PUBLIC SERVICE ELECTRIC & GAS CO, S-3/A, 1996-06-05

PUBLIC SERVICE ELECTRIC & GAS CO
S-3/A, 1996-06-05
ELECTRIC & OTHER SERVICES COMBINED

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As filed with the Securities and Exchange Commission on June 5, 1996
Registration No. 333-2763

===========================================================================

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________

Amendment No. 1
to

FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
___________________

PSE&G Capital Trust I Public Service Electric and Gas
PSE&G Capital Trust II Company
PSE&G Capital Trust III (Exact name of registrant as specified
(Exact name of registrants as in charter)
specified in Trust Agreements)

Delaware
New Jersey

(State or other jurisdiction of incorporation or organization)

22-6691381 22-1212800
22-6691382
22-6691384

(I.R.S. Employer Identification No.)

80 Park Plaza
P.O. Box 570
Newark, New Jersey 07101
(201) 430-7000

(Address, including zip code, and telephone number, including area code, of
registrants' principal executive offices)

Robert C. Murray
Senior Vice President
and Chief Financial Officer
80 Park Plaza, T4B
P.O. Box 570
Newark, New Jersey 07101
(201) 430-5630

(Name, address, including zip code, and telephone number, including area
code, of agent for service for each registrant)

with copies to:

James T. Foran, Esquire Howard G. Godwin, Jr., Esquire
General Corporate Counsel Brown & Wood
80 Park Plaza, T5B One World Trade Center
P.O. Box 570 New York, New York 10048
Newark, New Jersey 07101

Approximate date of commencement of proposed sale to the public: After
the Registration Statement becomes effective, as determined by market
conditions and other factors.
___________________
If the only securities being registered on this Form are being 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 statement 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 effective 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.
___________________

<PAGE>

CALCULATION OF REGISTRATION FEE
<TABLE><CAPTION>
Proposed Maximum Proposed Maximum
Title of Each Class of Amount To Be Offering Price Aggregate Offering Amount of
Securities To Be Registered Registered(1) Unit(2)(3) Price Per (2)(3) Registration Fee

<S> <C> <C> <C> <C>
PSE&G Capital Trust I, II and III
Cumulative Quarterly Income
Preferred Securities . . . . . .

Public Service Electric and Gas
Company Guarantees with respect to
Preferred Securities . . . . . .

Public Service Electric and Gas
Company Back-up Undertakings with
Respect to Preferred Securities
(4) . . . . . . . . . . . . . .
Public Service Electric and Gas
Company Deferrable Interest
Subordinated Debentures . . . .

Total . . . . . . . . . . . . . . . $350,000,000 100% $350,000,000 $120,689.66

</TABLE>

(1) There are being registered hereunder a presently indeterminate
number of Cumulative Quarterly Income Preferred Securities of PSE&G
Capital Trust I, II and III with an aggregate initial offering
price not to exceed $350,000,000 and related Guarantees, Back-up
Undertakings and Deferrable Interest Subordinated Debentures of
Public Service Electric and Gas Company for which no separate
consideration will be received.
(2) Estimated solely for the purpose of determining the registration
fee.
(3) Pursuant to Rule 457(n) and (o), the registration fee is calculated
on the basis of the proposed maximum offering price of the
Cumulative Quarterly Income Preferred Securities.
(4) Includes the obligations of Public Service Electric and Gas Company
under the Amended and Restated Trust Agreements of PSE&G Capital
Trust I, II and III, the Deferrable Interest Subordinated
Debentures of Public Service Electric and Gas Company and the
Indenture relating to such Deferrable Interest Subordinated
Debentures.

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 the Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.

===========================================================================

<PAGE>

SUBJECT TO COMPLETION, DATED JUNE 5, 1996
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED JUNE __, 1996
__________ Preferred Securities

PSE&G Capital Trust I
_____% Cumulative Quarterly Income Preferred Securities (QUIPS(SM)),* Series A
(liquidation amount $25 per Preferred Security)
guaranteed to the extent PSE&G Capital Trust I
has available funds as set forth herein by

PUBLIC SERVICE ELECTRIC AND GAS COMPANY
_________________________________

The _____% Cumulative Quarterly Income Preferred Securities, Series A
(the "Series A Preferred Securities") offered hereby represent undivided
beneficial interests in the assets of PSE&G Capital Trust I, a statutory
business trust created under the laws of the State of Delaware (the "Series
A Issuer"). Public Service Electric and Gas Company ("PSE&G") is the owner
of the beneficial interests
(continued on next page)

See "Risk Factors" commencing on page S-3 for certain information
relevant to an investment in the Series A Preferred Securities, including
the period during which and circumstances under which payments of
Distributions on the Series A Preferred Securities may be deferred and the
related Federal income tax consequences.

Application will be made to list the Series A Preferred Securities on
the New York Stock Exchange. If approved for listing, trading of the
Series A Preferred Securities is expected to commence within a 30-day
period after the initial delivery thereof.
_________________________________

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 ACCOMPANYING PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
_________________________________
Proceeds to
Initial Public Underwriting the Series
Offering Price Commission(1) A Issuer(2)(3)
--------------- --------------- --------------

Per Series A Preferred $25.00 (2) $25.00
Security . . . . . . . . .

Total . . . . . . . . . . . $_________ (2) $_________

_______________________

(1) PSE&G and the Series A Issuer have agreed to indemnify the several
Underwriters against certain liabilities, including liabilities under
the Securities Act of 1933, as amended. See "Underwriting."
(2) In view of the fact that the proceeds of the sale of the Series A
Preferred Securities will be used to purchase the Series A Debentures,
under the Underwriting Agreement, PSE&G will pay to the Underwriters
$__________ per Series A Preferred Security (or $__________ in the
aggregate). See "Underwriting."
(3) Expenses of the offering, which are payable by PSE&G, are estimated to
be $550,000.
_________________________________

The Series A 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 Series A Preferred Securities will be
made in book-entry-only form through the facilities of DTC on or about June
____, 1996.
_______________________
*QUIPS is a service mark of Goldman, Sachs & Co.

Goldman, Sachs & Co.
Dean Witter Reynolds Inc.
Lehman Brothers
Morgan Stanley & Co.
Incorporated
Merrill Lynch & Co.
PaineWebber Incorporated
Prudential Securities Incorporated
Smith Barney Inc.
The date of this Prospectus Supplement is June __, 1996.

<PAGE>

(continued from previous page)

represented by the common securities of the Series A Issuer (the "Common
Securities"). First Union National Bank is the Property Trustee of the
Series A Issuer (the "Property Trustee"). The Series A Issuer exists for
the sole purpose of issuing beneficial interests in the assets of the
Series A Issuer and investing the proceeds thereof in _____% Deferrable
Interest Subordinated Debentures, Series A to be issued by PSE&G (the
"Series A Debentures"). The Series A Preferred Securities have a
preference over the Common Securities under certain circumstances with
respect to cash distributions and amounts payable on redemption or
liquidation. See "Description of the Preferred Securities - Subordination
of Common Securities" in the accompanying Prospectus.

Holders of the Series A Preferred Securities are entitled to receive
cumulative cash distributions ("Distributions") at an annual rate of _____%
of the liquidation amount of $25 per Series A Preferred Security,
accumulating from the date of original issuance and payable quarterly in
arrears on March 31, June 30, September 30 and December 31 of each year,
commencing June 30, 1996. So long as no Debenture Event of Default has
occurred and is continuing, PSE&G has the right to defer payments of
interest on the Series A Debentures by extending the interest payment
period in respect thereof for up to 20 consecutive quarters (each, an
"Extension Period"), but not beyond the maturity or any redemption date of
the Series A Debentures. See "Certain Terms of the Series A Preferred
Securities--Distributions" herein and "Description of the Debentures--Option
to Extend Interest Payment Period" in the accompanying Prospectus. If and
for so long as interest payments are deferred, Distributions on the
Series A Preferred Securities will also be deferred. During an Extension
Period, Distributions will continue to accumulate and owners of Series A
Preferred Securities will be required to accrue interest income for Federal
income tax purposes. See "United States Taxation--Potential Extension of
Interest Payment Period and Original Issue Discount."

PSE&G has, through the Series A Guarantee, the Trust Agreement, the
Indenture and the Series A Debentures, taken together, fully, irrevocably
and unconditionally guaranteed all of the Series A Issuer's obligations
under the Series A Preferred Securities. Under the Series A Guarantee,
PSE&G agrees to make payments of Distributions and payments on redemption
or liquidation with respect to the Series A Preferred Securities, but only
to the extent that the Series A Issuer holds funds available therefor and
has not made such payments. See "Description of the Guarantee" in the
accompanying Prospectus. If PSE&G fails to make a payment on the Series A
Debentures, the Series A Issuer will not have sufficient funds to make the
related payment, including Distributions, on the Series A Preferred
Securities. The Series A Guarantee does not cover any such payment when
the Series A Issuer does not have sufficient funds available therefor. In
such event, the Property Trustee or holders of the Series A Preferred
Securities may enforce the rights of the Series A Issuer under the Series A
Debentures. See "Description of the Guarantee -Guarantee Events of
Default" in the accompanying Prospectus.

The obligations of PSE&G under the Series A Guarantee are subordinate
and junior in right of payment to all general liabilities of PSE&G, and the
obligations of PSE&G under the Series A Debentures are subordinate and
junior in right of payment to all present and future Senior Indebtedness of
PSE&G. At March 31, 1996, the Senior Indebtedness of PSE&G aggregated
approximately $5.315 billion.

The Series A Preferred Securities are subject to mandatory redemption
upon repayment of the Series A Debentures at maturity on June __, 2045, or
upon earlier redemption. See "Certain Terms of the Series A Preferred
Securities--Redemption." PSE&G has the option at any time on or after June
___, 2001 to redeem, in whole or in part, the Series A Debentures. In
addition, the Series A Debentures are subject to redemption, in whole but
not in part, at the option of PSE&G upon the occurrence of certain special
events described under "Certain Terms of the Series A Preferred
Securities--Special Event Redemption."

PSE&G has the right, at any time, subject to certain conditions, to
terminate the Series A Issuer and cause the Series A Debentures to be
distributed to the holders of the Series A Preferred Securities and the
Common Securities. See "Certain Terms of the Series A Preferred
Securities--Distribution of Series A Debentures." If the Series A
Debentures are so distributed, PSE&G will use its best efforts to list them
on the New York Stock Exchange.

In the event of the termination and liquidation of the Series A
Issuer, holders of Series A Preferred Securities will be entitled to
receive a liquidation amount of $25 per Series A Preferred Security plus
accumulated and unpaid Distributions to the date of payment, unless, in
connection therewith, the Series A Debentures are distributed to the
holders of the Series A Preferred Securities and the Common Securities.
See "Description of the Preferred Securities--Liquidation Distribution Upon
Termination" in the accompanying Prospectus.

The Series A Preferred Securities are represented by global securities
registered in the name of The Depository Trust Company ("DTC") or its
nominee. Beneficial interests in the Series A Preferred Securities will be
shown on, and transfers thereof will be effected only through, records
maintained by participants in DTC. Except as described in the accompanying
Prospectus, Series A Preferred Securities in certificated form will not be
issued in exchange for the global securities. See "Description of the
Preferred Securities -- Book-Entry-Only Issuance -- The Depository Trust
Company" in the accompanying Prospectus.

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
SERIES A PREFERRED SECURITIES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE
PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW
YORK STOCK EXCHANGE, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

S-2

<PAGE>

The following information supplements, and should be read in conjunction with,
the information contained in the accompanying Prospectus. Each of the
capitalized terms used in this Prospectus Supplement and not defined herein has
the meaning set forth in the accompanying Prospectus.

RISK FACTORS

Prospective purchasers of Series A 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 Subordinated Obligations under the Series A Guarantee and the Series
A Debentures

The obligations of Public Service Electric and Gas Company ("PSE&G") under
the Guarantee issued by PSE&G (the "Series A Guarantee") for the benefit of the
holders of the _____% Cumulative Quarterly Income Preferred Securities, Series A
(the "Series A Preferred Securities") issued by PSE&G Capital Trust I (the
"Series A Issuer") are unsecured and rank subordinate and junior in right of
payment to all general liabilities of PSE&G. The obligations of PSE&G under its
_____% Deferrable Interest Subordinated Debentures, Series A (the "Series A
Debentures") issued pursuant to the Indenture dated as of June 1, 1996 (as
amended and supplemented from time to time, the "Indenture") between PSE&G and
First Union National Bank, as trustee (the "Debenture Trustee"), are unsecured
and rank subordinate and junior in right of payment to all Senior Indebtedness
of PSE&G. At March 31, 1996, the Senior Indebtedness of PSE&G aggregated
approximately $5.315 billion. No terms of the Series A Preferred Securities,
the Series A Debentures or the Series A Guarantee limit PSE&G's ability to incur
additional indebtedness, including indebtedness that ranks senior to the
Series A Debentures and the Series A Guarantee. See "Description of the
Guarantee--Status of the Guarantee" and "Description of the
Debentures--Subordination" in the accompanying Prospectus.

The ability of the Series A Issuer to pay cash distributions
("Distributions") on the Series A Preferred Securities and the redemption price
or liquidation amount of the Series A Preferred Securities is solely dependent
upon PSE&G making the related payments on the Series A Debentures when due.

Option to Extend Interest Payment Period; Tax Consequences

So long as no event of default with respect to the Series A Debentures (a
"Debenture Event of Default") under the Indenture has occurred and is
continuing, PSE&G has the right at any time and from time to time to defer
payments of interest on the Series A Debentures by extending the interest
payment period on the Series A Debentures for up to 20 consecutive quarters
(each, an "Extension Period"), but not beyond the maturity or any redemption
date of the Series A Debentures. As a consequence, Distributions on the
Series A Preferred Securities would be deferred by the Series A Issuer during
any Extension Period (but the amount of Distributions to which holders of the
Series A Preferred Securities would be entitled would continue to accumulate at
the rate of _____% per annum, compounded quarterly). During any Extension
Period, PSE&G may not declare or pay any dividend on, or redeem, purchase,
acquire or make a liquidation payment with respect to, any shares of PSE&G's
capital stock. Prior to the termination of any Extension Period, PSE&G may
shorten or further extend the interest payment period on the Series A
Debentures, provided that such Extension Period, together with all such previous
and further extensions thereof, may not exceed 20 consecutive quarters or extend
beyond the maturity or any redemption date of the Series A Debentures. Upon the
termination of any Extension Period and the payment of all amounts then due,
PSE&G may elect to begin a new Extension Period, subject to the above
requirements. See "Certain Terms of the Series A Preferred

S-3

<PAGE>
Securities--Distributions" herein and "Description of the Debentures--Option to
Extend Interest Payment Period" in the accompanying Prospectus.

Should an Extension Period occur, an owner of Series A Preferred Securities
(which represent undivided beneficial interests in the Series A Debentures) will
continue to accrue interest income for Federal income tax purposes in respect of
its pro rata share of the Series A Debentures held by the Series A Issuer. As a
result, an owner of Series A Preferred Securities will include such interest in
gross income for Federal income tax purposes in advance of the receipt of cash
and will not receive the cash related to such income from the Series A Issuer if
such owner disposes of the Series A Preferred Securities prior to the record
date for the payment of Distributions following such Extension Period. See
"United States Taxation--Potential Extension of Interest Payment Period and
Original Issue Discount."

PSE&G has no current intention of exercising its right to defer payments of
interest by extending the interest payment period on the Series A Debentures.
However, should PSE&G exercise such right in the future, the market price of the
Series A Preferred Securities is likely to be affected. An owner who disposes
of Series A Preferred Securities during an Extension Period might not receive
the same return on investment as an owner who continues to hold Series A
Preferred Securities. In addition, as a result of the mere existence of PSE&G's
right to defer interest payments on the Series A Debentures, the market price of
the Series A Preferred Securities may be more volatile than other securities on
which original issue discount accrues that are not subject to such deferrals.

Trading Characteristics of the Series A Preferred Securities; Tax Consequences

The Series A Preferred Securities may trade at a price that does not fully
reflect the value of accrued but unpaid interest with respect to the Series A
Debentures. An owner of Series A Preferred Securities who disposes of Series A
Preferred Securities prior to the record date for the payment of Distributions
will nevertheless be required to include accrued but unpaid interest on the
Series A Debentures through the date of disposition in income as ordinary income
and to add such amount to its adjusted tax basis of the Series A Preferred
Securities so disposed. Such owner will recognize a capital loss to the extent
the selling price (which may not fully reflect the value of accrued but unpaid
interest) is less than its adjusted tax basis (which will include accrued but
unpaid interest). Subject to certain limited exceptions, capital losses cannot
be applied to offset ordinary income for Federal income tax purposes. See
"United States Taxation."

Special Event Redemption and Proposed Federal Income Tax Law Changes

Upon the occurrence and continuation of a Tax Event or an Investment
Company Event (each as defined in "Certain Terms of the Series A Preferred
Securities--Special Event Redemption"), PSE&G has the right to redeem the Series
A Debentures, in whole but not in part, and therefore cause a mandatory
redemption of the Series A Preferred Securities and common securities of the
Series A Issuer (the "Common Securities" and, together with the Series A
Preferred Securities, the "Trust Securities"), at a redemption price equal to
the liquidation amount plus accumulated and unpaid Distributions, within 90 days
following the occurrence of such Tax Event or Investment Company Event.

S-4

<PAGE>

a joint statement to the effect that it was their intention that the effective
date of the President's legislative proposals, if adopted, will be no earlier
than the date of appropriate Congressional action. In the opinion of special
tax counsel to PSE&G and the Series A Issuer, under current law, interest on the
Series A Debentures is deductible. There can be no assurance, however, that
such proposals, subsequent proposals or final legislation will not affect the
ability of PSE&G to deduct interest on the Series A Debentures which, in turn,
could give rise to a Tax Event and, accordingly, PSE&G's optional right to
redeem the Series A Debentures, as described under "Certain Terms of the Series
A Preferred Securities--Special Event Redemption."

Distribution of Series A Debentures; Possible Adverse Effect on Market Price

At any time, PSE&G may, in its sole discretion, terminate the Series A
Issuer and cause the Series A Debentures to be distributed to the holders of the
Trust Securities, provided that PSE&G shall have delivered to the Issuer
Trustees (as defined herein) an opinion of nationally recognized tax counsel
(which may be regular tax counsel to PSE&G or an affiliate but not an employee
thereof and which must be acceptable to First Union National Bank, as the
Property Trustee for the Series A Issuer (the "Property Trustee")) that any such
distribution will not be a taxable event to the owners of the Trust Securities.
Although PSE&G has agreed to use its best efforts to list the Series A
Debentures so distributed on the New York Stock Exchange, there can be no
assurance that the Series A Debentures will be approved for listing on the New
York Stock Exchange or that a trading market will exist for the Series A
Debentures.

There can be no assurance as to the market prices for the Series A
Debentures that may be distributed in exchange for the Series A Preferred
Securities if a termination of the Series A Issuer were to occur. Accordingly,
the Series A Debentures that a holder of Series A Preferred Securities may
receive upon such a distribution, or the Series A Preferred Securities held
pending such a distribution, may trade at a discount to the price that the
investor paid to purchase such Series A Preferred Securities. Because holders
of Series A Preferred Securities may receive Series A Debentures at PSE&G's sole
discretion, prospective purchasers of Series A Preferred Securities are also
making an investment decision with regard to the Series A Debentures and should
carefully review all the information regarding the Series A Debentures contained
herein. See "Certain Terms of the Series A Preferred Securities --Distribution
of Series A Debentures" herein and "Description of the Debentures" in the
accompanying Prospectus.

Rights under the Series A Guarantee

The Series A Guarantee has been qualified as an indenture under the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"). First Union
National Bank is the indenture trustee under the Series A Guarantee (the
"Guarantee Trustee") for the purposes of compliance with the Trust Indenture Act
and holds the Series A Guarantee for the benefit of the holders of the Series A
Preferred Securities. Under the Series A Guarantee, PSE&G agrees to make the
following payments to the holders of the Series A Preferred Securities, to the
extent not paid by the Series A Issuer: (i) any accumulated and unpaid
Distributions on the Series A Preferred Securities to the extent that the Series
A Issuer has funds available therefor, (ii) the redemption price of any Series A
Preferred Securities called for redemption to the extent that the Series A
Issuer has funds available therefor, and (iii) upon a voluntary or involuntary
termination or liquidation of the Series A Issuer (unless the Series A
Debentures are distributed to holders of the Preferred Securities), the lesser
of (a) the liquidation amount of $25 per Series A Preferred Security plus
accumulated and unpaid Distributions to the date of payment, and (b) the amount
of assets of the Series A Issuer available for distribution to holders of Series
A Preferred Securities upon such termination and liquidation of the Series A
Issuer. See "Description of the Guarantee--General" in the accompanying
Prospectus. The holders of at least a

S-5

<PAGE>

majority in aggregate liquidation amount of the Series A Preferred Securities
have the right to direct the time, method and place of conducting any proceeding
for any remedy available to the Guarantee Trustee in respect of the Series A
Guarantee and to direct the exercise of any trust power conferred upon the
Guarantee Trustee under the Series A Guarantee. If the Guarantee Trustee has
failed to enforce the Series A Guarantee, any holder of the Series A Preferred
Securities may institute a legal proceeding directly against PSE&G to enforce
its rights under the Series A Guarantee without first instituting a legal
proceeding against the Series A Issuer, the Guarantee Trustee or any other
person or entity. If PSE&G defaults on its obligation to pay amounts payable on
the Series A Debentures, the Series A Issuer will not have sufficient funds for
the payment of Distributions, amounts payable on redemption of the Series A
Preferred Securities or amounts payable upon liquidation of the Series A Issuer
and, accordingly, holders of the Series A Preferred Securities will not be able
to rely upon the Series A Guarantee for payment of such amounts. Instead, the
Property Trustee, or holders of the Series A Preferred Securities, may enforce
the rights of the Series A Issuer under the Series A Debentures against PSE&G
pursuant to the terms of the Series A Debentures. The Amended and Restated
Trust Agreement of the Series A Issuer (the "Trust Agreement") provides that
each holder of Series A Preferred Securities, by acceptance thereof, agrees to
the provisions of the Trust Agreement, the Series A Guarantee and the Indenture.

Limited Voting Rights

Holders of Series A Preferred Securities have limited voting rights under
the Trust Agreement. Holders of Series A Preferred Securities will not be
entitled to vote to appoint, remove or replace the Issuer Trustees, which voting
rights are vested exclusively in PSE&G as the holder of the Common Securities,
except that upon the occurrence of an event of default under the Trust
Agreement, the holders of at least a majority in aggregate liquidation amount of
the Series A Preferred Securities may replace the Property Trustee and the
Delaware Trustee (as defined herein). See "Description of the Preferred
Securities--Voting Rights; Amendment of Trust Agreement" and "--Removal of
Issuer Trustees" in the accompanying Prospectus.

PSE&G CAPITAL TRUST I

PSE&G Capital Trust I is a statutory business trust created under the laws
of the State of Delaware pursuant to the Trust Agreement. The exclusive
business of the Series A Issuer is to issue and sell the Trust Securities
representing undivided beneficial interests in the assets of the Series A Issuer
and to use the proceeds therefrom to purchase the Series A Debentures, to
maintain the status of the Series A Issuer as a grantor trust for Federal income
tax purposes and to engage in only those activities that are necessary,
convenient or incidental to the foregoing. Accordingly, the Series A Debentures
will be the sole assets of the Series A Issuer and payments on the Series A
Debentures will be the sole revenues of the Series A Issuer. Pursuant to the
Trust Agreement, PSE&G will be obligated to pay all expenses and liabilities of
the Series A Issuer except the Series A Issuer's obligations under the Series A
Preferred Securities. The Series A Issuer has a term of 54 years, but may be
terminated earlier as provided in the Trust Agreement. See "Description of the
Preferred Securities--Liquidation Distribution Upon Termination" in the
accompanying Prospectus.

The business and affairs of the Series A Issuer are conducted by three
trustees: (i) First Union National Bank, as Property Trustee; (ii) an affiliate
of the Property Trustee with its principal place of business in the State of
Delaware, as "Delaware Trustee"; and (iii) one individual who is an employee and
officer of or affiliated with PSE&G as "Administrative Trustee." The Property
Trustee, the Delaware Trustee and the Administrative Trustee are collectively
referred to herein as the "Issuer

S-6

<PAGE>

Trustees." The Trust Agreement is qualified under the Trust Indenture Act and
the Property Trustee is the indenture trustee thereunder for the purposes of
compliance with the Trust Indenture Act.

Concurrently with the issuance of the Series A Preferred Securities, PSE&G
will acquire Common Securities of the Series A Issuer with a liquidation amount
equal to 3% of the aggregate liquidation amount of all of the Trust Securities
of the Series A Issuer. The Common Securities rank pari passu, and payments
will be made thereon pro rata, with the Series A Preferred Securities, except
that upon the occurrence and continuance of a Debenture Event of Default, the
rights of PSE&G, as holder of the Common Securities, to payment of Distributions
and payments upon redemption and liquidation will be subordinated to the rights
of the holders of the Series A Preferred Securities.

The principal place of business of the Series A Issuer is 80 Park Plaza,
P.O. Box 570, Newark, New Jersey 07101 and its telephone number is (201) 430-
7000.

PUBLIC SERVICE ELECTRIC AND GAS COMPANY

General

PSE&G is an operating public utility company engaged principally in the
generation, transmission, distribution and sale of electric energy service and
in the transmission, distribution and sale of gas service in New Jersey. PSE&G
supplies electric and gas service in areas of New Jersey in which approximately
5,500,000 persons, approximately 70% of the State's population, reside. PSE&G
is the principal subsidiary of Public Service Enterprise Group Incorporated
("Enterprise") which owns all of PSE&G's common stock.

PSE&G's service area is a corridor of approximately 2,600 square miles
running diagonally across the State of New Jersey from Bergen County in the
northeast to an area below the City of Camden in the southwest. This heavily
populated, commercialized and industrialized territory encompasses most of New
Jersey's largest municipalities, including the six largest cities, in addition
to approximately 300 suburban and rural communities.

Ratio of Earnings to Fixed Charges

PSE&G's ratio of earnings to fixed charges for each of the periods
indicated is as follows:

12 Months Ended
Years Ended December 31, March 31, 1996
------------------------------------------------ --------------

1991 1992 1993 1994 1995
---- ---- ---- ---- ----

3.20 2.70 3.30 3.35 3.25 3.16

The ratio of earnings to fixed charges represents, on a pre-tax basis, the
number of times earnings cover fixed charges. Earnings consist of net income,
to which has been added fixed charges and taxes based on income of PSE&G and its
subsidiaries. Fixed charges consist of interest charges and an interest factor
in rentals.

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Ratio of Earnings to Fixed Charges Plus Preferred Securities Dividend
Requirements

PSE&G's ratio of earnings to fixed charges plus preferred securities
dividend requirements for each of the periods indicated is as follows:

12 Months Ended
Years Ended December 31, March 31, 1996
------------------------------------------------- ---------------

1991 1992 1993 1994 1995
---- ---- ---- ---- ----

2.86 2.43 2.89 2.92 2.77 2.70

The ratio of earnings to fixed charges plus preferred securities dividend
requirements represents, on a pre-tax basis, the number of times earnings cover
fixed charges plus preferred securities dividend requirements. Earnings consist
of net income, to which has been added fixed charges and taxes based on income
of PSE&G and its subsidiaries. Fixed charges consist of interest charges and an
interest factor in rentals. Preferred securities dividend requirements
represent the pre-tax earnings necessary to pay dividends on outstanding
preferred securities, computed at the effective tax rates for the applicable
periods.

USE OF PROCEEDS

The net proceeds from the sale of the Series A Preferred Securities and the
Common Securities will be used by the Series A Issuer to purchase the Series A
Debentures from PSE&G. The net proceeds from the sale of the Series A
Debentures will be used by PSE&G to redeem all 500,000 outstanding shares of
each of its 7.52% and 7.40% Cumulative Preferred Stock ($100 par value) at $101
per share, called for redemption on June 28, 1996, and to purchase shares
tendered, up to the amount sought, of its 4.08%, 4.18%, 4.30%, 5.05%, 5.28%,
6.80% and 6.92% Cumulative Preferred Stock ($100 par value) and for general
corporate purposes, including reimbursement of its treasury for funds expended
therefor.

CAPITALIZATION

The following table sets forth the consolidated capitalization of PSE&G and
its subsidiaries as of March 31, 1996 and as adjusted to give effect to the
consummation of the offering of the

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<PAGE>

Series A Preferred Securities and the use of proceeds therefrom. The following
data should be read in conjunction with the consolidated financial statements
and notes thereto of PSE&G and its subsidiaries incorporated herein by
reference.

As of March 31, 1996
--------------------
As
Actual Adjusted
------ --------
(in millions)
Common Equity
Common Stock . . . . . . . . . . . . $2,563,003 $

Contributed Capital from Enterprise . . 594,395
Retained Earnings . . . . . . . . . . . 1,418,653
----------
Total Common Equity . . . . . . . . 4,576,051
Preferred Stock without mandatory redemption 324,994
Preferred Stock with mandatory redemption . . 150,000
Monthly Income Preferred Securities of Subsidiary 210,000
Company-Obligated Mandatorily Redeemable Quarterly
Income Preferred Securities of Subsidiary Trust
holding solely PSE&G Debentures(1) . . . . --
Long-Term Debt . . . . . . . . . . . . 4,523,614
----------

Total Capitalization . . . . . . . . . . $9,784,659

____________________
(1) The sole asset of the Series A Issuer is the ___% Series A Debentures in an
aggregate principal amount of $__________ with a stated maturity date of
June __, 2045.

CERTAIN TERMS OF THE SERIES A PREFERRED SECURITIES

The following summary of certain terms and provisions of the Series A
Preferred Securities supplements, and to the extent inconsistent replaces, the
description of the terms and provisions of the Preferred Securities set forth in
the accompanying Prospectus under the heading "Description of the Preferred
Securities," to which description reference is hereby made.

Distributions

The Series A Preferred Securities represent undivided beneficial interests
in the assets of the Series A Issuer, the sole assets of which will be the
Series A Debentures. Distributions on the Series A Preferred Securities are
cumulative and will accumulate from the date of original issuance at the annual
rate of ____% of the liquidation amount of $25 per Series A Preferred Security.
Distributions will be payable quarterly in arrears on March 31, June 30,
September 30 and December 31 of each year, commencing June 30, 1996.
Distributions in arrears after the quarterly payment date therefor will
accumulate additional Distributions (to the extent permitted by law) compounded
quarterly at the annual rate of _____% thereof. The term "Distributions," as
used herein, shall include any such additional Distributions. The amount of
Distributions payable for any period will be computed on the basis of a 360-day
year of twelve 30-day months.

So long as no Debenture Event of Default has occurred and is continuing,
PSE&G has the right at any time and from time to time to defer the payment of
interest by extending the interest

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<PAGE>

payment period on the Series A Debentures for up to 20 consecutive quarters,
provided that any such Extension Period shall not extend beyond the maturity or
any redemption date of the Series A Debentures. As a consequence, quarterly
Distributions on the Series A Preferred Securities would be deferred by the
Series A Issuer during any Extension Period, but the amount of Distributions to
which holders of the Series A Preferred Securities would be entitled would
continue to accumulate at the rate set forth above, compounded quarterly.
During any Extension Period, PSE&G may not declare or pay any dividend on, or
redeem, purchase, acquire, or make a liquidation payment with respect to, any
shares of PSE&G's capital stock. Prior to the termination of any Extension
Period, PSE&G may shorten or further extend the interest payment period on the
Series A Debentures, provided that such Extension Period, together with all such
previous and further extensions thereof, may not exceed 20 consecutive quarters
or extend beyond the maturity or any redemption date of the Series A Debentures.
Upon the termination of any Extension Period and the payment of all amounts then
due, PSE&G may elect to begin a new Extension Period, subject to the above
requirements. See "United States Taxation--Potential Extension of Interest
Payment Period and Original Issue Discount" herein and "Description of the
Debentures--Option to Extend Interest Payment Period" in the accompanying
Prospectus. PSE&G has no current intention of exercising its right to defer
payments of interest by extending the interest payment period on the Series A
Debentures.

The Series A Preferred Securities are issued in the form of one or more
global securities and The Depository Trust Company ("DTC") or any successor
depositary will act as depositary for the Series A Preferred Securities. See
"Description of the Preferred Securities -- Book-Entry-Only Issuance -- The
Depository Trust Company" in the accompanying Prospectus. Payments on the
Series A Preferred Securities represented by a global security will be made in
immediately available funds to DTC, as the depositary for the Series A Preferred
Securities. In the event that the Series A Preferred Securities are issued in
certificated form, the payment of Distributions and payments on redemption or
liquidation will be payable, the transfer of the Series A Preferred Securities
will be registerable and Series A Preferred Securities will be exchangeable at
the corporate office of the Property Trustee in Newark, New Jersey, or at the
offices of any other paying agent or transfer agent appointed by the
Administrative Trustee; provided, however, that the payment of Distributions may
be made at the option of the Property Trustee by check mailed to the address of
the persons entitled thereto or by wire transfer. In addition, if the Series A
Preferred Securities are issued in certificated form, the record dates for the
payment of Distributions will be the 15th day of the last month of each quarter,
whether or not a Business Day.

Redemption

Upon the repayment of the Series A Debentures at maturity or upon
redemption as provided in the Indenture, the proceeds from such repayment will
be applied by the Property Trustee to redeem a Like Amount of the Trust
Securities, upon not less than 30 nor more than 60 days' notice, at a redemption
price equal to the aggregate liquidation amount plus accumulated and unpaid
Distributions to the date of redemption (the "Redemption Price"). See "Certain
Terms of the Series A Debentures--Redemption."

"Like Amount" means (i) with respect to a redemption of the Trust
Securities, Trust Securities having an aggregate liquidation amount equal to the
principal amount of Series A Debentures to be repaid in accordance with the
Indenture and (ii) with respect to a distribution of Series A Debentures to
holders of Trust Securities in connection with a termination and liquidation of
the Series A Issuer, Series A Debentures having a principal amount equal to the
aggregate liquidation amount of the Trust Securities in exchange for which such
Series A Debentures are distributed.

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<PAGE>

Special Event Redemption

If a Tax Event or an Investment Company Event (each, a "Special Event") has
occurred and is continuing, PSE&G has the right to redeem the Series A
Debentures, in whole but not in part, and therefore cause a mandatory redemption
of the Trust Securities, in whole but not in part, at the Redemption Price
within 90 days following the occurrence of such Special Event.

"Tax Event" means that PSE&G shall have received an opinion of counsel
(which may be counsel to PSE&G or an affiliate but not an employee thereof and
which must be acceptable to the Property Trustee) experienced in such matters to
the effect that, as a result of 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 affecting taxation, or as a result of 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 Series A
Preferred Securities, there is more than an insubstantial risk that (i) the
Series A Issuer is, or will be, subject to Federal income tax with respect to
interest on the Series A Debentures, (ii) interest payable by PSE&G on the
Series A Debentures is not, or will not be, deductible by PSE&G for Federal
income tax purposes or (iii) the Series A Issuer is, or will be, subject to more
than a de minimis amount of other taxes, duties, assessments or other
governmental charges.

"Investment Company Event" means the occurrence of a change in law or
regulation or a change in interpretation or application of law or regulation by
any legislative body, court, governmental agency or regulatory authority (a
"Change in 1940 Act Law") to the effect that the Series A Issuer is or will be
considered an "investment company" that is required to be registered under the
Investment Company Act of 1940, as amended, which Change in 1940 Act Law becomes
effective on or after the date of original issuance of the Series A Preferred
Securities.

Distribution of Series A Debentures

At any time, PSE&G may, in its sole discretion, terminate the Series A
Issuer and cause a Like Amount of Series A Debentures to be distributed to the
holders of the Trust Securities in liquidation of the Series A Issuer upon 30
days' prior notice to the holders of the Trust Securities, provided that PSE&G
shall have delivered to the Issuer Trustees an opinion of nationally recognized
tax counsel (which may be regular tax counsel to PSE&G or an affiliate but not
an employee thereof and which must be acceptable to the Property Trustee) that
any such distribution will not be a taxable event to the owners of the Trust
Securities for Federal income tax purposes. In addition, the Series A
Debentures may be distributed to holders of Trust Securities in certain other
circumstances as described under "Certain Terms of the Preferred
Securities--Liquidation Distribution Upon Termination" in the accompanying
Prospectus.

Liquidation Amount

The amount payable on the Series A Preferred Securities in the event of the
termination and liquidation of the Series A Issuer is $25 per Series A Preferred
Security plus accumulated and unpaid Distributions to the date of payment,
unless, in connection therewith, the Series A Debentures are distributed to the
holders of the Trust Securities.

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<PAGE>

CERTAIN TERMS OF THE SERIES A DEBENTURES

The following summary of certain terms and provisions of the Series A
Debentures supplements the description of the terms and provisions of the
Debentures set forth in the accompanying Prospectus under the heading
"Description of the Debentures," to which description reference is hereby made.

The Series A Debentures are unsecured and rank subordinate and junior in
right of payment to all Senior Indebtedness of PSE&G.

Interest Rate; Maturity

Concurrently with the issuance of the Series A Preferred Securities, the
Series A Issuer is investing the proceeds thereof, together with the
consideration paid by PSE&G for the Common Securities, in the Series A
Debentures. The Series A Debentures will be issued as a series of Debentures
under the Indenture. The Series A Debentures will mature on June ___, 2045.
The Series A Debentures will bear interest at the annual rate of _____% of the
principal amount thereof, payable quarterly in arrears on March 31, June 30,
September 30 and December 31 of each year, commencing June 30, 1996. Interest
which is accrued and unpaid after the quarterly payment date therefor will bear
additional interest on the amount thereof (to the extent permitted by law) at
the annual rate of _____% thereof, compounded quarterly. The term "interest,"
as used herein, shall include quarterly interest payments and interest on
quarterly interest payments in arrears, as applicable. The interest payment
provisions for the Series A Debentures correspond to the Distribution provisions
of the Series A Preferred Securities.

Redemption

The Series A Debentures are redeemable prior to maturity at the option of
PSE&G at a redemption price equal to 100% of the principal amount thereof plus
accrued and unpaid interest to the redemption date (i) at any time on or after
June ___, 2001, in whole or in part, or (ii) if a Special Event has occurred and
is continuing, in whole but not in part.

Distribution of Series A Debentures

If Series A Debentures are distributed to the holders of the Trust
Securities upon the termination and liquidation of the Series A Issuer, the
Series A Debentures will be issued in denominations of $25 and integral
multiples thereof. It is anticipated that the Series A Debentures would be
distributed in the form of one or more global securities and DTC, or any
successor depositary for the Series A Preferred Securities, would act as
depositary for the Series A Debentures. The depositary arrangements for the
Series A Debentures would be substantially similar to those in effect for the
Series A Preferred Securities. Neither PSE&G, the Debenture Trustee, any paying
agent nor any other agent of PSE&G or the Debenture 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 security
for such Series A Debentures or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests. For a description of
DTC and the terms of the depositary arrangements relating to payments,
transfers, voting rights, redemption and other notices and other matters, see
"Description of the Preferred Securities--Book-Entry-Only Issuance--The
Depository Trust Company" in the accompanying Prospectus.

Payments on the Series A Debentures represented by a global security will
be made in immediately available funds to DTC, as the depositary for the Series
A Debentures. In the event that the Series A Debentures are issued in
certificated form, principal and interest will be payable, the transfer

S-12

<PAGE>

of the Series A Debentures will be registrable and the Series A Debentures will
be exchangeable for Series A Debentures of other authorized denominations of a
like aggregate principal amount, at the corporate office of the Debenture
Trustee in Newark, New Jersey, or at the offices of any other paying agent or
transfer agent appointed by PSE&G; provided, however, that payment of interest
may be made at the option of PSE&G by check mailed to the address of the persons
entitled thereto or by wire transfer. In addition, if the Series A Debentures
are issued in certificated form, the record dates for payment of interest will
be the 15th day of the last month of each quarter, whether or not a Business
Day.

If the Series A Debentures are distributed to the holders of the Trust
Securities upon the termination and liquidation of the Series A Issuer, PSE&G
will use its best efforts to list the Series A Debentures on the New York Stock
Exchange.

UNITED STATES TAXATION

General

This section is a summary of certain Federal income tax considerations that
may be relevant to prospective purchasers of Series A Preferred Securities and
is the opinion of Ballard Spahr Andrews & Ingersoll, special tax counsel to
PSE&G and the Series A Issuer, insofar as it relates to matters of law and legal
conclusions. This section is based upon current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), existing regulations thereunder
and current administrative rulings and court decisions, all of which are subject
to change. Subsequent changes may cause tax consequences to vary substantially
from the consequences described below. Unless otherwise stated, this summary
deals only with Series A Preferred Securities held as capital assets and does
not deal with special classes of holders, such as dealers in securities or
currencies, life insurance companies, persons holding Series A Preferred
Securities as a hedge against or which are hedged against currency risks or as a
part of a straddle, or persons whose functional currency is not the United
States dollar.

POTENTIAL INVESTORS ARE ADVISED TO CONSULT THEIR TAX ADVISORS AS TO THE
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE PURCHASE OF SERIES A
PREFERRED SECURITIES PURSUANT TO THE OFFERING MADE HEREBY AND OF THE OWNERSHIP
AND DISPOSITION OF SERIES A PREFERRED SECURITIES IN LIGHT OF THEIR PARTICULAR
CIRCUMSTANCES, AS WELL AS THE EFFECT OF ANY STATE, LOCAL OR OTHER LAWS.

In the opinion of Ballard Spahr Andrews & Ingersoll, the Series A
Debentures will be treated as indebtedness for Federal income tax purposes.
However, holders of Series A Preferred Securities should note that the Internal
Revenue Service (the "IRS") may attempt to treat the Series A Debentures as
equity rather than indebtedness for tax purposes, as described below. If the
IRS were successful in such attempt, the Series A Debentures would be subject to
redemption at the option of PSE&G as described under "Certain Terms of the
Series A Debentures--Redemption" and "Certain Terms of the Series A Preferred
Securities--Special Event Redemption."

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<PAGE>

and Means Committee issued a joint statement to the effect that it was their
intention that the effective date of the President's legislative proposals, if
adopted, will be no earlier than the date of appropriate Congressional action.
In the opinion of Ballard Spahr Andrews & Ingersoll, under current law, interest
on the Series A Debentures is deductible. There can be no assurance, however,
that such proposals, subsequent proposals or final legislation will not affect
the ability of PSE&G to deduct interest on the Series A Debentures which, in
turn, could give rise to a Tax Event and, accordingly, PSE&G's optional right to
redeem the Series A Debentures, as described under "Certain Terms of the Series
A Preferred Securities--Special Event Redemption."

Income from Series A Preferred Securities

In connection with the issuance of the Series A Debentures, in the opinion
of Ballard Spahr Andrews & Ingersoll, under current law and assuming full
compliance with the terms of the Trust Agreement, the Series A Issuer will be
classified as a grantor trust and not as an association taxable as a corporation
or partnership for Federal income tax purposes.

As a consequence, each owner of Series A Preferred Securities will be
considered the owner of a pro rata portion of the Series A Debentures held by
the Series A Issuer. As a further consequence, each owner of Series A Preferred
Securities will be required to include in gross income his or her pro rata share
of the income accrued on the Series A Debentures held by the Series A Issuer.
Such income should not exceed Distributions received by the owners of Series A
Preferred Securities on the Series A Preferred Securities except in limited
circumstances described under "--Potential Extension of Interest Payment Period
and Original Issue Discount." No portion of such income will be eligible for
the dividends-received deduction.

Potential Extension of Interest Payment Period and Original Issue Discount

Under the Indenture, under certain circumstances, PSE&G has the right at
any time and from time to time to extend the interest payment period on the
Series A Debentures for up to 20 consecutive quarters but not beyond the
maturity or any redemption date of the Series A Debentures. PSE&G's right to
defer payments of interest by extending the interest payment period will cause
the Series A Debentures to be treated as issued with "original issue discount"
for Federal income tax purposes. Accordingly, an owner of Series A Preferred
Securities will accrue interest income (i.e., original issue discount) under a
constant yield basis over the term of the Series A Debentures (including any
Extension Period), regardless of the receipt of cash with respect to the period
to which such income is attributable.

As a result, owners of Series A Preferred Securities during an Extension
Period will include interest in gross income in advance of the receipt of cash,
and any owners of Series A Preferred Securities who dispose of Series A
Preferred Securities prior to the record date for the payment of Distributions
following such Extension Period will include interest in gross income, but will
not receive any cash related thereto. The tax basis of a Series A Preferred
Security will be increased by the amount of any original issue discount that is
included in income without a receipt of cash and will be decreased when and if
such cash is subsequently received by the owner of the Series A Preferred
Security.

Disposition of the Series A Preferred Securities

Gain or loss will be recognized on a sale, including a redemption for cash,
of Series A Preferred Securities (which represent undivided beneficial interests
in the Series A Debentures) in an amount equal to the difference between the
amount realized and the tax basis of an owner of Series A Preferred

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<PAGE>

Securities in his or her pro rata share of the Series A Debentures. Gain or
loss recognized by an owner of Series A Preferred Securities on the sale or
exchange of Series A Preferred Securities held for more than one year generally
will be taxable as long-term capital gain or loss.

United States Alien Holders

For purposes of this discussion, a "United States Alien Holder" is any
holder or beneficial owner who or which is (i) a nonresident alien individual or
(ii) a foreign corporation, partnership, estate or trust, in either case not
subject to Federal income tax on a net income basis in respect of a Series A
Preferred Security.

Under present Federal income tax law, subject to the discussion below with
respect to backup withholding:

(i) payments by the Series A Issuer or any of its paying agents to any
United States Alien Holder will not be subject to Federal withholding tax,
provided that (a) the owner of the Series A Preferred Security does not actually
or constructively own 10% or more of the total combined voting power of all
classes of stock of PSE&G, (b) the owner of the Series A Preferred Securities is
not a controlled foreign corporation that is related to PSE&G through stock
ownership, and (c) either (1) the owner of the Series A Preferred Securities
certifies to the Series A Issuer or its agent, under penalties of perjury, that
it is a United States Alien Holder and provides its name and address or (2) the
holder of the Series A Preferred Securities is 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 such holder certifies to the Series A Issuer or its agent,
under penalties of perjury, that such statement has been received from the owner
by it or by a financial institution between it and the owner and furnishes the
payor with a copy thereof; and

(ii) a United States Alien Holder of a Series A Preferred Security will not
be subject to Federal income or withholding tax on any gain realized on the sale
or exchange of a Series A Preferred Security unless such person is present in
the United States for 183 days or more in the taxable year of sale and such
person has a "tax home" in the United States or certain other requirements are
met.

Backup Withholding and Information Reporting

In general, information reporting requirements will apply to payments to
noncorporate United States holders of the proceeds of the sale of the Series A
Preferred Securities within the United States and "backup withholding" at a rate
of 31% will apply to such payments if the seller fails to provide a correct
taxpayer identification number. Information reporting requirements and backup
withholding will also apply to original issue discount allocable to noncorporate
United States holders of the Series A Preferred Securities if the seller fails
to provide a correct taxpayer identification number.

Payments of the proceeds from the sale by a United States Alien Holder of
Series A Preferred Securities made to or through a foreign office of a broker
will not be subject to information reporting or backup withholding, except that,
if the broker is a United States person, a controlled foreign corporation for
United States tax purposes or a foreign person 50% or more of whose gross income
is effectively connected with a United States trade or business for a specified
three-year period, information reporting may apply to such payment. Payments of
the proceeds from a sale of Series A Preferred Securities to or through the
United States office of a broker is subject to information reporting and backup
withholding unless the holder or beneficial owner certifies as to its non-United
States status or otherwise establishes an exemption from information reporting
and backup withholding.

