
the issuance of replacement Preferred Securities, and (ii) to provide security
and indemnity in connection with requests of or directions to the Institutional
Trustee to exercise its rights and powers under the Amended and Restated
Declaration.
C-1
<PAGE>
(iv) the issuance of the Preferred Securities is not subject to
preemptive or other similar rights under the Delaware Act or the Amended and
Restated Declaration.
(v) under the Amended and Restated Declaration and the Delaware Act,
the Trust has the requisite trust power and authority to execute and deliver the
Purchase Agreement, and to perform its obligations under the Purchase Agreement
and to consummate the transactions contemplated thereby. The Purchase Agreement
has been duly authorized, executed and delivered by the Trust.
(vi) the statements made in the Prospectus under the caption
"Description of the Preferred Securities" insofar as such statements constitute
summaries of Delaware law are accurate in all material respects.
C-2
AMENDED AND RESTATED
DECLARATION OF TRUST
OF
POTOMAC ELECTRIC POWER COMPANY TRUST I
Dated as of ________, 1998
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
INTERPRETATION AND DEFINITIONS
SECTION 1.1 Definitions 1
ARTICLE II
TRUST INDENTURE ACT
SECTION 2.1 Trust Indenture Act; Application 6
SECTION 2.2 Lists of Holders of Securities 7
SECTION 2.3 Reports by the Institutional Trustee 7
SECTION 2.4 Periodic Reports to Institutional Trustee 7
SECTION 2.5 Evidence of Compliance with Conditions Precedent 7
SECTION 2.6 Events of Default; Waiver 7
SECTION 2.7 Event of Default; Notice 9
ARTICLE III
ORGANIZATION
SECTION 3.1 Name 9
SECTION 3.2 Office 10
SECTION 3.3 Purpose 10
SECTION 3.4 Authority 10
SECTION 3.5 Title to Property of the Trust 10
SECTION 3.6 Powers and Duties of the Regular Trustees 10
SECTION 3.7 Prohibition of Actions by the Trust and the
Trustees 12
SECTION 3.8 Powers and Duties of the Institutional Trustee 13
SECTION 3.9 Certain Duties and Responsibilities
of the Institutional Trustee 15
SECTION 3.10 Certain Rights of the Institutional Trustee 16
SECTION 3.11 Delaware Trustee 17
SECTION 3.12 Execution of Documents 18
SECTION 3.13 Not Responsible for Recitals or Issuance of
Securities 18
SECTION 3.14 Duration of Trust 18
SECTION 3.15 Mergers 18
ARTICLE IV
SPONSOR
SECTION 4.1 Sponsor's Purchase of Common Securities 19
SECTION 4.2 Responsibilities of the Sponsor 19
SECTION 4.3 Right to Proceed 20
SECTION 4.4 Expenses 20
ARTICLE V
TRUSTEES
SECTION 5.1 Number of Trustees 21
SECTION 5.2 Delaware Trustee 21
<PAGE>
SECTION 5.3 Institutional Trustee; Eligibility 21
SECTION 5.4 Certain Qualifications of the Regular Trustees
and the Delaware Trustee Generally 22
SECTION 5.5 Regular Trustees 22
SECTION 5.6 Appointment, Removal and Resignation of
Trustees 22
SECTION 5.7 Vacancies among Trustees 23
SECTION 5.8 Effect of Vacancies 23
SECTION 5.9 Meetings 24
SECTION 5.10 Delegation of Power 24
SECTION 5.11 Merger, Conversion, Consolidation or
Succession to Business 24
ARTICLE VI
DISTRIBUTIONS
SECTION 6.1 Distributions 25
ARTICLE VII
ISSUANCE OF SECURITIES
SECTION 7.1 General Provisions Regarding Securities 25
SECTION 7.2 Paying Agent 26
ARTICLE VIII
TERMINATION OF TRUST
SECTION 8.1 Termination of Trust 26
ARTICLE IX
TRANSFER OF INTERESTS
SECTION 9.1 Transfer of Securities 27
SECTION 9.2 Transfer of Certificates 27
SECTION 9.3 Deemed Security Holders 28
SECTION 9.4 Book-Entry Interests 29
SECTION 9.5 Notices to Depository Institution 28
SECTION 9.6 Appointment of Successor Depository Institution 29
SECTION 9.7 Issuance of Preferred Security Certificates 29
SECTION 9.8 Mutilated, Destroyed, Lost or Stolen
Certificates 30
SECTION 9.9 CUSIP Numbers 30
ARTICLE X
LIMITATION OF LIABILITY OF
HOLDERS OF SECURITIES, TRUSTEES OR OTHERS
SECTION 10.1 Liability 30
SECTION 10.2 Exculpation 31
SECTION 10.3 Fiduciary Duty 31
SECTION 10.4 Indemnification 32
SECTION 10.5 Outside Businesses 34
<PAGE>
ARTICLE XI
ACCOUNTING
SECTION 11.1 Fiscal Year 34
SECTION 11.2 Certain Accounting Matters 34
SECTION 11.3 Banking 35
SECTION 11.4 Withholding 35
ARTICLE XII
AMENDMENTS AND MEETINGS
SECTION 12.1 Amendments 35
SECTION 12.2 Meetings of the Holders of Securities;
Action by Written Consent 37
ARTICLE XIII
REPRESENTATIONS OF INSTITUTIONAL TRUSTEE
AND DELAWARE TRUSTEE
SECTION 13.1 Representations and Warranties of
Institutional Trustee and Successor
Institutional Trustee 38
SECTION 13.2 Representations and Warranties of Delaware
Trustee and Successor Delaware Trustee 38
ARTICLE XIV
MISCELLANEOUS
SECTION 14.1 Notices 39
SECTION 14.2 Governing Law 40
SECTION 14.3 Intention of the Parties 40
SECTION 14.4 Headings 40
SECTION 14.5 Successors and Assigns 40
SECTION 14.6 Partial Enforceability 40
SECTION 14.7 Counterparts 40
Signatures 41
ANNEX I TERMS OF SECURITIES A-1
EXHIBIT A-1 FORM OF PREFERRED SECURITY CERTIFICATE A1-1
EXHIBIT A-2 FORM OF COMMON SECURITY CERTIFICATE A2-1
EXHIBIT B SPECIMEN OF DEBENTURE B-1
EXHIBIT C PURCHASE AGREEMENT C-1
<PAGE>
CROSS-REFERENCE TABLE*
Section of
Trust Indenture Act Section of
of 1939, as amended Declaration
-- ----- -- ------- -----------
310(a) 5.3(a)
310(b) 5.3(c)
310(c) Inapplicable
311(a) and (b) 5.3(c)
311(c) Inapplicable
312(a) 2.2(a)
312(b) 2.2(b)
313 2.3
314(a) 2.4
314(b) Inapplicable
314(c) 2.5
314(d) Inapplicable
314(e) 310(a)
314(f) Inapplicable
315(a) 3.9(b)
315(b) 2.7(a)
315(c) 3.9(a)
315(d) 3.9(b)
316(a) and (b) 2.6 and Annex I
(Sections 5 and 6)
316(c) 3.6(e)
317(a) 3.8(c)
317(b) 3.8(h)
* This Cross-Reference Table does not constitute part of the
Declaration and shall not affect the interpretation of any
of its terms or provisions.
<PAGE>
AMENDED AND RESTATED
DECLARATION OF TRUST
OF
POTOMAC ELECTRIC POWER COMPANY TRUST I
____________, 1998
THIS AMENDED AND RESTATED DECLARATION OF TRUST
(Declaration") is dated and effective as of _______, 1998, by the
Trustees (as defined herein), the Sponsor (as defined herein) and
by the holders, from time to time, of undivided beneficial
interests in the Trust to be issued pursuant to this Declaration.
WHEREAS, the Trustees and the Sponsor established Potomac
Electric Power Company Trust I (the "Trust"), a statutory
business trust under the Business Trust Act (as defined herein),
pursuant to a Declaration of Trust dated as of April 24, 1998
(the "Original Declaration"), and a Certificate of Trust filed
with the Secretary of State of the State of Delaware on April 24,
1998 (the "Certificate of Trust") for the sole purpose of issuing
and selling certain securities representing undivided beneficial
interests in the assets of the Trust and investing the proceeds
thereof in certain Debentures of the Debenture Issuer (as defined
herein); and
WHEREAS, as of the date hereof, no Securities (as defined
herein) have been issued; and
WHEREAS, all of the Trustees and the Sponsor, by this
Declaration, hereby amend and restate each and every term and
provision of the Original Declaration.
NOW, THEREFORE, it being the intention of the parties hereto
to continue the Trust as a business trust under the Business
Trust Act and that this Declaration constitute the governing
instrument of such business trust, the Trustees declare that all
assets contributed to the Trust will be held in trust for the
benefit of the Holders, subject to the provisions of this
Declaration.
ARTICLE I
INTERPRETATION AND DEFINITIONS
SECTION 1.1 Definitions.
Unless the context otherwise requires:
(a) capitalized terms used in this Declaration but not
defined in the preamble above have the respective meanings
assigned to them in this Section 1.1;
(b) a term defined anywhere in this Declaration has the
same meaning throughout;
(c) all references to "the Declaration" or "this
Declaration" are to this Declaration as modified, supplemented or
amended from time to time;
(d) all references in this Declaration to Articles,
Sections, Annexes and Exhibits are to Articles and Sections of,
and Annexes and Exhibits to, this Declaration;
(e) a term defined in the Trust Indenture Act has the same
meaning when used in this Declaration unless otherwise defined in
this Declaration or unless the context otherwise requires; and
<PAGE>
(f) a reference to the singular includes the plural and
vice versa.
"Affiliate" has the same meaning as given to that term in
Rule 405 under the Securities Act or any successor rule
thereunder.
"Authorized Officer" of a Person means any Person that is
authorized to bind such Person (including, in the case of the
Trust, a Regular Trustee).
"Book Entry Interest" means a direct or indirect beneficial
interest in a Global Certificate, the ownership and transfer of
which shall be maintained and made through book entries by a
Depository Institution as described in Section 9.4.
"Business Day" means any day other than a day on which
federal or state banking institutions in the Borough of
Manhattan, New York, New York are authorized or obligated by law,
executive order or regulation to close.
"Business Trust Act" means Chapter 38 of Title 12 of the
Delaware Code, 12 Del. Code Section 3801 et seq., as it may be
amended from time to time, or any successor legislation.
"Certificate" means a Common Security Certificate or a
Preferred Security Certificate.
"Closing Date" means the day on which the Closing Time (as
defined by the Purchase Agreement) shall occur.
"Code" means the Internal Revenue Code of 1986, as amended
from time to time, or any successor legislation.
"Commission" means the Securities and Exchange Commission.
"Common Securities" has the meaning set forth in Section
7.1(a).
"Common Securities Guarantee" means the guarantee agreement
dated as of ______, 1998, of the Sponsor in respect of the Common
Securities.
"Common Security Certificate" means a certificate
representing a Common Security, substantially in the form of
Exhibit A-2.
"Company Indemnified Person" means (a) any Regular Trustee;
(b) any Affiliate of any Regular Trustee; (c) any officer,
director, shareholder, member, partner, employee, representative
or agent of any Regular Trustee; or (d) any officer, employee,
representative or agent of the Trust or its Affiliates.
"Compound Interest" has the meaning set forth in Section
2(b) of Annex I.
"Corporate Trust Office" means the office of the
Institutional Trustee at which the corporate trust business of
the Institutional Trustee shall, such at any particular time, be
principally administered, which office at the date of execution
of this Declaration is located at 101 Barclay Street, Floor 21
West, New York, New York 10286.
"Covered Person" means: (a) any officer, director,
shareholder, partner, member, representative, employee or agent
of (i) the Trust or (ii) the Trust's Affiliates; and (b) any
Holder of Securities.
"Coupon Rate" has the meaning set forth in Section 2(a) of
Annex I.
"Creditor" has the meaning set forth in Section 4.4.
"Debenture means __% Junior Deferrable Interest Subordinated
Debentures issued under the Indenture.
2
<PAGE>
"Debenture Issuer" means Potomac Electric Power Company, a
District of Columbia and Virginia corporation, in its capacity as
issuer of the Debentures under the Indenture.
"Debt Trustee" means The Bank of New York, a New York
banking corporation, as trustee under the Indenture until a
successor is appointed thereunder, and thereafter means such
successor trustee.
"Delaware Trustee" has the meaning set forth in Section 5.2.
"Depository Institution" shall mean The Depository Trust
Company or any successor appointed by the Regular Trustees
pursuant to Section 9.6 that is registered as a clearing agency
under the Exchange Act, or other applicable statute or
regulation.
"Depository Institution Participant" means a broker, dealer,
bank, other financial institution or other Person for whom from
time to time the Depository Institution effects book-entry
transfers and pledges of securities deposited with the Depository
Institution.
"Direct Action" has the meaning set forth in Section 3.8(e).
"Distribution" means a distribution payable to Holders of
Securities payable in accordance with the provisions of Section 2
of Annex I.
"Distribution Payment Date" has the meaning set forth in
Section 2(b) of Annex I.
"Event of Default" means an Indenture Event of Default (as
hereinafter defined) that has occurred and is continuing.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, or any successor legislation.
"Extension Period" has the meaning set forth in Section 2(a)
of Annex I.
"Fiduciary Indemnified Person" has the meaning set forth in
Section 10.4(b).
"Fiscal Year" has the meaning set forth in Section 11.1.
"Global Certificate" has the meaning set forth in Section
9.4.
"Holder" means a Person in whose name a Certificate
representing a Security (or a Successor Security) is registered,
such Person being a beneficial owner within the meaning of the
Business Trust Act.
"Indemnified Person" means a Company Indemnified Person or a
Fiduciary Indemnified Person.
"Indenture" means the Indenture dated as of ___________,
1998, between the Debenture Issuer and the Debt Trustee, and any
indenture supplemental thereto pursuant to which the Debentures
are to be issued.
"Indenture Event of Default" means an Event of Default (as
defined under the Indenture).
"Institutional Trustee" means the Trustee described in
Section 5.3.
"Institutional Trustee Account" has the meaning set forth in
Section 3.8(c).
"Investment Company" means an investment company as defined
in the Investment Company Act.
3
<PAGE>
"Investment Company Act" means the Investment Company Act of
1940, as amended from time to time, or any successor legislation.
"Legal Action" has the meaning set forth in Section 3.6(g).
"Liquidation" has the meaning set forth in Section 3 of
Annex I.
"Liquidation Distribution" has the meaning set forth in
Section 3 of Annex I.
"List of Holders" has the meaning set forth in Section
2.2(a).
"Majority in liquidation amount of the Securities" means,
except as otherwise provided in the terms of the Preferred
Securities set forth in Annex I hereto or by the Trust Indenture
Act, Holder(s) of outstanding Securities voting together as a
single class or, as the context may require, Holders of
outstanding Preferred Securities or Holders of outstanding Common
Securities voting separately as a class, who are the record
owners of more than 50% of the aggregate liquidation amount
(consisting of the stated amount that would be paid on redemption
or liquidation plus accrued and unpaid Distributions to the date
upon which the voting percentages are determined) of all
outstanding Securities of the relevant class.
"Maturity Redemption Price" shall have the meaning set forth
in Section 4(a) of Annex I.
"NYSE" means the New York Stock Exchange, Inc.
"Officers' Certificate" means, with respect to any Person, a
certificate signed by two Authorized Officers of such Person.
Any Officers' Certificate delivered with respect to compliance
with a condition or covenant provided for in this Declaration
shall include:
(a) a statement that each officer signing the certificate
has read the covenant or condition and the definitions relating
thereto;
(b) a brief statement of the nature and scope of the
examination or investigation undertaken by each officer in
rendering the certificate;
(c) a statement that each such officer has made such
examination or investigation as, in such officer's opinion, is
necessary to enable such officer to express an informed opinion
as to whether or not such covenant or condition has been complied
with; and
(d) a statement as to whether, in the opinion of each such
officer, such condition or covenant has been complied with.
"Optional Prepayment Price" has the meaning set forth in
Section 4(b) of Annex I.
"Paying Agent" has the meaning set forth in Section 7.2.
"Payment Amount" has the meaning set forth in Section 6.1.
"Person" means a legal person, including any individual,
corporation, estate, partnership, joint venture, association,
joint stock company, limited liability company, trust,
unincorporated association, or government or any agency or
political subdivision thereof, or any other entity of whatever
nature.
"Preferred Guarantee Trustee" means The Bank of New York, a
New York banking corporation, as trustee under
4
<PAGE>
the Preferred Securities Guarantee until a successor is appointed
thereunder, and thereafter means such successor trustee.
"Preferred Securities" has the meaning set forth in Section
7.1(a).
"Preferred Securities Guarantee" means the guarantee
agreement dated as of ______, 1998, of the Sponsor in respect of
the Preferred Securities.
"Preferred Security Beneficial Owner" means, with respect to
a Book Entry Interest, a Person who is the beneficial owner of
such Book Entry Interest, as reflected on the books of the
Depository Institution, or on the books of a Person maintaining
an account with such Depository Institution (directly as a
Depository Institution Participant or as an indirect participant,
in each case in accordance with the rules of such Depository
Institution).
"Preferred Security Certificate" means a certificate
representing a Preferred Security, substantially in the form of
Exhibit A-1.
"Pro Rata" has the meaning set forth in Section 8 of Annex
I.
"Purchase Agreement" means the Purchase Agreement for the
offering and sale of Preferred Securities in the form of Exhibit
C.
"Quorum" means a majority of the Regular Trustees or, if
there are only two Regular Trustees, both of them.
"Redemption/Distribution Notice" has the meaning set forth
in Section 4(g) of Annex I.
"Redemption Price" means any of the Maturity Redemption
Price, the Optional Prepayment Price or the Tax Event Prepayment
Price.
"Regular Trustee" has the meaning set forth in Section 5.1.
"Resignation Request" has the meaning set forth in Section
5.6(c).
"Responsible Officer" means, with respect to the
Institutional Trustee, any officer within the Corporate Trust
Office of the Institutional Trustee, including any vice
president, any assistant vice president, any assistant secretary,
any assistant treasurer or other officer of the Corporate Trust
Office of the Institutional Trustee customarily performing
functions similar to those performed by any of the above
designated officers and also means, with respect to a particular
corporate trust matter, any other officer to whom such matter is
referred because of that officer's knowledge of and familiarity
with the particular subject.
"Rule 3a-5" means Rule 3a-5 under the Investment Company
Act.
"Securities" means the Common Securities and the Preferred
Securities.
"Securities Act" means the Securities Act of 1933, as
amended from time to time, or any successor legislation.
"Securities Guarantees" means the Common Securities
Guarantee and the Preferred Securities Guarantee.
"Sponsor" means Potomac Electric Power Company, a District
of Columbia and Virginia corporation, or any successor entity in
a merger, consolidation or amalgamation, in its capacity as
sponsor of the Trust.
"Stated Maturity" has the meaning set forth in Section 4(a)
of Annex I.
5
<PAGE>
"Successor Delaware Trustee" has the meaning set forth in
Section 5.6(b)(ii).
"Successor Entity" has the meaning set forth in Section
3.15(b)(i).
"Successor Institutional Trustee" has the meaning set forth
in Section 5.6(b)(i).
"Successor Securities" has the meaning set forth in Section
3.15(b)(i).
"Super Majority" has the meaning set forth in Section
2.6(a)(ii).
"Tax Event" has the meaning set forth in Section 4(d) of
Annex I hereto.
"Tax Event Prepayment Price" has the meaning set forth in
Section 4(c) of Annex I.
"10% in liquidation amount of the Securities" means, except
as otherwise provided in the terms of the Preferred Securities
set forth in Annex I hereto or by the Trust Indenture Act,
Holder(s) of outstanding Securities voting together as a single
class or, as the context may require, Holders of outstanding
Preferred Securities or Holders of outstanding Common Securities
voting separately as a class, who are the record owner of 10% or
more of the aggregate liquidation amount (consisting of the
stated amount that would be paid on redemption or liquidation,
plus accrued and unpaid Distributions to the date upon which the
voting percentages are determined) of all outstanding Securities
of the relevant class.
"Treasury Regulations" means the income tax regulations,
including temporary and proposed regulations, promulgated under
the Code by the United States Department of the Treasury, as such
regulations may be amended from time to time (including
corresponding provisions of succeeding regulations).
"Trust Indenture Act" means the Trust Indenture Act of 1939,
as amended from time to time, or any successor legislation.
"Trustee" or "Trustees" means each Person who has signed
this Declaration as a trustee, so long as such Person shall
continue in office in accordance with the terms hereof, and all
other Persons who may from time to time be duly appointed,
qualified and serving as Trustees in accordance with the
provisions hereof, and references herein to a Trustee or the
Trustees shall refer to such Person or Persons solely in their
capacity as trustees hereunder.
ARTICLE II
TRUST INDENTURE ACT
SECTION 2.1 Trust Indenture Act; Application.
(a) This Declaration is subject to the provisions of the
Trust Indenture Act that are required to be part of this
Declaration and shall, to the extent applicable, be governed by
such provisions.
(b) The Institutional Trustee shall be the only Trustee
which is a trustee for the purposes of the Trust Indenture Act.
(c) If, and to the extent that, any provision of this
Declaration limits, qualifies or conflicts with the duties
imposed by Sections 310 to 317, inclusive, of the Trust Indenture
Act, the duties imposed by the Trust Indenture Act shall control.
(d) The application of the Trust Indenture Act to this
Declaration shall not affect the nature of the Securities as
equity securities representing undivided beneficial interests in
the assets of the Trust.
6
<PAGE>
SECTION 2.2 Lists of Holders of Securities.
(a) Either the Sponsor or the Regular Trustees on behalf of
the Trust shall provide the Institutional Trustee (i) on a
semi-annual basis within five Business Days after a record date
for payment of Distributions, a list, in such form as the
Institutional Trustee may reasonably require, of the names and
addresses of the Holders ("List of Holders") as of such record
date, provided that neither the Sponsor nor the Regular Trustees
on behalf of the Trust shall be obligated to provide such List of
Holders at any time the List of Holders does not differ from the
most recent List of Holders given to the Institutional Trustee by
the Sponsor or the Regular Trustees on behalf of the Trust, and
(ii) at any other time, within 30 days of receipt by the Trust of
a written request for a List of Holders as of a date no more than
14 days before such List of Holders is given to the Institutional
Trustee. The Institutional Trustee shall preserve, in as current
a form as is reasonably practicable, all information contained in
the Lists of Holders given to it or which it receives in its
capacity as Paying Agent (if acting in such capacity) provided
that the Institutional Trustee may destroy any List of Holders
previously given to it on receipt of a new List of Holders. This
requirement shall not apply however at any time while the
Institutional Trustee is acting in the capacity of the registrar
for the Securities.
(b) The Institutional Trustee shall comply with its
obligations under Sections 311(a), 311(b) and 312(b) of the Trust
Indenture Act.
SECTION 2.3 Reports by the Institutional Trustee.
Within 60 days after April 15 of each year, the
Institutional Trustee shall provide to the Holders of the
Preferred Securities reports as are required by Section 313 of
the Trust Indenture Act, if any, in the form and in the manner
provided by Section 313 of the Trust Indenture Act. The
Institutional Trustee shall also comply with the requirements of
Section 313(d) of the Trust Indenture Act.
SECTION 2.4 Periodic Reports to Institutional Trustee.
Each of the Sponsor and the Regular Trustees on behalf of
the Trust shall provide to the Institutional Trustee, the Holders
and the Commission such documents, reports and information, if
any, as required by Section 314 of the Trust Indenture Act.
Delivery of documents, reports and information to the Trustee is
for informational purposes only and the Instutional Trustee's
receipt of such shall not constitute constructive notice of any
information contained therein. Each of the Sponsor and the
Regular Trustees on behalf o fthe Trust shall furnish to the
Institutional Trustee the compliance certificate required by
Section 314(a)(4) of the Trust Indenture Act within 120 days of
the end of each fiscal year.
SECTION 2.5 Evidence of Compliance with Conditions
Precedent.
Each of the Sponsor and the Regular Trustees on behalf of
the Trust shall provide to the Institutional Trustee such
evidence of compliance with any conditions precedent, if any,
provided for in this Declaration that relate to any of the
matters set forth in Section 314(c) of the Trust Indenture Act.
Any certificate or opinion required to be given by an officer
pursuant to Section 314(c)(1) may be given in the form of an
Officers' Certificate.
SECTION 2.6 Events of Default; Waiver.
(a) Subject to Section 2.6(c), the Holders of a Majority in
liquidation amount of Preferred Securities may, by vote, on
behalf of the Holders of all of the Preferred Securities, waive
any Event of Default under this Declaration in respect of the
Preferred Securities and its consequences, provided that, if the
corresponding Indenture Event of Default:
(i) is not waivable under the Indenture, the Event of
Default shall not be waivable under this
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Declaration; or
(ii) requires the consent or vote of the holders of
greater than a majority in principal amount of the
outstanding Debentures (a "Super Majority") to be waived
under the Indenture, then the Event of Default under this
Declaration may only be waived by the vote of the Holders of
at least the proportion in liquidation amount of the
Preferred Securities that the relevant Super Majority
represents of the aggregate principal amount of the
Debentures outstanding; or
(iii) requires the consent or vote of each holder of
the Debentures to be waived under the Indenture, then the
Event of Default under this Declaration may only be waived
by each Holder of Preferred Securities.
The foregoing provisions of this Section 2.6(a) shall be in
lieu of Section 316(a)(1)(B) of the Trust Indenture Act and such
Section 316(a)(1)(B) of the Trust Indenture Act is hereby
expressly excluded from this Declaration and the Securities, as
permitted by the Trust Indenture Act. Upon such waiver, the
Event of Default shall cease to exist, and any Event of Default
with respect to the Preferred Securities arising therefrom under
this Declaration shall be deemed to have been cured, for every
purpose of this Declaration, but no such waiver shall extend to
any subsequent or other Event of Default under this Declaration
with respect to the Preferred Securities or impair any right
consequent thereon. Any waiver by the Holders of the Preferred
Securities of an Event of Default under this Declaration with
respect to the Preferred Securities shall also be deemed to
constitute a waiver by the Holders of the Common Securities of
any such Event of Default with respect to the Common Securities
for all purposes of this Declaration without any further act,
vote or consent of the Holders of the Common Securities.
(b) Subject to Section 2.6(c), the Holders of a Majority in
liquidation amount of the Common Securities may, by vote, on
behalf of the Holders of all of the Common Securities, waive any
Event of Default under this Declaration with respect to the
Common Securities and its consequences, provided that, if the
corresponding Indenture Event of Default:
(i) is not waivable under the Indenture, except where
the Holders of the Common Securities are deemed to have
waived such Event of Default as provided below in this
Section 2.6(b), then the Event of Default under this
Declaration shall not be waivable; or
(ii) requires the consent or vote of (A) a Super
Majority to be waived, then the Event of Default under this
Declaration may only be waived by the vote of the Holders
of at least the proportion in liquidation amount of the
Common Securities that the relevant Super Majority
represents of the aggregate principal amount of the
outstanding Debentures or (B) each holder of Debentures to
be waived, then the Event of Default under this Declaration
may only be waived by each Holder of Common Securities,
except where the Holders of the Common Securities are
deemed to have waived such Event of Default as provided
below in this Section 2.6(b); provided further, each
Holder of Common Securities will be deemed to have waived
any such Event of Default and all Events of Default under
this Declaration with respect to the Common Securities and
its consequences until all Events of Default under this
Declaration with respect to the Preferred Securities have
been cured, waived or otherwise eliminated, and until such
Events of Default have been so cured, waived or otherwise
eliminated, the Institutional Trustee will be deemed to be
acting solely on behalf of the Holders of the Preferred
Securities and only the Holders of the Preferred Securities
will have the right to direct the Institutional Trustee in
accordance with the terms of the Securities set forth in
Annex I hereto. If any Event of Default with respect to the
Preferred Securities is waived by the Holders of Preferred
Securities as provided in this Declaration, the Holders of
Common Securities agree that such waiver shall also
constitute the waiver of such Event of Default with respect
to the Common Securities for all purposes under this
Declaration without any further act, vote or consent of the
Holders of the Common Securities. Subject to the foregoing
provisions of this Section 2.6(b), upon a waiver of an Event
of Default by the Holders of the Common Securities, such
Event of Default shall cease to exist, and any Event of
Default with respect to the Common Securities arising
therefrom shall under this Declaration shall be
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deemed to have been cured for every purpose of this
Declaration, but no such waiver shall extend to any
subsequent or Event of Default under this Declaration with
respect to the Common Securities or impair any right
consequent thereon.
The foregoing provisions of this Section 2.6(b) shall be in
lieu of Sections 316(a)(1)(A) and 316(a)(1)(B) of the Trust
Indenture Act and such Sections 316(a)(1)(A) and 316(a)(1)(B) of
the Trust Indenture Act are hereby expressly excluded from this
Declaration and the Securities, as permitted by the Trust
Indenture Act.
(c) The right of any Holder to receive payment of
Distributions in accordance with this Declaration and the terms
of the Securities set forth in Annex I on or after the respective
payment dates therefor, or to institute suit for the enforcement
of any such payment on or after such payment dates, shall not be
impaired without the consent of each such Holder.
(d) A waiver of an Indenture Event of Default by the
Institutional Trustee at the written direction of the Holders of
the Preferred Securities constitutes a waiver of the
corresponding Event of Default. The foregoing provisions of this
Section 2.6(d) shall be in lieu of Section 316(a)(1)(B) of the
Trust Indenture Act and such Section 316(a)(1)(B) of the Trust
Indenture Act is hereby expressly excluded from this Declaration
and the Securities, as permitted by the Trust Indenture Act.
SECTION 2.7 Event of Default; Notice.
(a) The Institutional Trustee shall, within 90 days after
the occurrence of an Event of Default, transmit by mail, first
class postage prepaid, to the Holders, notice of all defaults
with respect to the Securities actually known to a Responsible
Officer, unless such defaults have been cured before the giving
of such notice (the term "defaults" for the purposes of this
Section 2.7(a) being hereby defined to be an Event of Default as
defined in the Indenture, not including any periods of grace
provided for therein and irrespective of the giving of any notice
provided therein); provided that, except for a default in the
payment of principal of premium, if any, or interest on any of
the Debentures, or in the payment of any sinking fund installment
established for the Debentures, the Institutional Trustee shall
be protected in withholding such notice if and so long as a
Responsible Officer in good faith determines that the withholding
of such notice is in the interests of the Holders; and provided
further, that in the case of any default of the character
specified in Section 5.01(c) of the Indenture, no such notice to
Holders shall be given until at least 60 days after the
occurrence thereof, but shall be given within 90 days after such
occurrence.
(b) The Institutional Trustee shall not be deemed to have
knowledge of any default except:
(i) a default under Sections 5.01(a), (b), (d), (e)
and (f) of the Indenture; or
(ii) any default as to which the Institutional Trustee
shall have received written notice or of which a Responsible
Officer charged with the administration of the Declaration
shall have actual knowledge.
ARTICLE III
ORGANIZATION
SECTION 3.1 Name.
The Trust continued by this Declaration is named "Potomac
Electric Power Company Trust I," as such name may be modified
from time to time by the Regular Trustees following written
notice to the Holders. The Trust's activities may be conducted
under the name of the Trust or any other name deemed advisable by
the Regular Trustees.
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SECTION 3.2 Office.
The address of the principal office of the Trust is c/o
Potomac Electric Power Company, 1900 Pennsylvania Avenue, N.W.,
Washington, D.C. 20068. Upon ten (10) Business Days' written
notice to the Institutional Trustee and the Holders of
Securities, the Regular Trustees may designate another principal
office.
SECTION 3.3 Purpose.
The exclusive purposes and functions of the Trust are (i) to
issue (a) its Preferred Securities pursuant to the Purchase
Agreement in exchange for cash and (b) its Common Securities to
the Sponsor in exchange for cash, and to use the aggregate
proceeds of the sale of the Securities to purchase the
Debentures, (ii) to enter into such agreements and arrangements
as may be necessary in connection with the issuance and sale of
the Securities and to take all actions, and exercise such
discretion, as may be necessary or desirable in connection with
the issuance and sale of the Securities and to file such
registration statements or make such other filings under the
Securities Act, the Exchange Act or state securities or "Blue
Sky" laws as may be necessary or desirable in connection with the
offer and the issuance and sale of the Securities, and (iii)
except as otherwise limited herein, to engage in only those other
activities necessary or incidental thereto. As more specifically
provided in Section 3.7, the Trust shall not borrow money, issue
debt or reinvest proceeds derived from investments, pledge any of
its assets, or otherwise undertake (or permit to be undertaken)
any activity that would cause the Trust not to be classified for
United States federal income tax purposes as a grantor trust.
SECTION 3.4 Authority.
Subject to the limitations provided in this Declaration and
to the specific duties of the Institutional Trustee, the Regular
Trustees shall have exclusive and complete authority to carry out
the purposes of the Trust. Any action taken by the Regular
Trustees in accordance with their powers shall constitute the act
of and serve to bind the Trust and any action taken by the
Institutional Trustee on behalf of the Trust in accordance with
its powers shall constitute the act of and serve to bind the
Trust. In dealing with the Trustees acting on behalf of the
Trust, no person shall be required to inquire into the authority
of the Trustees to bind the Trust. Persons dealing with the Trust
are entitled to rely conclusively on the power and authority of
the Trustees as set forth in this Declaration.
SECTION 3.5 Title to Property of the Trust.
Except as provided in Section 3.8 with respect to the
Debentures and the Institutional Trustee Account or as otherwise
provided in this Declaration, legal title to all assets of the
Trust shall be vested in the Trust. The Holders shall not have
legal title to any part of the assets of the Trust, but shall
have an undivided beneficial interest in the assets of the Trust.
SECTION 3.6 Powers and Duties of the Regular Trustees.
The Regular Trustees shall have the exclusive power, duty
and authority to cause the Trust to engage in the following
activities:
(a) to issue and sell the Securities in accordance with
this Declaration; provided, however, that the Trust may issue no
more than one series of Preferred Securities and no more than one
series of Common Securities; and, provided further, that there
shall be no interests in the Trust other than the Securities, and
the issuance of Securities shall be limited to a one-time
simultaneous issuance of both Preferred Securities and Common
Securities on the Closing Date;
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(b) in connection with the issue of the Preferred
Securities, at the direction of the Sponsor, to:
(i) execute and file with the Commission one or more
registration statements under the Securities Act
on Form S-3 prepared by the Sponsor, including any
and all amendments thereto, pertaining to the
Preferred Securities;
(ii) execute and file any documents prepared by the
Sponsor, or take any acts as determined by the
Sponsor to be necessary in order to qualify or
register all or part of the Preferred Securities
in any state in which the Sponsor has determined
to qualify or register such Preferred Securities
for offer and sale;
(iii) execute and file an application, prepared by the
Sponsor, to the NYSE or any other national stock
exchange or the NASDAQ Stock Market's National
Market for listing or quotation upon notice of
issuance of any Preferred Securities;
(iv) execute and file with the Commission a
registration statement on Form 8-A, including any
amendments thereto, prepared by the Sponsor,
relating to the registration of the Preferred
Securities under Section 12(b) or Section 12(g) of
the Exchange Act;
(v) execute and enter into the Purchase Agreement
providing for the sale of the Preferred
Securities; and
(vi) execute and deliver letters, documents or
instruments with DTC.
(c) to acquire the Debentures with the proceeds of the sale
of the Preferred Securities and the Common Securities; provided,
however, that the Regular Trustees shall cause legal title to the
Debentures to be held of record in the name of the Institutional
Trustee for the benefit of the Holders;
(d) to give the Sponsor and the Institutional Trustee
prompt written notice of the occurrence of a Tax Event;
(e) to establish a record date with respect to all actions
to be taken hereunder that require a record date be established,
including and with respect to, for the purposes of Section 316(c)
of the Trust Indenture Act, Distributions, voting rights,
redemptions and exchanges, and to issue relevant notices to the
Holders of Securities as to such actions and applicable record
dates;
(f) to take all actions and perform such duties as may be
required of the Regular Trustees pursuant to the terms of the
Securities set forth in Annex I hereto;
(g) to bring or defend, pay, collect, compromise,
arbitrate, resort to legal action, or otherwise adjust claims or
demands of or against the Trust ("Legal Action"), unless pursuant
to Section 3.8(e), the Institutional Trustee has the exclusive
power to bring such Legal Action;
(h) to employ or otherwise engage employees and agents (who
may be designated as officers with titles) and managers,
contractors, advisors, and consultants and to pay reasonable
compensation for such services;
(i) to cause the Trust to comply with the Trust's
obligations under the Trust Indenture Act;
(j) to give the certificate required by Section 314(a)(4)
of the Trust Indenture Act to the Institutional Trustee, which
certificate may be executed by any Regular Trustee;
(k) to incur expenses that are necessary or incidental to
carry out any of the purposes of the Trust;
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(l) to act as, or appoint another Person to act as,
registrar, transfer agent and paying agent for the Securities;
(m) to execute all documents or instruments, perform all
duties and powers, and do all things for and on behalf of the
Trust in all matters necessary or incidental to the foregoing;
(n) to take all action that may be necessary or appropriate
for the preservation and the continuation of the Trust's valid
existence, rights, franchises and privileges as a statutory
business trust under the laws of the State of Delaware and of
each other jurisdiction in which such existence is necessary to
protect the limited liability of the Holders or to enable the
Trust to effect the purposes for which the Trust was created;
(o) to take any action, not inconsistent with this
Declaration or with applicable law, that the Regular Trustees
determine in their discretion to be necessary or desirable in
carrying out the activities of the Trust as set out in this
Section 3.6, including, but not limited to:
(i) causing the Trust not to be deemed to be an
Investment Company that is required to be
registered under the Investment Company Act;
(ii) causing the Trust to be classified for United
States federal income tax purposes as a grantor
trust; and
(iii) cooperating with the Debenture Issuer to ensure
that the Debentures will be treated as
indebtedness of the Debenture Issuer for United
States federal income tax purposes,
provided that such actions do not adversely affect the
interests of Holders; and
(p) to take all action necessary to cause all applicable
tax returns and tax information reports that are required to be
filed with respect to the Trust to be duly prepared and filed by
the Regular Trustees on behalf of the Trust.
The Regular Trustees shall exercise the powers set forth in
this Section 3.6 in a manner that is consistent with the purposes
and functions of the Trust set out in Section 3.3, and the
Regular Trustees shall not take any action that is inconsistent
with the purposes and functions of the Trust set forth in Section
3.3.
Subject to this Section 3.6, the Regular Trustees shall have
none of the powers or the authority of the Institutional Trustee
set forth in Section 3.8.
Any expenses incurred by the Regular Trustees pursuant to
this Section 3.6 shall be reimbursed by the Debenture Issuer.
SECTION 3.7 Prohibition of Actions by the Trust and the
Trustees.
(a) The Trust shall not, and the Trustees (including the
Institutional Trustee) shall cause the Trust not to, engage in
any activity other than in connection with the purpose of the
Trust or other than as required or authorized by this
Declaration. In particular, the Trust shall not, and the
Trustees (including the Institutional Trustee) shall cause the
Trust not to:
(i) invest any proceeds received by the Trust from holding
the Debentures, but shall distribute all such proceeds
to Holders pursuant to the terms of this Declaration
and of the Securities;
(ii) acquire any assets other than as expressly provided
herein;
(iii) possess Trust property for other than a Trust purpose;
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(iv) make any investments, other than investments
represented by the Debentures;
(v) possess any power or otherwise act in such a way as to
vary the Trust assets or the terms of the Securities in
any way whatsoever;
(vi) issue any securities or other evidences of beneficial
ownership of, or beneficial interest in, the Trust,
other than the Securities;
(vii) incur any indebtedness for borrowed money; or
(viii) other than as provided in this Declaration or Annex
I hereto, (A) direct the time, method and place of
exercising any trust or power conferred upon the Debt
Trustee with respect to the Debentures, (B) waive any
past default that is waivable under the Indenture, (C)
exercise any right to rescind or annul any declaration
that the principal of all the Debentures held in the
Trust shall be due and payable, or (D) consent to any
amendment, modification or termination of the Indenture
or the Debentures if such action would cause the Trust
to be classified for United States federal income tax
purposes as other than a grantor trust or would cause
the Trust to be deemed an Investment Company that is
required to be registered under the Investment Company
Act.
SECTION 3.8 Powers and Duties of the Institutional Trustee.
(a) The legal title to the Debentures shall be owned by and
held of record in the name of the Institutional Trustee in trust
for the benefit of the Holders. The right, title and interest of
the Institutional Trustee to the Debentures shall vest
automatically in each Person who may hereafter be appointed as
Institutional Trustee in accordance with Section 5.6. Such
vesting and cessation of title shall be effective whether or not
conveyancing documents with regard to the Debentures have been
executed and delivered.
(b) The Institutional Trustee shall not transfer its right,
title and interest in the Debentures to the Regular Trustees or
to the Delaware Trustee (if the Institutional Trustee does not
also act as Delaware Trustee).
(c) The Institutional Trustee shall:
(i) establish and maintain a segregated non-interest
bearing trust account (the "Institutional Trustee
Account") in the name of and under the exclusive
control of Institutional Trustee on behalf of the
Holders and, upon the receipt of payments of funds made
in respect of the Debentures held by the Institutional
Trustee, deposit such funds into the Institutional
Trustee Account and make payments to the Holders from
the Institutional Trustee Account in accordance with
Section 6.1. Funds the Institutional Trustee Account
shall be held uninvested until disbursed in accordance
with this Declaration;
(ii) engage in such ministerial activities as shall be
necessary or appropriate to effect the redemption of
the Securities to the extent the Debentures are
redeemed or mature; and
(iii) upon written notice of distribution issued by the
Regular Trustees in accordance with the terms of the
Securities, engage in such ministerial activities as
shall be necessary or appropriate to effect the
distribution of the Debentures to Holders in accordance
with the provisions of the Indenture.
(d) The Institutional Trustee shall take all actions and
perform such duties as may be specifically required of the
Institutional Trustee pursuant to the terms of the Securities.
(e) The Institutional Trustee shall take any Legal Action
which arises out of or in connection with (i) an Event of Default
of which a Responsible Officer has actual knowledge or (ii) the
Institutional Trustee's duties and
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obligations under this Declaration or the Trust Indenture Act.
If the Institutional Trustee fails to enforce its rights under
the Debentures after a Holder of Preferred Securities has made a
written request, such Holder may institute a legal proceeding
against the Debenture Insurer to enforce the Institutional
Trustee's rights under the Debentures without first instituting
any legal proceeding against the Institutional Trustee or any
other person or entity. Notwithstanding the foregoing, if an
Event of Default has occurred and is continuing and such event is
attributable to the failure of the Debenture Issuer to pay
interest or principal on the Debentures on the date such interest
or principal is otherwise payable (or in the case of redemption,
on the redemption date), then a Holder of Preferred Securities
may directly institute a proceeding for enforcement of payment to
such Holder of the principal of, or interest on, the Debentures
having a principal amount equal to the aggregate liquidation
amount of the Preferred Securities of such Holder (a "Direct
Action") on or after the respective due dates specified in the
Debentures. Notwithstanding any payments made to such Holder of
Preferred Securities by the Debenture Issuer in connection with a
Direct Action, the Debenture Issuer shall remain obligated to pay
the principal of or interest on the Debentures held by the Trust
or the Institutional Trustee of the Trust, and the Debenture
Issuer shall be subrogated to the rights of the Holder of such
Preferred Securities with respect to payments on the
Preferred Securities. Except as provided in the preceding
sentences and in the Preferred Securities Guarantee, the Holders
of Preferred Securities will not be able to exercise directly
any other remedy available to the holders of the Debentures.
(f) The Institutional Trustee shall not resign as a Trustee
unless either:
(i) the Trust has been completely liquidated and the
proceeds of the liquidation distributed to the Holders
pursuant to the terms of the Securities; or
(ii) a Successor Institutional Trustee has been appointed
and has accepted that appointment in accordance with
Section 5.6.
(g) The Institutional Trustee shall have the legal power to
exercise all of the rights, powers and privileges of a holder of
Debentures under the Indenture and, if an Event of Default
actually known to a Responsible Officer occurs and is continuing,
the Institutional Trustee shall, for the benefit of Holders,
enforce its rights as holder of the Debentures subject to the
rights of the Holders pursuant to the terms of such Securities.
(h) The Institutional Trustee shall give prompt written
notice to the Holders of the Securities of any notice received by
it from the Debenture Issuer of the Debenture Issuer's election
to defer payments of interest on the Debentures by extending the
interest payment period with respect thereto as permitted by the
Indenture.
(i) The Institutional Trustee shall notify all Holders of
the Preferred Securities of any notice of default received from
the Debt Trustee with respect to the Debentures. Such notice
shall state that such Indenture Event of Default also constitutes
an Event of Default hereunder.
(j) Subject to this Section 3.8, the Institutional Trustee
shall have none of the duties, liabilities, powers or the
authority of the Regular Trustees set forth in Section 3.6.
The Institutional Trustee shall exercise the powers set
forth in this Section 3.8, and in Sections 3.9 and 3.10, in a
manner that is consistent with the purposes and functions of the
Trust set out in Section 3.3, and the Institutional Trustee shall
not take any action that is inconsistent with the purposes and
functions of the Trust set out in Section 3.3.
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SECTION 3.9 Certain Duties and Responsibilities of the
Institutional Trustee.
(a) The Institutional Trustee, prior to the occurrence of
an Event of Default and after the curing of all Events of Default
that may have occurred, undertakes to perform only such duties as
are specifically set forth in this Declaration and no implied
covenants shall be read into this Declaration against the
Institutional Trustee. In case an Event of Default has occurred
(that has not been cured or waived pursuant to Section 2.6) of
which a Responsible Officer has actual knowledge, the
Institutional Trustee shall exercise such of the rights and
powers vested in it by this Declaration, and use the same degree
of care and skill in their exercise, as a prudent person would
exercise or use under the circumstances in the conduct of his own
affairs.
(b) No provision of this Declaration shall be construed to
relieve the Institutional Trustee from liability for its own
negligent action, its own negligent failure to act, or its own
willful misconduct, except that:
(i) prior to the occurrence of an Event of Default and
after the curing or waiving of all such Events of
Default that may have occurred:
(A) the duties and obligations of the Institutional
Trustee shall be determined solely by the express
provisions of this Declaration and the
Institutional Trustee shall not be liable except
for the performance of such duties and obligations
as are specifically set forth in this Declaration,
and no implied covenants or obligations shall be
read into this Declaration against the
Institutional Trustee; and
(B) in the absence of bad faith on the part of the
Institutional Trustee, the Institutional Trustee
may conclusively rely, as to the truth of the
statements and the correctness of the opinions
expressed therein, upon any certificates or
opinions furnished to the Institutional Trustee
and conforming to the requirements of this
Declaration; but in the case of any such
certificates or opinions that by any provision
hereof are specifically required to be furnished
to the Institutional Trustee, the Institutional
Trustee shall be under a duty to examine the same
to determine whether or not they conform to the
requirements of this Declaration (but need not
confirm or investigate the accuracy of
mathematical calculations or other facts stated
therein);
(ii) the Institutional Trustee shall not be liable for
any error of judgment made in good faith by a
Responsible Officer, unless it shall be proved
that the Institutional Trustee was negligent in
ascertaining the pertinent facts;
(iii) the Institutional Trustee shall not be liable with
respect to any action taken or omitted to be taken
by it in good faith in accordance with the
direction of the Holders of not less than a
Majority in liquidation amount of the Securities
relating to the time, method and place of
conducting any proceeding for any remedy available
to the Institutional Trustee, or exercising any
trust or power conferred upon the Institutional
Trustee under this Declaration;
(iv) no provision of this Declaration shall require the
Institutional Trustee to expend or risk its own
funds or otherwise incur personal financial
liability in the performance of any of its duties
or in the exercise of any of its rights or powers,
if it shall have reasonable grounds for believing
that the repayment of such funds or liability is
not reasonably assured to it under the terms of
this Declaration or adequate indemnity against
such risk is not reasonably assured to it;
(v) the Institutional Trustee's sole duty with respect
to the custody, safe keeping and physical
preservation of the Debentures and the
Institutional Trustee Account shall be to deal
with such property in a similar manner as the
Institutional Trustee deals with similar property
for its own account, subject to the protections
and limitations on liability afforded to the
Institutional Trustee under this Declaration and
the Trust Indenture Act;
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(vi) the Institutional Trustee shall have no duty or
liability for or with respect to the value,
genuineness, existence or sufficiency of the
Debentures or the payment of any taxes or
assessments levied thereon or in connection
therewith;
(vii) the Institutional Trustee shall not be liable for
any interest on any money received by it except as
it may otherwise agree in writing with the
Sponsor. Money held by the Institutional Trustee
need not be segregated from other funds held by it
except in relation to the Institutional Trustee
Account maintained by the Institutional Trustee
pursuant to Section 3.8(c)(i) and except to the
extent otherwise required by law; and
(viii) the Institutional Trustee shall not be responsible
for monitoring the compliance by the Regular
Trustees or the Sponsor with their respective
duties under this Declaration, nor shall the
Institutional Trustee be liable for any default or
misconduct of the Regular Trustees or the Sponsor.
SECTION 3.10 Certain Rights of the Institutional Trustee.
(a) Subject to the provisions of Section 3.9:
(i) the Institutional Trustee may conclusively rely
and shall be protected in acting or refraining
from acting upon any resolution, certificate,
statement, instrument, opinion, report, notice,
request, consent, order, bond, debenture or other
paper or document believed by it to be genuine
and to have been signed, sent or presented by the
proper party or parties;
(ii) any direction or act of the Sponsor or the Regular
Trustees contemplated by this Declaration shall be
sufficiently evidenced by an Officers'
Certificate;
(iii) whenever in the administration of this
Declaration, the Institutional Trustee shall deem
it desirable that a matter be proved or
established before taking, suffering or omitting
any action hereunder, the Institutional Trustee
(unless other evidence is herein specifically
prescribed) may, in the absence of bad faith on
its part, request and conclusively rely upon an
Officers' Certificate which, upon receipt of such
request, shall be promptly delivered by the
Sponsor or the Regular Trustees;
(iv) the Institutional Trustee shall have no duty to
see to any recording, filing or registration of
any instrument (including any financing or
continuation statement or any filing under tax or
securities laws) or any rerecording, refiling or
registration thereof;
(v) the Institutional Trustee may consult with counsel
of its selection or other experts of its selection
and the advice or opinion of such counsel and
experts with respect to legal matters or advice
within the scope of such experts' area of
expertise shall be full and complete authorization
and protection in respect of any action taken,
suffered or omitted by it hereunder in good faith
and in accordance with such advice or opinion,
which counsel may be counsel to the Sponsor or any
of its Affiliates, and may include any of its
employees. The Institutional Trustee shall have
the right at any time to seek instructions
concerning the administration of this Declaration
from any court of competent jurisdiction;
(vi) the Institutional Trustee shall be under no
obligation to exercise any of the rights or powers
vested in it by this Declaration at the request,
order or direction of any Holder, unless such
Holder shall have provided to the Institutional
Trustee security and indemnity satisfactory to the
Institutional Trustee against the costs, expenses
(including attorneys' fees and expenses and the
expenses of the Institutional Trustee's agents,
nominees or custodians) and liabilities that might
be incurred by it
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in complying with such request or direction,
including such reasonable advances as may be
requested by the Institutional Trustee, provided
that nothing contained in this Section 3.10(a)(vi)
shall be taken to relieve the Institutional
Trustee, upon the occurrence of an Event of
Default, of its obligation to exercise the rights
and powers vested in it by this Declaration;
(vii) the Institutional 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, debenture, coupon
or other paper or document, but the Institutional
Trustee, in its discretion, may make such further
inquiry or investigation into such facts or
matters as it may see fit;
(viii) the Institutional Trustee may execute any of the
trusts or powers hereunder or perform any duties
hereunder either directly or by or through agents,
custodians, nominees or attorneys and the
Institutional Trustee shall not be responsible for
any misconduct or negligence on the part of any
agent or attorney appointed with due care by it
hereunder;
(ix) any action taken by the Institutional Trustee or
its agents hereunder shall bind the Trust and the
Holders; and the signature of the Institutional
Trustee or its agents alone shall be sufficient
and effective to perform any such action and no
third party shall be required to inquire as to the
authority of the Institutional Trustee to so act or
as to its compliance with any of the terms and
provisions of this Declaration, both of which shall
be conclusively evidenced by the Institutional
Trustee's or its agent's taking such action;
(x) whenever in the administration of this Declaration
the Institutional Trustee shall deem it desirable to
receive instructions with respect to enforcing any
remedy or right or taking any other action
hereunder, the Institutional Trustee (i) may request
instructions from the Holders which instructions may
only be given by the Holders of the same proportion
in liquidation amount of the Securities as would be
entitled to direct the Institutional Trustee under
the terms of the Securities in respect of such
remedy, right or action, (ii) may refrain from
enforcing such remedy or right or taking such other
action until such instructions are received, and
(iii) shall be protected in conclusively relying on or
acting in or accordance with such instructions; and
(xi) except as otherwise expressly provided by this
Declaration, the Institutional Trustee shall not be
under any obligation to take any action that is
discretionary under the provisions of this
Declaration.
(b) No provision of this Declaration shall be deemed to
impose any duty or obligation on the Institutional Trustee to
perform any act or acts or exercise any right, power, duty or
obligation conferred or imposed on it in any jurisdiction in which
it shall be illegal, or in which the Institutional Trustee shall be
unqualified or incompetent in accordance with applicable law, to
perform any such act or acts or to exercise any such right, power,
duty or obligation. No permissive power or authority available to
the Institutional Trustee shall be construed to be a duty.