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Receipt of Series A Debentures Upon Liquidation of the Series A Issuer

PSE&G may cause the Series A Issuer to be terminated and cause the Series A
Debentures to be distributed to the holders of Series A Preferred Securities in
liquidation of such holders' interests in the Series A Issuer, provided that
PSE&G has delivered to the Issuer Trustees an opinion of nationally recognized
tax counsel (which may be regular tax counsel to PSE&G or an affiliate but not
an employee thereof and which must be acceptable to the Property Trustee) that
any such distribution will not be a taxable event to the owners of the Series A
Preferred Securities for Federal income tax purposes. Under current Federal
income tax law and interpretation and assuming the Series A Issuer is treated as
a grantor trust, such a distribution should not be treated as a taxable event to
owners of the Series A Preferred Securities. Such a tax-free transaction would
result in the owner of Series A Preferred Securities receiving an aggregate tax
basis in the Series A Debentures equal to such owner's aggregate tax basis in
such owner's Series A Preferred Securities. An owner's holding period for such
Series A Debentures would include the period during which such owner had a
beneficial interest in the Series A Preferred Securities.

UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement, the
Series A Issuer has agreed to sell to each of the Underwriters named below, for
whom Goldman, Sachs & Co., Dean Witter Reynolds Inc., Lehman Brothers Inc.,
Morgan Stanley & Co. Incorporated, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, PaineWebber Incorporated, Prudential Securities Incorporated and
Smith Barney Inc. are acting as Representatives (the "Representatives"), and
each of the Underwriters has severally agreed to purchase from the Series A
Issuer, the respective number of Series A Preferred Securities set forth
opposite its name below:

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<PAGE>

Number of Series A
Underwriter Preferred Securities
----------- --------------------

Goldman, Sachs & Co. . . . . . .
Dean Witter Reynolds Inc. . . .
Lehman Brothers Inc. . . . . . .
Morgan Stanley & Co. Incorporated
Merrill Lynch, Pierce, Fenner &
Smith Incorporated . . . . . .
PaineWebber Incorporated . . . .
Prudential Securities Incorporated
Smith Barney Inc. . . . . . . .

Total . . . . . . . . . . .

Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the Series A Preferred
Securities offered hereby if any are taken.

The Underwriters propose to offer the Series A 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 Series A Preferred
Security. The Underwriters may allow, and such dealers may reallow, a
concession not in excess of $__________ per Series A Preferred Security to
certain brokers and dealers. After the Series A Preferred Securities are
released for sale to the public, the offering price and other selling terms may
from time to time be varied by the Representatives.

In view of the fact that the proceeds from the sale of the Series A
Preferred Securities will be used to purchase the Series A Debentures, under the
Underwriting Agreement, PSE&G has agreed to pay to the Underwriters an
underwriting commission of $______ per Series A Preferred Security.

Prior to this offering, there has been no public market for the Series A
Preferred Securities. Application will be made to list the Series A Preferred
Securities on the New York Stock Exchange. If approved for listing, trading on
the Series A Preferred Securities is expected to commence within a 30-day period
after the initial delivery thereof. In order to meet one of the requirements
for listing the Series A Preferred Securities on the New York Stock Exchange,
the Underwriters have undertaken to sell the Series A Preferred Securities to a
minimum of 400 beneficial owners.

PSE&G and the Series A Issuer have agreed, during the period beginning from
the date of the Underwriting Agreement and continuing to and including the
earlier of (i) the date on which the distribution of the Series A Preferred
Securities ceases, as determined by the Representatives, or

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(ii) 30 days after the closing date, not to offer, sell, contract to sell or
otherwise dispose of any Preferred Securities or any preferred stock or any
other securities of PSE&G which are substantially similar to the Series A
Preferred Securities, including any guarantee of such securities, or any
securities convertible into or exchangeable for or represent the right to
receive any of the foregoing securities, without the prior written consent of
the Representatives.

PSE&G and the Series A Issuer have agreed to indemnify the several
Underwriters against certain liabilities, including liabilities under the
Securities Act.

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PROSPECTUS

SUBJECT TO COMPLETION DATED JUNE 5, 1996

PSE&G Capital Trust I
PSE&G Capital Trust II
PSE&G Capital Trust III

Cumulative Quarterly Income Preferred Securities (QUIPS(SM))*
guaranteed to the extent the Issuer thereof has available funds as set forth
herein by
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
_________________

PSE&G Capital Trust I, PSE&G Capital Trust II and PSE&G Capital Trust III,
each a statutory business trust created under the laws of the State of Delaware
(each, an "Issuer," and collectively, the "Issuers") may severally offer, from
time to time, their respective cumulative quarterly income preferred securities
(the "Preferred Securities") representing undivided beneficial interests in the
assets of such Issuer. Public Service Electric and Gas Company, a New Jersey
corporation ("PSE&G"), will be the owner of beneficial interests represented by
the common securities (the "Common Securities") of each Issuer. First Union
National Bank is the Property Trustee of each Issuer. Concurrently with the
issuance by each Issuer of its Preferred Securities, such Issuer will invest the
proceeds thereof, together with the consideration paid by PSE&G for the Common
Securities of such Issuer, in a corresponding series of PSE&G's deferrable
interest subordinated debentures (the "Debentures"). The Debentures will be
subordinate and junior in right of payment to all Senior Indebtedness (as
defined herein) of PSE&G. The Debentures will be the sole assets of each Issuer
and payments in respect of the Debentures will be the only revenues of each
Issuer.

Pursuant to a guarantee agreement to be entered into by PSE&G with respect
to each series of Preferred Securities (each, a "Guarantee"), PSE&G will agree
to make payments of cash distributions ("Distributions") with respect to the
Preferred Securities of each Issuer and payments on liquidation or redemption
with respect to such Preferred Securities but only to the extent that such
Issuer holds funds available therefor and has not made such payments. The
obligations of PSE&G under each Guarantee will be subordinate and junior in
right of payment to all general liabilities of PSE&G. As described herein, each
Guarantee, together with PSE&G's obligations under the Debentures, the Indenture
relating to such Debentures and the Amended and Restated Trust Agreement for
each Issuer, will provide for PSE&G's full, irrevocable and unconditional
guarantee of the Preferred Securities.

The Preferred Securities may be offered in amounts, at prices and on terms
to be determined at the time of offering; provided, however, that the aggregate
initial public offering price of all Preferred Securities issued pursuant to the
Registration Statement of which this Prospectus forms a part shall not exceed
$350,000,000. Certain specific terms of an Issuer's Preferred Securities will
be set forth in an accompanying Prospectus Supplement, including where
applicable and to the extent not set forth herein, the identity of such Issuer,
the specific title, the aggregate number, the Distribution rate (or the method
for determining such rate), the liquidation amount, redemption provisions, the
right, if any, of PSE&G to terminate such Issuer and cause the corresponding
series of Debentures to be distributed to the holders of such Issuer's Preferred
Securities and Common Securities, the period during which interest on the
corresponding series of Debentures may be deferred, the initial public offering
price, and any other special terms, as well as any planned listing on a
securities exchange, of such Preferred Securities.

The Preferred Securities may be sold in a public offering to or through
underwriters or dealers designated from time to time. See "Plan of
Distribution." The names of any such underwriters or dealers involved in the
sale of the Preferred Securities of a particular Issuer, the number of Preferred
Securities to be purchased by any such underwriters or dealers and any
applicable commissions or discounts will be set forth in the accompanying
Prospectus Supplement. The net proceeds to each Issuer will also be set forth
in the accompanying Prospectus Supplement.

The accompanying Prospectus Supplement will contain information concerning
material Federal income tax considerations applicable to the Preferred
Securities offered thereby.
____________________

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.
____________________
* QUIPS is a service mark of Goldman, Sachs & Co.

The date of this Prospectus is June __, 1996.

<PAGE>

STATEMENT OF AVAILABLE INFORMATION

Public Service Electric and Gas Company, a New Jersey corporation
("PSE&G"), is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports and other information with the Securities and Exchange
Commission ("SEC"). Such reports and other information can be inspected and
copied at the public reference facilities maintained by the SEC at 450 Fifth
Street, N.W., Washington, D.C. and at its regional offices at 500 West Madison
Street, Chicago, Illinois and 7 World Trade Center, New York, New York. Copies
of such reports and other information may also be obtained from the Public
Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C.
20549-1004 at prescribed rates. Such reports and other information can also be
inspected at the New York Stock Exchange, Inc. (the "New York Stock Exchange")
where certain of PSE&G's securities are listed.

No separate financial statements of PSE&G Capital Trust I, PSE&G Capital
Trust II or PSE&G Capital Trust III, each a statutory business trust created
under the laws of the State of Delaware (each, an "Issuer," and collectively,
the "Issuers"), have been included herein. PSE&G and the Issuers do not
consider that such financial statements would be material to holders of any
Issuer's cumulative quarterly income preferred securities (the "Preferred
Securities") because each Issuer is a newly formed special purpose entity, has
no operating history or independent operations and is not engaged in and does
not propose to engage in any activity other than holding as trust assets the
corresponding series of deferrable interest subordinated debentures (the
"Debentures") of PSE&G and issuing Preferred Securities and common securities
(the "Common Securities," and together with the Preferred Securities, the "Trust
Securities") representing undivided beneficial interests in such Debentures.
See "The Issuers," "Description of the Preferred Securities" and "Description of
Debentures."

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents filed by PSE&G with the SEC pursuant to the
Exchange Act are incorporated herein by reference:

1. PSE&G's Annual Report on Form 10-K for the year ended December 31,
1995;

2. PSE&G's Quarterly Report on Form 10-Q for the quarter ended March 31,
1996; and

3. PSE&G's Current Reports on Form 8-K dated January 19, 1996, March 14,
1996 and May 24, 1996.

Each document filed subsequent to the date of this Prospectus pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act and prior to the
termination of the offering of the related Preferred Securities shall be deemed
to be incorporated by reference in this Prospectus and the accompanying
Prospectus Supplement and shall be a part hereof and thereof from the date of
filing of such document. Any statement contained herein or therein or in a
document all or a portion of which is incorporated or deemed to be incorporated
by reference herein and therein shall be deemed to be modified or superseded for
purposes of this Prospectus and the accompanying Prospectus Supplement to the
extent that a statement contained herein or therein or in any other subsequently
filed document which also is or is deemed to be incorporated by reference herein
and therein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus or the accompanying Prospectus
Supplement.

<PAGE>

PSE&G undertakes to provide without charge to each person, including any
beneficial owner, to whom this Prospectus and the accompanying Prospectus
Supplement are delivered, upon written or oral request of such person, a copy of
any or all documents described above under "Incorporation of Certain Documents
by Reference," other than exhibits to such documents not specifically
incorporated by reference therein. Such requests should be directed to the
Director - Investor Relations, Public Service Electric and Gas Company, 80 Park
Plaza, T6B, P.O. Box 570, Newark, New Jersey 07101, telephone (201) 430-6503.

THE ISSUERS

Each of PSE&G Capital Trust I, PSE&G Capital Trust II and PSE&G Capital
Trust III is a statutory business trust created under Delaware law pursuant to
(i) a trust agreement executed by PSE&G, as sponsor for each Issuer, and the
Issuer Trustees (as defined below) and (ii) the filing of a certificate of trust
with the Delaware Secretary of State. Each trust agreement will be amended and
restated in its entirety (each, as so amended and restated, a "Trust Agreement")
substantially in the form filed as an exhibit to the Registration Statement of
which this Prospectus forms a part. Each Trust Agreement will be qualified as
an indenture under the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act").

Each Issuer exists for the exclusive purposes of issuing and selling its
Trust Securities and using the proceeds from the sale of its Trust Securities to
acquire a corresponding series of Debentures, maintaining the status of the
Issuer as a grantor trust for Federal income tax purposes and engaging in those
activities necessary, convenient or incidental to the foregoing. All of the
Common Securities of each Issuer will be owned by PSE&G. The Common Securities
of an Issuer will rank pari passu, and payments will be made thereon pro rata,
with the Preferred Securities of that Issuer, except that upon the occurrence
and continuance of an event of default on the corresponding series of Debentures
(a "Debenture Event of Default") under the Indenture dated as of June 1, 1996
(as amended and supplemented from time to time, the "Indenture") between PSE&G
and First Union National Bank, as trustee (the "Debenture Trustee"), the rights
of the holders of such Common Securities to payment of cash distributions
("Distributions") and payments upon redemption and liquidation will be
subordinated to the rights of the holders of such Preferred Securities. The
Indenture will be qualified as an indenture under the Trust Indenture Act.

Each Issuer's business and affairs are conducted by three trustees, each
appointed by PSE&G as holder of the Common Securities: (i) First Union National
Bank (the "Property Trustee"); (ii) an affiliate of the Property Trustee that
has its principal place of business in the State of Delaware (the "Delaware
Trustee"); and (iii) one individual trustee who is an employee or officer of or
affiliated with PSE&G (the "Administrative Trustee," and collectively with the
Property Trustee and the Delaware Trustee, the "Issuer Trustees"). The holder
of the Common Securities, or the holders of at least a majority in aggregate
liquidation amount of an Issuer's Preferred Securities if an event of default
under the Trust Agreement (a "Trust Agreement Event of Default") has occurred
and is continuing, will be entitled to remove and replace the Property Trustee
and the Delaware Trustee. In no event will the holders of the Preferred
Securities have the right to vote to appoint, remove or replace the
Administrative Trustee, which voting rights are vested exclusively in the holder
of the Common Securities. The duties and obligations of each of the Issuer
Trustees are governed by the applicable Trust Agreement.

Pursuant to the Trust Agreement of each Issuer, PSE&G will pay all fees and
expenses related to that Issuer and the offering of its Preferred Securities and
will pay, directly or indirectly, all

<PAGE>

ongoing costs, expenses and liabilities of that Issuer except such Issuer's
obligations under its Preferred Securities.

The principal place of business of each Issuer is 80 Park Plaza, Newark,
New Jersey 07101, and its telephone number is (201) 430-7000.

PUBLIC SERVICE ELECTRIC AND GAS COMPANY

PSE&G's service area is a corridor of approximately 2,600 square miles
running diagonally across the State of New Jersey from Bergen County in the
northeast to an area below the City of Camden in the southwest. This heavily
populated, commercialized and industrialized territory encompasses most of New
Jersey's largest municipalities, including its six largest cities, in addition
to approximately 300 suburban and rural communities.

PSE&G's executive offices are located at 80 Park Plaza, Newark, New Jersey
07101, and its telephone number is (201) 430-7000.

USE OF PROCEEDS

Unless otherwise specified in the accompanying Prospectus Supplement, the
proceeds to be received by the Issuers from the sale of the Preferred Securities
offered hereby will be used by the Issuers to purchase Debentures from PSE&G.
The proceeds from the sale of the Debentures will be used by PSE&G to refund
certain outstanding preferred stock of PSE&G identified in the accompanying
Prospectus Supplement and for general corporate purposes, including
reimbursement of its treasury for funds expended therefor.

DESCRIPTION OF THE PREFERRED SECURITIES

Pursuant to the terms of each Trust Agreement, the Issuers will issue the
Preferred Securities and the Common Securities. The Preferred Securities of an
Issuer will represent undivided beneficial interests in the assets of such
Issuer and the holders thereof will be entitled to a preference in certain
circumstances with respect to the payment of Distributions and amounts payable
on redemption or liquidation over the Common Securities of such Issuer, as well
as other benefits as described in the applicable Trust Agreement. Each of the
Issuers is a legally separate entity and the assets of one are not available to
satisfy the obligations of the other.

4
<PAGE>

General

The Preferred Securities of each Issuer will rank pari passu, and payments
will be made thereon pro rata, with the Common Securities of that Issuer except
as described under "-- Subordination of Common Securities." The proceeds from
the sale of the Preferred Securities and the Common Securities will be used by
the related Issuer to purchase a corresponding series of Debentures from PSE&G.
The Debentures will be held in trust by the Property Trustee for the benefit of
the holders of the related Trust Securities. Each Guarantee Agreement executed
by PSE&G for the benefit of the holders of each Issuer's Preferred Securities
(each, a "Guarantee") will be subordinate and junior in right of payment to all
general liabilities of PSE&G and will only guarantee payment of Distributions
and amounts payable upon redemption and liquidation of such Preferred Securities
when the related Issuer has funds available therefor to make such payments. See
"Description of the Guarantee."

It is anticipated that the assets of each Issuer available for distribution
to the holders of its Preferred Securities will be limited to payments from
PSE&G under the corresponding series of Debentures in which such Issuer will
invest the proceeds from the issuance and sale of its Trust Securities. See
"Description of the Debentures." If PSE&G fails to make a payment on a series of
Debentures, the related Issuer will not have sufficient funds to make related
payments, including Distributions, on the corresponding series of Preferred
Securities.

Distributions

Distributions on the Preferred Securities of each Issuer will be payable at
a rate specified in the accompanying Prospectus Supplement for such Preferred
Securities. The amount of Distributions payable for any period will be computed
on the basis of a 360-day year of twelve 30-day months.

Distributions on the Preferred Securities will be cumulative and will
accumulate from the date of original issuance and will be payable quarterly in
arrears on the dates specified in the accompanying Prospectus Supplement except
as otherwise described below. In the event that any date on which Distributions
are otherwise payable on the Preferred Securities is not a Business Day (as
defined below), payment of such Distributions will be made on the next
succeeding day that is a Business Day (and without any interest or other payment
in respect to any such delay), except that if such Business Day is in the next
succeeding calendar year, payment of such Distributions shall be made on the
immediately preceding Business Day, in each case with the same force and effect
as if made on such date (each date on which Distributions are payable in
accordance with the foregoing is referred to herein as a "Distribution Date").
A "Business Day" shall mean any day other than a Saturday, Sunday or a day on
which banking institutions in The City of New York or the State of New Jersey
are required by law or executive order to remain closed.

Distributions on the Preferred Securities will be payable to the holders
thereof as they appear on the Securities Register of the related Issuer on the
relevant record date, which, as long as the Preferred Securities remain in
book-entry-only form, will be one Business Day prior to the relevant
Distribution Date. Subject to any applicable laws and regulations and the
provisions of the applicable Trust Agreement, each such payment will be made as
described under "--Book-Entry-Only Issuance--The Depository Trust Company." In
the event that any Preferred Securities are not in book-entry-only form, the
relevant record date for such Preferred Securities will be the 15th day of the
last month of each quarter, whether or not a Business Day.

So long as no Debenture Event of Default has occurred and is continuing
with respect to a series of Debentures, PSE&G will have the right at any time
and from time to time to defer payments

<PAGE>

of interest by extending the interest payment period on such series of
Debentures for up to the maximum period specified in the accompanying Prospectus
Supplement for such series of Debentures (each, an "Extension Period"), provided
that any such Extension Period shall not extend beyond the maturity or any
redemption date of the Debentures of such series. As a consequence, quarterly
Distributions on the corresponding Preferred Securities would be deferred by the
Issuer thereof during such Extension Period, but the amount of Distributions to
which holders of the Preferred Securities would be entitled will continue to
accumulate at the annual rate applicable to quarterly Distributions thereon,
compounded quarterly. During any Extension Period, PSE&G may not declare or pay
any dividend on, or redeem, purchase, acquire, or make a liquidation payment
with respect to, any shares of PSE&G's capital stock. Prior to the termination
of any Extension Period, PSE&G may shorten or further extend the interest
payment period on a series of Debentures, provided that such Extension Period,
together with all such previous and further extensions thereof, may not exceed
the maximum Extension Period or extend beyond the maturity or any redemption
date of such Debentures. Upon the termination of any Extension Period and the
payment of all amounts then due, PSE&G may elect to begin a new Extension
Period, subject to the above requirements. See "Description of the
Debentures--Option to Extend Interest Payment Period."

Redemption

Upon the repayment of any series of Debentures at maturity or upon
redemption, the proceeds from such repayment will be applied by the Property
Trustee to redeem a like amount of the corresponding Trust Securities of the
Issuer thereof at a redemption price (the "Redemption Price") equal to the
liquidation amount of such Trust Securities plus all accumulated and unpaid
Distributions to the redemption date (the "Redemption Date"). The redemption
terms of a particular series of Debentures and the corresponding Trust
Securities will be set forth in the accompanying Prospectus Supplement.

If less than all the Trust Securities of the Issuer thereof are to be
redeemed on a Redemption Date, then the aggregate amount of such Trust
Securities to be redeemed shall be selected by the Property Trustee among such
Issuer's Preferred Securities and Common Securities pro rata based on the
respective aggregate liquidation amounts of such Preferred Securities and Common
Securities, subject to the provisions of "--Subordination of Common Securities."

Redemption Procedures

Notice of any redemption of Trust Securities will be given by the Property
Trustee to the holders of such Trust Securities to be redeemed not less than 30
nor more than 60 days prior to the Redemption Date. If a notice of redemption
is given with respect to any Trust Securities, then, to the extent funds are
available therefor, the Issuer thereof will irrevocably deposit with the paying
agent for such Trust Securities funds sufficient to pay the applicable
Redemption Price for the Trust Securities being redeemed on the Redemption Date
and will give such paying agent irrevocable instructions and authority to pay
the Redemption Price to the holders of such Trust Securities upon surrender
thereof. Notwithstanding the foregoing, Distributions payable on or prior to
the Redemption Date for any Trust Securities called for redemption shall be
payable to the holders of such Trust Securities on the relevant record dates for
the related Distribution Dates.

If notice of redemption shall have been given and funds irrevocably
deposited as required, then upon the date of such deposit, all rights of the
holders of such Trust Securities so called for redemption will cease, except the
right of the holders of such Trust Securities to receive the Redemption Price,
but without interest thereon, and such Trust Securities will cease to be
outstanding. In the event that any Redemption Date for Trust Securities is not
a Business Day, then the Redemption Price will be payable

<PAGE>

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, the Redemption Price will be payable on
the immediately preceding Business Day, in each case with the same force and
effect as if made on such date. In the event that payment of the Redemption
Price in respect of any Trust Securities called for redemption is improperly
withheld or refused and not paid either by the Issuer thereof or by PSE&G
pursuant to the Guarantee as described under "Description of the Guarantee,"
Distributions on such Trust Securities will continue to accumulate at the then
applicable rate from the original Redemption Date to the date of payment, in
which case the actual payment date will be considered the Redemption Date for
purposes of calculating the Redemption Price.

Subject to applicable law, PSE&G 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.

Subordination of Common Securities

Payment of Distributions on, and the Redemption Price of, each Issuer's
Trust Securities, as applicable, shall be made pro rata based on the respective
aggregate liquidation amounts of such Trust Securities; provided, however, that
if a Debenture Event of Default has occurred and is continuing with respect to
the corresponding series of Debentures, no payment of any Distribution on, or
Redemption Price of, any of such Issuer's Common Securities, and no other
payment on account of the liquidation of such Common Securities, shall be made
unless payment in full in cash of all accumulated and unpaid Distributions on
all of such Issuer's outstanding Preferred Securities for all Distribution
periods terminating on or prior thereto, or in the case of a redemption, the
full amount of such Redemption Price on all of such Issuer's outstanding
Preferred Securities shall have been made or provided for, and all funds
available to the Property Trustee shall first be applied to the payment in full
in cash of all Distributions on, or Redemption Price of, all of such Issuer's
outstanding Preferred Securities then due and payable.

If a Debenture Event of Default has occurred and is continuing with respect
to a series of Debentures, the holder of the related Issuer's Common Securities
will be deemed to have waived any right to act with respect to such Debenture
Event of Default until the effect of such Debenture Event of Default has been
cured, waived or otherwise eliminated. Until any such Debenture Event of
Default has been so cured, waived or otherwise eliminated, the Property Trustee
shall act solely on behalf of the holders of the corresponding Preferred
Securities and not on behalf of PSE&G, as holder of such Common Securities, and
only the holders of such Preferred Securities will have the right to direct the
Property Trustee to act on their behalf.

Liquidation Distribution Upon Termination

Pursuant to its Trust Agreement, each Issuer shall be terminated on the
earliest to occur of: (i) the expiration of the term of such Issuer; (ii) the
bankruptcy, dissolution or liquidation of PSE&G or an acceleration of the
maturity of the corresponding series of Debentures held by such Issuer; (iii) if
provided for in the accompanying Prospectus Supplement, upon the election of
PSE&G to terminate such Issuer and cause the distribution of the corresponding
series of Debentures to the holders of such Issuer's Trust Securities; (iv) the
redemption of all of such Issuer's Trust Securities; and (v) an order for the
termination of such Issuer shall have been entered by a court of competent
jurisdiction. The election of PSE&G pursuant to clause (iii) above shall be
made by PSE&G giving written notice to the Issuer Trustees not less than 30 days
prior to the date of distribution of the corresponding series of Debentures

<PAGE>

and shall be accompanied by an opinion of counsel that such event will not be a
taxable event to the holders of the Trust Securities for Federal income tax
purposes.

If a termination event occurs as described in clause (i), (ii) or (v) above
with respect to any Issuer, such Issuer shall be liquidated by the Issuer
Trustees as expeditiously as the Issuer Trustees determine to be possible by
distributing, after satisfaction of liabilities to creditors of such Issuer as
provided by applicable law, to the holders of its Trust Securities a like amount
of the corresponding series of Debentures, unless such distribution is
determined by the Property Trustee not to be practical, in which event such
holders will be entitled to receive out of the assets of such Issuer available
for distribution to holders, after satisfaction of liabilities to creditors of
such Issuer as provided by applicable law, an amount equal to, in the case of
holders of Preferred Securities, the aggregate liquidation amount per Preferred
Security specified in the accompanying Prospectus Supplement plus accumulated
and unpaid Distributions thereon to the date of payment (such amount, the
"Liquidation Distribution"). If the Liquidation Distribution with respect to an
Issuer's Preferred Securities can be paid only in part because such Issuer has
insufficient assets available to pay in full the aggregate Liquidation
Distribution, then the amounts payable by such Issuer on such Preferred
Securities shall be paid on a pro rata basis. The holders of such Issuer's
Common Securities will be entitled to receive the Liquidation Distribution upon
any such liquidation pro rata with the holders of its Preferred Securities,
except that if a Debenture Event of Default has occurred and is continuing the
Preferred Securities shall have a priority over the Common Securities with
respect to payment of such Liquidation Distribution.

Trust Agreement Event of Default; Notice

A Debenture Event of Default shall constitute an event of default with
respect to the Preferred Securities issued by the related Issuer under its Trust
Agreement (a "Trust Agreement Event of Default").

Within 90 days after the occurrence of any Trust Agreement Event of Default
actually known to the Property Trustee, the Property Trustee shall transmit
notice of such Trust Agreement Event of Default to the holders of the
corresponding Trust Securities, the Administrative Trustee and PSE&G, unless
such Trust Agreement Event of Default shall have been cured or waived. PSE&G
and the Administrative Trustee are required to file annually with the Property
Trustee a certificate as to whether or not they are in compliance with all the
conditions and covenants applicable to them under each Trust Agreement.

Under each Trust Agreement, if the Property Trustee has failed to enforce
its rights under the Trust Agreement or the Indenture to the fullest extent
permitted by law and subject to the terms of the Trust Agreement and the
Indenture, any holder of the corresponding Preferred Securities may institute a
legal proceeding directly to enforce the Property Trustee's rights under the
Trust Agreement or the Indenture with respect to Debentures having a principal
amount equal to the aggregate liquidation amount of the Preferred Securities of
such holder without first instituting a legal proceeding against the Property
Trustee or any other person. To the extent that any action under the Indenture
is entitled to be taken by the holders of at least a specified percentage of the
principal amount of a series of Debentures, holders of the corresponding
Preferred Securities may take such action if such action is not taken by the
Property Trustee. To the fullest extent permitted by law, the foregoing is in
addition to and not in limitation of any direct rights provided to the holders
of the Preferred Securities under the terms of the Indenture, including the
right, without any notice or other demand on the Property Trustee, to institute
suit for the enforcement of any payment of the principal of and premium, if any,
and interest on the corresponding series of Debentures, all as provided in the
Indenture.

<PAGE>

If a Debenture Event of Default has occurred and is continuing with respect
to a series of Debentures, the corresponding Preferred Securities shall have a
preference over the related Issuer's Common Securities with respect to the
payment of Distributions and amounts payable on redemption and liquidation as
described above. See "--Liquidation Distribution Upon Termination" and
"--Subordination of Common Securities."

Removal of Issuer Trustees

Unless a Trust Agreement Event of Default has occurred and is continuing,
any Issuer Trustee may be removed and replaced at any time by the holder of the
Common Securities. If a Trust Agreement Event of Default has occurred and is
continuing, the Property Trustee and the Delaware Trustee may be removed and
replaced at such time only by the holders of at least a majority in aggregate
liquidation amount of the outstanding Preferred Securities. In no event will
the holders of the Preferred Securities have the right to vote to appoint,
remove or replace the Administrative Trustee, which voting rights are vested
exclusively in the holder of the Common Securities. No resignation or removal
of an Issuer Trustee and no appointment of a successor trustee shall be
effective until the acceptance of appointment by the successor trustee in
accordance with the provisions of the applicable Trust Agreement.

Co-Trustees and Separate Property Trustee

Unless a Trust Agreement Event of Default has occurred and is continuing,
at any time and from time to time, for the purpose of meeting the legal
requirements of the Trust Indenture Act or of any jurisdiction in which any part
of the Trust Property (as defined in each Trust Agreement) may at such time be
located, the holder of the Common Securities and the Administrative Trustee
shall have the power (i) to appoint one or more persons approved by the Property
Trustee either to act as co-trustee, jointly with the Property Trustee, of all
or any part of such Trust Property, or to act as separate trustee of any such
Trust Property, in either case with such powers as may be provided in the
instrument of appointment, and (ii) to vest in such person or persons in such
capacity any property, title, right or power deemed necessary or desirable,
subject to the provisions of the applicable Trust Agreement. If a Trust
Agreement Event of Default has occurred and is continuing, only the Property
Trustee shall have power to make such appointment.

Merger or Consolidation of Issuer Trustees

Any corporation or other entity into which any Issuer Trustee may be merged
or converted or with which it may be consolidated, or any corporation or other
entity resulting from any merger, conversion or consolidation to which any
Issuer Trustee shall be a party, or any corporation or other entity succeeding
to all or substantially all the corporate trust business of any Issuer Trustee,
shall be the successor of such Issuer Trustee under the applicable Trust
Agreement, provided such corporation or other entity shall be otherwise
qualified and eligible.

Mergers, Consolidations, Amalgamations or Replacements of the Issuers

An Issuer may not merge with or into, consolidate, amalgamate, or be
replaced by, or convey, transfer or lease its properties and assets as an
entirety or substantially as an entirety to any corporation or other entity,
except as described below. An Issuer may, at the request of PSE&G, with the
consent of the Administrative Trustee and without the consent of the holders of
its Preferred Securities, merge with or into, consolidate, amalgamate, or be
replaced by a trust organized as such under the laws of any State, provided that
(i) such successor entity either (a) expressly assumes all of the obligations of
such Issuer with respect to such Preferred Securities or (b) substitutes for
such Preferred Securities

9
<PAGE>

other securities substantially similar to such Preferred Securities (the
"Successor Securities") so long as the Successor Securities rank the same as
such Preferred Securities rank with respect to the payment of Distributions and
payments upon redemption and liquidation, (ii) PSE&G expressly appoints a
trustee of such successor entity possessing the same powers and duties as the
Property Trustee as the holder of the corresponding series of Debentures,
(iii) the Successor Securities are listed, or any Successor Securities will be
listed upon notification of issuance, on any national securities exchange or
other organization on which such Preferred Securities are then listed, (iv) such
merger, consolidation, amalgamation or replacement does not cause such Preferred
Securities (including 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 such Preferred Securities
(including any Successor Securities) in any material respect, (vi) such
successor entity has a purpose substantially similar to that of such Issuer,
(vii) prior to such merger, consolidation, amalgamation or replacement, PSE&G
has received an opinion of counsel to such Issuer to the effect that (a) such
merger, consolidation, amalgamation or replacement does not adversely affect the
rights, preferences and privileges of the holders of such Preferred Securities
(including any Successor Securities) in any material respect, and (b) following
such merger, consolidation, amalgamation or replacement, neither such Issuer nor
such successor entity will be required to register as an investment company
under the Investment Company Act of 1940, as amended (the "Investment Company
Act"), and (viii) PSE&G or any permitted successor assignee owns all of the
common securities of such successor entity and guarantees the obligations of
such successor entity under the Successor Securities at least to the extent
provided by the related Guarantee and Trust Agreement. Notwithstanding the
foregoing, an Issuer shall not, except with the consent of all holders of its
Preferred 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 such Issuer or the successor
entity not to be classified as a grantor trust for Federal income tax purposes.

Voting Rights; Amendment of Trust Agreement

Except as provided below and under "--Mergers, Consolidations,
Amalgamations or Replacements of the Issuers" and "Description of the
Guarantee--Amendments and Assignment" and as otherwise required by law and the
applicable Trust Agreement, the holders of the Preferred Securities will have
no voting rights.

A Trust Agreement may be amended from time to time by PSE&G and the Issuer
Trustees, without the consent of the holders of the corresponding Preferred
Securities, (i) to cure any ambiguity, defect or inconsistency or (ii) to make
any other change that does not adversely affect in any material respect the
interests of any holder of such Preferred Securities. A Trust Agreement may be
amended by PSE&G and the Issuer Trustees in any other respect, with the consent
of the holders of at least a majority in aggregate liquidation amount of such
Preferred Securities, except to (i) change the amount, timing or currency or
otherwise adversely affect the method of payment of any Distribution or
Liquidation Distribution, (ii) restrict the right of a holder of any such
Preferred Security to institute suit for enforcement of any Distribution,
Redemption Price or Liquidation Distribution, (iii) change the purpose of the
related Issuer, (iv) authorize the issuance of any additional beneficial
interests in the related Issuer, (v) change the redemption provisions, (vi)
change the conditions precedent for PSE&G to elect to terminate the related
Issuer and distribute the corresponding series of Debentures to the holders of
such Preferred Securities or (vii) affect the limited liability of any holder of
such Preferred Securities, which amendment requires the consent of each holder
of the related Preferred Securities affected thereby. Notwithstanding the
foregoing, no amendment may be made without receipt by the related Issuer of an
opinion of counsel to the effect that such amendment will not affect such
Issuer's

<PAGE>

status as a grantor trust for Federal income tax purposes or its exemption from
regulation as an investment company under the Investment Company Act.

The Issuer Trustees shall not (i) direct the time, method and place of
conducting any proceeding for any remedy available to the Debenture Trustee or
executing any trust or power conferred on the Debenture Trustee with respect to
the corresponding series of Debentures, (ii) waive any past default pursuant to
Section 6.04 of the Indenture, (iii) exercise any right to rescind or annul an
acceleration of the principal of the corresponding series of Debentures or (iv)
consent to any amendment or modification of the Indenture, where such consent
shall be required, without, in each case, obtaining the consent of the holders
of at least a majority in aggregate liquidation amount of all outstanding
Preferred Securities of the corresponding series; provided, however, that where
a consent under the Indenture would require the consent of each holder of
Debentures affected thereby, no such consent shall be given by the Property
Trustee without the prior consent of each holder of the corresponding Preferred
Securities. The Issuer Trustees shall not revoke any action previously
authorized or approved by a vote of the holders of such Preferred Securities
except by subsequent vote of the holders thereof. The Property Trustee shall
notify all holders of Preferred Securities of any notice received from the
Debenture Trustee as a result of the Issuer thereof being the holder of the
corresponding Debentures. In addition to obtaining the consent of the holders
of the Preferred Securities of the corresponding series, prior to taking any of
the foregoing actions, the Issuer Trustees shall obtain an opinion of counsel to
the effect that the related Issuer will not be classified as an association
taxable as a corporation or a partnership for Federal income tax purposes on
account of such action and will continue to be classified as a grantor trust for
Federal income tax purposes.

Any required consent of holders of Preferred Securities may be given at a
meeting of holders of such Preferred Securities convened for such purpose or
pursuant to written consent. The Property Trustee will 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 given to each holder of record of such Preferred Securities in the manner set
forth in the applicable Trust Agreement.

Notwithstanding that holders of Preferred Securities are entitled to vote
or consent under certain circumstances, any Preferred Securities that are owned
by PSE&G, the Issuer Trustees or any affiliate of PSE&G or any Issuer Trustee
shall, for purposes of such vote or consent, be treated as if they were not
outstanding.

Book-Entry-Only Issuance--The Depository Trust Company

The Depository Trust Company ("DTC") will act as securities depositary for
all of the Preferred Securities. The Preferred Securities will be issued only
as fully-registered securities registered in the name of Cede & Co. (DTC's
nominee) as the holder thereof. One or more fully-registered global securities
will be issued for the Preferred Securities of each Issuer, representing in the
aggregate the total number of such Issuer's Preferred Securities, and will be
deposited with DTC.

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

<PAGE>

physical movement of securities certificates. Direct participants include
securities brokers and dealers, banks, trust companies, clearing corporations
and certain other organizations ("Direct Participants"). DTC is owned by a
number of its Direct Participants and by the New York Stock Exchange, 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 through or
maintain custodial relationships with Direct Participants, either directly or
indirectly ("Indirect Participants"). The rules applicable to DTC and its
Participants are on file with the SEC.

Purchases of Preferred Securities within the DTC system must be made by or
through Direct Participants, which will receive a credit for the Preferred
Securities on DTC's records. The ownership interest of each actual purchaser of
each Preferred Security ("Beneficial Owner") is in turn to be recorded on the
Direct 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 Direct 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 on behalf of
Beneficial Owners. Beneficial Owners will not receive certificates representing
their ownership interests in Preferred Securities, except in the event that use
of the book-entry system for the Preferred Securities of such Issuer is
discontinued.

DTC has no knowledge of the actual Beneficial Owners of the Preferred
Securities; DTC's records reflect only the identity of the Direct Participants
to whose accounts such Preferred Securities are credited, which may or may not
be the Beneficial Owners. The Participants will remain responsible for keeping
account of their holdings on behalf of their customers.

Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct 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 shall be sent to Cede & Co. as the registered holder of
the Preferred Securities. If less than all of an Issuer's Preferred Securities
are being redeemed, DTC's practice is to determine by lot the amount of the
interest of each Direct Participant to be redeemed.

Although voting with respect to the Preferred Securities is limited to the
holders of record of the Preferred Securities, in those instances in which a
vote is required, neither DTC nor Cede & Co. will itself consent or vote with
respect to the Preferred Securities. Under its usual procedures, DTC would mail
an omnibus proxy (the "Omnibus Proxy") to the Property Trustee as soon as
possible after the record date. The Omnibus Proxy assigns Cede & Co.'s
consenting or voting rights to those Direct Participants to whose accounts such
Preferred Securities are credited on the record date (identified in a listing
attached to the Omnibus Proxy).

Distribution payments on the Preferred Securities will be made in
immediately available funds by the Property Trustee on behalf of the related
Issuer to DTC. DTC's practice is to credit Direct 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 to Beneficial Owners will be
governed by standing instructions and customary practices and will be the
responsibility of such Participant and not of DTC, the Property Trustee, the
Issuer of the relevant Preferred Securities or PSE&G, subject to any statutory
or regulatory requirements as may be in effect from time to time. Payment of
Distributions to DTC is the

<PAGE>

responsibility of the Property Trustee on behalf of the related Issuer,
disbursement of such payments to Direct Participants is the responsibility of
DTC, and disbursements of such payments to the Beneficial Owners is the
responsibility of the Direct and Indirect Participants.

DTC may discontinue providing its services as securities depositary with
respect to any series of Preferred Securities at any time by giving reasonable
notice to the Property Trustee and PSE&G. In the event that a successor
securities depositary is not obtained, definitive Preferred Security
certificates representing such Preferred Securities are required to be printed
and delivered. PSE&G, at its option, may decide to discontinue use of the
system of book-entry transfers through DTC (or a successor depositary) as a
result of such discontinuance or as a result of DTC's ineligibility to so act,
in which case definitive certificates for such Preferred Securities will be
issued. After a Trust Agreement Event of Default, the related Issuer will issue
definitive certificates for such Issuer's Preferred Securities. Upon
distribution of definitive Preferred Securities certificates, owners of such
Preferred Securities will become the registered holders of such Preferred
Securities.

The information set forth above concerning DTC and DTC's book-entry system
has been obtained from sources that the Issuers and PSE&G believe to be
accurate, but the Issuers and PSE&G assume no responsibility for the accuracy
thereof. Neither the Issuers nor PSE&G has any responsibility for the
performance by DTC or its Participants of their respective obligations as
described herein or under the rules and procedures governing their respective
operations.

In the event that the book-entry-only system is discontinued, the payment
of any Distribution, Redemption Price and Liquidation Distribution in respect of
a series of Preferred Securities will be payable in the manner described in the
accompanying Prospectus Supplement, and the following provisions would apply.
The Property Trustee shall keep the registration books for such Preferred
Securities at its corporate office. Such Preferred Securities may be
transferred or exchanged for one or more Preferred Securities upon surrender
thereof at the corporate office of the Property Trustee by the holders or their
duly authorized attorneys or legal representatives. Upon surrender of any
Preferred Securities to be transferred or exchanged, the Property Trustee shall
record the registration of transfer or exchange in the registration books and
shall deliver new Preferred Securities appropriately registered. The Property
Trustee shall not be required to register the transfer of any Preferred
Securities that have been called for redemption or on or after the Liquidation
Date. The Issuers and the Property Trustee shall be entitled to treat the
holders of the related Preferred Securities, as their names appear in the
registration books, as the owners of those Preferred Securities for all purposes
under the applicable Trust Agreement.

Information Concerning the Property Trustee

The Property Trustee is the sole Trustee under each Trust Agreement for
purposes of the Trust Indenture Act and shall have and be subject to all of the
duties and responsibilities specified with respect to an indenture trustee under
the Trust Indenture Act. The Property Trustee, other than during the occurrence
and continuance of a Trust Agreement Event of Default, undertakes to perform
only such duties as are specifically set forth in each Trust Agreement and, upon
a Trust Agreement Event of Default, must use the same degree of care and skill
in the exercise thereof as a prudent person would exercise or use in the conduct
of his or her own affairs. Subject to this provision, the Property Trustee is
under no obligation to exercise any of the powers vested in it by any Trust
Agreement at the request of any holder of Preferred Securities unless it is
offered reasonable security or indemnity against the costs, expenses and
liabilities that might be incurred thereby. If no Trust Agreement Event of
Default has occurred and is continuing, and the Property Trustee is required to
decide between

<PAGE>

alternative courses of action, construe ambiguous provisions in a Trust
Agreement or is unsure of the application of any provision of a Trust Agreement,
and the matter is not one on which holders of Preferred Securities are entitled
under such Trust Agreement to vote, then the Property Trustee shall take such
action as is directed by PSE&G and, if not so directed, may take such action as
it deems advisable and in the best interests of the holders of the corresponding
Trust Securities and will have no liability except for its own negligent action,
negligent failure to act or willful misconduct.

Miscellaneous

The Administrative Trustee is authorized and directed to conduct the
affairs of and to operate the Issuers in such a way that (i) no Issuer will be
deemed to be an "investment company" required to be registered under the
Investment Company Act or to be taxed as a corporation or partnership for
Federal income tax purposes, (ii) each Issuer will be classified as a grantor
trust for Federal income tax purposes and (iii) the Debentures held by such
Issuers will be treated as indebtedness of PSE&G for Federal income tax
purposes. In this connection, PSE&G and the Administrative Trustee are
authorized to take any action, not inconsistent with applicable law, the
applicable certificate of trust of the related Issuer or the applicable Trust
Agreement, that PSE&G and the Administrative Trustee determine in their
discretion to be necessary or desirable for such purposes, even if such action
adversely affects the interests of the holders of the corresponding Preferred
Securities.

Holders of the Preferred Securities have no preemptive or similar rights.

No Issuer may borrow money, issue debt, execute mortgages or pledge any of
its assets.

Except as otherwise provided in the Trust Agreements, any action requiring
the consent or vote of the Issuer Trustees shall be approved by the
Administrative Trustee.

Governing Law

The Trust Agreements will be governed by and construed in accordance with
the laws of the State of Delaware.

DESCRIPTION OF THE GUARANTEE

Each Guarantee will be executed and delivered by PSE&G concurrently with
the issuance by each Issuer of its Preferred Securities for the benefit of the
holders from time to time of such Preferred Securities. Each Guarantee will
comply with the requirements of the Trust Indenture Act and First Union National
Bank will act as indenture trustee (the "Guarantee Trustee") under each
Guarantee for the purposes of compliance with the Trust Indenture Act.
Reference under this caption to Preferred Securities means the Preferred
Securities to which a Guarantee relates. The Guarantee Trustee will hold each
Guarantee for the benefit of the holders of the related Issuer's Preferred
Securities.

General

PSE&G will irrevocably and unconditionally agree, to the extent set forth
in each Guarantee, to pay in full, to the holders of the related Issuer's
Preferred Securities, the Guarantee Payments (as defined below) (except to the
extent paid by or on behalf of such Issuer), as and when due, regardless of any
defense, right of set-off or counterclaim which such Issuer may have or assert.
The following payments, to the extent not paid by an Issuer (the "Guarantee
Payments"), will be subject to the applicable

<PAGE>

Guarantee (without duplication): (i) any accumulated and unpaid Distributions
required to be paid on such Preferred Securities, to the extent that such Issuer
has funds available therefor, (ii) the Redemption Price to the extent that such
Issuer has funds available therefor, and (iii) upon a voluntary or involuntary
termination or liquidation of such Issuer (unless the corresponding series of
Debentures are distributed to holders of such Preferred Securities), the lesser
of (a) the aggregate of the liquidation amount specified in the Prospectus
Supplement per Preferred Security plus all accumulated and unpaid Distributions
on the Preferred Securities to the date of payment, to the extent the Issuer has
funds available therefor and (b) the amount of assets of such Issuer remaining
available for distribution to holders of Preferred Securities upon a termination
and liquidation of such Issuer. PSE&G's obligation to make a Guarantee Payment
may be satisfied by direct payment of the required amounts by PSE&G to the
holders of the corresponding Preferred Securities or by causing the related
Issuer to pay such amounts to such holders. While the assets of PSE&G will not
be available pursuant to the Guarantee for the payment of any Distribution,
Liquidation Distribution or Redemption Price on any Preferred Securities if the
related Issuer does not have funds available therefor as described above, PSE&G
has agreed under the applicable Trust Agreement to pay all expenses of such
Issuer except such Issuer's obligations under its Preferred Securities.
Accordingly, the applicable Guarantee, together with the backup undertakings
consisting of PSE&G's obligations under the applicable Trust Agreement, the
corresponding series of Debentures and the Indenture, provide for PSE&G's full,
irrevocable and unconditional guarantee of the Preferred Securities.

No single document executed by PSE&G in connection with the issuance of a
series of Preferred Securities will provide for PSE&G's full, irrevocable and
unconditional guarantee of the Preferred Securities. It is only the combined
operation of PSE&G's obligations under the applicable Guarantee, the applicable
Trust Agreement, the corresponding series of Debentures and the Indenture that
has the effect of providing a full, irrevocable and unconditional guarantee of
the Issuer's obligations under the Preferred Securities. See "Relationship
Among the Preferred Securities, the Debentures and the Guarantee."

Status of the Guarantee

Each Guarantee will constitute an unsecured obligation of PSE&G and will
rank subordinate and junior in right of payment to all general liabilities of
PSE&G. The Trust Agreements provide that each holder of Preferred Securities by
acceptance thereof agrees to the subordination provisions and other terms of the
related Guarantee. Each Guarantee will rank pari passu with all other
Guarantees issued by PSE&G. Each Guarantee will constitute a guarantee of
payment and not of collection (i.e., the guaranteed party may institute a legal
proceeding directly against PSE&G to enforce its rights under the Guarantee
without first instituting a legal proceeding against any other person or
entity). Each Guarantee will not be discharged except by payment of the
Guarantee Payments in full to the extent not paid by the related Issuer or upon
distribution to the holders of the Preferred Securities of the corresponding
series of Debentures pursuant to the applicable Trust Agreement.