SECTION 3.11 Delaware Trustee.
Notwithstanding any other provision of this Declaration other
than Section 5.2, the Delaware Trustee shall not be entitled to
exercise any powers, nor shall the Delaware Trustee have any of the
duties and responsibilities of the Regular Trustees or the
Institutional Trustee described in this Declaration. Except as set
forth in Section 5.2, the Delaware Trustee shall be a Trustee for
the sole and limited purpose of fulfilling the requirements of
Section 3807 of the Business Trust Act. Notwithstanding anything
herein to the contrary, the Delaware Trustee shall not be liable
for the acts or omissions to act of the Trust or of the Regular
Trustees except, such acts as the Delaware Trustee is expressly
obligated or authorized to undertake under this Declaration or the
Business Trust Act and except for the gross negligence or willful
misconduct of the Delaware Trustee.
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SECTION 3.12 Execution of Documents.
Unless otherwise determined by the Regular Trustees, and
except as otherwise required by the Business Trust Act or
applicable law, any one of the Regular Trustees is authorized to
execute on behalf of the Trust any documents which the Regular
Trustees have the power and authority to execute pursuant to
Section 3.6.
SECTION 3.13 Not Responsible for Recitals or Issuance of
Securities.
The recitals contained in this Declaration and the Securities
shall be taken as the statements of the Sponsor, and the Trustees
do not assume any responsibility for their correctness. The
Trustees make no representations as to the value or condition of
the property of the Trust or any part thereof. The Trustees make
no representations as to the validity or sufficiency of this
Declaration or the Securities.
SECTION 3.14 Duration of Trust.
The Trust, unless terminated pursuant to the provisions of
Article VIII hereof, shall have existence until _______, 2043.
SECTION 3.15 Mergers.
(a) The Trust may not consolidate, amalgamate, merge with or
into, or be replaced by, or convey, transfer or lease its
properties and assets substantially as an entirety to, any
corporation or other body, except as described in Sections 3.15(b)
and (c).
(b) The Trust may, with the consent of the Regular Trustees
or, if there are more than two, a majority of the Regular Trustees,
and without the consent of the Holders, the Institutional Trustee
or the Delaware Trustee, consolidate, amalgamate, merge with or
into, or be replaced by a trust organized as such under the laws of
any state of the United States; provided that:
(i) if the Trust is not the survivor, such successor
entity (the "Successor Entity") either:
(A) expressly assumes all of the obligations of the
Trust under the Securities; or
(B) substitutes for the Preferred Securities other
securities having substantially the same terms as
the Preferred Securities (the "Successor
Securities") so long as the Successor Securities
rank the same as the Preferred Securities rank with
respect to Distributions and payments upon
liquidation, redemption and otherwise;
(ii) the Debenture Issuer expressly acknowledges a
trustee of the Successor Entity that possesses the
same powers and duties as the Institutional Trustee
as the holder of the Debentures;
(iii) the Preferred Securities or any Successor Securities
are listed, or any Successor Securities will be
listed upon notification of issuance, on any
national securities exchange or with another
organization on which the Preferred Securities are
then listed or quoted;
(iv) such consolidation, amalgamation, merger or
replacement does not cause the Preferred Securities
(including any Successor Securities) to be
downgraded by any nationally recognized statistical
rating organization;
(v) such consolidation, amalgamation, merger or
replacement does not adversely affect the rights,
preferences and privileges of the Holders (including
the holders of any Successor Securities) in any
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material respect (other than with respect to any
dilution of such Holders' interests in the Successor
Entity);
(vi) such Successor Entity has a purpose identical to
that of the Trust;
(vii) prior to such consolidation, amalgamation, merger
or replacement, the Debenture Issuer has received an
opinion of a nationally recognized independent
counsel to the Trust experienced in such matters to
the effect that:
(A) such consolidation, amalgamation, merger or
replacement does not adversely affect the rights,
preferences and privileges of the Holders (including
the holders of any Successor Securities) in any
material respect (other than with respect to any
dilution of the Holders' interest in the Successor
Entity); and
(B) following such consolidation, amalgamation, merger
or replacement, neither the Trust nor the Successor
Entity will be required to register as an Investment
Company under the Investment Company Act;
(C) following such consolidation, amalgamation, merger
or replacement, the Trust (or the Successor Entity)
will be treated as a grantor trust for United States
federal income tax purposes; and
(viii) the Sponsor guarantees the obligations of such
Successor Entity under the Successor Securities at
least to the extent provided by the Preferred
Securities Guarantee and the Common Securities
Guarantee.
(c) Notwithstanding Section 3.15(b), the Trust shall not,
except with the consent of Holders of 100% in liquidation amount of
the Securities, consolidate, amalgamate, merge with or into, or be
replaced by any other entity or permit any other entity to
consolidate, amalgamate, merge with or into, or replace it, if such
consolidation, amalgamation, merger or replacement would cause the
Trust or the Successor Entity to be classified as other than a
grantor trust for United States federal income tax purposes.
ARTICLE IV
SPONSOR
SECTION 4.1 Sponsor's Purchase of Common Securities.
On the Closing Date, the Sponsor will purchase all of the
Common Securities issued by the Trust, in an amount at least equal
to 3% of the total capital of the Trust, at the same time as the
Preferred Securities are issued pursuant to the Purchase Agreement.
SECTION 4.2 Responsibilities of the Sponsor.
In connection with the issue and sale of the Preferred
Securities, the Sponsor shall have the exclusive right and
responsibility to engage in the following activities:
(a) to prepare for filing by the Trust with the Commission
one or more registration statements on Form S-3 in relation to the
Preferred Securities, including any amendments thereto;
(b) to determine the states in which to take appropriate
action to qualify or register for sale all or part of the
Preferred Securities and to do any and all such acts, other than
actions which must be taken by the Trust, and advise the Trust of
actions it must take, and prepare for execution and filing any
documents to be executed and filed by the Trust, as the Sponsor
deems necessary or advisable in order to comply with the applicable
laws of any such
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states;
(c) if so determined by the Sponsor, to prepare for filing by
the Trust an application to the NYSE or any other national stock
exchange or the NASDAQ National Market for listing or quotation
upon notice of issuance of the Preferred Securities;
(d) if so determined by the Sponsor, to prepare for filing by
the Trust with the Commission a registration statement on Form 8-A
relating to the registration of the Preferred Securities under
Section 12(b)or Section 12(g) of the Exchange Act, including any
amendments thereto; and
(e) to negotiate the terms of the Purchase Agreement
providing for the issuance of the Preferred Securities.
SECTION 4.3 Right to Proceed.
The Sponsor acknowledges the rights of the Holders to
institute a Direct Action as set forth in Section 3.8(e) hereto.
SECTION 4.4 Expenses.
In connection with the offering, sale and issuance of the
Debentures to the Institutional Trustee and in connection with the
sale of the Securities by the Trust, the Debenture Issuer, in its
capacity as borrower with respect to the Debentures, shall:
(a) pay all costs and expenses relating to the offering, sale
and issuance of the Debentures, including commissions to the
underwriter payable pursuant to the Purchase Agreement and
compensation of the Trustee under the Indenture in accordance with
the provisions of Section 6.06 of the Indenture;
(b) be responsible for and shall pay all debts and
obligations (other than with respect to the Securities) and all
costs and expenses of the Trust (including, but not limited to,
costs and expenses relating to the organization, maintenance and
dissolution of the Trust, the offering, sale and issuance of the
Securities, the fees and expenses (including reasonable counsel
fees and expenses) of the Institutional Trustee, the Delaware
Trustee and the Regular Trustees (including any amounts payable
under Article X of this Declaration), the costs and expenses
relating to the operation of the Trust, including without
limitation, costs and expenses of accountants, attorneys,
statistical or bookkeeping services, expenses for printing and
engraving and computing or accounting equipment, paying agent(s),
registrar(s), transfer agent(s), duplicating, travel and telephone
and other telecommunications expenses and costs and expenses
incurred in connection with the acquisition, financing, and
disposition of Trust assets and the enforcement by the
Institutional Trustee of the rights of the Holders of the Preferred
Securities;
(c) be primarily liable for any indemnification obligations
arising with respect to this Declaration; and
(d) pay any and all taxes (other than United States
withholding taxes attributable to the Trust or its assets) and all
liabilities, costs and expenses with respect to such taxes of the
Trust.
The Debenture Issuer's obligations under this Section 4.4
shall be for the benefit of, and shall be enforceable by, any
person to whom such debts, obligations, costs, expenses and taxes
are owed (a "Creditor") whether or not such Creditor has received
notice hereof. Any such Creditor may enforce the Debenture
Issuer's obligations under this Section 4.4 directly against the
Debenture Issuer and the Debenture Issuer irrevocably waives any
right of remedy to require that any such Creditor take any action
against the Trust or any other Person before proceeding against the
Debenture Issuer. The Debenture Issuer agrees to execute such
additional agreements as may be necessary or desirable in order to
give full effect to the provisions of this Section 4.4.
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ARTICLE V
TRUSTEES
SECTION 5.1 Number of Trustees.
(a) The number of Trustees initially shall be five. At any
time before the issuance of any Securities, the Sponsor may, by
written instrument, increase or decrease the number of Trustees.
After the issuance of any Securities, the number of Trustees may be
increased or decreased by vote of the Holders of a majority in
liquidation amount of the Common Securities voting as a class at a
meeting of the Holders of the Common Securities; provided, however,
that, the number of Trustees shall in no event be less than two;
and provided further that (i) one Trustee shall be a Person that
satisfies the requirements of Section 5.2; (ii) at least one
Trustee shall be an employee or officer of, or affiliated with, the
Sponsor (a "Regular Trustee"); and (iii) for so long as this
Declaration is required to qualify as an indenture under the Trust
Indenture Act one Trustee shall be the Institutional Trustee.
(b) Any action taken by Holders of Common Securities pursuant
to this Article V shall be taken at a meeting of Holders of Common
Securities convened for such purpose or by written consent of such
Holders.
(c) Except as otherwise provided herein, no amendment may be
made to this Section 5.1 which would change any rights with respect
to the number, existence or appointment and removal of Trustees,
except with the consent of each Holder of Common Securities.
SECTION 5.2 Delaware Trustee.
If required by the Business Trust Act, one Trustee (the
"Delaware Trustee") shall be:
(a) a natural person who is a resident of the State of
Delaware; or
(b) if not a natural person, an entity which has its
principal place of business in the State of Delaware, and otherwise
meets the requirements of applicable law, provided that, if the
Institutional Trustee has its principal place of business in the
State of Delaware and otherwise meets the requirements of
applicable law, then the Institutional Trustee shall also be the
Delaware Trustee and Section 3.11 shall have no application.
The initial Delaware Trustee shall be The Bank of New York
(Delaware), an affiliate of the Institutional Trustee, until
removed or replaced in accordance with Section 5.6.
SECTION 5.3 Institutional Trustee; Eligibility.
(a) There shall at all times be one Trustee which shall act
as Institutional Trustee and which shall:
(i) not be an Affiliate of the Sponsor; and
(ii) be a corporation organized and doing business under
the laws of the United States of America or any
state or territory thereof or of the District of
Columbia, or a corporation or Person permitted
by the Commission to act as an institutional trustee
under the Trust Indenture Act, authorized under such
laws to exercise corporate trust powers, having a
combined capital and surplus of at least $50,000,000
(US), and subject to supervision or examination by
federal, state, territorial or District of Columbia
authority. If such corporation or Person publishes
reports of condition at least annually, pursuant to
law or to the requirements of the supervising or
examining authority referred to above, then for the
purposes of this Section 5.3(a)(ii), the combined
capital and surplus of such corporation or Person
shall be deemed to be its combined capital and
surplus as set forth in its most recent report of
condition so published.
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(b) If at any time the Institutional Trustee shall cease to
be eligible to so act under Section 5.3(a), the Institutional
Trustee shall immediately resign in the manner and with the effect
set forth in Section 5.6(c).
(c) If the Institutional Trustee has or shall acquire any
"conflicting interest" within the meaning of Section 310(b) of the
Trust Indenture Act or becomes a creditor of the Sponsor during the
time periods specified in Section 311 of the Trust Indenture Act,
the Institutional Trustee and the Holder of the Common Securities
(as if it were the obligor referred to in Section 310(b) of the
Trust Indenture Act) shall in all respects comply with the
provisions of Section 310(b) and 311 of the Trust Indenture Act, as
applicable.
(d) The Preferred Securities Guarantee shall be deemed to be
specifically described in this Declaration for purposes of clause
(i) of the first provision contained in Section 310(b) of the Trust
Indenture Act.
(e) The initial Institutional Trustee shall be The Bank of
New York until removed or replaced in accordance with Section 5.6.
SECTION 5.4 Certain Qualifications of the Regular Trustees
and the Delaware Trustee Generally.
Each Regular Trustee and the Delaware Trustee (unless the
Institutional Trustee also acts as Delaware Trustee) shall be
either a natural person who is at least 21 years of age or a legal
entity that shall act through one or more Authorized Officers.
SECTION 5.5 Regular Trustees.
The initial Regular Trustees shall be _________, _________ and
__________.
(a) Except as expressly set forth in this Declaration and
except if a meeting of the Regular Trustees is called with respect
to any matter over which the Regular Trustees have power to act,
any power of the Regular Trustees may be exercised by, or with the
consent of, any one such Regular Trustee; and
(b) a Regular Trustee may, by power of attorney consistent
with applicable law, delegate to any other natural person over the
age of 21 his or her power for the purposes of signing any
documents which the Regular Trustees have power and authority to
cause the Trust to execute pursuant to Section 3.6.
SECTION 5.6 Appointment, Removal and Resignation of Trustees.
(a) Subject to Section 5.6(b), Trustees may be appointed or
removed without cause at any time:
(i) until the issuance of any Securities, by written
instrument executed by the Sponsor; and
(ii) after the issuance of any Securities, by the vote or
consent of the Holders of a Majority in liquidation
amount of the Common Securities voting as a class.
(b) (i) The Trustee that acts as Institutional Trustee shall
not be removed in accordance with Section 5.6(a) if
there is a continuing Event of Default or, in other
circumstances, until a successor institutional
Trustee possessing the qualifications to act as
Institutional Trustee under Section 5.3(a) (a
"Successor Institutional Trustee") has been
appointed and has accepted such appointment by
written instrument executed by such Successor
Institutional Trustee and delivered to the Regular
Trustees, the Sponsor and the Institutional Trustee
being removed; and
(ii) the Trustee that acts as Delaware Trustee shall not
be removed in accordance with this Section 5.6(a)
until a successor Trustee possessing the
qualifications to act as Delaware Trustee under
Sections 5.2 and 5.4 (a "Successor Delaware
Trustee") has been appointed and has accepted
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such appointment by written instrument executed by
such Successor Delaware Trustee and delivered to the
Regular Trustees, the Sponsor and the Delaware
Trustee being removed.
(c) A Trustee appointed to office shall hold office until his
successor shall have been appointed or until his death, removal or
resignation. Any Trustee may resign from office (without need for
prior or subsequent accounting) by an instrument (a "Resignation
Request") in writing signed by the Trustee and delivered to the
Sponsor and the Trust, which resignation shall take effect upon
such delivery or upon such later date as is specified therein;
provided, however, that:
(i) no such resignation of the Trustee that acts as the
Institutional Trustee shall be effective:
(A) until a Successor Institutional Trustee has been
appointed and has accepted such appointment by
instrument executed by such Successor Institutional
Trustee and delivered to the Trust, the Sponsor
and the resigning Institutional Trustee; or
(B) until the assets of the Trust have been completely
liquidated and the proceeds thereof distributed
to the holders of the Securities; and
(ii) no such resignation of the Trustee that acts as the
Delaware Trustee shall be effective until a
Successor Delaware Trustee has been appointed and
has accepted such appointment by instrument executed
by such Successor Delaware Trustee and delivered to
the Trust, the Sponsor and the resigning Delaware
Trustee.
(d) The Holders of the Common Securities shall use their best
efforts to promptly appoint a Successor Institutional Trustee or
Successor Delaware Trustee as the case may be if the Institutional
Trustee or the Delaware Trustee delivers a Resignation Request in
accordance with this Section 5.6.
(e) If no Successor Institutional Trustee or Successor
Delaware Trustee shall have been appointed and accepted appointment
as provided in this Section 5.6 within 60 days after delivery to
the Sponsor and the Trust of a Resignation Request or after
delivery to the Institutional Trustee or the Delaware Trustee, as
the case may be, of a notice of removal, the Institutional Trustee
or Delaware Trustee resigning or being removed, as applicable, may,
at the expense of the Debenture Issuer, petition any court of
competent jurisdiction for appointment of a Successor Institutional
Trustee or Successor Delaware Trustee. Such court may thereupon,
after prescribing such notice, if any, as it may deem proper and
prescribe, appoint a Successor Institutional Trustee or Successor
Delaware Trustee, as the case may be.
(f) No Institutional Trustee or Delaware Trustee shall be
liable for the acts or omissions to act of any Successor
Institutional Trustee or Successor Delaware Trustee, as the case
may be.
SECTION 5.7 Vacancies among Trustees.
If a Trustee ceases to hold office for any reason and the
number of Trustees is not reduced pursuant to Section 5.1, or if
the number of Trustees is increased pursuant to Section 5.1, a
vacancy shall occur. A resolution certifying the existence of such
vacancy by the Regular Trustees or, if there are more than two, a
majority of the Regular Trustees, shall be conclusive evidence of
the existence of such vacancy. The vacancy shall be filled with a
Trustee appointed in accordance with Section 5.6.
SECTION 5.8 Effect of Vacancies.
The death, resignation, retirement, removal, bankruptcy,
dissolution, liquidation, incompetence or incapacity to perform the
duties of a Trustee shall not operate to annul the Trust. Whenever
a vacancy in the number of Regular Trustees shall occur, until such
vacancy is filled by the appointment of a Regular Trustee in
accordance with
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Section 5.6, the Regular Trustees in office, regardless of their
number, shall have all the powers granted to the Regular Trustees
and shall discharge all the duties imposed upon the Regular
Trustees by this Declaration.
SECTION 5.9 Meetings.
If there is more than one Regular Trustee, meetings of the
Regular Trustees shall be held from time to time upon the call of
any Regular Trustee. Regular meetings of the Regular Trustees may
be held at a time and place fixed by resolution of the Regular
Trustees. Notice of any in-person meetings of the Regular Trustees
shall be hand delivered or otherwise delivered in writing
(including by facsimile, with a hard copy by overnight courier) not
less than 48 hours before such meeting. Notice of any telephonic
meetings of the Regular Trustees or any committee thereof shall be
hand delivered or otherwise delivered in writing (including by
facsimile, with a hard copy by overnight courier) not less than 24
hours before a meeting. Notices shall contain a brief statement of
the time, place and anticipated purposes of the meeting. The
presence (whether in person or by telephone) of a Regular Trustee
at a meeting shall constitute a waiver of notice of such meeting,
except where a Regular Trustee attends a meeting for the express
purpose of objecting to the transaction of any activity on the
ground that the meeting has not been lawfully called or convened.
Unless provided otherwise in this Declaration, any action of the
Regular Trustees may be taken at a meeting by vote of a majority of
the Regular Trustees present (whether in person or by telephone)
and eligible to vote with respect to such matter, provided that a
Quorum is present, or without a meeting by the unanimous written
consent of the Regular Trustees. In the event there is only one
Regular Trustee, any and all action of such Regular Trustee shall
be evidenced by a written consent of such Regular Trustee.
SECTION 5.10 Delegation of Power.
The Regular Trustees shall have power to delegate from time to
time to such of their number or to officers of the Trust the doing
of such things and the execution of such instruments, either in the
name of the Trust or the names of the Regular Trustees, as the
Regular Trustees may deem expedient, to the extent such delegation
is not prohibited by applicable law or contrary to the provisions
of this Declaration.
SECTION 5.11 Merger, Conversion, Consolidation or Succession
to Business.
Any corporation into which the Institutional Trustee or the
Delaware Trustee, as the case may be, may be merged or converted or
with which either may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which the
Institutional Trustee or the Delaware Trustee, as the case may be,
shall be bound by this Declaration, or any corporation succeeding
to all or substantially all the corporate trust business of the
Institutional Trustee or the Delaware Trustee, as the case may be,
shall be the successor of the Institutional Trustee or the Delaware
Trustee, as the case may be, hereunder, provided such corporation
shall be otherwise qualified and eligible under this Article,
without the execution or filing of any paper or any further act on
the part of any of the parties hereto.
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ARTICLE VI
DISTRIBUTIONS
SECTION 6.1 Distributions.
Holders shall receive Distributions in accordance with the
terms of the Holder's Securities as set forth in Annex I.
ARTICLE VII
ISSUANCE OF SECURITIES
SECTION 7.1 General Provisions Regarding Securities.
(a) The Regular Trustees shall on behalf of the Trust issue
one class of preferred securities (the "Preferred Securities"),
representing undivided beneficial interests in the assets of the
Trust having such terms as are set forth in Annex I (which terms
are incorporated by reference in, and made a part of, this
Declaration as if specifically set forth herein) and one class of
common securities (the "Common Securities"), representing undivided
beneficial interests in the assets of the Trust having such terms
as are set forth in Annex I (which terms are incorporated by
reference in, and made a part of, this Declaration as if
specifically set forth herein). The Trust shall issue no
securities or other interests in the assets of the Trust other than
the Preferred Securities and the Common Securities. Each Security
shall be dated the date of its authentication.
(b) The Certificates shall be signed on behalf of the Trust
by a Regular Trustee. Such signature may be the manual or
facsimile signature of any Regular Trustee. Typographical and
other minor errors or defects in any facsimile of any such
signature shall not affect the validity of any Security. In case
any Regular Trustee of the Trust who shall have signed any of the
Securities shall cease to be such Regular Trustee before the
Certificates so signed shall be delivered by the Trust, such
Certificates nevertheless may be delivered as though the person who
signed such Certificates had not ceased to be such Regular Trustee;
and any Certificate may be signed on behalf of the Trust by such
persons who, at the actual date of execution of such Security,
shall be the Regular Trustees, although at the date of the
execution and delivery of the Declaration any such person was not
a Regular Trustee. Certificates shall be printed, lithographed or
engraved or may be produced in any other manner as is reasonably
acceptable to the Regular Trustees, as evidenced by their execution
thereof, and may have such letters, numbers or other marks of
identification or designation and such legends or endorsements as
the Regular Trustees may deem appropriate, or as may be required to
comply with any law or with any rule or regulation of any stock
exchange on which Securities may be listed, or to conform to usage.
Pending the preparation of definitive Certificates, the Regular
Trustees on behalf of the Trust may execute and the Institutional
Trustee shall authenticate, temporary Certificates (printed,
lithographed or typewritten), substantially in the form of the
definitive Certificates in lieu of which they are issued, but with
such omissions, insertions and variations as may be appropriate for
temporary Certificates, all as may be determined by the Regular
Trustees on behalf of the Trust, upon the same conditions and in
substantially the same manner, and with like effect, as definitive
Certificates. Without unnecessary delay, the Regular Trustees on
behalf of the Trust shall execute and furnish, and the
Institutional Trustee shall authenticate, definitive Certificates,
and thereupon any or all temporary Certificates may be surrendered
to the transfer agent and registrar in exchange therefor (without
charge to the Holders).
(c) A Security shall not be valid until authenticated by the
manual signature of an authorized signatory of the Institutional
Trustee upon receipt of an order signed by a Regular Trustee. Such
signature shall be conclusive evidence that the Security has been
authenticated under this Declaration.
The Institutional Trustee may appoint an authenticating agent
acceptable to the Trust to authenticate Securities. An
authenticating agent may authenticate Securities whenever the
Institutional Trustee may do so. Each reference in this
Declaration to authentication by the Institutional Trustee includes
authentication by such agent. An
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authenticating agent has the same rights as the Institutional
Trustee to deal with the Sponsor or any Affiliate thereof.
(d) The consideration received by the Trust for the issuance
of the Securities shall constitute a contribution to the capital of
the Trust and shall not constitute a loan to the Trust.
(e) Upon issuance of the Securities as provided in this
Declaration, the Securities so issued shall be deemed to be validly
issued, fully paid and non-assessable.
(f) Every Person, by virtue of having become a Holder or a
Preferred Security Beneficial Owner in accordance with the terms of
this Declaration, shall be deemed to have expressly assented and
agreed to the terms of, and shall be bound by, this Declaration.
SECTION 7.2 Paying Agent.
In the event that the Preferred Securities are not in
book-entry only form, the Trust shall maintain in the Borough of
Manhattan, New York, New York, an office or agency where the
Preferred Securities may be presented for payment ("Paying
Agent"). The Trust may appoint the Paying Agent and may appoint
one or more additional paying agents in such other locations as it
shall determine. The term "Paying Agent" includes any additional
paying agent. The Trust may change any Paying Agent without prior
notice to any Holder. The Trust shall notify the Institutional
Trustee of the name and address of any Paying Agent not a party to
this Declaration. If the Trust fails to appoint or maintain
another entity as Paying Agent, the Institutional Trustee shall act
as such. The Trust or any of its Affiliates may act as Paying
Agent. The Bank of New York shall initially act as Paying Agent
for the Preferred Securities.
ARTICLE VIII
TERMINATION OF TRUST
SECTION 8.1 Termination of Trust.
(a) The Declaration and the Trust shall terminate and be of
no further force or effect:
(i) on _______, 2043, the expiration of the term of the
Trust;
(ii) upon the bankruptcy of the Sponsor or the Trust;
(iii) upon the filing of a certificate of dissolution or
its equivalent with respect to the Sponsor, the
filing of a certificate of cancellation with respect
to the Trust after having obtained the consent of
the Holders of at least a Majority in liquidation
amount of the Securities voting together as a single
class to file such certificate of cancellation, or
the revocation of the Sponsor's charter and the
expiration of 90 days after the date of revocation
without a reinstatement thereof;
(iv) upon the entry of a decree of judicial dissolution
of the Sponsor or the Trust;
(v) when all of the Securities shall have been called
for redemption and the amounts necessary for
redemption thereof shall have been paid to the
Holders in accordance with the terms of the
Securities;
(vi) upon the distribution of all of the Debentures to
the Holders in exchange for all of the Securities
in accordance with the terms of the Securities; or
(vii) before the issuance of any Securities, with the
consent of all of the Regular Trustees and the
Sponsor.
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(b) As soon as is practicable after the occurrence of an
event referred to in Section 8.1(a), the Trustees shall file (if
not previously filed) a certificate of cancellation with the
Secretary of State of the State of Delaware.
(c) The provisions of Section 3.9 and Article X shall survive
the termination of the Trust.
ARTICLE IX
TRANSFER OF INTERESTS
SECTION 9.1 Transfer of Securities.
(a) Securities may only be transferred, in whole or in part,
in accordance with the terms and conditions set forth in this
Declaration and in the terms of the Securities. Any transfer or
purported transfer of any Security not made in accordance with this
Declaration shall be null and void.
(b) Subject to this Article IX, Preferred Securities shall be
freely transferable.
(c) The Sponsor may not transfer the Common Securities.
SECTION 9.2 Transfer of Certificates.
(a) General. The Regular Trustees shall provide for the
registration of Certificates and, to the extent permitted by
Section 9.7, registration of transfers of Certificates, which shall
be effected without charge, but only upon payment (with such
indemnity as the Regular Trustees may require) of any tax or other
government charges that may be imposed in relation thereto. Upon
surrender for registration of transfer of any Certificate, the
Regular Trustees shall cause one or more new Certificates to be
issued and authenticated by the Institutional Trustee in the name
of the designated transferee or transferees. Every Certificate
surrendered for registration of transfer shall be accompanied by a
written instrument of transfer in form satisfactory to the Regular
Trustees duly executed by the Holder or such Holder's attorney duly
authorized in writing. Each Certificate surrendered for
registration of transfer shall be canceled by the Regular Trustees.
A transferee of a Certificate shall be entitled to the rights and
shall be subject to the obligations of a Holder hereunder upon the
receipt by such transferee of a Certificate. By acceptance of a
Certificate, each transferee shall be deemed to have expressly
assented and agreed to the terms of, and shall be bound by, this
Declaration.
(b) Transfer of a Preferred Security Certificate for a
Beneficial Interest in a Global Certificate. Subject to Section
9.7, upon receipt by the Institutional Trustee of a Preferred
Security Certificate, duly endorsed or accompanied by appropriate
instruments of transfer, in form satisfactory to the Institutional
Trustee, requesting transfer of such Preferred Security Certificate
for a beneficial interest in a Global Certificate, the
Institutional Trustee shall cancel such Preferred Security
Certificate and cause, or direct the Depository Institution to
cause, the aggregate number of Preferred Securities evidenced by
the Global Certificate to be increased accordingly. If no Global
Certificates are then outstanding, the Trust shall issue and the
Institutional Trustee shall authenticate, upon written order of any
Regular Trustee, a Global Certificate.
(c) Transfer of a Beneficial Interest in a Global Certificate
for a Preferred Security Certificate. Subject to Section 9.7,
upon receipt by the Institutional Trustee from the Depository
Institution or its nominee on behalf of a Preferred Security
Beneficial Owner of written instructions or such other form of
instructions as is customary for the Depository Institution or its
nominee requesting transfer of a beneficial interest in a Global
Certificate for a Preferred Security Certificate, the Institutional
Trustee or the securities custodian, at the direction of the
Institutional Trustee, shallcause, in accordance with the standing
instructions and procedures existing between the Depository
Institution and the securities custodian, the aggregate principal
amount of the Global Certificate to be reduced on its books and
records and, following such reduction, the Trust shall execute and
the Institutional Trustee shall authenticate and deliver to the
transferee a Preferred Security Certificate.
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Preferred Security Certificates issued in exchange for a
beneficial interest in a Global Certificate shall be registered in
such names and in such authorized denominations as the Depository
Institution, pursuant to instructions from its Depository
Institution Participants or indirect participants or otherwise,
shall instruct the Institutional Trustee. The Institutional
Trustee shall deliver such Preferred Security Certificate to the
persons in whose names such Preferred Securities are so registered
in accordance with the instructions of the Depository Institution.
(d) Transfer and Exchange of Global Certificates.
Notwithstanding any other provisions of this Declaration, a Global
Certificate may not be transferred as a whole, except by the
Depository Institution to a nominee of the Depository Institution
or by the Depository Institution or any such nominee to a successor
Depository Institution or a nominee of such successor Depository
Institution.
SECTION 9.3 Deemed Security Holders.
The Trustees may treat the Person in whose name any
Certificate shall be registered on the books and records of the
Trust (including the Depository Institution) as the sole holder of
such Certificate and of the Securities evidenced by such
Certificate for purposes of receiving Distributions and for all
other purposes whatsoever and, accordingly, shall not be bound to
recognize any equitable or other claim to or interest in such
Certificate or in the Securities represented by such Certificate on
the part of any Person, whether or not the Trust shall have actual
or other notice thereof.
SECTION 9.4 Book-Entry Interests.
Unless otherwise specified in the terms of the Preferred
Securities set forth in Annex I, the Preferred Securities, shall be
evidenced by one or more, fully-registered, global Preferred
Security Certificates (each a "Global Certificate"), to be
delivered to the Depository Institution by, or on behalf of, the
Trust. Such Global Certificates shall be registered on the books
and records of the Trust in the name of the Depository Institution
or its nominee, and no Preferred Security Beneficial Owner will
receive a Preferred Security Certificate evidencing such Preferred
Security Beneficial Owner's interest in Preferred Securities,
except as provided in Section 9.7. Unless and until Preferred
Security Certificates are issued to the Preferred Security
Beneficial Owners pursuant to Section 9.7:
(a) the provisions of this Section 9.4 shall supercede any
contrary provision of this Declaration;
(b) except as otherwise required by law, the Trust and the
Trustees shall be entitled to deal with the Depository
Institutionfor all purposes of this Declaration (including
the payment of Distributions and the soliciting and obtaining
of any approvals, votes or consents hereunder) as the Holder
of the Preferred Securities evidenced by one or more Global
Certificates, and the Trust and the Trustees shall have no
responsibility or obligation to any Preferred Security
Beneficial Owner; and
(c) the rights of Preferred Security Beneficial Owners
shall be exercised only through the Depository Institution and
shall be limited to those established by law and agreements
between such Preferred Security Beneficial Owners and the
Depository Institution and/or Depository Institution
Participants.
Depository Institution Participants shall have no rights under
this Declaration with respect to any Global Certificate held by the
Depository Institution (or by the Institutional Trustee as the
custodian of the Depository Institution) or under such Global
Certificate, and the Depository Institution may be treated by the
Trust, the Trustees and any agent of the Trust or the Trustees as
the absolute owner of such Global Certificate for all purposes
whatsoever. Notwithstanding the foregoing, nothing herein shall
prevent the Trust, the Trustees or any agent of the Trust or the
Trustees from giving effect to any written certification, proxy or
other authorization furnished by the Depository
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Institution or impair, as between the Depository Institution and
its Depository Institution Participants, the operation of customary
practices of such Depository Institution governing the exercise of
the rights of a holder of a beneficial interest in any Global
Certificate.
At such time as all beneficial interests in a Global
Certificate have either been exchanged for Preferred Security
Certificates (to the extent permitted by this Declaration) or
redeemed, repurchased or canceled in accordance with the terms of
this Declaration, such Global Certificate shall be returned by the
Depository Institution to the Institutional Trustee for
cancellation (or, if held by the Institutional Trustee as custodian
for the Depository Institution, shall be retained and canceled by
the Institutional Trustee). At any time prior to such
cancellation, if any beneficial interest in a Global Certificate is
exchanged for a Preferred Security Certificate, or if a Preferred
Security Certificate is exchanged for a beneficial interest in a
Global Certificate, the Preferred Securities evidenced by such
Global Certificate shall be reduced or increased and an adjustment
shall be made on the books and records of the Institutional Trustee
(if it is then the securities custodian for such Global
Certificate) with respect to such Global Certificate to reflect
such reduction or increase.
SECTION 9.5 Notices to Depository Institution.
Whenever a notice or other communication to the Holders of
Preferred Securities is required under this Declaration, unless
and until Preferred Security Certificates shall have been issued to
the Preferred Security Beneficial Owners pursuant to Section 9.7,
the Regular Trustees shall give to the Depository Institution all
such notices and communications specified herein to be given to the
Holders of Preferred Securities and shall have no notice
obligations to the Preferred Security Beneficial Owners.
SECTION 9.6 Appointment of Successor Depository Institution.
If any Depository Institution elects to discontinue its
services as securities depositary with respect to the Preferred
Securities, the Regular Trustees may, in their sole discretion,
appoint a successor Depository Institution with respect to such
Preferred Securities.
SECTION 9.7 Issuance of Preferred Security Certificates.
If:
(a) a Depository Institution elects to discontinue its
services as securities depositary with respect to the Preferred
Securities and a successor Depository Institution is not appointed
within 90 days after such discontinuance pursuant to Section 9.6;
or
(b) the Regular Trustees elect after consultation with the
Sponsor to terminate the book-entry system through the Depository
Institution with respect to the Preferred Securities; or
(c) there shall have occurred an Event of Default
then:
(i) Preferred Security Certificates shall be prepared by the
Regular Trustees on behalf of the Trust with respect to the
Preferred Securities; and
(ii) upon surrender of the Global Certificates by the
Depository Institution, accompanied by registration instructions,
the Regular Trustees shall cause Preferred Security Certificates to
be delivered to Preferred Security Beneficial Owners in accordance
with the instructions of the Depository Institution. Neither the
Trustees nor the Trust shall be liable for any delay in delivery of
such instructions and each of them may conclusively rely on and
shall be protected in relying on, said instructions of the
Depository Institution.
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SECTION 9.8 Mutilated, Destroyed, Lost or Stolen
Certificates.
If:
(a) any mutilated Certificates should be surrendered to the
Regular Trustees, or if the Regular Trustees shall receive evidence
to their satisfaction of the destruction, loss or theft of any
Certificate; and
(b) there shall be delivered to the Regular Trustees, the
Institutional Trustee or any authenticating agent such security or
indemnity as may be required by them to keep each of them harmles
then, in the absence of notice that such Certificate shall have
been acquired by a bona fide purchaser, any Regular Trustee on
behalf of the Trust shall execute and deliver and the Institutional
Trustee shall authenticate, in exchange for or in lieu of any such
mutilated, destroyed, lost or stolen Certificate, a new Certificate
of like denomination. In connection with the issuance of any new
Certificate under this Section 9.8, the Regular Trustees may
require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection therewith.
Any replacement Certificate issued pursuant to this Section 9.8
shall constitute conclusive evidence of an ownership interest in
the Securities evidenced thereby, whether or not the lost, stolen
or destroyed Certificate shall be found at any time.
SECTION 9.9 CUSIP Numbers
The Trust, in issuing the Securities, may use "CUSIP" numbers
(if then generally in use), and, if so, the Institutional Trustee
shall use "CUSIP" numbers in notices of redemption as a convenience
to Holders; provided that any such notice may state that no
representation is made as to the correctness of such numbers either
as printed on the Securities or as contained in any notice of a
redemption and that reliance may be placed only on the other
identification numbers printed on the Securities, and any such
redemption shall not be affected by any defect in, or omission of,
such numbers. The Company shall promptly notify the Institutional
Trustee of any change in the "CUSIP" numbers.
ARTICLE X
LIMITATION OF LIABILITY OF
HOLDERS OF SECURITIES, TRUSTEES OR OTHERS
SECTION 10.1 Liability.
(a) Except as expressly set forth in this Declaration, the
Securities Guarantees and the terms of the Securities, the Sponsor
shall not be:
(i) personally liable for the return of any portion of the
capital contributions (or any return thereon) of the
Holders which shall be made solely from assets of the
Trust; or
(ii) be required to pay to the Trust or to any Holder any
deficit upon dissolution of the Trust or otherwise.
(b) The Debenture Issuer shall be liable for all of the debts
and obligations of the Trust (other than with respect to the
Securities) to the extent not satisfied out of the Trust's assets.
(c) Pursuant to Section 3803(a) of the Business Trust Act,
the Holders shall be entitled to the same limitation of personal
liability extended to stockholders of private corporations for
profit organized under the General Corporation Law of the State of
Delaware.
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SECTION 10.2 Exculpation.
(a) No Indemnified Person shall be liable, responsible or
accountable in damages or otherwise to the Trust or any Covered
Person for any loss, damage or claim incurred by reason of any
act or omission performed or omitted by such Indemnified Person in
good faith on behalf of the Trust and in a manner such Indemnified
Person reasonably believed to be within the scope of the authority
conferred on such Indemnified Person by this Declaration or by law,
except that an Indemnified Person shall be liable for any such
loss, damage or claim incurred by reason of such Indemnified
Person's gross negligence or willful misconduct with respect to
such acts or omissions.
(b) An Indemnified Person shall be fully protected in relying
in good faith upon the records of the Trust and upon such
information, opinions, reports or statements presented to the Trust
by any Person as to matters the Indemnified Person reasonably
believes are within such other Person's professional or expert
competence and who has been selected with reasonable care by or on
behalf of the Trust, including information, opinions, reports or
statements as to the value and amount of the assets, liabilities,
profits, losses, or any other facts pertinent to the existence and
amount of assets from which Distributions to Holders might properly
be paid.
SECTION 10.3 Fiduciary Duty.
(a) To the extent that, at law or in equity, an Indemnified
Person has duties (including fiduciary duties) and liabilities
relating thereto to the Trust or to any Covered Person, an
Indemnified Person acting under this Declaration shall not be
liable to the Trust or to any Covered Person for its good faith
reliance on the provisions of this Declaration. The provisions of
this Declaration, to the extent that they restrict the duties and
liabilities of an Indemnified Person otherwise existing at law or
in equity (other than the duties imposed on the Institutional
Trustee under the Trust Indenture Act), are agreed by the parties
hereto to replace (to the fullest extent permitted by law) such
other duties and liabilities of such Indemnified Person.
(b) Unless otherwise expressly provided herein:
(i) whenever a conflict of interest exists or arises
between an Indemnified Person and any Covered
Persons; or
(ii) whenever this Declaration or any other agreement
contemplated herein provides that an Indemnified
Person shall act in a manner that is, or provides
terms that are, fair and reasonable to the Trust or
any Holder,
the Indemnified Person shall resolve such conflict of interest,
take such action or provide such terms, considering in each case
the relative interest of each party (including its own interest) to
such conflict, agreement, transaction or situation and the benefits
and burdens relating to such interests, any customary or accepted
industry practices, and any applicable generally accepted
accounting practices or principles. In the absence of bad faith by
the Indemnified Person, the resolution, action or term so made,
taken or provided by the Indemnified Person shall not constitute a
breach of this Declaration or any other agreement contemplated
herein or of any duty or obligation of the Indemnified Person at
law or in equity or otherwise.
(c) Whenever in this Declaration an Indemnified Person is
permitted or required to make a decision:
(i) in its "discretion" or under a grant of similar
authority, the Indemnified Person shall be entitled
to consider such interests and factors as it
desires, including its own interests, and shall have
no duty or obligation to give any consideration to
any interest of or factors affecting the Trust or
any other Person; or
(ii) in its "good faith" or under another express
standard, the Indemnified Person shall act under
such express standard and shall not be subject to
any other or different standard imposed by this
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Declaration or by applicable law.
SECTION 10.4 Indemnification.
(a) (i) The Debenture Issuer shall indemnify, to the full
extent permitted by law, any Company Indemnified
Person who was or is a party or is threatened to be
made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an
action by or in the right of the Trust) by reason of
the fact that he is or was a Company Indemnified
Person against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in
connection with such action, suit or proceeding if
he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best
interests of the Trust, and, with respect to any
criminal action or proceeding, had no reasonable
cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall
not, of itself, create a presumption that the
Company Indemnified Person did not act in good faith
and in a manner which he reasonably believed to be
in or not opposed to the best interests of the
Trust, or, with respect to any criminal action or
proceeding, had reasonable cause to believe that his
conduct was unlawful.
(ii) The Debenture Issuer shall indemnify, to the full
extent permitted by law, any Company Indemnified
Person who was or is a party or is threatened to be
made a party to any threatened, pending or completed
action or suit by or in the right of the Trust to
procure a judgment in its favor by reason of the
fact that he is or was a Company Indemnified Person
against expenses (including attorneys' fees)
actually and reasonably incurred by him in
connection with the defense or settlement of such
action or suit if he acted in good faith and in a
manner he reasonably believed to be in or not
opposed to the best interests of the Trust, except
that no such indemnification shall be made in
respect of any claim, issue or matter as to which
such Company Indemnified Person shall have been
adjudged to be liable to the Trust unless and only
to the extent that the Court of Chancery of Delaware
or the court in which such action or suit was
brought shall determine upon application that,
despite the adjudication of liability but in view of
all the circumstances of the case, such Person is
fairly and reasonably entitled to indemnity for such
expenses which such Court of Chancery or such other
court shall deem proper.
(iii) To the extent that a Company Indemnified Person
shall be successful on the merits or otherwise
(including dismissal of an action without prejudice
or the settlement of an action without admission
of liability) in defense of any action, suit or
proceeding referred to in paragraphs (i) and (ii) of
this Section 10.4(a), or in defense of any claim,
issue or matter therein, he shall be indemnified,
to the full extent permitted by law, against
expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
(iv) Any indemnification under paragraphs (i) or (ii) of
this Section 10.4(a) (unless ordered by a court)
shall be made by the Debenture Issuer only as
authorized in the specific case upon a determination
that indemnification of the Company Indemnified
Person is proper in the circumstances because he has
met the applicable standard of conduct set forth in
paragraphs (i) or (ii). Such determination shall be
made (1) by the Regular Trustees by a majority vote
of a Quorum consisting of such Regular Trustees who
were not parties to such action, suit or proceeding,
(2) if such a Quorum is not obtainable, or, even if
obtainable, if a Quorum of disinterested Regular
Trustees so directs, by independent legal counsel in
a written opinion, or (3) by the Debenture Issuer.
(v) Expenses (including attorneys' fees) incurred by a
Company Indemnified Person in defending a civil,
criminal, administrative or investigative action,
suit or proceeding referred to in paragraphs (i) or
(ii) of this Section 10.4(a) shall be paid by the
Debenture Issuer in advance of the final
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disposition of such action, suit or proceeding upon
receipt of an undertaking by or on behalf of such
Company Indemnified Person to repay such amount if
it shall ultimately be determined that he is not
entitled to be indemnified by the Debenture Issuer
as authorized in this Section 10.4(a).
Notwithstanding the foregoing, no advance shall be
made by the Debenture Issuer if a determination is
reasonably and promptly made (i) by the Regular
Trustees by a majority vote of a Quorum of
disinterested Regular Trustees, (ii) if such a
Quorum is not obtainable, or, even if obtainable, if
a Quorum of disinterested Regular Trustees so
directs, by independent legal counsel in a written
opinion or (iii) by the Debenture Issuer, that,
based upon the facts known to the Regular Trustees,
counsel or the Debenture Issuer, as the case may be,
at the time such determination is made, such Company
Indemnified Person acted in bad faith or in a manner
that such Person did not believe to be in or not
opposed to the best interests of the Trust, or, with
respect to any criminal proceeding, that such
Company Indemnified Person believed or had
reasonable cause to believe his conduct was
unlawful. In no event shall any advance be made in
instances where the Regular Trustees, independent
legal counsel or the Debenture Issuer reasonably
determines that such Person deliberately breached
his duty to the Trust or the Holders.
(vi) The indemnification and advancement of expenses
provided by, or granted pursuant to, the other
paragraphs of this Section 10.4(a) shall not be
deemed exclusive of any other rights to which those
seeking indemnification and advancement of expenses
may be entitled under any agreement, with the
Debenture Issuer or otherwise, both as to action
in his official capacity and as to action in
another capacity while holding such office. All
rights to indemnification under this Section 10.4(a)
shall be deemed to be provided by a contract between
the Debenture Issuer and each Company Indemnified
Person who serves in such capacity at any time while
this Section 10.4(a) is in effect. Any repeal or
modification of this Section 10.4(a) shall not
affect any rights or obligations then existing.
(vii) The Debenture Issuer or the Trust may purchase and
maintain insurance on behalf of any person who
is or was a Company Indemnified Person against any
liability asserted against him and incurred by him
in any such capacity, or arising out of his status
as such, whether or not the Debenture Issuer would
have the power to indemnify him against such
liability under the provisions of this Section
10.4(a).
(viii) For purposes of this Section 10.4(a), references to
"the Trust" shall include, in addition to the
resulting or surviving entity, any constituent
entity (including any constituent of a constituent)
absorbed in a consolidation or merger, so that any
person who is or was a director, trustee, officer
or employee of such constituent entity, or is or was
serving at the request of such constituent entity as
a director, trustee, officer, employee or agent of
another entity, shall stand in the same position
under the provisions of this Section 10.4(a) with
respect to the resulting or surviving entity as he
would have with respect to such constituent entity
if its separate existence had continued.
(ix) The indemnification and advancement of expenses
provided by, or granted pursuant to, this
Section 10.4(a) shall, unless otherwise provided
when authorized or ratified, continue as to a
person who has ceased to be a Company Indemnified
Person and shall inure to the benefit of the
heirs, executors and administrators of such a
person.
(b) The Debenture Issuer agrees to indemnify the (i)
Institutional Trustee, (ii) the Delaware Trustee, (iii) any
Affiliate of the Institutional Trustee and the Delaware Trustee,
and (iv) any officer, director, shareholder, member, partner,
employee, representative, custodian, nominee or agent of the
Institutional Trustee and the Delaware Trustee (each of the Persons
in (i) through (iv) being referred to as a "Fiduciary Indemnified
Person") for, and to hold each Fiduciary Indemnified Person
harmless against, any loss, liability or expense incurred without
negligence or willful misconduct on its part, arising out of or in
connection with the acceptance or administration of the trust or
trusts hereunder, including the costs and expenses (including
reasonable legal fees and expenses) of defending itself against
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or investigating any claim or liability in connection with the
exercise or performance of any of its powers or duties hereunder.
The obligation to indemnify as set forth in this Section 10.4(b)
shall survive the termination of the Trust.
SECTION 10.5 Outside Businesses.
Any Covered Person, Regular Trustee, the Sponsor, the Delaware
Trustee and the Institutional Trustee may engage in or possess an
interest in other business ventures of any nature or description,
independently or with others, similar or dissimilar to the business
of the Trust, and the Trust and the Holders shall have no rights by
virtue of this Declaration in and to such independent ventures or
the income or profits derived therefrom, and the pursuit of any
such venture, even if competitive with the business of the Trust,
shall not be deemed wrongful or improper. No Covered Person,
Regular Trustee, the Sponsor, the Delaware Trustee, or the
Institutional Trustee shall be obligated to present any particular
investment or other opportunity to the Trust even if such
opportunity is of a character that, if presented to the Trust,
could be taken by the Trust, and any Covered Person, Regular
Trustee, the Sponsor, the Delaware Trustee and the Institutional
Trustee shall have the right to take for its own account
(individually or as a partner or fiduciary) or to recommend to
others any such particular investment or other opportunity. Any
Covered Person, Regular Trustee, the Delaware Trustee and the
Institutional Trustee may engage or be interested in any financial
or other transaction with the Sponsor or any Affiliate of the
Sponsor, or may act as depositary for, trustee or agent for, or act
on any committee or body of holders of, securities or other
obligations of the Sponsor or its Affiliates.
ARTICLE XI
ACCOUNTING
SECTION 11.1 Fiscal Year.
The fiscal year of the Trust ("Fiscal Year") shall be the
calendar year, or such other year as is required by the Code.
SECTION 11.2 Certain Accounting Matters.
(a) At all times during the existence of the Trust, the
Regular Trustees shall keep, or cause to be kept, full books of
account, records and supporting documents, which shall reflect in
reasonable detail, each transaction of the Trust. The books of
account shall be maintained on the accrual method of accounting, in
accordance with generally accepted accounting principles,
consistently applied. The Trust shall use the accrual method of
accounting for United States federal income tax purposes. The
books of account and the records of the Trust shall be examined by
and reported upon as of the end of each Fiscal Year by a firm of
independent certified public accountants selected by the Regular
Trustees. The books and records of the Trust, together with a copy
of the Declaration and a certified copy of the Certificate of
Trust, and any amendment thereto shall at all times be maintained
at the principal office of the Trust and shall be open for
inspection for any examination by any Holder or its duly authorized
representative for any purpose reasonably related to its interest
in the Trust during normal business hours.
(b) The Regular Trustees shall cause to be prepared and
delivered to each of the Holders, within 90 days after the end of
each Fiscal Year, annual financial statements of the Trust,
including a balance sheet of the Trust as of the end of such Fiscal
Year, and the related statements of income or loss;
(c) The Regular Trustees shall cause to be duly prepared and
delivered to each of the Holders, any annual United States federal
income tax information statement required by the Code, containing
such information with regard to the Securities held by such Holder
as is required by the Code and the Treasury Regulations.
Notwithstanding any right under the Code to deliver any such
statement at a later date, the Regular Trustees shall endeavor to
deliver all such statements within 30 days after the end of each
Fiscal Year.
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(d) The Regular Trustees shall cause to be duly prepared and
filed with the appropriate taxing authority, an annual United
States federal income tax return, on a Form 1041 or such other form
required by United States federal income tax law, and any other
annual income tax returns required to be filed by the Trust or by
the Regular Trustees on behalf of the Trust with any state or local
taxing authority.
SECTION 11.3 Banking.
The Trust may maintain one or more bank accounts in the name
and for the sole benefit of the Trust; provided, however, that all
payments of funds in respect of the Debentures held by the
Institutional Trustee shall be made directly to the Institutional
Trustee Account and no other funds of the Trust shall be deposited
in the Institutional Trustee Account. The sole signatories for
such bank accounts (other than the Institutional Trustee Account)
shall be designated by the Regular Trustees. The Institutional
Trustee shall designate the signatories for the Institutional
Trustee Account.
SECTION 11.4 Withholding.
The Trust and the Regular Trustees shall comply with all
withholding requirements under United States federal, state and
local law. The Trust shall request, and the Holders shall provide
to the Trust, such forms or certificates as are necessary to
establish an exemption from withholding with respect to each
Holder, and any representations and forms as shall reasonably be
requested by the Trust to assist it in determining the extent of,
and in fulfilling, its withholding obligations. The Regular
Trustees shall file required forms with applicable jurisdictions
and, unless an exemption from withholding is properly established
by a Holder, shall remit amounts withheld with respect to the
Holder to applicable jurisdictions. To the extent that the Trust is
required to withhold and pay over any amounts to any authority with
respect to distributions or allocations to any Holder, the amount
withheld shall be deemed to be a distribution in the amount of the
withholding to the Holder. In the event of any claimed
over-withholding, Holders shall be limited to an action against the
applicable jurisdiction. If the amount required to be withheld was
not withheld from actual Distributions made, the Trust may reduce
subsequent Distributions by the amount of such withholding.
ARTICLE XII
AMENDMENTS AND MEETINGS
SECTION 12.1 Amendments.
(a) Except as otherwise provided in this Declaration or by
any applicable terms of the Securities, this Declaration may only
be amended by a written instrument approved and executed by:
(i) the Regular Trustees (or, if there are more than two
Regular Trustees, a majority of the Regular Trustees);
(ii) if the amendment affects the rights, powers, duties,
obligations or immunities of the Institutional Trustee,
the Institutional Trustee; and
(iii) if the amendment affects the rights, powers, duties,
obligations or immunities of the Delaware Trustee, the
Delaware Trustee.
(b) No amendment shall be made, and any purported amendment
shall be void and ineffective:
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(i) unless, in the case of any proposed amendment, the
Institutional Trustee shall have first received an
Officers' Certificate and an opinion of counsel from
each of the Trust and the Sponsor that such amendment is
permitted by, and conforms to, the terms of this
Declaration (including the terms of the Securities);
(ii) unless, in the case of any proposed amendment that
affects the rights, powers, duties, obligations
or immunities of the Institutional Trustee, the
Institutional Trustee shall have agreed to join in
such amendment; and
(iii) to the extent the result of such amendment would be to:
(A) cause the Trust to fail to continue to be classified
for purposes of United States federal income taxation as
a grantor trust;
(B) reduce or otherwise adversely affect the powers of the
Institutional Trustee in contravention of the Trust
Indenture Act; or
(C) cause the Trust to be deemed to be an Investment Company
that is required to be registered under the Investment
Company Act;
(c) At such time after the Trust has issued any Securities
that remain outstanding, any amendment that would adversely affect
the rights, privileges or preferences of any Holder may be effected
only with such additional requirements as may be set forth in the
terms of such Securities.
(d) Sections 4.4, 9.1(c) and this Section 12.1 shall not be
amended without the consent of all of the Holders of the
Securities.
(e) Article IV shall not be amended without the consent of
the Sponsor.
(f) The rights of the holders of the Common Securities under
Article V to increase or decrease the number of, and appoint and
remove Trustees shall not be amended without the consent of the
Holders of a Majority in liquidation amount of the Common
Securities.
(g) Notwithstanding Section 12.1(c), this Declaration may be
amended without the consent of the Holders to:
(i) cure any ambiguity;
(ii) correct or supplement any provision in this
Declaration that may be defective or inconsistent
with any other provision of this Declaration;
(iii) add to the covenants, restrictions or obligations of
the Sponsor;
(iv) conform to any change in Rule 3a-5 or written change
in interpretation or application of Rule 3a-5 by any
legislative body, court, government agency or
regulatory authority which amendment does not have
a material adverse effect on the right, preferences
or privileges of the Holders; or
(v) preserve the status of the Trust as a grantor trust
for federal income tax purposes.
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SECTION 12.2 Meetings of the Holders; Action by Written
Consent.
(a) Meetings of the Holders of any class of Securities may be
called at any time by the Regular Trustees (or as provided in the
terms of the Securities) to consider and act on any matter on which
Holders of such class of Securities are entitled to act under the
terms of this Declaration, the terms of the Securities or the rules
of any stock exchange on which the Preferred Securities are listed
or admitted for trading. The Regular Trustees shall call a meeting
of the Holders of such class if directed to do so by the Holders of
at least 10% in liquidation amount of the Securities of such class.
Such direction shall be given by delivering to the Regular Trustees
one or more notices in a writing stating that the signing Holders
wish to call a meeting and indicating the general or specific
purpose for which the meeting is to be called. Any Holders calling
a meeting shall specify in writing the Certificates held by the
Holders exercising the right to call a meeting and only those
Securities specified shall be counted for purposes of determining
whether the required percentage set forth in the second sentence of
this paragraph has been met.
(b) Except to the extent otherwise provided in the terms of
the Securities, the following provisions shall apply to meetings of
Holders:
(i) notice of any such meeting shall be given to all the
Holders having a right to vote thereat at least
seven days and not more than 60 days before the date
of such meeting. Whenever a vote, consent or
approval of the Holders is permitted or required
under this Declaration or the rules of any stock
exchange on which the Preferred Securities are
listed or admitted for trading, such vote, consent
or approval may be given at a meeting of the
Holders. Any action that may be taken at a meeting
of the Holders may be taken without a meeting if a
consent in writing setting forth the action so
taken is signed by the Holders owning not less than
the minimum amount of Securities in liquidation
amount that would be necessary to authorize or take
such action at a meeting at which all Holders having
a right to vote thereon were present and voting.
Prompt notice of the taking of action without a
meeting shall be given to the Holders entitled to
vote who have not consented in writing. The Regular
Trustees may specify that any written ballot
submitted to the Holders for the purpose of taking
any action without a meeting shall be returned to
the Trust within the time specified by the Regular
Trustees;
(ii) each Holder may authorize any Person to act for it
by proxy on all matters in which a Holder is
entitled to participate, including waiving notice of
any meeting, or voting or participating at a
meeting. No proxy shall be valid after the
expiration of 11 months from the date thereof unless
otherwise provided in the proxy. Every proxy shall
be revocable at the pleasure of the Holder executing
it. Except as otherwise provided herein, all
matters relating to the giving, voting or validity
of proxies shall be governed by the General
Corporation Law of the State of Delaware relating to
proxies, and judicial interpretations thereunder, as
if the Trust were a Delaware corporation and the
Holders were stockholders of a Delaware corporation;
(iii) each meeting of the Holders shall be conducted by
the Regular Trustees or by such other Person that
the Regular Trustees may designate; and
(iv) unless the Business Trust Act, this Declaration, the
terms of the Securities, the Trust Indenture Act or
the listing rules of any stock exchange on which the
Preferred Securities are then listed or trading
otherwise provides, the Regular Trustees, in their
sole discretion, shall establish all other
provisions relating to meetings of Holders,
including notice of the time, place or purpose of
any meeting at which any matter is to be voted on by
any Holders, waiver of any such notice, action by
consent without a meeting, the establishment of a
record date, quorum requirements, voting in person
or by proxy or any other matter with respect to the
exercise of any such right to vote.
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ARTICLE XIII
REPRESENTATIONS OF INSTITUTIONAL TRUSTEE
AND DELAWARE TRUSTEE
SECTION 13.1 Representations and Warranties of Institutional
Trustee and Successor Institutional Trustee.
The Trustee that acts as initial Institutional Trustee
represents and warrants to the Trust and to the Sponsor at the date
of this Declaration, and each Successor Institutional Trustee
represents and warrants to the Trust and the Sponsor at the time of
the Successor Institutional Trustee's acceptance of its appointment
as Institutional Trustee, as applicable, that:
(a) such Institutional Trustee or Successor Institutional
Trustee satisfies the qualifications set forth in Section 5.3, and
has the trust power and authority to execute and deliver, and to
carry out and perform its obligations under the terms of, this
Declaration;
(b) the execution, delivery and performance by such
Institutional Trustee or Successor Institutional Trustee of this
Declaration has been duly authorized by all necessary corporate
action on the part of such Institutional Trust; and this
Declaration has been duly executed and delivered by such
Institutional Trustee or Successor Institutional Trustee, and
constitutes the legal, valid and binding obligation of such
Institutional Trustee or Successor Institutional Trustee,
enforceable against it in accordance with its terms, subject to
applicable bankruptcy, reorganization, moratorium, insolvency, and
other similar laws affecting creditors' rights generally and to
general principles of equity and the discretion of the court
(regardless of whether the enforcement of such remedies is
considered in a proceeding in equity or at law);
(c) the execution, delivery and performance of this
Declaration by such Institutional Trustee or Successor
Institutional Trustee does not conflict with or constitute a breach
of the Organization Certificate or By-laws (or similar governing
instruments) of such Institutional Trustee or Successor
Institutional Trustee;
(d) no consent, approval or authorization of, or registration
with or notice to, any State of New York or federal banking
authority is required for the execution, delivery or performance by
such Institutional Trustee or Successor Institutional Trustee of
this Declaration; and
(e) on the Closing Date, such Institutional Trustee will be
the record holder of the Debentures and the Institutional Trustee
has not and will not knowingly creat any liens or encumbrances on
such Debentures.
SECTION 13.2 Representations and Warranties of Delaware
Trustee or Successor Delaware Trustee.
The Trustee that acts as initial Delaware Trustee represents
and warrants to the Trust and to the Sponsor at the date of this
Declaration, and each Successor Delaware Trustee represents and
warrants to the Trust and the Sponsor at the time of the Successor
Delaware Trustee's acceptance of its appointment as Delaware
Trustee, that:
(a) The Delaware Trustee or Successor Delaware Trustee
satisfies the requirement of Section 5.2 and has the power and
authority to execute and deliver, and to carry out and perform its
obligations under the terms of, this Declaration.
(b) The Delaware Trustee or Successor Delaware Trustee has
been authorized by all requisite corporate action to execute and
deliver this Declaration and to perform its obligations under this
Declaration. This Declaration constitutes a legal, valid and
binding obligation of the Delaware Trustee or Successor
DelawareTrustee, enforceable against it in accordance with its
terms, subject to applicable bankruptcy, reorganization,
moratorium, insolvency, and other similar laws affecting creditors'
rights generally and to general principles of equity and the
discretion of the court (regardless of whether the enforcement of
such remedies is considered in a proceeding in equity or at law).
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(c) No consent, approval or authorization of, or registration
with or notice to, any State of Delaware or federal authority is
required for the execution, delivery or performance by the Delaware
Trustee or Successor Delaware Trustee of this Declaration.
ARTICLE XIV
MISCELLANEOUS
SECTION 14.1 Notices.
All notices provided for in this Declaration shall be in
writing, duly signed by the party giving such notice, and shall be
delivered, telecopied or mailed, by registered or certified mail,
as follows:
(a) if given to the Trust, in care of the Regular Trustees at
the Trust's mailing address set forth below (or such other address
as the Trust may give notice of to the Holders):
Potomac Electric Power Company Trust I
c/o Potomac Electric Power Company
1900 Pennsylvania Avenue, N.W.
Washington, D.C. 20068
Attention: Treasurer
(b) if given to the Delaware Trustee, at the mailing address
set forth below (or such other address as the Delaware Trustee may
give notice of to the Holders):
The Bank of New York (Delaware)
White Clay Center
Route 273
Newark, Delaware 19711
Attention: Corporate Trust Department
(c) if given to the Institutional Trustee, at the
Institutional Trustee's mailing address set forth below (or such
other address as the Institutional Trustee may give notice of to
the Holders):
The Bank of New York
101 Barclay Street
21st Floor West
New York, NY10286
Attention: Corporate Trust Trustee Administration
(d) if given to the Holder of the Common Securities, at the
mailing address of the Sponsor set forth below (or such other
address as the Holder of the Common Securities may give notice to
the Trust):
Potomac Electric Power Company
1900 Pennsylvania Avenue, N.W.
Washington, D.C. 20068
Attention: Associate General Counsel
(e) if given to any other Holder, at the address set forth on
the books and records of the Trust.
All such notices shall be deemed to have been given when
received in person, telecopied with receipt confirmed, or mailed by
first class mail, postage prepaid, except that if a notice or other
document is refused delivery or cannot
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be delivered because of a changed address of which no notice was
given, such notice or other document shall be deemed to have been
delivered on the date of such refusal or inability to deliver.
SECTION 14.2 Governing Law.
THIS DECLARATION AND THE RIGHTS OF THE PARTIES HEREUNDER SHALL
BE GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF DELAWARE AND ALL RIGHTS AND REMEDIES SHALL BE GOVERNED BY
SUCH LAWS WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS.
SECTION 14.3 Intention of the Parties.
It is the intention of the parties hereto that the Trust be
classified for United States federal income tax purposes as a
grantor trust. The provisions of this Declaration shall be
interpreted to further this intention of the parties.
SECTION 14.4 Headings.
Headings contained in this Declaration are inserted for
convenience of reference only and do not affect the interpretation
of this Declaration or any provision hereof.
SECTION 14.5 Successors and Assigns.
Whenever in this Declaration any of the parties hereto is
named or referred to, the successors and assigns of such party
shall be deemed to be included, and all covenants and agreements in
this Declaration by the Sponsor and the Trustees shall bind and
inure to the benefit of their respective successors and assigns,
whether so expressed.
SECTION 14.6 Partial Enforceability.
If any provision of this Declaration, or the application of
such provision to any Person or circumstance, shall be held
invalid, the remainder of this Declaration, or the application of
such provision to persons or circumstances other than those to
which it is held invalid, shall not be affected thereby.
SECTION 14.7 Counterparts.
This Declaration may contain more than one counterparts of the
signature page and this Declaration may be executed by the affixing
of the signature of each of the Trustees to one of such counterpart
signature pages. All of such counterpart signature pages shall be
read as though one, and they shall have the same force and effect
as though all of the signers had signed a single signature page.
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IN WITNESS WHEREOF, the undersigned has caused these presents
to be executed as of the day and year first above written.
_______________________________
[ ], as Regular Trustee
_______________________________
[ ], as Regular Trustee
_______________________________
[ ], as Regular Trustee
THE BANK OF NEW YORK (DELAWARE),
as Delaware Trustee
By: _________________________
Name:
Title:
THE BANK OF NEW YORK,
as Institutional Trustee
By: ________________________
Name:
Title:
POTOMAC ELECTRIC POWER COMPANY,
as Sponsor
By: ________________________
Name:
Title:
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ANNEX I
TERMS OF
[ ]% PREFERRED SECURITIES
[ ]% COMMON SECURITIES
Pursuant to Section 7.1 of the Amended and Restated
Declaration of Trust, dated as of ________, 1998 (as amended from
time to time, the "Declaration"), the designation, rights,
privileges, restrictions, preferences and other terms and
provisions of the Securities are set out below (each capitalized
term used but not defined herein has the meaning set forth in the
Declaration):
1. Designation and Number.
(a) Preferred Securities. [ ] Preferred Securities of
the Trust with an aggregate stated liquidation amount with respect
to the assets of the Trust of [ ]Dollars ($______) and a
stated liquidation amount with respect to the assets of the Trust
of $25 per Preferred Security, are hereby designated for the
purposes of identification only as "___% Preferred Securities."
The Preferred Security Certificates evidencing the Preferred
Securities shall be substantially in the form of Exhibit A-1 to the
Declaration, with such changes and additions thereto or deletions
therefrom as may be required by ordinary usage, custom or practice
or to conform to the rules of any stock exchange on which the
Preferred Securities are listed.
(b) Common Securities. [ ] Common Securities of the
Trust with an aggregate stated liquidation amount with respect to
the assets of the Trust of [ ] Dollars ($______) and a stated
liquidation amount with respect to the assets of the Trust of $25
per Common Security, are hereby designated for the purposes of
identification only as "[ ]% Common Securities." The Common
Security Certificates evidencing the Common Securities shall be
substantially in the form of Exhibit A-2 to the Declaration, with
such changes and additions thereto or deletions therefrom as may be
required by ordinary usage, custom or practice.
(c) The Preferred Securities and the Common Securities
represent undivided beneficial interests in the assets of the
Trust.
(d) In connection with the sale of the Securities, the
Sponsor will deposit in the Trust, and the Trust will purchase with
the proceeds of the sale of the Securities, to be held as trust
assets, Debentures having an aggregate principal amount equal to
$[ ], and bearing interest at an annual rate equal to the
annual Coupon Rate (as defined herein) on the Preferred Securities
and Common Securities and having payment and redemption provisions
which correspond to the payment and redemption provisions of the
Preferred Securities and Common Securities.
2. Distributions.
(a) Distributions payable on each Security will be fixed at
a rate per annum of [ ]% (the "Coupon Rate") of the stated
liquidation amount of $25 per Security, such rate being the rate of
interest payable on the Debentures to be held by the Institutional
Trustee. Distributions in arrears for more than one quarterly
period will bear interest thereon (to the extent permitted by
applicable law), compounded quarterly, at a rate equal to the
Coupon Rate. The term "Distributions" as used herein includes, as
applicable, any Compound Interest (as defined herein). A
Distribution will be made by the Institutional Trustee only to the
extent that payments are made in respect of the Debentures held by
the Institutional Trustee and to the extent the Trust has funds
available in the Institutional Trustee Account. The amount of
Distributions payable for any period will be computed for any full
quarterly period on the basis of a 360-day year of twelve 30-day
months, and for any period shorter than a full quarterly period on
the basis of the actual number of days elapsed.
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(b) Distributions on the Securities will be cumulative, will
accrue from ________, 1998 and, except during an Extension Period,
will be payable quarterly in arrears, on March 1, June 1,
September 1 and December 1 of each year, commencing on September 1,
1998, when, as and if available for payment (a "Distribution
Payment Date") . So long as the Debenture Issuer shall not be in
default in the payment of interest on the Debentures, the Debenture
Issuer has the right under the Indenture to defer payments of
interest on the Debentures by extending from time to time the
interest payment period on the Debentures for a period not
exceeding 20 consecutive quarterly periods (each an "Extension
Period"), during which Extension Period no interest shall be due
and payable on the Debentures, provided that no Extension Period
shall extend beyond the Stated Maturity of the Debentures. As a
consequence of such deferral, Distributions also will be deferred
for the duration of such Extension Period. Despite such deferral,
quarterly Distributions will continue to accrue, with interest
thereon (to the extent permitted by applicable law) at a rate equal
to the Coupon Rate, compounded quarterly, during the Extension
Period ("Compound Interest"). Prior to the termination of any such
Extension Period, the Debenture Issuer may further defer payments
of interest by further extensing the interest payment period;
provided that such Extension Period, together with all such
previous and further extensions thereof, may not exceed 20
consecutive quarterly periods or extend beyond the Stated Maturity
of the Debentures. All Distributions (including Compound Interest)
accrued during the Extenstion Period shall be paid on the first
Distribution Payment Date following the Extension Period to the
Holders in whose names the Securities are registered on the
security register on the record date for such Distribution Payment
Date, if and to the extent that the corresponding payments are made
in respect of the Debentures. Upon the termination of any
Extension Period and the payment of all amounts then due, the
Debenture Issuer may commence a new Extension Period, subject to
the above limitations. In the event that the Debenture Issuer
exercises this deferral right, then (i) the Debenture Issuer shall
not declare or pay any dividend on, make a distribution with
respect to, or redeem, purchase or acquire, or make a liquidation
payment with respect to, any of its capital stock (other than (a)
purchases or acquisitions of shares of its common stock in
connection with the satisfaction by the Debenture Issuer of its
obligations under any employee benefit plans or any other
contractual obligation of the Debenture Issuer (other than a
contractual obligation ranking pari passu with or junior to the
Debentures) or (b) the purchase of fractional interests in shares
of the Debenture Issuer's capital stock pursuant to the conversion
or exchange provisions of such capital stock or the security being
converted or exchanged), (ii) the Debenture Issuer shall not make
any payment of interest, principal or premium, if any, on or repay,
repurchase or redeem any debt securities issued by the Debenture
Issuer that rank pari passu with or junior to such Debentures and
(iii) the Debenture Issuer shall not make any guarantee payments
with respect to the foregoing (other than pursuant to the Preferred
Securities Guarantee).
(c) Distributions on the Securities shall be payable promptly
by the Institutional Trustee, upon receipt of immediately available
funds, to the Holders thereof as they appear on the books and
records of the Trust on the relevant record dates, which will be,
as long as the Securities remain in book-entry form, one Business
Day prior to the relevant Distribution Payment Date or, in the
event the Securities are not in book-entry form, the tenth day of
the month prior to the month in which the relevant Distribution
Payment Date occurs. Distributions payable on any Securities that
are not punctually paid on the applicable Distribution Payment
Date, as a result of the Debenture Issuer having failed to make the
corresponding interest payment on the Debentures, will forthwith
cease to be payable to the Person in whose name such Securities are
registered on the relevant record date, and such defaulted
Distribution will instead be payable to the Person in whose name
such Securities are registered on the special record date
established by the Regular Trustees, which record date shall be the
same date as the special record date or other specified date
established for the payment of defaulted interest in accordance
with the Indenture; provided, however, that Distributions shall not
be considered payable on any Distribution Payment Date falling
within an Extension Period unless the Debenture Issuer has elected
to make a full or partial payment of interest accrued on the
Debentures on such Distribution Payment Date. Distributions on the
Securities shall be paid by the Trust. All Distributions paid with
respect to the Securities shall be paid on a Pro Rata basis to
Holders thereof entitled thereto. If any date on which a
Distribution is payable is not a Business Day, then payment of the
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Distribution payable on such date shall be made on the next
succeeding day that is a Business Day (and without any interest or
other payment in respect of any such delay), except that, if such
Business Day is in the next succeeding calendar year, such payment
shall be made on the immediately preceding Business Day, in each
case with the same force and effect as if made on the date such
Distribution otherwise was payable.
(d) In the event that there is any money or other property
held by or for the Trust that is not accounted for hereunder, such
property shall be distributed Pro Rata among the Holders.
3. Liquidation Distribution Upon Dissolution.
In the event of any voluntary or involuntary liquidation,
dissolution, winding-up or termination of the Trust (each a
"Liquidation"), the Holders on the date of the Liquidation will be
entitled to receive Pro Rata out of the assets of the Trust
available for distribution to Holders, after satisfaction of
liabilities of creditors, if any, distributions in an amount equal
to the aggregate of the stated liquidation amount of $25 per
Security, plus accrued and unpaid Distributions thereon to the date
of payment (the "Liquidation Distribution"), unless, in connection
with such Liquidation, Debentures in an aggregate stated principal
amount equal to the aggregate stated liquidation amount of such
Securities, with an interest rate equal to the Coupon Rate of, and
bearing accrued and unpaid interest in an amount equal to the
accrued and unpaid Distributions on, such Securities shall be
distributed on a Pro Rata basis to the Holders in exchange for such
Securities.
4. Redemption and Distribution.
(a) Redemption of the Securities will occur simultaneously
with any repayment of the Debentures. The Debentures will mature
on __________, 2038 (the "Stated Maturity"), and are prepayable as
set forth in this Section 4. Upon the repayment of the Debentures
in whole or in part, whether at maturity or upon redemption, the
proceeds from such repayment shall be simultaneously applied to
redeem Securities having an aggregate liquidation amount equal to
the aggregate principal amount of the Debentures so repaid.
Securities redeemed upon maturity of the Debentures will redeemed
at a redemption price, payable in cash, of $25 per Security, plus
an amount equal to accrued and unpaid Distributions thereon at the
date of redemption (the "Maturity Redemption Price"). If fewer
than all the outstanding Securities are to be so redeemed, the
Securities will be redeemed Pro Rata and the Preferred Securities
to be redeemed will be as described in Section 4(g)(ii) below.
(b) As provided in Section 3.1 of the First Supplemental
Indenture to the Indenture, the Debentures are prepayable, in whole
or in part, at the option of the Debenture Issuer at any time on or
after ______, 2003, at a prepayment price equal to 100% of the
principal amount thereof, plus accrued and unpaid interest thereon
(including any Compound Interest (as defined by the Indenture)), to
the date of prepaymen (the "Optional Prepayment Price").
(c) As provided in Section 3.2 of the First Supplemental
Indenture to the Indenture, if a Tax Event shall occur, the
Debenture Issuer may, at its option, prepay the Debentures in whole
(but not in part) at any time prior to ____, 2003, within 90 days
after the occurrence of such Tax Event, at a prepayment price equal
to 100% of the principal amount of such Debentures, plus accrued
and unpaid interest thereon (including any Compound Interest (as
defined by the Indenture)), to the date of prepayment (the "Tax
Event Prepayment Price").
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(d) The following term used herein shall be defined as
follows:
"Tax Event" means that the Regular Trustees shall have
received an opinion of a nationally recognized independent tax
counsel experienced in such matters to the effect that, as a result
of (a) any amendment to, or change (including any announced
prospective change) in, the laws or any regulations thereunder of
the United States or any political subdivision or taxing authority
thereof or therein, or (b) any official administrative
pronouncement or judicial decision interpreting or applying such
laws or regulations, which amendment or change is effective or such
pronouncement or decision is announced on or after the date of the
original issuance of the Securities, there is more than an
insubstantial risk that (i) the Trust is, or will be within 90 days
of the date of such opinion, subject to United States federal
income tax with respect to income received or accrued on the
Debentures, (ii) interest payable on the Debentures is not, or
within 90 days of the date thereof will not be, deductible by the
Debenture Issuer, in whole or in part, for United States federal
income tax purposes, or (iii) the Trust is, or will be within 90
days of the date thereof, subject to more than a de minimis amount
of other taxes, duties or other governmental charges.
(e) The Trust may not redeem fewer than all the outstanding
Securities unless all accrued and unpaid Distributions have been
paid on all Securities for all quarterly Distribution periods
terminating on or before the date of redemption.
(f) The Debenture Issuer has the right at any time to direct
the Trustees to liquidate the Trust and distribute the Debentures
to the Holders. If the Debentures are distributed to the Holders
and the Preferred Securities are then listed on an exchange, the
Debenture Issuer will use its best efforts to cause the Debentures
to be listed on the NYSE or on such other exchange as the Preferred
Securities are then listed.
On the date fixed for distribution of Debentures upon
dissolution of the Trust, (i) the Securities will no longer be
deemed to be outstanding, (ii) the Debenture Issuer shall deliver
to the Depository Institution or its nominee, as the recordholder
of the Preferred Securities, a registered global certificate or
certificates representing the Debentures to be delivered to the
Depository Institution or its nominee upon such distribution, and
(iii) any certificates representing Preferred Securities not held
by the Depository Institution or its nominee will be deemed to
represent Debentures having an aggregate principal amount equal to
the aggregate stated liquidation amount of such Preferred
Securities until such certificates are presented to the Debenture
Issuer or its transfer agent in exchange for Debentures.
(g) Redemption or Distribution Procedures.
(i) Notice of any redemption of the Securities, or notice
of distribution of Debentures in exchange for the
Securities prepared by the Trust (a
"Redemption/Distribution Notice") shall be given by the
Trust by mail to each Holder of Securities to be redeemed
or exchanged not fewer than 30 nor more than 60 days
before the date fixed for redemption or exchange thereof
which, in the case of a redemption, will be the date
fixed for repayment of the Debentures. For purposes of
the calculation of the date of redemption or exchange and
the dates on which notices are given pursuant to this
Section 4(g)(i), a Redemption/Distribution Notice shall
be deemed to be given on the day such notice is first
mailed by first-class mail, postage prepaid, to Holders.
Each Redemption/Distribution Notice shall be addressed to
the Holders at the address of each such Holder appearing
in the books and records of the Trust. No defect in the
Redemption/Distribution Notice or in the mailing of
either thereof with respect to any Holder shall affect
the validity of the redemption or exchange proceedings
with respect to any other Holder.
(ii) In the event that fewer than all the outstanding
Securities are to be redeemed, the Securities to be
redeemed shall be redeemed Pro Rata. In respect of
Preferred Securities
A-4
<PAGE>
registered in the name of and held of record by the
Depository Institution or its nominee, the distribution
of the proceeds of such redemption shall be made to each
Depository Institution Participant (or Person on whose
behalf such nominee holds such securities) in accordance
with the procedures applied by such agency or nominee.
(iii) If Securities are to be redeemed and the Trust gives a
Redemption/Distribution Notice, which notice may only be
issued if the Debentures are to be redeemed as set out in
this Section 4 (which notice will be irrevocable), then
prior to 12:00 noon, New York City time, on the
redemption date, the Debenture Issuer shall deposit with
one or more paying agents an amount of money sufficient
to redeem on the redemption date all the Securities
so called for redemption at the applicable Redemption
Price. If a Redemption/Distribution Notice shall have
been given and funds are deposited as required, then on
and after the date fixed for redemption, distributions
will cease to accrue on the Securities so called for
redemption. All rights of Holders of such Securities so
called for redemption will cease, except the right of the
Holders of such Securities to receive the applicable
Redemption Price. On presentation and surrender of such
Securities at a place of payment specified in said
notice, the Securities shall be paid and redeemed by the
Trust at the applicable Redemption Price. If any date
fixed for redemption of Securities is not a Business Day,
then payment of the Redemption Price shall be made on the
next succeeding day that is a Business Day (and without
any interest or other payment in respect of any such
delay) except that, if such Business Day falls in the
next calendar year, such payment shall be made on the
immediately preceding Business Day, in each case with the
same force and effect as if made on such date fixed for
redemption. If payment of the Redemption Price in
respect of any Securities is improperly withheld or
refused and not paid either by the Trust or by the
Sponsor as guarantor pursuant to the relevant Securities
Guarantee, Distributions on such Securities will continue
to accrue from the original redemption date to the actual
date of payment, in which case the actual payment date
will be considered the date fixed for redemption for
purposes of calculating the Redemption Price.
(iv) The Trust shall not be required to (i) register the
transfer or exchange of any Securities during a period
beginning at the opening of business 15 days before the
mailing of a notice of redemption of Securities and
ending at the close of business on the day of the
mailing of the notice of redemption or (ii) register
the transfer or exchange of any Securities so selected
for redemption, in whole or in part, except for the
unredeemed portion of any Securities being redeemed in
part.
(v) Subject to applicable law (including, without limitation,
United States securities laws), the Sponsor or any of its
subsidiaries may at any time and from time to time
purchase outstanding Preferred Securities by tender, in
the open market or by private agreement.
5. Voting Rights - Preferred Securities.
(a) Except as provided under Sections 5(b) and 7, and as
otherwise required by law and the Declaration, the Holders of the
Preferred Securities will have no voting rights.
(b) Subject to the requirements set forth in the immediately
following paragraph, the Holders of a majority in aggregate
liquidation amount of the Preferred Securities, voting separately
as a class, have the right to direct the time, method, and place of
conducting any proceeding for any remedy available to the
Institutional Trustee, or to direct the exercise of any trust or
power conferred upon the Institutional Trustee under the
Declaration, including the right to direct the Institutional
Trustee, as holder of the Debentures, to (i) exercise the remedies
available to it under the Indenture as holder of the Debentures,
(ii) waive any Indenture Event of Default and its consequences that
is waivable under the Indenture, (iii) exercise any
A-5
<PAGE>
right to rescind or annul a declaration that the principal of all
the Debentures shall be due and payable, or (iv) consent to any
amendment, modification or termination of the Indenture or the
Debentures where such consent shall be required; provided, however,
that, where a consent or action under the Indenture would require
the consent or act of a Super Majority, only the Holders of at
least such Super Majority in aggregate liquidation amount of the
Preferred Securities may direct the Institutional Trustee to give
such consent or take such action; and provided further, that where
a consent or action under the Indenture is only effective against
each holder of Debentures who has consented thereto, such consent
or action will only be effective against a holder of Preferred
Securities who directs the Institutional Trustee to give such
consent or take such action. A waiver of an Indenture Event of
Default will constitute a waiver of the corresponding Event of
Default. The Institutional Trustee shall not revoke any action
previously authorized or approved by a vote of the Holders of the
Preferred Securities. If the Institutional Trustee fails to
enforce its rights under the Debentures after a holder of record of
Preferred Securities has made a written request, such holder of
record of Preferred Securities may institute a legal proceeding
directly against the Debenture Issuer to enforce the Institutional
Trustee's rights under the Debentures without first instituting any
legal proceeding against the Institutional Trustee or any other
person or entity. Notwithstanding the foregoing, if an Event of
Default has occurred and is continuing and such event is
attributable to the failure of the Debenture Issuer to pay interest
or principal on the Debentures on the date such interest or
principal is otherwise payable (or in the case of redemption, on
the redemption date), then a Holder of Preferred Securities may
institute a Direct Action for enforcement of payment to such Holder
of the principal of or interest on the Debentures having a
principal amount equal to the aggregate liquidation amount of the
Preferred Securities o such holder on or after the respective due
dates specified in the Debentures. Notwithstanding any payments
made to such Holder of Preferred Securities by the Debenture Issuer
in connection with a Direct Action, the Debenture Issuer shall
remain obligated to pay the principal of or interest on the
Debentures held by the Trust or the Institutional Trustee of the
Trust, and the Debenture Issuer shall be subrogated to the rights
of the Holder of such Preferred Securities with respect to payments
on the Preferred Securities to the extent of any payments made by
the Debenture Issuer to such Holder in any Direct Action. Except
as provided in the preceding sentences, the Holders of Preferred
Securities will not be able under this Declaration to exercise
directly any other remedy available to the holders of the
Debentures.
Except with respect to directing the time, method and place of
conducting a proceeding for a remedy, the Institutional Trustee
shall not take any of the actions described in clauses (i), (ii) or
(iii) above unless the Institutional Trustee has received an
opinion of a nationally-recognized tax counsel experienced in such
matters to the effect that, as a result of such action, the Trust
will not fail to be classified as a grantor trust for United States
federal income tax purposes.
Any approval or direction of Holders of Preferred Securities
may be given at a separate meeting of Holders of Preferred
Securities convened for such purpose, at a meeting of all of the
Holders of Securities or pursuant to written consent. The Regular
Trustees shall cause a notice of any meeting at which Holders of
Preferred Securities are entitled to vote, or of any matter upon
which action by written consent of such Holders is to be taken, to
be mailed to each Holder of Preferred Securities. Each such notice
shall include a statement setting forth (i) the date of such
meeting or the date by which such action is to be taken, (ii) a
description of any resolution proposed for adoption at such meeting
on which such Holders are entitled to vote or of such matter upon
which written consent is sought and (iii) instructions for the
delivery of proxies or consents.
No vote or consent of the Holders of the Preferred Securities
will be required for the Trust to redeem and cancel Preferred
Securities or to distribute the Debentures in accordance with the
Declaration and the terms of the Securities.
Notwithstanding that Holders of Preferred Securities are
entitled to vote or consent under any of the circumstances
described above, any Preferred Securities that are owned by the
Sponsor or any Affiliate of the Sponsor shall not be entitled to
vote or consent and shall, for purposes of such vote or consent, be
A-6
<PAGE>
treated as if they were not outstanding.
Holders of the Preferred Securities have no right to appoint
or remove the Trustees, which may be appointed, removed or replaced
solely by the Holders of the Common Securities.
6. Voting Rights - Common Securities.
(a) Except as provided under Sections 6(b) and (c) and
Section 7, and as otherwise required by law and the Declaration,
the Holders of the Common Securities will have no voting rights.
(b) The Holders of the Common Securities are entitled,
in accordance with Article V of the Declaration, to vote to
appoint, remove or replace any Trustee or to increase or decrease
the number of Trustees.
(c)Subject to Section 2.6 of the Declaration and only after
the Event of Default with respect to the Preferred Securities has
been cured, waived, or otherwise eliminated and subject to the
requirements of the second to last sentence of this paragraph, the
Holders of a Majority in liquidation amount of the Common
Securities, voting separately as a class, have the right to direct
the time, method, and place of conducting any proceeding for any
remedy available to the Institutional Trustee, or to direct the
exercise of any trust or power conferred upon the Institutional
Trustee under the Declaration, including the right to direct the
Institutional Trustee, as holder of the Debentures, to (i) exercise
the remedy available under the Indenture as holder of the
Debentures, (ii) waive any Event of Default and its consequences
that is waivable under the Indenture, or (iii) exercise any right
to rescind or annul a declaration that the principal of all the
Debentures shall be due and payable; provided that, where a consent
or action under the Indenture would require the consent or act of
a Super Majority, the Institutional Trustee may only give such
consent or take such action at the written direction of the Holders
of at least the proportion in liquidation amount of the Common
Securities which the relevant Super Majority represents of the
aggregate principal amount of the Debentures outstanding; and
provided further, that where a consent or action under the
Indenture would require the consent or action of each holder of
Debentures, each holder of Common Securities must direct the
Institutional Trustee to give such consent or take such action.
Except with respect to directing the time, method and place of
conducting a proceeding for a remedy, the Institutional Trustee
shall not take any action in accordance with the directions of the
Holders of the Common Securities under this paragraph unless the
Institutional Trustee has received an opinion of a
nationally-recognized tax counsel experienced in such matters to
the effect that, as a result of such action, the Trust will not
fail to be classified as a grantor trust for United States federal
income tax purposes. If the Institutional Trustee fails to enforce
its rights under the Declaration after a holder of record of Common
Securities has made a written request, such holder of record of
Common Securities may institute a legal proceeding directly against
the Debenture Issuer to enforce the Institutional Trustee's rights
under the Declaration, without first instituting a legal proceeding
against the Institutional Trustee or any other Person.
Any approval or direction of Holders of Common Securities may
be given at a separate meeting of Holders of Common Securities
convened for such purpose, at a meeting of all of the Holders of
Securities or pursuant to written consent. The Regular Trustees
shall cause a notice of any meeting at which Holders of Common
Securities are entitled to vote, or of any matter upon which action
by written consent of such Holders is to be taken, to be mailed to
each Holder of Common Securities. Each such notice shall include a
statement setting forth (i) the date of such meeting or the date by
which such action is to be taken, (ii) a description of any
resolution proposed for adoption at such meeting on which such
Holders are entitled to vote or of such matter upon which written
consent is sought and (iii) instructions for the delivery of
proxies or consents.
No vote or consent of the Holders of the Common Securities
will be required for the Trust to redeem and cancel Common
Securities or to distribute the Debentures in accordance with the
Declaration and the terms
A-7
<PAGE>
of the Securities.
7. Amendments to Declaration and Indenture.
(a) In addition to any requirements under Section 12.1 of the
Declaration, if any proposed amendment to the Declaration provides
for, or the Regular Trustees otherwise propose to effect, (i) any
action that would adversely affect the powers, preferences or
special rights of the Securities, whether by way of amendment to
the Declaration or otherwise, or (ii) the dissolution, winding-up
or termination of the Trust, other than as provided for in Section
8.1 of the Declaration, then the Holders of outstanding Securities
voting together as a single class will be entitled to vote on such
amendment or proposal (but not on any other amendment or proposal)
and such amendment or proposal shall not be effective except with
the approval of the Holders of at least a Majority in liquidation
amount of the Securities affected thereby, provided, that, if any
amendment or proposal referred to in clause (i) above would
adversely affect only the Preferred Securities or only the Common
Securities, then only the affected class will be entitled to vote
on such amendment or proposal and such amendment or proposal shall
not be effective except with the approval of a Majority in
liquidation amount of such class of Securities.
(b) In the event the consent of the Institutional Trustee, as
the holder of the Debentures, is required under the Indenture with
respect to any amendment, modification or termination on the
Indenture, the Institutional Trustee shall request the written
direction of the Holders of the Securities with respect to such
amendment, modification or termination and shall vote with respect
to such amendment, modification or termination as directed by a
Majority in liquidation amount of the Securities voting together as
a single class; provided, however, that where a consent under the
Indenture would require the consent of a Super Majority, the
Institutional Trustee may only give such consent at the direction
of the Holders of at least the proportion in liquidation amount of
the Securities which the relevant Super Majority represents of the
aggregate principal amount of the Debentures outstanding; and
provided, further, that where a consent or action under the
Indenture is only effective against each holder of Debentures who
has consented thereto, such consent or action will only be
effective against a holder of Securities who directs the
Institutional Trustee to give such consent or take such action; and
provided, further, that the Institutional Trustee shall not take
any action in accordance with the directions of the Holders of the
Securities under this Section 7(b) unless the Institutional Trustee
has received an opinion of a nationally recognized tax counsel
experienced in such matters to the effect that for the purposes of
United States federal income tax the Trust will not be classified
as other than a grantor trust on account of such action.
(c) Notwithstanding the foregoing, no amendment or
modification shall be made to the Declaration if such amendment or
modification would (i) cause the Trust to be classified for
purposes of United States federal income taxation as other than a
grantor trust, (ii) reduce or otherwise adversely affect the powers
of the Institutional Trustee or (iii) cause the Trust to be deemed
an Investment Company that is required to be registered under the
Investment Company Act.
8. Pro Rata.
A reference in these terms of the Securities to any payment,
distribution or treatment as being "Pro Rata" shall mean pro rata
to each Holder according to the aggregate stated liquidation amount
of the Securities held by the relevant Holder in relation to the
aggregate stated liquidation amount of all Securities outstanding
unless, in relation to a payment, an Event of Default has occurred
and is continuing, in which case any funds available to make such
payment shall be paid first to each Holder of the Preferred
Securities pro rata according to the aggregate stated liquidation
amount of Preferred Securities held by the relevant Holder relative
to the aggregate stated liquidation amount of all Preferred
Securities outstanding, and only after satisfaction of all amounts
owed to the Holders of the Preferred Securities, to each Holder of
Common Securities pro rata according to the aggregate stated
liquidation amount of Common Securities held by the relevant Holder
relative to the aggregate stated liquidation amount of all Common
Securities outstanding.
A-8
<PAGE>
9. Ranking.
The Preferred Securities rank pari passu, and payment thereon
shall be made Pro Rata, with the Common Securities, except that, if
an Event of Default occurs and is continuing, the rights of Holders
of the Common Securities to receive payment of Distributions and
payments upon liquidation, redemption and otherwise will be
subordinated to the rights of the Holders of the Preferred
Securities.
10. Acceptance of Securities Guarantee and Indenture.
Each Holder of Preferred Securities and Common Securities, by
the acceptance thereof, agrees to the provisions of the Preferred
Securities Guarantee and the Common Securities Guarantee,
respectively, including the subordination provisions therein, and
to the provisions of the Indenture.
11. No Preemptive Rights.
The Holders shall have no preemptive rights to subscribe for
any additional securities.
12. Miscellaneous.
These terms constitute a part of the Declaration.
The Sponsor will provide a copy of the Declaration, the
Preferred Securities Guarantee or the Common Securities Guarantee,
and the Indenture to a Holder without charge on written request to
the Sponsor at its principal place of business.
A-9
<PAGE>
EXHIBIT A-1
FORM OF PREFERRED SECURITY CERTIFICATE
Certificate Number[ ] Number of Preferred Securities[ ]
CUSIP NO. [ ]
Certificate Evidencing Preferred Securities
of
POTOMAC ELECTRIC POWER COMPANY TRUST I
[ ]% Preferred Securities
(liquidation amount $25 per Preferred Security)
POTOMAC ELECTRIC POWER COMPANY TRUST I, a statutory business
trust formed under the laws of the State of Delaware (the "Trust"),
hereby certifies that ______________ (the "Holder") is the
registered owner of preferred securities of the Trust representing
undivided beneficial interests in the assets of the Trust
designated the [ ]% Preferred Securities (liquidation amount $25
per Preferred Security) (the "Preferred Securities"). The
Preferred Securities are transferable on the books and records of
the Trust, in person or by a duly authorized attorney, upon
surrender of this certificate duly endorsed and in proper form for
transfer. The designation, rights, privileges, restrictions,
preferences and other terms and provisions of the Preferred
Securities represented hereby are issued under, and shall in all
respects be subject to, the provisions of the Amended and Restated
Declaration of Trust of the Trust dated as of _______, 1998, as the
same may be amended from time to time (the "Declaration"),
including the designation of the terms of the Preferred Securities
as set forth in Annex I to the Declaration. Capitalized terms used
herein but not defined shall have the meaning given them in the
Declaration. The Holder is entitled to the benefits of the
Preferred Securities Guarantee to the extent provided therein. The
Sponsor will provide a copy of the Declaration, the Preferred
Securities Guarantee and the Indenture to the Holder without charge
upon written request to the Trust at its principal place of
business.
Upon receipt of this certificate, the Holder is bound by the
Declaration and is entitled to the benefits thereunder.
By acceptance hereof, the Holder agrees to treat, for United
States federal income tax purposes, the Debentures as indebtedness
and the Preferred Securities as evidence of indirect beneficial
ownership in the Debentures.
Unless the Institutional Trustee's Certificate of
Authentication hereon has been properly executed, these Preferred
Securities shall not be entitled to any benefit under the
Declaration or be valid or obligatory for any purpose.
A1-1
<PAGE>
IN WITNESS WHEREOF, the Trust has executed this certificate
this ___ day of ____________, 1998.
POTOMAC ELECTRIC POWER
COMPANY TRUST I
By:
Name:
Title: Regular Trustee
A1-2
<PAGE>
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Preferred Securities referred to in the
within-mentioned Declaration.
Dated _____________, ________
THE BANK OF NEW YORK,
as Institutional Trustee
By:
Authorized Signatory
A1-3
<PAGE>
[FORM OF REVERSE OF SECURITY]
Distributions payable on each Preferred Security will be fixed
at a rate per annum of [ ]% (the "Coupon Rate") of the stated
liquidation amount of $25 per Preferred Security, such rate being
the rate of interest payable on the Debentures to be held by the
Institutional Trustee. Distributions in arrears for more than one
quarterly period (to the extent permitted by applicable law) will
bear interest thereon, compounded quarterly, at the Coupon Rate.
A Distribution will be made by the Institutional Trustee only to
the extent that payments are made in respect of the Debentures held
by the Institutional Trustee and to the extent the Institutional
Trustee has funds available in the Institutional Trustee Account.
The amount of Distributions payable for any period will be computed
for any full quarterly Distribution period on the basis of a
360-day year of twelve 30-day months and for any period shorter
than a full quarterly Distribution period on the basis of the
actual number of days elapsed.
Distributions on the Preferred Securities will be cumulative,
will accrue from the date of original issuance and, except during
an Extension Period, will be payable quarterly in arrears on
March 1, June 1, September 1 and December 1 of each year,
commencing on September 1, 1998, to Holders on the relevant record
dates, which will be, as long as the Preferred Securities remain in
book-entry form, one Business Day prior to the relevant
distribution date and, in the event the Preferred Securities are
not in book-entry form, the tenth day of the month prior to the
month in which the relevant distribution date occurs, which payment
dates shall correspond to the interest payment dates on the
Debentures. The Debenture Issuer has the right under the Indenture
to defer payments of interest by extending the interest payment
period from time to time on the Debentures for a period not
exceeding 20 consecutive quarterly periods (each an "Extension
Period"), provided that no Extension Period shall extend beyond the
date of the maturity of the Debentures and, as a consequence of
such deferral, quarterly Distributions will also be deferred.
During the Extension Period, quarterly Distributions will continue
to accrue with interest thereon (to the extent permitted by
applicable law) at the Coupon Rate, compounded quarterly. Prior to
the termination of any such Extension Period, the Debenture Issuer
may further defer payments of interest by further extending the
interest payment period; provided that such Extension Period,
together with all such previous and further extensions thereof, may
not exceed 20 consecutive quarterly periods or extend beyond the
maturity of the Debentures. Payments of accrued Distributions will
be payable on the first distribution payment date following the
Extension Period to Holders as they appear on the books and records
of the Trust on the record date for such payment date. Upon the
termination of any Extension Period and the payment of all amounts
then due, the Debenture Issuer may commence a new Extension Period,
subject to the above limitations.
The Preferred Securities shall be redeemable as provided in
the Declaration.
A1-4
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers this
Preferred Security Certificate to:
(Insert assignee's social security or tax identification number)
(Insert address and zip code of assignee)
and irrevocably appoints _____________________________________
to transfer this Preferred Security Certificate on the books
of the Trust. The agent may substitute another to act for him or
her.
Date:
Signature:
(Sign exactly as your name
appears on the other side of
this Preferred Security
Certificate)
(Signature(s) must be guaranteed
by an "eligible guarantor
institution" meeting the
requirements of the Trustee,
which requirements include
membership or participation in
STAMP or such other "signature
guaranty program" as may be
determined by the Trustee in
addition to or in substitution
for STAMP, all in accordance
with the Securities Exchange
Act of 1934, as amended.)
A1-5
<PAGE>
EXHIBIT A-2
FORM OF COMMON SECURITY CERTIFICATE
Certificate Number[ ] Number of Common Securities [ ]
Certificate Evidencing Common Securities
of
POTOMAC ELECTRIC POWER COMPANY TRUST I
[ ]% Common Securities
(liquidation amount $25 per Common Security)
POTOMAC ELECTRIC POWER COMPANY TRUST I, a statutory business
trust formed under the laws of the State of Delaware (the "Trust"),
hereby certifies that _________________ (the "Holder") is the
registered owner of common securities of the Trust representing
undivided beneficial interests in the assets of the Trust
designated the [ ]% Common Securities (liquidation amount $25 per
Common Security) (the "Common Securities"). The Common Securities
are transferable on the books and records of the Trust, in person
or by a duly authorized attorney, upon surrender of this
certificate duly endorsed and in proper form for transfer. The
designation, rights, privileges, restrictions, preferences and
other terms and provisions of the Common Securities represented
hereby are issued under, and shall in all respects be subject to,
the provisions of the Amended and Restated Declaration of Trust of
the Trust dated as of _________, 1998, as the same may be amended
from time to time (the "Declaration"), including the designation of
the terms of the Common Securities as set forth in Annex I to the
Declaration. Capitalized terms used herein but not defined shall
have the meaning given them in the Declaration. The Holder is
entitled to the benefits of the Common Securities Guarantee to
the extent provided therein. The Sponsor will provide a copy of the
Declaration, the Common Securities Guarantee and the Indenture to
the Holder without charge upon written request to the Sponsor at
its principal place of business.
Upon receipt of this certificate, the Holder is bound by the
Declaration and is entitled to the benefits thereunder.
By acceptance hereof, the Holder agrees to treat, for United
States federal income tax purposes, the Debentures as indebtedness
and the Common Securities as evidence of indirect beneficial
ownership in the Debentures.
Unless the Institutional Trustee's Certificate of
Authentication hereon has been properly executed, these Common
Securities shall not be entitled to any benefit under the
Declaration or be valid or obligatory for any purpose.
A2-1
<PAGE>
IN WITNESS WHEREOF, the Trust has executed this certificate
this ___ day of ____________, 1998.
POTOMAC ELECTRIC POWER
COMPANY TRUST I
By:
Name:
Title: Regular Trustee
A2-2
<PAGE>
[FORM OF REVERSE OF SECURITY]
Distributions payable on each Common Security will be fixed at
a rate per annum of [ ]% (the "Coupon Rate") of the stated
liquidation amount of $25 per Common Security, such rate being the
rate of interest payable on the Debentures to be held by the
Institutional Trustee. Distributions in arrears for more than one
quarterly period will (to the extent permitted by law) bear
interest thereon, compounded quarterly, at the Coupon Rate. A
Distribution will be made by the Institutional Trustee only to the
extent that payments are made in respect of the Debentures held by
the Institutional Trustee and to the extent the Institutional
Trustee has funds available in the Institutional Trustee Account.
The amount of Distributions payable for any period will be computed
for any full quarterly Distribution period on the basis of a
360-day year of twelve 30-day months and for any period shorter
than a full quarterly Distribution period on the basis of the
actual number of days elapsed.
Distributions on the Common Securities will be cumulative,
will accrue from the date of original issuance and, except during
an Extension Period, will be payable quarterly in arrears, on
March 1, June 1, September 1 and December 1 of each year,
commencing on September 1, 1998, to Holders on the relevant record
dates, which will be one Business Day prior to the relevant payment
date, which payment dates shall correspond to the interest payment
dates on the Debentures. The Debenture Issuer has the right under
the Indenture to defer payments of interest by extending the
interest payment period from time to time on the Debentures for a
period not exceeding 20 consecutive quarterly periods (each an
"Extension Period"), provided that no Extension Period shall extend
beyond the date of the maturity of the Debentures and, as a
consequence of such deferral, Quarterly distributions will also be
deferred. During the Extension Period, quarterly Distributions will
continue to accrue with interest thereon (to the extent permitted
by applicable law) at the Coupon Rate, compounded quarterly. Prior
to the termination of any such Extension Period, the Debenture
Issuer may further defer payments of interest by further extending
the interest payment period; provided that such Extension Period,
together with all such previous and further extensions thereof, may
not exceed 20 consecutive quarterly periods or extend beyond the
maturity date of the Debentures. Payments of accrued Distributions
will be payable on the first distribution date following the
Extension Period to Holders as they appear on the books and records
of the Trust on the record date for such payment date. Upon the
termination of any Extension Period and the payment of all amounts
then due, the Debenture Issuer may commence a new Extension Period,
subject to the above limitations.
The Common Securities shall be redeemable as provided in the
Declaration.
A2-3
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers this
Common Security Certificate to:
(Insert assignee's social security or tax identification number)
(Insert address and zip code of assignee)
and irrevocably appoints _________________________________ to
transfer this Common Security Certificate on the books of the
Trust. The agent may substitute another to act for him or her.
Date:
Signature:
(Sign exactly as your name
appears on the other side of
this Common Security
Certificate)
(Signature(s) must be
guaranteed by an "eligible
guarantor institution" meeting
the requirements of the Trustee,
which requirements include
membership or participation in
STAMP or such other "signature
guaranty program" as may be
determined by the Trustee in
addition to or in substitution
for STAMP, all in accordance
with the Securities Exchange
Act of 1934, as amended.)
A2-4
<PAGE>
EXHIBIT B
SPECIMEN OF DEBENTURE
B-1
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EXHIBIT C
PURCHASE AGREEMENT
C-1
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FIRST SUPPLEMENTAL INDENTURE
between
POTOMAC ELECTRIC POWER COMPANY
and
THE BANK OF NEW YORK, as Trustee
Dated as of __________, 1998
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TABLE OF CONTENTS*
Page
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ARTICLE I
DEFINITIONS
SECTION 1.1 Definition of Terms 1
ARTICLE II
GENERAL TERMS AND CONDITIONS OF THE DEBENTURES
SECTION 2.1 Designation and Principal Amount 3
SECTION 2.2 Maturity 3
SECTION 2.3 Form and Payment 3
SECTION 2.4 Global Debenture 3
SECTION 2.5 Interest 4
ARTICLE III
REDEMPTION OF THE DEBENTURES
SECTION 3.1 Optional Redemption 5
SECTION 3.2 Tax Event Redemption 5
SECTION 3.3 Redemption Procedures 5
SECTION 3.4 No Sinking Fund 5
ARTICLE IV
EXTENSION OF INTEREST PAYMENT PERIOD
SECTION 4.1 Extension of Interest Payment Period 5
SECTION 4.2 Notice of Extension 6
SECTION 4.3 Limitation of Transactions 6
ARTICLE V
EXPENSES
SECTION 5.1 Payment of Expenses 6
SECTION 5.2 Payment Upon Resignation or Removal 7
ARTICLE VI
COVENANT TO LIST ON EXCHANGE
SECTION 6.1 Listing on an Exchange 7
ARTICLE VII
FORM OF DEBENTURE
SECTION 7.1 Form of Debenture 8
*THIS TABLE OF CONTENTS SHALL NOT, FOR ANY PURPOSE, BE DEEMED TO BE A PART OF
THIS FIRST SUPPLEMENTAL INDENTURE.