Amendments and Assignment

Except with respect to any changes which do not materially adversely affect
the rights of holders of the corresponding Preferred Securities (in which case
no consent of the holders will be required), no Guarantee may be amended without
the prior approval of the holders of at least a majority in aggregate
liquidation amount of such Preferred Securities (excluding any Preferred
Securities held by PSE&G or an affiliate thereof). The manner of obtaining any
such approval will be as set forth under "Description of the Preferred
Securities--Voting Rights; Amendment of Trust Agreement." All agreements

<PAGE>

contained in each Guarantee shall bind the successors, assigns, receivers,
trustees and representatives of PSE&G and shall inure to the benefit of the
holders of the corresponding Preferred Securities.

Guarantee Events of Default

An event of default under a Guarantee (a "Guarantee Event of Default") will
occur upon the failure of PSE&G to perform any of its payment or other
obligations thereunder, provided that except with respect to a Guarantee Event
of Default resulting from a failure to make any of the Guarantee Payments, PSE&G
shall have received notice of such Guarantee Event of Default from the Guarantee
Trustee and shall not have cured such Guarantee Event of Default within 60 days
after receipt of such notice. The holders of at least a majority in aggregate
liquidation amount of the corresponding Preferred Securities (excluding any
Preferred Securities held by PSE&G or an affiliate thereof) will have the right
to direct the time, method and place of conducting any proceeding for any remedy
available to the Guarantee Trustee in respect of such Guarantee or to direct the
exercise of any trust or power conferred upon the Guarantee Trustee under such
Guarantee.

If the Guarantee Trustee has failed to enforce the Guarantee, any holder of
the corresponding Preferred Securities may institute a legal proceeding directly
against PSE&G to enforce such holder's rights under such Guarantee without first
instituting a legal proceeding against the related Issuer, the Guarantee Trustee
or any other person or entity.

PSE&G, as guarantor, will be required to file annually with the Guarantee
Trustee a certificate as to whether or not PSE&G is in compliance with all the
conditions and covenants applicable to it under each Guarantee.

Information Concerning the Guarantee Trustee

The Guarantee Trustee, other than during the occurrence and continuance of
a Guarantee Event of Default, undertakes to perform only such duties as are
specifically set forth in each Guarantee and, upon a Guarantee Event of Default,
must exercise such of the rights and powers vested in it by the Guarantee and to
use the same degree of care and skill in the exercise thereof as a prudent
person would exercise or use in the conduct of his or her own affairs. Subject
to this provision, the Guarantee Trustee is under no obligation to exercise any
of the powers vested in it by any Guarantee at the request of any holder of
Preferred Securities unless it is offered reasonable security or indemnity
against the costs, expenses and liabilities that might be incurred thereby.

Termination of the Guarantee

Each Guarantee will terminate and be of no further force and effect upon
full payment of the Redemption Price or Liquidation Distribution for the
corresponding Preferred Securities or upon distribution of the corresponding
series of Debentures to the holders of the corresponding Preferred Securities.
Each Guarantee will continue to be effective or will be reinstated, as the case
may be, if at any time any holder of the corresponding Preferred Securities must
restore payment of any sums paid under such Preferred Securities or such
Guarantee.

Governing Law

Each Guarantee will be governed by and construed in accordance with the
laws of the State of New Jersey.

<PAGE>

DESCRIPTION OF THE DEBENTURES

General

The Debentures will be issued in one or more series under the Indenture.
Each series of Debentures will rank pari passu with all other series of
Debentures and the $154,639,176 aggregate principal amount of PSE&G's 9-3/8%
Deferrable Interest Subordinated Debentures, Series A and the $61,855,670
aggregate principal amount of PSE&G's 8% Deferrable Interest Subordinated
Debentures, Series B (together, the "MIPs Debentures"). Each series of
Debentures will be unsecured and will rank subordinate and junior in right of
payment, to the extent and in the manner set forth in the Indenture, to all
Senior Indebtedness (as defined below) of PSE&G. See "--Subordination." The
Indenture does not limit the incurrence or issuance of Senior Indebtedness by
PSE&G.

The accompanying Prospectus Supplement will describe the following terms of
any series of Debentures: (i) the title of such series of Debentures; (ii) the
aggregate principal amount of such series of Debentures; (iii) the date or dates
on which the principal of such series of Debentures shall be payable or the
method of determination thereof; (iv) the rate or rates, if any, at which such
series of Debentures shall bear interest, the interest payment dates on which
any such interest shall be payable or the method by which any of the foregoing
shall be determined; (v) any terms regarding redemption; (vi) the maximum
Extension Period for such series of Debentures; and (vii) any other terms of
such series of Debentures not inconsistent with the provisions of the Indenture.

Certain Federal income tax consequences and special considerations relating
to the applicable series of Debentures will be described in the accompanying
Prospectus Supplement.

Option to Extend Interest Payment Period

Under the Indenture, PSE&G shall have the right at any time and from time
to time, so long as no Debenture Event of Default has occurred and is continuing
with respect to such series of Debentures, to defer payments of interest by
extending the interest payment period for such series of Debentures for up to
the maximum Extension Period provided for such series of Debentures, provided
that no Extension Period shall extend beyond the maturity or any redemption date
of such series of Debentures. At the end of the Extension Period, PSE&G shall
be obligated to pay all interest then accrued and unpaid (together with interest
thereon to the extent permitted by applicable law). During any Extension
Period, PSE&G may not declare or pay any dividend on, or redeem, purchase,
acquire, or make a liquidation payment with respect to, any shares of PSE&G's
capital stock. Prior to the termination of any Extension Period, PSE&G may
shorten or further extend the interest payment period, provided that such
Extension Period, together with all such previous and further extensions
thereof, may not exceed the maximum Extension Period for such series of
Debentures or extend beyond the maturity or any redemption date of such series
of Debentures. Upon the termination of any Extension Period and the payment of
all amounts then due, PSE&G may elect to begin a new Extension Period, subject
to the above requirements. PSE&G shall be required to give notice to the
Debenture Trustee and cause the Debenture Trustee to give notice to the holders
of the applicable series of Debentures of its election to begin an Extension
Period, or any shortening or extension thereof, at least one Business Day prior
to the date the notice of the record or payment date of the related Distribution
on the corresponding series of Preferred Securities or payment of interest on
such Debentures is required to be given to any national securities exchange on
which such Debentures or such Preferred Securities are then listed or other
applicable self-regulatory organization but in any event not less than two
Business Days prior to such record date.

17
<PAGE>

If during any Extension Period PSE&G fails to pay dividends on any shares
of PSE&G's preferred stock for four consecutive quarterly periods, pursuant to
PSE&G's Restated Certificate of Incorporation, as amended, the holders of
PSE&G's preferred stock, voting separately as a single class, will be entitled
to elect a majority of PSE&G's Board of Directors. Such voting rights of the
holders of preferred stock to elect directors shall continue until all
accumulated and unpaid dividends thereon have been paid.

Subordination

All payments by PSE&G in respect of the Debentures shall be subordinated to
the prior payment in full of all amounts payable on Senior Indebtedness. The
term "Senior Indebtedness" means (i) the principal of and premium, if any, in
respect of (a) indebtedness of PSE&G for money borrowed and (b) indebtedness
evidenced by securities, debentures, bonds or other similar instruments issued
by PSE&G; (ii) all capital lease obligations of PSE&G; (iii) all obligations of
PSE&G issued or assumed as the deferred purchase price of property, all
conditional sale obligations of PSE&G and all obligations of PSE&G under any
title retention agreement (but excluding trade accounts payable arising in the
ordinary course of business); (iv) certain obligations of PSE&G for the
reimbursement of any obligation, any letter of credit, banker's acceptance,
security purchase facility or similar credit transaction entered into in the
ordinary course of business of PSE&G; (v) all obligations of the type referred
to in clauses (i) through (iv) of other persons and all dividends of other
persons (other than the Preferred Securities or similar securities) for the
payment of which, in either case, PSE&G is responsible or liable as obligor,
guarantor or otherwise (other than each Guarantee and obligations ranking pari
passu with such Guarantee); and (vi) certain obligations of the type referred to
in clauses (i) through (v) of other persons secured by any lien on any property
or asset of PSE&G (whether or not such obligation is assumed by PSE&G), except
for any such indebtedness that is by its terms subordinated to or pari passu
with the Debentures and for indebtedness between or among PSE&G and its
affiliates.

Upon any payment or distribution of assets or securities of PSE&G, upon any
dissolution or winding-up or total or partial liquidation or reorganization of
PSE&G, whether voluntary or involuntary, or in bankruptcy, insolvency,
receivership or other proceedings, all amounts payable on Senior Indebtedness
(including any interest accruing on such Senior Indebtedness subsequent to the
commencement of a bankruptcy, insolvency or similar proceeding) shall be paid in
full before the holders of the Debentures or the Debenture Trustee on behalf of
such holders shall be entitled to receive from PSE&G any payment of principal
of, premium, if any, or interest on, the Debentures or distributions of any
assets or securities.

No direct or indirect payment by or on behalf of PSE&G of principal of,
premium, if any, or interest on, the Debentures, whether pursuant to the terms
of the Debentures or upon acceleration or otherwise, shall be made if, at the
time of such payment, there exists (i) a default in the payment of all or any
portion of any Senior Indebtedness or (ii) any other default pursuant to which
the maturity of Senior Indebtedness has been accelerated and, in either case,
requisite notice has been given to the Debenture Trustee and such default shall
not have been cured or waived by or on behalf of the holders of such Senior
Indebtedness.

If the Debenture Trustee or any holder of the Debentures shall have
received any payment on account of the principal of, premium, if any, or
interest on, the Debentures when such payment is prohibited and before all
amounts payable on Senior Indebtedness are paid in full, then such payment shall
be received and held in trust for the holders of Senior Indebtedness and shall
be paid to the holders of the Senior Indebtedness remaining unpaid to the extent
necessary to pay such Senior Indebtedness in full.

<PAGE>

Nothing in the Indenture shall limit the right of the Debenture Trustee or
the holders of the Debentures to take any action to accelerate the maturity of
the Debentures or to pursue any rights or remedies against PSE&G, provided that
all Senior Indebtedness shall be paid before holders of the Debentures are
entitled to receive any payment from PSE&G of principal of, premium, if any, or
interest on, the Debentures.

Upon the payment in full of all Senior Indebtedness, the holders of the
Debentures shall be subrogated to the rights of the holders of such Senior
Indebtedness to receive payments or distributions of assets of PSE&G made on
such Senior Indebtedness until the Debentures shall be paid in full.

Certain Covenants of PSE&G

PSE&G will covenant that it may not declare or pay any dividend on, or
redeem, purchase, acquire or make a liquidation payment with respect to, any
shares of PSE&G's capital stock (i) during an Extension Period, (ii) if there
has occurred and is continuing any event that is, or, with the giving of notice
or the lapse of time or both would constitute, a Debenture Event of Default or
(iii) if PSE&G is in default with respect to its payment or other obligations
under any Guarantee. See "--Debenture Events of Default" and "Description of
the Guarantee--Guarantee Events of Default."

Any waiver of any Debenture Event of Default will require the approval of
at least a majority of the aggregate principal amount of the corresponding
series of Debentures or, if such Debentures are held by an Issuer, the approval
of at least a majority in aggregate liquidation amount of the Preferred
Securities of such Issuer; provided, however, that a Debenture Event of Default
resulting from the failure to pay the principal of, premium, if any, or interest
on, such Debentures may not be waived.

Modification of the Indenture

From time to time, PSE&G and the Debenture Trustee, without notice to or
the consent of any holders of Debentures, may amend or supplement the Indenture
for any of the following purposes: (i) to cure any ambiguity, defect or
inconsistency; (ii) to comply with the provisions of the Indenture regarding
consolidation, merger or sale, conveyance, transfer or lease of the properties
as an entirety or substantially as an entirety of PSE&G; (iii) to provide for
uncertificated Debentures in addition to or in place of certificated Debentures;
(iv) to make any other change that does not in the reasonable judgment of PSE&G
adversely affect the rights of any holder of the Debentures; (v) to comply with
any requirement of the SEC in connection with the qualification of the Indenture
under the Trust Indenture Act; or (vi) to set forth the terms and conditions,
which shall not be inconsistent with the Indenture, of any series of Debentures
and the form of Debentures of such series.

In addition, PSE&G and the Debenture Trustee may modify the Indenture or
any supplemental indenture or waive future compliance by PSE&G with the
provisions of the Indenture, with the consent of the holders of at least a
majority of the aggregate principal amount of the Debentures of each series
affected thereby, provided that no such modification, without the consent of
each holder of such Debentures, may (i) reduce the principal amount of such
Debentures, (ii) reduce the principal amount of outstanding Debentures of any
series the holders of which must consent to an amendment of the Indenture or a
waiver, (iii) change the stated maturity of the principal of, or interest on, or
the rate of interest on, such Debentures, (iv) change the redemption provisions
applicable to such Debentures adversely to the holders thereof, (v) impair the
right to institute suit for the enforcement of any payment with respect to such
Debentures, (vi) change the currency in which payments with respect to such
Debentures are to be made, or (vii) change the subordination provisions
applicable to such Debentures adversely to the holders thereof, provided that if
such

<PAGE>

Debentures are held by an Issuer, no amendment shall be made that adversely
affects the holders of the Preferred Securities of such Issuer, and no waiver of
any Debenture Event of Default with respect to such Debentures or compliance
with any covenant under the Indenture shall be effective, without the prior
consent of the holders of at least a majority of the aggregate liquidation
amount of the Preferred Securities of such Issuer or the holder of each such
Preferred Security, as applicable.

Debenture Events of Default

The following are "Debenture Events of Default" with respect to the
Debentures of any series: (i) default for 30 days in payment of any interest on
any Debenture of that series (other than the payment of interest during an
Extension Period); (ii) default in payment of principal of or premium, if any,
on any Debenture of that series when the same becomes due and payable; (iii)
default for 60 days after receipt by PSE&G of a "Notice of Default" in the
performance of or failure to comply with any other covenant or agreement for
such series of Debentures or in the Indenture or any supplemental indenture
under which such series of Debentures may have been issued or (iv) certain
events of bankruptcy, insolvency or reorganization of PSE&G. In case a
Debenture Event of Default has occurred and is continuing, other than one
relating to bankruptcy, insolvency or reorganization of PSE&G, in which case the
principal of, premium, if any, and any interest on, all of the Debentures of the
applicable series shall become immediately due and payable, the Debenture
Trustee or the holders at least 25% in aggregate principal amount of the
Debentures of that series may declare the principal, together with interest
accrued thereon, of all the Debentures of that series to be due and payable;
provided, however, that if a Debenture Event of Default has occurred and is
continuing with respect to such Debentures and the Debenture Trustee or the
holders of at least 25% in aggregate principal amount of such series of
Debentures fail to declare the principal of such series of Debentures to be
immediately due and payable, then, if such Debentures are held by an Issuer, the
holders of at least 25% in aggregate liquidation amount of the corresponding
Preferred Securities shall have such right by written notice to PSE&G and the
Debenture Trustee. The holders of at least a majority in aggregate principal
amount of such series of Debentures, by notice to the Debenture Trustee, may
rescind an acceleration, provided that if the principal of such Debentures has
been declared due and payable by the holders of the corresponding Preferred
Securities, no rescission of such acceleration will be effective unless
consented to by the holders of at least a majority in aggregate liquidation
amount of the corresponding Preferred Securities.

PSE&G will be required to furnish to the Debenture Trustee annually a
statement as to the compliance by PSE&G with all conditions and covenants under
the Indenture and the Debentures and as to any Debenture Event of Default.

Consolidation, Merger, Sale or Conveyance

PSE&G may not consolidate with or merge with or into any other person or
sell, convey, transfer or lease its properties and assets as an entirety or
substantially as an entirety to any person, unless (i) the successor person
shall be organized and existing under the laws of the United States or any state
thereof or the District of Columbia and shall expressly assume by a supplemental
indenture all of the obligations of PSE&G under the Debentures and the
Indenture; (ii) immediately after giving effect to such transaction, no
Debenture Event of Default, and no event which after notice or lapse of time or
both would become a Debenture Event of Default, has occurred and is continuing;
and (iii) certain other conditions prescribed in the Indenture are met.

20
<PAGE>

Defeasance and Discharge

Under the terms of the Indenture, PSE&G will be discharged from any and all
obligations in respect of the Debentures of any series if PSE&G deposits with
the Debenture Trustee, in trust, (i) cash and/or (ii) United States Government
Obligations (as defined in the Indenture), which through the payment of interest
thereon and principal thereof in accordance with their terms will provide cash
in an amount sufficient to pay all the principal of, premium, if any, and
interest on, the Debentures of such series on the dates such payments are due in
accordance with the terms of such Debentures.

Information Concerning the Debenture Trustee

Subject to the provisions of the Indenture relating to its duties, the
Debenture Trustee will be under no obligation to exercise any of its rights or
powers under the Indenture at the request, order or direction of the holders of
any series of Debentures or the holders of the corresponding Preferred
Securities, unless such holders shall have offered to the Debenture Trustee
reasonable security and indemnity. Subject to such provision for
indemnification, the holders of at least a majority in aggregate principal
amount of any series of Debentures affected or the holders of at least a
majority in aggregate liquidation amount of the corresponding Preferred
Securities (with each such series voting as a class), as applicable, will have
the right to direct the time, method and place of conducting any proceeding for
any remedy available to the Debenture Trustee with respect to such series of
Debentures or exercising any trust or power conferred on the Debenture Trustee.

The Indenture will contain limitations on the right of the Debenture
Trustee, as a creditor of PSE&G, to obtain payment of claims in certain cases,
or to realize on certain property received in respect of any such claim as
security or otherwise. In addition, the Debenture Trustee may be deemed to have
a conflicting interest and may be required to resign as Debenture Trustee if at
the time of a Debenture Event of Default (i) it is a creditor of PSE&G or (ii)
there is a default under the indenture executed in 1924 referred to below.

First Union National Bank is the Trustee under PSE&G's Indenture dated
August 1, 1924, with respect to PSE&G's First and Refunding Mortgage Bonds and
PSE&G's Indenture dated as of November 1, 1994, as supplemented, with respect to
the MIPs Debentures. PSE&G also maintains other normal banking relationships
with First Union National Bank.

Governing Law

The Indenture will be governed by and construed in accordance with the laws
of the State of New Jersey.

RELATIONSHIP AMONG THE PREFERRED SECURITIES,
THE DEBENTURES AND THE GUARANTEE

Payments of Distributions and redemption and liquidation payments due on a
series of Preferred Securities (to the extent the Issuer thereof has funds
available for such payments) will be guaranteed by PSE&G as and to the extent
set forth under "Description of the Guarantee." No single document executed by
PSE&G in connection with the issuance of a series of Preferred Securities will
provide for PSE&G's full, irrevocable and unconditional guarantee of the
Preferred Securities. It is only the combined operation PSE&G's obligations
under the applicable Guarantee, the applicable Trust Agreement, the
corresponding series of Debentures and the Indenture that has

<PAGE>

the effect of providing a full, irrevocable and unconditional guarantee of each
Issuer's obligations under its Preferred Securities.

If the Guarantee Trustee has failed to enforce any Guarantee, a holder of
any corresponding Preferred Security may institute a legal proceeding directly
against PSE&G to enforce its rights under such Guarantee without first
instituting a legal proceeding against the Guarantee Trustee, the related Issuer
or any other person or entity.

As long as PSE&G makes payments of interest and other payments when due on
a series of Debentures, such payments will be sufficient to cover the payment of
Distributions and redemption and liquidation payments due on the corresponding
Preferred Securities, primarily because (i) the aggregate principal amount of
such series of Debentures will be equal to the sum of the aggregate liquidation
amount of the corresponding Preferred Securities and Common Securities, (ii) the
interest rate and interest and other payment dates on such series of Debentures
will match the Distribution rate and Distribution and other payment dates for
the corresponding Preferred Securities, (iii) the applicable Trust Agreement
provides that PSE&G shall pay for all and any costs, expenses and liabilities of
the Issuer of such Preferred Securities except such Issuer's obligations under
such Preferred Securities, and (iv) the applicable Trust Agreements provide that
no Issuer will engage in any activity that is not consistent with the limited
purposes of such Issuer. If and to the extent that PSE&G does not make payments
on any series of Debentures, such Issuer will not have funds available to make
payments of Distributions or other amounts due on the corresponding Preferred
Securities.

A principal difference between the rights of a holder of a Preferred
Security (which represents an undivided beneficial interest in the assets of the
Issuer thereof) and a holder of a Debenture is that a holder of a Debenture will
accrue, and (subject to the permissible extension of the interest payment
period) is entitled to receive, interest on the principal amount of Debentures
held, while a holder of Preferred Securities is entitled to receive
Distributions only if and to the extent such Issuer has funds available for the
payment of such Distributions.

Upon any voluntary or involuntary termination or liquidation of any Issuer
not involving a distribution of any series of Debentures, the holders of the
corresponding Preferred Securities will be entitled to receive, out of assets
held by such Issuer, the Liquidation Distribution in cash. See "Description of
the Preferred Securities--Liquidation Distribution Upon Termination." Upon any
voluntary liquidation or bankruptcy of PSE&G, each Trust, as holder of the
Debentures, would be a creditor of PSE&G, subordinated in right of payment to
all Senior Indebtedness, but entitled to receive payment in full of principal,
premium, if any, and interest, before any stockholders of PSE&G receive payments
or distributions. Since PSE&G will be the guarantor under each Guarantee and
has agreed to pay for all costs, expenses and liabilities of each Issuer (other
than an Issuer's obligations to the holders of its Preferred Securities), the
positions of a holder of such Preferred Securities and a holder of such
Debentures relative to other creditors and to stockholders of PSE&G in the event
of liquidation or bankruptcy of PSE&G would be substantially the same.

A default or event of default under any Senior Indebtedness would not
constitute a Debenture Event of Default. However, in the event of payment
defaults under, or acceleration of, Senior Indebtedness, the subordination
provisions of the Debentures provide that no payments may be made in respect of
the Debentures until such Senior Indebtedness has been paid in full or any
payment default thereunder has been cured or waived. Failure to make required
payments on any series of Debentures would constitute a Debenture Event of
Default.

22
<PAGE>

PROPOSED TAX LAW CHANGES

On December 7, 1995, President Clinton proposed certain tax law changes
that would, among other things, generally deny interest deductions to corporate
issuers if the debt instrument has a term exceeding 20 years and is not
reflected as indebtedness on such issuer's consolidated balance sheet. However,
on March 29, 1996, the Chairmen of the Senate Finance Committee and the House
Ways and Means Committee issued a joint statement to the effect that it was
their intention that the effective date of the President's legislative
proposals, if adopted, will be not earlier than the date of appropriate
Congressional action. The term of each series of Debentures may vary and may
exceed 20 years. PSE&G cannot predict what effect, if any, the proposals
discussed above will have on any series of Debentures; however, if such
proposals are adopted, PSE&G would not be able to deduct interest paid on such
Debentures which could, depending on the specific terms of such Debentures and
the corresponding series of Preferred Securities, give rise to the right of
PSE&G to redeem such Debentures and thereby cause a mandatory redemption of the
corresponding series of Preferred Securities. Federal income tax information and
consequences and redemption provisions, if any, relating to each series of
Debentures and corresponding series of Preferred Securities will be discussed as
applicable in the accompanying Prospectus Supplement.

PLAN OF DISTRIBUTION

The Issuers may offer or sell Preferred Securities offered hereby to one or
more underwriters for public offering and sale by them. The Issuers may sell
Preferred Securities as soon as practicable after effectiveness of the
Registration Statement. Any such underwriter involved in the offer and sale of
the Preferred Securities will be named in an accompanying Prospectus Supplement.

Underwriters may offer and sell the Preferred Securities at a fixed price
or prices, which may be changed, or from time to time at market prices
prevailing at the time of sale, at prices relating to such prevailing market
prices or at negotiated prices. In connection with the sale of Preferred
Securities, underwriters may be deemed to have received compensation from PSE&G
in the form of underwriting discounts or commissions and may also receive
commissions. Underwriters may sell Preferred Securities to or through dealers,
and such dealers may receive compensation in the form of discounts, concessions
or commissions from such underwriters.

Any underwriting compensation paid by PSE&G on behalf of the Issuers to
underwriters in connection with the offering of Preferred Securities, and any
discounts, concessions or commissions allowed by underwriters to participating
dealers, will be set forth in an accompanying Prospectus Supplement.
Underwriters and dealers participating in the distribution of the Preferred
Securities may be deemed to be underwriters, and any discounts and commissions
received by them and any profit realized by them on resale of the Preferred
Securities may be deemed to be underwriting discounts and commissions, under the
Securities Act of 1933, as amended (the "Securities Act"). Underwriters and
dealers may be entitled, under agreement with PSE&G and the Issuers, to
indemnification against and contribution toward certain civil liabilities,
including liabilities under the Securities Act, and to reimbursement by PSE&G
for certain expenses.

Underwriters and dealers may engage in transactions with, or perform
services for, PSE&G and/or any of its affiliates in the ordinary course of
business.

Each series of Preferred Securities will be a new issue of securities and
will have no established trading market. Any underwriters to whom Preferred
Securities are sold by the Issuers for public offering and sale may make a
market in such Preferred Securities but such underwriters will not be obligated
to do so and may discontinue any market making at any time without notice. The
Preferred Securities may or may not be listed on a national securities exchange.
No assurance can be given as to the liquidity of or the existence of trading
markets for any Preferred Securities.

LEGAL MATTERS

Certain legal matters will be passed upon for PSE&G by R. Edwin Selover,
Esquire, Senior Vice President and General Counsel of PSE&G or James T. Foran,
Esquire, General Corporate Counsel of PSE&G and by Ballard Spahr Andrews &
Ingersoll, Philadelphia, Pennsylvania, special tax counsel to PSE&G and the
Issuers, and by Richards, Layton & Finger, special Delaware counsel to PSE&G and
the Issuers, and for the underwriters by Brown & Wood, New York, New York, who
may rely on the opinion of Mr. Selover or Mr. Foran as to matters of New Jersey
law. R. Edwin Selover, Esquire or James T. Foran, Esquire and Brown & Wood may
rely on the opinion of Ballard Spahr Andrews & Ingersoll as to matters of
Pennsylvania law and on the opinion of Richards, Layton & Finger as to matters
of Delaware law.

<PAGE>

EXPERTS

The consolidated financial statements and related financial statement
schedules of PSE&G incorporated by reference in this Prospectus have been
audited by Deloitte & Touche LLP, independent auditors, for the periods
indicated in their report thereon which is included in the Annual Report on Form
10-K for the year ended December 31, 1995. The consolidated financial
statements and related financial statement schedules audited by Deloitte &
Touche LLP have been incorporated herein by reference in reliance on their
report given on their authority as experts in accounting and auditing.

<PAGE>

============================== ===================================

__________ Preferred Securities
No person has been
authorized to give any PSE&G Capital Trust I
information or to make any
representations other than _____% Cumulative Quarterly
those contained in this Income Preferred
Prospectus Supplement or the Securities, Series A
Prospectus and, if given or
made, such information or guaranteed to the extent
representations must not be PSE&G Capital Trust I has available
relied upon as having been funds
authorized. This Prospectus as set forth herein by
Supplement and the Prospectus
do not constitute an offer to PUBLIC SERVICE ELECTRIC
sell or the solicitation of AND GAS COMPANY
any offer to buy any
securities other than the
securities described in this
Prospectus Supplement and the
Prospectus or an offer to sell
or the solicitation of an
offer to buy such securities
in any circumstances in which
such offer or solicitation is
unlawful. Neither the
delivery of this Prospectus
Supplement or the Prospectus
nor any sale made hereunder or
thereunder shall, under any
circumstances, create any
implication that the
information contained herein
or therein is correct as of
any time subsequent to the
date of such information.

________________

TABLE OF CONTENTS
Page [LOGO] PSE&G
----
______________________________
Prospectus Supplement

PROSPECTUS SUPPLEMENT
Risk Factors . . . . . . 3
PSE&G Capital Trust I . . 6 ______________________________
Public Service Electric and
Gas Company . . . . . . . 7
Use of Proceeds . . . . . 8
Capitalization . . . . . 8
Certain Terms of the Series
A Preferred

Securities . . . . . . . 9
Certain Terms of the Series A
Debentures . . . . . . . 12
United States Taxation . 13
Underwriting . . . . . . 16
Goldman, Sachs & Co.
Prospectus Dean Witter Reynolds Inc.
Lehman Brothers
Statement of Available Morgan Stanley & Co.
Information . . . . . . . 2
Incorporation of Certain Incorporated
Documents by Merrill Lynch & Co.
Reference . . . . . . . 2 PaineWebber Incorporated
The Issuers . . . . . . . 3 Prudential Securities Incorporated
Public Service Electric and Smith Barney Inc.
Gas Company . . . . . . . 4
Use of Proceeds . . . . . 4 Representatives of the Underwriters
Description of the Preferred
Securities . . . . . . . 4
Description of the Guarantee 14
Description of the Debentures 16
Relationship among the
Preferred Securities,
the Debentures and the
Guarantee . . . . . . . . 21
Proposed Tax Law Changes. 22
Plan of Distribution . . 22
Legal Matters . . . . . . 23
Experts . . . . . . . . . 23

============================== =============================================

<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 16. Exhibits

Exhibit
Numbers
- -------

1 Form of Underwriting Agreement.*
3-1 Certificate of Trust for PSE&G Capital Trust I.*
3-2 Certificate of Trust for PSE&G Capital Trust II.*
3-3 Certificate of Trust for PSE&G Capital Trust III.*
3-4 Trust Agreement for PSE&G Capital Trust I.*
3-5 Trust Agreement for PSE&G Capital Trust II.*
3-6 Trust Agreement for PSE&G Capital Trust III.*
3-7 Form of Amended and Restated Trust Agreement for PSE&G Capital Trust
I.
3-8 Form of Amended and Restated Trust Agreement for PSE&G Capital Trust
II.
3-9 Form of Amended and Restated Trust Agreement for PSE&G Capital Trust
III.
4-1 Form of Preferred Security Certificate for PSE&G Capital Trust I,
PSE&G Capital Trust II and PSE&G Capital Trust III (included in
Exhibit 3-7).
4-2 Form of Deferrable Interest Subordinated Debenture (included in
Exhibit 4-3).
4-3 Form of Deferrable Interest Subordinated Debenture Indenture.
4-4 Form of Deferrable Interest Subordinated Debenture Supplemental
Indenture.*
4-5 Form of Guarantee Agreement for PSE&G Capital Trust I.
4-6 Form of Guarantee Agreement for PSE&G Capital Trust II.
4-7 Form of Guarantee Agreement for PSE&G Capital Trust III.
5-1 Opinion of James T. Foran, Esquire relating to the legality of the
Debentures and the Guarantees, including consent.*
5-2 Opinion of Richards, Layton & Finger, special Delaware counsel,
relating to the legality of the Preferred Securities of PSE&G Capital
Trust I, including consent.*
5-3 Opinion of Richards, Layton & Finger, special Delaware counsel,
relating to the legality of the Preferred Securities of PSE&G Capital
Trust II, including consent.*
5-4 Opinion of Richards, Layton & Finger, special Delaware counsel,
relating to the legality of the Preferred Securities of PSE&G Capital
Trust III, including consent.*
8 Opinion of Ballard Spahr Andrews & Ingersoll, special tax counsel, as
to tax matters, including consent.*
12-1 Computations of Ratios of Earnings to Fixed Charges (incorporated by
reference to PSE&G's Annual Report on Form 10-K for the year ended
December 31, 1995, File No. 1-9120).*
12-2 Computations of Ratios of Earnings to Combined Fixed Charges plus
Preferred Securities Dividend Requirements (incorporated by reference
to PSE&G's Annual Report on Form 10-K for the year ended December 31,
1995, File No. 1-9120).*
23-1 Consent of Independent Auditors.*
23-2 Consent of James T. Foran, Esquire (included in Exhibit 5-1).*
23-3 Consent of Richards, Layton & Finger (included in Exhibits 5-2, 5-3
and 5-4).*
23-4 Consent of Ballard Spahr Andrews & Ingersoll (included in Exhibit 8).*
24 Power of Attorney.
25-1 Statement of Eligibility under the Trust Indenture Act of 1939 of
First Union National Bank, as Indenture Trustee under the Deferrable
Interest Subordinated Debenture Indenture and Deferrable Interest
Subordinated Debenture Supplemental Indenture.*

<PAGE>

25-2 Statement of Eligibility under the Trust Indenture Act of 1939 of
First Union National Bank, as Property Trustee under the Amended and
Restated Trust Agreement for PSE&G Capital Trust I.*
25-3 Statement of Eligibility under the Trust Indenture Act of 1939 of
First Union National Bank, as Property Trustee under the Amended and
Restated Trust Agreement for PSE&G Capital Trust II.*
25-4 Statement of Eligibility under the Trust Indenture Act of 1939 of
First Union National Bank, as Property Trustee under the Amended and
Restated Trust Agreement for PSE&G Capital Trust III.*
25-5 Statement of Eligibility under the Trust Indenture Act of 1939 of
First Union National Bank, as Guarantee Trustee under the Guarantee
Agreement for PSE&G Capital Trust I.*
25-6 Statement of Eligibility under the Trust Indenture Act of 1939 of
First Union National Bank, as Guarantee Trustee under the Guarantee
Agreement for PSE&G Capital Trust II.*
25-7 Statement of Eligibility under the Trust Indenture Act of 1939 of
First Union National Bank, as Guarantee Trustee under the Guarantee
Agreement for PSE&G Capital Trust III.*

____________________
* Previously filed as an Exhibit (with the same exhibit number) to
Registration Statement No. 333-2763.

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the
registrants, PSE&G Capital Trust I, PSE&G Capital Trust II and PSE&G Capital
Trust III each certifies that it has reasonable grounds to believe it meets all
of the requirements for filing on Form S-3 and has duly caused this Amendment
No. 1 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Newark, State of New
Jersey, on this 4th day of June, 1996.

PSE&G Capital Trust I
By: Public Service Electric and Gas Company,
as Sponsor

By: /s/ E. James Ferland
----------------------------------------
E. James Ferland
Chairman of the Board
and Chief Executive Officer

PSE&G Capital Trust II
By: Public Service Electric and Gas Company,
as Sponsor

By: /s/ E. James Ferland
----------------------------------------
E. James Ferland
Chairman of the Board
and Chief Executive Officer

PSE&G Capital Trust III
By: Public Service Electric and Gas Company,
as Sponsor

By: /s/ E. James Ferland
----------------------------------------
E. James Ferland
Chairman of the Board
and Chief Executive Officer

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the
registrant, Public Service Electric and Gas Company, certifies that it has
reasonable grounds to believe it meets all of the requirements for filing on
Form S-3 and has duly caused this Amendment No. 1 to the Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized in the
City of Newark, State of New Jersey, on this 4th day of June, 1996.

Public Service Electric and Gas Company

By: /s/ E. James Ferland
------------------------------------------
E. James Ferland
Chairman of the Board and
Chief Executive Officer

<PAGE>

Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to the Registration Statement has been signed by the following
persons in the capacities and on the date indicated.

Signature Title Date
--------- ----- ----

/s/ E. James Ferland Chairman of the June 4, 1996
------------------- Board and Chief
E. James Ferland Executive Officer
and Director
(Principal
Executive Officer)

/s/ Robert C. Murray Senior Vice June 4, 1996
------------------- President and
Robert C. Murray Chief Financial
Officer (Principal
Financial Officer)

/s/ Patricia A. Rado Vice President and June 4, 1996
------------------- Controller (Principal
Patricia A. Rado Accounting Officer)

This Amendment No. 1 to the Registration Statement has also been
signed by Robert C. Murray, Attorney-in-Fact, on behalf of the following
Directors on June 4, 1996.

Lawrence R. Codey James C. Pitney
Raymond V. Gilmartin Forrest J. Remick
Irwin Lerner

By: /s/ Robert C. Murray
--------------------------------
Robert C. Murray
Attorney-in-Fact

<PAGE>

EXHIBIT INDEX
-------------

Exhibit
Numbers DESCRIPTION
- ------- -----------

1 Form of Underwriting Agreement.*
3-1 Certificate of Trust for PSE&G Capital Trust I.*
3-2 Certificate of Trust for PSE&G Capital Trust II.*
3-3 Certificate of Trust for PSE&G Capital Trust III.*
3-4 Trust Agreement for PSE&G Capital Trust I.*
3-5 Trust Agreement for PSE&G Capital Trust II.*
3-6 Trust Agreement for PSE&G Capital Trust III.*
3-7 Form of Amended and Restated Trust Agreement for PSE&G Capital Trust
I.
3-8 Form of Amended and Restated Trust Agreement for PSE&G Capital Trust
II.
3-9 Form of Amended and Restated Trust Agreement for PSE&G Capital Trust
III.
4-1(a) Form of Preferred Security Certificate for PSE&G Capital Trust I
(included in Exhibit 3-7).
4-1(b) Form of Preferred Security Certificate for PSE&G Capital Trust II
(included in Exhibit 3-8).
4-1(c) Form of Preferred Security Certificate for PSE&G Capital Trust III
(included in Exhibit 3-9).
4-2 Form of Deferrable Interest Subordinated Debenture (included in
Exhibit 4-3).
4-3 Form of Deferrable Interest Subordinated Debenture Indenture.
4-4 Form of Deferrable Interest Subordinated Debenture Supplemental
Indenture.*
4-5 Form of Guarantee Agreement for PSE&G Capital Trust I.
4-6 Form of Guarantee Agreement for PSE&G Capital Trust II.
4-7 Form of Guarantee Agreement for PSE&G Capital Trust III.
5-1 Opinion of James T. Foran, Esquire relating to the legality of the
Debentures and the Guarantees, including consent.*
5-2 Opinion of Richards, Layton & Finger, special Delaware counsel,
relating to the legality of the Preferred Securities of PSE&G Capital
Trust I, including consent.*
5-3 Opinion of Richards, Layton & Finger, special Delaware counsel,
relating to the legality of the Preferred Securities of PSE&G Capital
Trust II, including consent.*
5-4 Opinion of Richards, Layton & Finger, special Delaware counsel,
relating to the legality of the Preferred Securities of PSE&G Capital
Trust III, including consent.*
8 Opinion of Ballard Spahr Andrews & Ingersoll, special tax counsel, as
to tax matters, including consent.*
12-1 Computations of Ratios of Earnings to Fixed Charges (incorporated by
reference to Exhibit 12-1 to PSE&G's Annual Report on Form 10-K for
the year ended December 31, 1995 and Quarterly Report on Form 10-Q for
the quarter ended March 31, 1996, File No. 1-9120).
12-2 Computations of Ratios of Earnings to Combined Fixed Charges plus
Preferred Securities Dividend Requirements (incorporated by reference
to Exhibit 12-2 to PSE&G's Annual Report on Form 10-K for the year
ended December 31, 1995, and Quarterly Report on Form 10-Q for the
quarter ended March 31, 1996, File No. 1-9120).
23-1 Consent of Independent Auditors.*
23-2 Consent of James T. Foran, Esquire (included in Exhibit 5-1).*
23-3 Consent of Richards, Layton & Finger (included in Exhibits 5-2, 5-3
and 5-4).*
23-4 Consent of Ballard Spahr Andrews & Ingersoll (included in Exhibit 8).*
24 Power of Attorney.
25-1 Statement of Eligibility under the Trust Indenture Act of 1939 of
First Union National Bank, as Indenture Trustee under the Deferrable
Interest Subordinated Debenture Indenture and Deferrable Interest
Subordinated Debenture Supplemental Indenture.*

<PAGE>

____________________
* Previously filed as an Exhibit (with the same exhibit number) to
Registration Statement No. 333-2763.

Exhibit 3-7

Amended and Restated
Trust Agreement for PSE&G Capital Trust I

among

PUBLIC SERVICE ELECTRIC AND GAS COMPANY
(as Depositor)

FIRST UNION NATIONAL BANK
(as Property Trustee)

FIRST UNION BANK OF DELAWARE
(as Delaware Trustee)

and

THE ADMINISTRATIVE TRUSTEE NAMED HEREIN

Dated as of
June __, 1996

<PAGE>

TABLE OF CONTENTS

Page
----

ARTICLE I

Defined Terms

Section 1.01. Definitions . . . . . . . . . . . . . . . . . . . . . . 2

ARTICLE II

Continuation of the Trust

Section 2.04. Issuance of the Trust Securities . . . . . . . . . . . . 11
Section 2.05. Purchase of Debentures . . . . . . . . . . . . . . . . . 11
Section 2.06. Declaration of Trust . . . . . . . . . . . . . . . . . . 11
Section 2.07. Authorization to Enter into Certain
Transactions . . . . . . . . . . . . . . . . . . . . . . 12
Section 2.08. Assets of Trust . . . . . . . . . . . . . . . . . . . . 15
Section 2.09. Title to Trust Property . . . . . . . . . . . . . . . . 15

ARTICLE III

Payment Account

Section 3.01. Payment Account . . . . . . . . . . . . . . . . . . . . 16

ARTICLE IV

Distributions; Redemption

Section 4.01. Distributions . . . . . . . . . . . . . . . . . . . . . 16
Section 4.02. Redemption . . . . . . . . . . . . . . . . . . . . . . . 17
Section 4.03. Subordination of Common Securities . . . . . . . . . . . 19
Section 4.04. Payment Procedures . . . . . . . . . . . . . . . . . . . 20
Section 4.05. Tax Returns and Reports . . . . . . . . . . . . . . . . 20

ARTICLE V

Trust Securities Certificates

Section 5.01. Initial Ownership . . . . . . . . . . . . . . . . . . . 21
Section 5.02. The Trust Securities Certificates . . . . . . . . . . . 21

Section 5.03. Delivery of Trust Securities Certificates . . . . . . . 21
Section 5.04. Registration of Transfer and Exchange of

(i)

<PAGE>

Page
----

Preferred Securities Certificates . . . . . . . . . . . 22
Section 5.05. Mutilated, Destroyed, Lost or Stolen Trust
Securities Certificates . . . . . . . . . . . . . . . . 23

Section 5.06. Persons Deemed Securityholders . . . . . . . . . . . . . 23
Section 5.07. Access to List of Securityholders' Names and
Addresses . . . . . . . . . . . . . . . . . . . . . . . 23
Section 5.08. Maintenance of Office or Agency . . . . . . . . . . . . 24
Section 5.09. Appointment of Paying Agent . . . . . . . . . . . . . . 24
Section 5.10. No Transfer of Common Securities by Depositor . . . . . 25
Section 5.11. Book-Entry Preferred Securities Certificates;
Common Securities Certificate . . . . . . . . . . . . . 25
Section 5.12. Definitive Preferred Securities Certificates . . . . . . 25

Section 5.13. Rights of Securityholders . . . . . . . . . . . . . . . 26

ARTICLE VI

Acts of Securityholders; Meetings; Voting

Section 6.01. Limitations on Voting Rights . . . . . . . . . . . . . . 26
Section 6.02. Notice of Meetings . . . . . . . . . . . . . . . . . . . 27

Section 6.03. Meetings of Preferred Securityholders . . . . . . . . . 28
Section 6.04. Voting Rights . . . . . . . . . . . . . . . . . . . . . 28
Section 6.05. Proxies, etc. . . . . . . . . . . . . . . . . . . . . . 28
Section 6.06. Securityholder Action by Written Consent . . . . . . . . 28
Section 6.07. Record Date for Voting and Other Purposes . . . . . . . 29

Section 6.08. Acts of Securityholders . . . . . . . . . . . . . . . . 29
Section 6.09. Inspection of Records . . . . . . . . . . . . . . . . . 30

ARTICLE VII

The Trustees

Section 7.04. Not Responsible for Recitals or Issuance of
Securities . . . . . . . . . . . . . . . . . . . . . . . 33
Section 7.05. May Hold Securities . . . . . . . . . . . . . . . . . . 33
Section 7.06. Compensation; Indemnity; Fees . . . . . . . . . . . . . 33
Section 7.07. Corporate Property Trustee Required; Eligibility
of Trustees . . . . . . . . . . . . . . . . . . . . . . 34
Section 7.08. Conflicting Interests . . . . . . . . . . . . . . . . . 35
Section 7.09. Co-Trustees and Separate Trustee . . . . . . . . . . . . 35
Section 7.10. Resignation and Removal; Appointment of
Successor . . . . . . . . . . . . . . . . . . . . . . . 37
Section 7.11. Acceptance of Appointment by Successor . . . . . . . . . 38
Section 7.12. Merger, Conversion, Consolidation or Succession
to Business . . . . . . . . . . . . . . . . . . . . . . 39

(ii)

<PAGE>

Page
----

Section 7.13. Preferential Collection of Claims Against
Depositor or Trust . . . . . . . . . . . . . . . . . . . 39
Section 7.14. Reports by Property Trustee . . . . . . . . . . . . . . 39
Section 7.15. Reports to the Property Trustee . . . . . . . . . . . . 40
Section 7.16. Evidence of Compliance with Conditions
Precedent . . . . . . . . . . . . . . . . . . . . . . . 40
Section 7.17. Statements Required in Officer's Certificate
and Opinion of Counsel . . . . . . . . . . . . . . . . . 40
Section 7.18. Number of Trustees . . . . . . . . . . . . . . . . . . . 41

Section 7.19. Delegation of Power . . . . . . . . . . . . . . . . . . 41
Section 7.20. Voting . . . . . . . . . . . . . . . . . . . . . . . . . 41

ARTICLE VIII

Termination and Liquidation

Section 8.01. Termination Upon Expiration Date . . . . . . . . . . . . 42
Section 8.02. Early Termination . . . . . . . . . . . . . . . . . . . 42
Section 8.03. Termination . . . . . . . . . . . . . . . . . . . . . . 42
Section 8.04. Liquidation . . . . . . . . . . . . . . . . . . . . . . 42

ARTICLE IX

Mergers, Etc.

Section 9.01. Mergers, Consolidations, Amalgamations or
Replacements of the Trust . . . . . . . . . . . . . . . 44

ARTICLE X

Miscellaneous Provisions

Section 10.09. Agreement Not to Petition . . . . . . . . . . . . . . . 49
Section 10.10. Trust Indenture Act; Conflict with Trust
Indenture Act . . . . . . . . . . . . . . . . . . . . . 49
Section 10.11. Acceptance of Terms of Trust Agreement,
Guarantee and Indenture . . . . . . . . . . . . . . . . 49

(iii)

<PAGE>

Page
----

PSE&G Capital Trust I

Certain Sections of this Trust Agreement relating to
Sections 310 through 318 of the
Trust Indenture Act of 1939

Trust Indenture Trust Agreement
Act Section Section
- --------------- ---------------

Sec. 310(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.07
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.07
(a)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.09
(a)(4) . . . . . . . . . . . . . . . . . . . . . . . . . . 2.07(a)(ii)
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.08
Sec. 311(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.13
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.13
Sec. 312(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.07
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.07
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.07
Sec. 313(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.14
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.14
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.14
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.14
Sec. 314(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.15
(b) . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
(c)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.16, 7.17
(c)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.16, 7.17
(c)(3) . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
(d) . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.17
Sec. 315(a) . . . . . . . . . . . . . . . . . . . . . . . . 7.01(a), 7.03(a)
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.02, 10.08
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.01(a)
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.01, 7.03
(e) . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
Sec. 316(a) . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
(a)(1)(A) . . . . . . . . . . . . . . . . . . . . . . Not Applicable
(a)(1)(B) . . . . . . . . . . . . . . . . . . . . . . Not Applicable
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
(b) . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
(c) . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
Sec. 317(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.09
Sec. 318(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.10

__________________
Note: This reconciliation and tie sheet shall not, for any
purpose, be deemed to be a part of the Trust Agreement.

(iv)

<PAGE>

AMENDED AND RESTATED TRUST AGREEMENT of PSE&G Capital Trust I
(the "Trust"), dated as of June __, 1996, among (i) Public Service Electric
and Gas Company, a New Jersey corporation (the "Depositor"), (ii) First
Union National Bank, a national banking association, as trustee (the
"Property Trustee"), (iii) First Union Bank of Delaware, a
_________________, whose address in Delaware is 1225 King Street,
Wilmington, Delaware 19801, as Delaware trustee (the "Delaware Trustee"),
(iv) Fred F. Saunders, an individual whose address is c/o Public Service
Electric and Gas Company, 80 Park Plaza, P.O. Box 570, Newark, New Jersey
07101 (the "Administrative Trustee") (the Property Trustee, the Delaware
Trustee and the Administrative Trustee are referred to collectively as the
"Trustees"), and (v) the several Holders, as hereinafter defined.

WITNESSETH:

WHEREAS, the Depositor, the Property Trustee, the Delaware
Trustee and the Administrative Trustee have heretofore duly declared and
established a business trust pursuant to the Delaware Business Trust Act by
entering into a Trust Agreement, dated as of April 19, 1996 (the "Original
Trust Agreement"), and by executing and filing with the Secretary of State
of the State of Delaware a Certificate of Trust on April 19, 1996, a form
of which is attached hereto as Exhibit A; and

WHEREAS, the Depositor, the Property Trustee, the Delaware
Trustee and the Administrative Trustee desire to amend and restate the
Original Trust Agreement in its entirety as set forth herein to provide
for, among other things, (i) the issuance of the Common Securities, as
hereinafter defined, by the Trust to the Depositor, (ii) the issuance and
sale of the Preferred Securities, as hereinafter defined, by the Trust
pursuant to the Underwriting Agreement, as hereinafter defined, and (iii)
the acquisition by the Trust from the Depositor of the Debentures, as
hereinafter defined.

NOW, THEREFORE, in consideration of the agreements and
obligations set forth herein and for other good and valuable consideration,
the sufficiency of which is hereby acknowledged, each party, for the
benefit of the other party and for the benefit of the Securityholders, as
hereinafter defined, hereby amends and restates the Original Trust
Agreement in its entirety and agrees as follows:

<PAGE>

ARTICLE I

Defined Terms

Section 1.01. Definitions. For all purposes of this Trust
-----------
Agreement, except as otherwise expressly provided or unless the context
otherwise requires:

(a) each term defined in this Article I has the meaning
assigned to it in this Article I and includes the plural as well as
the singular;

(b) each of the other terms used herein that is defined in
the Trust Indenture Act, either directly or by reference therein, has
the meaning assigned to it therein;

(c) unless the context otherwise requires, any reference to
an "Article" or a "Section" refers to an Article or a Section, as the
case may be, of this Trust Agreement; and

(d) the words "herein", "hereof" and "hereunder" and other
words of similar import refer to this Trust Agreement as a whole and
not to any particular Article, Section or other subdivision.

"Act" has the meaning specified in Section 6.08.
---

"Administrative Trustee" means the individual identified as the
----------------------
"Administrative Trustee" in the preamble to this Trust Agreement, solely in
his/her capacity as Administrative Trustee of the Trust created and
continued hereunder and not in his/her individual capacity, or such
Administrative Trustee's successor in interest in such capacity, or any
successor trustee appointed as herein provided.

"Affiliate" of any specified Person means any other Person
---------
directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person. For the purposes of
this definition, "control" when used with respect to any specified Person
means the power to direct the management and policies of such Person,
directly or indirectly, whether through the ownership of voting securities,
by contract or otherwise; and the terms "controlling" and "controlled" have
meanings correlative to the foregoing.

"Bankruptcy Event" means, with respect to any Person, the
----------------
occurrence of any of the following events:

(a) Such Person, pursuant to or within the meaning of any
Bankruptcy Law:

<PAGE>

(i) commences a voluntary case or proceeding;

(ii) consents to the entry of an order for relief
against it in an involuntary case or proceeding;

(iii) consents to the appointment of a Custodian, as
hereinafter defined, of it or for all or
substantially all of its property, and such
Custodian is not discharged within 60 days;

(iv) makes a general assignment for the benefit of its
creditors; or

(v) admits in writing its inability to pay its debts
generally as they become due; or

(b) A court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:

(i) is for relief against such Person in an
involuntary case or proceeding;

(ii) appoints a Custodian of such Person for all or
substantially all of its properties;

(iii) orders the liquidation of such Person;

(iv) and in each case the order or decree remains
unstayed and in effect for 60 days.

"Bankruptcy Laws" means Title 11 of the United States Code, or
---------------
similar federal or state law for the relief of debtors. "Custodian" means
any receiver, trustee, assignee, liquidator, sequestrator, custodian or
similar official under any Bankruptcy Law.

"Board Resolution" means (i) a copy of a resolution certified by
----------------
the Secretary or an Assistant Secretary of the Depositor to have been duly
adopted by the Depositor's Board of Directors or a committee established
thereby and to be in full force and effect on the date of such
certification or (ii) a certificate signed by the authorized officer or
officers of the Depositor to whom the Depositor's Board of Directors or a
committee established thereby has delegated its authority, and in each
case, delivered to the Trustees.

<PAGE>

"Book-Entry Preferred Securities Certificates" means certificates
--------------------------------------------
representing Preferred Securities issued in global, fully registered form
with the Clearing Agency as described in Section 5.11.

"Business Day" means a day other than (a) a Saturday or Sunday,
------------
or (b) a day on which banking institutions in The City of New York or the
State of New Jersey are required by law or executive order to remain
closed.

"Certificate Depository Agreement" means the agreement among the
--------------------------------
Trust, the Property Trustee and The Depository Trust Company, as the
initial Clearing Agency, dated as of the Closing Date, relating to the
Book-Entry Preferred Securities Certificates, substantially in the form
attached hereto as Exhibit B, as the same may be amended and supplemented
from time to time.

"Clearing Agency" means an organization registered as a "clearing
---------------
agency" pursuant to Section 17A of the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder. The
Depository Trust Company will be the initial Clearing Agency.

"Closing Date" means the Time of Delivery as defined in the
------------
Underwriting Agreement, which date is also the date of execution and
delivery of this Trust Agreement.

"Code" means the Internal Revenue Code of 1986, as amended.
----

"Commission" means the Securities and Exchange Commission, as
----------
from time to time constituted, created under the Securities Exchange Act of
1934, as amended, or, if at any time after the execution of this Trust
Agreement 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.

"Common Security" means an undivided beneficial interest in the
---------------
assets of the Trust, having a Liquidation Amount of $25 and having the
rights provided therefor in this Trust Agreement, including the right to
receive Distributions and a Liquidation Distribution as provided herein.

"Common Securities Certificate" means a certificate evidencing
-----------------------------
ownership of Common Securities, substantially in the form attached hereto
as Exhibit C.

"Corporate Trust Office" means the principal corporate trust
----------------------
office of the Property Trustee located in the State of New

<PAGE>

Jersey which at the date hereof is 765 Broad Street, Newark, New Jersey
07107.

"Creditor" has the meaning specified in Section 2.03.
--------

"Debenture Event of Default" means an "Event of Default" as
--------------------------
defined in the Indenture with respect to the Debentures.

"Debenture Redemption Date" means "Redemption Date" as defined in
-------------------------
the Indenture with respect to the Debentures.

"Debenture Trustee" means First Union National Bank, a national
-----------------
banking association, in its capacity as trustee under the Indenture, or any
successor thereto, appointed in accordance with the terms and provisions of
the Indenture.

"Debentures" means the Depositor's _____% Deferrable Interest
----------
Subordinated Debentures, Series A, issued pursuant to the Indenture.

"Definitive Preferred Securities Certificates" means certificates
--------------------------------------------
representing Preferred Securities issued in certificated, fully registered
form as described in Section 5.12.

"Delaware Business Trust Act" means Chapter 38 of Title 12 of the
---------------------------
Delaware Code, 12 Del. C. Sec. 3801, et seq., as it may be amended from time
to time.

"Delaware Trustee" means the entity identified as the "Delaware
----------------
Trustee" in the preamble to this Trust Agreement solely in its capacity as
Delaware Trustee of the Trust created and continued hereunder and not in
its individual capacity, or its successor in interest in such capacity, or
any successor trustee appointed as herein provided.

"Depositor" has the meaning specified in the preamble to this
---------
Trust Agreement.

"Distribution Date" has the meaning specified in Section 4.01(a).
-----------------

"Distributions" means amounts payable in respect of the Trust
-------------
Securities as provided in Section 4.01.

"Event of Default" means the occurrence of a Debenture Event of
----------------
Default (whatever the reason for such Event of Default and whether it shall
be voluntary or involuntary or be effected by operation of law or pursuant
to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body).

<PAGE>

"Expiration Date" has the meaning specified in Section 8.01.
---------------

"Extension Period" means the period or periods in which pursuant
----------------
to the Indenture payments of interest on the Debentures are deferred by
extending the interest payment periods thereof.

"Guarantee" means the Guarantee Agreement executed and delivered
---------
by the Depositor to First Union National Bank, a national banking
association, as trustee thereunder, contemporaneously with the execution
and delivery of this Trust Agreement, for the benefit of the Holders of the
Preferred Securities, as amended from time to time.

"Indenture" means the Indenture, dated as of June 1, 1996,
---------
between the Depositor and the Debenture Trustee, as trustee thereunder, as
amended or supplemented from time to time.

"Lien" means any lien, pledge, charge, encumbrance, mortgage,
----
deed of trust, adverse ownership interest, hypothecation, assignment,
security interest or preference, priority or other security agreement or
preferential arrangement of any kind or nature whatsoever.

"Like Amount" means (a) with respect to a redemption of Trust
-----------
Securities, Trust Securities having an aggregate Liquidation Amount equal
to the principal amount of Debentures to be repaid in accordance with the
Indenture and (b) with respect to a distribution of Debentures to Holders
of Trust Securities in connection with a termination and liquidation of the
Trust, Debentures having a principal amount equal to the aggregate
Liquidation Amount of the Trust Securities in exchange for which such
Debentures are distributed.

"Liquidation Amount" means the stated amount of $25 per Trust
------------------
Security.

"Liquidation Date" means the date on which Debentures are to be
----------------
distributed to Holders of Trust Securities in connection with a termination
and liquidation of the Trust pursuant to Section 8.04(a).

"Liquidation Distribution" has the meaning specified in Section
------------------------
8.04(d).

"1940 Act" means the Investment Company Act of 1940, as amended.
--------

"Officers' Certificate" means a certificate signed by the
---------------------
Chairman, the President, any Vice President, the Treasurer, any

<PAGE>

Assistant Treasurer, the Secretary or any Assistant Secretary of the
Depositor.

"Opinion of Counsel" means a written opinion of counsel, who may
------------------
be counsel for the Trust, the Property Trustee or the Depositor or an
Affiliate of the Depositor, but not an employee of any thereof, and who
shall be acceptable to the Property Trustee.

"Original Trust Agreement" has the meaning specified in the
------------------------
recitals to this Trust Agreement.

"Outstanding", when used with respect to Trust Securities, means,
-----------
as of the date of determination, all Trust Securities theretofore executed
and delivered under this Trust Agreement, except:

(a) Trust Securities theretofore cancelled by the
Administrative Trustee or delivered to the Administrative Trustee for
cancellation;

(b) Trust Securities for whose redemption money in the
necessary amount has been theretofore deposited with the Property
Trustee or any Paying Agent for the Holders of such Trust Securities;
provided that, if such Trust Securities are to be redeemed, notice of
--------
such redemption has been duly given pursuant to this Trust Agreement;

(c) Trust Securities which have been paid or in exchange
for or in lieu of which other Trust Securities have been executed and
delivered pursuant to Section 5.05, other than any such Trust
Securities in respect of which there shall have been presented to the
Property Trustee proof satisfactory to it that such Trust Securities
are held by a bona fide purchaser; and

(d) as provided in Section 8.04(c);

provided, however, that in determining whether the Holders of the requisite
- -------- -------
Liquidation Amount of the Outstanding Preferred Securities have given any
request, demand, authorization, direction, notice, consent or waiver
hereunder, Preferred Securities owned by the Depositor, any Trustee or any
Affiliate of the Depositor or any Trustee shall be disregarded and deemed
not to be Outstanding, except that (a) in determining whether any Trustee
shall be protected in relying upon any such request, demand, authorization,
direction, notice, consent or waiver, only Preferred Securities which such
Trustee actually knows to be so owned shall be so disregarded and (b) the
foregoing shall not apply at any time when all of the Outstanding Preferred
Securities are owned by the Depositor, one or more of the Trustees and/or
any such Affiliate. Preferred Securities so owned which have been pledged
in good faith

<PAGE>

may be regarded as Outstanding if the pledgee establishes to the
satisfaction of the Administrative Trustee the pledgee's right so to act
with respect to such Preferred Securities and that the pledgee is not the
Depositor or any Affiliate of the Depositor.

"Paying Agent" means the Property Trustee and any co-paying agent
------------
appointed pursuant to Section 5.09.

"Payment Account" means a segregated non-interest-bearing
---------------
corporate trust account maintained by the Property Trustee in its trust
department for the benefit of the Securityholders in which all amounts paid
to the Property Trustee in respect of the Debentures or the Guarantee will
be held and from which the Property Trustee or such other Paying Agent
shall make payments to the Securityholders in accordance with Article 4.

"Person" means any individual, corporation, partnership, limited
------
liability company, joint venture, association, joint-stock company, trust,
unincorporated organization, government or any agency or political
subdivision thereof or any other entity.

"Preferred Security" means a __% Cumulative Quarterly Income
------------------
Preferred Security, Series A issued by the Trust, and having an undivided
beneficial interest in the assets of the Trust, having a Liquidation Amount
of $25 and having rights provided therefor in this Trust Agreement,
including the right to receive Distributions and a Liquidation Distribution
as provided herein.

"Preferred Securities Certificate" means a certificate evidencing
--------------------------------
ownership of one or more Preferred Securities, substantially in the form
attached hereto as Exhibit D.

"Property Trustee" means the commercial bank or trust company
----------------
identified as the "Property Trustee" in the preamble to this Trust
Agreement solely in its capacity as Property Trustee of the Trust
heretofore created and continued hereunder and not in its individual
capacity, or its successor in interest in such capacity, or any successor
property trustee appointed as herein provided.

"Redemption Date" means, with respect to any Trust Security to be
---------------
redeemed, the date fixed for such redemption by or pursuant to this Trust
Agreement; provided that each Debenture Redemption Date and the stated
--------
maturity of the Debentures shall be a Redemption Date for a Like Amount of
Trust Securities.

"Redemption Price" means, with respect to any Trust Security, the
----------------
Liquidation Amount of such Trust Security, plus accumulated and unpaid
Distributions thereon to the Redemption Date.

<PAGE>

"Securities Register" and "Securities Registrar" have the
------------------- --------------------
respective meanings specified in Section 5.04.

"Securityholder" or "Holder" means a Person in whose name a Trust
-------------- ------
Security or Securities is registered in the Securities Register; any such
Person is a beneficial owner within the meaning of the Delaware Business
Trust Act.

"Successor Securities" has the meaning specified in Section 8.05.
--------------------

"Trust" means the Delaware business trust created and continued
-----
hereby and identified on the cover page to this Trust Agreement.

"Trust Agreement" means this Amended and Restated Trust
---------------
Agreement, as the same may be modified, amended or supplemented in
accordance with the applicable provisions hereof, including all exhibits
hereto, including, for all purposes of this Trust Agreement and any such
modification, amendment or supplement, the provisions of the Trust
Indenture Act that are deemed to be a part of and govern this Trust
Agreement and any such modification, amendment or supplement, respectively.

"Trust Indenture Act" means the Trust Indenture Act of 1939 as in
-------------------
force at the date as of which this Trust Agreement was executed; provided,
--------
however, that in the event the Trust Indenture Act of 1939 is amended after
- -------
such date, "Trust Indenture Act" means, to the extent required by any such
amendment, the Trust Indenture Act of 1939 as so amended.

"Trust Property" means (a) the Debentures, (b) any cash on
--------------
deposit in, or owing to, the Payment Account and (c) all proceeds and
rights in respect of the foregoing and any other property and assets for
the time being held or deemed to be held by the Property Trustee pursuant
to the trusts of this Trust Agreement.

"Trust Security" means any one of the Common Securities or the
--------------
Preferred Securities.

"Trust Securities Certificate" means any one of the Common
----------------------------
Securities Certificates or the Preferred Securities Certificates.

"Underwriting Agreement" means the Underwriting Agreement, dated
----------------------
June __, 1996, among the Trust, the Depositor and the Underwriters named
therein.

<PAGE>

ARTICLE II

Continuation of the Trust

Section 2.01. Name. The Trust created and continued hereby
----
shall be known as "PSE&G Capital Trust I" as such name may be modified from
time to time by the Administrative Trustee following written notice to the
Holders of Trust Securities and the other Trustees, in which name the
Trustees may conduct the business of the Trust, make and execute contracts
and other instruments on behalf of the Trust and sue and be sued.

Section 2.02. Office of the Delaware Trustee; Principal Place of
--------------------------------------------------
Business. The address of the Delaware Trustee in the State of Delaware is
- --------
1225 King Street, Wilmington, Delaware 19801 or such other address in the
State of Delaware as the Delaware Trustee may designate by written notice
to the Securityholders and the Depositor. The principal place of business
of the Trust is 80 Park Plaza, Newark, New Jersey 07101.

Section 2.03. Initial Contribution of Trust Property; Expenses
------------------------------------------------
of the Trust.
- ------------

(a) The Property Trustee acknowledges receipt in trust from the
Depositor in connection with the Original Trust Agreement of the sum of
$10, which constituted the initial Trust Property.
(b) The Depositor shall be responsible for and shall pay for all
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 of the Trust, the issuance and sale
of the Preferred Securities, the fees and expenses (including reasonable
counsel fees and expenses) of the Trustees as provided in Section 7.06, the
costs and expenses of accountants, attorneys, statistical or bookkeeping
services, expenses for printing and engraving and computing or accounting
equipment, Paying Agent(s), Securities Registrar, duplication, travel and
telephone and other telecommunications expenses and costs and expenses
incurred in connection with the disposition of Trust assets).

(c) The Depositor will 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.

(d) The Depositor's obligations under this Section 2.03 shall be
for the benefit of, and shall be enforceable by, the Property Trustee and
any Person to whom any such obligations, costs, expenses and taxes are owed
(a "Creditor") whether or not such Creditor has received notice hereof.
The Property Trustee and

<PAGE>

any such Creditor may enforce the Depositor's obligations under this
Section 2.03 directly against the Depositor and the Depositor irrevocably
waives any right or remedy to require that the Property Trustee or any such
Creditor take any action against the Trust or any other Person before
proceeding against the Depositor. The Depositor agrees to execute such
additional agreements as may be necessary or desirable in order to give
full effect to the provisions of this Section 2.03.

(e) The Depositor shall make no claim upon the Trust Property
for the payment of such expenses.

Section 2.04. Issuance of the Trust Securities. The Depositor,
--------------------------------
on behalf of the Trust and pursuant to the Original Trust Agreement,
executed and delivered the Underwriting Agreement. Contemporaneously with
the execution and delivery of this Trust Agreement, the Administrative
Trustee, on behalf of the Trust, shall execute in accordance with Section
5.02 and deliver to the Underwriters named in the Underwriting Agreement
one or more Book-Entry Preferred Securities Certificates, registered in the
name of the nominee of the initial Clearing Agency, representing ______
Preferred Securities having an aggregate Liquidation Amount of $__________,
against receipt by the Property Trustee of the aggregate purchase price of
such Preferred Securities of $__________, which amount the Administrative
Trustee shall promptly deliver to the Property Trustee. Contemporaneously
therewith, the Administrative Trustee, on behalf of the Trust, shall
execute in accordance with Section 5.02 and deliver to the Depositor a
Common Securities Certificate, registered in the name of the Depositor,
representing _____ Common Securities having an aggregate Liquidation Amount
of $__________, and in satisfaction of the purchase price of such Common
Securities the Depositor shall deliver to the Property Trustee the sum of
$__________.

Section 2.05. Purchase of Debentures. Contemporaneously with
----------------------
the execution and delivery of this Trust Agreement (i) the Administrative
Trustee, on behalf of the Trust, shall purchase $__________ aggregate
principal amount of Debentures from the Depositor, registered in the name
of the Trust and (ii) in satisfaction of the purchase price for such
Debentures, the Property Trustee, on behalf of the Trust, shall deliver to
the Depositor the sum of $__________.

Section 2.06. Declaration of Trust. The exclusive purposes and
--------------------
functions of the Trust are (a) to issue and sell Trust Securities and use
the proceeds from such sale to acquire the Debentures, (b) to maintain the
status of the Trust as a grantor trust for United States Federal income tax
purposes, and (c) except as otherwise limited herein, to engage in only
those activities necessary, convenient or incidental thereto. The
Depositor hereby appoints the Trustees as trustees of the Trust, to have
all the

<PAGE>

rights, powers and duties to the extent set forth herein, and the Trustees
hereby accept such appointment. The Property Trustee hereby declares that
it will hold the Trust Property in trust upon and subject to the conditions
set forth herein for the benefit of the Securityholders. The
Administrative Trustee shall have all rights, powers and duties set forth
herein. 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 Property Trustee or the Administrative Trustee set forth herein.
The Delaware Trustee shall be one of the Trustees of the Trust for the sole
and limited purpose of fulfilling the requirements of Section 3807 of the
Delaware Business Trust Act.

Section 2.07. Authorization to Enter into Certain Transactions.
------------------------------------------------

(a) The Trustees shall conduct the affairs of the Trust in
accordance with the terms of this Trust Agreement. Subject to the
limitations set forth in paragraph (b) of this Section, and in accordance
with the following provisions (i) and (ii), the Trustees shall have the
authority to enter into all transactions and agreements determined by the
Trustees to be appropriate in exercising the authority, express or implied,
otherwise granted to the Trustees under this Trust Agreement, and to
perform all acts in furtherance thereof, including without limitation, the
following:

(i) As among the Trustees, the Administrative Trustee
shall have the power and authority to act on behalf of the Trust with
respect to the following matters:

(A) executing and delivering the Trust Securities on
behalf of the Trust;

(B) causing the Trust to enter into, and executing,
delivering and performing on behalf of the Trust, the Certificate
Depository Agreement and such other agreements as may be necessary or
desirable in connection with the purposes and function of the Trust,
including the appointment of a successor depositary;

(C) assisting in registering the Preferred Securities
under the Securities Act of 1933, as amended, and under state securities or
blue sky laws, and qualifying this Trust Agreement as a trust indenture
under the Trust Indenture Act;

(D) assisting in the listing of the Preferred
Securities upon such securities exchange or exchanges as the Depositor
shall determine and the registration of the Preferred Securities under the
Securities Exchange Act of 1934, as amended, and the preparation and filing
of all periodic and other reports and other documents pursuant to the
foregoing;

<PAGE>

(E) to the extent provided in this Trust Agreement,
terminating and liquidating the Trust and preparing, executing and filing
the certificate of cancellation with the Secretary of State of the State of
Delaware;

(F) sending notices or assisting the Property Trustee
in sending notices and other information regarding the Trust Securities and
the Debentures to Securityholders in accordance with this Trust Agreement;
and

(G) taking any action incidental to the foregoing as
the Administrative Trustee may from time to time determine is necessary or
advisable to give effect to the terms of this Trust Agreement for the
benefit of the Securityholders (without consideration of the effect of any
such action on any particular Securityholder).

(ii) As among the Trustees, the Property Trustee shall
have the power, duty and authority to act on behalf of the Trust with
respect to the following matters:

(A) establishing and maintaining the Payment Account
and appointing Paying Agents (subject to Section 5.09);

(B) receiving payment of the purchase price of the
Trust Securities;

(D) collecting interest, premium, if any, and
principal payments on the Debentures and depositing them in the Payment
Account;

(E) making Distributions and other payments to the
Securityholders in respect of the Trust Securities;

(F) exercising all of the rights, powers and
privileges of a holder of the Debentures;

(G) sending notices of defaults, redemptions,
Extension Periods, liquidations and other information regarding the Trust
Securities and the Debentures to the Securityholders in accordance with
this Trust Agreement;

(H) to the extent provided in this Trust Agreement,
terminating and liquidating the Trust, including distributing the Trust
Property in accordance with the terms of this Trust Agreement, and
preparing, executing and filing the certificate of cancellation with the
Secretary of State of the State of Delaware;

<PAGE>

(I) after an Event of Default, taking any action
incidental to the foregoing as the Property Trustee may from time to time
determine is necessary or advisable to give effect to the terms of this
Trust Agreement and protect and conserve the Trust Property for the benefit
of the Securityholders (without consideration of the effect of any such
action on any particular Securityholder); and

(J) registering transfers and exchanges of the
Preferred Securities in accordance with this Trust Agreement (but only if
at such time the Property Trustee shall be the Securities Registrar).

(b) So long as this Trust Agreement remains in effect, the Trust
(or the Trustees acting on behalf of the Trust) shall not undertake any
business, activities or transaction except as expressly provided herein or
contemplated hereby. In particular, the Trustees acting on behalf of the
Trust shall not (i) acquire any assets or investments (other than the
Debentures), reinvest the proceeds derived from investments, possess any
power or otherwise act in such a way as to vary the Trust Property or
engage in any activities not authorized by this Trust Agreement, (ii) sell,
assign, transfer, exchange, mortgage, pledge, set-off or otherwise dispose
of any of the Trust Property or interests therein, including to
Securityholders, except as expressly provided herein, (iii) take any action
that would cause the Trust to fail or cease to qualify as a grantor trust
for United States Federal income tax purposes, (iv) incur any indebtedness
for borrowed money or issue any other debt, (v) issue any securities or
other evidences of beneficial ownership of, or beneficial interests in, the
Trust other than the Trust Securities, or (vi) take or consent to any
action that would result in the placement of a Lien on any of the Trust
Property. The Administrative Trustee shall defend all claims and demands
of all Persons at any time claiming any Lien on any of the Trust Property
adverse to the interest of the Trust or the Securityholders in their
capacity as Securityholders.

(c) In connection with the issue and sale of the Preferred
Securities, the Depositor shall have the right and responsibility to assist
the Trust with respect to, or effect on behalf of the Trust, the following
(and any actions taken by the Depositor in furtherance of the following
prior to the date of this Trust Agreement are hereby ratified and confirmed
in all respects):

(i) preparing for filing with the Commission and
executing on behalf of the Trust a registration statement on Form S-3 in
relation to the Preferred Securities, including any amendments thereto;
(ii) determining the States in which to take appropriate
action to qualify or register for sale all or part of

<PAGE>

the Preferred Securities and doing any and all such acts, other than
actions which must be taken by or on behalf of the Trust, and advising the
Trustees of actions they must take on behalf of the Trust, and preparing
for execution and filing any documents to be executed and filed by the
Trust or on behalf of the Trust, as the Depositor deems necessary or
advisable in order to comply with the applicable laws of any such States;

(iii) preparing for filing and executing on behalf of the
Trust an application to the New York Stock Exchange or any other national
stock exchange or The Nasdaq National Market for listing upon notice of
issuance of any Preferred Securities;

(iv) preparing for filing with the Commission and
executing on behalf of the Trust a registration statement on Form 8-A
relating to the registration of the Preferred Securities under Section
12(b) or 12(g) of the Securities Exchange Act of 1934, as amended,
including any amendments thereto;

(v) negotiating the terms of, and executing and
delivering, the Underwriting Agreement providing for the sale of the
Preferred Securities; and

(vi) taking any other actions necessary or desirable to
carry out any of the foregoing activities.

(d) Notwithstanding anything herein to the contrary, the
Administrative Trustee is authorized and directed to conduct the affairs of
the Trust and to operate the Trust so that (i) the Trust will not be deemed
to be an "investment company" required to be registered under the 1940 Act,
or taxed as a corporation or a partnership for United States Federal income
tax purposes (ii) the Trust will qualify as a grantor trust for United
States Federal income tax purposes and (iii) the Debentures will be treated
as indebtedness of the Depositor for United States Federal income tax
purposes. In this connection, the Depositor and the Administrative Trustee
are authorized to take any action, not inconsistent with applicable law,
the Certificate of Trust, as amended from time to time, or this Trust
Agreement, that each of the Depositor and the Administrative Trustee
determines in their discretion to be necessary or desirable for such
purposes.

Section 2.08. Assets of Trust. The assets of the Trust shall
---------------
consist of the Trust Property.

Section 2.09. Title to Trust Property. Legal title to all Trust
-----------------------
Property shall be vested at all times in the Property Trustee (in its
capacity as such) and shall be held and administered by the Property
Trustee for the benefit of the Securityholders in accordance with this
Trust Agreement.

<PAGE>

ARTICLE III

Payment Account

Section 3.01. Payment Account.
---------------

(a) On or prior to the Closing Date, the Property Trustee shall
establish the Payment Account. All monies and other property deposited or
held from time to time in the Payment Account shall be held by the Property
Trustee for the exclusive benefit of the Securityholders. The Property
Trustee shall have exclusive control of the Payment Account for the purpose
of making deposits in and withdrawals from the Payment Account in
accordance with this Trust Agreement; provided that any Paying Agent shall
have the right of withdrawal with respect to the Payment Account solely for
the purpose of making the payments contemplated under Article 4.

(b) The Property Trustee shall deposit in the Payment Account,
promptly upon receipt, all payments of principal of or premium, if any, or
interest on the Debentures and any amounts paid to the Property Trustee
pursuant to the Guarantee. Amounts held in the Payment Account shall not
be invested pending distribution thereof.

ARTICLE IV

Distributions; Redemption

Section 4.01. Distributions.
-------------

(a) Distributions on the Trust Securities shall be cumulative,
and will accumulate whether or not there are funds of the Trust available
for the payment of Distributions. Distributions shall accumulate from
June __, 1996 and, except during an Extension Period for the Debentures
pursuant to the Indenture, shall be payable quarterly in arrears on
March 31, June 30, September 30 and December 31 of each year, commencing on
June 30, 1996. If any date on which Distributions are otherwise payable on
the Trust Securities is not a Business Day, then the payment of such
Distributions shall be made on the next succeeding day which 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, payment of such Distributions shall be made on the
immediately preceding Business Day, in each case with the same force and
effect as if made on such date (each date on which Distributions are
payable in accordance with this Section 4.01(a) is referred to as a
"Distribution Date").

<PAGE>

Within two Business Days after receipt by the Property Trustee of
notice of an Extension Period pursuant to Section 4.01 of the Indenture,
the Property Trustee shall give notice thereof to the Securityholders by
first class mail, postage prepaid.

(b) The Trust Securities represent undivided beneficial
interests in the Trust Property, and, subject to Sections 4.03 and 4.06
hereof, all Distributions will be made pro rata on each of the Trust
Securities. Distributions on the Trust Securities shall be payable at a
rate of _____% per annum of the Liquidation Amount of the Trust Securities.
The amount of Distributions payable for any full quarterly period shall be
computed on the basis of a 360-day year of twelve 30-day months and, for
any period shorter than a full month, shall be computed on the basis of the
actual number of days elapsed in such period. During an Extension Period
for the Debentures, the rate per annum at which Distributions on the Trust
Securities accumulate shall be increased by an amount such that the
aggregate amount of Distributions that accumulate on all Trust Securities
during any such Extension Period is equal to the aggregate amount of
interest (including interest payable on unpaid interest at the rate per
annum set forth above, compounded quarterly) that accrues during any such
Extension Period on the Debentures.

(c) Distributions on the Trust Securities shall be made from the
Payment Account by the Property Trustee or any Paying Agent and shall be
payable on each Distribution Date only to the extent that the Trust has
funds then available in the Payment Account for the payment of such
Distributions.

(d) Distributions on the Trust Securities on each Distribution
Date shall be payable to the Holders thereof as they appear on the
Securities Register for the Trust Securities on the relevant record date,
which shall be one Business Day prior to such Distribution Date; provided,
--------
however, that in the event that the Preferred Securities are not in
- -------
book-entry-only form, the relevant record date shall be the 15th day of the
last month of each calendar quarter, whether or not a Business Day.

Section 4.02. Redemption.
----------

(a) Upon receipt by the Trust of a notice of redemption of
Debentures, the Trust will call for redemption a Like Amount of Trust
Securities at the Redemption Price on the Debenture Redemption Date and
will call for redemption all Outstanding Trust Securities on the stated
maturity date of the Debentures.

(b) Notice of redemption shall be given by the Property Trustee
by first-class mail, postage prepaid, mailed not less than 30 nor more than
60 days prior to the Redemption Date to each Holder of Trust Securities to
be redeemed, at such Holder's address

<PAGE>

appearing in the Securities Register. All notices of redemption shall
state:

(i) the Redemption Date;

(ii) the Redemption Price;

(iii) the CUSIP number;

(iv) the place or places where Trust Securities
Certificates are to be surrendered for payment of the Redemption Price;

(v) that on the Redemption Date the Redemption Price will
become payable upon each such Trust Security to be redeemed and that
Distributions thereon will cease to accumulate on and after such date; and

(vi) if less than all of the Outstanding Trust Securities
are to be redeemed, the identification and total Liquidation Amount of the
particular Trust Securities to be redeemed.

(c) The Trust Securities redeemed on each Redemption Date shall
be redeemed at the Redemption Price with the proceeds from the
contemporaneous redemption or payment at maturity of Debentures.
Redemptions of the Trust Securities shall be made and the Redemption Price
shall be payable on each Redemption Date only to the extent that the Trust
has funds then available in the Payment Account for the payment of such
Redemption Price.

(d) If the Trust, by action of the Property Trustee, gives a
notice of redemption in respect of any Preferred Securities, then, on the
Redemption Date, subject to Section 4.02(c), the Property Trustee will
irrevocably deposit with the Paying Agent funds sufficient to pay the
Redemption Price for the Preferred Securities being redeemed on such date
and will give the Paying Agent irrevocable instructions and authority to
pay the Redemption Price to the Holders of such Preferred Securities upon
surrender of their Preferred Securities Certificates. Notwithstanding the
foregoing, Distributions payable on or prior to the Redemption Date for any
Trust Securities called for redemption shall be payable to the Holders of
such Trust Securities as they appear on the Securities Register for the
Trust Securities on the record dates for the related Distribution Dates.
If notice of redemption shall have been given and funds irrevocably
deposited as required, then upon the date of such deposit, all rights of
Securityholders holding Trust Securities so called for redemption will
cease, except the right of such Securityholders to receive the Redemption
Price, but without interest, and such Trust Securities will cease to be
Outstanding. In the event that any date on which

<PAGE>

any Redemption Price is payable is not a Business Day, then payment of the
Redemption Price payable on such date will be made on the next succeeding
day which 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 will be made on the immediately
preceding Business Day, in each case, with the same force and effect as if
made on such date. In the event that payment of the Redemption Price in
respect of any Trust Securities called for redemption is improperly
withheld or refused, and not paid either by the Trust or by the Depositor
pursuant to the Guarantee, Distributions on such Trust Securities will
continue to accumulate, at the then applicable rate, from the Redemption
Date originally established by the Trust for such Trust Securities to the
date such Redemption Price is actually paid, in which case the actual
payment date will be the date fixed for redemption for purposes of
calculating the Redemption Price.

(e) If less than all the Outstanding Trust Securities are to be
redeemed on a Redemption Date, then the aggregate Liquidation Amount of
Trust Securities to be redeemed shall be allocated 3% to the Common
Securities and 97% to the Preferred Securities. The particular Preferred
Securities to be redeemed shall be selected by the Property Trustee from
the Outstanding Preferred Securities not previously called for redemption,
by such method as the Property Trustee shall deem fair and appropriate.
The Property Trustee shall promptly notify the Securities Registrar in
writing of the Preferred Securities selected for redemption. If fewer than
all of the Trust Securities represented by a Trust Securities Certificate
are redeemed, the Administrative Trustee shall execute for the Holder a new
Trust Securities Certificate representing the unredeemed Trust Securities.
For all purposes of this Trust Agreement, unless the context otherwise
requires, all provisions relating to the redemption of Preferred Securities
shall relate, in the case of any Preferred Securities redeemed or to be
redeemed only in part, to the portion of the Liquidation Amount of
Preferred Securities which has been or is to be redeemed.

Section 4.03. Subordination of Common Securities.
----------------------------------

(a) Payment of Distributions on, and the Redemption Price of,
the Trust Securities, as applicable, shall be made pro rata based on the
Liquidation Amount of the Trust Securities; provided, however, that if on
-------- -------
any Distribution Date or Redemption Date, a Debenture Event of Default
shall have occurred and be continuing, no payment of any Distribution on,
or Redemption Price of, any Common Security, and no other payment on
account of the liquidation of Common Securities, shall be made unless
payment in full in cash of all accumulated and unpaid Distributions on all
Outstanding Preferred Securities for all distribution periods

<PAGE>

terminating on or prior thereto, or in the case of payment of the
Redemption Price, the full amount of such Redemption Price on all
Outstanding Preferred Securities then being redeemed, shall have been made
or provided for, and all funds immediately available to the Property
Trustee shall first be applied to the payment in full in cash of all
Distributions on, or the Redemption Price of, Preferred Securities then due
and payable.

(b) In the case of the occurrence of any Debenture Event of
Default, the Holder of Common Securities will be deemed to have waived any
right to act with respect to any related Event of Default under this Trust
Agreement and such Debenture Event of Default until the effect of such
related Event of Default and such Debenture Event of Default has been
cured, waived or otherwise eliminated. Until any such Event of Default
under this Trust Agreement and such Debenture Event of Default has been so
cured, waived or otherwise eliminated, the Property Trustee shall act
solely on behalf of the Holders of the Preferred Securities and not the
Holder of the Common Securities, and only the Holders of the Preferred
Securities will have the right to direct the Property Trustee to act on
their behalf.

Section 4.04. Payment Procedures. Payments of Distributions
------------------
pursuant to Section 4.01 in respect of the Preferred Securities shall be
made by check mailed to the address of the Holder thereof as such address
shall appear on the Securities Register or, if the Preferred Securities are
held by a Clearing Agency, such Distributions shall be made to the Clearing
Agency by wire transfer in immediately available funds. Payments of
Distributions pursuant to Section 4.01 in respect of the Common Securities
shall be made in such manner as shall be mutually agreed between the
Property Trustee and the Holder of the Common Securities. Payment of the
Redemption Price or Liquidation Distribution of the Trust Securities shall
be made in immediately available funds upon surrender of the Preferred
Securities Certificate representing such Preferred Securities at the
Corporate Trust Office of the Property Trustee.

Section 4.05. Tax Returns and Reports. The Administrative
-----------------------
Trustee shall prepare (or cause to be prepared), at the Depositor's
expense, and file all Federal, State and local tax and information returns
and reports required to be filed by or in respect of the Trust. In this
regard, the Administrative Trustee shall (a) prepare and file (or cause to
be prepared or filed) the appropriate Internal Revenue Service Form
required to be filed in respect of the Trust in each taxable year of the
Trust and (b) prepare and furnish (or cause to be prepared and furnished)
to each Securityholder the related Internal Revenue Service Form 1099 OID,
or any successor form or the information required to be provided on such
form. The Administrative Trustee shall provide the Depositor and the
Property Trustee with a copy of all such returns, reports

<PAGE>

and schedules promptly after such filing or furnishing. The Trustees shall
comply with United States Federal withholding and backup withholding tax
laws and information reporting requirements with respect to any payments to
Securityholders under the Trust Securities.

Section 4.06. Payments under Indenture. Any amount payable
------------------------
hereunder to any Holder of Preferred Securities shall be reduced by the
amount of any corresponding payment such Holder has directly received
pursuant to Section 6.07 of the Indenture or pursuant to the Guarantee.
Notwithstanding the provisions hereunder to the contrary, Securityholders
acknowledge that any Holder of Preferred Securities that receives payment
under Section 6.07 of the Indenture may receive amounts greater than the
amount such Holder may be entitled to receive pursuant to the other
provisions of this Trust Agreement.

ARTICLE V

Trust Securities Certificates

Section 5.01. Initial Ownership. Upon the creation of the Trust
-----------------
and the contribution by the Depositor pursuant to Section 2.03 and until
the issuance of the Trust Securities, and at any time during which no Trust
Securities are outstanding, the Depositor shall be the sole beneficial
owner of the Trust.

Section 5.02. The Trust Securities Certificates. The Trust
---------------------------------
Securities Certificates shall be issued representing one or more Preferred
Securities. Preferred Securities Certificates representing fractional
interests shall not be issued. The Trust Securities Certificates shall be
executed on behalf of the Trust by manual signature of the Administrative
Trustee or by a facsimile signature of the Administrative Trustee
countersigned by the Securities Registrar. Trust Securities Certificates
bearing the manual signatures of individuals who were, at the time when
such signatures shall have been affixed, authorized to sign on behalf of
the Trust, shall be validly issued and entitled to the benefits of this
Trust Agreement, notwithstanding that such individuals or any of them shall
have ceased to be so authorized prior to the delivery of such Trust
Securities Certificates or did not hold such offices at the date of
delivery of such Trust Securities Certificates. A transferee of a Trust
Securities Certificate shall become a Securityholder, and shall be entitled
to the rights and subject to the obligations of a Securityholder hereunder,
upon due registration of such Trust Securities Certificate in such
transferee's name pursuant to Section 5.04.

Section 5.03. Delivery of Trust Securities Certificates. On the
-----------------------------------------
Closing Date, the Administrative Trustee shall cause Trust

<PAGE>

Securities Certificates, in an aggregate Liquidation Amount as provided in
Sections 2.04 and 2.05, to be executed on behalf of the Trust as provided
in Section 5.02 and delivered to or upon a written order of the Depositor
signed by its Chairman of the Board, its President, any Vice President or
the Treasurer, without further corporate action by the Depositor, in
authorized denominations. The written order of the Depositor shall be
accompanied by an Officer's Certificate and an Opinion of Counsel.

Section 5.04. Registration of Transfer and Exchange of Preferred
--------------------------------------------------
Securities Certificates. A registrar appointed by the Depositor (the
- -----------------------
"Securities Registrar") shall keep or cause to be kept, at the office or
agency maintained pursuant to Section 5.08, a register (the "Securities
Register") in which, subject to such reasonable regulations as it may
prescribe, the Securities Registrar shall provide for the registration of
Trust Securities Certificates (subject to Section 5.10 in the case of the
Common Securities Certificates) and registration of transfers and exchanges
of Preferred Securities Certificates as herein provided. The Property
Trustee shall be the initial Securities Registrar; any successor Securities
Registrar shall be appointed by the Administrative Trustee.

Upon surrender for registration of transfer of any Preferred
Securities Certificate at the office or agency maintained pursuant to
Section 5.08, the Administrative Trustee shall execute and deliver, in the
name of the designated transferee or transferees, one or more new Preferred
Securities Certificates representing the same number of Preferred
Securities dated the date of execution by the Administrative Trustee. At
the option of a Holder, Preferred Securities Certificates may be exchanged
for other Preferred Securities Certificates upon surrender of the Preferred
Securities Certificates to be exchanged at the office or agency maintained
pursuant to Section 5.08. The Securities Registrar shall not be required
to register the transfer of any Preferred Securities that have been called
for redemption or after the Liquidation Date.

Preferred Securities presented or surrendered for registration of
transfer or exchange shall be accompanied by a written instrument of
transfer in form satisfactory to the Administrative Trustee and the
Securities Registrar duly executed by the Holder or such Holder's attorney
duly authorized in writing. Each Preferred Securities Certificate
surrendered for registration of transfer or exchange shall be cancelled and
subsequently disposed of by the Property Trustee in accordance with its
customary practice.

No service charge shall be made for any registration of transfer
or exchange of Preferred Securities, but the Securities Registrar may
require payment of a sum sufficient to cover any tax

<PAGE>

or governmental charge that may be imposed in connection with any transfer
or exchange of Preferred Securities.

Section 5.05. Mutilated, Destroyed, Lost or Stolen Trust
------------------------------------------
Securities Certificates. If (a) any mutilated Trust Securities Certificate
- -----------------------
shall be surrendered to the Securities Registrar, or if the Securities
Registrar shall receive evidence to its satisfaction of the destruction,
loss or theft of any Trust Securities Certificate, and (b) there shall be
delivered to the Securities Registrar and the Administrative Trustee such
security or indemnity as may be required by them to hold the Securities
Registrar and the Trust harmless, then in the absence of notice that such
Trust Securities Certificate shall have been acquired by a bona fide
purchaser, the Administrative Trustee, on behalf of the Trust shall execute
and make available for delivery, in exchange for or in lieu of any such
mutilated, destroyed, lost or stolen Trust Securities Certificate, a new
Trust Securities Certificate of like tenor. In connection with the
issuance of any new Trust Securities Certificate under this Section, the
Administrative Trustee or the Securities Registrar may require the payment
of a sum sufficient to cover any tax or other governmental charge that may
be imposed in connection therewith. Any duplicate Trust Securities
Certificate issued pursuant to this Section shall constitute conclusive
evidence of an undivided beneficial interest in the assets of the Trust, as
if originally issued, whether or not the lost, stolen or destroyed Trust
Securities Certificate shall be found at any time.

Section 5.06. Persons Deemed Securityholders. Prior to due
------------------------------
presentation of a Trust Security Certificate for registration of transfer,
the Administrative Trustee or the Securities Registrar shall treat the
Person in whose name any Trust Securities Certificate shall be registered
in the Securities Register as the owner and Holder of such Trust Securities
Certificate for the purpose of receiving Distributions and for all other
purposes whatsoever, and neither the Trustees nor the Securities Registrar
shall be bound by any notice to the contrary.

Section 5.07. Access to List of Securityholders' Names and
--------------------------------------------
Addresses. In the event that the Property Trustee is no longer the
- ---------
Securities Registrar, the Administrative Trustee or the Depositor shall
furnish or cause to be furnished (a) to the Property Trustee, quarterly not
later than 10 days prior to a Distribution Date, a list, in such form athe
Property Trustee may reasonably require, of the names and addresses of
the Securityholders as of the most recent record date and (b) to the
Property Trustee, promptly after receipt by the Administrative Trustee or
the Depositor of a request therefor from the Property Trustee in order to
enable the Paying Agent to pay Distributions in accordance with Section
4.01 hereof), in each case to the extent such information is in the
possession or control of the Administrative Trustee or the Depositor and is
not identical to a

<PAGE>

previously supplied list or has not otherwise been received by the Property
Trustee. The rights of Securityholders to communicate with other
Securityholders with respect to their rights under this Trust Agreement or
under the Trust Securities, and the corresponding rights of the Property
Trustee shall be as provided in the Trust Indenture Act. Each Holder, by
receiving and holding a Trust Securities Certificate, shall be deemed to
have agreed not to hold the Depositor, the Property Trustee, the
Administrative Trustee or the Delaware Trustee accountable by reason of the
disclosure of its name and address, regardless of the source from which
such information was derived.

Section 5.08. Maintenance of Office or Agency. The Property
-------------------------------
Trustee shall maintain in Newark, New Jersey, an office or offices or
agency or agencies where Preferred Securities may be surrendered for
registration of transfer or exchange and where notices and demands to or
upon the Trustees in respect of the Trust Securities Certificates may be
served. The Property Trustee shall give prompt written notice to the
Depositor and to the Securityholders of any change in the location of the
Securities Register or any such office or agency, which shall initially be
at the Corporate Trust Office of the Property Trustee.