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ARTICLE VIII
ORIGINAL ISSUE OF DEBENTURES
SECTION 8.1 Original Issue of Debentures 12
ARTICLE IX
MISCELLANEOUS
SECTION 9.1 Ratification of Indenture 12
SECTION 9.2 Trustee Not Responsible for Recitals 12
SECTION 9.3 Governing Law 12
SECTION 9.4 Separability 12
SECTION 9.5 Counterparts 13
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FIRST SUPPLEMENTAL INDENTURE, dated as of _________, 1998 (the "First
Supplemental Indenture"), between Potomac Electric Power Company, a District
of Columbia and Virginia corporation (the "Company"), and The Bank of New
York, a New York banking corporation, as trustee (the "Trustee"), under the
Indenture dated as of ______, 1998 between the Company and the Trustee (the
"Indenture").
WHEREAS, the Company executed and delivered the Indenture to the Trustee to
provide for the future issuance of the Company's junior subordinated unsecured
debentures, notes and other evidences of indebtedness to be issued from time
to time in one or more series as may be determined by the Company under the
Indenture, in an unlimited aggregate principal amount that may be
authenticated and delivered as provided in the Indenture;
WHEREAS, pursuant to the terms of the Indenture, the Company desires to
provide for the establishment of a new series of such securities to be known
as its [ ]% Junior Subordinated Deferrable Interest Debentures due 2038 (the
"Debentures"), the form and substance of such Debentures and the terms,
provisions and conditions thereof to be set forth as provided in the Indenture
and this First Supplemental Indenture;
WHEREAS, Potomac Electric Power Company Trust I, a Delaware statutory
business trust (the "Trust"), has offered to the public $[ ] aggregate
liquidation amount of its [ ]% Preferred Securities (the "Preferred
Securities"), representing preferred undivided beneficial interests in the
assets of the Trust, and proposes to invest the proceeds from such offering,
together with the proceeds of the issuance and sale by the Trust to the
Company of $[ ] aggregate liquidation amount of its [ ]% Common
Securities (the "Common Securities"), in $[ ] aggregate principal
amount of the Debentures; and
WHEREAS, the Company has requested that the Trustee execute and deliver
this First Supplemental Indenture, and all requirements necessary to make this
First Supplemental Indenture a valid instrument in accordance with its terms,
and to make the Debentures, when executed by the Company and authenticated and
delivered by the Trustee, the valid obligations of the Company, have been
performed, and the execution and delivery of this First Supplemental Indenture
has been duly authorized in all respects.
NOW, THEREFORE, in consideration of the purchase and acceptance of the
Debentures by the Holder (as defined herein) thereof, and for the purpose of
setting forth, as provided in the Indenture, the form and substance of the
Debentures and the terms, provisions and conditions thereof, the Company
covenants and agrees with the Trustee as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. Definition of Terms.
Unless the context otherwise requires:
(a) a term defined in the Indenture has the same meaning when used in
this First Supplemental Indenture;
(b) a term defined anywhere in this First Supplemental Indenture has the
same meaning throughout;
(c) the singular includes the plural and vice versa;
(d) a reference to a Section or Article is to a Section or Article of
this First Supplemental Indenture;
(e) headings are for convenience of reference only and do not affect
interpretation;
(f) the following terms have the meanings given to them in the
Declaration (as hereinafter defined): (i) Purchase Agreement; (ii) Delaware
Trustee; (iii) Distribution; (iv) Institutional Trustee; (v) Preferred
Securities Guarantee; (vi) Preferred Security Certificate; (vii) Regular
Trustee; and (viii) Trust Securities.
(g) the following terms have the meanings given to them in this Section
1.1(g):
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"Additional Interest" shall have the meaning set forth in Section 2.5(c).
"Compound Interest" shall have the meaning set forth in Section 4.1.
"Coupon Rate" shall have the meaning set forth in Section 2.5(a).
"Creditor" shall have the meaning set forth in Section 5.1.
"Declaration" means the Amended and Restated Declaration of Trust of
Potomac Electric Power Company Trust I, a Delaware statutory business trust,
dated as of _________, 1998.
"Deferred Interest" shall have the meaning set forth in Section 4.1.
"Dissolution Event" means the dissolution of the Trust and distribution of
the Debentures held by the Institutional Trustee pro rata to the holders of
the Trust Securities in accordance with the Declaration, such event to occur
at the option of the Company at any time.
"Extended Interest Payment Period" shall have the meaning set forth in
Section 4.1.
"Global Debenture" shall have the meaning set forth in Section 2.4(a).
"Holder" means any person in whose name at the time a Debenture is
registered on the Security Register.
"Interest Payment Date" shall have the meaning set forth in Section 2.5(a).
"Non Book-Entry Preferred Securities" shall have the meaning set forth in
Section 2.4(a).
"Optional Prepayment Price" shall have the meaning set forth in Section
3.1.
"Prepayment Price" shall mean either of the Optional Prepayment Price or
the Tax Event Prepayment Price.
"Stated Maturity" means the date on which the Debentures mature and on
which the principal shall be due and payable, together with all accrued and
unpaid interest thereon (including Compound Interest and Additional Interest,
if any) which date shall be ________, 2038.
"Tax Event" means that the Regular Trustees shall have received an opinion
of a nationally recognized independent tax counsel experienced in such matters
to the effect that, as a result of (a) any amendment to, or change (including
any announced prospective change) in, the laws or any regulations thereunder
of the United States or any political subdivision or taxing authority thereof
or therein, or (b) any official administrative pronouncement or judicial
decision interpreting or applying such laws or regulations, which amendment or
change is effective or such pronouncement or decision is announced on or after
the date of the original issuance of the Trust Securities, there is more than
an insubstantial risk that (i) the Trust is, or will be within 90 days of the
date of such opinion, subject to United States federal income tax with respect
to income received or accrued on the Debentures, (ii) interest payable by the
Company on the Debentures is not, or within 90 days of the date of such
opinionwill not be, deductible by the Company, in whole or in part, for United
States federal income tax purposes, or (iii) the Trust is, or will be within
90 days of the date of such opinion, subject to more than a de minimis amount
of other taxes, duties or other governmental charges.
"Tax Event Prepayment Price" shall have the meaning set forth in Section
3.2.
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ARTICLE II
GENERAL TERMS AND CONDITIONS OF THE DEBENTURES
SECTION 2.1. Designation and Principal Amount.
There is hereby authorized a series of Securities designated the "[ ]%
Junior Subordinated Deferrable Interest Debentures due 2038", limited in
aggregate principal amount to $[ ], which amount shall be as set
forth in any written order of the Company for the authentication and delivery
of Debentures pursuant to Section 2.04 of the Indenture.
SECTION 2.2. Maturity.
(a) The Debentures shall mature on the Stated Maturity.
SECTION 2.3. Form and Payment.
Except as provided in Section 2.4, the Debentures shall be issued in fully
registered certificated form without interest coupons. Principal and interest
on the Debentures issued in certificated form will be payable, the transfer of
such Debentures will be registrable and such Debentures will be exchangeable
for Debentures bearing identical terms and provisions at the office or agency
of the Trustee in New York, New York; provided, however, that payment of
interest may be made, at the option of the Company, by check mailed to the
Holder entitled thereto at such address as shall appear in the Security
Register or by wire transfer to an account appropriately designated by the
Holder entitled thereto. Notwithstanding the foregoing, so long as the Holder
of any Debentures is the Institutional Trustee, the payment of the principal
of and interest (including Compound Interest and Additional Interest, if any)
on such Debentures held by the Institutional Trustee will be made at such
place and to such account as may be designated by the Institutional Trustee.
SECTION 2.4. Global Debenture.
(a) In connection with a Dissolution Event,
(i) the Debentures in certificated form shall be presented to the
Trustee by the Institutional Trustee (as the Holder of the Debentures) in
exchange for a global Debenture in an aggregate principal amount equal to the
aggregate principal amount of all outstanding Debentures (a "Global
Debenture"), to be registered in the name of the Depository Institution, or
its nominee, and delivered by the Trustee to the Depository Institution for
crediting to the accounts of its participants. The Company upon any such
presentation shall execute a Global Debenture in such aggregate principal
amount and deliver the same to the Trustee for authentication and delivery in
accordance with the Indenture and this First Supplemental Indenture. Payments
on the Debentures issued as a Global Debenture will be made to the Depository
Institution; and
(ii) if any Preferred Securities are held in non book-entry form,
any Preferred Security Certificate which represents Preferred Securities other
than Preferred Securities held by the Depository Institution or its nominee
("Non Book-Entry Preferred Securities") will be deemed to represent beneficial
interests in Debentures presented to the Trustee by the Institutional Trustee
having an aggregate principal amount equal to the aggregate liquidation amount
of the Non Book-Entry Preferred Securities until such Preferred Security
Certificates are presented to the security registrar for transfer or
reissuance, at which time such Preferred Security Certificates will be
cancelled and a Debenture, registered in the name of the holder of the
Preferred Security Certificate or the transferee of the holder of such
Preferred Security Certificate, as the case may be, with an aggregate
principal amount equal to the aggregate liquidation amount of the Preferred
Security Certificate cancelled, will be executed by the Company and delivered
to the Trustee for authentication and delivery in accordance with the
Indenture and this First Supplemental Indenture. On issue of such Debentures,
Debentures evidenced by a Global Debenture will be deemed to have been
cancelled.
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(b) A Global Debenture may be transferred by the Depository Institution,
in whole but not in part, only to a nominee of the Depository Institution, or
to a successor Depository Institution selected or approved by the Company or
to a nominee of such successor Depository Institution.
(c) If there shall have occurred an Event of Default, then the Company
shall execute, and, subject to Section 2.07 of the Indenture, the Trustee,
upon receipt of an Officers' Certificate evidencing such determination by the
Company, shall authenticate and make available for delivery the Debentures in
definitive registered form without coupons, in authorized denominations, and
in an aggregate principal amount equal to the principal amount of the Global
Debenture, in exchange for such Global Debenture. Upon the exchange of the
Global Debenture for such Debentures in definitive registered form without
coupons, in authorized denominations, the Global Debenture shall be cancelled
by the Trustee. Such Debentures in definitive registered form issued in
exchange for the Global Debenture shall be registered in such names and in
such authorized denominations as the Depository Institution, pursuant to
instructions from its direct or indirect participants or otherwise, shall
instruct the Trustee. The Trustee shall deliver such Debentures to the
Depository Institution for delivery to the Persons in whose names such
Debentures are so registered.
SECTION 2.5. Interest.
(a) Each Debenture will bear interest at the rate of [ ]% per annum (the
"Coupon Rate") from the date of original issuance until the principal thereof
becomes due and payable, and on any overdue principal and, to the extent that
payment of such interest is enforceable under applicable law, on any overdue
installment of interest at the Coupon Rate, compounded quarterly, payable
quarterly in arrears on March 1, June 1, September 1 and December 1 of each
year (each, an "Interest Payment Date"), commencing on September 1, 1998, to
the Person in whose name such Debenture or any Predecessor Security is
registered, at the close of business on the relevant record date, which will
be, as long as the Preferred Securities remain in book-entry form, one
Business Day prior to the relevant Interest Payment Date and, in the event the
Debentures are not in book-entry form, the tenth day of the month prior to the
month in which the relevant Interest Payment Date occurs, except as otherwise
provided pursuant to the provisions of Article IV hereof.
(b) The amount of interest payable for any full quarterly period will be
computed on the basis of a 360-day year of twelve 30-day months. Except as
provided in the following sentence, the amount of interest payable for any
period shorter than a full quarterly period for which interest is computed
will be computed on the basis of the actual number of days elapsed. In the
event that any date on which interest is payable on the Debentures is not a
Business Day, then payment of interest payable on such date will be made on
the next succeeding day that is a Business Day (and without any interest or
other payment in respect of any such delay), except that, if such Business Day
is in the next succeeding calendar year, then such payment shall be made on
the immediately preceding Business Day, in each case with the same force and
effect as if made on the date that such interest otherwise would have been
payable.
(c) If, at any time while the Institutional Trustee is the holder of any
Debentures, the Trust or the Institutional Trustee is required to pay any
taxes, duties, assessments or governmental charges of whatever nature (other
than withholding taxes) imposed by the United States, or any other taxing
authority, then, in any such case, the Company will pay as additional interest
("Additional Interest") on the Debentures held by the Institutional Trustee,
such additional amounts as shall be required so that the net amounts received
and retained by the Trust and by the Institutional Trustee, after paying such
taxes, duties, assessments or other governmental charges, will be equal to the
amounts the Trust and the Institutional Trustee would have received had no
such taxes, duties, assessments or other governmental charges been imposed.
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ARTICLE III
REDEMPTION OF THE DEBENTURES
SECTION 3.1 Optional Redemption
The Debentures are prepayable, in whole or in part, at the option of the
Company at any time on or after ______, 2003, at a prepayment price (the
"Optional Prepayment Price") equal to 100% of the principal amount thereof,
plus accrued and unpaid interest thereon (including Compound Interest and
Additional Interest, if any) to the date of prepayment.
SECTION 3.2 Tax Event Redemption
If a Tax Event shall occur, the Company may, at its option, prepay the
Debentures in whole (but not in part) at any time prior to ________, 2003,
within 90 days after the occurrence of such Tax Event, at a prepayment price
(the "Tax Event Prepayment Price") equal to 100% of the principal amount of
such Debentures, plus accrued and unpaid interest thereon (including Compound
Interest and Additional Interest, if any) to the date of prepayment.
SECTION 3.3 Redemption Procedures
Notice of any redemption will be mailed at least 30 days, but not more than
60 days, before the redemption date specified therein to each Holder of
Debentures to be prepaid at its registered address. Unless the Company
defaults in payment of the prepayment price, on and after the redemption date
interest shall cease to accrue on such Debentures as are called for
redemption. If the Debentures are redeemed only in part pursuant to Section
3.1, the Debentures will be redeemed pro rata, by lot or by any other method
selected by the Trustee; provided that, if at the time of redemption the
Debentures are registered as a Global Debenture, the Depository Institution
shall determine, in accordance with its customary procedures, the principal
amount of such Debentures held by each Depository Institution participant to
be redeemed. The Prepayment Price shall be paid prior to 12:00 noon, New York
time, on the date of such redemption or at such earlier time as the Company
determines; provided that the Company shall have deposited with the Trustee an
amount sufficient to pay the Prepayment Price prior to such time.
SECTION 3.4. No Sinking Fund.
The Debentures are not entitled to the benefit of any sinking fund.
ARTICLE IV
EXTENSION OF INTEREST PAYMENT PERIOD
SECTION 4.1. Extension of Interest Payment Period.
So long as the Company shall not be in default in the payment of interest
on the Debentures, the Company shall have the right, at any time and from time
to time during the term of the Debentures, to defer payments of interest by
extending the interest payment period of such Debentures for a period not
exceeding 20 consecutive quarterly periods (the "Extended Interest Payment
Period"), during which Extended Interest Payment Period no interest shall be
due and payable; provided that no Extended Interest Payment Period may extend
beyond the Stated Maturity. To the extent permitted by applicable law,
interest, the payment of which has been deferred because of the extension of
the interest payment period pursuant to this Section 4.1, shall bear interest
thereon at the Coupon Rate, compounded quarterly, for each quarterly period of
the Extended Interest Payment Period ("Compound Interest"). After the
expiration of the Extended Interest Payment Period, the Company shall pay all
interest accrued and unpaid on the Debentures, including Compound Interest and
Additional Interest, if any (together, "Deferred Interest"), on the first
Interest Payment Date following the Extended Interest Payment Period to the
Holders in whose names the Debentures are registered in the Security Register
on the record date for such Interest Payment Date. Prior to the termination
of any Extended Interest Payment Period, the Company may further extend such
period, provided that such period, together with all such further extensions
thereof, shall not exceed 20 consecutive quarterly periods or extend beyond
the Stated Maturity of the
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Debentures. At the termination of any Extended Interest Payment Period and
upon the payment of all Deferred Interest then due, the Company may commence a
new Extended Interest Payment Period, subject to the foregoing limitations. No
interest shall be due and payable during an Extended Interest Payment Period,
but the Company may prepay at any time all or any portion of the interest
accrued during an Extended Interest Payment Period.
SECTION 4.2. Notice of Extension.
(a) If the Institutional Trustee is the only Holder at the time the
Company elects to commence an Extended Interest Payment Period, the Company
shall give written notice to the Institutional Trustee and the Trustee of its
election of such Extended Interest Payment Period one Business Day prior to
the earlier of (i) the next succeeding date on which Distributions on the
Trust Securities issued are payable, or (ii) the date the Trust is required to
give notice to the New York Stock Exchange or other applicable self-regulatory
organization or to holders of the Preferred Securities of the record or
distribution date, but in any event at least one Business Day prior to such
record date.
(b) If the Institutional Trustee is not the only Holder at the time the
Company elects to commence an Extended Interest Payment Period, the Company
shall give the Holders and the Trustee written notice of its election of such
Extended Interest Payment Period at least ten Business Days prior to the
earlier of (i) the next succeeding Interest Payment Date, or (ii) the date the
Company is required to give notice to the New York Stock Exchange or other
applicable self-regulatory organization or to the Holders of the record date
or the Interest Payment Date.
(c) The quarterly period in which any notice is given pursuant to
paragraphs (a) or (b) of this Section 4.2 shall be counted as one of the 20
quarterly periods permitted in computing the maximum duration of the Extended
Interest Payment Period permitted under Section 4.1.
SECTION 4.3. Limitation of Transactions.
If (i) the Company shall exercise its right to defer payment of interest as
provided in Section 4.1 and the Extended Interest Payment Period is continuing
or (ii) there shall have occurred any Event of Default, then (a) the Company
shall not declare or pay any dividend on, make any distribution with respect
to, or redeem, purchase, acquire or make a liquidation payment with respect
to, any of its capital stock (other than (1) purchases or acquisitions of
shares of its common stock in connection with the satisfaction by the Company
of its obligations under any employee benefit plans or any other contractual
obligation of the Company (other than a contractual obligation ranking pari
passu with or junior to the Debentures) or (2) the purchase of fractional
interests in shares of the Company's capital stock pursuant to the conversion
or exchange provisions of such capital stock or the security being converted
or exchanged), (b) the Company shall not make any payment of interest,
principal or premium, if any, on or repay, repurchase or redeem any debt
securities issued by the Company that rank pari passu with or junior to the
Debentures and (c) the Company shall not make any guarantee payments with
respect to the foregoing (other than pursuant to the Preferred Securities
Guarantee and, to the extent permitted by the Declaration, the Common
Securities Guarantee).
ARTICLE V
EXPENSES
SECTION 5.1. Payment of Expenses.
In connection with the offering, sale and issuance of the Debentures to the
Institutional Trustee and in connection with the sale of the Trust Securities
by the Trust, the Company, in its capacity as borrower with respect to the
Debentures, shall:
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(a) pay all costs and expenses relating to the offering, sale and
issuance of the Debentures and compensation of the Trustee under the Indenture
in accordance with the provisions of Section 6.06 of the Indenture;
(b) be responsible for and shall pay all debts and obligations (other than
with respect to the Trust Securities) and all costs and expenses of the Trust
(including, but not limited to, costs and expenses relating to the
organization, maintenance and dissolution of the Trust, the offering, sale and
issuance of the Trust Securities (including commissions to the underwriters in
connection therewith), the fees and expenses (including reasonable counsel
fees and expenses) of the Institutional Trustee, the Delaware Trustee and the
Regular Trustees, the costs and expenses relating to the operation of the
Trust, including without limitation, costs and expenses of accountants,
attorneys, statistical or bookkeeping services, expenses for printing and
engraving and computing or accounting equipment, paying agent(s),
registrar(s), transfer agent(s), duplicating, travel and telephone and other
telecommunications expenses and costs and expenses incurred in connection with
the acquisition and disposition of Trust assets and the enforcement by the
Institutional Trustee of the rights of the holders of the Prererred
Securities);
(c) be liable for any indemnification obligations arising with respect to
the Declaration; and
(d) pay any and all taxes (other than United States withholding taxes
attributable to the Trust or its assets) and all liabilities, costs and
expenses with respect to such taxes, of the Trust.
The Company's obligations under this Section 5.1 shall be for the benefit
of, and shall be enforceable by, any person to whom such debts, obligations,
costs, expenses and taxes are owed (a "Creditor"), whether or not such
Creditor has received notice hereof. Any such Creditor may enforce the
Company's obligations under this Section 5.1 directly against the Company and
the Company irrevocably waives any right of remedy to require that any such
Creditor take any action against the Trust or any other Person before
proceeding against the Company. The Company agrees to execute such additional
agreements as may be necessary or desirable in order to give full effect to
the provisions of this Section 5.1.
SECTION 5.2. Payment Upon Resignation or Removal.
Upon termination of this First Supplemental Indenture or the Indenture or
the removal or resignation of the Trustee, the Company shall pay to the
Trustee all amounts accrued to the date of such termination, removal or
resignation that are payable pursuant to Section 6.06 of the Indenture. Upon
termination of the Declaration or the removal or resignation of the Delaware
Trustee or the Institutional Trustee, as the case may be, pursuant to Section
5.6 of the Declaration, the Company shall pay to the Delaware Trustee or the
Institutional Trustee, as the case may be, all compensation and expenses
payable as of the date of such termination, removal or resignation.
ARTICLE VI
COVENANT TO LIST ON EXCHANGE
SECTION 6.1. Listing on an Exchange.
If the Debentures are distributed to the holders of the Trust Securities
and the Preferred Securities are then listed on the New York Stock Exchange,
Inc. or another exchange, the Company will use its best efforts to list the
Debentures on such exchange.
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ARTICLE VII
FORM OF DEBENTURE
SECTION 7.1. Form of Debenture.
The Debentures and the Trustee's Certificate of Authentication to be
endorsed thereon are to be substantially in the following forms:
(FORM OF FACE OF DEBENTURE)
[If the Debenture is to be a Global Debenture, Insert -- This Debenture is a
Global Debenture within the meaning of the Indenture hereinafter referred to
and is registered in the name of a Depository or a nominee of a Depository.
This Debenture is exchangeable for Debentures registered in the name of a
person other than the Depository or its nominee only in the limited
circumstances described in the Indenture, and no transfer of this Debenture
(other than a transfer of this Debenture as a whole by the Depository to a
nominee of the Depository or by a nominee of the Depository to the Depository
or another nominee of the Depository) may be registered except in limited
circumstances.]
Unless this Debenture is presented by an authorized representative of The
Depository Trust Company (55 Water Street, New York, New York) to the issuer
or its agent for registration of transfer, exchange or payment, and any
Debenture issued in exchange therefor is registered in the name of Cede & Co.
or such other name as requested by an authorized representative of The
Depository Trust Company and any payment hereon is made to Cede & Co., ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY A PERSON IS
WRONGFUL since the registered owner hereof, Cede & Co., has an interest
herein.
No. ______________________________
POTOMAC ELECTRIC POWER COMPANY
[ ]% JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURE
DUE 2038
CUSIP No.
------------
POTOMAC ELECTRIC POWER COMPANY, a District of Columbia and Virginia
corporation (the "Company", which term includes any successor corporation
under the Indenture hereinafter referred to), for value received, hereby
promises to pay to The Bank of New York, as Institutional Trustee of Potomac
Electric Power Company Trust I under that certain Amended and Restated
Declaration of Trust dated as of __________, 1998 (the "Declaration"), or
registered assigns, the principal sum of [ ]Dollars ($_________) on
_________, 2038 (the"Stated Maturity"), and to pay interest on said principal
sum from ________, 1998, or from the most recent interest payment date (each
such date, an "Interest Payment Date") to which interest as been paid or duly
provided for, quarterly (subject to deferral as set forth herein) in arrears
on March 1, June 1, September 1 and December 1 of each year commencing
September 1, 1998, at the rate of [ ]% per annum (the "Coupon Rate"), until
the principal hereof shall have become due and payable, and on any overdue
principal, and (without duplication and to the extent that payment of such
interest is enforceable under applicable law) on any overdue installment of
interest at the same rate per annum, compounded quarterly. The amount of
interest payable on any Interest Payment Date shall be computed on the basis
of a 360-day year of twelve 30-day months and, except as provided in the
following sentences, for any shorter period on the basis of the actual number
of days elapsed. In the event that any date on which interest is payable on
this Debenture is not a Business Day, then payment of interest payable on such
date will be made on the next succeeding day that is a Business Day (and
without any interest or other payment in respect of any such delay), except
that, if such Business Day is in the next succeeding calendar year, such
payment shall be made on the immediately preceding Business Day, in each case
with the same force and effect as if made on the date such interest otherwise
would have
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been payable. The interest installment so payable, and punctually paid or duly
provided for, on any Interest Payment Date will, as provided in the Indenture,
be paid to the person in whose name this Debenture (or one or more Predecessor
Securities, as defined in the Indenture) is registered at the close of
business on the relevant record dates, which will be, as long as the Debenture
remains in book-entry form, one Business Day prior to the relevant Interest
Payment Date and, in the event the Debenture is not in book-entry form, the
tenth day of the month prior to the month in which the relevant Interest
Payment Date occurs. Payments of interest may be deferred by the Company
pursuant to the provisions of Article IV of the Supplemental Indenture (as
hereinafter defined). Any such interest installment not punctually paid or
duly provided for shall forthwith cease to be payable to the registered
holders on such regular record date and shall be paid to the Person in whose
name this Debenture (or one or more Predecessor Securities) is registered at
the close of business on a special record date to be fixed by the Trustee for
the payment of such defaulted interest, notice whereof shall be given to the
registered holders of this series of Debentures not less than 10 days nor more
than 15 days prior to such special record date, or may be paid at any time in
any other lawful manner not inconsistent with the requirements of any
securities exchange on which the Debentures may be listed, and upon such
notice as may be required by such exchange, all as more fully provided in the
Indenture. The principal of and the interest on this Debenture shall be
payable at the office or agency of the Trustee maintained for that purpose in
any coin or currency of the United States of America that at the time of
payment is legal tender for payment of public and private debts; provided,
however, that payment of interest may be made at the option of the Company by
check mailed to the registered holder at such address as shall appear in the
Security Register. Notwithstanding the foregoing, so long as the holder of
this Debenture is the Institutional Trustee, the payment of the principal of
and interest on this Debenture will be made at such place and to such account
as may be designated by the Institutional Trustee.
The indebtedness evidenced by this Debenture is, to the extent provided in
the Indenture, subordinate and junior in right of payment to the prior payment
in full of all Senior Indebtedness and Other Financial Obligations (each as
defined in the Indenture), and this Debenture is issued subject to the
provisions of the Indenture with respect thereto. Each holder of this
Debenture, by accepting the same, (a) agrees to and shall be bound by such
provisions, (b) authorizes and directs the Trustee on his or her behalf to
take such action as may be necessary or appropriate to acknowledge or
effectuate the subordination so provided and (c) appoints the Trustee his or
her attorney-in-fact for any and all such purposes. Each holder hereof, by
his or her acceptance hereof, hereby waives all notice of the acceptance of
the subordination provisions contained herein and in the Indenture by each
holder of Senior Indebtedness and Other Financial Obligations,
whether now outstanding or hereafter incurred, and waives reliance by each
such holder upon said provisions.
This Debenture shall not be entitled to any benefit under the Indenture
hereinafter referred to, be valid or become obligatory for any purpose until
the Certificate of Authentication hereon shall have been signed by or on
behalf of the Trustee.
The provisions of this Debenture are continued on the reverse side hereof
and such continued provisions shall for all purposes have the same effect as
though fully set forth at this place.
IN WITNESS WHEREOF, the Company has caused this instrument to be executed.
POTOMAC ELECTRIC POWER COMPANY
By:____________________________________
Name
Title
Attest:
By:______________________________________
Name:
Title:
9
<PAGE>
(FORM OF CERTIFICATE OF AUTHENTICATION)
CERTIFICATE OF AUTHENTICATION
Dated: ____________, 1998
This is one of the Securities of the series designated herein referred to
in the within-mentioned Indenture.
The Bank of New York,
as Trustee
By: _______________________________________
Authorized Signatory
(FORM OF REVERSE OF DEBENTURE)
This Debenture is one of a duly authorized series of Debentures of the
Company (herein sometimes referred to as the "Debentures"), specified in the
Indenture, all issued or to be issued in one or more series under and pursuant
to an Indenture dated as of __________, 1998, duly executed and delivered
between the Company and The Bank of New York, as trustee (the "Trustee"), as
supplemented by the First Supplemental Indenture dated as of _______, 1998
(the "Supplemental Indenture"), between the Company and the Trustee (the
Indenture as so supplemented, the "Indenture"), to which Indenture and all
indentures supplemental thereto reference is hereby made for a description of
the rights, limitations of rights, obligations, duties and immunities
thereunder of the Trustee, the Company and the holders of the Debentures. By
the terms of the Indenture, the Debentures are issuable in series that may
vary as to amount, date of maturity, rate of interest and in other respects as
provided in the Indenture. This series of Debentures is limited in aggregate
principal amount as specified in said First Supplemental Indenture.
This Debenture is redeemable by the Company (i) in whole but not in part
(a "Tax Event Redemption") at any time prior to _______ ___, 2003, within 90
days after the occurrence of a Tax Event (as defined in the Indenture) and
(ii) in whole or in part (an "Optional Redemption") on or after _______, 2003.
Any such redemption will be made upon not less than 30 days nor more than 60
days notice, at a price equal to 100% of the principal amount hereof, plus any
accrued and unpaid interest hereon, to the date of such redemption (the
"Prepayment Price"). The Prepayment Price shall be paid prior to 12:00 noon,
New York time, on the date of such redemption or at such earlier time as the
Company determines. If the Debentures are only partially redeemed by the
Company pursuant to an Optional Redemption, the Debentures will be redeemed
pro rata, by lot or by any other method selected by the Trustee; provided that
if, at the time of redemption, the Debentures are registered as a Global
Debenture, the Depository shall determine, in accordance with its customary
procedures, the principal amount of such Debentures held by each Depository
Institution participant to be redeemed.
In the event of redemption of this Debenture in part only, a new Debenture
or Debentures of this series for the unredeemed portion hereof will be issued
in the name of the holder hereof upon the cancellation hereof.
In case an Event of Default shall have occurred and be continuing, the
principal of all of the Debentures may be declared, and upon such declaration
shall become, due and payable, in the manner, with the effect and subject to
the conditions provided in the Indenture.
The Indenture contains provisions permitting the Company and the Trustee,
with the consent of the holders of not less than a majority in aggregate
principal amount of the Debentures of each series affected at the time
outstanding, as defined in the Indenture, to execute supplemental indentures
for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of the Indenture or of any supplemental
indenture or of modifying in any manner the rights of the holders of the
Debentures; provided, however, that no such supplemental indenture shall (i)
extend the fixed maturity of any Debentures of any series, or reduce the
principal amount thereof or any premium thereon, or reduce the rate or extend
the time of payment of interest thereon, or
10
<PAGE>
reduce any amount payable on redemption thereof or make the principal thereon
or any interest or premium thereon payable in any coin or currency other than
that provided in this Debenture, or impair or affect the right of any holder
of a Debenture to institute suit for payment thereof or the right of
repayment, if any, at the option of the holder, without the consent of the
holder of each Debenture so affected, or (ii) reduce the aforesaid percentage
of Debentures, the holders of which are required to consent to any such
supplemental indenture, without the consent of the holders of each Debenture
then outstanding and affected thereby. The Indenture also contains provisions
permitting the holders of a majority in aggregate principal amount of the
Debentures of any series at the time outstanding affected thereby, on behalf
of all of the holders of the Debentures of such series, to waive any past
default in the performance of any of the covenants contained in the Indenture,
or established pursuant to the Indenture with respect to such series, and its
consequences, except a default in the payment of the principal of or premium,
if any, or interest on any of the Debentures of such series. Any such consent
or waiver by the holder of this Debenture (unless revoked as provided in the
Indenture) shall be conclusive and binding upon such holder and upon all
future holders of this Debenture and of any Debenture issued in exchange
hereof or in place hereof (whether by registration of transfer or otherwise),
irrespective of whether or not any notation of such consent or waiver is made
upon this Debenture.
No reference herein to the Indenture and no provision of this Debenture or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of, and interest on, this
Debenture at the time and place and at the rate and in the money herein
prescribed.
The Company shall have the right, at any time and from time to time during
the term of the Debentures, to defer payments of interest by extending the
interest payment period of such Debentures for up to 20 consecutive quarterly
periods (an "Extended Interest Payment Period"), at the end of which period
the Company shall pay all interest then accrued and unpaid (together with
interest on such deferred amounts at the Coupon Rate, compounded quarterly, to
the extent that payment of such interest is permitted by applicable law);
provided that no Extended Interest Payment Period may extend beyond the Stated
Maturity of the Debentures. Prior to the termination of any such Extended
Interest Payment Period, the Company may further extend such period, provided
that such period, together with all such further extensions thereof, shall not
exceed 20 consecutive quarterly periods or extend beyond the Stated Maturity
of the Debentures. At the termination of any such Extended Interest Payment
Period and upon the payment of all accrued and unpaid interest then due
(including Compound Interest), the Company may commence a new Extended
Interest Payment Period.
As provided in the Indenture and subject to certain limitations therein set
forth, this Debenture is transferable by the registered holder hereof on the
Security Register, upon surrender of this Debenture for registration of
transfer at the office or agency of the Trustee in the City and State of New
York, accompanied by a written instrument or instruments of transfer in form
satisfactory to the Company or the Trustee duly executed by the registered
holder hereof or his attorney duly authorized in writing, and thereupon one or
more new Debentures of authorized denominations and for the same aggregate
principal amount and series will be issued to the designated transferee or
transferees. No service charge will be made for any such transfer, but the
Company or the Trustee may require payment of a sum sufficient to cover any
tax, fee or other governmental charge payable in relation thereto.
Prior to due presentment for registration of transfer of this Debenture,
the Company, the Trustee, any authenticating agent, any paying agent, any
transfer agent and any security registrar may deem and treat the registered
holder hereof as the absolute owner hereof (whether or not this Debenture
shall be overdue and notwithstanding any notice of ownership or writing hereon
made by anyone other than the security registrar) for the purpose of receiving
payment of or on account of the principal hereof and interest due hereon and
for all other purposes, and none of the Company, the Trustee, any
authenticating agent, any paying agent, any transfer agent, or any security
registrar shall be affected by any notice to the contrary.
No recourse shall be had for the payment of the principal of or the
interest on this Debenture, or for any claim based hereon, or otherwise in
respect hereof, or based on or in respect of the Indenture, against any
incorporator, stockholder, officer or director, past, present or future, as
such, of the Company or of any predecessor or successor corporation, whether
by virtue of any constitution, statute or rule of law, or by the enforcement
of any assessment or penalty or otherwise, all such liability being, by the
acceptance hereof and as part of the consideration for the issuance hereof,
expressly waived and released.
11
<PAGE>
The Debentures of this series are issuable only in registered form without
coupons in denominations of $25 and any integral multiple thereof. As
provided in the Indenture and subject to certain limitations herein and
therein set forth, Debentures of this series so issued are exchangeable for a
like aggregate principal amount of Debentures of this series of a different
authorized denomination, as requested by the Holder surrendering the same.
This Debenture shall be governed by, and construed in accordance with, the
laws of the State of New York.
All terms used in this Debenture that are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
ARTICLE VIII
ORIGINAL ISSUE OF DEBENTURES
SECTION 8.1. Original Issue of Debentures.
Debentures in the aggregate principal amount of $[ ], may, upon
execution of this First Supplemental Indenture or upon any written order of
the Company setting forth the amount therefor, be executed by the Company and
delivered to the Trustee for authentication, and the Trustee shall thereupon
authenticate and deliver said Debentures to or upon the written order of the
Company, signed by its Chairman, its President, or any Vice President and its
Treasurer, its Secretary, any Assistant Treasurer, or any Assistant Secretary,
without any further action by the Company.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1. Ratification of Indenture.
The Indenture, as supplemented by this First Supplemental Indenture, is in
all respects ratified and confirmed, and this First Supplemental Indenture
shall be deemed part of the Indenture in the manner and to the extent herein
and therein provided.
SECTION 9.2. Trustee Not Responsible for Recitals.
The recitals herein contained are made by the Company and not by the
Trustee, and the Trustee assumes no responsibility for the correctness
thereof. The Trustee makes no representation as to the validity or
sufficiency of this First Supplemental Indenture.
SECTION 9.3. Governing Law.
This First Supplemental Indenture and each Debenture shall be deemed to be
a contract made under the internal laws of the State of New York, and for all
purposes shall be construed in accordance with the laws of said State.
SECTION 9.4. Separability.
In case any one or more of the provisions contained in this First
Supplemental Indenture or in the Debentures shall for any reason be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality
or unenforceability shall not affect any other provisions of this First
Supplemental Indenture or of the Debentures, but this First Supplemental
Indenture and the Debentures shall be construed as if such invalid or illegal
or unenforceable provision had never been contained herein or therein.
12
<PAGE>
SECTION 9.5. Counterparts.
This First Supplemental Indenture may be executed in any number of
counterparts each of which shall be an original; but such counterparts shall
together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed by their respective officers thereunto duly
authorized and their respective corporate seals to be hereunto duly affixed
and attested, all as of the day and year first above written.
POTOMAC ELECTRIC POWER COMPANY
Attest:
By:
- ------------------------- ---------------------------
Name: Name:
Title: Title:
Attest: THE BANK OF NEW YORK,
as Trustee
- ------------------------ By:----------------------------
Name: Name:
Title: Title:
13
POTOMAC ELECTRIC POWER COMPANY
INDENTURE
DATED AS OF _________, 1998
THE BANK OF NEW YORK,
AS TRUSTEE
JUNIOR SUBORDINATED DEBENTURES
<PAGE>
TABLE OF CONTENTS*
Page
Parties 1
Recitals 1
Authorization of Indenture 1
Compliance with Legal Requirements 1
Purpose of and Consideration for Indenture 1
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions 1
ARTICLE II
SECURITIES
SECTION 2.01. Forms Generally 8
SECTION 2.02. Form of Trustee's Certificate of
Authentication 9
SECTION 2.03. Amount Unlimited; Issuable in Series 9
SECTION 2.04. Authentication and Dating 11
SECTION 2.05. Date and Denomination of Securities 12
SECTION 2.06. Execution of Securities 14
SECTION 2.07. Exchange and Registration of Transfer of
Securities 15
SECTION 2.08. Mutilated, Destroyed, Lost or Stolen
Securities 16
SECTION 2.09. Temporary Securities 17
SECTION 2.10. Cancellation of Securities Paid, etc. 18
SECTION 2.11. Global Securities 18
SECTION 2.12 CUSIP Numbers 19
ARTICLE III
PARTICULAR COVENANTS OF THE COMPANY
SECTION 3.01. Payment of Principal, Premium and Interest 20
SECTION 3.02. Offices for Notices and Payments, etc. 20
SECTION 3.03. Appointments to Fill Vacancies in Trustee's
Office 21
SECTION 3.04. Provision as to Paying Agent 21
<PAGE>
SECTION 3.05. Certificate to Trustee 22
SECTION 3.06. Compliance with Consolidation Provisions 22
SECTION 3.07. Limitation on Dividends; Transactions with
Affiliates 22
SECTION 3.08. Covenants as to Potomac Electric Power
Company Trusts 23
SECTION 3.09. Notice of Default 23
ARTICLE IV
SECURITYHOLDERS' LISTS AND REPORTS BY THE
COMPANY AND THE TRUSTEE
SECTION 4.01. Securityholders' Lists 23
SECTION 4.02. Preservation and Disclosure of Lists 24
SECTION 4.03. Reports by Company 25
SECTION 4.04. Reports by the Trustee 26
ARTICLE V
REMEDIES OF THE TRUSTEE AND SECURITYHOLDERS
ON EVENT OF DEFAULT
SECTION 5.01. Events of Default 27
SECTION 5.02. Payment of Securities on Default;
Suit Therefor 29
SECTION 5.03. Application of Moneys Collected by Trustee 31
SECTION 5.04. Proceedings by Securityholders 32
SECTION 5.05. Proceedings by Trustee 33
SECTION 5.06. Remedies Cumulative and Continuing 33
SECTION 5.07. Direction of Proceedings and Waiver of
Defaults by Majority of Securityholders 33
SECTION 5.08. Notice of Defaults 35
SECTION 5.09. Undertaking to Pay Costs 35
* THIS TABLE OF CONTENTS SHALL NOT, FOR ANY PURPOSE, BE DEEMED TO BE A PART OF
THE INDENTURE.
<PAGE>
ARTICLE VI
CONCERNING THE TRUSTEE
SECTION 6.01. Duties and Responsibilities of Trustee 36
SECTION 6.02. Reliance on Documents, Opinions, et 37
SECTION 6.03. No Responsibility for Recitals, etc. 39
SECTION 6.04. Trustee, Authenticating Agent, Paying
Agents, Transfer Agents or Registrar May
Own Securities 39
SECTION 6.05. Moneys to be Held in Trust 39
SECTION 6.06. Compensation and Expenses of Trustee 39
SECTION 6.07. Officers' Certificate as Evidence 40
SECTION 6.08. Conflicting Interest of Trustee 41
SECTION 6.09. Eligibility of Trustee 41
SECTION 6.10. Resignation or Removal of Trustee 41
SECTION 6.11. Acceptance by Successor Trustee 43
SECTION 6.12. Succession by Merger, etc. 44
SECTION 6.13. Limitation on Rights of Trustee as a
Creditor 44
SECTION 6.14. Authenticating Agents 45
ARTICLE VII
CONCERNING THE SECURITYHOLDERS
SECTION 7.01. Action by Securityholders 46
SECTION 7.02. Proof of Execution by Securityholders 47
SECTION 7.03. Who Are Deemed Absolute Owners 47
SECTION 7.04. Securities Owned by Company Deemed
Not Outstanding 48
SECTION 7.05. Revocation of Consents; Future Holders
Bound 48
ARTICLE VIII
SECURITYHOLDERS' MEETINGS
SECTION 8.01. Purposes of Meetings 49
SECTION 8.02. Call of Meetings by Trustee 49
SECTION 8.03. Call of Meetings by Company or
Securityholders 49
SECTION 8.04. Qualifications for Voting 50
SECTION 8.05. Regulations 50
SECTION 8.06. Voting 51
<PAGE>
ARTICLE IX
SUPPLEMENTAL INDENTURES
SECTION 9.01. Supplemental Indentures without Consent of
Securityholders 52
SECTION 9.02. Supplemental Indentures with Consent of
Securityholders 53
SECTION 9.03. Compliance with Trust Indenture Act; Effect
of Supplemental Indentures 55
SECTION 9.04. Notation on Securities 55
SECTION 9.05. Evidence of Compliance of Supplemental
Indenture to be Furnished Trustee 56
ARTICLE X
CONSOLIDATION, MERGER, SALE, CONVEYANCE AND LEASE
SECTION 10.01. Company May Consolidate, etc., on
Certain Terms 56
SECTION 10.02. Successor Corporation to be Substituted
for Company 57
SECTION 10.03. Opinion of Counsel to be Given Trustee 57
ARTICLE XI
SATISFACTION AND DISCHARGE OF INDENTURE
SECTION 11.01. Discharge of Indenture 58
SECTION 11.02. Deposited Moneys and U.S. Government
Obligations to be Held in Trust by Trustee 59
SECTION 11.03. Paying Agent to Repay Moneys Held 59
SECTION 11.04. Return of Unclaimed Moneys 59
SECTION 11.05. Defeasance Upon Deposit of Moneys or
U.S. Government Obligations 59
ARTICLE XII
IMMUNITY OF INCORPORATORS, STOCKHOLDERS,
OFFICERS AND DIRECTORS
SECTION 12.01. Indenture and Securities Solely
Corporate Obligations 61
<PAGE>
ARTICLE XIII
MISCELLANEOUS PROVISIONS
SECTION 13.01. Successors 62
SECTION 13.02. Official Acts by Successor Corporation 62
SECTION 13.03. Surrender of Company Powers 62
SECTION 13.04. Addresses for Notices, etc. 62
SECTION 13.05. Governing Law 63
SECTION 13.06. Evidence of Compliance with Conditions
Precedent 63
SECTION 13.07. Legal Holidays 63
SECTION 13.08. Trust Indenture Act to Control 64
SECTION 13.09. Table of Contents, Headings, etc. 64
SECTION 13.10. Execution in Counterparts 64
SECTION 13.11. Separability 64
SECTION 13.12. Assignment 65
SECTION 13.13. Acknowledgment of Rights 65
ARTICLE XIV
REDEMPTION OF SECURITIES
SECTION 14.01. Applicability of Article 65
SECTION 14.02. Notice of Redemption; Selection of
Securities 66
SECTION 14.03. Payment of Securities Called for
Redemption 67
ARTICLE XV
SUBORDINATION OF SECURITIES
SECTION 15.01. Agreement to Subordinate 67
SECTION 15.02. Default on Senior Indebtedness 68
SECTION 15.03. Liquidation; Dissolution; Bankruptcy 69
SECTION 15.04. Subrogation 70
SECTION 15.05. Trustee to Effectuate Subordination 71
SECTION 15.06. Notice by the Company 72
SECTION 15.07. Rights of the Trustee; Holders of
Senior Indebtedness and Other
Financial Obligations 73
SECTION 15.08. Subordination May Not Be Impaired 73
Testimonium 74
Signatures 74
<PAGE>
THIS INDENTURE, dated as of ________, 1998, between Potomac Electric
Power Company, a District of Columbia and Virginia corporation (hereinafter
sometimes called the "Company"), and The Bank of New York, a New York banking
corporation, as trustee (hereinafter sometimes called the "Trustee"),
W I T N E S S E T H :
WHEREAS, for its lawful corporate purposes, the Company has duly
authorized the issuance from time to time of its junior subordinated unsecured
debentures, notes or other evidences of indebtedness to be issued in one or
more series (the "Securities") up to such principal amount or amounts as may
from time to time be authorized in accordance with the terms of this Indenture
and, to provide the terms and conditions upon which the Securities are to be
authenticated, issued and delivered, the Company has duly authorized the
execution of this Indenture; and
WHEREAS, all acts and things necessary to make this Indenture a valid
agreement according to its terms, have been done and performed;
NOW, THEREFORE, This Indenture Witnesseth:
In consideration of the premises, and the purchase of the Securities by
the holders thereof, the Company covenants and agrees with the Trustee for the
equal and proportionate benefit of the respective holders from time to time of
the Securities or of any series thereof, as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions.
The terms defined in this Section 1.01 (except as herein otherwise
expressly provided or unless the context otherwise requires) for all purposes
of this Indenture and of any indenture supplemental hereto shall have the
respective meanings specified in this Section 1.01. All other terms used in
this Indenture which are defined in the Trust Indenture Act (as hereinafter
defined), or which are by reference therein defined in the Securities Act of
1933, as amended (the "Securities Act"), shall (except as herein otherwise
expressly provided or unless the context otherwise requires) have the meanings
assigned to such terms in said Trust Indenture Act and in said Securities Act
as in force at the date of this Indenture as originally executed. All
accounting terms used herein and not expressly defined shall have the meanings
assigned to such terms in accordance with generally accepted accounting
principles and the term "generally accepted accounting principles" means such
<PAGE>
accounting principles as are generally accepted at the time of any
computation. The words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision.
"Additional Provisions" shall have the meaning given to such term in
Section 15.01.
"Affiliate" has the same meaning as given to that term in Rule 405 of
the Securities Act of 1933, as amended, or any successor rule thereunder.
"Authenticating Agent" shall mean any agent or agents of the Trustee
which at the time shall be appointed and acting pursuant to Section 6.14.
"Bankruptcy Code" shall mean Title 11, U.S. Code, or similar federal or
state law for the relief of debtors.
"Board of Directors" shall mean the Board of Directors or the Executive
Committee or any other duly authorized committee thereof of the Company.
"Board Resolution" shall mean a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted
by the Board of Directors and to be in full force and effect on the date of
such certification.
"Business Day" shall mean, with respect to any series of Securities, any
day other than a day on which federal or state banking institutions in the
Borough of Manhattan, The City of New York, are authorized or obligated by
law, executive order or regulation to close.
"Certificate" shall mean a certificate signed by the principal executive
officer, the principal financial officer or the principal accounting officer
of the Company.
"Certificate of Authentication" shall mean the certificate issued by the
Trustee or the Authenticating Agent as to the form of Security issued under
the Indenture.
"Commission" shall mean the Securities and Exchange Commission, as from
time to time constituted, created under the Securities Exchange Act of 1934,
or, if at any time after the execution of this instrument such Commission is
not existing and performing the duties now assigned to it under the Trust
Indenture Act, then the body performing such duties at such time.
2
<PAGE>
"Common Securities" shall mean undivided beneficial interests in the
assets of a Potomac Electric Power Company Trust which rank pari passu with
Preferred Securities issued by such Potomac Electric Power Company Trust;
provided, however, that upon the occurrence of an Event of Default, the rights
of holders of Common Securities to payment in respect of distributions and
payments upon liquidation, redemption and otherwise are subordinated to the
rights of holders of Preferred Securities.
"Common Securities Guarantee" shall mean any guarantee that the Company
enters into for the benefit of holders of Common Securities issued by a
Potomac Electric Power Company Trust.
"Company" shall mean Potomac Electric Power Company, a District of
Columbia and Virginia corporation, and, subject to the provisions of Article
Ten, shall include its successors and assigns.
"Corporate Trust Office" means the office of the Trustee at which the
corporate trust business of the Preferred Guarantee Trustee shall, at any
particular time, be principally administered, which office at the date of
execution of this Agreement is located at 101 Barclay Street, New York, New
York 10286.
"Declaration," with respect to a Potomac Electric Power Company Trust,
shall mean the Amended and Restated Declaration of Trust of such Potomac
Electric Power Company Trust that establishes the terms of the Preferred
Securities and Common Securities thereof.
"Default" means any event, act or condition that with notice or lapse of
time, or both, would constitute an Event of Default.
"Defaulted Interest" shall have the meaning given to such term in
Section 2.05.
"Defeasance Agent" shall have the meaning given to such term in Section
11.05(c).
"Depository Institution" shall mean, with respect to Securities of any
series, for which the Company shall determine that such Securities will be
issued as a Global Security, The Depository Trust Company, New York, New York,
or another clearing agency, or any successor thereof, that is registered as a
clearing agency under the Exchange Act, or other applicable statute or
regulation, which, in each case, shall be designated by the Company pursuant
to either Section 2.03 or 2.11.
3
<PAGE>
"Discharged" shall have the meaning given to such term in Section
11.05(b).
"Event of Default" shall mean any event specified in Section 5.01,
continued for the period of time, if any, and after the giving of the notice,
if any, therein designated.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Global Security" means, with respect to any series of Securities, a
Security executed by the Company and delivered by the Trustee to the
Depository Institution or pursuant to the Depository Institution's
instruction, all in accordance with the Indenture, which shall be registered
in the name of the Depository Institution or its nominee.
"Indenture" shall mean this instrument as originally executed or, if
amended or supplemented as herein provided, as so amended or supplemented, or
both, and shall include the form and terms of particular series of Securities
established as contemplated hereunder.
"Institutional Trustee" has the meaning set forth in the Declaration of
the applicable Potomac Electric Power Company Trust.
"Interest" shall mean, when used with respect to non-interest bearing
Securities, interest payable at maturity.
"Interest Payment Date", when used with respect to any installment of
interest on a Security of a particular series, shall mean the date specified
in such Security or in a Board Resolution or in an indenture supplemental
hereto with respect to such series as the fixed date on which an installment
of interest with respect to Securities of that series is due and payable.
"Officers' Certificate" shall mean a certificate signed by the Chairman
of the Board, the President or any Vice President, and by the Treasurer, an
Assistant Treasurer, the Controller, an Assistant Controller, the Secretary or
an Assistant Secretary of the Company and delivered to the Trustee. Each such
certificate shall include the statements provided for in Section 13.06 if and
to the extent provided by the provisions of such Section.
"Opinion of Counsel" shall mean an opinion in writing signed by legal
counsel experienced in the matters as to which such opinion is being
delivered, who may be an employee of or counsel to the Company. Each such
opinion shall include the statements provided for in Section 13.06 if and to
the extent required by the provisions of such Section.
4
<PAGE>
"Other Financial Obligations" means all obligations of the Company to
make payment pursuant to the terms of financial instruments, such as
(i) securities contracts and foreign currency exchange contracts,
(ii) derivative instruments, such as swap agreements (including interest rate
and foreign exchange rate swap agreements), cap agreements, floor agreements,
collar agreements, interest rate agreements, foreign exchange rate agreements,
options, commodity futures contracts, commodity option contracts and (iii) in
the case of both (i) and (ii) above, similar financial instruments, other than
(A) obligations on account of Senior Indebtedness and (B) obligations on
account of indebtedness for money borrowed ranking pari passu with or
subordinate to the Securities.