Section 5.09. Appointment of Paying Agent. The Paying Agent
---------------------------
shall make Distributions to Securityholders from the Payment Account and
shall report the amounts of such Distributions to the Property Trustee and
the Administrative Trustee. Any Paying Agent shall have the revocable
power to withdraw funds from the Payment Account for the purpose of making
Distributions. The Administrative Trustee may revoke such power and remove
the Paying Agent, provided that such revocation and removal with respect to
the sole Paying Agent shall not become effective until the appointment of a
successor. The Paying Agent shall initially be the Property Trustee, and
any co-paying agent chosen by the Property Trustee and acceptable to the
Administrative Trustee and the Depositor. Any Person acting as Paying
Agent shall be permitted to resign as Paying Agent upon 30 days' written
notice to the Administrative Trustee and the Depositor, and, if applicable,
the Property Trustee, provided that such resignation with respect to the
sole Paying Agent shall not become effective until the appointment of a
successor. In the event that the Property Trustee shall no longer be the
Paying Agent or a successor Paying Agent shall resign or its authority to
act be revoked, the Administrative Trustee shall appoint a successor that
is acceptable to the Property Trustee (in the case of any other Paying
Agent) and the Depositor to act as Paying Agent (which shall be a bank or
trust company and have a combined capital and surplus of at least
$50,000,000). The Administrative Trustee shall cause such successor Paying
Agent or any additional Paying Agent appointed by the Administrative
Trustee to execute and deliver to the Trustees an instrument in which such
successor Paying Agent or additional

<PAGE>

Paying Agent shall agree with the Trustees that as Paying Agent, such
successor Paying Agent or additional Paying Agent will hold all sums, if
any, held by it for payment to the Securityholders in trust for the benefit
of the Securityholders entitled thereto until such sums shall be paid to
such Securityholders. The Paying Agent shall return all of such sums
remaining unclaimed to the Property Trustee and upon removal of a Paying
Agent such Paying Agent shall also return such sums in its possession to
the Property Trustee. The provisions of Sections 7.01, 7.03 and 7.06 shall
apply to the Property Trustee also in its role as Paying Agent, for so long
as the Property Trustee shall act as Paying Agent and, to the extent
applicable, to any other Paying Agent appointed hereunder. Any reference
in this Trust Agreement to the Paying Agent shall include any co-paying
agent unless the context requires otherwise.

Section 5.10. No Transfer of Common Securities by Depositor. To
---------------------------------------------
the fullest extent permitted by law, any attempted transfer of the Common
Securities shall be void. The Administrative Trustee shall cause each
Common Securities Certificate issued to the Depositor to contain a legend
stating "THIS CERTIFICATE IS NOT TRANSFERABLE". By execution of this Trust
Agreement, the Depositor agrees to the foregoing provisions.

Section 5.11. Book-Entry Preferred Securities Certificates;
---------------------------------------------
Common Securities Certificate.
- -----------------------------

(a) The Preferred Securities, upon original issuance on the
Closing Date, will not be engraved but will be issued in the form of one or
more printed or typewritten Book-Entry Preferred Securities Certificates,
to be delivered to The Depository Trust Company, the initial Clearing
Agency, by, or on behalf of, the Trust. Such Book-Entry Preferred
Securities Certificate or Certificates shall initially be registered on the
Securities Register in the name of Cede & Co., the nominee of the initial
Clearing Agency.

(b) A single Common Securities Certificate representing the
Common Securities shall be issued to the Depositor in the form of a
definitive Common Securities Certificate.

Section 5.12. Definitive Preferred Securities Certificates. If
--------------------------------------------
(a) the Depositor advises the Trustees in writing that the Clearing Agency
is no longer willing or able to properly discharge its responsibilities
with respect to the Preferred Securities Certificates or the Clearing
Agency is no longer registered or in good standing under the Securities
Exchange Act of 1934, as amended, or other applicable statute or
regulation, and the Depositor is unable to locate a qualified successor,
(b) the Depositor at its option advises the Trustees in writing that it
elects to terminate the book-entry system through the Clearing Agency or
(c) an Event of Default occurs and is continuing, then

<PAGE>

the Administrative Trustee shall issue Definitive Preferred Securities
Certificates. Upon surrender to the Administrative Trustee of the Book-
Entry Preferred Securities Certificates by the Clearing Agency, accompanied
by registration instructions, the Administrative Trustee shall execute and
deliver the Definitive Preferred Securities Certificates in accordance with
the instructions of the Clearing Agency. Neither the Securities Registrar
nor the Trustees shall be liable for any delay in delivery of such
instructions and may conclusively rely on, and shall be protected in
relying on, such instructions. The Definitive Preferred Securities
Certificates shall be printed, lithographed or engraved or may be produced
in any other manner as is reasonably acceptable to the Administrative
Trustee, as evidenced by the execution thereof by the Administrative
Trustee.

Section 5.13. Rights of Securityholders. The Securityholders
-------------------------
shall not have any right or title to the Trust Property other than the
undivided beneficial interest in the assets of the Trust conferred by their
Trust Securities and they shall have no right to call for any partition or
division of property, profits or rights of the Trust except as described
below. The Trust Securities shall be personal property giving only the
rights specifically set forth therein and in this Trust Agreement. The
Trust Securities shall have no preemptive or similar rights and when issued
and delivered to Securityholders against payment of the purchase price
therefor will be fully paid and nonassessable by the Trust. The Holders of
the Trust Securities, in their capacities as such, 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.

ARTICLE VI

Acts of Securityholders; Meetings; Voting

Section 6.01. Limitations on Voting Rights.
----------------------------

(a) Except as provided herein and in the Indenture and as
otherwise required by law, no Holder of Trust Securities shall have any
right to vote or in any manner otherwise control the administration,
operation and management of the Trust or the obligations of the parties
hereto, nor shall anything herein set forth, or contained in the terms of
the Trust Securities Certificates, be construed so as to constitute the
Securityholders from time to time as partners or members of an association.

(b) The Trustees shall not (i) direct the time, method and place
of conducting any proceeding for any remedy available to the Debenture
Trustee or executing any trust or power conferred

<PAGE>

on the Debenture Trustee with respect to such Debentures, (ii) waive any
past default which may be waived under Section 6.04 of the Indenture, (iii)
exercise any right to rescind or annul an acceleration of the principal of
all the Debentures or (iv) consent to any amendment or modification of the
Indenture, where such consent shall be required, without, in each case,
obtaining the prior consent of the Holders of at least a majority in
aggregate Liquidation Amount of all Outstanding Preferred Securities;
provided, however, that where such consent under the Indenture would
- -------- -------
require the consent of each holder of Debentures affected thereby, no such
consent shall be given by the Property Trustee without the prior written
consent of each Holder of Outstanding Preferred Securities. The Trustees
shall not revoke any action previously authorized or approved by a vote of
the Holders of Preferred Securities, except by a subsequent vote of the
Holders of Preferred Securities. The Property Trustee shall notify all
Holders of the Preferred Securities of any notice received from the
Debenture Trustee as a result of the Trust being the holder of the
Debentures. In addition to obtaining the consent of the Holders of the
Preferred Securities, prior to taking any of the foregoing actions, the
Trustees shall, at the expense of the Depositor, obtain an Opinion of
Counsel experienced in such matters to the effect that the Trust will not
be classified as an association taxable as a corporation or partnership for
United States Federal income tax purposes on account of such action and
will continue to be classified as a grantor trust for United States Federal
income tax purposes.

(c) Subject to Section 10.02(c) hereof, if any proposed
amendment to the Trust Agreement provides for, or the Trustees otherwise
propose to effect, (i) any action that would adversely affect in any
material respect the powers, preferences or special rights of the Preferred
Securities, whether by way of amendment to this Trust Agreement or
otherwise, or (ii) the termination or liquidation of the Trust, other than
pursuant to the terms of this Trust Agreement, then the Holders of
Outstanding Preferred Securities will be entitled to vote on such 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 aggregate
Liquidation Amount of the Outstanding Preferred Securities.

Section 6.02. Notice of Meetings. Notice of all meetings of the
------------------
Preferred Securityholders, stating the time, place and purpose of the
meeting, shall be given by the Property Trustee pursuant to Section 10.08
to each Preferred Securityholder of record, at his/her registered address,
at least 15 days and not more than 90 days before the meeting. At any such
meeting, any business properly before the meeting may be so considered
whether or not stated in the notice of the meeting. Any adjourned meeting
may be held as adjourned without further notice.

<PAGE>

Section 6.03. Meetings of Preferred Securityholders. No annual
-------------------------------------
meeting of Securityholders is required to be held. The Administrative
Trustee, however, shall call a meeting of Securityholders to vote on any
matter upon the written request of the Holders of at least 25% of the
aggregate Liquidation Amount of the Outstanding Preferred Securities and
the Administrative Trustee or the Property Trustee may, at any time in
their discretion, call a meeting of Preferred Securityholders to vote on
any matters as to which the Preferred Securityholders are entitled to vote.

Holders of at least 50% of the aggregate Liquidation Amount of
the Outstanding Preferred Securities, present in person or by proxy, shall
constitute a quorum at any meeting of Securityholders.

If a quorum is present at a meeting, an affirmative vote of the
Holders of at least a majority of the aggregate Liquidation Amount of the
Outstanding Preferred Securities present, either in person or by proxy, at
such meeting shall constitute the action of the Securityholders, unless
this Trust Agreement requires a greater number of affirmative votes.

Section 6.04. Voting Rights. A Securityholder shall be entitled
-------------
to one vote for each Trust Security in respect of any matter as to which
such Securityholder is entitled to vote.

Section 6.05. Proxies, etc. At any meeting of Securityholders,
-------------
any Securityholder entitled to vote thereat may vote by proxy, provided
that no proxy shall be voted at any meeting unless it shall have been
placed on file with the Administrative Trustee, or with such other officer
or agent of the Trust as the Administrative Trustee may direct, for
verification prior to the time at which such vote shall be taken. Pursuant
to a resolution of the Property Trustee, proxies may be solicited in the
name of the Property Trustee or one or more officers of the Property
Trustee. Only Securityholders of record shall be entitled to vote. When
Trust Securities are held jointly by several Persons, any one of them may
vote at any meeting in person or by proxy in respect of such Trust
Securities, but if more than one of them shall be present at such meeting
in person or by proxy, and such joint owners or their proxies so present
disagree as to any vote to be cast, such vote shall not be received in
respect of such Trust Securities. A proxy purporting to be executed by or
on behalf of a Securityholder shall be deemed valid unless challenged at or
prior to its exercise, and the burden of proving invalidity shall rest on
the challenger. No proxy shall be valid more than three years after its
date of execution.

Section 6.06. Securityholder Action by Written Consent. Any
----------------------------------------
action which may be taken by Securityholders at a meeting may be taken
without a meeting if Holders of the proportion of the

<PAGE>

Outstanding Preferred Securities required to approve such action shall
consent to the action in writing.

Section 6.07. Record Date for Voting and Other Purposes. For
-----------------------------------------
the purposes of determining the Securityholders who are entitled to notice
of and to vote at any meeting or by written consent, or for the purpose of
any other action, the Administrative Trustee may from time to time fix a
date, not more than 90 days prior to the date of any meeting of
Securityholders, as a record date for the determination of the identity of
the Securityholders for such purposes.

Section 6.08. Acts of Securityholders. Any request, demand,
-----------------------
authorization, direction, notice, consent, waiver or other action provided
or permitted by this Trust Agreement to be given, made or taken by
Securityholders may be embodied in and evidenced by one or more instruments
of substantially similar tenor signed by such Securityholders in person or
by an agent duly appointed in writing; and, except as otherwise expressly
provided herein, such action shall become effective when such instrument or
instruments are delivered to the Administrative Trustee. Such instrument
or instruments (and the action embodied therein and evidenced thereby) are
herein sometimes referred to as the "Act" of the Securityholders signing
such instrument or instruments. Proof of execution of any such instrument
or of a writing appointing any such agent shall be sufficient for any
purpose of this Trust Agreement and (subject to Section 7.02) conclusive,
if made in the manner provided in this Section.

The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer
authorized by law to take acknowledgments of deeds, certifying that the
individual signing such instrument or writing acknowledged to him/her the
execution thereof. Where such execution is by a signer acting in a
capacity other than his/her individual capacity, such certificate or
affidavit shall also constitute sufficient proof of his/her authority. The
fact and date of the execution of any such instrument or writing, or the
authority of the Person executing the same, may also be proved in any other
manner which any Trustee receiving the same deems sufficient.

The ownership of Preferred Securities shall be proved by the
Securities Register.

Any request, demand, authorization, direction, notice, consent,
waiver or other act of the Securityholder of any Trust Security shall bind
every future Securityholder of the same Trust Security and the
Securityholder of every Trust Security issued upon the registration of
transfer thereof or in exchange therefor or in

<PAGE>

lieu thereof in respect of anything done, omitted or suffered to be done by
the Trustees or the Trust in reliance thereon, whether or not notation of
such action is made upon such Trust Security.

Without limiting the foregoing, a Securityholder entitled
hereunder to take any action hereunder with regard to any particular Trust
Security may do so with regard to all or any part of the Liquidation Amount
of such Trust Security or by one or more duly appointed agents, each of
which may do so pursuant to such appointment with regard to all or any part
of such Liquidation Amount.

If any dispute shall arise between the Securityholders and the
Administrative Trustee or among such Securityholders or Trustees with
respect to the authenticity, validity or binding nature of any request,
demand, authorization, direction, consent, waiver or other Act of such
Securityholder or Trustee under this Article VI, then the determination of
such matter by the Property Trustee shall be conclusive with respect to
such matter.

Section 6.09. Inspection of Records. Upon reasonable notice to
---------------------
the Administrative Trustee and the Property Trustee, the records of the
Trust shall be open to inspection by Securityholders during normal business
hours for any purpose reasonably related to such Securityholder's interest
as a Securityholder.

ARTICLE VII

The Trustees

Section 7.01. Certain Duties and Responsibilities.
-----------------------------------

(a) The duties and responsibilities of the Trustees shall be as
provided by this Trust Agreement and, in the case of the Property Trustee,
also by the Trust Indenture Act. The Property Trustee, other than during
the occurrence and continuance of an Event of Default, undertakes to
perform only such duties as are specifically set forth in this Trust
Agreement and, upon an Event of Default, must exercise the same degree of
care and skill as a prudent person would exercise or use in the conduct of
his/her own affairs. The Trustees shall have all the privileges, rights
and immunities provided by the Delaware Business Trust Act.
Notwithstanding the foregoing, no provision of this Trust Agreement shall
require the Trustees to expend or risk their own funds or otherwise incur
any financial liability in the performance of any of their duties
hereunder, or in the exercise of any of their rights or powers, if they
shall have reasonable grounds for believing that repayment of such funds or
adequate indemnity against such risk or liability is not reasonably assured
to it. Whether or not therein expressly so provided, every provision of

<PAGE>

this Trust Agreement relating to the conduct or affecting the liability of
or affording protection to the Trustees shall be subject to the provisions
of this Section. Nothing in this Trust Agreement shall be construed to
release the Property Trustee from liability for its own negligent action,
its own negligent failure to act, or its own willful misconduct. To the
extent that, at law or in equity, the Administrative Trustee has duties
(including fiduciary duties) and liabilities relating thereto to the Trust
or to the Securityholders, the Administrative Trustee shall not be liable
to the Trust or to any Securityholder for the Administrative Trustee's good
faith reliance on the provisions of this Trust Agreement. The provisions
of this Trust Agreement, to the extent that they restrict the duties and
liabilities of the Administrative Trustee otherwise existing at law or in
equity, are agreed by the Depositor and the Securityholders to replace such
other duties and liabilities of the Administrative Trustee.

(b) All payments made by the Property Trustee or any other
Paying Agent in respect of the Trust Securities shall be made only from the
income and proceeds from the Trust Property. Each Securityholder, by its
acceptance of a Trust Security, agrees that (i) it will look solely to the
income and proceeds from the Trust Property to the extent available for
distribution to it as herein provided and (ii) the Trustees are not
personally liable to it for any amount distributable in respect of any
Trust Security or for any other liability in respect of any Trust Security.
This Section 7.01(b) does not limit the liability of the Trustees expressly
set forth elsewhere in this Trust Agreement or, in the case of the Property
Trustee, in the Trust Indenture Act.

Section 7.02. Notice of Defaults; Direct Action by
------------------------------------
Securityholders. Within 90 days after the occurrence of any Event of
- ---------------
Default actually known to the Property Trustee, the Property Trustee shall
transmit, in the manner and to the extent provided in Section 10.08, notice
of such Event of Default to the Securityholders, the Administrative Trustee
and the Depositor, unless such Event of Default shall have been cured or
waived. If the Property Trustee has failed to enforce its rights under
this Trust Agreement or the Indenture to the fullest extent permitted by
law and subject to the terms of this Trust Agreement and the Indenture, any
Securityholder may institute a legal proceeding directly to enforce the
Property Trustee's rights under this Trust Agreement or the Indenture with
respect to Debentures having a principal amount equal to the aggregate
Liquidation Amount of the Preferred Securities of such Securityholder
without first instituting a legal proceeding against the Property Trustee
or any other Person. To the extent that any action under the Indenture is
entitled to be taken by the holders of at least a specified percentage of
the principal amount of the outstanding Debentures, Holders of at least the
same percentage of the Liquidation Amount of the Outstanding Preferred

<PAGE>

Securities may also take such action in the name of the Trust if such
action has not been taken by the Property Trustee. To the fullest extent
permitted by law, the foregoing shall be in addition to and not in
limitation of any direct rights provided to the Holders of the Preferred
Securities under the terms of the Indenture, including the right, without
any notice or other demand on the Property Trustee, to institute suit for
the enforcement of any payment of the principal of and any premium and
interest on Debentures as provided in Section 6.07 of the Indenture.

Section 7.03. Certain Rights of Property Trustee. Subject to
----------------------------------
the provisions of Section 7.01:

(a) the Property Trustee may rely and shall be protected in
acting or refraining from acting in good faith upon any resolution, Opinion
of Counsel, certificate, written representation of a Holder or transferee,
certificate of auditors or any other certificate, statement, instrument,
opinion, report, notice, request, consent, order, appraisal, bond,
debenture, note, other evidence of indebtedness 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) if, other than during the occurrence and continuance of an
Event of Default, (i) in performing its duties under this Trust Agreement,
the Property Trustee is required to decide between alternative courses of
action or (ii) in construing any of the provisions in this Trust Agreement,
the Property Trustee finds the same ambiguous or inconsistent with any
other provisions contained herein or (iii) the Property Trustee is unsure
of the application of any provision of this Trust Agreement, then, except
as to any matter as to which the Preferred Securityholders are entitled to
vote under the terms of this Trust Agreement, the Property Trustee shall
deliver a notice to the Depositor requesting written instructions of the
Depositor as to the course of action to be taken. The Property Trustee
shall take such action, or refrain from taking such action, as the Property
Trustee shall be instructed in writing to take, or to refrain from taking,
by the Depositor; provided, however, that if the Property Trustee does not
-------- -------
receive such instructions of the Depositor within ten Business Days after
it has delivered such notice, or such reasonably shorter period of time set
forth in such notice (which to the extent practicable shall not be less
than two Business Days), it may, but shall be under no duty to, take or
refrain from taking such action not inconsistent with this Trust Agreement
as it shall deem advisable and in the best interests of the
Securityholders, in which event the Property Trustee shall have no
liability except for its own negligent action, its own negligent failure to
act or its own willful misconduct;

<PAGE>

(c) the Property Trustee may consult with counsel or other
experts of its selection and the advice or opinion of such counsel or other
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 reliance thereon;

(d) the Property Trustee shall be under no obligation to
exercise any of the rights or powers vested in it by this Trust Agreement
at the request or direction of any of the Securityholders pursuant to this
Trust Agreement, unless such Securityholders shall have offered to the
Property Trustee reasonable security or indemnity against the costs,
expenses and liabilities which might be incurred by it in compliance with
such request or direction;

(e) the Property 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, approval, bond, debenture, note or other
evidence of indebtedness or other paper or document, but the Property
Trustee, in its discretion, may make such further inquiry or investigation
into such facts or matters as it may see fit; and

(f) the Property Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
its agents or attorneys and the Property 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.

Section 7.04. Not Responsible for Recitals or Issuance of
-------------------------------------------
Securities. The recitals contained herein and in the Trust Securities
- ----------
Certificates shall be taken as the statements of the Trust, and the
Trustees do not assume any responsibility for their correctness. The
Trustees shall not be accountable for the use or application by the
Depositor of the proceeds of the Debentures.

Section 7.05. May Hold Securities. Any Trustee or any other
-------------------
agent of any Trustee or the Trust, in its individual or any other capacity,
may become the owner or pledgee of Trust Securities and, subject to
Sections 7.08 and 7.13 and, except as provided in the definition of the
term Outstanding in Article I, may otherwise deal with the Trust with the
same rights it would have if it were not a Trustee or such other agent.

<PAGE>

Section 7.06. Compensation; Indemnity; Fees. The Depositor
-----------------------------
agrees:

(a) to pay to the Trustees from time to time such compensation
as shall have been agreed in writing with the Depositor for all services
rendered by them hereunder (which compensation shall not be limited by any
provision of law in regard to the compensation of a trustee of an express
trust);

(b) except as otherwise expressly provided herein, to reimburse
the Trustees upon request for all reasonable expenses, disbursements and
advances incurred or made by the Trustees in accordance with any provision
of this Trust Agreement (including the reasonable compensation and the
expenses and disbursements of its agents and counsel), except any such
expense, disbursement or advance as may be attributable to its own
negligent action, its own negligent failure to act or its own wilful
misconduct (or, in the case of the Administrative Trustee, any such
expense, disbursement or advance as may be attributable to his/her gross
negligence); and

(c) to indemnify each of the Trustees or any predecessor Trustee
for, and to hold the Trustees harmless against, any and all loss, damage,
claims, liability, penalty or expense including taxes (other than taxes
based on the income of such Trustee) incurred without its own negligent
action, its own negligent failure to act or its wilful misconduct (or, in
the case of the Administrative Trustees, incurred without gross negligence
or bad faith), arising out of or in connection with the acceptance or
administration of this Trust Agreement, including the costs and expenses of
defending itself against any claim or liability in connection with the
exercise or performance of any of its powers or duties hereunder.

No Trustee may claim any Lien or charge on any Trust Property as
a result of any amount due pursuant to this Section 7.06.

The provisions of this Section 7.06 shall survive the termination
of this Trust Agreement.

Section 7.07. Corporate Property Trustee Required; Eligibility
------------------------------------------------
of Trustees.
- -----------

(a) There shall at all times be a Property Trustee hereunder.
The Property Trustee shall be a Person that is eligible pursuant to the
Trust Indenture Act to act as such and has a combined capital and surplus
of at least $50,000,000. If any such Person publishes reports of condition
at least annually, pursuant to law or to the requirements of its
supervising or examining authority, then for the purposes of this Section,
the combined capital and surplus of such Person shall be deemed to be its
combined capital and surplus as set forth in its most recent report

<PAGE>

of condition so published. If at any time the Property Trustee with
respect to the Trust Securities shall cease to be eligible in accordance
with the provisions of this Section, it shall resign immediately in the
manner and with the effect hereinafter specified in this Article.

(b) There shall at all times be one or more Administrative
Trustees hereunder. Each Administrative 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 persons authorized to bind that entity.

(c) There shall at all times be a Delaware Trustee. The
Delaware Trustee shall either be (i) a natural person who is at least 21
years of age and a resident of the State of Delaware or (ii) a legal entity
with its principal place of business in the State of Delaware and that
otherwise meets the requirements of applicable Delaware law that shall act
through one or more persons authorized to bind such entity.

Section 7.08. Conflicting Interests. If the Property Trustee
---------------------
has or shall acquire a conflicting interest within the meaning of the Trust
Indenture Act, the Property Trustee shall either eliminate such interest or
resign, to the extent and in the manner provided by, and subject to the
provisions of, the Trust Indenture Act and this Trust Agreement.

Section 7.09. Co-Trustees and Separate Trustee. Unless an Event
--------------------------------
of Default shall have occurred and be continuing, at any time or times, for
the purpose of meeting the legal requirements of the Trust Indenture Act or
of any jurisdiction in which any part of the Trust Property may at the time
be located, the Depositor and the Administrative Trustee (and if more than
one Administrative Trustee, by agreed action of the majority of such
Trustees) shall have power (i) to appoint, and upon the written request of
the Administrative Trustee the Depositor shall for such purpose join with
the Administrative Trustee in the execution, delivery, and performance of
all instruments and agreements necessary or proper to appoint one or more
Persons approved by the Property Trustee either to act as co-trustee,
jointly with the Property Trustee, of all or any part of such Trust
Property, or to the extent required by law to act as separate trustee of
any such property, in either case with such powers as may be provided in
the instrument of appointment, and (ii) to vest in such Person or Persons
in the capacity aforesaid, any property, title, right or power deemed
necessary or desirable, subject to the other provisions of this Section.
If the Depositor does not join in such appointment within 15 days after the
receipt by it of a request so to do, or in case a Debenture Event of
Default has occurred and is continuing, the Property Trustee alone shall
have power to make such appointment. Any co-trustee or separate trustee
appointed pursuant to this

<PAGE>

Section shall either be (i) a natural person who is at least 21 years of
age and a resident of the United States or (ii) a legal entity with its
principal place of business in the United States that shall act through one
or more persons authorized to bind such entity.

Should any written instrument from the Depositor be required by
any co-trustee or separate trustee so appointed for more fully confirming
to such co-trustee or separate trustee such property, title, right, or
power, any and all such instruments shall, on request, be executed,
acknowledged, and delivered by the Depositor.

Every co-trustee or separate trustee shall, to the extent
permitted by law, but to such extent only, be appointed subject to the
following terms, namely:

(a) The Trust Securities shall be executed and delivered and all
rights, powers, duties, and obligations hereunder in respect of the custody
of securities, cash and other personal property held by, or required to be
deposited or pledged with, the Trustees specified hereunder, shall be
exercised, solely by such Trustees and not by such co-trustee or separate
trustee.

(b) The rights, powers, duties, and obligations hereby conferred
or imposed upon the Property Trustee in respect of any property covered by
such appointment shall be conferred or imposed upon and exercised or
performed by the Property Trustee or by the Property Trustee and such
co-trustee or separate trustee jointly, as shall be provided in the
instrument appointing such co-trustee or separate trustee, except to the
extent that under any law of any jurisdiction in which any particular act
is to be performed, the Property Trustee shall be incompetent or
unqualified to perform such act, in which event such rights, powers, duties
and obligations shall be exercised and performed by such co-trustee or
separate trustee.

(c) The Property Trustee at any time, by an instrument in
writing executed by it, with the written concurrence of the Depositor, may
accept the resignation of or remove any co-trustee or separate trustee
appointed under this Section, and, in case an Event of Default under the
Indenture has occurred and is continuing, the Property Trustee shall have
power to accept the resignation of, or remove, any such co-trustee or
separate trustee without the concurrence of the Depositor. Upon the
written request of the Property Trustee, the Depositor shall join with the
Property Trustee in the execution, delivery, and performance of all
instruments and agreements necessary or proper to effectuate such
resignation or removal. A successor to any co-trustee or separate trustee
so resigned or removed may be appointed in the manner provided in this
Section.

<PAGE>

(d) No co-trustee or separate trustee hereunder shall be
personally liable by reason of any act or omission of the Property Trustee,
or any other trustee hereunder.

(e) The Property Trustee shall not be liable by reason of any
act of a co-trustee or separate trustee.

(f) Any Act of Holders delivered to the Property Trustee shall
be deemed to have been delivered to each such co-trustee and separate
trustee.

Section 7.10. Resignation and Removal; Appointment of Successor.
-------------------------------------------------
No resignation or removal of any Trustee and no appointment of a successor
Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee in accordance with the
applicable requirements of Section 7.11.

Subject to the immediately preceding paragraph, any Trustee may
resign at any time with respect to the Trust Securities by giving written
notice thereof to the Securityholders.

Unless an Event of Default shall have occurred and be continuing,
any Trustee may be removed at any time by Act of the Holder of the Common
Securities. If an Event of Default shall have occurred and be continuing,
the Property Trustee or the Delaware Trustee, or both of them, may be
removed at such time only by Act of the Holders of at least a majority in
Liquidation Amount of the Outstanding Preferred Securities, delivered to
such Trustee (in its individual capacity and on behalf of the Trust). The
Administrative Trustee may only be removed by the Holder of Common
Securities at any time.

If the instrument of acceptance by the successor Trustee required
by Section 7.11 shall not have been delivered to the Trustee within 30 days
after the giving of such notice of resignation or removal, the Trustee may
petition, at the expense of the Depositor, any court of competent
jurisdiction for the appointment of a successor Trustee.

If any Trustee shall resign, be removed or become incapable of
acting as Trustee, or if a vacancy shall occur in the office of any Trustee
for any cause, at a time when no Event of Default shall have occurred and
be continuing, the Holder of Common Securities, by Act of the Holder of
Common Securities delivered to the retiring Trustee, shall promptly appoint
a successor Trustee or Trustees and the Trust, and the retiring Trustee
shall comply with the applicable requirements of Section 7.11. If the
Property Trustee or the Delaware Trustee shall resign, be removed or become
incapable of continuing to act as the Property Trustee or the Delaware
Trustee, as the case may be, at a time when an Event of

<PAGE>

Default has occurred and is continuing, the Holders of Preferred
Securities, by Act of the Securityholders of at least a majority in
Liquidation Amount of the Outstanding Preferred Securities delivered to the
retiring Trustee, shall promptly appoint a successor Trustee or Trustees,
and such successor Trustee shall comply with the applicable requirements of
Section 7.11. If any Administrative Trustee shall resign, be removed or
become incapable of acting as Administrative Trustee at a time when an
Event of Default shall have occurred and be continuing, the Holder of
Common Securities shall appoint a successor Administrative Trustee. If no
successor Trustee shall have been so appointed by the Holder of Common
Securities or the Holders of Preferred Securities and accepted appointment
in the manner required by Section 7.11, any Securityholder who has been a
Securityholder of Trust Securities for at least six months may, on behalf
of himself and all others similarly situated, petition any court of
competent jurisdiction for the appointment of a successor Trustee.

The Property Trustee shall give notice of each resignation and
each removal of a Trustee and each appointment of a successor Trustee to
all Securityholders in the manner provided in Section 10.08 and shall give
notice to the Depositor. Each notice shall include the name of the
successor Trustee and the address of its Corporate Trust Office if it is
the Property Trustee.

Notwithstanding the foregoing or any other provision of this
Trust Agreement, in the event any Administrative Trustee or Delaware
Trustee who is a natural person dies or becomes, in the opinion of the
Depositor, incompetent or incapacitated, the vacancy created by such death,
incompetence or incapacity may be filled by (a) the unanimous act of the
remaining Administrative Trustees if there are at least two of them or (b)
otherwise by the Depositor (with the successor in each case being a Person
who satisfies the eligibility requirements for Administrative Trustee or
for the Delaware Trustee, as the case may be, set forth in Section 7.07).

Section 7.11. Acceptance of Appointment by Successor. In case
--------------------------------------
of the appointment hereunder of a successor Trustee, the retiring Trustee
and each successor Trustee shall execute and deliver to the Trust and the
retiring Trustee an amendment hereto wherein each successor Trustee shall
accept such appointment and which (a) shall contain such provisions as
shall be necessary or desirable to transfer and confirm to, and to vest in,
each successor Trustee all the rights, powers, trusts and duties of the
retiring Trustee and (b) shall add to or change any of the provisions of
this Trust Agreement as shall be necessary to provide for or facilitate the
administration of the trusts hereunder by more than one Trustee, it being
understood that nothing herein or in such amendment shall constitute such
Trustees co-trustees of the same trust and that each such Trustee shall be
trustee of a trust

<PAGE>

or trusts hereunder separate and apart from any trust or trusts hereunder
administered by any other such Trustee and upon the execution and delivery
of such amendment the resignation or removal of the retiring Trustee shall
become effective to the extent provided therein and each such successor
Trustee, without any further act, deed or conveyance, shall become vested
with all the rights, powers, trusts and duties of the retiring Trustee and
the Trust; but, on request of the Trust or any successor Trustee, such
retiring Trustee shall duly assign, transfer and deliver to such successor
Trustee all Trust Property, all proceeds thereof and money held by such
retiring Trustee hereunder.

Upon request of any such successor Trustee, the Trust shall
execute any and all instruments for more fully and certainly vesting in and
confirming to such successor Trustee all such rights, powers and trusts
referred to in the first or second preceding paragraph, as the case may be.

No successor Trustee shall accept its appointment unless at the
time of such acceptance such successor Trustee shall be qualified and
eligible under this Article.

Section 7.12. Merger, Conversion, Consolidation or Succession to
--------------------------------------------------
Business. Any Person into which any of the Trustees may be merged or
- --------
converted or with which it may be consolidated, or any Person resulting
from any merger, conversion or consolidation to which such Trustee shall be
a party, or any Person succeeding to all or substantially all the corporate
trust business of such Trustee, shall be the successor of such Trustee
hereunder, provided such Person 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.

Section 7.13. Preferential Collection of Claims Against
-----------------------------------------
Depositor or Trust. If and when the Property Trustee or the Delaware
- ------------------
Trustee shall be or become a creditor (whether directly or indirectly,
secured or unsecured) of the Depositor or the Trust (or any other obligor
upon the Debentures or the Trust Securities), including under the terms of
Section 7.05 hereof, the Property Trustee or the Delaware Trustee, as the
case may be, shall be subject to and shall take all actions necessary in
order to comply with the provisions of the Trust Indenture Act regarding
the collection of claims against the Depositor or Trust (or any such other
obligor).

Section 7.14. Reports by Property Trustee. The Property Trustee
---------------------------
shall transmit to Holders such reports concerning the Property Trustee and
its actions under this Trust Agreement as may be required pursuant to the
Trust Indenture Act at the times and in the manner provided pursuant
thereto. If required by Section 313(a) of the Trust Indenture Act, the
Property Trustee shall,

<PAGE>

within 60 days after each May 31 following the date of this Trust Agreement
deliver to Holders a brief report, dated as of such May 31, which complies
with the provisions of such Section 313(a).

A copy of each such report shall, at the time of such
transmission to Holders, be filed by the Property Trustee with each stock
exchange upon which any Preferred Securities are then listed, with the
Commission and with the Trust. The Trust will promptly notify the Property
Trustee when any Preferred Securities are listed on any stock exchange.

Section 7.15. Reports to the Property Trustee. The Depositor
-------------------------------
and the Administrative Trustee on behalf of the Trust shall provide to the
Property Trustee such documents, reports and information as required by
Section 314 of the Trust Indenture Act (if any) and the compliance
certificate required by Section 314(a) of the Trust Indenture Act in the
form, in the manner and at the times required by Section 314 of the Trust
Indenture Act.

Section 7.16. Evidence of Compliance with Conditions Precedent.
------------------------------------------------
The Depositor and the Administrative Trustee on behalf of the Trust shall
provide to the Property Trustee evidence of compliance with the conditions
precedent, if any, provided for in this Trust Agreement that relate to any
of the matters set forth in Section 314(c) of the Trust Indenture Act.

Section 7.17. Statements Required in Officer's Certificate and
------------------------------------------------
Opinion of Counsel.
- ------------------

Each Officer's Certificate and Opinion of Counsel with respect to
compliance with a covenant or condition provided for in this Trust
Agreement shall include:

(1) a statement that each Person making such Officer's
Certificate or Opinion of Counsel 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 Officer's Certificate or Opinion of Counsel are based;

(3) a statement that, in the opinion of each such Person, such
Person has made such examination or investigation as is necessary to enable
such Person to express an informed opinion as to whether or not such
covenant or condition has been complied with; and

(4) a statement that, in the opinion of such Person, such
covenant or condition has been complied with; provided, however, that with
respect to matters of fact not involving any

<PAGE>

legal conclusion, an Opinion of Counsel may rely on an Officer's
Certificate or certificates of public officials.

Section 7.18. Number of Trustees.
------------------

(a) The number of Trustees shall be three, provided that the
Holder of all of the Common Securities by written instrument may increase
and, if increased, may decrease the number of Administrative Trustees.

(b) If a Trustee ceases to hold office for any reason and the
number of Administrative Trustees is not reduced pursuant to Section
7.18(a), or if the number of Trustees is increased pursuant to Section
7.18(a), a vacancy shall occur. The vacancy shall be filled with a Trustee
appointed in accordance with Section 7.10.

(c) The death, resignation, retirement, removal, bankruptcy,
incompetence or incapacity to perform the duties of a Trustee shall not
operate to annul the Trust. Whenever a vacancy shall occur, until such
vacancy is filled by the appointment of an Administrative Trustee in
accordance with Section 7.10, the Administrative Trustees in office,
regardless of their number (and notwithstanding any other provision of this
Trust Agreement), shall have all the powers granted to the Administrative
Trustee and shall discharge all the duties imposed upon the Administrative
Trustees by this Trust Agreement.

Section 7.19. Delegation of Power.
-------------------

(a) Any Administrative Trustee may, by power of attorney
consistent with applicable law, delegate to any natural person over the age
of 21 his/her power for the purpose of executing any documents contemplated
in Section 2.07(a), including any registration statement or amendment
thereto filed with the Commission, or making any other governmental filing;
and

(b) the Administrative Trustees shall have power to delegate
from time to time to such of their number, if there is more than one
Administrative Trustee, or to the Depositor the doing of such things and
the execution of such instruments either in the name of the Trust or the
names of the Administrative Trustees or otherwise as the Administrative
Trustees may deem expedient, to the extent such delegation is not
prohibited by applicable law or contrary to the provisions of the Trust, as
set forth herein.

Section 7.20. Voting. Except as otherwise provided in this
------
Trust Agreement, the consent or vote of the Trustees shall be approved by
not less than a majority of the Administrative Trustees.

<PAGE>

ARTICLE VIII

Termination and Liquidation

Section 8.01. Termination Upon Expiration Date. Unless earlier
--------------------------------
terminated, the Trust shall automatically terminate on June __, 2049 (the
"Expiration Date"), following the distribution of the Trust Property in
accordance with Section 8.04.

Section 8.02. Early Termination. The earliest to occur of any
-----------------
of the following events is an "Early Termination Event":

(a) the occurrence of a Bankruptcy Event in respect of, or the
dissolution or liquidation of the Depositor or an acceleration of the
maturity of the Debentures pursuant to Section 6.02 of the Indenture;

(b) upon the election of the Depositor to liquidate the Trust
and cause the distribution of a Like Amount of Debentures to the Holders of
the Trust Securities;

(d) an order for termination of the Trust shall have been
entered by a court of competent jurisdiction.

The election of the Depositor pursuant to Section 8.02(b) shall
be made by the Depositor giving written notice to the Trustees not less
than 30 days prior to the date of distribution of the Debentures. Such
notice shall specify the date of distribution of the Debentures and shall
be accompanied by an Opinion of Counsel that such event will not be a
taxable event to the Holders of the Trust Securities for Federal income tax
purposes.

Section 8.03. Termination. The respective obligations and
-----------
responsibilities of the Trustees and the Trust created and continued hereby
shall terminate upon the latest to occur of the following: (a) the
distribution by the Property Trustee to Securityholders upon the
liquidation of the Trust pursuant to Section 8.04, or upon the redemption
of all of the Trust Securities pursuant to Section 4.02, of all amounts
required to be distributed hereunder upon the final payment of the Trust
Securities; (b) the payment of any expenses owed by the Trust; and (c) the
discharge of all administrative duties of the Administrative Trustee,
including the performance of any tax reporting obligations with respect to
the Trust or the Securityholders.

<PAGE>

Section 8.04. Liquidation.
-----------

(a) If an Early Termination Event specified in clause (a), (c)
or (d) of Section 8.02 occurs or upon the Expiration Date, the Trust shall
be liquidated by the Trustees as expeditiously as the Trustees determine to
be possible by distributing, after satisfaction of liabilities to creditors
of the Trust as provided by applicable law, to each Securityholder a Like
Amount of Debentures, subject to Section 8.04(d). If an Early Termination
Event specified in clause (b) occurs, the Trust shall be liquidated by the
Trustee on the date of distribution of the Debentures specified by the
Depositor in its notice delivered pursuant to Section 8.02. Notice of
liquidation shall be given by the Property Trustee by first-class mail,
postage prepaid, mailed not later than 30 nor more than 60 days prior to
the Liquidation Date to each Holder of Trust Securities at such Holder's
address appearing in the Securities Register. All notices of liquidation
shall:

(i) state the Liquidation Date;

(ii) state that from and after the Liquidation Date, the
Trust Securities will no longer be deemed to be Outstanding and any Trust
Securities Certificates not surrendered for exchange will be deemed to
represent a Like Amount of Debentures; and

(iii) provide such information with respect to the
mechanics by which Holders may exchange Trust Securities Certificates for
certificates evidencing Debentures, or, if Section 8.04(d) applies, receive
a Liquidation Distribution, as the Administrative Trustee or the Property
Trustee shall deem appropriate.

(b) In order to effect the liquidation of the Trust and
distribution of the Debentures to Securityholders, the Property Trustee,
either itself acting as exchange agent or through the appointment of a
separate exchange agent, shall establish such procedures as it shall deem
appropriate to effect the distribution of Debentures in exchange for the
Outstanding Trust Securities Certificates.

<PAGE>

Debentures, (iv) any Trust Securities Certificates not so surrendered for
exchange will be deemed to represent a Like Amount of Debentures, accruing
interest at the rate provided for in the Debentures from the last
Distribution Date on which a Distribution was made on such Trust
Certificates until such certificates are so surrendered (and until such
certificates are so surrendered, no payments or interest or principal will
be made to Holders of Trust Securities Certificates with respect to such
Debentures) and (v) all rights of Securityholders holding Trust Securities
will cease, except the right of such Securityholders to receive Debentures
upon surrender of Trust Securities Certificates.

(d) In the event that, notwithstanding the other provisions of
this Section 8.04, whether because of an order for termination entered by a
court of competent jurisdiction or otherwise, distribution of the
Debentures in the manner provided herein is determined by the Property
Trustee not to be practical, the Trust Property shall be liquidated, and
the Trust shall be terminated, by the Property Trustee in such manner as
the Property Trustee determines. In such event, on the date of the
termination of the Trust, Securityholders will be entitled to receive out
of the assets of the Trust available for distribution to Securityholders,
after satisfaction of liabilities to creditors of the Trust as provided by
applicable law, an amount equal to the Liquidation Amount per Trust
Security plus accumulated and unpaid Distributions thereon to the date of
payment (such amount being the "Liquidation Distribution"). If, upon any
such termination, 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, subject to the next succeeding
sentence, the amounts payable by the Trust on the Trust Securities shall be
paid on a pro rata basis (based upon Liquidation Amounts). The Holder of
the Common Securities will be entitled to receive Liquidation Distributions
upon any such termination pro rata (determined as aforesaid) with Holders
of Preferred Securities, except that, if a Debenture Event of Default has
occurred and is continuing, the Preferred Securities shall have a priority
over the Common Securities, and no Liquidation Distribution will be paid to
the Holders of the Common Securities unless and until receipt by all
Holders of the Preferred Securities of the entire Liquidation Distribution
payable in respect thereof.

ARTICLE IX

Mergers, Etc.

<PAGE>

lease its properties and assets as an entirety or substantially as an
entirety to any corporation or other entity, except as described below.
The Trust may, at the request of the Depositor, with the consent of the
Administrative Trustee and without the consent of the Holders of the
Preferred Securities, merge with or into, consolidate, amalgamate, or be
replaced by, a trust organized as such under the laws of any State;
provided, that (i) such successor entity either (a) expressly assumes all
of the obligations of the Trust with respect to the Preferred 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 the payment of Distributions and
payments upon liquidation and redemption, (ii) the Depositor expressly
appoints a trustee of such successor entity possessing the same powers and
duties as the Property Trustee as the holder of the Debentures, (iii) the
Successor Securities are listed, or any Successor Securities will be listed
upon notification of issuance, on any national securities exchange or other
organization on which the Preferred Securities are then listed, (iv) such
merger, consolidation, amalgamation or replacement does not cause the
Preferred Securities (including 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
Preferred Securities (including any Successor Securities) in any material
respect, (vi) such successor entity has a purpose substantially similar to
that of the Trust, (vii) prior to such merger, consolidation, amalgamation
or replacement, the Depositor has received an Opinion of Counsel 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 Preferred Securities (including any Successor Securities) in
any material respect, and (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 (viii) the Depositor or any permitted successor assignee owns all of
the common securities of such successor entity and guarantees the
obligations of such successor entity under the Successor Securities at
least to the extent provided by the Guarantee and this Trust Agreement.
Notwithstanding the foregoing, the Trust shall not, except with the consent
of all Holders of the Preferred Securities, merge with or into,
consolidate, amalgamate, 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 not to be classified as a grantor trust for
United States Federal income tax purposes.

<PAGE>

ARTICLE X

Miscellaneous Provisions

Section 10.01. Limitation of Rights of Securityholders. The
---------------------------------------
death or incapacity of any Person having an interest, beneficial or
otherwise, in Trust Securities shall not operate to terminate this Trust
Agreement, nor entitle the legal representatives or heirs of such Person or
any Securityholder for such Person, to claim an accounting, take any action
or bring any proceeding in any court for a partition or winding-up of the
arrangements contemplated hereby, nor otherwise affect the rights,
obligations and liabilities of the parties hereto or any of them.

Section 10.02. Amendment.
---------

(a) This Trust Agreement may be amended from time to time by the
Trustees and the Depositor, without the consent of any Securityholders, to
cure any ambiguity, defect or inconsistency or make any other change which
does not adversely affect in any material respect the interests of any
Holder of Preferred Securities. Any amendments of this Trust Agreement
pursuant to Section 10.02(a) shall become effective when notice thereof is
given to the Securityholders.

(b) Except as provided in Section 10.02(a) and 10.02(c) hereof,
any provision of this Trust Agreement may be amended by the Trustees and
the Depositor with the consent of Holders of at least a majority of the
aggregate Liquidation Amount of the Outstanding Preferred Securities.

(c) In addition to and notwithstanding any other provision in
this Trust Agreement, without the consent of each affected Securityholder
(such consent being obtained in accordance with Section 6.03 or 6.06
hereof), this Trust Agreement may not be amended to (i) change the amount,
timing or currency of any Distribution or Liquidation Distribution on the
Trust Securities or otherwise adversely affect the method of payment of any
Distribution or Liquidation Distribution required to be made in respect of
the Trust Securities as of a specified date; (ii) change the redemption
provisions of the Trust Securities; (iii) restrict the right of a
Securityholder to institute suit for the enforcement of any such payment
contemplated in (i) or (ii) above on or after the related date; (iv) modify
the first sentence of Section 2.06 hereof; (v) authorize or issue any
beneficial interest in the Trust other than as contemplated by this Trust
Agreement as of the date hereof; (vi) change the conditions precedent for
the Depositor to elect to terminate the Trust and distribute the Debentures
to Holders of Preferred Securities as set forth in Section 8.02; or
(vii) affect the limited liability of any Holder of Preferred Securities,
and, notwithstanding any other provision herein, without the unanimous
consent of the Securityholders (such consent

<PAGE>

being obtained in accordance with Section 6.03 or 6.06 hereof), paragraphs
(b) and (c) of this Section 10.02 may not be amended.

(d) Notwithstanding any other provisions of this Trust
Agreement, no amendment to this Trust Agreement shall be made without
receipt by the Trust of an Opinion of Counsel experienced in such matters
to the effect that such amendment will not affect the Trust's status as a
grantor trust for United States Federal income tax purposes or its
exemption from regulation as an "investment company" under the 1940 Act.

(e) Notwithstanding anything in this Trust Agreement to the
contrary, without the consent of the Depositor, this Trust Agreement may
not be amended in a manner which imposes any additional obligation on the
Depositor.

(f) In the event that any amendment to this Trust Agreement is
made, the Administrative Trustee shall promptly provide to the Depositor a
copy of such amendment.

(g) In executing any amendment to the Trust Agreement, the
Property Trustee shall be entitled to receive, and (subject to Section
8.01) shall be fully protected in relying upon, an Opinion of Counsel
stating that the execution of such amendment is authorized or permitted by
this Trust Agreement. Except as contemplated by Section 7.11, the Trustee
may, but shall not be obligated to, enter into any amendment to this Trust
Agreement which affects the Trustee's own rights, duties or immunities
under this Trust Agreement or otherwise.

Section 10.03. Severability. In case any provision in this
------------
Trust Agreement or in the Trust Securities Certificates shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.

Section 10.04. Governing Law. THIS TRUST AGREEMENT AND THE
-------------
RIGHTS AND OBLIGATIONS OF EACH OF THE SECURITYHOLDERS, THE TRUST AND THE
TRUSTEES WITH RESPECT TO THIS TRUST AGREEMENT AND THE TRUST SECURITIES
SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE
OF DELAWARE, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES.