The term "outstanding" (except as otherwise provided in Section 7.01),
when used with reference to Securities, shall, subject to the provisions of
Section 7.04, mean, as of any particular time, all Securities authenticated
and delivered by the Trustee or the Authenticating Agent under this Indenture,
except
(a) Securities theretofore cancelled by the Trustee or the
Authenticating Agent or delivered to the Trustee for
cancellation;
(b) Securities, or portions thereof, for the payment or
redemption of which moneys in the necessary amount shall have
been deposited in trust with the Trustee or with any paying
agent (other than the Company) or shall have been set aside and
segregated in trust by the Company (if the Company shall act as
its own paying agent); provided that, if such Securities, or
portions thereof, are to be redeemed prior to maturity thereof,
notice of such redemption shall have been given as in Article
Fourteen provided or provision satisfactory to the Trustee
shall have been made for giving such notice; and
(c) Securities that have been paid pursuant to Section 2.08 or
in lieu of or in substitution for which other Securities shall
have been authenticated and delivered pursuant to the terms of
Section 2.08 unless proof satisfactory to the Company and the
trustee is presented that any such Securities are held by bona
fide holders in due course.
"Person" shall mean any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization
or government or any agency or political subdivision thereof.
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"Potomac Electric Power Company Trust" shall mean each of Potomac
Electric Power Company Trust I, a Delaware business trust, or any other
similar trust created for the purpose of issuing securities the proceeds of
which are used to acquire Securities issued under this Indenture.
"Predecessor Security" of any particular Security means every previous
Security evidencing all or a portion of the same debt and as that evidenced by
such particular Security; and, for the purposes of this definition, any
Security authenticated and delivered under Section 2.08 in lieu of a lost,
destroyed or stolen Security shall be deemed to evidence the same debt as the
lost, destroyed or stolen Security.
"Preferred Securities" shall mean undivided beneficial interests in the
assets of a Potomac Electric Power Company Trust which rank pari passu with
Common Securities issued by such Potomac Electric Power Company Trust;
provided, however, that upon the occurrence of an Event of Default, the rights
of holders of Common Securities to payment in respect of distributions and
payments upon liquidation, redemption and otherwise are subordinated to the
rights of holders of Preferred Securities.
"Preferred Securities Guarantee" shall mean any guarantee that the
Company enters into for the benefit of holders of Preferred Securities of a
Potomac Electric Power Company Trust.
"Officer" means, with respect to the Trustee, any officer within the
Corporate Trust Office, including any vice president, any assistant vice
president, any assistant secretary, any assistant treasurer or other officer
of the Corporate Trust Office customarily performing functions similar to
those performed by any of the above designated officers and also means, with
respect to a particular corporate trust matter, any other officer to whom such
matter is referred because of that officer's knowledge of and familiarity with
the particular subject.
"Security" or "Securities" shall have the meaning stated in the first
recital of this Indenture and more particularly means any security or
securities, as the case may be, authenticated and delivered under this
Indenture.
"Security Register" shall have the meaning given to such term in
Section 2.07.
"Securityholder", "holder of Securities", or other similar terms, shall
mean any person in whose name at the time a particular Security is registered
on the register kept by the Company or the Trustee for that purpose in
accordance with the terms hereof.
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"Senior Indebtedness" means (i) the principal, premium, if any, and
interest in respect of (A) indebtedness of the Company for money borrowed and
(B) indebtedness evidenced by securities, debentures, bonds or other similar
instruments issued by the Company, (ii) all capital lease obligations of the
Company, (iii) all obligations of the Company issued or assumed as the
deferred purchase price of property, all conditional sale obligations of the
Company and all obligations of the Company under any title retention agreement
(but excluding trade accounts payable arising in the ordinary course of
business), (iv) all obligations of the Company for the reimbursement of any
letter of credit, banker's acceptance, security purchase facility or similar
credit transaction, (v) all obligations of the type referred to in clauses (i)
through (iv) above of other persons for the payment of which the Company is
responsible or liable as obligor, guarantor or otherwise and (vi) all
obligations of the type referred to in clauses (i) through (v) above of other
persons secured by any lien on any property or asset of the Company (whether
or not such obligation is assumed by the Company), except that Senior
Indebtedness shall not include (i) any such indebtedness that is by its terms
subordinated to or ranks pari passu with the Securities and (ii) any
indebtedness between and among the Company or its Affiliates, including all
other debt securities and guarantees in respect to those debt securities,
issued to any other trust, or a trustee of such trust, partnership or other
entity affiliated with the Company that is a financing vehicle of the Company
(a "financing entity") in connection with the issuance by such financing
entity of Preferred Securities or other securities that rank pari passu with,
or junior to, the Preferred Securities.
"Subsidiary" shall mean with respect to any Person, (i) any corporation
at least a majority of the outstanding voting stock of which is owned,
directly or indirectly, by such Person or by one or more of its Subsidiaries,
or by such Person and one or more of its Subsidiaries, (ii) any general
partnership, joint venture or similar entity, at least a majority of whose
outstanding partnership or similar interests shall at the time be owned by
such Person, or by one or more of its Subsidiaries, or by such Person and one
or more of its Subsidiaries and (iii) any limited partnership of which such
Person or any of its Subsidiaries is a general partner. For the purposes of
this definition, "voting stock" means shares, interests, participations or
other equivalents in the equity interest (however designated) in such Person
having ordinary voting power for the election of a majority of the directors
(or the equivalent) of such Person, other than shares, interests,
participations or other equivalents having such power only by reason of the
occurrence of a contingency.
"Trustee" shall mean the Person identified as "Trustee" in the first
paragraph hereof, and, subject to the provisions of Article Six hereof, shall
also include its successors and assigns as Trustee hereunder. The term
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"Trustee" as used with respect to a particular series of the Securities shall
mean the trustee with respect to that series.
"Trust Indenture Act" shall mean the Trust Indenture Act of 1939, as in
force at the date of execution of this Indenture, except as provided in
Section 9.03.
"Trust Securities" shall mean Common Securities and Preferred Securities
of a Potomac Electric Power Company Trust.
"U.S. Government Obligations" shall mean securities that are (i) direct
obligations of the United States of America for the payment of which its full
faith and credit is pledged or (ii) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States
of America the payment of which is unconditionally guaranteed as a full faith
and credit obligation by the United States of America, which, in either case
under clauses (i) or (ii) are not callable or redeemable at the option of the
issuer thereof, and shall also include a depository receipt issued by a bank
or trust company as custodian with respect to any such U.S. Government
Obligation or a specific payment of interest on or principal of any such U.S.
Government Obligation held by such custodian for the account of the holder of
a depository receipt, provided that (except as required by law) such custodian
is not authorized to make any deduction from the amount payable to the holder
of such depository receipt from any amount received by the custodian in
respect of the U.S. Government Obligation or the specific payment of interest
on or principal of the U.S. Government Obligation evidenced by such depository
receipt.
ARTICLE II
SECURITIES
SECTION 2.01. Forms Generally.
The Securities of each series shall be in substantially the form as
shall be established by or pursuant to a Board Resolution and as set forth in
an Officers' Certificate or in one or more indentures supplemental hereto, in
each case with such appropriate insertions, omissions, substitutions and other
variations as are required or permitted by this Indenture, and may have such
letters, numbers or other marks of identification and such legends or
endorsements placed thereon as may be required to comply with any law or with
any rules made pursuant thereto or with any rules of any securities exchange
or securities depository or all as may, consistently herewith, be determined
by the officers executing such Securities, as evidenced by their execution of
the Securities.
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The definitive Securities shall be printed, lithographed or engraved on
steel engraved borders or may be produced in any other manner, all as
determined by the officers executing such Securities, as evidenced by their
execution of such Securities.
SECTION 2.02. Form of Trustee's Certificate of Authentication.
The Trustee's Certificate of Authentication on all Securities shall be
in substantially the following form:
This is one of the Securities of the series designated therein referred
to in the within-mentioned Indenture.
The Bank of New York, as Trustee
By _______________________________________
Authorized Signatory
SECTION 2.03. Amount Unlimited; Issuable in Series.
The aggregate principal amount of Securities which may be authenticated
and delivered under this Indenture is unlimited. The Securities may be issued
in one or more series up to the aggregate principal amount of securities of
that series from time to time authorized by or pursuant to a Board Resolution
or pursuant to one or more indentures supplemental hereto. Prior to the
initial issuance of Securities of any series, there shall be established in or
pursuant to a Board Resolution and set forth in an Officers' Certificate or
established in one or more indentures supplemental hereto:
(a) the title of the Securities of the series (which shall distinguish
the Securities of the series from all other Securities);
(b) any limit upon the aggregate principal amount of the Securities of
the series which may be authenticated and delivered under this Indenture
(except for Securities authenticated and delivered upon registration of
transfer of, or in exchange for, or in lieu of, other Securities of the series
pursuant to Sections 2.07, 2.08, 2.09, 9.04 or 14.03);
(c) the date or dates on which the principal of and premium, if any,
on the Securities of the series is payable, and the right, if any, to extend
such date or dates;
(d) the rate or rates at which the Securities of the series shall bear
interest, if any, or the method by which such interest may be determined, the
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date or dates from which such interest shall accrue, the Interest Payment
Dates on which such interest shall be payable or the manner of determination
of such Interest Payment Dates and the record dates for the determination of
holders to whom interest is payable on any such Interest Payment Dates;
(e) the place or places where the principal of, and premium, if any,
and any interest on Securities of the series shall be payable;
(f) the right, if any, to extend the interest payment periods and the
duration of such extension;
(g) the price or prices at which, the period or periods within which
and the terms and conditions upon which Securities of the series may be
redeemed, in whole or in part, at the option of the Company, pursuant to any
sinking fund or otherwise;
(h) the obligation, if any, of the Company to redeem, purchase or
repay Securities of the series pursuant to any sinking fund or analogous
provisions or at the option of a Securityholder thereof and the price or
prices at which, and the period or periods within which, and the terms and
conditions upon which, Securities of the series shall be redeemed, purchased
or repaid, in whole or in part, pursuant to such obligation;
(i) if other than denominations of $1,000 and any integral multiple
thereof, the denominations in which Securities of the series shall be
issuable;
(j) any Events of Default with respect to the Securities of a
particular series, if not set forth herein;
(k) the form of the Securities of the series including the form of the
Certificate of Authentication of such series;
(l) any trustee, authenticating or paying agents, warrant agents,
transfer agents or registrars with respect to the Securities of such series;
(m) whether the Securities of the series shall be issued in whole or
in part in the form of one or more Global Securities and, in such case, the
Depository Institution for such Global Security or Securities, and whether
beneficial owners of interests in any such Global Securities may exchange such
interests for other Securities of such series in the manner provided in
Section 2.07, and the manner and the circumstances under which and the place
or places where any such exchanges may occur if other than in the manner
provided in Section 2.07, and any other terms of the series relating to the
global nature of the Global Securities of such series and the exchange,
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registration or transfer thereof and the payment of any principal thereof, or
interest or premium, if any, thereon; and
(n) any other terms of the series (which terms shall not be
inconsistent with the provisions of this Indenture).
All Securities of any one series shall be substantially identical except
as to denomination and except as may otherwise be provided in or pursuant to
such Board Resolution or in any such indenture supplemental hereto.
If any of the terms of the series are established by action taken
pursuant to a Board Resolution, a copy of an appropriate record of such action
shall be certified by the Secretary or an Assistant Secretary of the Company
and delivered to the Trustee at or prior to the delivery of the Officers'
Certificate setting forth the terms of the series.
SECTION 2.04. Authentication and Dating.
At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver Securities of any series executed by
the Company to the Trustee for authentication, and the Trustee shall thereupon
authenticate and make said Securities available for delivery to or upon the
written order of the Company, signed by its Chairman of the Board of
Directors, President or one of its Vice Presidents and by its Treasurer, any
Assistant Treasurer, Secretary or any Assistant Secretary, without any further
action by the Company hereunder. In authenticating such Securities, and
accepting the additional responsibilities under this Indenture in relation to
such Securities, the Trustee shall be entitled to receive, and (subject to
Section 6.01) shall be fully protected in relying upon:
(a) a copy of any Board Resolution or Resolutions relating thereto
and, if applicable, an appropriate record of any action taken pursuant to such
resolution, in each case certified by the Secretary or an Assistant Secretary
of the Company;
(b) an executed supplemental indenture, if any;
(c) an Officers' Certificate setting forth the form and terms of the
Securities as required pursuant to Sections 2.01 and 2.03, respectively; and
(d) an Opinion of Counsel prepared in accordance with Section 13.06
which shall also state:
(i)that the form of such Securities has been established by or
pursuant to a resolution of the Board of Directors or by a
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supplemental indenture as permitted by Section 2.01 in
conformity with the provisions of this Indenture;
(ii) that the terms of such Securities have been established by
or pursuant to a resolution of the Board of Directors or by a
supplemental indenture as permitted by Section 2.03 in
conformity with the provisions of this Indenture;
(iii)that such Securities, when authenticated and delivered by
the Trustee and issued by the Company in the manner and
subject to any conditions specified in such Opinion of
Counsel, will constitute valid and legally binding
obligations of the Company;
(iv) that all laws and requirements in respect of the execution
and delivery by the Company of the Securities have been
complied with and that authentication and delivery of the
Securities by the Trustee will not violate the terms of the
Indenture; and
(v)such other matters as the Trustee may reasonably request.
The Trustee shall have the right to decline to authenticate and deliver
any Securities under this Section if the Trustee, being advised by counsel,
determines that such action may not lawfully be taken or if the Trustee in
good faith by its board of directors or trustees, executive committee, or a
trust committee of directors or trustees and/or vice presidents shall
determine that such action would expose the Trustee to personal liability to
existing holders of Securities.
SECTION 2.05. Date and Denomination of Securities.
The Securities shall be issuable as registered Securities without
coupons and in such denominations as shall be specified as contemplated by
Section 2.03. In the absence of any such specification with respect to the
Securities of any series, the Securities of such series shall be issuable in
the denominations of $1,000 and any multiple thereof. The Securities shall be
numbered, lettered, or otherwise distinguished in such manner or in accordance
with such plans as the officers of the Company executing the same may
determine with the approval of the Trustee as evidenced by the execution and
authentication thereof.
Every Security shall be dated the date of its authentication, shall bear
interest, if any, from such date and shall be payable on such dates, in each
case, as contemplated by Section 2.03. The interest installment on any
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Security that is payable, and is punctually paid or duly provided for, on any
Interest Payment Date for Securities of that series shall be paid to the
Person in whose name said Security (or one or more Predecessor Securities) is
registered at the close of business on the regular record date for such
interest installment. In the event that any Security of a particular series
or portion thereof is called for redemption and the redemption date is
subsequent to a regular record date with respect to any Interest Payment Date
and prior to such Interest Payment Date, interest on such Security will be
paid upon presentation and surrender of such Security as provided in Section
3.01.
Any interest on any Security that is payable, but is not punctually paid
or duly provided for, on any Interest Payment Date for any Security of the
same series (herein called "Defaulted Interest") shall forthwith cease to be
payable to the registered holder on the relevant regular record date by virtue
of having been such holder, and such Defaulted Interest shall be paid by the
Company, at its election, as provided in clause (a) or clause (b) below:
(a) The Company may make payment of any Defaulted Interest on
Securities to the Persons in whose names such Securities (or their
respective Predecessor Securities) are registered at the close of
business on a special record date for the payment of such
Defaulted Interest, which shall be fixed in the following manner:
the Company shall notify the Trustee in writing of the amount of
Defaulted Interest proposed to be paid on each such Security and
the date of the proposed payment, and at the same time the Company
shall deposit with the Trustee an amount of money equal to the
aggregate amount proposed to be paid in respect of such Defaulted
Interest or shall make arrangements satisfactory to the Trustee
for such deposit prior to the date of the proposed payment, such
money when deposited to be held in trust for the benefit of the
Persons entitled to such Defaulted Interest as in this clause
provided. Thereupon the Trustee shall fix a special record date
for the payment of such Defaulted Interest which shall not be more
than 15 nor less than 10 days prior to the date of the proposed
payment and not less than 10 days after the receipt by the Trustee
of the notice of the proposed payment. The Trustee shall promptly
notify the Company of such special record date and, in the name
and at the expense of the Company, shall cause notice of the
proposed payment of such Defaulted Interest and the special record
date therefor to be mailed, first class postage prepaid, to each
Securityholder at his or her address as it appears in the Security
Register (as hereinafter defined), not less than 10 days prior to
such special record date. Notice of the proposed payment of such
Defaulted Interest and the special record date therefor having
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been mailed as aforesaid, such Defaulted Interest shall be paid to
the Persons in whose names such Securities (or their respective
Predecessor Securities) are registered on such special record date
and shall be no longer payable pursuant to the following clause
(b).
(b) The Company may make payment of any Defaulted Interest on
any Securities in any other lawful manner not inconsistent with
the requirements of any securities exchange on which such
Securities may be listed, and upon such notice as may be required
by such exchange, if, after notice given by the Company to the
Trustees of the proposed payment pursuant to this clause, such
manner of payment shall be deemed practicable by the Trustee.
Unless otherwise set forth in a Board Resolution or one or more
indentures supplemental hereto establishing the terms of any series of
Securities pursuant to Section 2.03 hereof, the term "regular record date" as
used in this Section with respect to a series of Securities with respect to
any Interest Payment Date for such series shall mean either the fifteenth day
of the month in which an Interest Payment Date established for such series
pursuant to Section 2.03 hereof shall occur, if such Interest Payment Date is
the last day of a month, or the last day of the month immediately preceding
the month in which an Interest Payment Date established for such series
pursuant to Section 2.03 hereof shall occur, if such Interest Payment Date is
the fifteenth day of a month, whether or not such date is a Business Day.
Subject to the foregoing provisions of this Section, each Security of a
series delivered under this Indenture upon transfer of or in exchange for or
in lieu of any other Security of such series shall carry the rights to
interest accrued and unpaid, and to accrue, that were carried by such other
Security.
SECTION 2.06. Execution of Securities.
The Securities shall be signed in the name and on behalf of the Company
by the facsimile signature of its Chairman of the Board of Directors,
President or one of its Vice Presidents and by the facsimile signature of its
Treasurer, one of its Assistant Treasurers, Secretary or one of its Assistant
Secretaries. Only such Securities as shall bear thereon a Certificate of
Authentication substantially in the form hereinbefore recited, executed by the
Trustee or the Authenticating Agent, shall be entitled to the benefits of this
Indenture or be valid or obligatory for any purpose. Such certificate by the
Trustee or the Authenticating Agent upon any Security executed by the Company
shall be conclusive evidence that the Security so authenticated has been duly
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authenticated and delivered hereunder and that the holder is entitled to the
benefits of this Indenture.
In case any officer of the Company who shall have signed any of the
Securities shall cease to be such officer before the Securities so signed
shall have been authenticated and delivered by the Trustee or the
Authenticating Agent, or disposed of by the Company, such Securities
nevertheless may be authenticated and delivered or disposed of as though the
person who signed such Securities had not ceased to be such officer of the
Company; and any Security may be signed on behalf of the Company by such
persons as, at the actual date of the execution of such Security, shall be the
proper officers of the Company, although at the date of the execution of this
Indenture any such person was not such an officer.
SECTION 2.07. Exchange and Registration of Transfer of Securities.
Securities of any series may be exchanged for a like aggregate principal
amount of Securities of the same series of other authorized denominations.
Securities to be so exchanged may be surrendered at the Corporate Trust Office
or at any office or agency to be maintained by the Company for such purpose as
provided in Section 3.02, and the Company or the Trustee shall execute and
register and the Trustee or the Authenticating Agent shall authenticate and
make available for delivery in exchange therefor the Security or Securities
which the Securityholder making the exchange shall be entitled to receive.
Upon due presentment for registration of transfer of any Security of any
series at the Corporate Trust Office or at any office or agency of the Company
maintained for such purpose as provided in Section 3.02, the Company or the
Trustee shall execute and register and the Trustee or the Authenticating Agent
shall authenticate and make available for delivery in the name of the
transferee or transferees a new Security or Securities of the same series for
a like aggregate principal amount. Registration or registration of transfer of
any Security by the Trustee or by any agent of the Company appointed pursuant
to Section 3.02, and delivery of such Security, shall be deemed to complete
the registration or registration of transfer of such Security.
The Company or the Trustee shall keep, at the Corporate Trust Office, a
register for each series of Securities issued hereunder (the "Security
Register") in which, subject to such reasonable regulations as it may
prescribe, the Company or the Trustee shall register all Securities and shall
register the transfer of all Securities as in this Article Two provided. Such
register shall be in written form or in any other form capable of being
converted into written form within a reasonable time.
All Securities presented for registration of transfer or for exchange or
payment shall (if so required by the Company or the Trustee or the
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Authenticating Agent) be duly endorsed by, or be accompanied by a written
instrument or instruments of transfer in form satisfactory to the Company and
the Trustee or the Authenticating Agent duly executed by, the holder or his
attorney duly authorized in writing.
No service charge shall be made for any exchange or registration of
transfer of Securities, but the Company or the Trustee may require payment of
a sum sufficient to cover any tax, fee or other governmental charge that may
be imposed in connection therewith.
The Company or the Trustee shall not be required to exchange or register
a transfer of (a) any Security for a period of 15 days next preceding the date
of mailing of a notice of redemption of Securities of such series, or (b) any
Securities of any series selected, called or being called for redemption in
whole or in part, except in the case of any Securities of any series to be
redeemed in part, the portion thereof not so to be redeemed.
SECTION 2.08. Mutilated, Destroyed, Lost or Stolen Securities.
In case any temporary or definitive Security shall become mutilated or
be destroyed, lost or stolen, the Company shall execute, and upon its written
request the Trustee shall authenticate and make available for delivery, a new
Security of the same series bearing a number not contemporaneously
outstanding, in exchange and substitution for the mutilated Security, or in
lieu of and in substitution for the Security so destroyed, lost or stolen. In
every case the applicant for a substituted Security shall furnish to the
Company and the Trustee such security or indemnity as may be required by them
to save each of them harmless, and, in every case of destruction, loss or
theft, the applicant shall also furnish to the Company and the Trustee
evidence to their satisfaction of the destruction, loss or theft of such
Security and of the ownership thereof.
The Trustee may authenticate any such substituted Security and make the
same available for delivery upon the written request or authorization of any
officer of the Company. Upon the issuance of any substituted Security, the
Company may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses connected therewith. In case any Security which has matured or is
about to mature or has been called for redemption in full shall become
mutilated or be destroyed, lost or stolen, the Company may, instead of issuing
a substitute Security, pay or authorize the payment of the same (without
surrender thereof except in the case of a mutilated Security) if the applicant
for such payment shall furnish to the Company and the Trustee such security or
indemnity as may be required by them to save each of them harmless and, in
case of destruction, loss or theft, evidence satisfactory to the Company and
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to the Trustee of the destruction, loss or theft of such Security and of the
ownership thereof.
Every substituted Security of any series issued pursuant to the
provisions of this Section 2.08 by virtue of the fact that any such Security
is destroyed, lost or stolen shall constitute an additional contractual
obligation of the Company, whether or not the destroyed, lost or stolen
Security shall be found at any time, and shall be entitled to all the benefits
of this Indenture equally and proportionately with any and all other
Securities of the same series duly issued hereunder. All Securities shall be
held and owned upon the express condition that, to the extent permitted by
applicable law, the foregoing provisions are exclusive with respect to the
replacement or payment of mutilated, destroyed, lost or stolen Securities and
shall preclude any and all other rights or remedies notwithstanding any law or
statute existing or hereafter enacted to the contrary with respect to the
replacement or payment of negotiable instruments or other securities without
their surrender.
SECTION 2.09. Temporary Securities.
Pending the preparation of definitive Securities of any series, the
Company may execute and the Trustee shall authenticate and make available for
delivery temporary Securities (printed or lithographed). Temporary Securities
shall be issuable in any authorized denomination, and substantially in the
form of the definitive Securities but with such omissions, insertions and
variations as may be appropriate for temporary Securities, all as may be
determined by the Company. Every such temporary Security shall be executed by
the Company and be authenticated by the Trustee upon the same conditions and
in substantially the same manner, and with the same effect, as the definitive
Securities. Without unreasonable delay the Company will execute and deliver to
the Trustee or the Authenticating Agent definitive Securities and thereupon
any or all temporary Securities of such series may be surrendered in exchange
therefor, at the Corporate Trust Office or at any office or agency maintained
by the Company for such purpose as provided in Section 3.02, and the Trustee
or the Authenticating Agent shall, at the Company's written request,
authenticate and make available for delivery in exchange for such temporary
Securities a like aggregate principal amount of such definitive Securities.
Such exchange shall be made by the Company at its own expense and without any
charge therefor except that in case of any such exchange involving a
registration of transfer the Company may require payment of a sum sufficient
to cover any tax, fee or other governmental charge that may be imposed in
relation thereto. Until so exchanged, the temporary Securities of any series
shall in all respects be entitled to the same benefits under this Indenture as
definitive Securities of the same series authenticated and delivered
hereunder.
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SECTION 2.10. Cancellation of Securities Paid, etc.
All Securities surrendered for the purpose of payment, redemption,
exchange or registration of transfer, shall, if surrendered to the Company or
any paying agent, be surrendered to the Trustee and promptly cancelled by it,
or, if surrendered to the Trustee or any Authenticating Agent, shall be
promptly cancelled by it, and no Securities shall be issued in lieu thereof
except as expressly permitted by any of the provisions of this Indenture. All
Securities cancelled by any Authenticating Agent shall be delivered to the
Trustee. If the Company shall acquire any of the Securities, however, such
acquisition shall not operate as a redemption or satisfaction of the
indebtedness represented by such Securities unless and until the same are
surrendered to the Trustee for cancellation.
SECTION 2.11. Global Securities.
(a) If the Company shall establish pursuant to Section 2.03 that the
Securities of a particular series are to be issued as a Global Security, then
the Company shall execute and the Trustee shall, in accordance with Section
2.04, authenticate and make available for delivery, a Global Security that (i)
shall represent, and shall be denominated in an amount equal to the aggregate
principal amount of, all of the outstanding Securities of such series, (ii)
shall be registered in the name of the Depository Institution or its nominee,
(iii) shall be delivered by the Trustee to the Depository Institution or
pursuant to the Depository Institution's instruction and (iv) shall bear a
legend substantially to the following effect: "Except as otherwise provided in
Section 2.11 of the Indenture, this Security may be transferred, in whole but
not in part, only to another nominee of the Depository Institution or to a
successor Depository Institution or to a nominee of such successor Depository
Institution."
(b) Notwithstanding the provisions of Section 2.07, the Global
Security of a series may be transferred, in whole but not in part and in the
manner provided in Section 2.07, only to another nominee of the Depository
Institution for such series or to a successor Depository Institution for such
series selected or approved by the Company or to a nominee of such successor
Depository Institution.
(c) If at any time the Depository Institution for a series of the
Securities notifies the Company that it is unwilling or unable to continue as
Depository Institution for such series or if at any time the Depository
Institution for such series shall no longer be registered or in good standing
under the Exchange Act, or other applicable statute or regulation, and a
successor Depository Institution for such series is not appointed by the
Company within 90 days after the Company receives such notice or becomes aware
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of such condition, as the case may be, this Section 2.11 shall no longer be
applicable to the Securities of such series and the Company will execute, and
subject to Section 2.07, the Trustee will authenticate and make available for
delivery, the Securities of such series in definitive registered form without
coupons, in authorized denominations, and in an aggregate principal amount
equal to the principal amount of the Global Security of such series in
exchange for such Global Security. In addition, the Company may at any time
determine that the Securities of any series shall no longer be represented by
a Global Security and that the provisions of this Section 2.11 shall no longer
apply to the Securities of such series. In such event the Company will execute
and, subject to Section 2.07, the Trustee, upon receipt of an Officers'
Certificate evidencing such determination by the Company, will authenticate
and make available for delivery the Securities of such series in definitive
registered form without coupons, in authorized denominations, and in an
aggregate principal amount equal to the principal amount of the Global
Security of such series in exchange for such Global Security. Upon the
exchange of the Global Security for such Securities in definitive registered
form without coupons, in authorized denominations, the Global Security shall
be cancelled by the Trustee. Such Securities in definitive registered form
issued in exchange for the Global Security pursuant to this Section 2.11(c)
shall be registered in such names and in such authorized denominations as the
Depository Institution, pursuant to instructions from its direct or indirect
participants or otherwise, shall instruct the Trustee. The Trustee shall
deliver such Securities to the Depository Institution for delivery to the
Persons in whose names such Securities are so registered.
SECTION 2.12. CUSIP Numbers.
The Company in issuing the Securities may use "CUSIP" numbers (if then
generally in use), and, if so, the Trustee shall use "CUSIP" numbers in
notices of redemption as a convenience to Holders; provided that any such
notice may state that no representation is made as to the correctness of such
numbers either as printed on the Securities or as contained in any notice of a
redemption and that reliance may be placed only on the other identification
numbers printed on the Securities, and any such redemption shall not be
affected by any defect in or omission of such numbers. The Company will
promptly notify the Trustee of any change in the "CUSIP" numbers.
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ARTICLE III
PARTICULAR COVENANTS OF THE COMPANY.
SECTION 3.01. Payment of Principal, Premium and Interest.
The Company covenants and agrees for the benefit of the holders of each
series of Securities that it will duly and punctually pay or cause to be paid
the principal of, and premium, if any, and interest on, each of the Securities
of that series at the place, at the respective times and in the manner
provided in such Securities. Each installment of interest on the Securities of
any series may be paid, at the election of the Company, by mailing checks for
such interest payable to the order of the holders of Securities entitled
thereto as they appear on the Security Register or by wire transfer to an
account appropriately designated by the holders of Securities entitled
thereto.
SECTION 3.02. Offices for Notices and Payments, etc.
So long as any of the Securities remains outstanding, the Company will
maintain in the Borough of Manhattan, The City of New York, an office or
agency where the Securities of each series may be presented for payment, an
office or agency where the Securities of that Series may be presented for
registration of transfer and for exchange as in this Indenture provided, and
an office or agency where notices and demands to or upon the Company in
respect of the Securities of that Series or of this Indenture may be served.
The Company will give to the Trustee written notice of the location of any
such office or agency and of any change of location thereof. Until otherwise
designated from time to time by the Company in a notice to the Trustee, or
specified as contemplated by Section 2.03, any such office or agency for all
of the above purposes shall be the office or agency of the Trustee. In case
the Company shall fail to maintain any such office or agency in the Borough of
Manhattan, The City of New York, or shall fail to give such notice of the
location or of any change in the location thereof, presentations and demands
may be made and notices may be served at the Corporate Trust Office.
In addition to any such office or agency, the Company may from time to
time designate one or more offices or agencies outside the Borough of
Manhattan, The City of New York, where the Securities may be presented for
registration of transfer and for exchange in the manner provided in this
Indenture, and the Company may from time to time rescind such designation, as
the Company may deem desirable or expedient; provided, however, that no such
designation or rescission shall in any manner relieve the Company of its
obligation to maintain any such office or agency in the Borough of Manhattan,
The City of New York, for the purposes above mentioned. The Company will give
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to the Trustee prompt written notice of any such designation or rescission
thereof.
SECTION 3.03. Appointments to Fill Vacancies in Trustee's Office.
The Company, whenever necessary to avoid or fill a vacancy in the office
of Trustee, will appoint, in the manner provided in Section 6.10, a Trustee,
so that there shall at all times be a Trustee hereunder.
SECTION 3.04. Provision as to Paying Agent.
(a) If the Company shall appoint a paying agent other than the Trustee
with respect to the Securities of any series, it will cause such paying agent
to execute and deliver to the Trustee an instrument in which such agent shall
agree with the Trustee, subject to the provisions of this Section 3.04:
(1) that it will hold all sums held by it as such agent for the
payment of the principal of, and premium, if any, or interest, if any,
on, the Securities of such series (whether such sums have been paid to
it by the Company or by any other obligor on the Securities of such
series) in trust for the benefit of the holders of the Securities of
such series; and
(2) that it will give the Trustee notice of any failure by the Company
(or by any other obligor on the Securities of such series) to make any
payment of the principal of, and premium, if any, or interest, if any,
on, the Securities of such series when the same shall be due and
payable.
(b) If the Company shall act as its own paying agent, it will, on or
before each due date of the principal of and premium, if any, or interest, if
any, on the Securities of any series, set aside, segregate and hold in trust
for the benefit of the holders of the Securities of such series a sum
sufficient to pay such principal, premium or interest so becoming due and will
notify the Trustee of any failure to take such action and of any failure by
the Company (or by any other obligor under the Securities of such series) to
make any payment of the principal of, and premium, if any, or interest, if
any, on, the Securities of such series when the same shall become due and
payable.
(c) Anything in this Section 3.04 to the contrary notwithstanding, the
Company may, at any time, for the purpose of obtaining a satisfaction and
discharge with respect to one or more or all series of Securities hereunder,
or for any other reason, pay or cause to be paid to the Trustee all sums held
in trust for any such series by any paying agent hereunder, as required by
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this Section 3.04, such sums to be held by the Trustee upon the trusts herein
contained.
(d) Anything in this Section 3.04 to the contrary notwithstanding, the
agreement to hold sums in trust as provided in this Section 3.04 is subject to
Sections 11.03 and 11.04.
SECTION 3.05. Certificate to Trustee.
The Company will deliver to the Trustee, within 120 days after the end
of each calendar year, commencing with the first calendar year following the
issuance of Securities of any series under this Indenture, so long as
Securities of any series are outstanding hereunder, a Certificate stating that
in the course of the performance by the signer of his duties as an officer of
the Company he would normally have knowledge of any default (without regard to
any notice requirements or periods of grace) by the Company in the performance
of any covenants contained herein, stating whether or not he has knowledge of
any such default and, if so, specifying each such default of which the signer
has knowledge and the nature thereof.
SECTION 3.06. Compliance with Consolidation Provisions.
The Company will not, while any of the Securities remain outstanding,
consolidate with, or merge into, or merge into itself, or sell or convey all
or substantially all of its property to any other Person unless the provisions
of Article Ten hereof are complied with.
SECTION 3.07. Limitation on Dividends; Transactions with Affiliates.
If Securities are issued to a Potomac Electric Power Company Trust or a
trustee of such trust in connection with the issuance of Trust Securities by
such Potomac Electric Power Company Trust and (i) there shall have occurred an
Event of Default, or (ii) the Company shall be in default with respect to its
payment of any obligations under the Preferred Securities Guarantee or Common
Securities Guarantee relating to such Potomac Electric Power Company Trust,
then (a) the Company shall not declare or pay any dividend on, make any
distribution with respect to, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of its capital stock (other than (i)
purchases or acquisitions of shares of common stock of the Company in
connection with the satisfaction by the Company of its obligations under any
employee benefit plans or any other contractual obligation of the Company
(other than a contractual obligation ranking pari passu with or junior to the
Securities) or (ii) the purchase of fractional interests in shares of the
Company's capital stock pursuant to the conversion or exchange provisions of
such Company capital stock or the security being converted or exchanged),
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(b) the Company shall not make any payment of interest, principal or premium,
if any, on or repay, repurchase or redeem any debt securities issued by the
Company that rank pari passu with or junior to the Securities; and (c) the
Company shall not make any guarantee payments with respect to the foregoing
(other than pursuant to the Preferred Securities Guarantee).
SECTION 3.08. Covenants as to Potomac Electric Power Company Trusts.
In the event Securities are issued to a Potomac Electric Power Company
Trust or a trustee of such trust in connection with the issuance of Trust
Securities by such Potomac Electric Power Company Trust, for so long as such
Trust Securities remain outstanding, the Company will (i) maintain 100% direct
or indirect ownership of the Common Securities of such Potomac Electric Power
Company Trust; provided, however, that any permitted successor of the Company
under the Indenture may succeed to the Company's ownership of the Common
Securities, (ii) use its reasonable efforts to cause such Potomac Electric
Power Company Trust (a) to remain a statutory business trust, except in
connection with a distribution of Securities, the redemption of all of the
Trust Securities of such Potomac Electric Power Company Trust or certain
mergers, consolidations or amalgamations, each as permitted by the Declaration
of such Potomac Electric Power Company Trust, and (b) to otherwise continue
not to be treated as an association taxable as a corporation or partnership
for United States federal income tax purposes and (iii) use its reasonable
efforts to cause each holder of Trust Securities to be treated as owning an
individual beneficial interest in the Securities.
SECTION 3.09. Notice of Default.
The Company shall file with a Responsible Officer of the Trustee written
notice of the occurrence of any Default or Event of Default within 30 Business
Days of its becoming aware of any such Default or Event of Default.
ARTICLE IV
SECURITYHOLDERS' LISTS AND REPORTS BY THE
COMPANY AND THE TRUSTEE.
SECTION 4.01. Securityholders' Lists.
The Company covenants and agrees that it will furnish or cause to be
furnished to the Trustee:
(a) within five Business Days after a record date for each series of
Securities, a list, in such form as the Trustee may reasonably require, of the
names and addresses of the Securityholders of such series of Securities as of
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such record date (and on dates to be determined pursuant to Section 2.03 for
non-interest bearing securities in each year); and
(b) at such other times as the Trustee may request in writing, within
30 days after the receipt by the Company, of any such request, a list of
similar form and content as of a date not more than 15 days prior to the time
such list is furnished;
except that no such lists need be furnished so long as the Trustee is in
possession thereof by reason of its acting as Security registrar for such
series.
SECTION 4.02. Preservation and Disclosure of Lists.
(a) The Trustee shall preserve, in as current a form as is reasonably
practicable, all information as to the names and addresses of the holders of
each series of Securities (1) contained in the most recent list furnished to
it as provided in Section 4.01 or (2) received by it in the capacity of
Securities registrar (if so acting) hereunder. The Trustee may destroy any
list furnished to it as provided in Section 4.01 upon receipt of a new list so
furnished.
(b) In case three or more holders of Securities of any series
(hereinafter referred to as "applicants") apply in writing to the Trustee and
furnish to the Trustee reasonable proof that each such applicant has owned a
Security of such series for a period of at least 6 months preceding the date
of such application, and such application states that the applicants desire to
communicate with other holders of Securities of such series or with holders of
all Securities with respect to their rights under this Indenture or under such
Securities and is accompanied by a copy of the form of proxy or other
communication which such applicants propose to transmit, then the Trustee
shall within 5 Business Days after the receipt of such application, at its
election, either:
(1) afford such applicants access to the information preserved at the
time by the Trustee in accordance with the provisions of subsection (a)
of this Section 4.02; or
(2) inform such applicants as to the approximate number of holders of
such series or all Securities, as the case may be, whose names and
addresses appear in the information preserved at the time by the Trustee
in accordance with the provisions of subsection (a) of this Section
4.02, and as to the approximate cost of mailing to such Securityholders
the form of proxy or other communication, if any, specified in such
application.
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If the Trustee shall elect not to afford such applicants access to such
information, the Trustee shall, upon the written request of such
applicants, mail to each Securityholder of such series or all
Securities, as the case may be, whose name and address appear in the
information preserved at the time by the Trustee in accordance with the
provisions of subsection (a) of this Section 4.02 a copy of the form of
proxy or other communication which is specified in such request with
reasonable promptness after a tender to the Trustee of the material to
be mailed and of payment, or provision for the payment, of the
reasonable expenses of mailing, unless within 5 days after such tender,
the Trustee shall mail to such applicants and file with the Commission,
together with a copy of the material to be mailed, a written statement
to the effect that, in the opinion of the Trustee, such mailing would be
contrary to the best interests of the holders of Securities of such
series or all Securities, as the case may be, or would be in violation
of applicable law. Such written statement shall specify the basis of
such opinion. If the Commission, after opportunity for a hearing upon
the objections specified in the written statement so filed, shall enter
an order refusing to sustain any of such objections or if, after the
entry of an order sustaining one or more of such objections, the
Commission shall find, after notice and opportunity for hearing, that
all the objections so sustained have been met and shall enter an order
so declaring, the Trustee shall mail copies of such material to all such
Securityholders with reasonable promptness after the entry of such order
and the renewal of such tender; otherwise the Trustee shall be relieved
of any obligation or duty to such applicants respecting their
application.
(c) Each and every holder of Securities, by receiving and holding the
same, agrees with the Company and the Trustee that neither the Company nor the
Trustee nor any paying agent shall be held accountable by reason of the
disclosure of any such information as to the names and addresses of the
holders of Securities in accordance with the provisions of subsection (b) of
this Section 4.02, regardless of the source from which such information was
derived, and that the Trustee shall not be held accountable by reason of
mailing any material pursuant to a request made under said subsection (b).
SECTION 4.03. Reports by Company.
(a) The Company covenants and agrees to file with the Trustee, within
15 days after the Company is required to file the same with the Commission,
copies of the annual reports and of the information, documents and other
reports (or copies of such portions of any of the foregoing as the Commission
may from time to time by rules and regulations prescribe) which the Company
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may be required to file with the Commission pursuant to Section 13 or Section
15(d) of the Exchange Act; or, if the Company is not required to file
information, documents or reports pursuant to either of such sections, then to
file with the Trustee and the Commission, in accordance with rules and
regulations prescribed from time to time by the Commission, such of the
supplementary and periodic information, documents and reports which may be
required pursuant to Section 13 of the Exchange Act in respect of a security
listed and registered on a national securities exchange as may be prescribed
from time to time in such rules and regulations. Delivery of such reports,
information and documents to the Trustee is for informational purposes only
and the Trustee's receipt of such shall not constitute constructive notice of
any information contained therein or determinable from information contained
therein, including the Company's compliance with any of its covenants
hereunder (as to which the Trustee is entitled to rely exclusively on
Officers' Certificates).
(b) The Company covenants and agrees to file with the Trustee and the
Commission, in accordance with the rules and regulations prescribed from time
to time by the Commission, such additional information, documents and reports
with respect to compliance by the Company with the conditions and covenants
provided for in this Indenture as may be required from time to time by such
rules and regulations.
(c) The Company covenants and agrees to transmit by mail to all
holders of Securities in accordance with Section 313(c) of the Trust Indenture
Act, within 30 days after the filing thereof with the Trustee, such summaries
of any information, documents and reports required to be filed by the Company
pursuant to subsections (a) and (b) of this Section 4.03 as may be required by
rules and regulations prescribed from time to time by the Commission.
SECTION 4.04. Reports by the Trustee.
(a) The term "reporting date", as used in this Section, shall be
April 15 of each year, commencing with the first April 15 after the first
issuance of Securities of a series for which the Trustee is acting as Trustee
pursuant to this Indenture. Within 60 days after the reporting date in each
year, the Trustee shall transmit by mail to all holders of Securities as
provided in Section 313(c) of the Trust Indenture Act a brief report dated as
of such reporting date, if required by Section 313(a) of the Trust Indenture
Act.
(b) A copy of each such report shall, at the time of such transmission
to the holders of Securities, be filed by the Trustee with each stock exchange
upon which the Securities of any applicable series are listed and also with
the Commission. The Company will notify the Trustee promptly when and as the
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Securities of any series become listed on any stock exchange and any delisting
thereof.
(c) The Trustee shall comply with Sections 313(b) of the Trust
Indenture Act, if applicable.
ARTICLE V
REMEDIES OF THE TRUSTEE AND SECURITYHOLDERS
ON EVENT OF DEFAULT.
SECTION 5.01. Events of Default.
In case one or more of the following Events of Default with respect to
Securities of any series, or such other events as may be established with
respect to the Securities of that series as contemplated by Section 2.03
hereof, shall have occurred and be continuing:
(a) default in the payment of any interest upon any Securities of that
series when it becomes due and payable, and continuance of such default for a
period of 30 days; provided, however, that a valid extension of an interest
payment period by the Company in accordance with the terms of any particular
series of Securities established as contemplated in this Indenture shall not
constitute a default in the payment of interest for this purpose; or
(b) default in the payment of all or any part of the principal of, or
premium, if any, on, any Securities of that series as and when the same shall
become due and payable either at maturity, upon redemption (including
redemption for a sinking fund, if any), by declaration or otherwise; provided,
however, that a valid extension of the maturity of such Securities in
accordance with the terms of any particular series of Securities established
as contemplated in this Indenture shall not constitute a default in the
payment of principal or premium, if any, for this purpose; or
(c) default in the performance, or breach, of any covenant or warranty
of the Company in this Indenture (other than a covenant or warranty a default
in whose performance or whose breach is elsewhere in this Section specifically
dealt with and other than those set forth exclusively in terms of any
particular series of Securities established as contemplated in this
Indenture), and continuance of such default or breach for a period of 90 days
after there has been given, by registered or certified mail, to the Company by
the Trustee or to the Company and the Trustee by the holders of at least 25%
in principal amount of the outstanding Securities a written notice specifying
such default or breach and requiring it to be remedied and stating that such
notice is a "Notice of Default" hereunder; or
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(d) a court having jurisdiction in the premises shall enter a decree
or order for relief in respect of the Company in an involuntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, or appointing a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or similar official) of the Company or for any substantial part
of its property, or ordering the winding-up or liquidation of its affairs and
such decree or order shall remain unstayed and in effect for a period of 90
consecutive days; or
(e) the Company shall commence a voluntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, shall
consent to the entry of an order for relief in an involuntary case under any
such law, or shall consent to the appointment of or taking possession by a
receiver, liquidator, assignee, trustee, custodian, sequestrator (or other
similar official) of the Company or of any substantial part of its property,
or shall make any general assignment for the benefit of creditors, or shall
fail generally to pay its debts as they become due; or
(f) in the event Securities are issued to a Potomac Electric Power
Company Trust or a trustee of such trust in connection with the issuance of
Trust Securities by such Potomac Electric Power Company Trust, such Potomac
Electric Power Company Trust shall have voluntarily or involuntarily
dissolved, wound-up its business or otherwise terminated its existence except
in connection with (i) the distribution of Securities to holders of Trust
Securities in liquidation of their interests in such Potomac Electric Power
Company Trust, (ii) the redemption of all of the outstanding Trust Securities
of such Potomac Electric Power Company Trust or (iii) certain mergers,
consolidations or amalgamations, each as permitted by the Declaration of such
Potomac Electric Power Company Trust.
Then, and in each and every such case, unless the principal of all of
the Securities of such series shall have already become due and payable,
either the Trustee or the holders of not less than 25% in aggregate principal
amount of the Securities of that series then outstanding hereunder, by notice
in writing to the Company (and to the Trustee if given by Securityholders),
may declare the entire principal of all Securities of that series and the
interest accrued thereon, if any, to be due and payable immediately, and upon
any such declaration the same shall become immediately due and payable.
The foregoing provisions, however, are subject to the condition that if,
at any time after the principal of the Securities of any series (or of all the
Securities, as the case may be) shall have been so declared due and payable,
and before any judgment or decree for the payment of the moneys due shall have
been obtained or entered as hereinafter provided, the Company shall pay or
shall deposit with the Trustee a sum sufficient to pay all matured
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installments of interest upon all the Securities of such series (or of all the
Securities, as the case may be) and the principal of and premium, if any, on
any and all Securities of such series (or of all the Securities, as the case
may be) which shall have become due otherwise than by acceleration (with
interest upon such principal and premium, if any, and, to the extent that
payment of such interest is enforceable under applicable law, on overdue
installments of interest, at the same rate as the rate of interest specified
in the Securities of such series (or at the respective rates of interest of
all the Securities, as the case may be), to the date of such payment or
deposit) and such amount as shall be sufficient to cover reasonable
compensation to the Trustee and each predecessor Trustee, their respective
agents, attorneys and counsel, and all other expenses and liabilities
incurred, and all advances made, by the Trustee and each predecessor Trustee
except as a result of negligence or bad faith, and if any and all Events of
Default under the Indenture, other than the non-payment of the principal of or
premium, if any, on Securities which shall have become due by acceleration,
shall have been cured, waived or otherwise remedied as provided in this
Indenture, then and in every such case the holders of a majority in aggregate
principal amount of the Securities of such series (or of all the Securities,
as the case may be) then outstanding, by written notice to the Company and to
the Trustee, may waive all defaults with respect to that series (or with
respect to all Securities, as the case may be, in such case, treated as a
single class) and rescind and annul such declaration and its consequences, but
no such waiver or rescission and annulment shall extend to or shall affect any
subsequent default or shall impair any right consequent thereon.
In case the Trustee shall have proceeded to enforce any right under this
Indenture and such proceedings shall have been discontinued or abandoned
because of such rescission or annulment or for any other reason or shall have
been determined adversely to the Trustee, then and in every such case the
Company, the Trustee and the holders of the Securities shall be restored
respectively to their several positions and rights hereunder, and all rights,
remedies and powers of the Company, the Trustee and the holders of the
Securities shall continue as though no such proceeding had been taken.
SECTION 5.02. Payment of Securities on Default; Suit Therefor.
The Company covenants that (a) in case an Event of Default under Section
5.01(a), (b), (c) or (f) shall have occurred and be continuing, then, upon
demand of the Trustee, the Company will pay to the Trustee, for the benefit of
the holders of the Securities of that series, the whole amount that then shall
have become due and payable on all such Securities of that series for
principal and premium, if any, or interest, or both, as the case may be, with
interest upon the overdue principal and premium, if any, and (to the extent
that payment of such interest is enforceable under applicable law and, if the
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Securities are held by a Potomac Electric Power Company Trust or a trustee of
such trust, without duplication of any other amounts paid by Potomac Electric
Power Company Trust or trustee in respect thereof) upon the overdue
installments of interest at the rate borne by the Securities of that series;
and, in addition thereto, such further amount as shall be sufficient to cover
the costs and expenses of collection, including a reasonable compensation to
the Trustee, its agents, attorneys and counsel, and any expenses or
liabilities incurred by the Trustee hereunder other than through its
negligence or bad faith.
In case the Company shall fail forthwith to pay such amounts upon such
demand, the Trustee, in its own name and as trustee of an express trust, shall
be entitled and empowered to institute any action or proceedings at law or in
equity for the collection of the sums so due and unpaid, and may prosecute any
such action or proceeding to judgment or final decree, and may enforce any
such judgment or final decree against the Company or any other obligor on such
Securities and collect in the manner provided by law out of the property of
the Company or any other obligor on such Securities wherever situated the
moneys adjudged or decreed to be payable.
In case an Event of Default under Section 5.01(d) or (e) shall have
occurred, the Trustee, irrespective of whether the principal of the Securities
of any series shall then be due and payable as therein expressed or by
declaration or otherwise and irrespective of whether the Trustee shall have
made any demand pursuant to the provisions of this Section 5.02, shall be
entitled and empowered, by intervention in such proceedings or otherwise, to
file and prove a claim or claims for the whole amount of principal and
interest owing and unpaid in respect of the Securities of such series and, in
case of any judicial proceedings, to file such proofs of claim and other
papers or documents as may be necessary or advisable in order to have the
claims of the Trustee (including any claim for reasonable compensation to the
Trustee and each predecessor Trustee, and their respective agents, attorneys
and counsel, and for reimbursement of all expenses and liabilities incurred,
and all advances made, by the Trustee and each predecessor Trustee, except as
a result of negligence or bad faith) and of the Securityholders allowed in
such judicial proceedings relative to the Company or any other obligor on the
Securities of any series, or to the creditors or property of the Company or
such other obligor, unless prohibited by applicable law and regulations, to
vote on behalf of the holders of the Securities of any series in any election
of a trustee or a standby trustee in arrangement, reorganization, liquidation
or other bankruptcy or insolvency proceedings or person performing similar
functions in comparable proceedings, and to collect and receive any moneys or
other property payable or deliverable on any such claims, and to distribute
the same after the deduction of its charges and expenses; and any receiver,
assignee or trustee in bankruptcy or reorganization is hereby authorized by
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each of the Securityholders to make such payments to the Trustee, and, in the
event that the Trustee shall consent to the making of such payments directly
to the Securityholders, to pay to the Trustee such amounts as shall be
sufficient to cover reasonable compensation to the Trustee, each predecessor
Trustee and their respective agents, attorneys and counsel, and all other
expenses and liabilities incurred, and all advances made, by the Trustee and
each predecessor Trustee except as a result of negligence or willful
misconduct.
Nothing herein contained shall be construed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Securityholder any
plan of reorganization, arrangement, adjustment or composition affecting the
Securities of any series or the rights of any holder thereof or to authorize
the Trustee to vote in respect of the claim of any Securityholder in any such
proceeding.
All rights of action and of asserting claims under this Indenture, or
under any of the Securities, may be enforced by the Trustee without the
possession of any of the Securities, or the production thereof in any trial or
other proceeding relative thereto, and any such suit or proceeding instituted
by the Trustee shall be brought in its own name as trustee of an express
trust, and any recovery of judgment shall be for the ratable benefit of the
holders of the Securities.
In any proceedings brought by the Trustee (and also any proceedings
involving the interpretation of any provision of this Indenture to which the
Trustee shall be a party) the Trustee shall be held to represent all the
holders of the Securities, and it shall not be necessary to make any holders
of the Securities parties to any such proceedings.
SECTION 5.03. Application of Moneys Collected by Trustee.
Any moneys collected by the Trustee shall be applied in the order
following, at the date or dates fixed by the Trustee for the distribution of
such moneys, upon presentation of the several Securities in respect of which
moneys have been collected, and stamping thereon the payment, if only
partially paid, and upon surrender thereof if fully paid:
First: To the payment of costs and expenses of collection applicable to
such series and reasonable compensation to the Trustee, its agents, attorneys
and counsel, and of all other expenses and liabilities incurred, and all
advances made, by the Trustee except as a result of its negligence or bad
faith;
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Second: To the payment of all Senior Indebtedness and Other Financial
Obligations of the Company if and to the extent required by Article Fifteen;
Third: To the payment of the amounts then due and unpaid upon Securities
of such series for principal (and premium, if any), and interest on the
Securities of such series, in respect of which or for the benefit of which
money has been collected, ratably, without preference of priority of any kind,
according to the amounts due on such Securities for principal (and premium, if
any) and interest, respectively.
SECTION 5.04. Proceedings by Securityholders.
No holder of any Security of any series shall have any right by virtue
of or by availing of any provision of this Indenture to institute any suit,
action or proceeding in equity or at law upon or under or with respect to this
Indenture or for the appointment of a receiver or trustee, or for any other
remedy hereunder, unless such holder previously shall have given to the
Trustee written notice of an Event of Default and of the continuance thereof
with respect to the Securities of such series specifying such Event of
Default, as hereinbefore provided, and unless also the holders of not less
than 25% in aggregate principal amount of the Securities of that series then
outstanding shall have made written request upon the Trustee to institute such
action, suit or proceeding in its own name as Trustee hereunder and shall have
offered to the Trustee such 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 failed to institute any such action, suit or proceeding, it being
understood and intended, and being expressly covenanted by the taker and
holder of every Security with every other taker and holder and the Trustee,
that no one or more holders of Securities of any series shall have any right
in any manner whatever by virtue of or by availing of any provision of this
Indenture to affect, disturb or prejudice the rights of any other holder of
Securities, or to obtain or seek to obtain priority over or preference to any
other such holder, or to enforce any right under this Indenture, except in the
manner herein provided and for the equal, ratable and common benefit of all
holders of Securities of the applicable series.
Notwithstanding any other provisions in this Indenture, however, the
right of any holder of any Security to receive payment of the principal of
(premium, if any) and interest, if any, on such Security, on or after the same
shall have become due and payable, or to institute suit for the enforcement of
any such payment, shall not be impaired or affected without the consent of
such holder and by accepting a Security hereunder it is expressly understood,
intended and covenanted by the taker and holder of every Security of such
series with every other such taker and holder and the Trustee, that no one or
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more holders of Securities of such series shall have any right in any manner
whatsoever by virtue or by availing of any provision of this Indenture to
affect, disturb or prejudice the rights of the holders of any other such
Securities, or to obtain or seek to obtain priority over or preference to any
other such holder, or to enforce any right under this Indenture, except in the
manner herein provided and for the equal, ratable and common benefit of all
holders of Securities of such series. For the protection and enforcement of
the provisions of this Section, each and every Securityholder and the Trustee
shall be entitled to such relief as can be given either at law or in equity.
SECTION 5.05. Proceedings by Trustee.
In case of an Event of Default hereunder the Trustee may in its
discretion proceed to protect and enforce the rights vested in it by this
Indenture by such appropriate judicial proceedings as the Trustee shall deem
most effectual 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 the specific enforcement of any covenant or agreement contained in
this Indenture or in aid of the exercise of any power granted in this
Indenture, or to enforce any other legal or equitable right vested in the
Trustee by this Indenture or by law.
SECTION 5.06. Remedies Cumulative and Continuing.
Except as otherwise provided in the last paragraph of Section 2.08 with
respect to the replacement or payment of mutilated, lost or stolen Securities,
all powers and remedies given by this Article Five to the Trustee or to the
Securityholders shall, to the extent permitted by law, be deemed cumulative
and not exclusive of any other powers and remedies available to the Trustee or
the holders of the Securities, by judicial proceedings or otherwise, to
enforce the performance or observance of the covenants and agreements
contained in this Indenture or otherwise established with respect to such
series, and no delay or omission of the Trustee or of any holder of any of the
Securities to exercise any right or power accruing upon any Event of Default
occurring and continuing as aforesaid shall impair any such right or power, or
shall be construed to be a waiver of any such default or an acquiescence
therein; and, subject to the provisions of Section 5.04, every power and
remedy given by this Article Five or by law to the Trustee or to the
Securityholders may be exercised from time to time, and as often as shall be
deemed expedient, by the Trustee or by the Securityholders.
SECTION 5.07. Direction of Proceedings and Waiver of Defaults by
Majority of Securityholders.
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The holders of a majority in aggregate principal amount of the
Securities of any or all series affected (voting as one class) at the time
outstanding 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 (subject to the provisions of Section 6.01) the Trustee shall have the
right to decline to follow any such direction if the Trustee shall determine
that the action so directed would be unjustly prejudicial to the holders not
taking part in such direction or if the Trustee being advised by counsel
determines that the action or proceeding so directed may not lawfully be taken
or if the Trustee in good faith by its board of directors or trustees,
executive committee, or a trust committee of directors or trustees and/or
Responsible Officers shall determine that the action or proceedings so
directed would involve the Trustee in personal liability. Prior to any
declaration accelerating the maturity of any series of the Securities, or of
all the Securities, as the case may be, the holders of a majority in aggregate
principal amount of the Securities of that series at the time outstanding may
on behalf of the holders of all of the Securities of such series waive any
past default or Event of Default including any default established pursuant to
Section 2.03 and its consequences except a default (a) in the payment of
principal of, premium, if any, or interest on any of the Securities, (b) in
respect of covenants or provisions hereof which cannot be modified or amended
without the consent of the holder of each Security affected, or (c) a default
of the covenants contained in Section 3.06; provided, however, that if the
Securities of such series are held by a Potomac Electric Power Company Trust
or a trustee of such trust, such waiver or modification to such waiver shall
not be effective until the holders of a majority in liquidation amount of
Trust Securities of the applicable Potomac Electric Power Company Trust shall
have consented to such waiver or modification to such waiver; provided
further, that if the consent of the holder of each outstanding Security is
required, such waiver shall not be effective until each holder of the Trust
Securities of the applicable Potomac Electric Power Company Trust shall have
consented to such waiver. Upon any such waiver, the default covered thereby
shall be deemed to be cured for all purposes of this Indenture and the
Company, the Trustee and the holders of the Securities of such series shall be
restored to their former positions and rights hereunder, respectively; but no
such waiver shall extend to any subsequent or other default or impair any
right consequent thereon. Upon any such waiver the Company, the Trustee and
the holders of the Securities of that series (or of all Securities, as the
case may be) shall be restored to their former positions and rights hereunder,
respectively; but no such waiver shall extend to any subsequent or other
default or Event of Default or impair any right consequent thereon. Whenever
any default or Event of Default hereunder shall have been waived as permitted
by this Section 5.07, said default or Event of Default shall for all purposes
34
of the Securities of that series (or of all Securities, as the case may be)
and this Indenture be deemed to have been cured and to be not continuing.
The foregoing provisions shall be in lieu of Sections 316(a)(1)(A) and
316(a)(1)(B) of the Trust Indenture Act and such sections are hereby expressly
excluded from this Indenture and the Securities, as permitted by the Trust
Indenture Act.
SECTION 5.08. Notice of Defaults.
The Trustee shall, within 90 days after the occurrence of a default with
respect to the Securities of any series, mail to all Securityholders of that
series, as the names and addresses of such holders appear upon the Security
Register, notice of all defaults with respect to that series actually known to
a Responsible Officer of the Trustee, unless such defaults shall have been
cured before the giving of such notice (the term "defaults" for the purpose of
this Section 5.08 being hereby defined to be the events specified in clauses
(a), (b), (c), (d), (e) and (f) of Section 5.01, not including periods of
grace, if any, provided for therein, and irrespective of the giving of written
notice specified in clause (c) of Section 5.01); and provided that, except in
the case of default in the payment of the principal of, premium, if any, or
interest on any of the Securities of such series, the Trustee shall be
protected in withholding such notice if and so long as a trust committee of
directors and/or Responsible Officers of the Trustee in good faith determines
that the withholding of such notice is in the interests of the Securityholders
of such series; and provided further, that in the case of any default of the
character specified in Section 5.01(c), no such notice to Securityholders of
such series shall be given until at least 60 days after the occurrence thereof
but shall be given within 90 days after such occurrence.
SECTION 5.09. Undertaking to Pay Costs.
All parties to this Indenture agree, and each holder of any Security by
his acceptance thereof shall be deemed to have agreed, that any court may in
its discretion require, in any suit for the enforcement of any right or remedy
under this Indenture, or in any suit against the Trustee for any action taken
or omitted by it as Trustee, the filing by any party litigant in such suit of
an undertaking to pay the costs of such suit, and that such court may in its
discretion assess reasonable costs, including reasonable attorneys' fees and
expenses, against any party litigant in such suit, having due regard to the
merits and good faith of the claims or defenses made by such party litigant;
but the provisions of this Section 5.09 shall not apply to any suit instituted
by the Trustee, to any suit instituted by any Securityholder, or group of
Securityholders of any series, holding in the aggregate more than 10% in
principal amount of the Securities of that series outstanding, or to any suit
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instituted by any Securityholder for the enforcement of the payment of the
principal of (or premium, if any) or interest on any Security against the
Company on or after the same shall have become due and payable.
ARTICLE VI
CONCERNING THE TRUSTEE
SECTION 6.01. Duties and Responsibilities of Trustee.
With respect to the holders of any series of Securities issued
hereunder, the Trustee, prior to the occurrence of an Event of Default with
respect to Securities of that series and after the curing or waiving of all
Events of Default which may have occurred, with respect to Securities of that
series, undertakes to perform such duties and only such duties as are
specifically set forth in this Indenture. In case an Event of Default with
respect to the Securities of a series has occurred (which has not been cured
or waived) the Trustee shall exercise such of the rights and powers vested in
it by this Indenture, and use the same degree of care and skill in their
exercise, as a prudent person would exercise or use under the circumstances in
the conduct of such person's own affairs.
No provision of this Indenture 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, except that
(a) prior to the occurrence of an Event of Default with respect to
Securities of a series and after the curing or waiving of all Events of
Default with respect to that series which may have occurred
(1) the duties and obligations of the Trustee with respect to
Securities of a series shall be determined solely by the express
provisions of this Indenture, and the Trustee shall not be liable except
for the performance of such duties and obligations with respect to such
series as are specifically set forth in this Indenture, and no implied
covenants or obligations shall be read into this Indenture against the
Trustee; and
(2) in the absence of bad faith on the part of the Trustee, the
Trustee may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon any certificates or
opinions furnished to the Trustee and conforming to the requirements of
this Indenture; but, in the case of any such certificates or opinions
which by any provision hereof are specifically required to be furnished
to the Trustee, the Trustee shall be under a duty to examine the same to
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determine whether or not they conform to the requirements of this
Indenture (but need not confirm or investiage the accuracy of
mathematical calculations or other facts stated therein);
(b) the Trustee shall not be liable for any error of judgment made in
good faith by a Responsible Officer or Officers of the Trustee, unless it
shall be proved that the Trustee was negligent in ascertaining the pertinent
facts; and;
(c) the Trustee shall not be liable with respect to any action taken
or omitted to be taken by it in good faith, in accordance with the direction
of the Securityholders pursuant to Section 5.07, relating to the time, method
and place of conducting any proceeding for any remedy available to the
Trustee, or exercising any trust or power conferred upon the Trustee, under
this Indenture.
None of the provisions contained in this Indenture shall require the
Trustee to expend or risk its own funds or otherwise incur personal financial
liability in the performance of any of its duties or in the exercise of any of
its rights or powers, if there is reasonable ground for believing that the
repayment of such funds or liability is not reasonably assured to it under the
terms of this Indenture or adequate indemnity against such risk is not
reasonably assured to it.
SECTION 6.02. Reliance on Documents, Opinions, etc.
Except as otherwise provided in Section 6.01:
(a) the Trustee may conclusively rely and shall be protected in acting
or refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, bond, note,
debenture or other paper or document believed by it to be genuine and to have
been signed or presented by the proper party or parties;
(b) any request, direction, order or demand of the Company mentioned
herein shall be sufficiently evidenced by an Officers' Certificate (unless
other evidence in respect thereof be herein specifically prescribed); and any
Board Resolution may be evidenced to the Trustee by a copy thereof certified
by the Secretary or an Assistant Secretary of the Company;
(c) the Trustee may consult with counsel of its selection and any
advice or Opinion of Counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted by it hereunder
in good faith and in accordance with such advice or Opinion of Counsel;
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(d) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request, order or
direction of any of the Securityholders, pursuant to the provisions of this
Indenture, unless such Securityholders shall have offered to the Trustee
security or indemnity satisfactory to the Trustee against the costs, expenses
and liabilities which may be incurred therein or thereby;
(e) the Trustee shall not be liable for any action taken or omitted by
it in good faith and believed by it to be authorized or within the discretion
or rights or powers conferred upon it by this Indenture; nothing contained
herein shall, however, relieve the Trustee of the obligation, upon the
occurrence of an Event of Default with respect to a series of the Securities
(that has not been cured or waived) to exercise with respect to Securities of
that series such of the rights and powers vested in it by this Indenture, and
to use the same degree of care and skill in their exercise, as a prudent
person would exercise or use under the circumstances in the conduct of his or
her own affairs;
(f) 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, debenture,
coupon or other paper or document, unless requested in writing to do so by the
holders of not less than a majority in principal amount of the outstanding
Securities of the series affected thereby; 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
is, in the opinion of the Trustee, not reasonably assured to the Trustee by
the security afforded to it by the terms of this Indenture, the Trustee may
require reasonable indemnity against such expense or liability as a condition
to so proceeding;
(g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents
(including any Authenticating Agent), custodians, nominees or attorneys, and
the Trustee shall not be responsible for any misconduct or negligence on the
part of any such agent or attorney appointed by it with due care;
(h) the Trustee shall not be deemed to have notice of any Default or
Event of Default unless a Responsible Officer of the Trustee has actual
knowledge thereof or unless written notice of any event which is in fact such
default is received by the Trustee at the Corporate Trust Office, and such
notice references the Securities and this Indenture; and
(i) the rights, privileges, protections, immunities and benefits given
to the Trustee, including, without limitation, its right to be indemnified,
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are extended to, and shall be enforceable by, the Trustee in each of its
capacities hereunder, and to each agent, custodian and other Person employed
to act hereunder.
SECTION 6.03. No Responsibility for Recitals, etc.
The recitals contained herein and in the Securities (except in the
certificate of authentication of the Trustee or the Authenticating Agent)
shall be taken as the statements of the Company and any Trustee and any
Authenticating Agent assume no responsibility for the correctness of the same.
The Trustee and any Authenticating Agent make no representations as to the
validity or sufficiency of this Indenture or of the Securities. The Trustee
and any Authenticating Agent shall not be accountable for the use or
application by the Company of any Securities or the proceeds of any Securities
authenticated and delivered by the Trustee or any Authenticating Agent in
conformity with the provisions of this Indenture.
SECTION 6.04. Trustee, Authenticating Agent, Paying Agents, Transfer
Agents or Registrar May Own Securities.
The Trustee or any Authenticating Agent or any paying agent or any
transfer agent or any Security registrar, in its individual or any other
capacity, may become the owner or pledgee of Securities with the same rights
it would have if it were not Trustee, Authenticating Agent, paying agent,
transfer agent or Security registrar.
SECTION 6.05. Moneys to be Held in Trust.
Subject to the provisions of Section 11.04, all moneys received by the
Trustee or any paying agent shall, until used or applied as herein provided,
be held in trust for the purpose for which they were received, but need not be
segregated from other funds except to the extent required by law. The Trustee
and any paying agent shall be under no liability for interest on any money
received by it hereunder except as otherwise agreed in writing with the
Company. So long as no Event of Default shall have occurred and be
continuing, all interest allowed on any such moneys shall be paid from time to
time upon the written order of the Company, signed by the Chairman of the
Board of Directors, the President, any Vice President, the Treasurer or any
Assistant Treasurer of the Company.
SECTION 6.06. Compensation and Expenses of Trustee.
The Company, as borrower, covenants and agrees to pay to the Trustee
from time to time, and the Trustee shall be entitled to, such compensation as
shall be agreed in writing between the Company and the Trustee (which shall
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not be limited by any provision of law in regard to the compensation of a
trustee of an express trust), and the Company will pay or reimburse the
Trustee upon its request for all reasonable expenses, disbursements and
advances incurred or made by the Trustee in accordance with any of the
provisions of this Indenture (including the reasonable compensation and the
expenses and disbursements of its counsel and of all persons not regularly in
its employ) except any such expense, disbursement or advance as may arise from
its negligence or bad faith. The Company also covenants to indemnify each of
the Trustee and any predecessor Trustee (and their respective officers,
agents, directors and employees) for, and to hold it harmless against any and
all loss, liability or expense incurred without negligence or bad faith on the
part of the Trustee and arising out of or in connection with the acceptance or
administration of this trust, including the costs and expenses of defending
itself against any claim of liability in the premises. The obligations of the
Company under this Section 6.06 to compensate and indemnify the Trustee and to
pay or reimburse the Trustee for expenses, disbursements and advances shall
constitute additional indebtedness hereunder, and shall survive the
resignation or removal of the Trustee and the termination of this Indenture.
Such additional indebtedness shall be secured by a lien prior to that of the
Securities upon all property and funds held or collected by the Trustee as
such, except funds held in trust for the benefit of the holders of particular
Securities.
When the Trustee incurs expenses or renders services in connection with
an Event of Default specified in Section 5.01(d) or Section 5.01(e), the
expenses (including the reasonable charges and expenses of its counsel) and
the compensation for services are intended to constitute expenses of
administration under any applicable federal or state bankruptcy, insolvency or
other similar law.
SECTION 6.07. Officers' Certificate as Evidence.
Except as otherwise provided in Sections 6.01 and 6.02, whenever in the
administration of the provisions of this Indenture the Trustee shall deem it
necessary or desirable that a matter be proved or established prior to taking
or omitting any action hereunder, such matter (unless other evidence in
respect thereof be herein specifically prescribed) may, in the absence of
negligence or bad faith on the part of the Trustee, be deemed to be
conclusively proved and established by an Officers' Certificate delivered to
the Trustee, and such certificate, in the absence of negligence or bad faith
on the part of the Trustee, shall be full warrant to the Trustee for any
action taken or omitted by it under the provisions of this Indenture upon the
faith thereof.
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SECTION 6.08. Conflicting Interest of Trustee.
If the Trustee has or shall acquire any "conflicting interest" within
the meaning of Section 310(b) of the Trust Indenture Act, the Trustee and the
Company shall in all respects comply with the provisions of Section 310(b) of
the Trust Indenture Act.
SECTION 6.09. Eligibility of Trustee.
The Trustee hereunder shall at all times be a corporation organized and
doing business under the laws of the United States of America or any state or
territory thereof or of the District of Columbia or a corporation or other
Person permitted to act as trustee by the Commission authorized under such
laws to exercise corporate trust powers, having a combined capital and surplus
of at least $50,000,000 (US) and subject to supervision or examination by
federal, state, territorial, or District of Columbia authority. If such
corporation or other Person publishes reports of condition at least annually,
pursuant to law or to the requirements of the aforesaid supervising or
examining authority, then for the purposes of this Section 6.09 the combined
capital and surplus of such corporation or other Person shall be deemed to be
its combined capital and surplus as set forth in its most recent report of
condition so published.
The Company may not, nor may any Person directly or indirectly
controlling, controlled by, or under common control with the Company, serve as
Trustee.
In case at any time the Trustee shall cease to be eligible in accordance
with the provisions of this Section 6.09, the Trustee shall resign immediately
in the manner and with the effect specified in Section 6.10.
SECTION 6.10. Resignation or Removal of Trustee.
(a) The Trustee, or any trustee or trustees hereafter appointed, may
at any time resign with respect to one or more or all series of Securities by
giving written notice of such resignation to the Company and by mailing notice
thereof to the holders of the applicable series of Securities at their
addresses as they shall appear on the Security Register. Upon receiving such
notice of resignation, the Company shall promptly appoint a successor trustee
or trustees with respect to the applicable series by written instrument, in
duplicate, executed by order of its Board of Directors, one copy of which
instrument shall be delivered to the resigning Trustee and one copy to the
successor trustee. If no successor trustee shall have been so appointed with
respect to any series of Securities and have accepted appointment within 30
days after the mailing of such notice of resignation to the affected
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Securityholders, the resigning Trustee may, at the expense of the Company,
petition any court of competent jurisdiction for the appointment of a
successor trustee, or any Securityholder who has been a bona fide holder of a
Security or Securities of the applicable series for at least six months may,
subject to the provisions of Section 5.09, on behalf of himself and all others
similarly situated, petition any such court for the appointment of a successor
trustee. Such court may thereupon, after such notice, if any, as it may deem
proper and prescribe, appoint a successor trustee.
(b) In case at any time any of the following shall occur --
(i) the Trustee shall fail to comply with the provisions of Section
6.08 after written request therefor by the Company or by any
Securityholder who has been a bona fide holder of a Security or
Securities for at least six months, or
(ii) the Trustee shall cease to be eligible in accordance with the
provisions of Section 6.09 and shall fail to resign after written
request therefor by the Company or by any such Securityholder, or
(iii)the Trustee shall become incapable of acting, or shall be adjudged
a 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 property or affairs for the purpose of
rehabilitation, conservation or liquidation,
then, in any such case, the Company may remove the Trustee and appoint a
successor trustee by written instrument, in duplicate, executed by order of
the Board of Directors, one copy of which instrument shall be delivered to the
Trustee so removed and one copy to the successor trustee, or, subject to the
provisions of Section 5.09, any Securityholder who has been a bona fide holder
of a Security or Securities of the applicable series for at least six months
may, on behalf of himself and all others similarly situated, petition any
court of competent jurisdiction for the removal of the Trustee and the
appointment of a successor trustee. Such court may thereupon, after such
notice, if any, as it may deem proper and prescribe, remove the Trustee and
appoint a successor trustee.
(c) The holders of a majority in aggregate principal amount of the
Securities of any series at the time outstanding may at any time remove the
Trustee with respect to such series and nominate a successor trustee with
respect to the applicable series of Securities or all series, as the case may
be, which shall be deemed appointed as successor trustee with respect to the
applicable series unless within 10 days after such nomination the Company
objects thereto, in which case the Trustee so removed or any Securityholder of
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the applicable series, upon the terms and conditions and otherwise as provided
in subsection (a) of this Section 6.10, may, at the expense of the Company,
petition any court of competent jurisdiction for an appointment of a successor
trustee with respect to such series.
(d) Any resignation or removal of the Trustee and appointment of a
successor trustee pursuant to any of the provisions of this Section 6.10 shall
become effective upon acceptance of appointment by the successor trustee as
provided in Section 6.11.
SECTION 6.11. Acceptance by Successor Trustee.
Any successor trustee appointed as provided in Section 6.10 shall
execute, acknowledge and deliver to the Company and to its predecessor trustee
an instrument accepting such appointment hereunder, and thereupon the
resignation or removal of the retiring trustee with respect to all or any
applicable series shall become effective and such successor trustee, without
any further act, deed or conveyance, shall become vested with all the rights,
powers, duties and obligations with respect to such series of its predecessor
hereunder, with like effect as if originally named as trustee herein; but,
nevertheless, on the written request of the Company or of the successor
trustee, the trustee ceasing to act shall, upon payment of any amounts then
due it pursuant to the provisions of Section 6.06, execute and deliver an
instrument transferring to such successor trustee all the rights and powers of
the trustee so ceasing to act and shall duly assign, transfer and deliver to
such successor trustee all property and money held by such retiring trustee
thereunder. Upon request of any such successor trustee, the Company shall
execute any and all instruments in writing for more fully and certainly
vesting in and confirming to such successor trustee all such rights and
powers. Any trustee ceasing to act shall, nevertheless, retain a lien upon all
property or funds held or collected by such trustee to secure any amounts then
due it pursuant to the provisions of Section 6.06.
If a successor trustee is appointed with respect to the Securities of
one or more (but not all) series, the Company, the retiring trustee and each
successor trustee with respect to the Securities of any applicable series
shall execute and deliver an indenture supplemental hereto which shall contain
such provisions as shall be deemed necessary or desirable to confirm that all
the rights, powers, trusts and duties of the retiring trustee with respect to
the Securities of any series as to which the predecessor trustee is not
retiring shall continue to be vested in the predecessor trustee, and shall add
to or change any of the provisions of this Indenture as shall be necessary to
provide for or facilitate the administration of the trust hereunder by more
than one trustee, it being understood that nothing herein or in such
supplemental indenture shall constitute such trustees co-trustees of the same
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trust and that each such trustee shall be trustee of a trust or trusts
hereunder separate and apart from any trust or trusts hereunder administered
by any other such trustee.
No successor trustee shall accept appointment as provided in this
Section 6.11 unless at the time of such acceptance such successor trustee
shall be qualified under the provisions of Section 6.08 and eligible under the
provisions of Section 6.09.
Upon acceptance of appointment by a successor trustee as provided in
this Section 6.11, the Company shall mail notice of the succession of such
trustee hereunder to the holders of Securities of any applicable series at
their addresses as they shall appear on the Security Register. If the Company
fails to mail such notice within 10 days after the acceptance of appointment
by the successor trustee, the successor trustee shall cause such notice to be
mailed at the expense of the Company.
SECTION 6.12. Succession by Merger, etc.
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any
merger, conversion or consolidation to which the Trustee shall be a party, or
any corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder
without the execution or filing of any paper or any further act on the part of
any of the parties hereto.
In case at the time such successor to the Trustee shall succeed to the
trusts created by this Indenture any of the Securities of any series shall
have been authenticated but not delivered, any such successor to the Trustee
may adopt the certificate of authentication of any predecessor trustee, and
deliver such Securities so authenticated; and in case at that time any of the
Securities of any series shall not have been authenticated, any successor to
the Trustee may authenticate such Securities either in the name of any
predecessor hereunder or in the name of the successor trustee; and in all such
cases such certificates shall have the full force which it is anywhere in the
Securities of such series or in this Indenture provided that the certificate
of the Trustee shall have; provided, however, that the right to adopt the
certificate of authentication of any predecessor Trustee or authenticate
Securities of any series in the name of any predecessor Trustee shall apply
only to its successor or successors by merger, conversion or consolidation.
SECTION 6.13. Limitation on Rights of Trustee as a Creditor.
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The Trustee shall comply with Section 311(a) of the Trust Indenture Act,
excluding any creditor relationship described in Section 311(b) of the Trust
Indenture Act. A Trustee who has resigned or been removed shall be subject to
Section 311(a) of the Trust Indenture Act to the extent included therein.
SECTION 6.14. Authenticating Agents.
There may be one or more Authenticating Agents appointed by the Trustee
upon the request of the Company with power to act on its behalf and subject to
its direction in the authentication and delivery of Securities of any series
issued upon exchange or transfer thereof as fully to all intents and purposes
as though any such Authenticating Agent had been expressly authorized to
authenticate and deliver Securities of such series; provided, that the Trustee
shall have no liability to the Company for any acts or omissions of the
Authenticating Agent with respect to the authentication and delivery of
Securities of any series. Any such Authenticating Agent shall at all times be
a corporation organized and doing business under the laws of the United States
or of any state or territory thereof or of the District of Columbia authorized
under such laws to act as Authenticating Agent, having a combined capital and
surplus of at least $5,000,000 and being subject to supervision or examination
by federal, state, territorial or District of Columbia authority. If such
corporation publishes reports of condition at least annually pursuant to law
or the requirements of such authority, then for the purposes of this Section
6.14 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. If at any time an Authenticating Agent shall cease to
be eligible in accordance with the provisions of this Section, it shall resign
immediately in the manner and with the effect herein specified in this
Section.
Any corporation into which any Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, consolidation or conversion to which any Authenticating Agent
shall be a party, or any corporation succeeding to all or substantially all
the corporate trust business of any Authenticating Agent, shall be the
successor of such Authenticating Agent hereunder, if such successor
corporation is otherwise eligible under this Section 6.14 without the
execution or filing of any paper or any further act on the part of the parties
hereto or such Authenticating Agent.
Any Authenticating Agent may at any time resign with respect to one or
more or all series of Securities by giving written notice of resignation to
the Trustee and to the Company. The Trustee may at any time terminate the
agency of any Authenticating Agent with respect to one or more or all series
of Securities by giving written notice of termination to such Authenticating
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Agent and to the Company. Upon receiving such a notice of resignation or upon
such a termination, or in case at any time any Authenticating Agent shall
cease to be eligible under this Section 6.14, the Trustee may, and upon the
request of the Company shall, promptly appoint a successor Authenticating
Agent with respect to the applicable series eligible under this Section 6.14,
shall give written notice of such appointment to the Company and shall mail
notice of such appointment to all holders of the applicable series of
Securities as the names and addresses of such holders appear on the Security
Register. Any successor Authenticating Agent with respect to all or any series
upon acceptance of its appointment hereunder shall become vested with all
rights, powers, duties and responsibilities with respect to such series of its
predecessor hereunder, with like effect as if originally named as
Authenticating Agent herein.
The Company agrees to pay to any Authenticating Agent from time to time
reasonable compensation for its services. In the absence of negligence or
willful misconduct, any Authenticating Agent shall have no responsibility or
liability for any action taken by it as such in accordance with the directions
of the Trustee.
ARTICLE VII
CONCERNING THE SECURITYHOLDERS
SECTION 7.01. Action by Securityholders.
Whenever in this Indenture it is provided that the holders of a
specified percentage in aggregate principal amount of the Securities of any or
all series may take any action (including the making of any demand or request,
the giving of any notice, consent or waiver or the taking of any other action)
the fact that at the time of taking any such action the holders of such
specified percentage have joined therein may be evidenced (a) by any
instrument or any number of instruments of similar tenor executed by such
Securityholders in person or by agent or proxy appointed in writing, or (b) by
the record of such holders of Securities voting in favor thereof at any
meeting of such Securityholders duly called and held in accordance with the
provisions of Article Eight, or (c) by a combination of such instrument or
instruments and any such record of such a meeting of such Securityholders.
If the Company shall solicit from the Securityholders of any series any
request, demand, authorization, direction, notice, consent, waiver or other
action, the Company may, at its option, as evidenced by an Officers'
Certificate, fix in advance a record date for such series for the
determination of Securityholders entitled to give such request, demand,
authorization, direction, notice, consent, waiver or other action, but the
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Company shall have no obligation to do so. If such a record date is fixed,
such request, demand, authorization, direction, notice, consent, waiver or
other action may be given before or after the record date, but only the
Securityholders of record at the close of business on the record date shall be
deemed to be Securityholders for the purposes of determining whether
Securityholders of the requisite proportion of outstanding Securities of that
series have authorized or agreed or consented to such request, demand,
authorization, direction, notice, consent, waiver or other action, and for
that purpose the outstanding Securities of that series shall be computed as of
the record date; provided, however, that no such authorization, agreement or
consent by such Securityholders on the record date shall be deemed effective
unless it shall become effective pursuant to the provisions of this Indenture
not later than six months after the record date.
SECTION 7.02. Proof of Execution by Securityholders.
Subject to the provisions of Section 6.01, 6.02 and 8.05, proof of the
execution of any instrument by a Securityholder or his agent or proxy shall be
sufficient if made in accordance with such reasonable rules and regulations as
may be prescribed by the Trustee or in such manner as shall be satisfactory to
the Trustee. The ownership of Securities shall be proved by the Security
Register or by a certificate of the Security registrar. The Trustee may
require such additional proof of any matter referred to in this Section as it
shall deem necessary.
The record of any Securityholders' meeting shall be proved in the manner
provided in Section 8.06.
SECTION 7.03. Who Are Deemed Absolute Owners.
Prior to due presentment for registration of transfer of any Security,
the Company, the Trustee, any Authenticating Agent, any paying agent, any
transfer agent and any Security registrar may deem the person in whose name
such Security shall be registered upon the Security Register to be, and may
treat him as, the absolute owner of such Security (whether or not such
Security shall be overdue) for the purpose of receiving payment of or on
account of the principal of, premium, if any, and interest on such Security
and for all other purposes; and neither the Company nor the Trustee nor any
Authenticating Agent nor any paying agent nor any transfer agent nor any
Security registrar shall be affected by any notice to the contrary. All such
payments so made to any holder for the time being or upon his order shall be
valid, and, to the extent of the sum or sums so paid, effectual to satisfy and
discharge the liability for moneys payable upon any such Security.
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SECTION 7.04. Securities Owned by Company Deemed Not Outstanding.
In determining whether the holders of the requisite aggregate principal
amount of Securities have concurred in any direction, consent or waiver under
this Indenture, Securities which are owned by the Company or any other obligor
on the Securities or by any Person directly or indirectly controlling or
controlled by or under direct or indirect common control with the Company or
any other obligor on the Securities shall be disregarded and deemed not to be
outstanding for the purpose of any such determination; provided that for the
purposes of determining whether the Trustee shall be protected in relying on
any such direction, consent or waiver, only Securities which a Responsible
Officer actually knows are so owned shall be so disregarded. Securities so
owned which have been pledged in good faith may be regarded as outstanding for
the purposes of this Section 7.04 if the pledgee shall establish to the
satisfaction of the Trustee the pledgee's right to vote such Securities and
that the pledgee is not the Company or any such other obligor or Person
directly or indirectly controlling or controlled by or under direct or
indirect common control with the Company or any such other obligor. In the
case of a dispute as to such right, any decision by the Trustee taken upon the
advice of counsel shall be full protection to the Trustee.
SECTION 7.05. Revocation of Consents; Future Holders Bound.
At any time prior to (but not after) the evidencing to the Trustee, as
provided in Section 7.01, of the taking of any action by the holders of the
percentage in aggregate principal amount of the Securities specified in this
Indenture in connection with such action, any holder of a Security (or any
Security issued in whole or in part in exchange or substitution therefor) the
serial number of which is shown by the evidence to be included in the
Securities the holders of which have consented to such action may, by filing
written notice with the Trustee at its principal office and upon proof of
holding as provided in Section 7.02, revoke such action so far as concerns
such Security (or so far as concerns the principal amount represented by any
exchanged or substituted Security). Except as aforesaid any such action taken
by the holder of any Security shall be conclusive and binding upon such holder
and upon all future holders and owners of such Security, and of any Security
issued in exchange or substitution therefor, irrespective of whether or not
any notation in regard thereto is made upon such Security or any Security
issued in exchange or substitution therefor.
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ARTICLE VIII
SECURITYHOLDERS' MEETINGS
SECTION 8.01. Purposes of Meetings.
A meeting of Securityholders of any or all series may be called at any
time and from time to time pursuant to the provisions of this Article Eight
for any of the following purposes:
(a) to give any notice to the Company or to the Trustee, or to give
any directions to the Trustee, or to consent to the waiving of any default
hereunder and its consequences, or to take any other action authorized to be
taken by Securityholders pursuant to any of the provisions of Article Five;
(b) to remove the Trustee and nominate a successor trustee pursuant to
the provisions of Article Six;
(c) to consent to the execution of an indenture or indentures
supplemental hereto pursuant to the provisions of Section 9.02; or
(d) to take any other action authorized to be taken by or on behalf of
the holders of any specified aggregate principal amount of such Securities
under any other provision of this Indenture or under applicable law.
SECTION 8.02. Call of Meetings by Trustee.
The Trustee may at any time call a meeting of Securityholders of any or
all series to take any action specified in Section 8.01, to be held at such
time and at such place in the Borough of Manhattan, The City of New York, as
the Trustee shall determine. Notice of every meeting of the Securityholders
of any or all series, setting forth the time and the place of such meeting and
in general terms the action proposed to be taken at such meeting, shall be
mailed to holders of Securities of each series affected at their addresses as
they shall appear on the Security Register of such series. Such notice shall
be mailed not less than 20 nor more than 180 days prior to the date fixed for
the meeting.
SECTION 8.03. Call of Meetings by Company or Securityholders.
In case at any time the Company pursuant to a resolution of the Board of
Directors, or the holders of at least 10% in aggregate principal amount of the
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Securities of any or all series, as the case may be, then outstanding, shall
have requested the Trustee to call a meeting of Securityholders of any or all
series, as the case may be, by written request setting forth in reasonable
detail the action proposed to be taken at the meeting, and the Trustee shall
not have mailed the notice of such meeting within 20 days after receipt of
such request, then the Company or such Securityholders may determine the time
and the place in said Borough of Manhattan for such meeting and may call such
meeting to take any action authorized in Section 8.01, by mailing notice
thereof as provided in Section 8.02.
SECTION 8.04. Qualifications for Voting.
To be entitled to vote at any meeting of Securityholders a person shall
(a) be a holder of one or more Securities with respect to which the meeting is
being held or (b) a person appointed by an instrument in writing as proxy by a
holder of one or more such Securities. The only persons who shall be entitled
to be present or to speak at any meeting of Securityholders shall be the
persons entitled to vote at such meeting and their counsel and any
representatives of the Trustee and its counsel and any representatives of the
Company and its counsel.
SECTION 8.05. Regulations.
Notwithstanding any other provisions of this Indenture, the Trustee may
make such reasonable regulations as it may deem advisable for any meeting of
Securityholders, in regard to proof of the holding of Securities and of the
appointment of proxies, and in regard to the appointment and duties of
inspectors of votes, the submission and examination of proxies, certificates
and other evidence of the right to vote, and such other matters concerning the
conduct of the meeting as it shall think fit.
The Trustee shall, by an instrument in writing, appoint a temporary
chairman of the meeting, unless the meeting shall have been called by the
Company or by Securityholders as provided in Section 8.03, in which case the
Company or the Securityholders calling the meeting, as the case may be, shall
in like manner appoint a temporary chairman. A permanent chairman and a
permanent secretary of the meeting shall be elected by majority vote of the
meeting.
Subject to the provisions of Section 7.04, at any meeting each holder of
Securities with respect to which such meeting is being held or proxy therefor
shall be entitled to one vote for each $1,000 principal amount of Securities
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held or represented by him; provided, however, that no vote shall be cast or
counted at any meeting in respect of any Security challenged as not
outstanding and ruled by the chairman of the meeting to be not outstanding.
The chairman of the meeting shall have no right to vote other than by virtue
of Securities held by him or instruments in writing as aforesaid duly
designating him as the person to vote on behalf of other Securityholders. Any
meeting of Securityholders duly called pursuant to the provisions of Section
8.02 or 8.03 may be adjourned from time to time by a majority of those
present, whether or not constituting a quorum, and the meeting may be held as
so adjourned without further notice.
SECTION 8.06. Voting.
The vote upon any resolution submitted to any meeting of holders of
Securities with respect to which such meeting is being held shall be by
written ballots on which shall be subscribed the signatures of such holders or
of their representatives by proxy and the serial number or numbers of the
Securities held or represented by them. The permanent chairman of the meeting
shall appoint two inspectors of votes who shall count all votes cast at the
meeting for or against any resolution and who shall make and file with the
secretary of the meeting their verified written reports in triplicate of all
votes cast at the meeting. A record in duplicate of the proceedings of each
meeting of Securityholders shall be prepared by the secretary of the meeting
and there shall be attached to said record the original reports of the
inspectors of votes on any vote by ballot taken thereat and affidavits by one
or more persons having knowledge of the facts setting forth a copy of the
notice of the meeting and showing that said notice was mailed as provided in
Section 8.02. The record shall show the serial numbers of the Securities
voting in favor of or against any resolution. The record shall be signed and
verified by the affidavits of the permanent chairman and secretary of the
meeting and one of the duplicates shall be delivered to the Company and the
other to the Trustee to be preserved by the Trustee, the latter to have
attached thereto the ballots voted at the meeting.
Any record so signed and verified shall be conclusive evidence of the
matters therein stated.
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ARTICLE IX
SUPPLEMENTAL INDENTURES
SECTION 9.01. Supplemental Indentures without Consent of
Securityholders.
The Company and the Trustee may from time to time and at any time enter
into an indenture or indentures supplemental hereto (which shall conform to
the provisions of the Trust Indenture Act as then in effect), without the
consent of the Securityholders, for one or more of the following purposes:
(a) to evidence the succession of another corporation to the Company,
or successive successions, and the assumption by the successor corporation of
the covenants, agreements and obligations of the Company pursuant to Article
Ten hereof;
(b) to add to the covenants of the Company such further covenants,
restrictions or conditions for the protection of the holders of all or any
series of Securities (and if such covenants are to be for the benefit of less
than all series of Securities stating that such covenants are expressly being
included for the benefit of such series) as the Board of Directors and the
Trustee shall consider to be for the protection of the holders of such
Securities, and to make the occurrence, or the occurrence and continuance, of
a default in any of such additional covenants, restrictions or conditions a
default or an Event of Default permitting the enforcement of all or any of the
several remedies provided in this Indenture as herein set forth; provided,
however, that in respect of any such additional covenant, restriction or
condition such supplemental indenture may provide for a particular period of
grace after default (which period may be shorter or longer than that allowed
in the case of other defaults) or may provide for an immediate enforcement
upon such default or may limit the remedies available to the Trustee upon such
default;
(c) to provide for the issuance under this Indenture of Securities in
coupon form (including Securities registrable as to principal only) and to
provide for exchangeability of such Securities with the Securities issued
hereunder in fully registered form and to make all appropriate changes for
such purpose;
(d) to cure any ambiguity or to correct or supplement any provision
contained herein or in any supplemental indenture which may be defective or
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inconsistent with any other provision contained herein or in any supplemental
indenture, or to make such other provisions in regard to matters or questions
arising under this Indenture; provided that any such action shall not
adversely affect the interests of the holders of the Securities;
(e) to evidence and provide for the acceptance of appointment
hereunder by a successor trustee with respect to the Securities of one or more
series and to add to or change any of the provisions of this Indenture as
shall be necessary to provide for or facilitate the administration of the
trusts hereunder by more than one trustee, pursuant to the requirements of
Section 6.11;
(f) to make any change that does not adversely affect the rights of
any Securityholder in any material respect; or
(g) to provide for the issuance of and establish the form and terms
and conditions of the Securities of any series, as permitted by Sections 2.01
and 2.03, to establish the form of any certifications required to be furnished
pursuant to the terms of this Indenture or any series of Securities, or to add
to the rights of the holders of any series of Securities.
The Trustee is hereby authorized to join with the Company in the
execution of any such supplemental indenture, to make any further appropriate
agreements and stipulations which may be therein contained and to accept the
conveyance, transfer and assignment of any property thereunder, but the
Trustee shall not be obligated to, but may in its discretion, enter into any
such supplemental indenture which affects the Trustee's own rights, duties or
immunities under this Indenture or otherwise.
Any supplemental indenture authorized by the provisions of this Section
9.01 may be executed by the Company and the Trustee without the consent of the
holders of any of the Securities at the time outstanding, notwithstanding any
of the provisions of Section 9.02.
SECTION 9.02. Supplemental Indentures with Consent of Securityholders.
With the consent (evidenced as provided in Section 7.01) of the holders
of not less than a majority in aggregate principal amount of the Securities at
the time outstanding of all series affected by such supplemental indenture
(voting as a class), the Company, when authorized by a Board Resolution, and
the Trustee may from time to time and at any time enter into an indenture or
indentures supplemental hereto (which shall conform to the provisions of the
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Trust Indenture Act then in effect) for the purpose of adding any provisions
to or changing in any manner or eliminating any of the provisions of this
Indenture or of any supplemental indenture or of modifying in any manner the
rights of the holders of the Securities of each series so affected; provided,
however, that no such supplemental indenture shall, without the consent of the
holders of each Security affected thereby, (i) extend the fixed maturity of
any Security of any series, or reduce the rate or extend the time of payment
of interest thereon, or reduce the principal amount thereof or any premium
thereon, or reduce any amount payable on redemption thereof or make the
principal thereof or any interest or premium thereon payable in any coin or
currency other than that provided in the Securities, or impair or affect the
right of any Securityholder to institute suit for payment thereof or the right
of repayment, if any, at the option of the holder, (ii) reduce the aforesaid
percentage of Securities the holders of which are required to consent to any
such supplemental indenture or (iii) otherwise materially adversely affect the
interest of the holders of any series of the Securities or the Preferred
Securities; provided, further, that if the Securities of such series are held
by a Potomac Electric Power Company Trust or a trustee of such trust, such
supplemental indenture shall not be effective until the holders of a majority
in liquidation amount of Trust Securities of the applicable trust shall have
consented to such supplemental indenture; provided further, that if the
consent of the holder of each outstanding Security is required, such
supplemental indenture shall not be effective until each holder of the Trust
Securities of the applicable Potomac Electric Power Company Trust shall have
consented to such supplemental indenture.
A supplemental indenture which changes or eliminates any covenant or
other provision of this Indenture which has expressly been included solely for
the benefit of one or more particular series of Securities, or which modifies
the rights of Securityholders of such series with respect to such covenant or
provision, shall be deemed not to affect the rights under this Indenture or
the Securityholders of any other series.
Upon the request of the Company accompanied by a copy of a resolution of
the Board of Directors certified by its Secretary or Assistant Secretary
authorizing the execution of any such supplemental indenture, and upon the
filing with the Trustee of evidence of the consent of Securityholders as
aforesaid, the Trustee shall join with the Company in the execution of such
supplemental indenture unless such supplemental indenture affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise,
in which case the Trustee may in its discretion, but shall not be obligated
to, enter into such supplemental indenture.
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Promptly after the execution by the Company and the Trustee of any
supplemental indenture pursuant to the provisions of this Section, the Trustee
shall transmit by mail, first class postage prepaid, a notice, to be prepared
by the Company, setting forth in general terms the substance of such
supplemental indenture, to the Securityholders of all series affected thereby
as their names and addresses appear upon the Security Register. Any failure of
the Trustee to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such supplemental indenture.
It shall not be necessary for the consent of the Securityholders under
this Section 9.02 to approve the particular form of any proposed supplemental
indenture, but it shall be sufficient if such consent shall approve the
substance thereof.
SECTION 9.03. Compliance with Trust Indenture Act; Effect of
Supplemental Indentures.
Any supplemental indenture executed pursuant to the provisions of this
Article Nine shall comply with the Trust Indenture Act, as then in effect.
Upon the execution of any supplemental indenture pursuant to the provisions of
this Article Nine, this Indenture shall be and be deemed to be modified and
amended in accordance therewith and the respective rights, limitations of
rights, obligations, duties and immunities under this Indenture of the
Trustee, the Company and the holders of Securities of each series affected
thereby shall thereafter be determined, exercised and enforced hereunder
subject in all respects to such modifications and amendments and all the terms
and conditions of any such supplemental indenture shall be and be deemed to be
part of the terms and conditions of this Indenture for any and all purposes.
SECTION 9.04. Notation on Securities.
Securities of any series authenticated and delivered after the execution
of any supplemental indenture affecting such series pursuant to the provisions
of this Article Nine may bear a notation in form approved by the Trustee as to
any matter provided for in such supplemental indenture. If the Company or the
Trustee shall so determine, new Securities of any series so modified as to
conform, in the opinion of the Trustee and the Board of Directors, to any
modification of this Indenture contained in any such supplemental indenture
may be prepared and executed by the Company, authenticated by the Trustee or
the Authenticating Agent and delivered in exchange for the Securities of any
series then outstanding.
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SECTION 9.05. Evidence of Compliance of Supplemental Indenture to be
Furnished Trustee.
The Trustee, subject to the provisions of Sections 6.01 and 6.02, shall
receive an Officers' Certificate and an Opinion of Counsel as conclusive
evidence that any supplemental indenture executed pursuant hereto complies
with the requirements of this Article Nine.
ARTICLE X
CONSOLIDATION, MERGER, SALE, CONVEYANCE AND LEASE.
SECTION 10.01. Company May Consolidate, etc., on Certain Terms.
Nothing contained in this Indenture or in any of the Securities shall
prevent any consolidation or merger of the Company with or into any other
corporation or corporations organized under the laws of a domestic
jurisdiction (whether or not affiliated with the Company), or successive
consolidations or mergers in which the Company, or its successor or
successors, shall be a party or parties, or shall prevent any sale,
conveyance, transfer or other disposition of the property of the Company, or
its successor or successors, as an entirety, or substantially as an entirety,
to any other corporation organized under the laws of a domestic jurisdiction
(whether or not affiliated with the Company or its successor or successors)
authorized to acquire and operate the same; provided, however, that the
Company hereby covenants and agrees that, upon any such consolidation, merger,
sale, conveyance, transfer or other disposition, the due and punctual payment,
in the case of the Company, of the principal of (premium, if any) and interest
on all of the Securities of all series in accordance with the terms of each
series according to their tenor, and the due and punctual performance and
observance of all the covenants and conditions of this Indenture with respect
to each series or established with respect to such series to be kept or
performed by the Company, shall be expressly assumed by supplemental indenture
(which shall conform to the provisions of the Trust Indenture Act, as then in
effect) satisfactory in form to the Trustee executed and delivered to the
Trustee by the entity formed by such consolidation or into which the Company
shall have been merged, or by the entity which shall have acquired such
property; provided, further, that after giving effect thereto, no Default
shall have occurred and be continuing hereunder.
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SECTION 10.02. Successor Corporation to be Substituted for Company.
In case of any such consolidation, merger, conveyance or transfer and
upon the assumption by the successor corporation, by supplemental indenture,
executed and delivered to the Trustee and satisfactory in form to the Trustee,
of the due and punctual payment of the principal of and premium, if any, and
interest on all of the Securities and the due and punctual performance and
observance of all of the covenants and conditions of this Indenture to be
performed or observed by the Company, such successor corporation shall succeed
to and be substituted for the Company, with the same effect as if it had been
named herein as the party of the first part, and the Company thereupon shall
be relieved of any further liability or obligation hereunder or upon the
Securities. Such successor corporation thereupon may cause to be signed, and
may issue either in its own name or in the name of Potomac Electric Power
Company, any or all of the Securities issuable hereunder which theretofore
shall not have been signed by the Company and delivered to the Trustee or the
Authenticating Agent; and, upon the order of such successor corporation
instead of the Company and subject to all the terms, conditions and
limitations in this Indenture prescribed, the Trustee or the Authenticating
Agent shall authenticate and deliver any Securities which previously shall
have been signed and delivered by the officers of the Company to the Trustee
or the Authenticating Agent for authentication, and any Securities which such
successor corporation thereafter shall cause to be signed and delivered to the
Trustee or the Authenticating Agent for that purpose. All the Securities so
issued shall in all respects have the same legal rank and benefit under this
Indenture as the Securities theretofore or thereafter issued in accordance
with the terms of this Indenture as though all of such Securities had been
issued at the date of the execution hereof.
SECTION 10.03. Opinion of Counsel to be Given Trustee.
The Trustee, subject to the provisions of Sections 6.01 and 6.02, shall
receive an Opinion of Counsel as conclusive evidence that any consolidation,
merger, conveyance or transfer, and any assumption, permitted or required by
the terms of this Article Ten complies with the provisions of this Article
Ten.
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ARTICLE XI
SATISFACTION AND DISCHARGE OF INDENTURE.
SECTION 11.01. Discharge of Indenture.
When (a) the Company shall deliver to the Trustee for cancellation all
Securities theretofore authenticated (other than any Securities which shall
have been destroyed, lost or stolen and which shall have been replaced or paid
as provided in Section 2.08) and not theretofore cancelled, or (b) all the
Securities not theretofore cancelled or delivered to the Trustee for
cancellation shall have become due and payable, or are by their terms to
become due and payable within one year or are to be called for redemption
within one year under arrangements satisfactory to the Trustee for the giving
of notice of redemption, and the Company shall deposit with the Trustee, in
trust, funds sufficient to pay at maturity or upon redemption all of the
Securities (other than any Securities which shall have been destroyed, lost or
stolen and which shall have been replaced or paid as provided in Section 2.08)
not theretofore cancelled or delivered to the Trustee for cancellation,
including principal and premium, if any, and interest due or to become due to
such date of maturity or redemption date, as the case may be, but excluding,
however, the amount of any moneys for the payment of principal of, and
premium, if any, or interest on the Securities (1) theretofore repaid to the
Company in accordance with the provisions of Section 11.04, or (2) paid to any
State or to the District of Columbia pursuant to its unclaimed property or
similar laws, and if in either case the Company shall also pay or cause to be
paid all other sums payable hereunder by the Company, then this Indenture
shall cease to be of further effect, except that the provisions of Sections
2.05, 2.07, 2.08, 3.01, 3.02, 3.04, 6.06, 6.10 and 11.04 hereof shall survive
until such Securities shall mature and be paid. Thereafter, Sections 6.10 and
11.04 shall survive, and the Trustee, on demand of the Company accompanied by
an Officers' Certificate and an Opinion of Counsel reasonably requested by the
Trustee and at the cost and expense of the Company, shall execute proper
instruments acknowledging satisfaction of and discharging this Indenture, the
Company, however, hereby agreeing to reimburse the Trustee for any costs or
expenses thereafter incurred by the Trustee in connection with this Indenture
or the Securities.
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SECTION 11.02. Deposited Moneys and U.S. Government Obligations to be
Held in Trust by Trustee.
Subject to the provisions of Section 11.04, all moneys and U.S.
Government Obligations deposited with the Trustee pursuant to Sections 11.01
or 11.05 shall be held in trust and applied by it to the payment, either
directly or through any paying agent (including the Company if acting as its
own paying agent), to the holders of the particular Securities for the payment
of which such moneys or U.S. Government Obligations have been deposited with
the Trustee, of all sums due and to become due thereon for principal, premium,
if any, and interest.
SECTION 11.03. Paying Agent to Repay Moneys Held.
Upon the satisfaction and discharge of this Indenture all moneys then
held by any paying agent of the Securities (other than the Trustee) shall,
upon written demand of the Company, be repaid to it or paid to the Trustee,
and thereupon such paying agent shall be released from all further liability
with respect to such moneys.
SECTION 11.04. Return of Unclaimed Moneys.