Section 10.05. Payments Due on Non-Business Day. If the date
--------------------------------
fixed for any payment on any Trust Security shall be a day which is not a
Business Day, then such payment need not be made on such date but may be
made on the next succeeding day which is a Business Day (except as
otherwise provided therein, with the same force and effect as though made
on the date fixed for such

<PAGE>

payment), and no interest shall accumulate thereon for the period after
such date to the date of payment on such succeeding day.

Section 10.06. Successors and Assigns. This Trust Agreement
----------------------
shall be binding upon and shall inure to the benefit of any successor to
the Trust or successor Trustee or both, including any successor by
operation of law. Except in connection with a consolidation, merger or
sale involving the Depositor that is permitted under Article V of the
Indenture and pursuant to which the assignee agrees in writing to perform
the Depositor's obligations hereunder, the Depositor shall not assign its
obligations hereunder.

Section 10.07. Headings. The Article and Section headings are
--------
for convenience only and shall not affect the construction of this Trust
Agreement.

Section 10.08. Reports, Notices and Demands. Any report,
----------------------------
notice, demand or other communication which by any provision of this Trust
Agreement is required or permitted to be given or served to or upon any
Securityholder or the Depositor may be given or served in writing by
deposit thereof, first-class postage prepaid in the United States mail,
hand delivery or facsimile transmission, in each case, addressed, (a) in
the case of a Holder of a Preferred Security, to such Holder of a Preferred
Security as such Securityholder's name and address may appear on the
Securities Register; and (b) in the case of the Holder of a Common Security
or the Depositor, to Public Service Electric and Gas Company, 80 Park
Plaza, Newark, New Jersey 07101, Attention: Treasurer, facsimile no.:
_____. Such notice, demand or other communication to or upon a
Securityholder shall be deemed to have been sufficiently given or made, for
all purposes, upon hand delivery, mailing or transmission.

Any notice, demand or other communication which by any provision
of this Trust Agreement is required or permitted to be given or served to
or upon the Trust, the Property Trustee or the Administrative Trustee shall
be given in writing addressed (until another address is published by the
Trust) as follows: (a) with respect to the Property Trustee to First Union
National Bank, 765 Broad Street, Newark, New Jersey 07101, Attention:
Corporate Trust Office; (b) with respect to the Delaware Trustee, to 1225
King Street, Wilmington, Delaware 19801 Attention: Corporate Trust
Department; and (c) with respect to the Administrative Trustee, to the
address above for notices to the Depositor, marked "Attention:
Administrative Trustee of PSE&G Capital Trust I c/o Treasurer." Such
notice, demand or other communication to or upon the Trust or the Property
Trustee shall be deemed to have been sufficiently given or made only upon
actual receipt of the writing by the Trust or the Property Trustee.

<PAGE>

Section 10.09. Agreement Not to Petition. Each of the Trustees
-------------------------
and the Depositor agree for the benefit of the Securityholders that, until
at least one year and one day after the Trust has been terminated in
accordance with Article VIII, they shall not file, or join in the filing
of, a petition against the Trust under any Bankruptcy Laws or otherwise
join in the commencement of any proceeding against the Trust under any
Bankruptcy Law. In the event the Depositor or any of the Trustees takes
action in violation of this Section 10.09, the Property Trustee agrees, for
the benefit of Securityholders, that at the expense of the Depositor, it
shall file an answer with the bankruptcy court or otherwise properly
contest the filing of such petition by the Depositor or any of the
Trustees, as applicable, against the Trust or the commencement of such
action and raise the defense that the Depositor has agreed in writing not
to take such action and should be stopped and precluded therefrom and such
other defenses, if any, as counsel for the Property Trustee or the Trust
may assert. The provisions of this Section 10.09 shall survive the
termination of this Trust Agreement.

Section 10.10. Trust Indenture Act; Conflict with Trust
----------------------------------------
Indenture Act.
- -------------

(a) This Trust Agreement is subject to the provisions of the
Trust Indenture Act that are required to be part of this Trust Agreement
and shall, to the extent applicable, be governed by such provisions.

(b) The Property Trustee shall be the only Trustee which is a
trustee for the purposes of the Trust Indenture Act.

(c) If any provision hereof limits, qualifies or conflicts with
another provision hereof which is required to be included in this Trust
Agreement by any of the provisions of the Trust Indenture Act, such
required provision shall control. If any provision of this Trust Agreement
modifies or excludes any provision of the Trust Indenture Act which may be
so modified or excluded, the latter provision shall be deemed to apply to
this Trust Agreement as so modified or excluded, as the case may be.

(d) The application of the Trust Indenture Act to this Trust
Agreement shall not affect the nature of the Trust Securities as equity
securities representing undivided beneficial interests in the assets of the
Trust.

Section 10.11. Acceptance of Terms of Trust Agreement, Guarantee
-------------------------------------------------
and Indenture. THE RECEIPT AND ACCEPTANCE OF A TRUST SECURITY OR ANY
- -------------
INTEREST THEREIN BY OR ON BEHALF OF A SECURITYHOLDER OR ANY BENEFICIAL
OWNER, WITHOUT ANY SIGNATURE OR FURTHER MANIFESTATION OF ASSENT, SHALL
CONSTITUTE THE UNCONDITIONAL ACCEPTANCE BY THE SECURITYHOLDER AND ALL
OTHERS HAVING A BENEFICIAL

<PAGE>

INTEREST IN SUCH TRUST SECURITY OF ALL THE TERMS AND PROVISIONS OF THIS
TRUST AGREEMENT AND AGREEMENT TO THE SUBORDINATION PROVISIONS AND OTHER
TERMS OF THE GUARANTEE AND THE INDENTURE, AND SHALL CONSTITUTE THE
AGREEMENT OF THE TRUST, SUCH SECURITYHOLDER AND SUCH OTHERS THAT THE TERMS
AND PROVISIONS OF THIS TRUST AGREEMENT SHALL BE BINDING, OPERATIVE AND
EFFECTIVE AS BETWEEN THE TRUST AND SUCH SECURITYHOLDER AND SUCH OTHERS.

PUBLIC SERVICE ELECTRIC AND GAS COMPANY,
as Depositor

By:
-------------------------------------
Name:
Title:

FIRST UNION NATIONAL BANK, as Property
Trustee

By:
-------------------------------------
Name:
Title:

FIRST UNION BANK OF DELAWARE, as
Delaware Trustee

By:
-------------------------------------
Name:
Title:

_____________________________,
as Administrative Trustee
Name:

<PAGE>

EXHIBIT A

CERTIFICATE OF TRUST
OF
PSE&G CAPITAL TRUST I

THIS CERTIFICATE OF TRUST of PSE&G Capital Trust I (the "Trust"),
dated April 19, 1996, is being duly executed and filed by the undersigned,
as trustees, to form a business trust under the Delaware Business Trust Act
(12 Del. C. Sec. 3801 et seq.).
------- -------

(i) Name. The name of the business trust being formed hereby
----
is PSE&G Capital Trust I.

(ii) Delaware Trustee. The name and business address of the
----------------
trustee of the Trust in the State of Delaware are First Union Bank of
Delaware, 1225 King Street, Wilmington DE 19801; attn: Corporate Trust
Department.

(iii) Counterparts. This Certificate of Trust may be executed
------------
in one or more counterparts, all of which together shall constitute one and
the same instrument.

(iv) Effective Date. This Certificate of Trust shall be
--------------
effective as of its filing.

IN WITNESS WHEREOF, the undersigned, being the trustees of the
Trust, have executed this Certificate of Trust as of the date first above
written.

FIRST UNION NATIONAL BANK, as Trustee

By:
-------------------------------------
Name:
Title:

FIRST UNION BANK OF DELAWARE, as Trustee

By:
-------------------------------------
Name:
Title:

_____________________________,
as Trustee
Name: Fred F. Saunders

A-1

<PAGE>

EXHIBIT B

June __, 1996

The Depository Trust Company
55 Water Street, 49th Floor
New York, New York 10041-0099

Attention:
General Counsel's Office

Re: PSE&G Capital Trust I Preferred Securities
------------------------------------------

Ladies and Gentlemen:

The purpose of this letter is to set forth certain matters
relating to the issuance and deposit with The Depository Trust Company
("DTC") of the PSE&G Capital Trust I _____% Cumulative Quarterly Income
Preferred Securities, Series A (the "Preferred Securities"), of PSE&G
Capital Trust I, a Delaware business trust (the "Issuer"), created pursuant
to a Trust Agreement between Public Service Electric and Gas Company
("PSE&G"), First Union National Bank, as Property Trustee, the Delaware
Trustee named therein and the Administrative Trustee named therein. The
payment of distributions on the Preferred Securities and payments due upon
liquidation of the Issuer or redemption of the Preferred Securities are
guaranteed by PSE&G, to the extent the Issuer has funds available for the
payment thereof and to the extent set forth in a Guarantee Agreement dated
June __, 1996 by PSE&G and backup undertakings relating thereto with
respect to the Preferred Securities. The Issuer proposes to sell the
Preferred Securities to certain Underwriters (the "Underwriters") pursuant
to an Underwriting Agreement dated June __, 1996 by and among the
Underwriters, the Issuer and PSE&G and the Underwriters wish to take
delivery of the Preferred Securities through DTC. First Union National
Bank is acting as transfer agent and registrar with respect to the
Preferred Securities (the "Transfer Agent and Registrar").

To induce DTC to accept the Preferred Securities as eligible for
deposit at DTC, and to act in accordance with DTC's Rules with respect to
the Preferred Securities, the Issuer and the Transfer Agent and Registrar
make the following representations to DTC:

<PAGE>

1. Prior to the closing of the sale of the Preferred Securities
to the Underwriters, which is expected to occur on or about June __, 1996,
there shall be deposited with DTC one or more global certificates
(individually and collectively, the "Global Certificate") registered in the
name of DTC's nominee, Cede & Co., representing an aggregate of __________
Preferred Securities and bearing the following legend:

Unless this certificate is presented by an authorized
representative of The Depository Trust Company, a New York
corporation ("DTC"), to the Issuer or its agent for registration
of transfer, exchange or payment, and any certificate issued is
registered in the name of Cede & Co. or in such other name as is
requested by an authorized representative of DTC (and any payment
hereon is made to Cede & Co. or to such other entity as is
requested by an authorized representative of DTC), ANY TRANSFER,
PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY
PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede
& Co., has an interest herein.

2. The Amended and Restated Trust Agreement of the Issuer
provides for the voting by holders of the Preferred Securities under
certain limited circumstances. The Issuer shall establish a record date
for such purposes and shall, to the extent possible, give DTC notice of
such record date not less than 15 calendar days in advance of such record
date.

3. In the event of a stock split, conversion, recapitalization,
reorganization or any other similar transaction resulting in the
cancellation of all or any part of the Preferred Securities outstanding,
the Issuer or the Transfer Agent and Registrar shall send DTC a notice of
such event at least 5 business days prior to the effective date of such
event.

4. In the event of distribution on, or an offering or issuance
of rights with respect to, the Preferred Securities outstanding, the Issuer
or the Transfer Agent and Registrar shall send DTC a notice specifying:
(a) the amount of and conditions, if any, applicable to the payment of any
such distribution or any such offering or issuance of rights; (b) any
applicable expiration or deadline date or any date by which any action on
the part of the holders of Preferred Securities is required; and (c) the
date any required notice is to be mailed by or on behalf of the Issuer to
holders of Preferred Securities or published by or on behalf of the Issuer
(whether by mail or publication, the "Publication Date"). Such notice
shall be sent to DTC by a secure means (e.g., legible telecopy, registered
----
or certified mail, overnight delivery) in a timely manner designed to
assure that such notice is in DTC's possession no later than the close of
business on the business day

<PAGE>

before the Publication Date. The Issuer or the Transfer Agent and
Registrar will forward such notice either in a separate secure transmission
for each CUSIP number or in a secure transmission of multiple CUSIP numbers
(if applicable) that includes a manifest or list of each CUSIP number
submitted in that transmission. (The party sending such notice shall have
a method to verify subsequently the use of such means and the timeliness of
such notice.) The Publication Date shall be not less than 20 calendar days
nor more than 90 calendar days prior to the payment of any such
distribution or any such offering or issuance of rights with respect to the
Preferred Securities. After establishing the amount of payment to be made
on the Preferred Securities, the Issuer or the Transfer Agent and Registrar
will notify DTC's Dividend Department of such payment 5 business days prior
to payment date. Notices to DTC's Dividend Department by telecopy shall be
sent to (212) 709-1723. Such notices by mail or by any other means shall
be sent to:

Manager, Announcements
Dividend Department
The Depository Trust Company
7 Hanover Square, 22nd Floor
New York, New York 10004-2695

The Issuer or the Transfer Agent and Registrar shall confirm
DTC's receipt of such telecopy by telephoning the Dividend Department at
(212) 709-1270.

5. In the event of a redemption by the Issuer of the Preferred
Securities, notice specifying the terms of the redemption and the
Publication Date of such notice shall be sent by the Issuer or the Transfer
Agent and Registrar to DTC not less than 30 calendar days prior to such
event by a secure means in the manner set forth in paragraph 4. Such
redemption notice shall be sent to DTC's Call Notification Department at
(516) 227-4164 or (516) 227-4190, and receipt of such notice shall be
confirmed by telephoning (516) 227-4070. Notice by mail or by any other
means shall be sent to:

Call Notification Department
The Depository Trust Company
711 Stewart Avenue
Garden City, New York 11530-4719

6. In the event of any invitation to tender the Preferred
Securities, notice specifying the terms of the tender and the Publication
Date of such notice shall be sent by the Issuer or the Transfer Agent and
Registrar to DTC by a secure means and in a timely manner as described in
paragraph 4. Notices to DTC pursuant

<PAGE>

to this paragraph and notices of other corporate actions (including
mandatory tenders, exchanges and capital changes) shall be sent, unless
notification to another department is expressly provided for herein, by
telecopy to DTC's Reorganization Department at (212) 709-1093 or
(212) 709-1094 and receipt of such notice shall be confirmed by telephoning
(212) 709-6884, or by mail or any other means to:

Manager, Reorganization Department
Reorganization Window
The Depository Trust Company
7 Hanover Square, 23rd Floor
New York, New York 10004-2695

7. All notices and payment advances sent to DTC shall contain
the CUSIP number or numbers of the Preferred Securities and the
accompanying designation of the Preferred Securities, which, as of the date
of this letter, is "PSE&G Capital Trust I _____% Cumulative Quarterly
Income Preferred Securities, Series A".

8. Distribution payments or other cash payments with respect to
the Preferred Securities evidenced by the Global Certificate shall be
received by Cede & Co., as nominee of DTC, or its registered assigns in
same day funds on each payment date (or in accordance with existing
arrangements between the Issuer or the Transfer Agent and Registrar and
DTC). Such payments shall be made payable to the order of Cede & Co., and
shall be addressed as follows:

NDFS Redemption Department
The Depository Trust Company
7 Hanover Square, 23rd Floor
New York, New York 10004-2695

9. DTC may by prior written notice direct the Issuer and the
Transfer Agent and Registrar to use any other telecopy number or address of
DTC as the number or address to which notices or payments may be sent.

10. In the event of a conversion, redemption, or any other
similar transaction (e.g., tender made and accepted in response to the
----
Issuer's or the Transfer Agent and Registrar's invitation) necessitating a
reduction in the aggregate number of Preferred Securities outstanding
evidenced by a global certificate, DTC, in its discretion: (a) may request
the Issuer or the Transfer Agent and Registrar to issue and countersign a
new global certificate; or (b) may make an appropriate notation on such
global certificate indicating the date and amount of such reduction.

<PAGE>

11. DTC may discontinue its services as a securities depositary
with respect to the Preferred Securities at any time by giving reasonable
prior written notice to the Issuer and the Transfer Agent and Registrar (at
which time DTC will confirm with the Issuer or the Transfer Agent and
Registrar the aggregate number of Preferred Securities deposited with it)
and discharging its responsibilities with respect thereto under applicable
law. Under such circumstances, the Issuer may determine to make
alternative arrangements for book-entry settlement for the Preferred
Securities, make available one or more separate global certificates
evidencing Preferred Securities to any Participant having Preferred
Securities credited to its DTC account, or issue definitive Preferred
Securities to the beneficial owners thereof, and in any such case, DTC
agrees to cooperate fully with the Issuer and the Transfer Agent and
Registrar and to return the global certificates duly endorsed for transfer
as directed by the Issuer or the Transfer Agent and Registrar, together
with any other documents of transfer reasonably requested by the Issuer or
the Transfer Agent and Registrar.

12. In the event that the Issuer determines that beneficial
owners of the global certificate(s) evidencing Preferred Securities shall
be able to obtain definitive Preferred Securities, the Issuer or the
Transfer Agent and Registrar shall notify DTC of the availability of such
definitive Preferred Securities. In such event, the Issuer or the Transfer
Agent and Registrar shall issue, transfer and exchange definitive Preferred
Securities in appropriate amounts, as required by DTC and others, and DTC
agrees to cooperate fully with the Issuer and the Transfer Agent and
Registrar and to return the global certificate(s), duly endorsed for
transfer as directed by the Issuer or the Transfer Agent and Registrar,
together with any other documents of transfer reasonably requested by the
Issuer or the Transfer Agent and Registrar.

13. This letter may be executed in any number of counterparts,
each of which when so executed shall be deemed to be an original, but all
such counterparts shall together constitute but one and the same
instrument.

<PAGE>

Nothing herein shall be deemed to require the Transfer Agent and
Registrar to advance funds on behalf of the Issuer.

Very truly yours,

PSE&G CAPITAL TRUST I
(As Issuer)

By:
--------------------
Name: Fred F. Saunders, as
Administrative Trustee

----------------------------------------
(As Transfer Agent and Registrar)

By:
-------------------------------------
Name:
Title:

RECEIVED AND ACCEPTED:

THE DEPOSITORY TRUST COMPANY

By:
---------------------------
Authorized Officer

<PAGE>

EXHIBIT C

THIS CERTIFICATE IS NOT TRANSFERABLE

Certificate Number
C-1

Number of Common Securities

__________

Certificate Evidencing Common Securities
of

PSE&G Capital Trust I

_____% Common Securities
(liquidation amount $25 per Common Security)

PSE&G Capital Trust I, a statutory business trust created under
the laws of the State of Delaware (the "Trust"), hereby certifies that
Public Service Electric and Gas Company (the "Holder") is the registered
owner of ____________________ (__________) common securities of the Trust
representing undivided beneficial interests in the assets of the Trust and
designated as the _____% Common Securities (liquidation amount $25 per
Common Security) (the "Common Securities"). In accordance with Section
5.10 of the Trust Agreement (as defined below) the Common Securities are
not transferable and any attempted transfer hereof shall be void. The
designations, rights, privileges, restrictions, preferences and other terms
and provisions of the Common Securities are set forth in, and this
certificate and the Common Securities represented hereby are issued and
shall in all respects be subject to the terms and provisions of, the
Amended and Restated Trust Agreement of the Trust dated as of June __,
1996, as the same may be amended from time to time (the "Trust Agreement").
The Trust will furnish a copy of the Trust Agreement to the Holder without
charge upon written request to the Trust at its principal place of business
or registered office.

Upon receipt of this certificate, the Holder is bound by the
Trust Agreement and is entitled to the benefits thereunder.

<PAGE>

IN WITNESS WHEREOF, the Administrative Trustee of the Trust has
executed this certificate this _____ day of June, 1996.

PSE&G CAPITAL TRUST I

By:
-------------------------------------
Name: Fred F. Saunders
Administrative Trustee

<PAGE>

EXHIBIT D

Certificate Number

_____

Number of Preferred Securities
CUSIP NO. __________

Certificate Evidencing Preferred Securities
of

PSE&G Capital Trust I

_____% Cumulative Quarterly Income Preferred Securities,
Series A
(liquidation amount $25 per Preferred Security)

PSE&G Capital Trust I, a statutory business trust created under
the laws of the State of Delaware (the "Trust"), hereby certifies that Cede
& Co. (the "Holder") is the registered owner of _________,
_________________________ (_________) preferred securities of the Trust
representing an undivided beneficial interest in the assets of the Trust
and designated the PSE&G Capital Trust I _____% Cumulative Quarterly Income
Preferred Securities, Series A (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 as provided in Section 5.04 of the Trust
Agreement (as defined below). The designations, rights, privileges,
restrictions, preferences and other terms and provisions of the Preferred
Securities are set forth in, and this certificate and the Preferred
Securities represented hereby are issued and shall in all respects be
subject to the terms and provisions of, the Amended and Restated Trust
Agreement of the Trust dated as of June __, 1996, as the same may be
amended from time to time (the "Trust Agreement"). The Holder is entitled
to the benefits of the Guarantee Agreement entered into by Public Service
Electric and Gas Company, a New Jersey corporation, and First Union
National Bank as guarantee trustee, dated as of June __, 1996 (the
"Guarantee") to the extent provided therein, together with the obligations
of Public Service Electric and Gas Company under the Trust Agreement, its
Deferrable Interest Subordinated Debentures and the Indenture related to
such Deferrable Interest Subordinated Debentures. The Trust will furnish a
copy of the Trust Agreement and the Guarantee to the Holder without charge
upon written request to the Trust at its principal place of business or
registered office.

<PAGE>

Upon receipt of this certificate, the Holder is bound by the
Trust Agreement and is entitled to the benefits thereunder.

IN WITNESS WHEREOF, the Administrative Trustee of the Trust has
executed this certificate this _____ day of June, 1996.

PSE&G CAPITAL TRUST I

By:
-------------------------------------
Name: Fred F. Saunders
Administrative Trustee

[To be included in Book-Entry Preferred Securities Certificate]

This Preferred Security is a Book-Entry Preferred Securities Certificate
within the meaning of the Trust Agreement previously referred to and is
registered in the name of The Depository Trust Company (the "Depository")
or a nominee of the Depository. This Preferred Security is exchangeable
for Preferred Securities registered in the name of a person other than the
Depository or its nominee only in the limited circumstances described in
the Trust Agreement and no transfer of this Preferred Security (other than
a transfer of this Preferred Security 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 Preferred Security is presented by an authorized representative
of The Depository Trust Company, a New York corporation, (55 Water Street,
New York) to PSE&G Capital Trust I or its agent for registration of
transfer, exchange or payment, and any Preferred Security issued 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. or to such other entity as is requested by an
authorized representative of The Depository Trust Company, ANY TRANSFER,
PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY A PERSON IS WRONGFUL
inasmuch as the registered owner hereof, Cede & Co., has an interest
herein.

<PAGE>

ASSIGNMENT

FOR VALUE RECEIVED, the undersigned assigns and transfers to:
(Insert assignee's social security or tax identification number)
(Insert address and zip code of assignee)

__________ Preferred Securities represented by this Preferred Securities
Certificate and irrevocably appoints

agent to transfer said Preferred Securities 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)

Exhibit 3-8

Amended and Restated
Trust Agreement for PSE&G Capital Trust II

among

PUBLIC SERVICE ELECTRIC AND GAS COMPANY
(as Depositor)

FIRST UNION NATIONAL BANK
(as Property Trustee)

FIRST UNION BANK OF DELAWARE
(as Delaware Trustee)

and

THE ADMINISTRATIVE TRUSTEE NAMED HEREIN

Dated as of
_______ __, ____

<PAGE>

TABLE OF CONTENTS

Page
----

ARTICLE I

Defined Terms

Section 1.01. Definitions . . . . . . . . . . . . . . . . . . . . . . . . 2

ARTICLE II

Continuation of the Trust

Section 2.01. Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 2.02. Office of the Delaware Trustee; Principal Place
of Business . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 2.03. Initial Contribution of Trust Property; Expenses
of the Trust . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 2.04. Issuance of the Trust Securities . . . . . . . . . . . . . . 11
Section 2.05. Purchase of Debentures . . . . . . . . . . . . . . . . . . . 11
Section 2.06. Declaration of Trust . . . . . . . . . . . . . . . . . . . . 11
Section 2.07. Authorization to Enter into Certain
Transactions . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 2.08. Assets of Trust . . . . . . . . . . . . . . . . . . . . . . 15
Section 2.09. Title to Trust Property . . . . . . . . . . . . . . . . . . 15

ARTICLE III

Payment Account

Section 3.01. Payment Account . . . . . . . . . . . . . . . . . . . . . . 16

ARTICLE IV

Distributions; Redemption

Section 4.01. Distributions . . . . . . . . . . . . . . . . . . . . . . . 16
Section 4.02. Redemption . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 4.03. Subordination of Common Securities . . . . . . . . . . . . . 19
Section 4.04. Payment Procedures . . . . . . . . . . . . . . . . . . . . . 20
Section 4.05. Tax Returns and Reports . . . . . . . . . . . . . . . . . . 20

ARTICLE V

Trust Securities Certificates

Section 5.01. Initial Ownership . . . . . . . . . . . . . . . . . . . . . 21
Section 5.02. The Trust Securities Certificates . . . . . . . . . . . . . 21
Section 5.03. Delivery of Trust Securities Certificates . . . . . . . . . 21
Section 5.04. Registration of Transfer and Exchange of
Preferred Securities Certificates . . . . . . . . . . . . . 22

(i)
<PAGE>

Page
----

Section 5.05. Mutilated, Destroyed, Lost or Stolen Trust
Securities Certificates . . . . . . . . . . . . . . . . . . 23
Section 5.06. Persons Deemed Securityholders . . . . . . . . . . . . . . . 23
Section 5.07. Access to List of Securityholders' Names
and Addresses . . . . . . . . . . . . . . . . . . . . . . . 23
Section 5.08. Maintenance of Office or Agency . . . . . . . . . . . . . . 24
Section 5.09. Appointment of Paying Agent . . . . . . . . . . . . . . . . 24
Section 5.10. No Transfer of Common Securities by Depositor . . . . . . . 25
Section 5.11. Book-Entry Preferred Securities Certificates;
Common Securities Certificate . . . . . . . . . . . . . . . 25
Section 5.12. Definitive Preferred Securities Certificates . . . . . . . . 25
Section 5.13. Rights of Securityholders . . . . . . . . . . . . . . . . . 26

ARTICLE VI

Acts of Securityholders; Meetings; Voting

Section 6.01. Limitations on Voting Rights . . . . . . . . . . . . . . . . 26
Section 6.02. Notice of Meetings . . . . . . . . . . . . . . . . . . . . . 27
Section 6.03. Meetings of Preferred Securityholders . . . . . . . . . . . 28
Section 6.04. Voting Rights . . . . . . . . . . . . . . . . . . . . . . . 28
Section 6.05. Proxies, etc. . . . . . . . . . . . . . . . . . . . . . . . 28
Section 6.06. Securityholder Action by Written Consent . . . . . . . . . . 28
Section 6.07. Record Date for Voting and Other Purposes . . . . . . . . . 29
Section 6.08. Acts of Securityholders . . . . . . . . . . . . . . . . . . 29
Section 6.09. Inspection of Records . . . . . . . . . . . . . . . . . . . 30

ARTICLE VII

The Trustees

Section 7.01. Certain Duties and Responsibilities . . . . . . . . . . . . 30
Section 7.02. Notice of Defaults; Direct Action by
Securityholders . . . . . . . . . . . . . . . . . . . . . . 31
Section 7.03. Certain Rights of Property Trustee . . . . . . . . . . . . . 32
Section 7.04. Not Responsible for Recitals or Issuance of
Securities . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 7.05. May Hold Securities . . . . . . . . . . . . . . . . . . . . 33
Section 7.06. Compensation; Indemnity; Fees . . . . . . . . . . . . . . . 33
Section 7.07. Corporate Property Trustee Required; Eligibility
of Trustees . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 7.08. Conflicting Interests . . . . . . . . . . . . . . . . . . . 35
Section 7.09. Co-Trustees and Separate Trustee . . . . . . . . . . . . . . 35
Section 7.10. Resignation and Removal; Appointment of
Successor . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 7.11. Acceptance of Appointment by Successor . . . . . . . . . . . 38
Section 7.12. Merger, Conversion, Consolidation or Succession
to Business . . . . . . . . . . . . . . . . . . . . . . . . 39

(ii)
<PAGE>
Page
----

Section 7.13. Preferential Collection of Claims Against
Depositor or Trust . . . . . . . . . . . . . . . . . . . . . 39
Section 7.14. Reports by Property Trustee . . . . . . . . . . . . . . . . 39
Section 7.15. Reports to the Property Trustee . . . . . . . . . . . . . . 40
Section 7.16. Evidence of Compliance with Conditions
Precedent . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 7.17. Statements Required in Officer's Certificate
and Opinion of Counsel . . . . . . . . . . . . . . . . . . . 40
Section 7.18. Number of Trustees . . . . . . . . . . . . . . . . . . . . . 41
Section 7.19. Delegation of Power . . . . . . . . . . . . . . . . . . . . 41
Section 7.20. Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

ARTICLE VIII

Termination and Liquidation

Section 8.01. Termination Upon Expiration Date . . . . . . . . . . . . . . 42
Section 8.02. Early Termination . . . . . . . . . . . . . . . . . . . . . 42
Section 8.03. Termination . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 8.04. Liquidation . . . . . . . . . . . . . . . . . . . . . . . . 42

ARTICLE IX

Mergers, Etc.

Section 9.01. Mergers, Consolidations, Amalgamations or
Replacements of the Trust . . . . . . . . . . . . . . . . . 44

ARTICLE X

Miscellaneous Provisions

Section 10.01. Limitation of Rights of Securityholders . . . . . . . . . . 46
Section 10.02. Amendment . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 10.03. Severability . . . . . . . . . . . . . . . . . . . . . . . 47
Section 10.04. Governing Law . . . . . . . . . . . . . . . . . . . . . . . 47
Section 10.05. Payments Due on Non-Business Day . . . . . . . . . . . . . 47
Section 10.06. Successors and Assigns . . . . . . . . . . . . . . . . . . 48
Section 10.07. Headings . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 10.08. Reports, Notices and Demands . . . . . . . . . . . . . . . 48
Section 10.09. Agreement Not to Petition . . . . . . . . . . . . . . . . . 49
Section 10.10. Trust Indenture Act; Conflict with Trust
Indenture Act . . . . . . . . . . . . . . . . . . . . . . . 49
Section 10.11. Acceptance of Terms of Trust Agreement,
Guarantee and Indenture . . . . . . . . . . . . . . . . . . 49

(iii)

<PAGE>
PSE&G Capital Trust II

Certain Sections of this Trust Agreement relating to
Sections 310 through 318 of the
Trust Indenture Act of 1939

Trust Indenture Trust Agreement
Act Section Section
- --------------- ---------------

Sec. 310(a)(1) . . . . . . . . . . . . . . . . . . 7.07
(a)(2) . . . . . . . . . . . . . . . . . . 7.07
(a)(3) . . . . . . . . . . . . . . . . . . 7.09
(a)(4) . . . . . . . . . . . . . . . . . . 2.07(a)(ii)
(b) . . . . . . . . . . . . . . . . . . 7.08
Sec. 311(a) . . . . . . . . . . . . . . . . . . 7.13
(b) . . . . . . . . . . . . . . . . . . 7.13
Sec. 312(a) . . . . . . . . . . . . . . . . . . 5.07
(b) . . . . . . . . . . . . . . . . . . 5.07
(c) . . . . . . . . . . . . . . . . . . 5.07
Sec. 313(a) . . . . . . . . . . . . . . . . . . 7.14
(b) . . . . . . . . . . . . . . . . . . 7.14
(c) . . . . . . . . . . . . . . . . . . 7.14
(d) . . . . . . . . . . . . . . . . . . 7.14
Sec. 314(a) . . . . . . . . . . . . . . . . . . 7.15
(b) . . . . . . . . . . . . . . . . . . Not Applicable
(c)(1) . . . . . . . . . . . . . . . . . . 7.16, 7.17
(c)(2) . . . . . . . . . . . . . . . . . . 7.16, 7.17
(c)(3) . . . . . . . . . . . . . . . . . . Not Applicable
(d) . . . . . . . . . . . . . . . . . . Not Applicable
(e) . . . . . . . . . . . . . . . . . . 7.17
Sec. 315(a) . . . . . . . . . . . . . . . . . . 7.01(a), 7.03(a)
(b) . . . . . . . . . . . . . . . . . . 7.02, 10.08
(c) . . . . . . . . . . . . . . . . . . 7.01(a)
(d) . . . . . . . . . . . . . . . . . . 7.01, 7.03
(e) . . . . . . . . . . . . . . . . . . Not Applicable
Sec. 316(a) . . . . . . . . . . . . . . . . . . Not Applicable
(a)(1)(A) . . . . . . . . . . . . . . . . . . Not Applicable
(a)(1)(B) . . . . . . . . . . . . . . . . . . Not Applicable
(a)(2) . . . . . . . . . . . . . . . . . . Not Applicable
(b) . . . . . . . . . . . . . . . . . . Not Applicable
(c) . . . . . . . . . . . . . . . . . . Not Applicable
Sec. 317(a)(1) . . . . . . . . . . . . . . . . . . Not Applicable
(a)(2) . . . . . . . . . . . . . . . . . . Not Applicable
(b) . . . . . . . . . . . . . . . . . . 5.09
Sec. 318(a) . . . . . . . . . . . . . . . . . . 10.10

__________________
Note: This reconciliation and tie sheet shall not, for any purpose, be
deemed to be a part of the Trust Agreement.

(iv)

<PAGE>

AMENDED AND RESTATED TRUST AGREEMENT of PSE&G Capital Trust II (the
"Trust"), dated as of _______ __, ____, among (i) Public Service Electric and
Gas Company, a New Jersey corporation (the "Depositor"), (ii) First Union
National Bank, a national banking association, as trustee (the "Property
Trustee"), (iii) First Union Bank of Delaware, a _________________, whose
address in Delaware is 1225 King Street, Wilmington, Delaware 19801, as Delaware
trustee (the "Delaware Trustee"), (iv) Fred F. Saunders, an individual whose
address is c/o Public Service Electric and Gas Company, 80 Park Plaza, P.O. Box
570, Newark, New Jersey 07101 (the "Administrative Trustee") (the Property
Trustee, the Delaware Trustee and the Administrative Trustee are referred to
collectively as the "Trustees"), and (v) the several Holders, as hereinafter
defined.

WITNESSETH:

WHEREAS, the Depositor, the Property Trustee, the Delaware Trustee and
the Administrative Trustee have heretofore duly declared and established a
business trust pursuant to the Delaware Business Trust Act by entering into a
Trust Agreement, dated as of April 19, 1996 (the "Original Trust Agreement"),
and by executing and filing with the Secretary of State of the State of Delaware
a Certificate of Trust on April 19, 1996, a form of which is attached hereto as
Exhibit A; and

WHEREAS, the Depositor, the Property Trustee, the Delaware Trustee and
the Administrative Trustee desire to amend and restate the Original Trust
Agreement in its entirety as set forth herein to provide for, among other
things, (i) the issuance of the Common Securities, as hereinafter defined, by
the Trust to the Depositor, (ii) the issuance and sale of the Preferred
Securities, as hereinafter defined, by the Trust pursuant to the Underwriting
Agreement, as hereinafter defined, and (iii) the acquisition by the Trust from
the Depositor of the Debentures, as hereinafter defined.

NOW, THEREFORE, in consideration of the agreements and obligations set
forth herein and for other good and valuable consideration, the sufficiency of
which is hereby acknowledged, each party, for the benefit of the other party and
for the benefit of the Securityholders, as hereinafter defined, hereby amends
and restates the Original Trust Agreement in its entirety and agrees as follows:
<PAGE>

ARTICLE I

Defined Terms

Section 1.01. Definitions. For all purposes of this Trust Agreement,
-----------
except as otherwise expressly provided or unless the context otherwise requires:

(a) each term defined in this Article I has the meaning assigned
to it in this Article I and includes the plural as well as the singular;

(b) each of the other terms used herein that is defined in the
Trust Indenture Act, either directly or by reference therein, has the
meaning assigned to it therein;

(c) unless the context otherwise requires, any reference to an
"Article" or a "Section" refers to an Article or a Section, as the case may
be, of this Trust Agreement; and

(d) the words "herein", "hereof" and "hereunder" and other words
of similar import refer to this Trust Agreement as a whole and not to any
particular Article, Section or other subdivision.

"Act" has the meaning specified in Section 6.08.
---

"Administrative Trustee" means the individual identified as the
----------------------
"Administrative Trustee" in the preamble to this Trust Agreement, solely in
his/her capacity as Administrative Trustee of the Trust created and continued
hereunder and not in his/her individual capacity, or such Administrative
Trustee's successor in interest in such capacity, or any successor trustee
appointed as herein provided.

"Affiliate" of any specified Person means any other Person directly or
---------
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.

"Bankruptcy Event" means, with respect to any Person, the occurrence
----------------
of any of the following events:

(a) Such Person, pursuant to or within the meaning of any Bankruptcy
Law:

<PAGE>

(i) commences a voluntary case or proceeding;

(ii) consents to the entry of an order for relief against it
in an involuntary case or proceeding;

(iii) consents to the appointment of a Custodian, as
hereinafter defined, of it or for all or substantially
all of its property, and such Custodian is not
discharged within 60 days;

(iv) makes a general assignment for the benefit of its
creditors; or

(v) admits in writing its inability to pay its debts
generally as they become due; or

(b) A court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that:

(i) is for relief against such Person in an involuntary
case or proceeding;

(ii) appoints a Custodian of such Person for all or
substantially all of its properties;

(iii) orders the liquidation of such Person;

(iv) and in each case the order or decree remains unstayed
and in effect for 60 days.

"Bankruptcy Laws" means Title 11 of the United States Code, or similar
---------------
federal or state law for the relief of debtors. "Custodian" means any receiver,
trustee, assignee, liquidator, sequestrator, custodian or similar official under
any Bankruptcy Law.

"Board Resolution" means (i) a copy of a resolution certified by the
----------------
Secretary or an Assistant Secretary of the Depositor to have been duly adopted
by the Depositor's Board of Directors or a committee established thereby and to
be in full force and effect on the date of such certification or (ii) a
certificate signed by the authorized officer or officers of the Depositor to
whom the Depositor's Board of Directors or a committee established thereby has
delegated its authority, and in each case, delivered to the Trustees.

<PAGE>

"Book-Entry Preferred Securities Certificates" means certificates
--------------------------------------------
representing Preferred Securities issued in global, fully registered form with
the Clearing Agency as described in Section 5.11.

"Business Day" means a day other than (a) a Saturday or Sunday, or (b)
------------
a day on which banking institutions in The City of New York or the State of New
Jersey are required by law or executive order to remain closed.

"Certificate Depository Agreement" means the agreement among the
--------------------------------
Trust, the Property Trustee and The Depository Trust Company, as the initial
Clearing Agency, dated as of the Closing Date, relating to the Book-Entry
Preferred Securities Certificates, substantially in the form attached hereto as
Exhibit B, as the same may be amended and supplemented from time to time.

"Clearing Agency" means an organization registered as a "clearing
---------------
agency" pursuant to Section 17A of the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder. The Depository
Trust Company will be the initial Clearing Agency.

"Closing Date" means the Time of Delivery as defined in the
------------
Underwriting Agreement, which date is also the date of execution and delivery of
this Trust Agreement.

"Code" means the Internal Revenue Code of 1986, as amended.
----

"Commission" means the Securities and Exchange Commission, as from
----------
time to time constituted, created under the Securities Exchange Act of 1934, as
amended, or, if at any time after the execution of this Trust Agreement 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.

"Common Security" means an undivided beneficial interest in the assets
---------------
of the Trust, having a Liquidation Amount of $_____ and having the rights
provided therefor in this Trust Agreement, including the right to receive
Distributions and a Liquidation Distribution as provided herein.

"Common Securities Certificate" means a certificate evidencing
-----------------------------
ownership of Common Securities, substantially in the form attached hereto as
Exhibit C.

"Corporate Trust Office" means the principal corporate trust office of
----------------------
the Property Trustee located in the State of New

<PAGE>

Jersey which at the date hereof is 765 Broad Street, Newark, New Jersey 07107.

"Creditor" has the meaning specified in Section 2.03.
--------

"Debenture Event of Default" means an "Event of Default" as defined in
--------------------------
the Indenture with respect to the Debentures.

"Debenture Redemption Date" means "Redemption Date" as defined in the
-------------------------
Indenture with respect to the Debentures.

"Debentures" means the Depositor's _____% Deferrable Interest
----------
Subordinated Debentures, Series B, issued pursuant to the Indenture.

"Delaware Business Trust Act" means Chapter 38 of Title 12 of the
---------------------------
Delaware Code, 12 Del. C. Sec. 3801, et seq., as it may be amended from time to
time.

"Delaware Trustee" means the entity identified as the "Delaware
----------------
Trustee" in the preamble to this Trust Agreement solely in its capacity as
Delaware Trustee of the Trust created and continued hereunder and not in its
individual capacity, or its successor in interest in such capacity, or any
successor trustee appointed as herein provided.

"Depositor" has the meaning specified in the preamble to this Trust
---------
Agreement.

"Distribution Date" has the meaning specified in Section 4.01(a).
-----------------

"Distributions" means amounts payable in respect of the Trust
-------------
Securities as provided in Section 4.01.

"Event of Default" means the occurrence of a Debenture Event of
----------------
Default (whatever the reason for such Event of Default and whether it shall be
voluntary or involuntary or be effected by operation of law or pursuant to any
judgment, decree or order of any court or any order, rule or regulation of any
administrative or governmental body).

<PAGE>

"Expiration Date" has the meaning specified in Section 8.01.
---------------

"Extension Period" means the period or periods in which pursuant to
----------------
the Indenture payments of interest on the Debentures are deferred by extending
the interest payment periods thereof.

"Guarantee" means the Guarantee Agreement executed and delivered by
---------
the Depositor to First Union National Bank, a national banking association, as
trustee thereunder, contemporaneously with the execution and delivery of this
Trust Agreement, for the benefit of the Holders of the Preferred Securities, as
amended from time to time.

"Indenture" means the Indenture, dated as of June 1, 1996, between the
---------
Depositor and the Debenture Trustee, as trustee thereunder, as amended or
supplemented from time to time.

"Lien" means any lien, pledge, charge, encumbrance, mortgage, deed of
----
trust, adverse ownership interest, hypothecation, assignment, security interest
or preference, priority or other security agreement or preferential arrangement
of any kind or nature whatsoever.

"Like Amount" means (a) with respect to a redemption of Trust
-----------
Securities, Trust Securities having an aggregate Liquidation Amount equal to the
principal amount of Debentures to be repaid in accordance with the Indenture and
(b) with respect to a distribution of Debentures to Holders of Trust Securities
in connection with a termination and liquidation of the Trust, Debentures having
a principal amount equal to the aggregate Liquidation Amount of the Trust
Securities in exchange for which such Debentures are distributed.

"Liquidation Amount" means the stated amount of $_____ per Trust
------------------
Security.

"Liquidation Date" means the date on which Debentures are to be
----------------
distributed to Holders of Trust Securities in connection with a termination and
liquidation of the Trust pursuant to Section 8.04(a).

"Liquidation Distribution" has the meaning specified in Section
------------------------
8.04(d).

"1940 Act" means the Investment Company Act of 1940, as amended.
--------

"Officers' Certificate" means a certificate signed by the Chairman,
---------------------
the President, any Vice President, the Treasurer,

<PAGE>

any Assistant Treasurer, the Secretary or any Assistant Secretary of the
Depositor.

"Opinion of Counsel" means a written opinion of counsel, who may be
------------------
counsel for the Trust, the Property Trustee or the Depositor or an Affiliate of
the Depositor, but not an employee of any thereof, and who shall be acceptable
to the Property Trustee.

"Original Trust Agreement" has the meaning specified in the recitals
------------------------
to this Trust Agreement.

"Outstanding", when used with respect to Trust Securities, means, as
-----------
of the date of determination, all Trust Securities theretofore executed and
delivered under this Trust Agreement, except:

(a) Trust Securities theretofore cancelled by the Administrative
Trustee or delivered to the Administrative Trustee for cancellation;

(b) Trust Securities for whose redemption money in the necessary
amount has been theretofore deposited with the Property Trustee or any
Paying Agent for the Holders of such Trust Securities; provided that, if
--------
such Trust Securities are to be redeemed, notice of such redemption has
been duly given pursuant to this Trust Agreement;

(c) Trust Securities which have been paid or in exchange for or
in lieu of which other Trust Securities have been executed and delivered
pursuant to Section 5.05, other than any such Trust Securities in respect
of which there shall have been presented to the Property Trustee proof
satisfactory to it that such Trust Securities are held by a bona fide
purchaser; and

(d) as provided in Section 8.04(c);

provided, however, that in determining whether the Holders of the requisite
- -------- -------
Liquidation Amount of the Outstanding Preferred Securities have given any
request, demand, authorization, direction, notice, consent or waiver hereunder,
Preferred Securities owned by the Depositor, any Trustee or any Affiliate of the
Depositor or any Trustee shall be disregarded and deemed not to be Outstanding,
except that (a) in determining whether any Trustee shall be protected in relying
upon any such request, demand, authorization, direction, notice, consent or
waiver, only Preferred Securities which such Trustee actually knows to be so
owned shall be so disregarded and (b) the foregoing shall not apply at any time
when all of the Outstanding Preferred Securities are owned by the Depositor, one
or more of the Trustees and/or any such Affiliate. Preferred Securities so
owned which have been pledged in good faith

<PAGE>

may be regarded as Outstanding if the pledgee establishes to the satisfaction of
the Administrative Trustee the pledgee's right so to act with respect to such
Preferred Securities and that the pledgee is not the Depositor or any Affiliate
of the Depositor.

"Paying Agent" means the Property Trustee and any co-paying agent
------------
appointed pursuant to Section 5.09.

"Payment Account" means a segregated non-interest-bearing corporate
---------------
trust account maintained by the Property Trustee in its trust department for the
benefit of the Securityholders in which all amounts paid to the Property Trustee
in respect of the Debentures or the Guarantee will be held and from which the
Property Trustee or such other Paying Agent shall make payments to the
Securityholders in accordance with Article 4.

"Preferred Security" means a __% Cumulative Quarterly Income Preferred
------------------
Security, Series B issued by the Trust, and having an undivided beneficial
interest in the assets of the Trust, having a Liquidation Amount of $_____ and
having rights provided therefor in this Trust Agreement, including the right to
receive Distributions and a Liquidation Distribution as provided herein.

"Property Trustee" means the commercial bank or trust company
----------------
identified as the "Property Trustee" in the preamble to this Trust Agreement
solely in its capacity as Property Trustee of the Trust heretofore created and
continued hereunder and not in its individual capacity, or its successor in
interest in such capacity, or any successor property trustee appointed as herein
provided.

"Redemption Date" means, with respect to any Trust Security to be
---------------
redeemed, the date fixed for such redemption by or pursuant to this Trust
Agreement; provided that each Debenture Redemption Date and the stated maturity
--------
of the Debentures shall be a Redemption Date for a Like Amount of Trust
Securities.

"Redemption Price" means, with respect to any Trust Security, the
----------------
Liquidation Amount of such Trust Security, plus accumulated and unpaid
Distributions thereon to the Redemption Date.

<PAGE>

"Securities Register" and "Securities Registrar" have the respective
------------------- --------------------
meanings specified in Section 5.04.

"Securityholder" or "Holder" means a Person in whose name a Trust
-------------- ------
Security or Securities is registered in the Securities Register; any such Person
is a beneficial owner within the meaning of the Delaware Business Trust Act.

"Successor Securities" has the meaning specified in Section 8.05.
--------------------

"Trust" means the Delaware business trust created and continued hereby
-----
and identified on the cover page to this Trust Agreement.

"Trust Agreement" means this Amended and Restated Trust Agreement, as
---------------
the same may be modified, amended or supplemented in accordance with the
applicable provisions hereof, including all exhibits hereto, including, for all
purposes of this Trust Agreement and any such modification, amendment or
supplement, the provisions of the Trust Indenture Act that are deemed to be a
part of and govern this Trust Agreement and any such modification, amendment or
supplement, respectively.

"Trust Indenture Act" means the Trust Indenture Act of 1939 as in
-------------------
force at the date as of which this Trust Agreement was executed; provided,
--------
however, that in the event the Trust Indenture Act of 1939 is amended after such
- -------
date, "Trust Indenture Act" means, to the extent required by any such amendment,
the Trust Indenture Act of 1939 as so amended.

"Trust Property" means (a) the Debentures, (b) any cash on deposit in,
--------------
or owing to, the Payment Account and (c) all proceeds and rights in respect of
the foregoing and any other property and assets for the time being held or
deemed to be held by the Property Trustee pursuant to the trusts of this Trust
Agreement.

"Trust Security" means any one of the Common Securities or the
--------------
Preferred Securities.

"Trust Securities Certificate" means any one of the Common Securities
----------------------------
Certificates or the Preferred Securities Certificates.

"Underwriting Agreement" means the Underwriting Agreement, dated
----------------------
_______ __, ____, among the Trust, the Depositor and the Underwriters named
therein.

<PAGE>

ARTICLE II

Continuation of the Trust

Section 2.01. Name. The Trust created and continued hereby shall be
----
known as "PSE&G Capital Trust II" as such name may be modified from time to time
by the Administrative Trustee following written notice to the Holders of Trust
Securities and the other Trustees, in which name the Trustees may conduct the
business of the Trust, make and execute contracts and other instruments on
behalf of the Trust and sue and be sued.

Section 2.02. Office of the Delaware Trustee; Principal Place of
--------------------------------------------------
Business. The address of the Delaware Trustee in the State of Delaware is 1225
- --------
King Street, Wilmington, Delaware 19801 or such other address in the State of
Delaware as the Delaware Trustee may designate by written notice to the
Securityholders and the Depositor. The principal place of business of the Trust
is 80 Park Plaza, Newark, New Jersey 07101.

Section 2.03. Initial Contribution of Trust Property; Expenses of the
-------------------------------------------------------
Trust.
- -----

(a) The Property Trustee acknowledges receipt in trust from the
Depositor in connection with the Original Trust Agreement of the sum of $10,
which constituted the initial Trust Property.

(b) The Depositor shall be responsible for and shall pay for all
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 of the Trust, the issuance and sale of the
Preferred Securities, the fees and expenses (including reasonable counsel fees
and expenses) of the Trustees as provided in Section 7.06, the costs and
expenses of accountants, attorneys, statistical or bookkeeping services,
expenses for printing and engraving and computing or accounting equipment,
Paying Agent(s), Securities Registrar, duplication, travel and telephone and
other telecommunications expenses and costs and expenses incurred in connection
with the disposition of Trust assets).

(d) The Depositor's obligations under this Section 2.03 shall be for
the benefit of, and shall be enforceable by, the Property Trustee and any Person
to whom any such obligations, costs, expenses and taxes are owed (a "Creditor")
whether or not such Creditor has received notice hereof. The Property Trustee
and

<PAGE>

any such Creditor may enforce the Depositor's obligations under this
Section 2.03 directly against the Depositor and the Depositor irrevocably waives
any right or remedy to require that the Property Trustee or any such Creditor
take any action against the Trust or any other Person before proceeding against
the Depositor. The Depositor agrees to execute such additional agreements as
may be necessary or desirable in order to give full effect to the provisions of
this Section 2.03.

(e) The Depositor shall make no claim upon the Trust Property for the
payment of such expenses.

Section 2.04. Issuance of the Trust Securities. The Depositor, on
--------------------------------
behalf of the Trust and pursuant to the Original Trust Agreement, executed and
delivered the Underwriting Agreement. Contemporaneously with the execution and
delivery of this Trust Agreement, the Administrative Trustee, on behalf of the
Trust, shall execute in accordance with Section 5.02 and deliver to the
Underwriters named in the Underwriting Agreement one or more Book-Entry
Preferred Securities Certificates, registered in the name of the nominee of the
initial Clearing Agency, representing ______ Preferred Securities having an
aggregate Liquidation Amount of $__________, against receipt by the Property
Trustee of the aggregate purchase price of such Preferred Securities of
$__________, which amount the Administrative Trustee shall promptly deliver to
the Property Trustee. Contemporaneously therewith, the Administrative Trustee,
on behalf of the Trust, shall execute in accordance with Section 5.02 and
deliver to the Depositor a Common Securities Certificate, registered in the name
of the Depositor, representing _____ Common Securities having an aggregate
Liquidation Amount of $__________, and in satisfaction of the purchase price of
such Common Securities the Depositor shall deliver to the Property Trustee the
sum of $__________.

Section 2.05. Purchase of Debentures. Contemporaneously with the
----------------------
execution and delivery of this Trust Agreement (i) the Administrative Trustee,
on behalf of the Trust, shall purchase $__________ aggregate principal amount of
Debentures from the Depositor, registered in the name of the Trust and (ii) in
satisfaction of the purchase price for such Debentures, the Property Trustee, on
behalf of the Trust, shall deliver to the Depositor the sum of $__________.

Section 2.06. Declaration of Trust. The exclusive purposes and
--------------------
functions of the Trust are (a) to issue and sell Trust Securities and use the
proceeds from such sale to acquire the Debentures, (b) to maintain the status of
the Trust as a grantor trust for United States Federal income tax purposes, and
(c) except as otherwise limited herein, to engage in only those activities
necessary, convenient or incidental thereto. The Depositor hereby appoints the
Trustees as trustees of the Trust, to have all the

<PAGE>

rights, powers and duties to the extent set forth herein, and the Trustees
hereby accept such appointment. The Property Trustee hereby declares that it
will hold the Trust Property in trust upon and subject to the conditions set
forth herein for the benefit of the Securityholders. The Administrative Trustee
shall have all rights, powers and duties set forth herein. 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 Property Trustee or the
Administrative Trustee set forth herein. The Delaware Trustee shall be one of
the Trustees of the Trust for the sole and limited purpose of fulfilling the
requirements of Section 3807 of the Delaware Business Trust Act.

Section 2.07. Authorization to Enter into Certain Transactions.
------------------------------------------------

(a) The Trustees shall conduct the affairs of the Trust in accordance
with the terms of this Trust Agreement. Subject to the limitations set forth in
paragraph (b) of this Section, and in accordance with the following provisions
(i) and (ii), the Trustees shall have the authority to enter into all
transactions and agreements determined by the Trustees to be appropriate in
exercising the authority, express or implied, otherwise granted to the Trustees
under this Trust Agreement, and to perform all acts in furtherance thereof,
including without limitation, the following:

(i) As among the Trustees, the Administrative Trustee shall
have the power and authority to act on behalf of the Trust with respect to the
following matters:

(A) executing and delivering the Trust Securities on behalf
of the Trust;

(B) causing the Trust to enter into, and executing,
delivering and performing on behalf of the Trust, the Certificate Depository
Agreement and such other agreements as may be necessary or desirable in
connection with the purposes and function of the Trust, including the
appointment of a successor depositary;

(C) assisting in registering the Preferred Securities
under the Securities Act of 1933, as amended, and under state securities or blue
sky laws, and qualifying this Trust Agreement as a trust indenture under the
Trust Indenture Act;

(D) assisting in the listing of the Preferred Securities
upon such securities exchange or exchanges as the Depositor shall determine and
the registration of the Preferred Securities under the Securities Exchange Act
of 1934, as amended, and the preparation and filing of all periodic and other
reports and other documents pursuant to the foregoing;

<PAGE>

(E) to the extent provided in this Trust Agreement,
terminating and liquidating the Trust and preparing, executing and filing the
certificate of cancellation with the Secretary of State of the State of
Delaware;

(F) sending notices or assisting the Property Trustee in
sending notices and other information regarding the Trust Securities and the
Debentures to Securityholders in accordance with this Trust Agreement; and

(G) taking any action incidental to the foregoing as the
Administrative Trustee may from time to time determine is necessary or advisable
to give effect to the terms of this Trust Agreement for the benefit of the
Securityholders (without consideration of the effect of any such action on any
particular Securityholder).

(ii) As among the Trustees, the Property Trustee shall have the
power, duty and authority to act on behalf of the Trust with respect to the
following matters:

(A) establishing and maintaining the Payment Account and
appointing Paying Agents (subject to Section 5.09);

(B) receiving payment of the purchase price of the Trust
Securities;

(D) collecting interest, premium, if any, and principal
payments on the Debentures and depositing them in the Payment Account;

(E) making Distributions and other payments to the
Securityholders in respect of the Trust Securities;

(F) exercising all of the rights, powers and privileges of
a holder of the Debentures;

(G) sending notices of defaults, redemptions, Extension
Periods, liquidations and other information regarding the Trust Securities and
the Debentures to the Securityholders in accordance with this Trust Agreement;

(H) to the extent provided in this Trust Agreement,
terminating and liquidating the Trust, including distributing the Trust Property
in accordance with the terms of this Trust Agreement, and preparing, executing
and filing the certificate of cancellation with the Secretary of State of the
State of Delaware;

<PAGE>

(I) after an Event of Default, taking any action incidental
to the foregoing as the Property Trustee may from time to time determine is
necessary or advisable to give effect to the terms of this Trust Agreement and
protect and conserve the Trust Property for the benefit of the Securityholders
(without consideration of the effect of any such action on any particular
Securityholder); and

(J) registering transfers and exchanges of the Preferred
Securities in accordance with this Trust Agreement (but only if at such time the
Property Trustee shall be the Securities Registrar).

(b) So long as this Trust Agreement remains in effect, the Trust (or
the Trustees acting on behalf of the Trust) shall not undertake any business,
activities or transaction except as expressly provided herein or contemplated
hereby. In particular, the Trustees acting on behalf of the Trust shall not (i)
acquire any assets or investments (other than the Debentures), reinvest the
proceeds derived from investments, possess any power or otherwise act in such a
way as to vary the Trust Property or engage in any activities not authorized by
this Trust Agreement, (ii) sell, assign, transfer, exchange, mortgage, pledge,
set-off or otherwise dispose of any of the Trust Property or interests therein,
including to Securityholders, except as expressly provided herein, (iii) take
any action that would cause the Trust to fail or cease to qualify as a grantor
trust for United States Federal income tax purposes, (iv) incur any indebtedness
for borrowed money or issue any other debt, (v) issue any securities or other
evidences of beneficial ownership of, or beneficial interests in, the Trust
other than the Trust Securities, or (vi) take or consent to any action that
would result in the placement of a Lien on any of the Trust Property. The
Administrative Trustee shall defend all claims and demands of all Persons at any
time claiming any Lien on any of the Trust Property adverse to the interest of
the Trust or the Securityholders in their capacity as Securityholders.

(c) In connection with the issue and sale of the Preferred
Securities, the Depositor shall have the right and responsibility to assist the
Trust with respect to, or effect on behalf of the Trust, the following (and any
actions taken by the Depositor in furtherance of the following prior to the date
of this Trust Agreement are hereby ratified and confirmed in all respects):

(i) preparing for filing with the Commission and executing on
behalf of the Trust a registration statement on Form S-3 in relation to the
Preferred Securities, including any amendments thereto;

(ii) determining the States in which to take appropriate action
to qualify or register for sale all or part of

<PAGE>

the Preferred Securities and doing any and all such acts, other than actions
which must be taken by or on behalf of the Trust, and advising the Trustees of
actions they must take on behalf of the Trust, and preparing for execution and
filing any documents to be executed and filed by the Trust or on behalf of the
Trust, as the Depositor deems necessary or advisable in order to comply with the
applicable laws of any such States;

(iii) preparing for filing and executing on behalf of the Trust
an application to the New York Stock Exchange or any other national stock
exchange or The Nasdaq National Market for listing upon notice of issuance of
any Preferred Securities;

(iv) preparing for filing with the Commission and executing on
behalf of the Trust a registration statement on Form 8-A relating to the
registration of the Preferred Securities under Section 12(b) or 12(g) of the
Securities Exchange Act of 1934, as amended, including any amendments thereto;

(v) negotiating the terms of, and executing and delivering,
the Underwriting Agreement providing for the sale of the Preferred Securities;
and

(vi) taking any other actions necessary or desirable to carry
out any of the foregoing activities.

(d) Notwithstanding anything herein to the contrary, the
Administrative Trustee is authorized and directed to conduct the affairs of the
Trust and to operate the Trust so that (i) the Trust will not be deemed to be an
"investment company" required to be registered under the 1940 Act, or taxed as a
corporation or a partnership for United States Federal income tax purposes (ii)
the Trust will qualify as a grantor trust for United States Federal income tax
purposes and (iii) the Debentures will be treated as indebtedness of the
Depositor for United States Federal income tax purposes. In this connection,
the Depositor and the Administrative Trustee are authorized to take any action,
not inconsistent with applicable law, the Certificate of Trust, as amended from
time to time, or this Trust Agreement, that each of the Depositor and the
Administrative Trustee determines in their discretion to be necessary or
desirable for such purposes.

Section 2.08. Assets of Trust. The assets of the Trust shall consist
---------------
of the Trust Property.

Section 2.09. Title to Trust Property. Legal title to all Trust
-----------------------
Property shall be vested at all times in the Property Trustee (in its capacity
as such) and shall be held and administered by the Property Trustee for the
benefit of the Securityholders in accordance with this Trust Agreement.

<PAGE>

ARTICLE III

Payment Account

Section 3.01. Payment Account.
---------------

(a) On or prior to the Closing Date, the Property Trustee shall
establish the Payment Account. All monies and other property deposited or held
from time to time in the Payment Account shall be held by the Property Trustee
for the exclusive benefit of the Securityholders. The Property Trustee shall
have exclusive control of the Payment Account for the purpose of making deposits
in and withdrawals from the Payment Account in accordance with this Trust
Agreement; provided that any Paying Agent shall have the right of withdrawal
with respect to the Payment Account solely for the purpose of making the
payments contemplated under Article 4.

(b) The Property Trustee shall deposit in the Payment Account,
promptly upon receipt, all payments of principal of or premium, if any, or
interest on the Debentures and any amounts paid to the Property Trustee pursuant
to the Guarantee. Amounts held in the Payment Account shall not be invested
pending distribution thereof.

ARTICLE IV

Distributions; Redemption

Section 4.01. Distributions.
-------------

(a) Distributions on the Trust Securities shall be cumulative, and
will accumulate whether or not there are funds of the Trust available for the
payment of Distributions. Distributions shall accumulate from _______ __, ____
and, except during an Extension Period for the Debentures pursuant to the
Indenture, shall be payable quarterly in arrears on March 31, June 30,
September 30 and December 31 of each year, commencing on _______ __, ____. If
any date on which Distributions are otherwise payable on the Trust Securities is
not a Business Day, then the payment of such Distributions shall be made on the
next succeeding day which 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, payment of such Distributions shall be made
on the immediately preceding Business Day, in each case with the same force and
effect as if made on such date (each date on which Distributions are payable in
accordance with this Section 4.01(a) is referred to as a "Distribution Date").

<PAGE>

Within two Business Days after receipt by the Property Trustee of
notice of an Extension Period pursuant to Section 4.01 of the Indenture, the
Property Trustee shall give notice thereof to the Securityholders by first class
mail, postage prepaid.

(b) The Trust Securities represent undivided beneficial interests in
the Trust Property, and, subject to Sections 4.03 and 4.06 hereof, all
Distributions will be made pro rata on each of the Trust Securities.
Distributions on the Trust Securities shall be payable at a rate of _____% per
annum of the Liquidation Amount of the Trust Securities. The amount of
Distributions payable for any full quarterly period shall be computed on the
basis of a 360-day year of twelve 30-day months and, for any period shorter than
a full month, shall be computed on the basis of the actual number of days
elapsed in such period. During an Extension Period for the Debentures, the rate
per annum at which Distributions on the Trust Securities accumulate shall be
increased by an amount such that the aggregate amount of Distributions that
accumulate on all Trust Securities during any such Extension Period is equal to
the aggregate amount of interest (including interest payable on unpaid interest
at the rate per annum set forth above, compounded quarterly) that accrues during
any such Extension Period on the Debentures.

(c) Distributions on the Trust Securities shall be made from the
Payment Account by the Property Trustee or any Paying Agent and shall be payable
on each Distribution Date only to the extent that the Trust has funds then
available in the Payment Account for the payment of such Distributions.

(d) Distributions on the Trust Securities on each Distribution Date
shall be payable to the Holders thereof as they appear on the Securities
Register for the Trust Securities on the relevant record date, which shall be
one Business Day prior to such Distribution Date; provided, however, that in the
-------- -------
event that the Preferred Securities are not in book-entry-only form, the
relevant record date shall be the 15th day of the last month of each calendar
quarter, whether or not a Business Day.

Section 4.02. Redemption.
----------

(a) Upon receipt by the Trust of a notice of redemption of
Debentures, the Trust will call for redemption a Like Amount of Trust Securities
at the Redemption Price on the Debenture Redemption Date and will call for
redemption all Outstanding Trust Securities on the stated maturity date of the
Debentures.

(b) Notice of redemption shall be given by the Property Trustee by
first-class mail, postage prepaid, mailed not less than 30 nor more than 60 days
prior to the Redemption Date to each Holder of Trust Securities to be redeemed,
at such Holder's address

<PAGE>

appearing in the Securities Register. All notices of redemption shall state:

(i) the Redemption Date;

(ii) the Redemption Price;

(iii) the CUSIP number;

(iv) the place or places where Trust Securities Certificates
are to be surrendered for payment of the Redemption Price;

(vi) if less than all of the Outstanding Trust Securities are
to be redeemed, the identification and total Liquidation Amount of the
particular Trust Securities to be redeemed.

(c) The Trust Securities redeemed on each Redemption Date shall be
redeemed at the Redemption Price with the proceeds from the contemporaneous
redemption or payment at maturity of Debentures. Redemptions of the Trust
Securities shall be made and the Redemption Price shall be payable on each
Redemption Date only to the extent that the Trust has funds then available in
the Payment Account for the payment of such Redemption Price.

(d) If the Trust, by action of the Property Trustee, gives a notice
of redemption in respect of any Preferred Securities, then, on the Redemption
Date, subject to Section 4.02(c), the Property Trustee will irrevocably deposit
with the Paying Agent funds sufficient to pay the Redemption Price for the
Preferred Securities being redeemed on such date and will give the Paying Agent
irrevocable instructions and authority to pay the Redemption Price to the
Holders of such Preferred Securities upon surrender of their Preferred
Securities Certificates. Notwithstanding the foregoing, Distributions payable
on or prior to the Redemption Date for any Trust Securities called for
redemption shall be payable to the Holders of such Trust Securities as they
appear on the Securities Register for the Trust Securities on the record dates
for the related Distribution Dates. If notice of redemption shall have been
given and funds irrevocably deposited as required, then upon the date of such
deposit, all rights of Securityholders holding Trust Securities so called for
redemption will cease, except the right of such Securityholders to receive the
Redemption Price, but without interest, and such Trust Securities will cease to
be Outstanding. In the event that any date on which

<PAGE>

any Redemption Price is payable is not a Business Day, then payment of the
Redemption Price payable on such date will be made on the next succeeding day
which 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 will be made on the immediately preceding Business
Day, in each case, with the same force and effect as if made on such date. In
the event that payment of the Redemption Price in respect of any Trust
Securities called for redemption is improperly withheld or refused, and not paid
either by the Trust or by the Depositor pursuant to the Guarantee, Distributions
on such Trust Securities will continue to accumulate, at the then applicable
rate, from the Redemption Date originally established by the Trust for such
Trust Securities to the date such Redemption Price is actually paid, in which
case the actual payment date will be the date fixed for redemption for purposes
of calculating the Redemption Price.

(e) If less than all the Outstanding Trust Securities are to be
redeemed on a Redemption Date, then the aggregate Liquidation Amount of Trust
Securities to be redeemed shall be allocated __% to the Common Securities and
__% to the Preferred Securities. The particular Preferred Securities to be
redeemed shall be selected by the Property Trustee from the Outstanding
Preferred Securities not previously called for redemption, by such method as the
Property Trustee shall deem fair and appropriate. The Property Trustee shall
promptly notify the Securities Registrar in writing of the Preferred Securities
selected for redemption. If fewer than all of the Trust Securities represented
by a Trust Securities Certificate are redeemed, the Administrative Trustee shall
execute for the Holder a new Trust Securities Certificate representing the
unredeemed Trust Securities. For all purposes of this Trust Agreement, unless
the context otherwise requires, all provisions relating to the redemption of
Preferred Securities shall relate, in the case of any Preferred Securities
redeemed or to be redeemed only in part, to the portion of the Liquidation
Amount of Preferred Securities which has been or is to be redeemed.

Section 4.03. Subordination of Common Securities.
----------------------------------

(a) Payment of Distributions on, and the Redemption Price of, the
Trust Securities, as applicable, shall be made pro rata based on the Liquidation
Amount of the Trust Securities; provided, however, that if on any Distribution
-------- -------
Date or Redemption Date, a Debenture Event of Default shall have occurred and be
continuing, no payment of any Distribution on, or Redemption Price of, any
Common Security, and no other payment on account of the liquidation of Common
Securities, shall be made unless payment in full in cash of all accumulated and
unpaid Distributions on all Outstanding Preferred Securities for all
distribution periods terminating on or prior thereto, or in the case of payment
of the

<PAGE>

Redemption Price, the full amount of such Redemption Price on all Outstanding
Preferred Securities then being redeemed, shall have been made or provided for,
and all funds immediately available to the Property Trustee shall first be
applied to the payment in full in cash of all Distributions on, or the
Redemption Price of, Preferred Securities then due and payable.

(b) In the case of the occurrence of any Debenture Event of Default,
the Holder of Common Securities will be deemed to have waived any right to act
with respect to any related Event of Default under this Trust Agreement and such
Debenture Event of Default until the effect of such related Event of Default and
such Debenture Event of Default has been cured, waived or otherwise eliminated.
Until any such Event of Default under this Trust Agreement and such Debenture
Event of Default has been so cured, waived or otherwise eliminated, the Property
Trustee shall act solely on behalf of the Holders of the Preferred Securities
and not the Holder of the Common Securities, and only the Holders of the
Preferred Securities will have the right to direct the Property Trustee to act
on their behalf.

Section 4.04. Payment Procedures. Payments of Distributions pursuant
------------------
to Section 4.01 in respect of the Preferred Securities shall be made by check
mailed to the address of the Holder thereof as such address shall appear on the
Securities Register or, if the Preferred Securities are held by a Clearing
Agency, such Distributions shall be made to the Clearing Agency by wire transfer
in immediately available funds. Payments of Distributions pursuant to Section
4.01 in respect of the Common Securities shall be made in such manner as shall
be mutually agreed between the Property Trustee and the Holder of the Common
Securities. Payment of the Redemption Price or Liquidation Distribution of the
Trust Securities shall be made in immediately available funds upon surrender of
the Preferred Securities Certificate representing such Preferred Securities at
the Corporate Trust Office of the Property Trustee.

Section 4.05. Tax Returns and Reports. The Administrative Trustee
-----------------------
shall prepare (or cause to be prepared), at the Depositor's expense, and file
all Federal, State and local tax and information returns and reports required to
be filed by or in respect of the Trust. In this regard, the Administrative
Trustee shall (a) prepare and file (or cause to be prepared or filed) the
appropriate Internal Revenue Service Form required to be filed in respect of the
Trust in each taxable year of the Trust and (b) prepare and furnish (or cause to
be prepared and furnished) to each Securityholder the related Internal Revenue
Service Form 1099 OID, or any successor form or the information required to be
provided on such form. The Administrative Trustee shall provide the Depositor
and the Property Trustee with a copy of all such returns, reports and schedules
promptly after such filing or furnishing. The

<PAGE>

Trustees shall comply with United States Federal withholding and backup
withholding tax laws and information reporting requirements with respect to any
payments to Securityholders under the Trust Securities.

Section 4.06. Payments under Indenture. Any amount payable hereunder
------------------------
to any Holder of Preferred Securities shall be reduced by the amount of any
corresponding payment such Holder has directly received pursuant to Section 6.07
of the Indenture or pursuant to the Guarantee. Notwithstanding the provisions
hereunder to the contrary, Securityholders acknowledge that any Holder of
Preferred Securities that receives payment under Section 6.07 of the Indenture
may receive amounts greater than the amount such Holder may be entitled to
receive pursuant to the other provisions of this Trust Agreement.

ARTICLE V

Trust Securities Certificates

Section 5.01. Initial Ownership. Upon the creation of the Trust and
-----------------
the contribution by the Depositor pursuant to Section 2.03 and until the
issuance of the Trust Securities, and at any time during which no Trust
Securities are outstanding, the Depositor shall be the sole beneficial owner of
the Trust.

Section 5.02. The Trust Securities Certificates. The Trust
---------------------------------
Securities Certificates shall be issued representing one or more Preferred
Securities. Preferred Securities Certificates representing fractional interests
shall not be issued. The Trust Securities Certificates shall be executed on
behalf of the Trust by manual signature of the Administrative Trustee or by a
facsimile signature of the Administrative Trustee countersigned by the
Securities Registrar. Trust Securities Certificates bearing the manual
signatures of individuals who were, at the time when such signatures shall have
been affixed, authorized to sign on behalf of the Trust, shall be validly issued
and entitled to the benefits of this Trust Agreement, notwithstanding that such
individuals or any of them shall have ceased to be so authorized prior to the
delivery of such Trust Securities Certificates or did not hold such offices at
the date of delivery of such Trust Securities Certificates. A transferee of a
Trust Securities Certificate shall become a Securityholder, and shall be
entitled to the rights and subject to the obligations of a Securityholder
hereunder, upon due registration of such Trust Securities Certificate in such
transferee's name pursuant to Section 5.04.

Section 5.03. Delivery of Trust Securities Certificates. On the
-----------------------------------------
Closing Date, the Administrative Trustee shall cause Trust Securities
Certificates, in an aggregate Liquidation Amount as

<PAGE>

provided in Sections 2.04 and 2.05, to be executed on behalf of the Trust as
provided in Section 5.02 and delivered to or upon a written order of the
Depositor signed by its Chairman of the Board, its President, any Vice President
or the Treasurer, without further corporate action by the Depositor, in
authorized denominations. The written order of the Depositor shall be
accompanied by an Officer's Certificate and an Opinion of Counsel.

Section 5.04. Registration of Transfer and Exchange of Preferred
--------------------------------------------------
Securities Certificates. A registrar appointed by the Depositor (the
- -----------------------
"Securities Registrar") shall keep or cause to be kept, at the office or agency
maintained pursuant to Section 5.08, a register (the "Securities Register") in
which, subject to such reasonable regulations as it may prescribe, the
Securities Registrar shall provide for the registration of Trust Securities
Certificates (subject to Section 5.10 in the case of the Common Securities
Certificates) and registration of transfers and exchanges of Preferred
Securities Certificates as herein provided. The Property Trustee shall be the
initial Securities Registrar; any successor Securities Registrar shall be
appointed by the Administrative Trustee.

Upon surrender for registration of transfer of any Preferred
Securities Certificate at the office or agency maintained pursuant to Section
5.08, the Administrative Trustee shall execute and deliver, in the name of the
designated transferee or transferees, one or more new Preferred Securities
Certificates representing the same number of Preferred Securities dated the date
of execution by the Administrative Trustee. At the option of a Holder,
Preferred Securities Certificates may be exchanged for other Preferred
Securities Certificates upon surrender of the Preferred Securities Certificates
to be exchanged at the office or agency maintained pursuant to Section 5.08.
The Securities Registrar shall not be required to register the transfer of any
Preferred Securities that have been called for redemption or after the
Liquidation Date.

Preferred Securities presented or surrendered for registration of
transfer or exchange shall be accompanied by a written instrument of transfer in
form satisfactory to the Administrative Trustee and the Securities Registrar
duly executed by the Holder or such Holder's attorney duly authorized in
writing. Each Preferred Securities Certificate surrendered for registration of
transfer or exchange shall be cancelled and subsequently disposed of by the
Property Trustee in accordance with its customary practice.

No service charge shall be made for any registration of transfer or
exchange of Preferred Securities, but the Securities Registrar may require
payment of a sum sufficient to cover any tax

<PAGE>

or governmental charge that may be imposed in connection with any transfer or
exchange of Preferred Securities.

Section 5.05. Mutilated, Destroyed, Lost or Stolen Trust Securities
-----------------------------------------------------
Certificates. If (a) any mutilated Trust Securities Certificate shall be
- ------------
surrendered to the Securities Registrar, or if the Securities Registrar shall
receive evidence to its satisfaction of the destruction, loss or theft of any
Trust Securities Certificate, and (b) there shall be delivered to the Securities
Registrar and the Administrative Trustee such security or indemnity as may be
required by them to hold the Securities Registrar and the Trust harmless, then
in the absence of notice that such Trust Securities Certificate shall have been
acquired by a bona fide purchaser, the Administrative Trustee, on behalf of the
Trust shall execute and make available for delivery, in exchange for or in lieu
of any such mutilated, destroyed, lost or stolen Trust Securities Certificate, a
new Trust Securities Certificate of like tenor. In connection with the issuance
of any new Trust Securities Certificate under this Section, the Administrative
Trustee or the Securities Registrar may require the payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in connection
therewith. Any duplicate Trust Securities Certificate issued pursuant to this
Section shall constitute conclusive evidence of an undivided beneficial interest
in the assets of the Trust, as if originally issued, whether or not the lost,
stolen or destroyed Trust Securities Certificate shall be found at any time.

Section 5.06. Persons Deemed Securityholders. Prior to due
------------------------------
presentation of a Trust Security Certificate for registration of transfer, the
Administrative Trustee or the Securities Registrar shall treat the Person in
whose name any Trust Securities Certificate shall be registered in the
Securities Register as the owner and Holder of such Trust Securities Certificate
for the purpose of receiving Distributions and for all other purposes
whatsoever, and neither the Trustees nor the Securities Registrar shall be bound
by any notice to the contrary.

Section 5.07. Access to List of Securityholders' Names and Addresses.
------------------------------------------------------
In the event that the Property Trustee is no longer the Securities Registrar,
the Administrative Trustee or the Depositor shall furnish or cause to be
furnished (a) to the Property Trustee, quarterly not later than 10 days prior to
a Distribution Date, a list, in such form as the Property Trustee may reasonably
require, of the names and addresses of the Securityholders as of the most recent
record date and (b) to the Property Trustee, promptly after receipt by the
Administrative Trustee or the Depositor of a request therefor from the Property
Trustee in order to enable the Paying Agent to pay Distributions in accordance
with Section 4.01 hereof), in each case to the extent such information is in the
possession or control of the Administrative Trustee or the Depositor and is not
identical to a

<PAGE>

previously supplied list or has not otherwise been received by the Property
Trustee. The rights of Securityholders to communicate with other
Securityholders with respect to their rights under this Trust Agreement or under
the Trust Securities, and the corresponding rights of the Property Trustee shall
be as provided in the Trust Indenture Act. Each Holder, by receiving and
holding a Trust Securities Certificate, shall be deemed to have agreed not to
hold the Depositor, the Property Trustee, the Administrative Trustee or the
Delaware Trustee accountable by reason of the disclosure of its name and
address, regardless of the source from which such information was derived.

Section 5.08. Maintenance of Office or Agency. The Property Trustee
-------------------------------
shall maintain in Newark, New Jersey, an office or offices or agency or agencies
where Preferred Securities may be surrendered for registration of transfer or
exchange and where notices and demands to or upon the Trustees in respect of the
Trust Securities Certificates may be served. The Property Trustee shall give
prompt written notice to the Depositor and to the Securityholders of any change
in the location of the Securities Register or any such office or agency, which
shall initially be at the Corporate Trust Office of the Property Trustee.

Section 5.09. Appointment of Paying Agent. The Paying Agent shall
---------------------------
make Distributions to Securityholders from the Payment Account and shall report
the amounts of such Distributions to the Property Trustee and the Administrative
Trustee. Any Paying Agent shall have the revocable power to withdraw funds from
the Payment Account for the purpose of making Distributions. The Administrative
Trustee may revoke such power and remove the Paying Agent, provided that such
revocation and removal with respect to the sole Paying Agent shall not become
effective until the appointment of a successor. The Paying Agent shall
initially be the Property Trustee, and any co-paying agent chosen by the
Property Trustee and acceptable to the Administrative Trustee and the Depositor.
Any Person acting as Paying Agent shall be permitted to resign as Paying Agent
upon 30 days' written notice to the Administrative Trustee and the Depositor,
and, if applicable, the Property Trustee, provided that such resignation with
respect to the sole Paying Agent shall not become effective until the
appointment of a successor. In the event that the Property Trustee shall no
longer be the Paying Agent or a successor Paying Agent shall resign or its
authority to act be revoked, the Administrative Trustee shall appoint a
successor that is acceptable to the Property Trustee (in the case of any other
Paying Agent) and the Depositor to act as Paying Agent (which shall be a bank or
trust company and have a combined capital and surplus of at least $50,000,000).
The Administrative Trustee shall cause such successor Paying Agent or any
additional Paying Agent appointed by the Administrative Trustee to execute and
deliver to the Trustees an instrument in which such successor Paying Agent or
additional

<PAGE>

Paying Agent shall agree with the Trustees that as Paying Agent, such successor
Paying Agent or additional Paying Agent will hold all sums, if any, held by it
for payment to the Securityholders in trust for the benefit of the
Securityholders entitled thereto until such sums shall be paid to such
Securityholders. The Paying Agent shall return all of such sums remaining
unclaimed to the Property Trustee and upon removal of a Paying Agent such Paying
Agent shall also return such sums in its possession to the Property Trustee.
The provisions of Sections 7.01, 7.03 and 7.06 shall apply to the Property
Trustee also in its role as Paying Agent, for so long as the Property Trustee
shall act as Paying Agent and, to the extent applicable, to any other Paying
Agent appointed hereunder. Any reference in this Trust Agreement to the Paying
Agent shall include any co-paying agent unless the context requires otherwise.

Section 5.10. No Transfer of Common Securities by Depositor. To the
---------------------------------------------
fullest extent permitted by law, any attempted transfer of the Common Securities
shall be void. The Administrative Trustee shall cause each Common Securities
Certificate issued to the Depositor to contain a legend stating "THIS
CERTIFICATE IS NOT TRANSFERABLE". By execution of this Trust Agreement, the
Depositor agrees to the foregoing provisions.

Section 5.11. Book-Entry Preferred Securities Certificates; Common
----------------------------------------------------
Securities Certificate.
- ----------------------

(a) The Preferred Securities, upon original issuance on the Closing
Date, will not be engraved but will be issued in the form of one or more printed
or typewritten Book-Entry Preferred Securities Certificates, to be delivered to
The Depository Trust Company, the initial Clearing Agency, by, or on behalf of,
the Trust. Such Book-Entry Preferred Securities Certificate or Certificates
shall initially be registered on the Securities Register in the name of Cede &
Co., the nominee of the initial Clearing Agency.

(b) A single Common Securities Certificate representing the Common
Securities shall be issued to the Depositor in the form of a definitive Common
Securities Certificate.

Section 5.12. Definitive Preferred Securities Certificates. If (a)
--------------------------------------------
the Depositor advises the Trustees in writing that the Clearing Agency is no
longer willing or able to properly discharge its responsibilities with respect
to the Preferred Securities Certificates or the Clearing Agency is no longer
registered or in good standing under the Securities Exchange Act of 1934, as
amended, or other applicable statute or regulation, and the Depositor is unable
to locate a qualified successor, (b) the Depositor at its option advises the
Trustees in writing that it elects to terminate the book-entry system through
the Clearing Agency or (c) an Event of Default occurs and is continuing, then

<PAGE>

the Administrative Trustee shall issue Definitive Preferred Securities
Certificates. Upon surrender to the Administrative Trustee of the Book-Entry
Preferred Securities Certificates by the Clearing Agency, accompanied by
registration instructions, the Administrative Trustee shall execute and deliver
the Definitive Preferred Securities Certificates in accordance with the
instructions of the Clearing Agency. Neither the Securities Registrar nor the
Trustees shall be liable for any delay in delivery of such instructions and may
conclusively rely on, and shall be protected in relying on, such instructions.
The Definitive Preferred Securities Certificates shall be printed, lithographed
or engraved or may be produced in any other manner as is reasonably acceptable
to the Administrative Trustee, as evidenced by the execution thereof by the
Administrative Trustee.

Section 5.13. Rights of Securityholders. The Securityholders shall
-------------------------
not have any right or title to the Trust Property other than the undivided
beneficial interest in the assets of the Trust conferred by their Trust
Securities and they shall have no right to call for any partition or division of
property, profits or rights of the Trust except as described below. The Trust
Securities shall be personal property giving only the rights specifically set
forth therein and in this Trust Agreement. The Trust Securities shall have no
preemptive or similar rights and when issued and delivered to Securityholders
against payment of the purchase price therefor will be fully paid and
nonassessable by the Trust. The Holders of the Trust Securities, in their
capacities as such, 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.

ARTICLE VI

Acts of Securityholders; Meetings; Voting

Section 6.01. Limitations on Voting Rights.
----------------------------

(a) Except as provided herein and in the Indenture and as otherwise
required by law, no Holder of Trust Securities shall have any right to vote or
in any manner otherwise control the administration, operation and management of
the Trust or the obligations of the parties hereto, nor shall anything herein
set forth, or contained in the terms of the Trust Securities Certificates, be
construed so as to constitute the Securityholders from time to time as partners
or members of an association.

(b) The Trustees shall not (i) direct the time, method and place of
conducting any proceeding for any remedy available to the Debenture Trustee or
executing any trust or power conferred on

<PAGE>

the Debenture Trustee with respect to such Debentures, (ii) waive any past
default which may be waived under Section 6.04 of the Indenture, (iii) exercise
any right to rescind or annul an acceleration of the principal of all the
Debentures or (iv) consent to any amendment or modification of the Indenture,
where such consent shall be required, without, in each case, obtaining the prior
consent of the Holders of at least a majority in aggregate Liquidation Amount of
all Outstanding Preferred Securities; provided, however, that where such consent
-------- -------
under the Indenture would require the consent of each holder of Debentures
affected thereby, no such consent shall be given by the Property Trustee without
the prior written consent of each Holder of Outstanding Preferred Securities.
The Trustees shall not revoke any action previously authorized or approved by a
vote of the Holders of Preferred Securities, except by a subsequent vote of the
Holders of Preferred Securities. The Property Trustee shall notify all Holders
of the Preferred Securities of any notice received from the Debenture Trustee as
a result of the Trust being the holder of the Debentures. In addition to
obtaining the consent of the Holders of the Preferred Securities, prior to
taking any of the foregoing actions, the Trustees shall, at the expense of the
Depositor, obtain an Opinion of Counsel experienced in such matters to the
effect that the Trust will not be classified as an association taxable as a
corporation or partnership for United States Federal income tax purposes on
account of such action and will continue to be classified as a grantor trust for
United States Federal income tax purposes.

(c) Subject to Section 10.02(c) hereof, if any proposed amendment to
the Trust Agreement provides for, or the Trustees otherwise propose to effect,
(i) any action that would adversely affect in any material respect the powers,
preferences or special rights of the Preferred Securities, whether by way of
amendment to this Trust Agreement or otherwise, or (ii) the termination or
liquidation of the Trust, other than pursuant to the terms of this Trust
Agreement, then the Holders of Outstanding Preferred Securities will be entitled
to vote on such 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
aggregate Liquidation Amount of the Outstanding Preferred Securities.

Section 6.02. Notice of Meetings. Notice of all meetings of the
------------------
Preferred Securityholders, stating the time, place and purpose of the meeting,
shall be given by the Property Trustee pursuant to Section 10.08 to each
Preferred Securityholder of record, at his/her registered address, at least
15 days and not more than 90 days before the meeting. At any such meeting, any
business properly before the meeting may be so considered whether or not stated
in the notice of the meeting. Any adjourned meeting may be held as adjourned
without further notice.

<PAGE>

Section 6.03. Meetings of Preferred Securityholders. No annual
-------------------------------------
meeting of Securityholders is required to be held. The Administrative Trustee,
however, shall call a meeting of Securityholders to vote on any matter upon the
written request of the Holders of at least 25% of the aggregate Liquidation
Amount of the Outstanding Preferred Securities and the Administrative Trustee or
the Property Trustee may, at any time in their discretion, call a meeting of
Preferred Securityholders to vote on any matters as to which the Preferred
Securityholders are entitled to vote.

Holders of at least 50% of the aggregate Liquidation Amount of the
Outstanding Preferred Securities, present in person or by proxy, shall
constitute a quorum at any meeting of Securityholders.

If a quorum is present at a meeting, an affirmative vote of the
Holders of at least a majority of the aggregate Liquidation Amount of the
Outstanding Preferred Securities present, either in person or by proxy, at such
meeting shall constitute the action of the Securityholders, unless this Trust
Agreement requires a greater number of affirmative votes.

Section 6.04. Voting Rights. A Securityholder shall be entitled to
-------------
one vote for each Trust Security in respect of any matter as to which such
Securityholder is entitled to vote.

Section 6.05. Proxies, etc. At any meeting of Securityholders, any
-------------
Securityholder entitled to vote thereat may vote by proxy, provided that no
proxy shall be voted at any meeting unless it shall have been placed on file
with the Administrative Trustee, or with such other officer or agent of the
Trust as the Administrative Trustee may direct, for verification prior to the
time at which such vote shall be taken. Pursuant to a resolution of the
Property Trustee, proxies may be solicited in the name of the Property Trustee
or one or more officers of the Property Trustee. Only Securityholders of record
shall be entitled to vote. When Trust Securities are held jointly by several
Persons, any one of them may vote at any meeting in person or by proxy in
respect of such Trust Securities, but if more than one of them shall be present
at such meeting in person or by proxy, and such joint owners or their proxies so
present disagree as to any vote to be cast, such vote shall not be received in
respect of such Trust Securities. A proxy purporting to be executed by or on
behalf of a Securityholder shall be deemed valid unless challenged at or prior
to its exercise, and the burden of proving invalidity shall rest on the
challenger. No proxy shall be valid more than three years after its date of
execution.

Section 6.06. Securityholder Action by Written Consent. Any action
----------------------------------------
which may be taken by Securityholders at a meeting may be taken without a
meeting if Holders of the proportion of the

<PAGE>

Outstanding Preferred Securities required to approve such action shall consent
to the action in writing.

Section 6.07. Record Date for Voting and Other Purposes. For the
-----------------------------------------
purposes of determining the Securityholders who are entitled to notice of and to
vote at any meeting or by written consent, or for the purpose of any other
action, the Administrative Trustee may from time to time fix a date, not more
than 90 days prior to the date of any meeting of Securityholders, as a record
date for the determination of the identity of the Securityholders for such
purposes.

Section 6.08. Acts of Securityholders. Any request, demand,
-----------------------
authorization, direction, notice, consent, waiver or other action provided or
permitted by this Trust Agreement to be given, made or taken by Securityholders
may be embodied in and evidenced by one or more instruments of substantially
similar tenor signed by such Securityholders in person or by an agent duly
appointed in writing; and, except as otherwise expressly provided herein, such
action shall become effective when such instrument or instruments are delivered
to the Administrative Trustee. Such instrument or instruments (and the action
embodied therein and evidenced thereby) are herein sometimes referred to as the
"Act" of the Securityholders signing such instrument or instruments. Proof of
execution of any such instrument or of a writing appointing any such agent shall
be sufficient for any purpose of this Trust Agreement and (subject to Section
7.02) conclusive, if made in the manner provided in this Section.

The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him/her the execution thereof. Where
such execution is by a signer acting in a capacity other than his/her individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of his/her authority. The fact and date of the execution of any such instrument
or writing, or the authority of the Person executing the same, may also be
proved in any other manner which any Trustee receiving the same deems
sufficient.

The ownership of Preferred Securities shall be proved by the
Securities Register.

Any request, demand, authorization, direction, notice, consent, waiver
or other act of the Securityholder of any Trust Security shall bind every future
Securityholder of the same Trust Security and the Securityholder of every Trust
Security issued upon the registration of transfer thereof or in exchange
therefor or in

<PAGE>

lieu thereof in respect of anything done, omitted or suffered to be done by the
Trustees or the Trust in reliance thereon, whether or not notation of such
action is made upon such Trust Security.

Without limiting the foregoing, a Securityholder entitled hereunder to
take any action hereunder with regard to any particular Trust Security may do so
with regard to all or any part of the Liquidation Amount of such Trust Security
or by one or more duly appointed agents, each of which may do so pursuant to
such appointment with regard to all or any part of such Liquidation Amount.

If any dispute shall arise between the Securityholders and the
Administrative Trustee or among such Securityholders or Trustees with respect to
the authenticity, validity or binding nature of any request, demand,
authorization, direction, consent, waiver or other Act of such Securityholder or
Trustee under this Article VI, then the determination of such matter by the
Property Trustee shall be conclusive with respect to such matter.

Section 6.09. Inspection of Records. Upon reasonable notice to the
---------------------
Administrative Trustee and the Property Trustee, the records of the Trust shall
be open to inspection by Securityholders during normal business hours for any
purpose reasonably related to such Securityholder's interest as a
Securityholder.

ARTICLE VII

The Trustees

Section 7.01. Certain Duties and Responsibilities.
-----------------------------------

(a) The duties and responsibilities of the Trustees shall be as
provided by this Trust Agreement and, in the case of the Property Trustee, also
by the Trust Indenture Act. The Property Trustee, other than during the
occurrence and continuance of an Event of Default, undertakes to perform only
such duties as are specifically set forth in this Trust Agreement and, upon an
Event of Default, must exercise the same degree of care and skill as a prudent
person would exercise or use in the conduct of his/her own affairs. The
Trustees shall have all the privileges, rights and immunities provided by the
Delaware Business Trust Act. Notwithstanding the foregoing, no provision of
this Trust Agreement shall require the Trustees to expend or risk their own
funds or otherwise incur any financial liability in the performance of any of
their duties hereunder, or in the exercise of any of their rights or powers, if
they shall have reasonable grounds for believing that repayment of such funds or
adequate indemnity against such risk or liability is not reasonably assured to
it. Whether or not therein expressly so provided, every provision of

<PAGE>

this Trust Agreement relating to the conduct or affecting the liability of or
affording protection to the Trustees shall be subject to the provisions of this
Section. Nothing in this Trust Agreement shall be construed to release the
Property Trustee from liability for its own negligent action, its own negligent
failure to act, or its own willful misconduct. To the extent that, at law or in
equity, the Administrative Trustee has duties (including fiduciary duties) and
liabilities relating thereto to the Trust or to the Securityholders, the
Administrative Trustee shall not be liable to the Trust or to any Securityholder
for the Administrative Trustee's good faith reliance on the provisions of this
Trust Agreement. The provisions of this Trust Agreement, to the extent that
they restrict the duties and liabilities of the Administrative Trustee otherwise
existing at law or in equity, are agreed by the Depositor and the
Securityholders to replace such other duties and liabilities of the
Administrative Trustee.

(b) All payments made by the Property Trustee or any other Paying
Agent in respect of the Trust Securities shall be made only from the income and
proceeds from the Trust Property. Each Securityholder, by its acceptance of a
Trust Security, agrees that (i) it will look solely to the income and proceeds
from the Trust Property to the extent available for distribution to it as herein
provided and (ii) the Trustees are not personally liable to it for any amount
distributable in respect of any Trust Security or for any other liability in
respect of any Trust Security. This Section 7.01(b) does not limit the
liability of the Trustees expressly set forth elsewhere in this Trust Agreement
or, in the case of the Property Trustee, in the Trust Indenture Act.