Any moneys deposited with or paid to the Trustee or any paying agent for
payment of the principal of, and premium, if any, or interest on Securities
and not applied but remaining unclaimed by the holders of Securities for two
years after the date upon which the principal of, and premium, if any, or
interest on such Securities, as the case may be, shall have become due and
payable, shall be repaid to the Company by the Trustee or such paying agent on
written demand; and the holder of any of the Securities shall thereafter look
only to the Company for any payment which such holder may be entitled to
collect and all liability of the Trustee or such paying agent with respect to
such moneys shall thereupon cease.
SECTION 11.05. Defeasance Upon Deposit of Moneys or U.S. Government
Obligations.
(a) The Company shall be deemed to have been Discharged (as defined
below) from its respective obligations with respect to any series of
Securities upon satisfaction of the applicable conditions set forth below with
respect to any series of Securities:
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(i) The Company shall have deposited or caused to be deposited
irrevocably with the Trustee or the Defeasance Agent (as defined below)
as trust funds in trust, specifically pledged as security for, and
dedicated solely to, the benefit of the holders of the Securities of
such series (A) money in an amount, or (B) U.S. Government Obligations
which through the payment of interest and principal in respect thereof
in accordance with their terms will provide, not later than one day
before the due date of any payment, money in an amount, or (C) a
combination of (A) and (B), sufficient, in the opinion (with respect to
(B) and (C)) of a nationally recognized firm of independent public
accountants expressed in a written certification thereof delivered to
the Trustee and the Defeasance Agent, if any, to pay and discharge each
installment of principal (including any mandatory sinking fund payments)
of, and interest and premium, if any, on, the outstanding Securities of
such series on the dates such installments of principal, interest or
premium are due;
(ii) if the Securities of such series are then listed on any national
securities exchange, the Company shall have delivered to the Trustee and
the Defeasance Agent, if any, an Opinion of Counsel to the effect that
the exercise of the option under this Section 11.05 would not cause such
Securities to be delisted from such exchange;
(iii) no Event of Default or event which with notice or lapse of time
would become an Event of Default with respect to the Securities of such
series shall have occurred and be continuing on the date of such
deposit; and
(iv) the Company shall have delivered to the Trustee and the Defeasance
Agent, if any, an Opinion of Counsel to the effect that holders of the
Securities of such series will not recognize income, gain or loss for
United States federal income tax purposes as a result of the exercise of
the option under this Section 11.05 and will be subject to United States
federal income tax on the same amount and in the same manner and at the
same times as would have been the case if such option had not been
exercised, and, in the case of the Securities of such series being
Discharged, such opinion shall be accompanied by a private letter ruling
to that effect received from the United States Internal Revenue Service
or a revenue ruling pertaining to a comparable form of transaction to
that effect published by the United States Internal Revenue Service.
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(b) "Discharged" means that the Company shall be deemed to have paid
and discharged the entire indebtedness represented by, and obligations under,
the Securities of such series and to have satisfied all the obligations under
this Indenture relating to the Securities of such series (and the Trustee, at
the expense of the Company, shall execute proper instruments acknowledging the
same), except (A) the rights of holders of Securities of such series to
receive, from the trust fund described in clause (1) above, payment of the
principal of and the interest and premium, if any, on such Securities when
such payments are due; (B) the Company's obligations with respect to such
Securities under Sections 2.07, 2.08, 5.02 and 11.04; and (C) the rights,
powers, trusts, duties and immunities of the Trustee hereunder.
(c) "Defeasance Agent" means another financial institution which is
eligible to act as Trustee hereunder and which assumes all of the obligations
of the Trustee necessary to enable the Trustee to act hereunder. In the event
such a Defeasance Agent is appointed pursuant to this section, the following
conditions shall apply:
(i) The Trustee shall have approval rights over the document
appointing such Defeasance Agent and the document setting forth such
Defeasance Agent's rights and responsibilities;
(ii) The Defeasance Agent shall provide verification to the Trustee
acknowledging receipt of sufficient money and/or U.S. Government
Obligations to meet the applicable conditions set forth in this Section
11.05;
(iii)The Trustee shall determine whether the Company shall be deemed to
have been Discharged from its respective obligations with respect to any
series of Securities.
ARTICLE XII
IMMUNITY OF INCORPORATORS, STOCKHOLDERS,
OFFICERS AND DIRECTORS.
SECTION 12.01. Indenture and Securities Solely Corporate Obligations.
No recourse for the payment of the principal of or premium, if any, or
interest on any Security, or for any claim based thereon or otherwise in
respect thereof, and no recourse under or upon any obligation, covenant or
agreement of the Company in this Indenture or in any supplemental indenture,
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or in any Security, or because of the creation of any indebtedness represented
thereby, shall be had against any incorporator, stockholder, officer or
director, as such, past, present or future, of the Company or of any successor
corporation of the Company, either directly or through the Company or any
successor corporation of the Company, whether by virtue of any constitution,
statute or rule of law, or by the enforcement of any assessment or penalty or
otherwise; it being expressly understood that all such liability is hereby
expressly waived and released as a condition of, and as a consideration for,
the execution of this Indenture and the issue of the Securities.
ARTICLE XIII
MISCELLANEOUS PROVISIONS.
SECTION 13.01. Successors.
All the covenants, stipulations, promises and agreements in this
Indenture contained by the Company shall bind its successors and assigns
whether so expressed or not.
SECTION 13.02. Official Acts by Successor Corporation.
Any act or proceeding by any provision of this Indenture authorized or
required to be done or performed by any board, committee or officer of the
Company shall and may be done and performed with like force and effect by the
like board, committee or officer of any corporation that shall at the time be
the lawful sole successor of the Company.
SECTION 13.03. Surrender of Company Powers.
The Company by instrument in writing executed by authority of 2/3 (two-
thirds) of its Board of Directors and delivered to the Trustee may surrender
any of the powers reserved to the Company, and thereupon such power so
surrendered shall terminate both as to the Company, as the case may be, and as
to any successor corporation.
SECTION 13.04. Addresses for Notices, etc.
Any notice or demand which by any provision of this Indenture is
required or permitted to be given or served by the Trustee or by the holders
of Securities on the Company may be given or served by being deposited postage
prepaid by registered or certified mail in a post office letter box addressed
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(until another address is filed by the Company with the Trustee for the
purpose) to Potomac Electric Power Company, 1900 Pennsylvania Avenue, N.W.,
Washington, D.C. 20068, Attention: Treasurer. Any notice, direction, request
or demand by any Securityholder to or upon the Trustee shall be deemed to have
been sufficiently given or made, for all purposes, if given or made in writing
at the Corporate Trust Office, addressed to the Trustee, The Bank of New York,
101 Barclay Street, Floor 21 West, New York, NY 10286, Attention: Corporate
Trust Trustee Administration.
SECTION 13.05. Governing Law.
This Indenture and each Security shall be deemed to be a contract made
under the laws of the State of New York, and for all purposes shall be
governed by and construed in accordance with the laws of said State.
SECTION 13.06. Evidence of Compliance with Conditions Precedent.
Upon any application or demand by the Company to the Trustee to take any
action under any of the provisions of this Indenture, the Company shall
furnish to the Trustee an Officers' Certificate stating that in the opinion of
the signers all conditions precedent, if any, provided for in this Indenture
relating to the proposed action have been complied with and an Opinion of
Counsel stating that, in the opinion of such counsel, all such conditions
precedent have been complied with.
Each certificate or opinion provided for in this Indenture and delivered
to the Trustee with respect to compliance with a condition or covenant
provided for in this Indenture shall include (1) a statement that the person
making such certificate or opinion has read such covenant or condition; (2) a
brief statement as to the nature and scope of the examination or investigation
upon which the statements or opinions contained in such certificate or opinion
are based; (3) a statement that, in the opinion of such person, he has made
such examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
complied with; and (4) a statement as to whether or not, in the opinion of
such person, such condition or covenant has been complied with.
SECTION 13.07. Legal Holidays.
In any case when the date of payment of interest on or principal of the
Securities will be in The City of New York, New York on a day other than a
Business Day, the payment of such interest on or principal of the Securities
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need not be made on such date but may be made on the next succeeding day not
in the City a legal holiday or a day on which banking institutions are
authorized by law to close, with the same force and effect as if made on the
date of payment and no interest shall accrue for the period from and after
such date.
SECTION 13.08. Trust Indenture Act to Control.
(a) If and to the extent that any provision of this Indenture limits,
qualifies or conflicts with another provision included in this Indenture which
is required to be included in this Indenture by any of Sections 310 to 317,
inclusive, of the Trust Indenture Act, such required provision shall control.
(b) Notwithstanding the foregoing, any provisions contained in this
Indenture as to directions and waivers by Securityholders or impairment of
Securityholders' rights to payment shall be in lieu of Sections 316(a)(1)(A)
and 316(a)(1)(B) of the Trust Indenture Act and such sections are hereby
expressly excluded from this Indenture and the Securities, as permitted by the
Trust Indenture Act.
SECTION 13.09. Table of Contents, Headings, etc.
The table of contents and the titles and headings of the articles and
sections of this Indenture have been inserted for convenience of reference
only, are not to be considered a part hereof, and shall in no way modify or
restrict any of the terms or provisions hereof.
SECTION 13.10. Execution in Counterparts.
This Indenture may be executed in any number of counterparts, each of
which shall be an original, but such counterparts shall together constitute
but one and the same instrument.
SECTION 13.11. Separability.
In case any one or more of the provisions contained in this Indenture or
in the Securities of any series shall for any reason be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provisions of this Indenture or of
such Securities, but this Indenture and such Securities shall be construed as
if such invalid or illegal or unenforceable provision had never been contained
herein or therein.
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SECTION 13.12. Assignment.
The Company will have the right at all times to assign any of its
respective rights or obligations under this Indenture to a direct or indirect
wholly-owned Subsidiary of the Company, provided that, in the event of any
such assignment, the Company will remain liable for all such obligations.
Subject to the foregoing, the Indenture is binding upon and inures to the
benefit of the parties hereto and their respective successors and assigns.
This Indenture may not otherwise be assigned by the parties hereto.
SECTION 13.13. Acknowledgment of Rights.
The Company acknowledges that, with respect to any Securities held by a
Potomac Electric Power Company Trust or a trustee of such trust, if the
Institutional Trustee of such Trust fails to enforce its rights under this
Indenture as the holder of the series of Securities held as the assets of such
Potomac Electric Power Company Trust, any holder of Preferred Securities may
institute legal proceedings directly against the Company to enforce such
Institutional Trustee's rights under this Indenture without first instituting
any legal proceedings against such Institutional Trustee or any other person
or entity. Notwithstanding the foregoing, if an Event of Default has occurred
and is continuing and such event is attributable to the failure of the Company
to pay interest or principal on the applicable series of Securities on the
date such interest or principal is otherwise payable (or in the case of
redemption, on the redemption date), the Company acknowledges that a holder of
Preferred Securities may directly institute a proceeding for enforcement of
payment to such holder of the principal of or interest on the applicable
series of Securities having a principal amount equal to the aggregate
liquidation amount of the Preferred Securities of such holder on or after the
respective due date specified in the applicable series of Securities.
ARTICLE XIV
REDEMPTION OF SECURITIES
SECTION 14.01. Applicability of Article.
The provisions of this Article shall be applicable to the Securities of
any series which are redeemable before their maturity or to any sinking fund
for the retirement of Securities of a series except as otherwise specified as
contemplated by Section 2.03 for Securities of such series.
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SECTION 14.02. Notice of Redemption; Selection of Securities.
In case the Company shall desire to exercise the right to redeem all,
or, as the case may be, any part of the Securities of any series in accordance
with their terms, it shall fix a date for redemption and shall mail a notice
of such redemption at least 30 and not more than 60 days prior to the date
fixed for redemption to the holders of Securities of such series so to be
redeemed as a whole or in part at their last addresses as the same appear on
the Security Register. Such mailing shall be by first class mail. The notice
if mailed in the manner herein provided shall be conclusively presumed to have
been duly given, whether or not the holder receives such notice. In any case,
failure to give such notice by mail or any defect in the notice to the holder
of any Security of a series designated for redemption as a whole or in part
shall not affect the validity of the proceedings for the redemption of any
other Security of such series.
Each such notice of redemption shall identify the Securities to be
redeemed (including CUSIP number) and shall specify the date fixed for
redemption, the redemption price at which Securities of such series are to be
redeemed, the place or places of payment, that payment will be made upon
presentation and surrender of such Securities, that interest accrued to the
date fixed for redemption will be paid as specified in said notice, and that
on and after said date interest thereon or on the portions thereof to be
redeemed will cease to accrue. If less than all the Securities of such series
are to be redeemed the notice of redemption shall specify the numbers of the
Securities of that series to be redeemed. In case any Security of a series is
to be redeemed in part only, the notice of redemption shall state the portion
of the principal amount thereof to be redeemed and shall state that on and
after the date fixed for redemption, upon surrender of such Security, a new
Security or Securities of that series in principal amount equal to the
unredeemed portion thereof will be issued.
Prior to the redemption date specified in the notice of redemption given
as provided in this Section, the Company will deposit with the Trustee or with
one or more paying agents an amount of money sufficient to redeem on the
redemption date all the Securities so called for redemption at the appropriate
redemption price, together with accrued interest to the date fixed for
redemption.
If all of the Securities of a series are to be redeemed, the Company
will give the Trustee written notice not less than 45 days prior to the
redemption date. If less than all the Securities of a series are to be
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redeemed, the Company will give the Trustee written notice not less than 60
days prior to the redemption date as to the aggregate principal amount of
Securities of that series to be redeemed and the Trustee shall select, by lot,
pro rata or otherwise in such manner as in its sole discretion it shall deem
appropriate and fair, the Securities of that series or portions thereof (in
integral multiples of $1,000, except as otherwise set forth in the applicable
form of Security) to be redeemed.
SECTION 14.03. Payment of Securities Called for Redemption.
If notice of redemption has been given as provided in Section 14.02 or
Section 14.04, the Securities or portions of Securities of the series with
respect to which such notice has been given shall become due and payable on
the date and at the place or places stated in such notice at the applicable
redemption price, together with interest accrued to the date fixed for
redemption, and on and after said date (unless the Company shall default in
the payment of such Securities at the redemption price, together with interest
accrued to said date) interest on the Securities or portions of Securities of
any series so called for redemption shall cease to accrue. On presentation
and surrender of such Securities at a place of payment specified in said
notice, the said Securities or the specified portions thereof shall be paid
and redeemed by the Company at the applicable redemption price, together with
interest accrued thereon to the date fixed for redemption.
Upon presentation of any Security of any series redeemed in part only,
the Company shall execute and the Trustee shall authenticate and make
available for delivery to the holder thereof, at the expense of the Company, a
new Security or Securities of such series of authorized denominations, in
principal amount equal to the unredeemed portion of the Security so presented.
ARTICLE XV
SUBORDINATION OF SECURITIES
SECTION 15.01. Agreement to Subordinate.
The Company covenants and agrees, and each holder of Securities issued
hereunder and under any supplemental indenture or Board Resolution
("Additional Provisions") by such Securityholder's acceptance thereof likewise
covenants and agrees, that all Securities shall be issued subject to the
provisions of this Article Fifteen; and each holder of a Security, whether
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upon original issue or upon transfer or assignment thereof, accepts and agrees
to be bound by such provisions.
The payment by the Company of the principal of, premium, if any, and
interest on all Securities shall, to the extent and in the manner hereinafter
set forth, be subordinated and junior in right of payment to the prior payment
in full of all Senior Indebtedness and Other Financial Obligations of the
Company and rank pari passu and equivalent to all other general unsecured
claims of creditors against the Company not entitled to statutory priority
under the Bankruptcy Code or otherwise, in each case whether outstanding at
the date of this Indenture or thereafter incurred.
No provision of this Article Fifteen shall prevent the occurrence of any
Default or Event of Default hereunder.
SECTION 15.02. Default on Senior Indebtedness.
No payment may be made of the principal of, premium, if any, or interest
on the Securities, or in respect of any redemption, retirement, purchase or
other acquisition of any of the Securities, at any time when (i) there is a
default in the payment of the principal of, premium, if any, or interest on,
or otherwise in respect of, any Senior Indebtedness, whether at maturity or at
a date fixed for prepayment or by declaration or otherwise, or (ii) any event
of default with respect to any Senior Indebtedness has occurred and is
continuing, or would occur as a result of such payment on the Securities or
any redemption, retirement, purchase or other acquisition of any of the
Securities, permitting the holders of such Senior Indebtedness (or a trustee
on behalf of the holders thereof) to accelerate the maturity thereof.
In the event that, notwithstanding the foregoing, any payment shall be
received by the Trustee when such payment is prohibited by the preceding
paragraph of this Section 15.02, such payment shall be held in trust for the
benefit of, and shall be paid over or delivered to, the holders of Senior
Indebtedness and Other Financial Obligations or their respective
representatives, or to the trustee or trustees under any indenture pursuant to
which any of such Senior Indebtedness and Other Financial Obligations may have
been issued, as their respective interests may appear, but only to the extent
that the holders of the Senior Indebtedness and Other Financial Obligations
(or their representative or representatives or a trustee) notify the Trustee
in writing within 90 days of such payment of the amounts then due and owing on
the Senior Indebtedness and Other Financial Obligations and only the amounts
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specified in such notice to the Trustee shall be paid to the holders of Senior
Indebtedness and Other Financial Obligations.
SECTION 15.03. Liquidation; Dissolution; Bankruptcy.
Upon any payment by the Company or distribution of assets of the Company
of any kind or character, whether in cash, property or securities, to
creditors upon any dissolution, winding-up, liquidation or reorganization of
the Company, whether voluntary or involuntary or in bankruptcy, insolvency,
receivership or other proceedings, all amounts due upon all Senior
Indebtedness and Other Financial Obligations of the Company shall first be
paid in full, or payment thereof provided for in money in accordance with
their terms, before any payment is made by the Company on account of the
principal (and premium, if any) or interest on the Securities; and upon any
such dissolution or winding-up or liquidation or reorganization, any payment
by the Company, or distribution of assets of the Company of any kind or
character, whether in cash, property or securities, to which the
Securityholders or the Trustee would be entitled to receive from the Company,
except under the provisions of this Article Fifteen, shall be paid by the
Company or by any receiver, trustee in bankruptcy, liquidating trustee, agent
or other Person making such payment or distribution, or by the Securityholders
or by the Trustee under the Indenture if received by them or it, directly to
the holders of Senior Indebtedness and Other Financial Obligations of the
Company (pro rata to such holders on the basis of the respective amounts of
Senior Indebtedness and Other Financial Obligations held by such holders, as
calculated by the Company) or their representative or representatives, or to
the trustee or trustees under any indenture pursuant to which any instruments
evidencing such Senior Indebtedness and Other Financial Obligations may have
been issued, as their respective interests may appear, to the extent necessary
to pay such Senior Indebtedness and Other Financial Obligations in full, in
money or money's worth, after giving effect to any concurrent payment or
distribution to or for the holders of such Senior Indebtedness and Other
Financial Obligations, before any payment or distribution is made to the
Securityholders or to the Trustee.
For purposes of this Article Fifteen, the words "cash, property or
securities" shall not be deemed to include shares of stock of the Company as
reorganized or readjusted, or securities of the Company or any other
corporation provided for by a plan of reorganization or readjustment, the
payment of which is subordinated at least to the extent provided in this
Article Fifteen with respect to the Securities to the payment of all Senior
Indebtedness and Other Financial Obligations of the Company, as the case may
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be, that may at the time be outstanding, provided that (i) such Senior
Indebtedness and Other Financial Obligations is assumed by the new
corporation, if any, resulting from any such reorganization or readjustment,
and (ii) the rights of the holders of such Senior Indebtedness and Other
Financial Obligations are not, without the consent of such holders, altered by
such reorganization or readjustment. The consolidation of the Company with, or
the merger of the Company into, another corporation or the liquidation or
dissolution of the Company following the conveyance or transfer of its
property as an entirety, or substantially as an entirety, to another
corporation upon the terms and conditions provided for in Article Ten of this
Indenture shall not be deemed a dissolution, winding-up, liquidation or
reorganization for the purposes of this Section 15.03 if such other
corporation shall, as a part of such consolidation, merger, conveyance or
transfer, comply with the conditions stated in Article Ten of this Indenture.
Nothing in Section 15.02 or in this Section 15.03 shall apply to claims of, or
payments to, the Trustee under or pursuant to Section 6.06 of this Indenture.
SECTION 15.04. Subrogation.
Subject to the payment in full of all Senior Indebtedness and Other
Financial Obligations, the rights of the Securityholders shall be subrogated
to the rights of the holders of such Senior Indebtedness and Other Financial
Obligations to receive payments or distributions of cash, property or
securities of the Company applicable to such Senior Indebtedness and Other
Financial Obligations until all amounts owing on the Securities shall be paid
in full; and, for the purposes of such subrogation, no payments or
distributions to the holders of such Senior Indebtedness and Other Financial
Obligations of any cash, property or securities to which the Securityholders
or the Trustee would be entitled except under the provisions of this Article
Fifteen, and no payment over pursuant to the provisions of this Article
Fifteen to or for the benefit of the holders of such Senior Indebtedness and
Other Financial Obligations by Securityholders or the Trustee, shall, as
between the Company and its creditors (other than holders of Senior
Indebtedness and Other Financial Obligations, and the holders of the
Securities) be deemed to be a payment by the Company to or on account of such
Senior Indebtedness and Other Financial Obligations. It is understood that the
provisions of this Article Fifteen are and are intended solely for the
purposes of defining the relative rights of the holders of the Securities, on
the one hand, and the holders of such Senior Indebtedness and Other Financial
Obligations, on the other hand.
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Nothing contained in this Article Fifteen or elsewhere in this
Indenture, any Additional Provisions or in the Securities is intended to or
shall impair, as between the Company and its creditors (other than the holders
of Senior Indebtedness and Other Financial Obligations, and the holders of the
Securities), the obligation of the Company, which is absolute and
unconditional, to pay to the holders of the Securities the principal of,
premium, if any, and interest on, the Securities as and when the same shall
become due and payable in accordance with their terms, or is intended to or
shall affect the relative rights of the holders of the Securities and
creditors of the Company (other than the holders of Senior Indebtedness and
Other Financial Obligations), nor shall anything herein or therein prevent the
Trustee or the holder of any Security from exercising all remedies otherwise
permitted by applicable law upon default under the Indenture (subject to the
rights, if any, under this Article Fifteen of the holders of such Senior
Indebtedness and Other Financial Obligations in respect of cash, property or
securities of the Company received upon the exercise of any such remedy).
Upon any payment or distribution of assets of the Company referred to in
this Article Fifteen, the Trustee, subject to the provisions of Article Six of
this Indenture, and the Securityholders shall be entitled to rely conclusively
upon any order or decree made by any court of competent jurisdiction in which
such dissolution, winding-up, liquidation or reorganization proceedings are
pending, or a certificate of the receiver, trustee in bankruptcy, liquidation
trustee, agent or other Person making such payment or distribution, delivered
to the Trustee or to the Securityholders, for the purposes of ascertaining the
Persons entitled to participate in such distribution, the holders of Senior
Indebtedness, Other Financial Obligations and other indebtedness of the
Company, as the case may be, the amount thereof or payable thereon, the amount
or amounts paid or distributed thereon and all other facts pertinent thereto
or to this Article Fifteen.
SECTION 15.05. Trustee to Effectuate Subordination.
Each Securityholder by such Securityholder's acceptance of a Security
authorizes and directs the Trustee on such Securityholder's behalf to take
such action as may be necessary or appropriate to effectuate the subordination
provided in this Article Fifteen and appoints the Trustee such
Securityholder's attorney-in-fact for any and all such purposes.
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SECTION 15.06. Notice by the Company.
The Company shall give prompt written notice to a Responsible Officer of
any fact known to the Company that would prohibit the making of any payment of
monies to or by the Trustee in respect of the Securities pursuant to the
provisions of this Article Fifteen. Notwithstanding the provisions of this
Article Fifteen or any other provision of this Indenture or any Additional
Provisions, the Trustee shall not be charged with knowledge of the existence
of any facts that would prohibit the making of any payment of monies to or by
the Trustee in respect of the Securities pursuant to the provisions of this
Article Fifteen, unless and until a Responsible Officer shall have received
written notice thereof from the Company or a holder or holders of Senior
Indebtedness or Other Financial Obligations or from any trustee therefor; and
before the receipt of any such written notice, the Trustee, subject to the
provisions of Article Six of this Indenture, shall be entitled in all respects
to assume that no such facts exist; provided, however, that if the Trustee
shall not have received the notice provided for in this Section 15.06 at least
two Business Days prior to the date upon which by the terms hereof any money
may become payable for any purpose (including, without limitation, the payment
of the principal of (or premium, if any) or interest on any Security), then,
anything herein contained to the contrary notwithstanding, the Trustee shall
have full power and authority to receive such money and to apply the same to
the purposes for which they were received, and shall not be affected by any
notice to the contrary that may be received by it within two Business Days
prior to such date.
The Trustee, subject to the provisions of Article Six of this Indenture,
shall be entitled to conclusively rely on the delivery to it of a written
notice by a Person representing himself to be a holder of Senior Indebtedness
or Other Financial Obligations of the Company, as the case may be (or a
trustee on behalf of such holder), to establish that such notice has been
given by a holder of such Senior Indebtedness or Other Financial Obligations
(or a trustee on behalf of any such holder). In the event that the Trustee
determines in good faith that further evidence is required with respect to the
right of any Person as a holder of such Senior Indebtedness or Other Financial
Obligations to participate in any payment or distribution pursuant to this
Article Fifteen, the Trustee may request such Person to furnish evidence to
the reasonable satisfaction of the Trustee as to the amount of such Senior
Indebtedness or Other Financial Obligations held by such Person, the extent to
which such Person is entitled to participate in such payment or distribution
and any other facts pertinent to the rights of such Person under this Article
Fifteen, and, if such evidence is not furnished, the Trustee may defer any
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payment to such Person pending judicial determination as to the right of such
Person to receive such payment.
SECTION 15.07. Rights of the Trustee; Holders of Senior Indebtedness
and Other Financial Obligations.
The Trustee in its individual capacity shall be entitled to all the
rights set forth in this Article Fifteen in respect of any Senior Indebtedness
or Other Financial Obligations at any time held by it, to the same extent as
any other holder of Senior Indebtedness or Other Financial Obligations, and
nothing in this Indenture or any Additional Provisions shall deprive the
Trustee of any of its rights as such holder.
With respect to the holders of Senior Indebtedness or Other Financial
Obligations of the Company, the Trustee undertakes to perform or to observe
only such of its covenants and obligations as are specifically set forth in
this Article Fifteen, and no implied covenants or obligations with respect to
the holders of such Senior Indebtedness or Other Financial Obligations shall
be read into this Indenture or any Additional Provisions against the Trustee.
The Trustee shall not be deemed to owe any fiduciary duty to the holders of
such Senior Indebtedness or Other Financial Obligations and, subject to the
provisions of Article Six of this Indenture, the Trustee shall not be liable
to any holder of such Senior Indebtedness or Other Financial Obligations if it
shall in good faith mistakenly pay over or deliver to holders of Securities,
the Company or any other Person money or assets to which any holder of such
Senior Indebtedness or Other Financial Obligations shall be entitled by virtue
of this Article Fifteen or otherwise.
Nothing in this Article shall apply to claims of, or payments to, the Trustee
under or pursuant to Section 6.06.
SECTION 15.08. Subordination May Not Be Impaired.
No right of any present or future holder of any Senior Indebtedness or
Other Financial Obligations of the Company to enforce subordination as herein
provided shall at any time in any way be prejudiced or impaired by any act or
failure to act on the part of the Company, as the case may be, or by any act
or failure to act, in good faith, by any such holder, or by any noncompliance
by the Company, as the case may be, with the terms, provisions and covenants
of this Indenture, regardless of any knowledge thereof that any such holder
may have or otherwise be charged with.
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Without in any way limiting the generality of the foregoing paragraph,
the holders of Senior Indebtedness or Other Financial Obligations of the
Company may, at any time and from time to time, without the consent of or
notice to the Trustee or the Securityholders, without incurring responsibility
to the Securityholders and without impairing or releasing the subordination
provided in this Article Fifteen or the obligations hereunder of the holders
of the Securities to the holders of such Senior Indebtedness or Other
Financial Obligations, do any one or more of the following: (i) change the
manner, place or terms of payment or extend the time of payment of, or renew
or alter, such Senior Indebtedness or Other Financial Obligations, or
otherwise amend or supplement in any manner such Senior Indebtedness or Other
Financial Obligations or any instrument evidencing the same or any agreement
under which such Senior Indebtedness or Other Financial Obligations is
outstanding; (ii) sell, exchange, release or otherwise deal with any property
pledged, mortgaged or otherwise securing such Senior Indebtedness or Other
Financial Obligations; (iii) release any Person liable in any manner for the
collection of such Senior Indebtedness or Other Financial Obligations; and
(iv) exercise or refrain from exercising any rights against the Company, as
the case may be, and any other Person.
The Bank of New York hereby accepts the trusts in this Indenture
declared and provided, upon the terms and conditions hereinabove set forth.
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed by their respective officers thereunto duly authorized and their
respective corporate seals to be hereunto duly affixed and attested, all as of
the day and year first above written.
POTOMAC ELECTRIC POWER COMPANY
Attest:
____________________________________ By________________________________
Name: Name:
Title: Title:
THE BANK OF NEW YORK, as Trustee
Attest:
___________________________________ By_______________________________
Title:
PREFERRED SECURITIES GUARANTEE AGREEMENT
Potomac Electric Power Company Trust I
Dated as of , 1998
<PAGE>
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS AND INTERPRETATIONS
SECTION 1.1 Definitions and Interpretation 1
ARTICLE II
TRUST INDENTURE ACT
SECTION 2.1 Trust Indenture Act; Application 3
SECTION 2.2 Lists of Holders of Securities 3
SECTION 2.3 Reports by the Preferred Guarantee Trustee 4
SECTION 2.4 Periodic Reports to Preferred Guarantee Trustee 4
SECTION 2.5 Evidence of Compliance with Conditions Precedent 4
SECTION 2.6 Events of Default; Waiver 4
SECTION 2.7 Event of Default; Notice 4
SECTION 2.8 Conflicting Interests 5
ARTICLE III
POWERS, DUTIES AND RIGHTS OF PREFERRED GUARANTEE TRUSTEE
SECTION 3.1 Powers and Duties of the Preferred Guarantee Trustee 5
SECTION 3.2 Certain Rights of Preferred Guarantee Trustee 6
SECTION 3.3 Not Responsible for Recitals or Issuance of
Preferred Securities Guarantee 7
ARTICLE IV
PREFERRED GUARANTEE TRUSTEE
SECTION 4.1 Preferred Guarantee Trustee; Eligibility 8
SECTION 4.2 Appointment, Removal and Resignation of Preferred
Guarantee Trustee 8
ARTICLE V
GUARANTEE
SECTION 5.1 Guarantee 9
SECTION 5.2 Waiver of Notice and Demand 9
SECTION 5.3 Obligations Not Affected 9
SECTION 5.4 Enforcement of Guarantee; Rights of Holders 10
SECTION 5.5 Guarantee of Payment 10
SECTION 5.6 Subrogation 10
SECTION 5.7 Independent Obligations 11
ARTICLE VI
LIMITATION OF TRANSACTIONS; SUBORDINATION
SECTION 6.1 Limitation of Transactions 11
SECTION 6.2 Ranking 11
ARTICLE VII
TERMINATION
SECTION 7.1 Termination 12
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ARTICLE VIII
INDEMNIFICATION
SECTION 8.1 Exculpation 12
SECTION 8.2 Indemnification 12
ARTICLE IX
MISCELLANEOUS
SECTION 9.1 Successors and Assigns 13
SECTION 9.2 Amendments 13
SECTION 9.3 Notices 13
SECTION 9.4 Benefit 14
SECTION 9.5 Governing Law 14
SECTION 9.6 Genders 14
SECTION 9.7 Counterparts 14
<PAGE>
PREFERRED SECURITIES GUARANTEE AGREEMENT
This GUARANTEE AGREEMENT (the "Preferred Securities
Guarantee"), dated as of , 1998, is executed and delivered
by Potomac Electric Power Company, a District of Columbia and
Virginia corporation (the "Guarantor"), and The Bank of New York,
a New York banking corporation, as trustee for the benefit of the
Holders (as defined herein) of Potomac Electric Power Company Trust
I, a Delaware statutory business trust (the "Issuer").
WHEREAS, pursuant to an Amended and Restated Declaration of
Trust (the "Declaration"), dated as of , 1998, among the
trustees of the Issuer named therein, the Guarantor, as sponsor,
and the holders from time to time of undivided beneficial interests
in the assets of the Issuer, the Issuer is issuing on the date
hereof [ ] preferred securities, having an aggregate
liquidation amount of $ , designated the %
Preferred Securities (the "Preferred Securities"); and
WHEREAS, as incentive for the Holders to purchase the
Preferred Securities, the Guarantor desires irrevocably and
unconditionally to agree, to the extent set forth in this Preferred
Securities Guarantee, to pay to the Holders the Guarantee Payments
(as defined herein) and to make certain other payments on the terms
and conditions set forth herein.
WHEREAS, the Guarantor is also executing and delivering a
guarantee agreement (the "Common Securities Guarantee") in
substantially identical terms to this Preferred Securities
Guarantee for the benefit of the holders of the Common Securities
(as defined herein), except that if an Event of Default (as defined
by the Indenture), has occurred and is continuing, the rights of
holders of the Common Securities to receive Guarantee Payments
under the Common Securities Guarantee are subordinated to the
rights of Holders to receive Guarantee Payments under this
Preferred Securities Guarantee.
NOW, THEREFORE, in consideration of the purchase by each
Holder, which purchase the Guarantor hereby agrees shall benefit
the Guarantor, the Guarantor executes and delivers this Preferred
Securities Guarantee for the benefit of the Holders.
ARTICLE I
DEFINITIONS AND INTERPRETATION
SECTION 1.1 Definitions and Interpretation
In this Preferred Securities Guarantee, unless the context
otherwise requires:
(a) Capitalized terms used in this Preferred Securities
Guarantee but not defined in the preamble above have the respective
meanings assigned to them in this Section 1.1;
(b) a term defined anywhere in this Preferred Securities
Guarantee has the same meaning throughout;
(c) all references to "the Preferred Securities Guarantee" or
"this Preferred Securities Guarantee" are to this Preferred
Securities Guarantee as modified, supplemented or amended from time
to time;
(d) all references in this Preferred Securities Guarantee to
Articles and Sections are to Articles and Sections of this
Preferred Securities Guarantee, unless otherwise specified;
(e) a term defined in the Trust Indenture Act has the same
meaning when used in this Preferred Securities Guarantee, unless
otherwise defined in this Preferred Securities Guarantee or unless
the context otherwise requires; and
(f) a reference to the singular includes the plural and vice
versa.
"Affiliate" has the same meaning as given to that term in Rule
405 of the Securities Act of 1933, as amended, or any successor
rule thereunder.
"Authorized Officer" of a Person means any Person that is
authorized to bind such Person.
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"Business Day" means any day other than a day on which federal
or state banking institutions in the Borough of Manhattan, The City
of New York, are authorized or obligated by any law, executive
order or regulation to close.
"Common Securities" means the securities representing common
undivided beneficial interests in the assets of the Issuer.
"Corporate Trust Office" means the office of the Preferred
Guarantee Trustee at which the corporate trust business of the
Preferred Guarantee Trustee shall, at any particular time, be
principally administered, which office at the date of execution of
this Agreement is located at 101 Barclay Street, New York, New York
10286.
"Covered Person" means any Holder or beneficial owner of
Preferred Securities.
"Debentures" means the % Junior Subordinated Deferrable
Interest Debentures due 2038 issued by the Guarantor to the Issuer.
"Event of Default" means a default by the Guarantor on any of
its payment or other obligations under this Preferred Securities
Guarantee.
"Guarantee Payments" means the following payments or
distributions, without duplication, with respect to the Preferred
Securities, to the extent not paid or made by the Issuer: (i) any
accrued and unpaid Distributions (as defined in the Declaration)
that are required to be paid on such Preferred Securities, to the
extent the Issuer shall have funds available therefor, (ii) the
redemption price, including all accrued and unpaid Distributions to
the date of redemption (the "Redemption Price"), to the extent the
Issuer has funds available therefor, with respect to any Preferred
Securities called for redemption by the Issuer, and (iii) upon a
voluntary or involuntary dissolution, winding-up or termination of
the Issuer (other than in connection with the distribution of
Debentures to the Holders or the redemption of all of the Preferred
Securities as provided in the Declaration), the lesser of (a) the
aggregate of the liquidation amount and all accrued and unpaid
Distributions on the Preferred Securities to the date of payment,
to the extent the Issuer shall have funds available therefor, and
(b) the amount of assets of the Issuer remaining available for
distribution to Holders in liquidation of the Issuer (in either
case, the "Liquidation Distribution"). If an event of default
under the Indenture has occurred and is continuing, the rights of
holders of the Common Securities to receive payments under the
Common Securities Guarantee Agreement are subordinated to the
rights of Holders to receive Guarantee Payments.
"Holder" means any holder, as registered on the books and
records of the Issuer, of any Preferred Securities; provided,
however, that, in determining whether the holders of the requisite
percentage of Preferred Securities have given any request, notice,
consent or waiver hereunder, "Holder" shall not include the
Guarantor or any Affiliate of the Guarantor, but only to the
extent that the Issuer has actual knowledge of such ownership.
"Indemnified Person" means the Preferred Guarantee Trustee,
any Affiliate of the Preferred Guarantee Trustee, or any officers,
directors, shareholders, members, partners, employees,
representatives, nominees, custodians or agents of the Preferred
Guarantee Trustee.
"Indenture" means the Indenture dated as of , 1998,
among the Guarantor (the "Debenture Issuer") and The Bank of New
York, as trustee, and any indenture supplemental thereto pursuant
to which the Debentures are to be issued to the Institutional
Trustee (as defined by the Declaration) of the Issuer.
"Majority in liquidation amount of the Preferred Securities"
means, except as provided by the Trust Indenture Act, a vote by
Holder(s), voting separately as a class, of more than 50% of the
liquidation amount (consisting of the stated amount that would be
paid on redemption, liquidation or otherwise, plus accrued and
unpaid Distributions to the date upon which the voting percentages
are determined) of all outstanding Preferred Securities.
"Officers' Certificate" means, with respect to any Person, a
certificate signed by two Authorized Officers of such Person. Any
Officers' Certificate delivered with respect to compliance with a
condition or covenant provided for in this Preferred Securities
Guarantee shall include:
(a) a statement that each officer signing the Officers'
Certificate has read the covenant or condition and the definition
relating thereto;
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(b) a brief statement of the nature and scope of the
examination or investigation undertaken by each officer in
rendering the Officers' Certificate;
(c) a statement that each such officer has made such
examination or investigation as, in such officer's opinion, is
necessary to enable such officer to express an informed opinion as
to whether or not such covenant or condition has been complied
with; and
(d) a statement as to whether, in the opinion of each such
officer, such condition or covenant has been complied with.
"Preferred Guarantee Trustee" means The Bank of New York, a
New York banking corporation, until a Successor Preferred Guarantee
Trustee has been appointed and has accepted such appointment
pursuant to the terms of this Preferred Securities Guarantee and
thereafter means each such Successor Preferred Guarantee Trustee.
"Person" means a legal person, including any individual,
corporation, estate, partnership, joint venture, association, joint
stock company, limited liability company, trust, unincorporated
association, or government or any agency or political subdivision
thereof, or any other entity of whatever nature.
"Resignation Request" has the meaning set forth in Section
4.2(c).
"Responsible Officer" means, with respect to the Preferred
Guarantee Trustee, any officer within the Corporate Trust Office of
the Preferred Guarantee Trustee, including any vice president, any
assistant vice president, any assistant secretary, any assistant
treasurer or other officer of the Corporate Trust Office of the
Preferred Guarantee Trustee customarily performing functions
similar to those performed by any of the above designated officers
and also means, with respect to a particular corporate trust
matter, any other officer to whom such matter is referred because
of that officer's knowledge of and familiarity with the particular
subject.
"Successor Preferred Guarantee Trustee" means a successor
Preferred Guarantee Trustee possessing the qualifications to act as
Preferred Guarantee Trustee under Section 4.1.
"Trust Indenture Act" means the Trust Indenture Act of 1939,
as amended.
ARTICLE II
TRUST INDENTURE ACT
SECTION 2.1 Trust Indenture Act; Application
(a) This Preferred Securities Guarantee is subject to the
provisions of the Trust Indenture Act that are required to be part
of this Preferred Securities Guarantee and shall, to the extent
applicable, be governed by such provisions.
(b) If and to the extent that any provision of this Preferred
Securities Guarantee limits, qualifies or conflicts with the duties
imposed by Section 310 to 317, inclusive, of the Trust Indenture
Act, such imposed duties shall control.
(c) The application of the Trust Indenture Act to this
Preferred Securities Guarantee shall not affect the nature of the
Preferred Securities as equity securities representing undivided
beneficial interests in the assets of the Issuer.
SECTION 2.2 Lists of Holders of Securities
(a) The Guarantor shall provide the Preferred Guarantee
Trustee (i) on a semi-annual basis, within five Business Days after
a record date, with a list, in such form as the Preferred Guarantee
Trustee may reasonably require, of the names and addresses of the
Holders as of such date,and (ii) at any other time within 30 days
of receipt by the Guarantor of a written request therefor. Such
list of Holders shall be as of a date no more than 15 days before
such list is given to the Preferred Guarantee Trustee. The
Guarantor shall not be obligated to provide such list of Holders if
at any time the list does
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not differ from the most recent list given to the Preferred
Guarantee Trustee by the Guarantor. The Preferred Guarantee
Trustee may destroy any list of Holders previously given to it on
receipt of a new list of Holders.
(b) The Preferred Guarantee Trustee shall comply with its
obligations under Sections 311(a), 311(b) and Section 312 of the
Trust Indenture Act.
SECTION 2.3 Reports by the Preferred Guarantee Trustee
Within 60 days after April 15 of each year, the Preferred
Guarantee Trustee shall provide to the Holders such reports as are
required by Section 313(a) of the Trust Indenture Act, and any
reports required by Section 313(b) of the Trust Indenture Act,
within the timeframes specified therein, in the form and in the
manner provided by Section 313 of the Trust Indenture Act. The
Preferred Guarantee Trustee shall also comply with the requirements
of Section 313(d) of the Trust Indenture Act.
SECTION 2.4 Periodic Reports to Preferred Guarantee Trustee
The Guarantor shall provide to the Preferred Guarantee Trustee
and to the Securities and Exchange Commission such documents,
reports and information as required by Section 314 (if any) and the
compliance certificates required by Section 314 of the Trust
Indenture Act in the form, in the manner and at the times required
by Section 314 of the Trust Indenture Act. Delivery of such
reports, information and documents to the Trustee is for
informational purposes only and the Trustee's receipt of such shall
not constitute constructive notice of any information contained
therein or determinable from information contained therein,
including the Company's compliance with any of its covenants
hereunder (as to which the Trustee is entitled to rely exclusively
on Officers' Certificates).
SECTION 2.5 Evidence of Compliance with Conditions Precedent
The Guarantor shall provide to the Preferred Guarantee Trustee
such evidence of compliance with any conditions precedent, if any,
provided for in this Preferred Securities Guarantee that relate to
any of the matters set forth in Section 314(c) of the Trust
Indenture Act. Any certificate or opinion required to be given by
an officer pursuant to Section 314(c)(1) may be given in the form
of an Officers' Certificate.
SECTION 2.6 Events of Default; Waiver
(a) The Holders of a Majority in liquidation amount of
Preferred Securities may, by vote, on behalf of all of the Holders
waive any Event of Default and its consequences. Upon such waiver,
any such Event of Default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured, for
every purpose of this Preferred Securities Guarantee, but no such
waiver shall extend to any subsequent or other default or Event of
Default or impair any right consequent thereon.
(b) Notwithstanding the provisions of subsection (a) of this
Section 2.6, the right of any Holder of Preferred Securities to
receive payment of the Guarantee Payments in accordance with this
Preferred Securities Guarantee, or to institute suit for the
enforcement of any such payment, shall not be impaired without the
consent of each such Holder.
SECTION 2.7 Event of Default; Notice
(a) The Preferred Guarantee Trustee shall, within 90 days
after the occurrence of an Event of Default, transmit by mail,
first class postage prepaid, to the Holders notices of all Events
of Default actually known to a Responsible Officer of the Preferred
Guarantee Trustee, unless such defaults have been cured before the
giving of such notice; provided, that, the Preferred Guarantee
Trustee shall be protected in withholding such notice if and so
long as a Responsible Officer in good faith determines that the
withholding of such notice is in the interests of the Holders of
the Preferred Securities.
(b) The Preferred Guarantee Trustee shall not be deemed to
have actual knowledge of any Event of Default unless the Preferred
Guarantee Trustee shall have received written notice thereof, or of
which a Responsible Officer charged with the administration of this
Preferred Securities Guarantee shall have obtained actual
knowledge.
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SECTION 2.8 Conflicting Interests
The Declaration shall be deemed to be specifically described
in this Preferred Securities Guarantee for the purposes of clause
(i) of the first proviso contained in Section 310(b) of the Trust
Indenture Act.
ARTICLE III
POWERS, DUTIES AND RIGHTS OF PREFERRED
GUARANTEE TRUSTEE
SECTION 3.1 Powers and Duties of the Preferred Guarantee
Trustee
(a) This Preferred Securities Guarantee shall be held by the
Preferred Guarantee Trustee in trust for the benefit of the
Holders, and the Preferred Guarantee Trustee shall not transfer its
right, title and interest in this Preferred Securities Guarantee to
any Person except a Holder exercising his or her rights pursuant to
Section 5.4(d) or a Successor Preferred Guarantee Trustee on
acceptance by such Successor Preferred Guarantee Trustee of its
appointment to act as Successor Preferred Guarantee Trustee. The
right, title and interest of the Preferred Guarantee Trustee shall
automatically vest in any Successor Preferred Guarantee Trustee,
and such vesting and cessation of title shall be effective whether
or not conveyancing documents have been executed and delivered
pursuant to the appointment of such Successor Preferred Guarantee
Trustee.
(b) If an Event of Default actually known to a Responsible
Officer has occurred and is continuing, the Preferred Guarantee
Trustee shall enforce this Preferred Securities Guarantee for the
benefit of the Holders.
(c) This Preferred Securities Guarantee and all moneys
received by the Preferred Guarantee Trustee hereunder in respect of
the Guarantee Payments will not be subject to any right, charge,
security interest, lien or claim of any kind in favor of, or for
the benefit of, the Preferred Guarantee Trustee or its agents or
their creditors.
(d) The Preferred Guarantee Trustee, prior to the occurrence
of any Event of Default and after the curing of all Events of
Default that may have occurred, shall undertake to perform only
such duties as are specifically set forth in this Preferred
Securities Guarantee, and no implied covenants shall be read into
this Preferred Securities Guarantee against the Preferred Guarantee
Trustee. In case an Event of Default has occurred (that has not
been cured or waived pursuant to Section 2.6) and is actually known
to a Responsible Officer, the Preferred Guarantee Trustee shall
exercise such of the rights and powers vested in it by this
Preferred Securities Guarantee, and use the same degree of care and
skill in its exercise thereof as a prudent person would exercise or
use under the circumstances in the conduct of his own affairs.
(e) No provision of this Preferred Securities Guarantee shall
be construed to relieve the Preferred Guarantee Trustee from
liability for its own negligent action, its own negligent failure
to act, or its own willful misconduct, except that:
(i) prior to the occurrence of any Event of Default and
after the curing or waiving of all such Events of Default that
may have occurred:
(A) the duties and obligations of the Preferred
Guarantee Trustee shall be determined solely by the express
provisions of this Preferred Securities Guarantee, and the
Preferred Guarantee Trustee shall not be liable except for the
performance of such duties and obligations as are specifically
set forth in this Preferred Securities Guarantee, and no
implied covenants or obligations shall be read into this
Preferred Securities Guarantee against the Preferred Guarantee
Trustee; and
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(B) in the absence of bad faith on the part of the
Preferred Guarantee Trustee, the Preferred Guarantee Trustee
may conclusively rely, as to the truth of the statements and
the correctness of the opinions expressed therein, upon any
certificates or opinions furnished to the Preferred Guarantee
Trustee and conforming to the requirements of this Preferred
Securities Guarantee; but in the case of any such certificates
or opinions that by any provision hereof are specifically
required to be furnished to the Preferred Guarantee Trustee,
the Preferred Guarantee Trustee shall be under a duty to
examine the same to determine whether or not they conform to
the requirements of this Preferred Securities Guarantee (but
need not confirm or investigate the accuracy of mathematical
calculations or other facts stated therein);
(ii) the Preferred Guarantee Trustee shall not be liable
for any error of judgment made in good faith by a Responsible
Officer, unless it shall be proved that the Preferred
Guarantee Trustee was negligent in ascertaining the pertinent
facts upon which such judgment was made;
(iii) the Preferred Guarantee Trustee shall not be liable
with respect to any action taken or omitted to be taken by it
in good faith in accordance with the direction of the Holders
of not less than a Majority in liquidation amount of the
Preferred Securities relating to the time, method and place of
conducting any proceeding for any remedy available to the
Preferred Guarantee Trustee, or exercising any trust or power
conferred upon the Preferred Guarantee Trustee under this
Preferred Securities Guarantee; and
(iv) no provision of this Preferred Securities Guarantee
shall require the Preferred Guarantee Trustee to expend or
risk its own funds or otherwise incur personal financial
liability in the performance of any of its duties or in the
exercise of any of its rights or powers.
SECTION 3.2 Certain Rights of Preferred Guarantee Trustee
(a) Subject to the provisions of Section 3.1:
(i) The Preferred Guarantee Trustee may conclusively
rely, and shall be fully protected in acting or refraining
from acting upon, any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction,
consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document believed by it in good
faith to be genuine and to have been signed, sent or presented
by the proper party or parties.
(ii) Any direction or act of the Guarantor contemplated
by this Preferred Securities Guarantee shall be sufficiently
evidenced by an Officers' Certificate.
(iii) Whenever, in the administration of this Preferred
Securities Guarantee, the Preferred Guarantee Trustee shall
deem it desirable that a matter be proved or established
before taking, suffering or omitting any action hereunder, the
Preferred Guarantee Trustee (unless other evidence is herein
specifically prescribed) may, in the absence of bad faith on
its part, request and conclusively rely upon an Officers'
Certificate which, upon receipt of such request, shall be
promptly delivered by the Guarantor.
(iv) The Preferred Guarantee Trustee shall have no duty
to see to any recording, filing or registration of any
instrument (or any rerecording, refiling or registration
thereof).
(v) The Preferred Guarantee Trustee may consult with
counsel of its selection, and the advice or opinion of such
counsel with respect to legal matters shall be full and
complete authorization and protection in respect of any action
taken, suffered or omitted by it hereunder in good faith and
in accordance with such advice or opinion. Such counsel may
be counsel to the Guarantor or any of its Affiliates and may
include any of its employees. The Preferred Guarantee Trustee
shall have the right at any time to seek instructions
concerning the administration of this Preferred Securities
Guarantee from any court of competent jurisdiction.
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(vi) The Preferred Guarantee Trustee shall be under no
obligation to exercise any of the rights or powers vested in
it by this Preferred Securities Guarantee at the request or
direction of any Holder, unless such Holder shall have
provided to the Preferred Guarantee Trustee such security and
indemnity, reasonably satisfactory to the Preferred Guarantee
Trustee, against the costs, expenses (including attorneys'
fees and expenses and the expenses of the Preferred Guarantee
Trustee's agents, nominees or custodians) and liabilities that
might be incurred by it in complying with such request or
direction, including such reasonable advances as may be
requested by the Preferred Guarantee Trustee; provided that,
nothing contained in this Section 3.2(a)(vi) shall relieve the
Preferred Guarantee Trustee, upon the occurrence of an Event
of Default which has not been cured or waived, of its
obligation to exercise the rights and powers vested in it by
this Preferred Securities Guarantee and to use the same degree
of care and skill in this exercise, as a prudent person would
exercise or use under the circumstances in the conduct of his
or her own affairs.
(vii) The Preferred Guarantee 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, direction, consent, order, bond,
debenture, note, other evidence of indebtedness or other paper
or document, but the Preferred Guarantee Trustee, in its
discretion, may make such further inquiry or investigation
into such facts or matters as it may see fit.
(viii) The Preferred Guarantee Trustee may execute any of
the trusts or powers hereunder or perform any duties hereunder
either directly or by or through agents, nominees, custodians
or attorneys, and the Preferred Guarantee Trustee shall not be
responsible for any misconduct or negligence on the part of
any agent or attorney appointed with due care by it hereunder.
(ix) Any action taken by the Preferred Guarantee Trustee
or its agents hereunder shall bind the Holders, and the
signature of the Preferred Guarantee Trustee or its agents
alone shall be sufficient and effective to perform any such
action. No third party shall be required to inquire as to the
authority of the Preferred Guarantee Trustee to so act or as
to its compliance with any of the terms and provisions of this
Preferred Securities Guarantee, both of which shall be
conclusively evidenced by the Preferred Guarantee Trustee's or
its agent's taking such action.
(x) Whenever in the administration of this Preferred
Securities Guarantee the Preferred Guarantee Trustee shall
deem it desirable to receive instructions with respect to
enforcing any remedy or right or taking any other action
hereunder, the Preferred Guarantee Trustee (i) may request
instructions from the Holders of a Majority in liquidation
amount of the Preferred Securities, (ii) may refrain from
enforcing such remedy or right or taking such other action
until such instructions are received, and (iii) shall be
protected in conclusively relying on or acting in accordance
with such instructions.
(b) No provision of this Preferred Securities Guarantee shall
be deemed to impose any duty or obligation on the Preferred
Guarantee Trustee to perform any act or acts or exercise any right,
power, duty or obligation conferred or imposed on it in any
jurisdiction in which it shall be illegal, or in which the
Preferred Guarantee Trustee shall be unqualified or incompetent in
accordance with applicable law, to perform any such act or acts or
to exercise any such right, power, duty or obligation. No
permissive power or authority available to the Preferred Guarantee
Trustee shall be construed to be a duty.
SECTION 3.3. Not Responsible for Recitals or Issuance of
Preferred Securities Guarantee
The recitals contained in this Preferred Securities Guarantee
shall be taken as the statements of the Guarantor, and the
Preferred Guarantee Trustee does not assume any responsibility for
their correctness. The Preferred Guarantee Trustee makes no
representation as to the validity or sufficiency of this Preferred
Securities Guarantee.
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ARTICLE IV
PREFERRED GUARANTEE TRUSTEE
SECTION 4.1 Preferred Guarantee Trustee; Eligibility
(a) There shall at all times be a Preferred Guarantee Trustee
which shall:
(i) not be an Affiliate of the Guarantor; and
(ii) be a corporation organized and doing business under
the laws of the United States of America or any state or
territory thereof or of the District of Columbia, or a
corporation or Person permitted by the Securities and Exchange
Commission to act as an institutional trustee under the Trust
Indenture Act, authorized under such laws to exercise
corporate trust powers, having a combined capital and surplus
of at least 50 million U.S. dollars ($50,000,000), and subject
to supervision or examination by federal, state, territorial
or District of Columbia authority. If such corporation or
Person publishes reports of condition at least annually,
pursuant to law or to the requirements of the supervising or
examining authority referred to above, then, for the purposes
of this Section 4.1(a)(ii), the combined capital and surplus
of such corporation or Person shall be deemed to be its
combined capital and surplus as set forth in its most recent
report of condition so published.
(b) If at any time the Preferred Guarantee Trustee shall
cease to be eligible to so act under Section 4.1(a), the Preferred
Guarantee Trustee shall immediately resign in the manner and with
the effect set out in Section 4.2(c).
(c) If the Preferred Guarantee Trustee has or shall acquire
any "conflicting interest" within the meaning of Section 310(b) of
the Trust Indenture Act, the Preferred Guarantee Trustee and
Guarantor shall in all respects comply with the provisions of
Section 310(b) of the Trust Indenture Act.
SECTION 4.2 Appointment, Removal and Resignation of Preferred
Guarantee Trustee
(a) Subject to Section 4.2(b), the Preferred Guarantee
Trustee may be appointed or removed without cause by the Guarantor
at any time while there is no continuing Event of Default.
(b) The Preferred Guarantee Trustee shall not be removed in
accordance with Section 4.2(a) until a Successor Preferred
Guarantee Trustee has been appointed and has accepted such
appointment by written instrument executed by such Successor
Preferred Guarantee Trustee and delivered to the Guarantor and to
the Preferred Guarantee Trustee being removed.
(c) The Preferred Guarantee Trustee appointed to office shall
hold office until a Successor Preferred Guarantee Trustee shall
have been appointed or until its removal or resignation. The
Preferred Guarantee Trustee may resign from office (without need
for prior or subsequent accounting) by an instrument (a
"Resignation Request") in writing executed by the Preferred
Guarantee Trustee and delivered to the Guarantor which resignation
shall take effect upon such delivery or upon such later date as is
specified therein; provided, however, that no such resignation of
the Preferred Guarantee Trustee shall be effective until a
Successor Preferred Guarantee Trustee has been appointed and has
accepted such appointment by instrument in writing executed by such
Successor Preferred Guarantee Trustee and delivered to the
Guarantor and the resigning Preferred Guarantee Trustee.
(d) If no Successor Preferred Guarantee Trustee shall have
been appointed and accepted appointment as provided in this Section
4.2 within 60 days after delivery to the Guarantor of a Resignation
Request, the resigning Preferred Guarantee Trustee may, at the
expense of the Guarantor, petition any court of competent
jurisdiction for appointment of a
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Successor Preferred Guarantee Trustee. Such court may thereupon,
after prescribing such notice, if any, as it may deem proper,
appoint a Successor Preferred Guarantee Trustee.
(e) No Preferred Guarantee Trustee shall be liable for the
acts or omissions to act of any Successor Preferred Guarantee
Trustee.
(f) Upon termination of this Preferred Securities Guarantee
or removal or resignation of the Preferred Guarantee Trustee
pursuant to this Section 4.2, the Guarantor shall pay to the
Preferred Guarantee Trustee all amounts payable to the Preferred
Guarantee Trustee that have accrued to the date of such
termination, removal or resignation.
ARTICLE V
GUARANTEE
SECTION 5.1 Guarantee
The Guarantor irrevocably and unconditionally agrees to pay in
full to the Holders the Guarantee Payments (without duplication of
amounts theretofore paid by the Issuer), as and when due,
regardless of any defense, right of set-off or counterclaim that
the Issuer may have or assert. The Guarantor's obligation to make
a Guarantee Payment may be satisfied by direct payment of the
required amounts by the Guarantor to the Holders or by causing the
Issuer to pay such amounts to the Holders.
SECTION 5.2 Waiver of Notice and Demand
The Guarantor hereby waives notice of acceptance of this
Preferred Securities Guarantee and of any liability to which it
applies or may apply, presentment, demand for payment, any right to
require a proceeding first against the Issuer or any other Person
before proceeding against the Guarantor, protest, notice of
nonpayment, notice of dishonor, notice of redemption and all other
notices and demands.
SECTION 5.3 Obligations Not Affected
The obligations, covenants, agreements and duties of the
Guarantor under this Preferred Securities Guarantee shall in no way
be affected or impaired by reason of the happening from time to
time of any of the following:
(a) the release or waiver, by operation of law or otherwise,
of the performance or observance by the Issuer of any express or
implied agreement, covenant, term or condition relating to the
Preferred Securities to be performed or observed by the Issuer;
(b) the extension of time for the payment by the Issuer of
all or any portion of the Distributions, Redemption Price,
Liquidation Distribution or any other sums payable under the terms
of the Preferred Securities or the extension of time for the
performance of any other obligation under, arising out of, or in
connection with, the Preferred Securities (other than an extension
of time for payment of Distributions, Redemption Price, Liquidation
Distribution or other sum payable that results from the extension
of any interest payment period on the Debentures or any extension
of the maturity date of the Debentures permitted by the Indenture);
(c) any failure, omission, delay or lack of diligence on the
part of the Holders to enforce, assert or exercise any right,
privilege, power or remedy conferred on the Holders pursuant to the
terms of the Preferred Securities, or any action on the part of the
Issuer granting indulgence or extension of any kind;
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(d) the voluntary or involuntary liquidation, dissolution,
sale of any collateral, receivership, insolvency, bankruptcy,
assignment for the benefit of creditors, reorganization,
arrangement, composition or readjustment of debt of, or other
similar proceedings affecting, the Issuer or any of the assets of
the Issuer;
(e) any invalidity of, or defect or deficiency in, the
Preferred Securities;
(f) the settlement or compromise of any obligation guaranteed
hereby or hereby incurred; or
(g) any other circumstance whatsoever that might otherwise
constitute a legal or equitable discharge or defense of a
guarantor, it being the intent of this Section 5.3 that the
obligations of the Guarantor hereunder shall be absolute and
unconditional under any and all circumstances.
There shall be no obligation of the Holders to give notice to,
or obtain consent of, the Guarantor with respect to the happening
of any of the foregoing.
SECTION 5.4 Enforcement of Guarantee; Rights of Holders
The Guarantor and the Preferred Guarantee Trustee expressly
acknowledge that:
(a) this Preferred Securities Guarantee will be deposited
with the Preferred Guarantee Trustee to be held for the benefit of
the Holders;
(b) the Preferred Guarantee Trustee has the right to enforce
this Preferred Securities Guarantee on behalf of the Holders;
(c) the Holders of a Majority in liquidation amount of the
Preferred Securities have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the
Preferred Guarantee Trustee in respect of this Preferred Securities
Guarantee or exercising any trust or power conferred upon the
Preferred Guarantee Trustee under this Preferred Securities
Guarantee; and
(d) any Holder may institute a legal proceeding directly
against the Guarantor to enforce the Preferred Guarantee Trustee's
rights and the obligations of the Guarantor under this Preferred
Securities Guarantee, without first instituting a legal proceeding
against the Issuer, the Preferred Guarantee Trustee or any other
person or entity, and the Guarantor waives any right or remedy to
require that any action be brought first against the Issuer or any
other person or entity before proceeding directly against the
Guarantor.
SECTION 5.5 Guarantee of Payment
This Preferred Securities Guarantee creates a guarantee of
payment and not of collection. This Preferred Securities Guarantee
will not be discharged except by payment of the Guarantee Payments
in full (without duplication of amounts therefor paid by the
Issuer).
SECTION 5.6 Subrogation
The Guarantor shall be subrogated to all (if any) rights of
the Holders against the Issuer in respect of any amounts paid to
such Holders by the Guarantor under this Preferred Securities
Guarantee; provided, however, that the Guarantor shall not (except
to the extent required by mandatory provisions of law) be entitled
to enforce or exercise any right that it may acquire by way of
subrogation or any indemnity, reimbursement or other agreement, in
all cases as a result of payment under this Preferred Securities
Guarantee, if, at the time of any such payment, any amounts are due
and unpaid under this
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Preferred Securities Guarantee. If any amount shall be paid to the
Guarantor in violation of the preceding sentence, the Guarantor
agrees to hold such amount in trust for the Holders and to pay over
such amount to the Holders.
SECTION 5.7 Independent Obligations
The Guarantor acknowledges that its obligations hereunder are
independent of the obligations of the Issuer with respect to the
Preferred Securities, and that the Guarantor shall be liable as
principal and as debtor hereunder to make Guarantee Payments
pursuant to the terms of this Preferred Securities Guarantee
notwithstanding the occurrence of any event referred to in
subsections (a) through (g), inclusive, of Section 5.3 hereof.
ARTICLE VI
LIMITATION OF TRANSACTIONS; SUBORDINATION
SECTION 6.1 Limitation of Transactions
So long as any Preferred Securities remain outstanding, if (a)
there shall have occurred an Event of Default, (b) there shall have
occurred an Event of Default (as defined by the Indenture) or (c)
the Guarantor has exercised its option to defer interest payments
on the Debentures by extending the interest payment period as
provided in Article IV of the First Supplemental Indenture to the
Indenture and such period or extension thereof shall be continuing,
then (i) the Guarantor shall not declare or pay any dividend on,
make any distribution with respect to, or redeem, purchase,
acquire, or make a liquidation payment with respect to, any of its
capital stock (other than (A) purchases or acquisitions of shares
of Guarantor's common stock in connection with the satisfaction by
the Guarantor of its obligations under any employee benefit plans
or any other contractual obligation of the Guarantor (other than a
contractual obligation ranking pari passu with or junior to the
Debentures), or (B) the purchase of fractional interests in shares
of the Guarantor's capital stock pursuant to the conversion or
exchange provisions of such capital stock or the security being
converted or exchanged), (ii) the Guarantor shall not make any
payment of interest, principal or premium, if any, on or repay,
repurchase or redeem any debt securities issued by the Guarantor
that rank pari passu with or junior to the Debentures and (iii) the
Guarantor shall not make any guarantee payments with respect to the
foregoing (other than pursuant to this Preferred Securities
Guarantee).
In addition, so long as any Preferred Securities remain
outstanding, the Guarantor (i) will remain the sole direct or
indirect owner of all of the outstanding Common Securities;
provided that any permitted successor of the Guarantor under the
Indenture may succeed to the Guarantor's ownership of the Common
Securities and (ii) will not take any action which would cause the
Issuer to cease to be treated as a grantor trust for United States
federal income tax purposes except in connection with a
distribution of Debentures as provided in the Declaration.
SECTION 6.2 Ranking
This Preferred Securities Guarantee will constitute an
unsecured obligation of the Guarantor and will rank (i) subordinate
and junior in right of payment to all other liabilities of the
Guarantor, except those made pari passu or subordinate by their
terms, (ii) pari passu with the most senior preferred or preference
stock now or hereafter issued by the Guarantor and with any
guarantee now or hereafter entered into by the Guarantor in respect
of any preferred or preference stock of any Affiliate of the
Guarantor, and (iii) senior to the Guarantor's common stock.
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ARTICLE VII
TERMINATION
SECTION 7.1 Termination
This Preferred Securities Guarantee shall terminate and be of
no further force and effect upon (i) full payment of the Redemption
Price of all Preferred Securities, (ii) upon the distribution of
all of the Debentures to the Holders or (iii) upon full payment of
the amounts payable in accordance with the Declaration upon
liquidation of the Issuer. Notwithstanding the foregoing, this
Preferred Securities Guarantee will continue to be effective or
will be reinstated, as the case may be, if at any time any Holder
must restore payment of any sums paid under the Preferred
Securities or under this Preferred Securities Guarantee.
ARTICLE VIII
INDEMNIFICATION
SECTION 8.1 Exculpation
(a) No Indemnified Person shall be liable, responsible or
accountable in damages or otherwise to the Guarantor or any Covered
Person for any loss, damage or claim incurred by reason of any act
or omission performed or omitted by such Indemnified Person in good
faith in accordance with this Preferred Securities Guarantee and in
a manner that such Indemnified Person reasonably believed to be
within the scope of the authority conferred on such Indemnified
Person by this Preferred Securities Guarantee or by law, except
that an Indemnified Person shall be liable for any such loss,
damage or claim incurred by reason of such Indemnified Person's
negligence or willful misconduct with respect to such acts or
omissions.
(b) An Indemnified Person shall be fully protected in relying
in good faith upon the records of the Guarantor and upon such
information, opinions, reports or statements presented to the
Guarantor by any Person as to matters the Indemnified Person
reasonably believes are within such other Person's professional or
expert competence and who has been selected with reasonable care by
or on behalf of the Guarantor, including information, opinions,
reports or statements as to the value and amount of the assets,
liabilities, profits, losses, or any other facts pertinent to the
existence and amount of assets from which Distributions to Holders
might properly be paid.
SECTION 8.2 Indemnification
To the fullest extent permitted by applicable law, the
Guarantor agrees to indemnify each Indemnified Person for, and to
hold each Indemnified Person harmless against, any loss, liability
or expense incurred by such Indemnified Person by reason of any act
or omission performed or omitted by such Indemnified Person without
negligence or bad faith on its part, arising out of or in
connection with the acceptance or administration of the trust or
trusts hereunder, including the costs and expenses (including
reasonable legal fees and expenses) of defending itself against, or
investigating, any claim or liability in connection with the
exercise or performance of any of its powers or duties hereunder.
The obligation to indemnify as set forth in this Section 8.2 shall
survive the termination of this Preferred Securities Guarantee.
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ARTICLE IX
MISCELLANEOUS
SECTION 9.1 Successors and Assigns
All guarantees and agreements contained in this Preferred
Securities Guarantee shall bind the successors, assigns, receivers,
trustees and representatives of the Guarantor and shall inure to
the benefit of the Holders of the Preferred Securities then
outstanding. Except in connection with any merger or consolidation
of the Guarantor with or into another entity or any sale, transfer
or lease of the Guarantor's assets to another entity, each as
permitted by the Indenture, the Guarantor may not assign its rights
or delegate its obligations under this Preferred Securities
Guarantee without the prior approval of the Holders of at least a
Majority in liquidation amount of the Preferred Securities then
outstanding.
SECTION 9.2 Amendments
Except with respect to any changes that do not adversely
affect the rights of Holders (in which case no consent of Holders
will be required), this Preferred Securities Guarantee may only be
amended with the prior approval of the Holders of at least a
Majority in liquidation amount of the Preferred Securities. The
provisions of Section 12.2 of the Declaration with respect to
meetings of Holders apply to the giving of such approval.
SECTION 9.3 Notices
All notices provided for in this Preferred Securities
Guarantee shall be in writing, duly signed by the party giving such
notice, and shall be delivered, telecopied or mailed by registered
or certified mail, as follows:
(a) If given to the Preferred Guarantee Trustee, at the
Preferred Guarantee Trustee's mailing address set forth below (or
such other address as the Preferred Guarantee Trustee may give
notice of to the Holders):
The Bank of New York
101 Barclay Street, Floor 21W
New York, NY 10286
Attention: Corporate Trust Trustee Administration
(b) If given to the Guarantor, at the Guarantor's mailing
address set forth below (or such other address as the Guarantor may
give notice of to the Holders):
Potomac Electric Power Company
1900 Pennsylvania Avenue, N.W.
Washington, DC 20068
Attention: Treasurer
(c) If given to any Holder, at the address set forth on the
books and records of the Issuer.
All such notices shall be deemed to have been given when
received in person, telecopied with receipt confirmed, or mailed by
first class mail, postage prepaid except that if a notice or other
document is refused delivery or cannot be delivered because of a
changed address of which no notice was given, such notice or other
document shall be deemed to have been delivered on the date of such
refusal or inability to deliver.
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<PAGE>
SECTION 9.4 Benefit
This Preferred Securities Guarantee is solely for the benefit
of the Holders and is not separately transferable from the
Preferred Securities.
SECTION 9.5 Governing Law
THIS PREFERRED SECURITIES GUARANTEE SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE
OF NEW YORK AND ALL RIGHTS AND REMEDIES SHALL BE GOVERNED BY SUCH
LAWS WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS.
SECTION 9.6 Genders
The masculine, feminine and neuter genders used herein shall
include the masculine, feminine and neuter genders.
SECTION 9.7 Counterparts
This Preferred Securities Guarantee may be executed in
counterparts, each of which shall be an original, but such
counterparts shall together constitute one and the same instrument.
THIS PREFERRED SECURITIES GUARANTEE is executed as of the day
and year first above written.
Potomac Electric Power Company, as Guarantor
By: ________________________________________
Name:
Title:
The Bank of New York,
as Preferred Guarantee Trustee
By: _______________________________________
Name:
Title:
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<PAGE>
[LETTERHEAD OF COVINGTON & BURLING]
Exhibit 5.1
May 7, 1998
Potomac Electric Power Company
1900 Pennsylvania Avenue, N.W.
Washington, D.C. 20068
Ladies and Gentlemen:
Reference is made to a Registration Statement on Form S-3
(File No. 333-51241) filed by Potomac Electric Power Company,
a District of Columbia and Virginia corporation (the
"Company"), and Potomac Electric Power Company Trust I, a
Delaware business trust (the "Trust"), with the Securities and
Exchange Commission (the "Commission") on April 28, 1998 (as
amended by an Amendment No. 1 thereto ("Amendment No. 1") to
be filed on the date hereof, the "Registration Statement"),
for the registration under the Securities Act of 1933, as
amended (the "Securities Act"), of preferred securities
representing undivided beneficial interests in the assets of
the Trust (the "Preferred Securities"). The terms of the
Preferred Securities will be set forth in an Amended and
Restated Declaration of Trust to be entered into among the
Company and the trustees thereof (the "Declaration"), the form
of which is to be filed as an exhibit to the Registration
Statement in connection with Amendment No. 1. The Preferred
Securities are to be sold by the Trust pursuant to a Purchase
Agreement to be entered into among the Company, the Trust and
the Underwriters named therein (the "Purchase Agreement"), the
form of which is to be filed as an Exhibit to the Registration
Statement in connection with Amendment No. 1.
The proceeds from the sale of the Preferred Securities
will be used by the Trust to purchase Junior Subordinated
Deferrable Interest Debentures (the "Junior Subordinated
Debentures"). The Junior Subordinated Debentures will be
issued in accordance with the provisions of an indenture to be
entered into between the Company and The Bank of New York, as
trustee (the "Indenture"), as supplemented by a First
Supplemental Indenture thereto, the forms of which are to be
filed as exhibits to the Registration Statement in connection
with Amendment No. 1. The Preferred Securities will be
guaranteed by the Company in the manner and to the extent set
forth in a Preferred Securities Guarantee Agreement to be
entered into between the Company and The Bank of New York, as
trustee (the "Preferred Securities Agreement"), the form of
which is to be filed as an exhibit to the Registration
Statement in connection with Amendment No. 1.
The opinions set forth herein are being delivered by us
in the capacity of counsel for the Company. We are not
opining on any matters with respect to the Trust.
In connection with rendering the opinions herein set
forth, we have examined the following documents and records:
(1) the Registration Statement;
(2) the form of the Declaration to be filed in
connection with Amendment No. 1;
(3) the form of Purchase Agreement to be filed in
connection with Amendment No. 1;
(4) the forms of the Indenture and the Supplemental
Indenture to be filed in connection with Amendment
No. 1;
(5) the form of Preferred Securities Agreement to be
filed in connection with Amendment No. 1; and
(6) certified extracts of the minutes of proceedings of
the Board of Directors of the Company relating to
the issuance of the Preferred Securities and the
Junior Subordinated Debentures.
As to matters of fact relevant to the opinions set forth
herein, we have relied exclusively, without independent
investigation or verification, on the documents referred to
above. In our examinations, we have assumed the genuineness
of all signatures, the legal capacity of natural persons, the
authenticity of all documents submitted to us as originals,
and the conformity to original documents of all documents
submitted to us as copies. We also have assumed that each of
the Declaration, the Purchase Agreement, the Indenture, the
Supplemental Indenture and the Preferred Securities Agreement
will be executed substantially in the form filed as an exhibit
to the Registration Statement.
Based on the foregoing, and subject to the qualifications
stated herein, it is our opinion that:
1. When the Indenture and the Supplemental Indenture
are approved by the Executive Committee of the Board of
Directors of the Company (the "Executive Committee"), the
Junior Subordinated Debentures will be duly and validly
authorized by the Company and, when the Junior Subordinated
Debentures are thereafter executed, authenticated, issued and
delivered in the manner contemplated by the Indenture, the
Supplemental Indenture and the Purchase Agreement, they will
constitute legal, valid and binding obligations of the
Company, enforceable against the Company in accordance with
their terms, except as such enforcement may be limited by (i)
bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and similar laws or equitable principles relating
to or limiting creditors' rights and remedies generally and
(ii) the application of general principles of equity.
2. When the Preferred Securities Agreement is approved
by the Executive Committee, it will be duly and validly
authorized by the Company, and, when Preferred Securities
Agreement thereafter is executed and delivered by the Company,
it will constitute the legal, valid and binding obligation of
the Company, enforceable against the Company in accordance
with its terms except as enforcement may be limited by (i)
bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and similar laws or equitable principles relating
to or limiting creditors rights and remedies generally and
(ii) the application of general principles of equity.
The opinions expressed herein are rendered solely for
your benefit in connection with the transactions described
herein. These opinions may not be used or relied upon by any
other person or for any other purpose, nor may this letter or
any copies thereof be furnished to any third party, filed with
any other governmental agency, or quoted, cited or otherwise
referred to, without our prior written consent.
We hereby consent to the filing of this opinion as an
exhibit to the Registration Statement and to the reference to
this firm in the Prospectus which is part of the Registration
Statement.
Sincerely,
/s/ Covington & Burling
Covington & Burling
[Letterhead of Skadden, Arps, Slate, Meagher & Flom LLP]
Delaware
May 7, 1998
Potomac Electric Power Company
Potomac Electric Power Company Trust I
c/o Potomac Electric Power Company
1900 Pennsylvania Avenue, N.W.
Washington, D.C. 20068
Re: Potomac Electric Power Company
Potomac Electric Power Company Trust I;
Registration Statement on Form S-3
Ladies and Gentlemen:
We have acted as special Delaware counsel to
Potomac Electric Power Company Trust I ("PEPCO Trust"), a
statutory business trust formed under the laws of the
State of Delaware, in connection with the preparation of
a Registration Statement on Form S-3 (Registration No.
33-51241) and an Amendment No. 1 thereto, filed by
Potomac Electric Power Company, a District of Columbia
and Virginia corporation (the "Company"), and PEPCO Trust
with the Securities and Exchange Commission (the "Commis-
sion") on April 28, 1998 and May 7, 1998, respectively,
under the Securities Act of 1933, as amended (the "Act"),
(such Registration Statement, as amended, being
hereinafter referred to as the "Registration Statement")
in connection with the public offering of preferred secu-
rities (the "Trust Preferred Securities") of PEPCO Trust,
and certain other securities.
<PAGE>
Potomac Electric Power Company
Potomac Electric Power Company Trust I
May , 1998
Page 2
The Trust Preferred Securities of PEPCO Trust
are to be issued pursuant to the Amended and Restated
Declaration of Trust of PEPCO Trust (the "Declaration"),
such Declaration being among the Company, as sponsor, The
Bank of New York (Delaware), as Delaware trustee (the
"Delaware Trustee"), The Bank of New York, as institu-
tional trustee (the "Institutional Trustee"), Dennis R.
Wraase, Anthony J. Kamerick and Ellen Sheriff Rogers, as
trustees (together, the "Regular Trustees").
This opinion is being delivered in accordance
with the requirements of Item 601(b)(5) of Regulation S-K
under the Act. Capitalized terms used but not otherwise
defined herein have the meanings ascribed to them in the
Registration Statement.
In connection with this opinion, we have exam-
ined originals or copies, certified or otherwise identi-
fied to our satisfaction, of (i) the certificate of trust
of PEPCO Trust (the "Certificate of Trust"), filed with
the Secretary of State of the State of Delaware on April
24, 1998; (ii) the form of the Declaration of PEPCO
Trust; (iii) the form of the Trust Preferred Securities
of PEPCO Trust and (iv) the Registration Statement. We
have also examined originals or copies, certified or
otherwise identified to our satisfaction, of such other
documents, certificates and records as we have deemed
necessary or appropriate as a basis for the opinions set
forth herein.
In our examination, we have assumed the legal
capacity of all natural persons, the genuineness of all
<PAGE>
Potomac Electric Power Company
Potomac Electric Power Company Trust I
May , 1998
Page 3
signatures, the authenticity of all documents submitted
to us as originals, the conformity to original documents
of all documents submitted to us as certified or photo-
static copies and the authenticity of the originals of
such copies. In making our examination of documents exe-
cuted by parties other than PEPCO Trust, we have assumed
that such parties had the power, corporate or other, to
enter into and perform all obligations thereunder and
have also assumed the due authorization by all requisite
action, corporate or other, and execution and delivery by
such parties of such documents and that such documents
constitute valid and binding obligations of such parties.
In addition, we have assumed that the Declaration of
PEPCO Trust and the Trust Preferred Securities of PEPCO
Trust, when executed, will be executed in substantially
the forms reviewed by us. As to any facts material to
the opinions expressed herein which were not independent-
ly established or verified, we have relied upon oral or
written statements and representations of officers,
trustees and other representatives of the Company, PEPCO
Trust and others.
Members of our firm are admitted to the bar in
the State of Delaware, and we do not express any opinion
as to the laws of any jurisdiction other than the laws of
the State of Delaware.
Based on and subject to the foregoing and to
the other qualifications and limitations set forth here-
in, we are of the opinion that the Trust Preferred Secu-
rities of PEPCO Trust, when the Declaration of PEPCO
Trust is duly executed and delivered by the parties
<PAGE>
Potomac Electric Power Company
Potomac Electric Power Company Trust I
May , 1998
Page 4
thereto and the terms of the Trust Preferred Securities
are established in accordance with the terms of the
Declaration of PEPCO Trust, will be duly authorized for
issuance and, when issued, executed and authenticated in
accordance with the Declaration of PEPCO Trust and deliv-
ered and paid for as contemplated by the Registration
Statement, will be validly issued, fully paid and nonas-
sessable, representing undivided beneficial interests in
the assets of PEPCO Trust; and the holders of Trust Pre-
ferred Securities will be entitled to the same limitation
of personal liability extended to stockholders of private
corporations for profit organized under the General
Corporation Law of the State of Delaware. We bring to
your attention, however, that the holders of Trust Pre-
ferred Securities of PEPCO Trust may be obligated, pursu-
ant to the Declaration of PEPCO Trust, to (i) provide
indemnity and/or security in connection with and pay
taxes or governmental charges arising from transfers of
Trust Preferred Securities and (ii) provide security and
indemnity in connection with the requests of or direc-
tions to the Institutional Trustee of PEPCO Trust to
exercise its rights and powers under the Declaration of
PEPCO Trust.
This opinion is furnished to you solely for
your benefit in connection with the filing of the Regis-
tration Statement and, except as set forth below, is not
to be used, circulated, quoted or otherwise referred to
for any other purpose or relied upon by any other person
for any purpose without our prior written consent. We
hereby consent to the use of our name under the heading
"Legal Matters" in the prospectus which forms a part of
the Registration Statement. We also hereby consent to
<PAGE>
Potomac Electric Power Company
Potomac Electric Power Company Trust I
May , 1998
Page 5
the filing of this opinion with the Commission as an
exhibit to the Registration Statement. In giving this
consent, we do not thereby admit that we are within the
category of persons whose consent is required under
Section 7 of the Act or the rules and regulations of the
Commission promulgated thereunder. This opinion is ex-
pressed as of the date hereof unless otherwise expressly
stated, and we disclaim any undertaking to advise you of
any subsequent changes in the facts stated or assumed
herein or of any subsequent changes in applicable law.
Very truly yours,
/s/SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
Skadden, Arps, Slate, Meagher &
Flom LLP
[LETTERHEAD OF COVINGTON & BURLING]
Exhibit No. 8
May 7, 1998
Potomac Electric Power Company
1900 Pennsylvania Avenue, N.W.
Washington, D.C. 20068
Ladies and Gentlemen:
We have acted as special tax counsel to Potomac
Electric Power Company, a District of Columbia and Virginia
corporation (the "Company"), and to Potomac Electric Power
Company Trust I, a Delaware business trust (the "Trust"), in
connection with a Registration Statement on Form S-3 (File No.
333-51241) filed by the Company and the Trust with the
Securities and Exchange Commission (the "Commission") on April
28, 1998 (as amended by an Amendment No. 1 thereto to be filed
on the date hereof, the "Registration Statement"), for the
registration under the Securities Act of 1933, as amended (the
"Securities Act"), of preferred securities representing
undivided beneficial interests in the assets of the Trust (the
"Preferred Securities").
We hereby confirm that, although the discussion set
forth under the heading "UNITED STATES FEDERAL INCOME
TAXATION" in the Prospectus Supplement filed as part of
Amendment No. 1 to the Registration Statement (the
"Supplemental Prospectus") does not purport to discuss all
possible United States federal income tax consequences of the
purchase, ownership and disposition of Preferred Securities,
in our opinion, such discussion constitutes, in all material
respects, a fair and accurate summary of the United States
federal income tax consequences of the purchase, ownership and
disposition of Preferred Securities, based on current law. It
is possible that contrary positions may be taken by the
Internal Revenue Service and that a court may agree with such
contrary positions.
This opinion is expressed as of the date hereof and
applies only to the disclosure under the heading "UNITED
STATES FEDERAL INCOME TAXATION" set forth in the Prospectus
Supplement. We disclaim any undertaking to advise you of any
subsequent changes of the facts stated or assumed herein or
any subsequent changes in applicable law.
This opinion is furnished to you solely for your
benefit in connection with the filing of the Registration
Statement and is not to be used or relied upon by any other
<PAGE>
Potomac Electric Power Company
May 7, 1998
Page 2
person or for any other purpose, nor may this letter or any
copies thereof be furnished to any third party, filed with any
other governmental agency, or quoted, cited or otherwise
referred to, without our prior written consent.
We hereby consent to the filing of this opinion as
an exhibit to the Registration Statement and to the reference
to this firm in the Supplemental Prospectus which is a part of
the Registration Statement.
Sincerely,
/s/ Covington & Burling
Covington & Burling
<TABLE>
Exhibit 12 Computation of Ratios
- ---------- ---------------------
The computations of the coverage of fixed charges, before income taxes, and
the coverage of combined fixed charges and preferred dividends for each of the
years 1997 through 1993 on the basis of parent company operations only, are as
follows.
<CAPTION>
For The Year Ended December 31,
---------------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C>
Net income $164,749 $220,066 $218,788 $208,074 $216,478
Taxes based on income 97,487 135,011 129,439 116,648 107,223
--------- --------- --------- --------- ---------
Income before taxes 262,236 355,077 348,227 324,722 323,701
--------- --------- --------- --------- ---------
Fixed charges:
Interest charges 146,703 146,939 146,558 139,210 141,393
Interest factor in rentals 23,616 23,560 23,431 6,300 5,859
--------- --------- --------- --------- ---------
Total fixed charges 170,319 170,499 169,989 145,510 147,252
--------- --------- --------- --------- ---------
Income before income taxes and fixed charges $432,555 $525,576 $518,216 $470,232 $470,953
========= ========= ========= ========= =========
Coverage of fixed charges 2.54 3.08 3.05 3.23 3.20
==== ==== ==== ==== ====
Preferred dividend requirements $16,579 $16,604 $16,851 $16,437 $16,255
--------- --------- --------- --------- ---------
Ratio of pre-tax income to net income 1.59 1.61 1.59 1.56 1.50
--------- --------- --------- --------- ---------
Preferred dividend factor $26,361 $26,732 $26,793 $25,642 $24,383
--------- --------- --------- --------- ---------
Total fixed charges and preferred dividends $196,680 $197,231 $196,782 $171,152 $171,635
========= ========= ========= ========= =========
Coverage of combined fixed charges
and preferred dividends 2.20 2.66 2.63 2.75 2.74
==== ==== ==== ==== ====
</TABLE>
<TABLE>
Exhibit 12 Computation of Ratios
- ---------- ---------------------
The computations of the coverage of fixed charges, before income taxes, and
the coverage of combined fixed charges and preferred dividends for each of the
years 1997 through 1993 on a fully consolidated basis are as follows.
<CAPTION>
For The Year Ended December 31,
---------------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C>
Net income $181,830 $236,960 $94,391 $227,162 $241,579
Taxes based on income 65,669 80,386 43,731 93,953 62,145
--------- --------- --------- --------- ---------
Income before taxes 247,499 317,346 138,122 321,115 303,724
--------- --------- --------- --------- ---------
Fixed charges:
Interest charges 216,156 231,029 238,724 224,514 221,312
Interest factor in rentals 23,687 23,943 26,685 9,938 9,257
--------- --------- --------- --------- ---------
Total fixed charges 239,843 254,972 265,409 234,452 230,569
--------- --------- --------- --------- ---------
Nonutility subsidiary capitalized interest (493) (649) (529) (521) (2,059)
--------- --------- --------- --------- ---------
Income before income taxes and fixed charges $486,849 $571,669 $403,002 $555,046 $532,234
========= ========= ========= ========= =========
Coverage of fixed charges 2.03 2.24 1.52 2.37 2.31
==== ==== ==== ==== ====
Preferred dividend requirements $16,579 $16,604 $16,851 $16,437 $16,255
--------- --------- --------- --------- ---------
Ratio of pre-tax income to net income 1.36 1.34 1.46 1.41 1.26
--------- --------- --------- --------- ---------
Preferred dividend factor $22,547 $22,249 $24,602 $23,176 $20,481
--------- --------- --------- --------- ---------
Total fixed charges and preferred dividends $262,390 $277,221 $290,011 $257,628 $251,050
========= ========= ========= ========= =========
Coverage of combined fixed charges
and preferred dividends 1.86 2.06 1.39 2.15 2.12
==== ==== ==== ==== ====
</TABLE>
Exhibit 23.1
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the
Prospectus constituting part of the combined Registration Statement
on Form S-3 (No. 333-51241) of our report dated January 16, 1998,
which appears on page 32 of the 1997 Annual Report to Shareholders
of Potomac Electric Power Company, which is incorporated by
reference in Potomac Electric Power Company's Annual Report on Form
10-K for the year ended December 31, 1997. We also consent to the
incorporation by reference of our report on the Consolidated
Financial Statement Schedule, which appears on page 49 of such
Annual Report on Form 10-K. We also consent to the reference to us
under the heading "Experts" in such Prospectus.
/s/ Price Waterhouse LLP
Washington, D.C.
May 7, 1998
=================================================================
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) |__|
___________________
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
48 Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
___________________
POTOMAC ELECTRIC POWER COMPANY
(Exact name of obligor as specified in its charter)
District of Columbia and Virginia 53-0127880
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
1900 Pennsylvania Avenue, N.W.
Washington, D.C. 20068
(Address of principal executive offices) (Zip code)
______________________
Junior Subordinated Debentures
(Title of the indenture securities)
=================================================================
<PAGE>
1. General information. Furnish the following information as to
the Trustee:
(a) Name and address of each examining or supervising
authority to which it is subject.
- -----------------------------------------------------------------
Name Address
- -----------------------------------------------------------------
Superintendent of Banks of the 2 Rector Street, New York,
State of New York N.Y. 10006, and Albany, N.Y.
12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York,
N.Y. 10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York 10005
(b) Whether it is authorized to exercise corporate trust
powers.
Yes.
2. Affiliations with Obligor.
If the obligor is an affiliate of the trustee, describe each
such affiliation.
None.
16. List of Exhibits.
Exhibits identified in parentheses below, on file with the
Commission, are incorporated herein by reference as an exhibit
hereto, pursuant to Rule 7a-29 under the Trust Indenture Act of
1939 (the "Act") and 17 C.F.R. 229.10(d).
1. A copy of the Organization Certificate of The Bank of
New York (formerly Irving Trust Company) as now in effect, which
contains the authority to commence business and a grant of powers
to exercise corporate trust powers. (Exhibit 1 to Amendment No. 1
to Form T-1 filed with Registration Statement No. 33-6215, Exhibits
1a and 1b to Form T-1 filed with Registration Statement No.
33-21672 and Exhibit 1 to Form T-1 filed with Registration
Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee.
(Exhibit 4 to Form T-1 filed with Registration Statement No.
33-31019.)
-2-
<PAGE>
6. The consent of the Trustee required by Section 321(b)
of the Act. (Exhibit 6 to Form T-1 filed with Registration
Statement No. 33-44051.)
7. A copy of the latest report of condition of the Trustee
published pursuant to law or to the requirements of its supervising
or examining authority.
-3-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The
Bank of New York, a corporation organized and existing under the
laws of the State of New York, has duly caused this statement of
eligibility to be signed on its behalf by the undersigned,
thereunto duly authorized, all in The City of New York, and State
of New York, on the 24th day of April, 1998.
THE BANK OF NEW YORK
By: /S/WALTER N. GITLIN
Name: WALTER N. GITLIN
Title: VICE PRESIDENT
<PAGE>
EXHIBIT 7
__________________________________________________________________
Consolidated Report of Condition of
THE BANK OF NEW YORK
of 48 Wall Street, New York, N.Y. 10286
And Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System, at the close of business
December 31, 1997, published in accordance with a call made by the
Federal Reserve Bank of this District pursuant to the provisions of
the Federal Reserve Act.
Dollar Amounts
ASSETS in Thousands
Cash and balances due from depos-
itory institutions:
Noninterest-bearing balances and
currency and coin ................... $ 5,742,986
Interest-bearing balances ............ 1,342,769
Securities:
Held-to-maturity securities .......... 1,099,736
Available-for-sale securities ........ 3,882,686
Federal funds sold and Securities pur-
chased under agreements to resell..... 2,568,530
Loans and lease financing
receivables:
Loans and leases, net of unearned
income ............................. 35,019,608
LESS: Allowance for loan and
lease losses ....................... 627,350
LESS: Allocated transfer risk
reserve............................. 0
Loans and leases, net of unearned
income, allowance, and reserve 34,392,258
Assets held in trading accounts ........ 2,521,451
Premises and fixed assets (including
capitalized leases) .................. 659,209
Other real estate owned ................ 11,992
Investments in unconsolidated
subsidiaries and associated
companies ............................ 226,263
Customers' liability to this bank on
acceptances outstanding .............. 1,187,449
Intangible assets ...................... 781,684
Other assets ........................... 1,736,574
-----------
Total assets ........................... $56,153,587
===========
LIABILITIES
Deposits:
In domestic offices .................. $27,031,362
Noninterest-bearing .................. 11,899,507
Interest-bearing ..................... 15,131,855
In foreign offices, Edge and
Agreement subsidiaries, and IBFs ..... 13,794,449
Noninterest-bearing .................. 590,999
Interest-bearing ..................... 13,203,450
Federal funds purchased and Securities
sold under agreements to repurchase. 2,338,881
Demand notes issued to the U.S.
Treasury ............................. 173,851
Trading liabilities .................... 1,695,216
Other borrowed money:
With remaining maturity of one year
or less ............................ 1,905,330
With remaining maturity of more than
one year through three years........ 0
With remaining maturity of more than
three years ........................ 25,664
Bank's liability on acceptances exe-
cuted and outstanding ................ 1,195,923
Subordinated notes and debentures ...... 1,012,940
Other liabilities ...................... 2,018,960
-----------
Total liabilities ...................... 51,192,576
-----------
EQUITY CAPITAL
Common stock ........................... 1,135,284
Surplus ................................ 731,319
Undivided profits and capital
reserves ............................. 3,093,726
Net unrealized holding gains
(losses) on available-for-sale
securities ........................... 36,866
Cumulative foreign currency transla-
tion adjustments ..................... ( 36,184)
------------
Total equity capital ................... 4,961,011
-----------
Total liabilities and equity
capital .............................. $56,153,587
===========
I, Robert E. Keilman, Senior Vice President and Comptroller of
the above-named bank do hereby declare that this Report of
Condition has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and
is true to the best of my knowledge and belief.
Robert E. Keilman
We, the undersigned directors, attest to the correctness of this
Report of Condition and declare that it has been examined by us and
to the best of our knowledge and belief has been prepared in
conformance with the instructions issued by the Board of Governors
of the Federal Reserve System and is true and correct.
)
Thomas A. Renyi )
Alan R. Griffith ) Directors
J. Carter Bacot )
)
=================================================================
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) |__|
----------------------
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
48 Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
----------------------
POTOMAC ELECTRIC POWER COMPANY TRUST I
(Exact name of obligor as specified in its charter)
Delaware Not Applicable
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
1900 Pennsylvania Avenue, N.W.
Washington, D.C. 20068
(Address of principal executive offices) (Zip code)
______________________
Preferred Securities
(Title of the indenture securities)
=================================================================
<PAGE>
1. General information. Furnish the following information as to
the Trustee:
(a) Name and address of each examining or supervising
authority to which it is subject.
- -----------------------------------------------------------------
Name Address
- -----------------------------------------------------------------
Superintendent of Banks of the 2 Rector Street, New York,
State of New York N.Y. 10006, and Albany,
N.Y. 12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York,
N.Y. 10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York 10005
(b) Whether it is authorized to exercise corporate trust
powers.
Yes.
2. Affiliations with Obligor.
If the obligor is an affiliate of the trustee, describe each
such affiliation.
None.
16. List of Exhibits.
Exhibits identified in parentheses below, on file with the
Commission, are incorporated herein by reference as an exhibit
hereto, pursuant to Rule 7a-29 under the Trust Indenture Act of
1939 (the "Act") and 17 C.F.R. 229.10(d).
1. A copy of the Organization Certificate of The Bank of
New York (formerly Irving Trust Company) as now in effect, which
contains the authority to commence business and a grant of powers
to exercise corporate trust powers. (Exhibit 1 to Amendment No. 1
to Form T-1 filed with Registration Statement No. 33-6215, Exhibits
1a and 1b to Form T-1 filed with Registration Statement No.
33-21672 and Exhibit 1 to Form T-1 filed with Registration
Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee.
(Exhibit 4 to Form T-1 filed with Registration Statement No.
33-31019.)
-2-
<PAGE>
6. The consent of the Trustee required by Section 321(b)
of the Act. (Exhibit 6 to Form T-1 filed with Registration
Statement No. 33-44051.)
7. A copy of the latest report of condition of the Trustee
published pursuant to law or to the requirements of its supervising
or examining authority.
-3-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The
Bank of New York, a corporation organized and existing under the
laws of the State of New York, has duly caused this statement of
eligibility to be signed on its behalf by the undersigned,
thereunto duly authorized, all in The City of New York, and State
of New York, on the 24th day of April, 1998.
THE BANK OF NEW YORK
By: /S/WALTER N. GITLIN
Name: Walter N. Gitlin
Title: Vice President
<PAGE>
EXHIBIT 7
__________________________________________________________________
Consolidated Report of Condition of
THE BANK OF NEW YORK
of 48 Wall Street, New York, N.Y. 10286
And Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System, at the close of business
December 31, 1997, published in accordance with a call made by the
Federal Reserve Bank of this District pursuant to the provisions of
the Federal Reserve Act.
Dollar Amounts
ASSETS in Thousands
Cash and balances due from depos-
itory institutions:
Noninterest-bearing balances and
currency and coin ................... $ 5,742,986
Interest-bearing balances ............ 1,342,769
Securities:
Held-to-maturity securities .......... 1,099,736
Available-for-sale securities ........ 3,882,686
Federal funds sold and Securities pur-
chased under agreements to resell..... 2,568,530
Loans and lease financing
receivables:
Loans and leases, net of unearned
income ............................. 35,019,608
LESS: Allowance for loan and
lease losses ....................... 627,350
LESS: Allocated transfer risk
reserve............................. 0
Loans and leases, net of unearned
income, allowance, and reserve 34,392,258
Assets held in trading accounts ........ 2,521,451
Premises and fixed assets (including
capitalized leases) .................. 659,209
Other real estate owned ................ 11,992
Investments in unconsolidated
subsidiaries and associated
companies ............................ 226,263
Customers' liability to this bank on
acceptances outstanding .............. 1,187,449
Intangible assets ...................... 781,684
Other assets ........................... 1,736,574
-----------
Total assets ........................... $56,153,587
===========
LIABILITIES
Deposits:
In domestic offices .................. $27,031,362
Noninterest-bearing .................. 11,899,507
Interest-bearing ..................... 15,131,855
In foreign offices, Edge and
Agreement subsidiaries, and IBFs ..... 13,794,449
Noninterest-bearing .................. 590,999
Interest-bearing ..................... 13,203,450
Federal funds purchased and Securities
sold under agreements to repurchase. 2,338,881
Demand notes issued to the U.S.
Treasury ............................. 173,851
Trading liabilities .................... 1,695,216
Other borrowed money:
With remaining maturity of one year
or less ............................ 1,905,330
With remaining maturity of more than
one year through three years........ 0
With remaining maturity of more than
three years ........................ 25,664
Bank's liability on acceptances exe-
cuted and outstanding ................ 1,195,923
Subordinated notes and debentures ...... 1,012,940
Other liabilities ...................... 2,018,960
-----------
Total liabilities ...................... 51,192,576
-----------
EQUITY CAPITAL
Common stock ........................... 1,135,284
Surplus ................................ 731,319
Undivided profits and capital
reserves ............................. 3,093,726
Net unrealized holding gains
(losses) on available-for-sale
securities ........................... 36,866
Cumulative foreign currency transla-
tion adjustments ..................... ( 36,184)
------------
Total equity capital ................... 4,961,011
-----------
Total liabilities and equity
capital .............................. $56,153,587
===========
I, Robert E. Keilman, Senior Vice President and Comptroller of
the above-named bank do hereby declare that this Report of
Condition has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and
is true to the best of my knowledge and belief.
Robert E. Keilman
We, the undersigned directors, attest to the correctness of this
Report of Condition and declare that it has been examined by us and
to the best of our knowledge and belief has been prepared in
conformance with the instructions issued by the Board of Governors
of the Federal Reserve System and is true and correct.
)
Thomas A. Renyi )
Alan R. Griffith ) Directors
J. Carter Bacot )
)
=================================================================
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) |__|
----------------
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
48 Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
----------------
POTOMAC ELECTRIC POWER COMPANY
(Exact name of obligor as specified in its charter)
District of Columbia and Virginia 53-0127880
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
1900 Pennsylvania Avenue, N.W.
Washington, D.C. 20068
(Address of principal executive offices) (Zip code)
______________________
Guarantee of Preferred Securities of
Potomac Electric Power Company Trust I
(Title of the indenture securities)
=================================================================
<PAGE>
1. General information. Furnish the following information as to
the Trustee:
(a) Name and address of each examining or supervising
authority to which it is subject.
- -----------------------------------------------------------------
Name Address
- -----------------------------------------------------------------
Superintendent of Banks of the 2 Rector Street, New York,
State of New York N.Y. 10006, and Albany,
N.Y. 12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York,
N.Y. 10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York 10005
(b) Whether it is authorized to exercise corporate trust
powers.
Yes.
2. Affiliations with Obligor.
If the obligor is an affiliate of the trustee, describe each
such affiliation.
None.
16. List of Exhibits.
Exhibits identified in parentheses below, on file with the
Commission, are incorporated herein by reference as an exhibit
hereto, pursuant to Rule 7a-29 under the Trust Indenture Act of
1939 (the "Act") and 17 C.F.R. 229.10(d).
1. A copy of the Organization Certificate of The Bank of
New York (formerly Irving Trust Company) as now in effect, which
contains the authority to commence business and a grant of powers
to exercise corporate trust powers. (Exhibit 1 to Amendment No. 1
to Form T-1 filed with Registration Statement No. 33-6215, Exhibits
1a and 1b to Form T-1 filed with Registration Statement No.
33-21672 and Exhibit 1 to Form T-1 filed with Registration
Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee.
(Exhibit 4 to Form T-1 filed with Registration Statement No.
33-31019.)
-2-
<PAGE>
6. The consent of the Trustee required by Section 321(b)
of the Act. (Exhibit 6 to Form T-1 filed with Registration
Statement No. 33-44051.)
7. A copy of the latest report of condition of the Trustee
published pursuant to law or to the requirements of its supervising
or examining authority.
-3-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The
Bank of New York, a corporation organized and existing under the
laws of the State of New York, has duly caused this statement of
eligibility to be signed on its behalf by the undersigned,
thereunto duly authorized, all in The City of New York, and State
of New York, on the 24th day of April, 1998.
THE BANK OF NEW YORK
By: /S/WALTER N. GITLIN
Name: WALTER N. GITLIN
Title: VICE PRESIDENT
<PAGE>
EXHIBIT 7
__________________________________________________________________
Consolidated Report of Condition of
THE BANK OF NEW YORK
of 48 Wall Street, New York, N.Y. 10286
And Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System, at the close of business
December 31, 1997, published in accordance with a call made by the
Federal Reserve Bank of this District pursuant to the provisions of
the Federal Reserve Act.
Dollar Amounts
ASSETS in Thousands
Cash and balances due from depos-
itory institutions:
Noninterest-bearing balances and
currency and coin ................... $ 5,742,986
Interest-bearing balances ............ 1,342,769
Securities:
Held-to-maturity securities .......... 1,099,736
Available-for-sale securities ........ 3,882,686
Federal funds sold and Securities pur-
chased under agreements to resell..... 2,568,530
Loans and lease financing
receivables:
Loans and leases, net of unearned
income ............................. 35,019,608
LESS: Allowance for loan and
lease losses ....................... 627,350
LESS: Allocated transfer risk
reserve............................. 0
Loans and leases, net of unearned
income, allowance, and reserve 34,392,258
Assets held in trading accounts ........ 2,521,451
Premises and fixed assets (including
capitalized leases) .................. 659,209
Other real estate owned ................ 11,992
Investments in unconsolidated
subsidiaries and associated
companies ............................ 226,263
Customers' liability to this bank on
acceptances outstanding .............. 1,187,449
Intangible assets ...................... 781,684
Other assets ........................... 1,736,574
-----------
Total assets ........................... $56,153,587
===========
LIABILITIES
Deposits:
In domestic offices .................. $27,031,362
Noninterest-bearing .................. 11,899,507
Interest-bearing ..................... 15,131,855
In foreign offices, Edge and
Agreement subsidiaries, and IBFs ..... 13,794,449
Noninterest-bearing .................. 590,999
Interest-bearing ..................... 13,203,450
Federal funds purchased and Securities
sold under agreements to repurchase. 2,338,881
Demand notes issued to the U.S.
Treasury ............................. 173,851
Trading liabilities .................... 1,695,216
Other borrowed money:
With remaining maturity of one year
or less ............................ 1,905,330
With remaining maturity of more than
one year through three years........ 0
With remaining maturity of more than
three years ........................ 25,664
Bank's liability on acceptances exe-
cuted and outstanding ................ 1,195,923
Subordinated notes and debentures ...... 1,012,940
Other liabilities ...................... 2,018,960
-----------
Total liabilities ...................... 51,192,576
-----------
EQUITY CAPITAL
Common stock ........................... 1,135,284
Surplus ................................ 731,319
Undivided profits and capital
reserves ............................. 3,093,726
Net unrealized holding gains
(losses) on available-for-sale
securities ........................... 36,866
Cumulative foreign currency transla-
tion adjustments ..................... ( 36,184)
------------
Total equity capital ................... 4,961,011
-----------
Total liabilities and equity
capital .............................. $56,153,587
===========
I, Robert E. Keilman, Senior Vice President and Comptroller of
the above-named bank do hereby declare that this Report of
Condition has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and
is true to the best of my knowledge and belief.
Robert E. Keilman
We, the undersigned directors, attest to the correctness of this
Report of Condition and declare that it has been examined by us and
to the best of our knowledge and belief has been prepared in
conformance with the instructions issued by the Board of Governors
of the Federal Reserve System and is true and correct.
)
Thomas A. Renyi )
Alan R. Griffith ) Directors
J. Carter Bacot )
)