Section 7.02. Notice of Defaults; Direct Action by Securityholders.
----------------------------------------------------
Within 90 days after the occurrence of any Event of Default actually known to
the Property Trustee, the Property Trustee shall transmit, in the manner and to
the extent provided in Section 10.08, notice of such Event of Default to the
Securityholders, the Administrative Trustee and the Depositor, unless such Event
of Default shall have been cured or waived. If the Property Trustee has failed
to enforce its rights under this Trust Agreement or the Indenture to the fullest
extent permitted by law and subject to the terms of this Trust Agreement and the
Indenture, any Securityholder may institute a legal proceeding directly to
enforce the Property Trustee's rights under this Trust Agreement or the
Indenture with respect to Debentures having a principal amount equal to the
aggregate Liquidation Amount of the Preferred Securities of such Securityholder
without first instituting a legal proceeding against the Property Trustee or any
other Person. To the extent that any action under the Indenture is entitled to
be taken by the holders of at least a specified percentage of the principal
amount of the outstanding Debentures, Holders of at least the same percentage of
the Liquidation Amount of the Outstanding Preferred Securities may also take
such action

<PAGE>

in the name of the Trust if such action has not been taken by the Property
Trustee. To the fullest extent permitted by law, the foregoing shall be in
addition to and not in limitation of any direct rights provided to the Holders
of the Preferred Securities under the terms of the Indenture, including the
right, without any notice or other demand on the Property Trustee, to institute
suit for the enforcement of any payment of the principal of and any premium and
interest on Debentures as provided in Section 6.07 of the Indenture.

Section 7.03. Certain Rights of Property Trustee. Subject to the
----------------------------------
provisions of Section 7.01:

(a) the Property Trustee may rely and shall be protected in acting or
refraining from acting in good faith upon any resolution, Opinion of Counsel,
certificate, written representation of a Holder or transferee, certificate of
auditors or any other certificate, statement, instrument, opinion, report,
notice, request, consent, order, appraisal, bond, debenture, note, other
evidence of indebtedness 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) if, other than during the occurrence and continuance of an Event
of Default, (i) in performing its duties under this Trust Agreement, the
Property Trustee is required to decide between alternative courses of action or
(ii) in construing any of the provisions in this Trust Agreement, the Property
Trustee finds the same ambiguous or inconsistent with any other provisions
contained herein or (iii) the Property Trustee is unsure of the application of
any provision of this Trust Agreement, then, except as to any matter as to which
the Preferred Securityholders are entitled to vote under the terms of this Trust
Agreement, the Property Trustee shall deliver a notice to the Depositor
requesting written instructions of the Depositor as to the course of action to
be taken. The Property Trustee shall take such action, or refrain from taking
such action, as the Property Trustee shall be instructed in writing to take, or
to refrain from taking, by the Depositor; provided, however, that if the
-------- -------
Property Trustee does not receive such instructions of the Depositor within ten
Business Days after it has delivered such notice, or such reasonably shorter
period of time set forth in such notice (which to the extent practicable shall
not be less than two Business Days), it may, but shall be under no duty to, take
or refrain from taking such action not inconsistent with this Trust Agreement as
it shall deem advisable and in the best interests of the Securityholders, in
which event the Property Trustee shall have no liability except for its own
negligent action, its own negligent failure to act or its own willful
misconduct;

<PAGE>

(c) the Property Trustee may consult with counsel or other experts of
its selection and the advice or opinion of such counsel or other 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
reliance thereon;

(d) the Property Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Trust Agreement at the request or
direction of any of the Securityholders pursuant to this Trust Agreement, unless
such Securityholders shall have offered to the Property Trustee reasonable
security or indemnity against the costs, expenses and liabilities which might be
incurred by it in compliance with such request or direction;

(e) the Property 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,
approval, bond, debenture, note or other evidence of indebtedness or other paper
or document, but the Property Trustee, in its discretion, may make such further
inquiry or investigation into such facts or matters as it may see fit; and

(f) the Property Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through its
agents or attorneys and the Property 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.

Section 7.04. Not Responsible for Recitals or Issuance of Securities.
------------------------------------------------------
The recitals contained herein and in the Trust Securities Certificates shall be
taken as the statements of the Trust, and the Trustees do not assume any
responsibility for their correctness. The Trustees shall not be accountable for
the use or application by the Depositor of the proceeds of the Debentures.

Section 7.05. May Hold Securities. Any Trustee or any other agent of
-------------------
any Trustee or the Trust, in its individual or any other capacity, may become
the owner or pledgee of Trust Securities and, subject to Sections 7.08 and 7.13
and, except as provided in the definition of the term Outstanding in Article I,
may otherwise deal with the Trust with the same rights it would have if it were
not a Trustee or such other agent.

<PAGE>

Section 7.06. Compensation; Indemnity; Fees. The Depositor agrees:
-----------------------------

(a) to pay to the Trustees from time to time such compensation as
shall have been agreed in writing with the Depositor for all services rendered
by them hereunder (which compensation shall not be limited by any provision of
law in regard to the compensation of a trustee of an express trust);

(b) except as otherwise expressly provided herein, to reimburse the
Trustees upon request for all reasonable expenses, disbursements and advances
incurred or made by the Trustees in accordance with any provision of this Trust
Agreement (including the reasonable compensation and the expenses and
disbursements of its agents and counsel), except any such expense, disbursement
or advance as may be attributable to its own negligent action, its own negligent
failure to act or its own wilful misconduct (or, in the case of the
Administrative Trustee, any such expense, disbursement or advance as may be
attributable to his/her gross negligence); and

(c) to indemnify each of the Trustees or any predecessor Trustee for,
and to hold the Trustees harmless against, any and all loss, damage, claims,
liability, penalty or expense including taxes (other than taxes based on the
income of such Trustee) incurred without its own negligent action, its own
negligent failure to act or its wilful misconduct (or, in the case of the
Administrative Trustees, incurred without gross negligence or bad faith),
arising out of or in connection with the acceptance or administration of this
Trust Agreement, including the costs and expenses of defending itself against
any claim or liability in connection with the exercise or performance of any of
its powers or duties hereunder.

No Trustee may claim any Lien or charge on any Trust Property as a
result of any amount due pursuant to this Section 7.06.

The provisions of this Section 7.06 shall survive the termination of
this Trust Agreement.

Section 7.07. Corporate Property Trustee Required; Eligibility of
---------------------------------------------------
Trustees.
- --------

(a) There shall at all times be a Property Trustee hereunder. The
Property Trustee shall be a Person that is eligible pursuant to the Trust
Indenture Act to act as such and has a combined capital and surplus of at least
$50,000,000. If any such Person publishes reports of condition at least
annually, pursuant to law or to the requirements of its supervising or examining
authority, then for the purposes of this Section, the combined capital and
surplus of such Person shall be deemed to be its combined capital and surplus as
set forth in its most recent report

<PAGE>

of condition so published. If at any time the Property Trustee with respect to
the Trust Securities shall cease to be eligible in accordance with the
provisions of this Section, it shall resign immediately in the manner and with
the effect hereinafter specified in this Article.

(b) There shall at all times be one or more Administrative Trustees
hereunder. Each Administrative 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
persons authorized to bind that entity.

(c) There shall at all times be a Delaware Trustee. The Delaware
Trustee shall either be (i) a natural person who is at least 21 years of age and
a resident of the State of Delaware or (ii) a legal entity with its principal
place of business in the State of Delaware and that otherwise meets the
requirements of applicable Delaware law that shall act through one or more
persons authorized to bind such entity.

Section 7.08. Conflicting Interests. If the Property Trustee has or
---------------------
shall acquire a conflicting interest within the meaning of the Trust Indenture
Act, the Property Trustee shall either eliminate such interest or resign, to the
extent and in the manner provided by, and subject to the provisions of, the
Trust Indenture Act and this Trust Agreement.

Section 7.09. Co-Trustees and Separate Trustee. Unless an Event of
--------------------------------
Default shall have occurred and be continuing, at any time or times, for the
purpose of meeting the legal requirements of the Trust Indenture Act or of any
jurisdiction in which any part of the Trust Property may at the time be located,
the Depositor and the Administrative Trustee (and if more than one
Administrative Trustee, by agreed action of the majority of such Trustees) shall
have power (i) to appoint, and upon the written request of the Administrative
Trustee the Depositor shall for such purpose join with the Administrative
Trustee in the execution, delivery, and performance of all instruments and
agreements necessary or proper to appoint one or more Persons approved by the
Property Trustee either to act as co-trustee, jointly with the Property Trustee,
of all or any part of such Trust Property, or to the extent required by law to
act as separate trustee of any such property, in either case with such powers as
may be provided in the instrument of appointment, and (ii) to vest in such
Person or Persons in the capacity aforesaid, any property, title, right or power
deemed necessary or desirable, subject to the other provisions of this Section.
If the Depositor does not join in such appointment within 15 days after the
receipt by it of a request so to do, or in case a Debenture Event of Default has
occurred and is continuing, the Property Trustee alone shall have power to make
such appointment. Any co-trustee or separate trustee appointed pursuant to this

<PAGE>

Section shall either be (i) a natural person who is at least 21 years of age and
a resident of the United States or (ii) a legal entity with its principal place
of business in the United States that shall act through one or more persons
authorized to bind such entity.

Should any written instrument from the Depositor be required by any
co-trustee or separate trustee so appointed for more fully confirming to such
co-trustee or separate trustee such property, title, right, or power, any and
all such instruments shall, on request, be executed, acknowledged, and delivered
by the Depositor.

Every co-trustee or separate trustee shall, to the extent permitted by
law, but to such extent only, be appointed subject to the following terms,
namely:

(a) The Trust Securities shall be executed and delivered and all
rights, powers, duties, and obligations hereunder in respect of the custody of
securities, cash and other personal property held by, or required to be
deposited or pledged with, the Trustees specified hereunder, shall be exercised,
solely by such Trustees and not by such co-trustee or separate trustee.

(b) The rights, powers, duties, and obligations hereby conferred or
imposed upon the Property Trustee in respect of any property covered by such
appointment shall be conferred or imposed upon and exercised or performed by the
Property Trustee or by the Property Trustee and such co-trustee or separate
trustee jointly, as shall be provided in the instrument appointing such
co-trustee or separate trustee, except to the extent that under any law of any
jurisdiction in which any particular act is to be performed, the Property
Trustee shall be incompetent or unqualified to perform such act, in which event
such rights, powers, duties and obligations shall be exercised and performed by
such co-trustee or separate trustee.

(c) The Property Trustee at any time, by an instrument in writing
executed by it, with the written concurrence of the Depositor, may accept the
resignation of or remove any co-trustee or separate trustee appointed under this
Section, and, in case an Event of Default under the Indenture has occurred and
is continuing, the Property Trustee shall have power to accept the resignation
of, or remove, any such co-trustee or separate trustee without the concurrence
of the Depositor. Upon the written request of the Property Trustee, the
Depositor shall join with the Property Trustee in the execution, delivery, and
performance of all instruments and agreements necessary or proper to effectuate
such resignation or removal. A successor to any co-trustee or separate trustee
so resigned or removed may be appointed in the manner provided in this Section.

<PAGE>

(d) No co-trustee or separate trustee hereunder shall be personally
liable by reason of any act or omission of the Property Trustee, or any other
trustee hereunder.

(e) The Property Trustee shall not be liable by reason of any act of
a co-trustee or separate trustee.

(f) Any Act of Holders delivered to the Property Trustee shall be
deemed to have been delivered to each such co-trustee and separate trustee.

Section 7.10. Resignation and Removal; Appointment of Successor. No
-------------------------------------------------
resignation or removal of any Trustee and no appointment of a successor Trustee
pursuant to this Article shall become effective until the acceptance of
appointment by the successor Trustee in accordance with the applicable
requirements of Section 7.11.

Subject to the immediately preceding paragraph, any Trustee may resign
at any time with respect to the Trust Securities by giving written notice
thereof to the Securityholders.

Unless an Event of Default shall have occurred and be continuing, any
Trustee may be removed at any time by Act of the Holder of the Common
Securities. If an Event of Default shall have occurred and be continuing, the
Property Trustee or the Delaware Trustee, or both of them, may be removed at
such time only by Act of the Holders of at least a majority in Liquidation
Amount of the Outstanding Preferred Securities, delivered to such Trustee (in
its individual capacity and on behalf of the Trust). The Administrative Trustee
may only be removed by the Holder of Common Securities at any time.

If the instrument of acceptance by the successor Trustee required by
Section 7.11 shall not have been delivered to the Trustee within 30 days after
the giving of such notice of resignation or removal, the Trustee may petition,
at the expense of the Depositor, any court of competent jurisdiction for the
appointment of a successor Trustee.

If any Trustee shall resign, be removed or become incapable of acting
as Trustee, or if a vacancy shall occur in the office of any Trustee for any
cause, at a time when no Event of Default shall have occurred and be continuing,
the Holder of Common Securities, by Act of the Holder of Common Securities
delivered to the retiring Trustee, shall promptly appoint a successor Trustee or
Trustees and the Trust, and the retiring Trustee shall comply with the
applicable requirements of Section 7.11. If the Property Trustee or the
Delaware Trustee shall resign, be removed or become incapable of continuing to
act as the Property Trustee or the Delaware Trustee, as the case may be, at a
time when an Event of

<PAGE>

Default has occurred and is continuing, the Holders of Preferred Securities, by
Act of the Securityholders of at least a majority in Liquidation Amount of the
Outstanding Preferred Securities delivered to the retiring Trustee, shall
promptly appoint a successor Trustee or Trustees, and such successor Trustee
shall comply with the applicable requirements of Section 7.11. If any
Administrative Trustee shall resign, be removed or become incapable of acting as
Administrative Trustee at a time when an Event of Default shall have occurred
and be continuing, the Holder of Common Securities shall appoint a successor
Administrative Trustee. If no successor Trustee shall have been so appointed by
the Holder of Common Securities or the Holders of Preferred Securities and
accepted appointment in the manner required by Section 7.11, any Securityholder
who has been a Securityholder of Trust Securities for at least six months may,
on behalf of himself and all others similarly situated, petition any court of
competent jurisdiction for the appointment of a successor Trustee.

The Property Trustee shall give notice of each resignation and each
removal of a Trustee and each appointment of a successor Trustee to all
Securityholders in the manner provided in Section 10.08 and shall give notice to
the Depositor. Each notice shall include the name of the successor Trustee and
the address of its Corporate Trust Office if it is the Property Trustee.

Notwithstanding the foregoing or any other provision of this Trust
Agreement, in the event any Administrative Trustee or Delaware Trustee who is a
natural person dies or becomes, in the opinion of the Depositor, incompetent or
incapacitated, the vacancy created by such death, incompetence or incapacity may
be filled by (a) the unanimous act of the remaining Administrative Trustees if
there are at least two of them or (b) otherwise by the Depositor (with the
successor in each case being a Person who satisfies the eligibility requirements
for Administrative Trustee or for the Delaware Trustee, as the case may be, set
forth in Section 7.07).

Section 7.11. Acceptance of Appointment by Successor. In case of the
--------------------------------------
appointment hereunder of a successor Trustee, the retiring Trustee and each
successor Trustee shall execute and deliver to the Trust and the retiring
Trustee an amendment hereto wherein each successor Trustee shall accept such
appointment and which (a) shall contain such provisions as shall be necessary or
desirable to transfer and confirm to, and to vest in, each successor Trustee all
the rights, powers, trusts and duties of the retiring Trustee and (b) shall add
to or change any of the provisions of this Trust Agreement as shall be necessary
to provide for or facilitate the administration of the trusts hereunder by more
than one Trustee, it being understood that nothing herein or in such amendment
shall constitute such Trustees co-trustees of the same trust and that each such
Trustee shall be trustee of a trust

<PAGE>

or trusts hereunder separate and apart from any trust or trusts hereunder
administered by any other such Trustee and upon the execution and delivery of
such amendment the resignation or removal of the retiring Trustee shall become
effective to the extent provided therein and each such successor Trustee,
without any further act, deed or conveyance, shall become vested with all the
rights, powers, trusts and duties of the retiring Trustee and the Trust; but, on
request of the Trust or any successor Trustee, such retiring Trustee shall duly
assign, transfer and deliver to such successor Trustee all Trust Property, all
proceeds thereof and money held by such retiring Trustee hereunder.

Upon request of any such successor Trustee, the Trust shall execute
any and all instruments for more fully and certainly vesting in and confirming
to such successor Trustee all such rights, powers and trusts referred to in the
first or second preceding paragraph, as the case may be.

No successor Trustee shall accept its appointment unless at the time
of such acceptance such successor Trustee shall be qualified and eligible under
this Article.

Section 7.12. Merger, Conversion, Consolidation or Succession to
--------------------------------------------------
Business. Any Person into which any of the Trustees may be merged or converted
- --------
or with which it may be consolidated, or any Person resulting from any merger,
conversion or consolidation to which such Trustee shall be a party, or any
Person succeeding to all or substantially all the corporate trust business of
such Trustee, shall be the successor of such Trustee hereunder, provided such
Person 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.

Section 7.13. Preferential Collection of Claims Against Depositor or
------------------------------------------------------
Trust. If and when the Property Trustee or the Delaware Trustee shall be or
- -----
become a creditor (whether directly or indirectly, secured or unsecured) of the
Depositor or the Trust (or any other obligor upon the Debentures or the Trust
Securities), including under the terms of Section 7.05 hereof, the Property
Trustee or the Delaware Trustee, as the case may be, shall be subject to and
shall take all actions necessary in order to comply with the provisions of the
Trust Indenture Act regarding the collection of claims against the Depositor or
Trust (or any such other obligor).

Section 7.14. Reports by Property Trustee. The Property Trustee
---------------------------
shall transmit to Holders such reports concerning the Property Trustee and its
actions under this Trust Agreement as may be required pursuant to the Trust
Indenture Act at the times and in the manner provided pursuant thereto. If
required by Section 313(a) of the Trust Indenture Act, the Property Trustee
shall,

<PAGE>

within 60 days after each May 31 following the date of this Trust Agreement
deliver to Holders a brief report, dated as of such May 31, which complies with
the provisions of such Section 313(a).

A copy of each such report shall, at the time of such transmission to
Holders, be filed by the Property Trustee with each stock exchange upon which
any Preferred Securities are then listed, with the Commission and with the
Trust. The Trust will promptly notify the Property Trustee when any Preferred
Securities are listed on any stock exchange.

Section 7.15. Reports to the Property Trustee. The Depositor and the
-------------------------------
Administrative Trustee on behalf of the Trust shall provide to the Property
Trustee such documents, reports and information as required by Section 314 of
the Trust Indenture Act (if any) and the compliance certificate required by
Section 314(a) of the Trust Indenture Act in the form, in the manner and at the
times required by Section 314 of the Trust Indenture Act.

Section 7.16. Evidence of Compliance with Conditions Precedent. The
------------------------------------------------
Depositor and the Administrative Trustee on behalf of the Trust shall provide to
the Property Trustee evidence of compliance with the conditions precedent, if
any, provided for in this Trust Agreement that relate to any of the matters set
forth in Section 314(c) of the Trust Indenture Act.

Section 7.17. Statements Required in Officer's Certificate and
------------------------------------------------
Opinion of Counsel.
- ------------------

Each Officer's Certificate and Opinion of Counsel with respect to
compliance with a covenant or condition provided for in this Trust Agreement
shall include:

(1) a statement that each Person making such Officer's Certificate or
Opinion of Counsel 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
Officer's Certificate or Opinion of Counsel are based;

(3) a statement that, in the opinion of each such Person, such Person
has made such examination or investigation as is necessary to enable such Person
to express an informed opinion as to whether or not such covenant or condition
has been complied with; and

(4) a statement that, in the opinion of such Person, such covenant or
condition has been complied with; provided, however, that with respect to
matters of fact not involving any

<PAGE>

legal conclusion, an Opinion of Counsel may rely on an Officer's Certificate or
certificates of public officials.

Section 7.18. Number of Trustees.
------------------

(a) The number of Trustees shall be three, provided that the Holder
of all of the Common Securities by written instrument may increase and, if
increased, may decrease the number of Administrative Trustees.

(b) If a Trustee ceases to hold office for any reason and the number
of Administrative Trustees is not reduced pursuant to Section 7.18(a), or if the
number of Trustees is increased pursuant to Section 7.18(a), a vacancy shall
occur. The vacancy shall be filled with a Trustee appointed in accordance with
Section 7.10.

(c) The death, resignation, retirement, removal, bankruptcy,
incompetence or incapacity to perform the duties of a Trustee shall not operate
to annul the Trust. Whenever a vacancy shall occur, until such vacancy is
filled by the appointment of an Administrative Trustee in accordance with
Section 7.10, the Administrative Trustees in office, regardless of their number
(and notwithstanding any other provision of this Trust Agreement), shall have
all the powers granted to the Administrative Trustee and shall discharge all the
duties imposed upon the Administrative Trustees by this Trust Agreement.

Section 7.19. Delegation of Power.
-------------------

(a) Any Administrative Trustee may, by power of attorney consistent
with applicable law, delegate to any natural person over the age of 21 his/her
power for the purpose of executing any documents contemplated in Section
2.07(a), including any registration statement or amendment thereto filed with
the Commission, or making any other governmental filing; and

(b) the Administrative Trustees shall have power to delegate from
time to time to such of their number, if there is more than one Administrative
Trustee, or to the Depositor the doing of such things and the execution of such
instruments either in the name of the Trust or the names of the Administrative
Trustees or otherwise as the Administrative Trustees may deem expedient, to the
extent such delegation is not prohibited by applicable law or contrary to the
provisions of the Trust, as set forth herein.

Section 7.20. Voting. Except as otherwise provided in this Trust
------
Agreement, the consent or vote of the Trustees shall be approved by not less
than a majority of the Administrative Trustees.

<PAGE>

ARTICLE VIII

Termination and Liquidation

Section 8.01. Termination Upon Expiration Date. Unless earlier
--------------------------------
terminated, the Trust shall automatically terminate on _______ __, ____ (the
"Expiration Date"), following the distribution of the Trust Property in
accordance with Section 8.04.

Section 8.02. Early Termination. The earliest to occur of any of the
-----------------
following events is an "Early Termination Event":

(a) the occurrence of a Bankruptcy Event in respect of, or the
dissolution or liquidation of the Depositor or an acceleration of the maturity
of the Debentures pursuant to Section 6.02 of the Indenture;

(b) upon the election of the Depositor to liquidate the Trust and
cause the distribution of a Like Amount of Debentures to the Holders of the
Trust Securities;

(d) an order for termination of the Trust shall have been entered by
a court of competent jurisdiction.

The election of the Depositor pursuant to Section 8.02(b) shall be
made by the Depositor giving written notice to the Trustees not less than 30
days prior to the date of distribution of the Debentures. Such notice shall
specify the date of distribution of the Debentures and shall be accompanied by
an Opinion of Counsel that such event will not be a taxable event to the Holders
of the Trust Securities for Federal income tax purposes.

Section 8.03. Termination. The respective obligations and
-----------
responsibilities of the Trustees and the Trust created and continued hereby
shall terminate upon the latest to occur of the following: (a) the distribution
by the Property Trustee to Securityholders upon the liquidation of the Trust
pursuant to Section 8.04, or upon the redemption of all of the Trust Securities
pursuant to Section 4.02, of all amounts required to be distributed hereunder
upon the final payment of the Trust Securities; (b) the payment of any expenses
owed by the Trust; and (c) the discharge of all administrative duties of the
Administrative Trustee, including the performance of any tax reporting
obligations with respect to the Trust or the Securityholders.

Section 8.04. Liquidation.
-----------

(a) If an Early Termination Event specified in clause (a), (c) or (d)
of Section 8.02 occurs or upon the Expiration Date,

<PAGE>

the Trust shall be liquidated by the Trustees as expeditiously as the Trustees
determine to be possible by distributing, after satisfaction of liabilities to
creditors of the Trust as provided by applicable law, to each Securityholder a
Like Amount of Debentures, subject to Section 8.04(d). If an Early Termination
Event specified in clause (b) occurs, the Trust shall be liquidated by the
Trustee on the date of distribution of the Debentures specified by the Depositor
in its notice delivered pursuant to Section 8.02. Notice of liquidation shall
be given by the Property Trustee by first-class mail, postage prepaid, mailed
not later than 30 nor more than 60 days prior to the Liquidation Date to each
Holder of Trust Securities at such Holder's address appearing in the Securities
Register. All notices of liquidation shall:

(i) state the Liquidation Date;

(ii) state that from and after the Liquidation Date, the Trust
Securities will no longer be deemed to be Outstanding and any Trust Securities
Certificates not surrendered for exchange will be deemed to represent a Like
Amount of Debentures; and

(iii) provide such information with respect to the mechanics by
which Holders may exchange Trust Securities Certificates for certificates
evidencing Debentures, or, if Section 8.04(d) applies, receive a Liquidation
Distribution, as the Administrative Trustee or the Property Trustee shall deem
appropriate.

(b) In order to effect the liquidation of the Trust and distribution
of the Debentures to Securityholders, the Property Trustee, either itself acting
as exchange agent or through the appointment of a separate exchange agent, shall
establish such procedures as it shall deem appropriate to effect the
distribution of Debentures in exchange for the Outstanding Trust Securities
Certificates.

(c) Except where Section 8.02(c) or 8.04(d) applies, on or after the
Liquidation Date, (i) the Trust Securities will no longer be deemed to be
Outstanding, (ii) certificates representing a Like Amount of Debentures will be
issued to Holders of Trust Securities Certificates, upon surrender of such
certificates to the Administrative Trustee or its agent for exchange, (iii) the
Depositor shall use its best efforts to have the Debentures listed on the New
York Stock Exchange or such other exchange as the Preferred Securities are then
listed and shall take any reasonable action necessary to effect the distribution
of the Debentures, (iv) any Trust Securities Certificates not so surrendered for
exchange will be deemed to represent a Like Amount of Debentures, accruing
interest at the rate provided for in the Debentures from the last Distribution
Date on which a Distribution was made on such Trust

<PAGE>

Certificates until such certificates are so surrendered (and until such
certificates are so surrendered, no payments or interest or principal will be
made to Holders of Trust Securities Certificates with respect to such
Debentures) and (v) all rights of Securityholders holding Trust Securities will
cease, except the right of such Securityholders to receive Debentures upon
surrender of Trust Securities Certificates.

(d) In the event that, notwithstanding the other provisions of this
Section 8.04, whether because of an order for termination entered by a court of
competent jurisdiction or otherwise, distribution of the Debentures in the
manner provided herein is determined by the Property Trustee not to be
practical, the Trust Property shall be liquidated, and the Trust shall be
terminated, by the Property Trustee in such manner as the Property Trustee
determines. In such event, on the date of the termination of the Trust,
Securityholders will be entitled to receive out of the assets of the Trust
available for distribution to Securityholders, after satisfaction of liabilities
to creditors of the Trust as provided by applicable law, an amount equal to the
Liquidation Amount per Trust Security plus accumulated and unpaid Distributions
thereon to the date of payment (such amount being the "Liquidation
Distribution"). If, upon any such termination, 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, subject to the next
succeeding sentence, the amounts payable by the Trust on the Trust Securities
shall be paid on a pro rata basis (based upon Liquidation Amounts). The Holder
of the Common Securities will be entitled to receive Liquidation Distributions
upon any such termination pro rata (determined as aforesaid) with Holders of
Preferred Securities, except that, if a Debenture Event of Default has occurred
and is continuing, the Preferred Securities shall have a priority over the
Common Securities, and no Liquidation Distribution will be paid to the Holders
of the Common Securities unless and until receipt by all Holders of the
Preferred Securities of the entire Liquidation Distribution payable in respect
thereof.

ARTICLE IX

Mergers, Etc.

Section 9.01. Mergers, Consolidations, Amalgamations or Replacements
------------------------------------------------------
of the Trust. The Trust may not merge with or into, consolidate, amalgamate, or
- ------------
be replaced by, or convey, transfer or lease its properties and assets as an
entirety or substantially as an entirety to any corporation or other entity,
except as described below. The Trust may, at the request of the Depositor, with
the consent of the Administrative Trustee and without the consent of the Holders
of the Preferred Securities, merge with or into,

<PAGE>

consolidate, amalgamate, or be replaced by, a trust organized as such under the
laws of any State; provided, that (i) such successor entity either (a) expressly
assumes all of the obligations of the Trust with respect to the Preferred
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 the payment of Distributions and payments upon
liquidation and redemption, (ii) the Depositor expressly appoints a trustee of
such successor entity possessing the same powers and duties as the Property
Trustee as the holder of the Debentures, (iii) the Successor Securities are
listed, or any Successor Securities will be listed upon notification of
issuance, on any national securities exchange or other organization on which the
Preferred Securities are then listed, (iv) such merger, consolidation,
amalgamation or replacement does not cause the Preferred Securities (including
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 Preferred Securities (including any Successor Securities) in
any material respect, (vi) such successor entity has a purpose substantially
similar to that of the Trust, (vii) prior to such merger, consolidation,
amalgamation or replacement, the Depositor has received an Opinion of Counsel 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 Preferred Securities (including any Successor Securities) in any material
respect, and (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 (viii) the Depositor or
any permitted successor assignee owns all of the common securities of such
successor entity and guarantees the obligations of such successor entity under
the Successor Securities at least to the extent provided by the Guarantee and
this Trust Agreement. Notwithstanding the foregoing, the Trust shall not,
except with the consent of all Holders of the Preferred Securities, merge with
or into, consolidate, amalgamate, 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 not to be classified as a grantor trust for United
States Federal income tax purposes.

<PAGE>

ARTICLE X

Miscellaneous Provisions

Section 10.01. Limitation of Rights of Securityholders. The death or
---------------------------------------
incapacity of any Person having an interest, beneficial or otherwise, in Trust
Securities shall not operate to terminate this Trust Agreement, nor entitle the
legal representatives or heirs of such Person or any Securityholder for such
Person, to claim an accounting, take any action or bring any proceeding in any
court for a partition or winding-up of the arrangements contemplated hereby, nor
otherwise affect the rights, obligations and liabilities of the parties hereto
or any of them.

Section 10.02. Amendment.
---------

(a) This Trust Agreement may be amended from time to time by the
Trustees and the Depositor, without the consent of any Securityholders, to cure
any ambiguity, defect or inconsistency or make any other change which does not
adversely affect in any material respect the interests of any Holder of
Preferred Securities. Any amendments of this Trust Agreement pursuant to
Section 10.02(a) shall become effective when notice thereof is given to the
Securityholders.

(b) Except as provided in Section 10.02(a) and 10.02(c) hereof, any
provision of this Trust Agreement may be amended by the Trustees and the
Depositor with the consent of Holders of at least a majority of the aggregate
Liquidation Amount of the Outstanding Preferred Securities.

(c) In addition to and notwithstanding any other provision in this
Trust Agreement, without the consent of each affected Securityholder (such
consent being obtained in accordance with Section 6.03 or 6.06 hereof), this
Trust Agreement may not be amended to (i) change the amount, timing or currency
of any Distribution or Liquidation Distribution on the Trust Securities or
otherwise adversely affect the method of payment of any Distribution or
Liquidation Distribution required to be made in respect of the Trust Securities
as of a specified date; (ii) change the redemption provisions of the Trust
Securities; (iii) restrict the right of a Securityholder to institute suit for
the enforcement of any such payment contemplated in (i) or (ii) above on or
after the related date; (iv) modify the first sentence of Section 2.06 hereof;
(v) authorize or issue any beneficial interest in the Trust other than as
contemplated by this Trust Agreement as of the date hereof; (vi) change the
conditions precedent for the Depositor to elect to terminate the Trust and
distribute the Debentures to Holders of Preferred Securities as set forth in
Section 8.02; or (vii) affect the limited liability of any Holder of Preferred
Securities, and, notwithstanding any other provision herein,

<PAGE>

without the unanimous consent of the Securityholders (such consent being
obtained in accordance with Section 6.03 or 6.06 hereof), paragraphs (b) and (c)
of this Section 10.02 may not be amended.

(d) Notwithstanding any other provisions of this Trust Agreement, no
amendment to this Trust Agreement shall be made without receipt by the Trust of
an Opinion of Counsel experienced in such matters to the effect that such
amendment will not affect the Trust's status as a grantor trust for United
States Federal income tax purposes or its exemption from regulation as an
"investment company" under the 1940 Act.

(e) Notwithstanding anything in this Trust Agreement to the contrary,
without the consent of the Depositor, this Trust Agreement may not be amended in
a manner which imposes any additional obligation on the Depositor.

(f) In the event that any amendment to this Trust Agreement is made,
the Administrative Trustee shall promptly provide to the Depositor a copy of
such amendment.

(g) In executing any amendment to the Trust Agreement, the Property
Trustee shall be entitled to receive, and (subject to Section 8.01) shall be
fully protected in relying upon, an Opinion of Counsel stating that the
execution of such amendment is authorized or permitted by this Trust Agreement.
Except as contemplated by Section 7.11, the Trustee may, but shall not be
obligated to, enter into any amendment to this Trust Agreement which affects the
Trustee's own rights, duties or immunities under this Trust Agreement or
otherwise.

Section 10.03. Severability. In case any provision in this Trust
------------
Agreement or in the Trust Securities Certificates shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.

Section 10.04. Governing Law. THIS TRUST AGREEMENT AND THE RIGHTS
-------------
AND OBLIGATIONS OF EACH OF THE SECURITYHOLDERS, THE TRUST AND THE TRUSTEES WITH
RESPECT TO THIS TRUST AGREEMENT AND THE TRUST SECURITIES SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF DELAWARE, WITHOUT
REGARD TO CONFLICT OF LAWS PRINCIPLES.

Section 10.05. Payments Due on Non-Business Day. If the date fixed
--------------------------------
for any payment on any Trust Security shall be a day which is not a Business
Day, then such payment need not be made on such date but may be made on the next
succeeding day which is a Business Day (except as otherwise provided therein,
with the same force and effect as though made on the date fixed for such

<PAGE>

payment), and no interest shall accumulate thereon for the period after such
date to the date of payment on such succeeding day.

Section 10.06. Successors and Assigns. This Trust Agreement shall be
----------------------
binding upon and shall inure to the benefit of any successor to the Trust or
successor Trustee or both, including any successor by operation of law. Except
in connection with a consolidation, merger or sale involving the Depositor that
is permitted under Article V of the Indenture and pursuant to which the assignee
agrees in writing to perform the Depositor's obligations hereunder, the
Depositor shall not assign its obligations hereunder.

Section 10.07. Headings. The Article and Section headings are for
--------
convenience only and shall not affect the construction of this Trust Agreement.

Section 10.08. Reports, Notices and Demands. Any report, notice,
----------------------------
demand or other communication which by any provision of this Trust Agreement is
required or permitted to be given or served to or upon any Securityholder or the
Depositor may be given or served in writing by deposit thereof, first-class
postage prepaid in the United States mail, hand delivery or facsimile
transmission, in each case, addressed, (a) in the case of a Holder of a
Preferred Security, to such Holder of a Preferred Security as such
Securityholder's name and address may appear on the Securities Register; and (b)
in the case of the Holder of a Common Security or the Depositor, to Public
Service Electric and Gas Company, 80 Park Plaza, Newark, New Jersey 07101,
Attention: Treasurer, facsimile no.: _____. Such notice, demand or other
communication to or upon a Securityholder shall be deemed to have been
sufficiently given or made, for all purposes, upon hand delivery, mailing or
transmission.

Any notice, demand or other communication which by any provision of
this Trust Agreement is required or permitted to be given or served to or upon
the Trust, the Property Trustee or the Administrative Trustee shall be given in
writing addressed (until another address is published by the Trust) as follows:
(a) with respect to the Property Trustee to First Union National Bank, 765 Broad
Street, Newark, New Jersey 07101, Attention: Corporate Trust Office; (b) with
respect to the Delaware Trustee, to 1225 King Street, Wilmington, Delaware 19801
Attention: Corporate Trust Department; and (c) with respect to the
Administrative Trustee, to the address above for notices to the Depositor,
marked "Attention: Administrative Trustee of PSE&G Capital Trust II c/o
Treasurer." Such notice, demand or other communication to or upon the Trust or
the Property Trustee shall be deemed to have been sufficiently given or made
only upon actual receipt of the writing by the Trust or the Property Trustee.

<PAGE>

Section 10.09. Agreement Not to Petition. Each of the Trustees and
-------------------------
the Depositor agree for the benefit of the Securityholders that, until at least
one year and one day after the Trust has been terminated in accordance with
Article VIII, they shall not file, or join in the filing of, a petition against
the Trust under any Bankruptcy Laws or otherwise join in the commencement of any
proceeding against the Trust under any Bankruptcy Law. In the event the
Depositor or any of the Trustees takes action in violation of this Section
10.09, the Property Trustee agrees, for the benefit of Securityholders, that at
the expense of the Depositor, it shall file an answer with the bankruptcy court
or otherwise properly contest the filing of such petition by the Depositor or
any of the Trustees, as applicable, against the Trust or the commencement of
such action and raise the defense that the Depositor has agreed in writing not
to take such action and should be stopped and precluded therefrom and such other
defenses, if any, as counsel for the Property Trustee or the Trust may assert.
The provisions of this Section 10.09 shall survive the termination of this Trust
Agreement.

Section 10.10. Trust Indenture Act; Conflict with Trust Indenture
--------------------------------------------------
Act.
- ---

(a) This Trust Agreement is subject to the provisions of the Trust
Indenture Act that are required to be part of this Trust Agreement and shall, to
the extent applicable, be governed by such provisions.

(b) The Property Trustee shall be the only Trustee which is a trustee
for the purposes of the Trust Indenture Act.

(c) If any provision hereof limits, qualifies or conflicts with
another provision hereof which is required to be included in this Trust
Agreement by any of the provisions of the Trust Indenture Act, such required
provision shall control. If any provision of this Trust Agreement modifies or
excludes any provision of the Trust Indenture Act which may be so modified or
excluded, the latter provision shall be deemed to apply to this Trust Agreement
as so modified or excluded, as the case may be.

Section 10.11. Acceptance of Terms of Trust Agreement, Guarantee and
-----------------------------------------------------
Indenture. THE RECEIPT AND ACCEPTANCE OF A TRUST SECURITY OR ANY INTEREST
- ---------
THEREIN BY OR ON BEHALF OF A SECURITYHOLDER OR ANY BENEFICIAL OWNER, WITHOUT ANY
SIGNATURE OR FURTHER MANIFESTATION OF ASSENT, SHALL CONSTITUTE THE UNCONDITIONAL
ACCEPTANCE BY THE SECURITYHOLDER AND ALL OTHERS HAVING A BENEFICIAL

<PAGE>

INTEREST IN SUCH TRUST SECURITY OF ALL THE TERMS AND PROVISIONS OF THIS TRUST
AGREEMENT AND AGREEMENT TO THE SUBORDINATION PROVISIONS AND OTHER TERMS OF THE
GUARANTEE AND THE INDENTURE, AND SHALL CONSTITUTE THE AGREEMENT OF THE TRUST,
SUCH SECURITYHOLDER AND SUCH OTHERS THAT THE TERMS AND PROVISIONS OF THIS TRUST
AGREEMENT SHALL BE BINDING, OPERATIVE AND EFFECTIVE AS BETWEEN THE TRUST AND
SUCH SECURITYHOLDER AND SUCH OTHERS.

PUBLIC SERVICE ELECTRIC AND GAS COMPANY, as
Depositor

By:
------------------------------------------
Name:
Title:

FIRST UNION NATIONAL BANK, as Property
Trustee

By:
------------------------------------------
Name:
Title:

FIRST UNION BANK OF DELAWARE, as Delaware
Trustee

By:
------------------------------------------
Name:
Title:

_____________________________,
as Administrative Trustee
Name:

<PAGE>

EXHIBIT A

CERTIFICATE OF TRUST
OF
PSE&G CAPITAL TRUST II

THIS CERTIFICATE OF TRUST of PSE&G Capital Trust II (the "Trust"),
dated April 19, 1996, is being duly executed and filed by the undersigned, as
trustees, to form a business trust under the Delaware Business Trust Act (12
Del. C. Sec. 3801 et seq.).
- ------- -------

(i) Name. The name of the business trust being formed hereby is
----
PSE&G Capital Trust II.

(ii) Delaware Trustee. The name and business address of the trustee
----------------
of the Trust in the State of Delaware are First Union Bank of Delaware, 1225
King Street, Wilmington DE 19801; attn: Corporate Trust Department.

(iii) Counterparts. This Certificate of Trust may be executed in one
------------
or more counterparts, all of which together shall constitute one and the same
instrument.

(iv) Effective Date. This Certificate of Trust shall be effective
--------------
as of its filing.

IN WITNESS WHEREOF, the undersigned, being the trustees of the Trust,
have executed this Certificate of Trust as of the date first above written.

FIRST UNION NATIONAL BANK, as Trustee

By:
------------------------------------------
Name:
Title:

FIRST UNION BANK OF DELAWARE, as Trustee

By:
------------------------------------------
Name:
Title:

_____________________________,
as Trustee
Name: Fred F. Saunders

A-1

<PAGE>

EXHIBIT B

_______ __, ____

The Depository Trust Company
55 Water Street, 49th Floor
New York, New York 10041-0099

Attention:
General Counsel's Office

Re: PSE&G Capital Trust II Preferred Securities
-------------------------------------------

Ladies and Gentlemen:

The purpose of this letter is to set forth certain matters relating to
the issuance and deposit with The Depository Trust Company ("DTC") of the PSE&G
Capital Trust II _____% Cumulative Quarterly Income Preferred Securities, Series
B (the "Preferred Securities"), of PSE&G Capital Trust II, a Delaware business
trust (the "Issuer"), created pursuant to a Trust Agreement between Public
Service Electric and Gas Company ("PSE&G"), First Union National Bank, as
Property Trustee, the Delaware Trustee named therein and the Administrative
Trustee named therein. The payment of distributions on the Preferred Securities
and payments due upon liquidation of the Issuer or redemption of the Preferred
Securities are guaranteed by PSE&G, to the extent the Issuer has funds available
for the payment thereof and to the extent set forth in a Guarantee Agreement
dated _______ __, ____ by PSE&G and backup undertakings relating thereto with
respect to the Preferred Securities. The Issuer proposes to sell the Preferred
Securities to certain Underwriters (the "Underwriters") pursuant to an
Underwriting Agreement dated _______ __, ____ by and among the Underwriters, the
Issuer and PSE&G and the Underwriters wish to take delivery of the Preferred
Securities through DTC. First Union National Bank is acting as transfer agent
and registrar with respect to the Preferred Securities (the "Transfer Agent and
Registrar").

To induce DTC to accept the Preferred Securities as eligible for
deposit at DTC, and to act in accordance with DTC's Rules with respect to the
Preferred Securities, the Issuer and the Transfer Agent and Registrar make the
following representations to DTC:

<PAGE>

1. Prior to the closing of the sale of the Preferred Securities to
the Underwriters, which is expected to occur on or about _____________, there
shall be deposited with DTC one or more global certificates (individually and
collectively, the "Global Certificate") registered in the name of DTC's nominee,
Cede & Co., representing an aggregate of __________ Preferred Securities and
bearing the following legend:

Unless this certificate is presented by an authorized representative
of The Depository Trust Company, a New York corporation ("DTC"), to
the Issuer or its agent for registration of transfer, exchange or
payment, and any certificate issued is registered in the name of Cede
& Co. or in such other name as is requested by an authorized
representative of DTC (and any payment hereon is made to Cede & Co. or
to such other entity as is requested by an authorized representative
of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered
owner hereof, Cede & Co., has an interest herein.

2. The Amended and Restated Trust Agreement of the Issuer provides
for the voting by holders of the Preferred Securities under certain limited
circumstances. The Issuer shall establish a record date for such purposes and
shall, to the extent possible, give DTC notice of such record date not less than
15 calendar days in advance of such record date.

3. In the event of a stock split, conversion, recapitalization,
reorganization or any other similar transaction resulting in the cancellation of
all or any part of the Preferred Securities outstanding, the Issuer or the
Transfer Agent and Registrar shall send DTC a notice of such event at least 5
business days prior to the effective date of such event.

4. In the event of distribution on, or an offering or issuance of
rights with respect to, the Preferred Securities outstanding, the Issuer or the
Transfer Agent and Registrar shall send DTC a notice specifying: (a) the amount
of and conditions, if any, applicable to the payment of any such distribution or
any such offering or issuance of rights; (b) any applicable expiration or
deadline date or any date by which any action on the part of the holders of
Preferred Securities is required; and (c) the date any required notice is to be
mailed by or on behalf of the Issuer to holders of Preferred Securities or
published by or on behalf of the Issuer (whether by mail or publication, the
"Publication Date"). Such notice shall be sent to DTC by a secure means (e.g.,
----
legible telecopy, registered or certified mail, overnight delivery) in a timely
manner designed to assure that such notice is in DTC's possession no later than
the close of business on the business day

<PAGE>

before the Publication Date. The Issuer or the Transfer Agent and Registrar
will forward such notice either in a separate secure transmission for each CUSIP
number or in a secure transmission of multiple CUSIP numbers (if applicable)
that includes a manifest or list of each CUSIP number submitted in that
transmission. (The party sending such notice shall have a method to verify
subsequently the use of such means and the timeliness of such notice.) The
Publication Date shall be not less than 20 calendar days nor more than 90
calendar days prior to the payment of any such distribution or any such offering
or issuance of rights with respect to the Preferred Securities. After
establishing the amount of payment to be made on the Preferred Securities, the
Issuer or the Transfer Agent and Registrar will notify DTC's Dividend Department
of such payment 5 business days prior to payment date. Notices to DTC's
Dividend Department by telecopy shall be sent to (212) 709-1723. Such notices
by mail or by any other means shall be sent to:

Manager, Announcements
Dividend Department
The Depository Trust Company
7 Hanover Square, 22nd Floor
New York, New York 10004-2695

The Issuer or the Transfer Agent and Registrar shall confirm DTC's
receipt of such telecopy by telephoning the Dividend Department at
(212) 709-1270.

5. In the event of a redemption by the Issuer of the Preferred
Securities, notice specifying the terms of the redemption and the Publication
Date of such notice shall be sent by the Issuer or the Transfer Agent and
Registrar to DTC not less than 30 calendar days prior to such event by a secure
means in the manner set forth in paragraph 4. Such redemption notice shall be
sent to DTC's Call Notification Department at (516) 227-4164 or (516) 227-4190,
and receipt of such notice shall be confirmed by telephoning (516) 227-4070.
Notice by mail or by any other means shall be sent to:

Call Notification Department
The Depository Trust Company
711 Stewart Avenue
Garden City, New York 11530-4719

6. In the event of any invitation to tender the Preferred
Securities, notice specifying the terms of the tender and the Publication Date
of such notice shall be sent by the Issuer or the Transfer Agent and Registrar
to DTC by a secure means and in a timely manner as described in paragraph 4.
Notices to DTC pursuant

<PAGE>

to this paragraph and notices of other corporate actions (including mandatory
tenders, exchanges and capital changes) shall be sent, unless notification to
another department is expressly provided for herein, by telecopy to DTC's
Reorganization Department at (212) 709-1093 or (212) 709-1094 and receipt of
such notice shall be confirmed by telephoning (212) 709-6884, or by mail or any
other means to:

Manager, Reorganization Department
Reorganization Window
The Depository Trust Company
7 Hanover Square, 23rd Floor
New York, New York 10004-2695

7. All notices and payment advances sent to DTC shall contain the
CUSIP number or numbers of the Preferred Securities and the accompanying
designation of the Preferred Securities, which, as of the date of this letter,
is "PSE&G Capital Trust II _____% Cumulative Quarterly Income Preferred
Securities, Series B".

8. Distribution payments or other cash payments with respect to the
Preferred Securities evidenced by the Global Certificate shall be received by
Cede & Co., as nominee of DTC, or its registered assigns in same day funds on
each payment date (or in accordance with existing arrangements between the
Issuer or the Transfer Agent and Registrar and DTC). Such payments shall be
made payable to the order of Cede & Co., and shall be addressed as follows:

NDFS Redemption Department
The Depository Trust Company
7 Hanover Square, 23rd Floor
New York, New York 10004-2695

9. DTC may by prior written notice direct the Issuer and the
Transfer Agent and Registrar to use any other telecopy number or address of DTC
as the number or address to which notices or payments may be sent.

10. In the event of a conversion, redemption, or any other similar
transaction (e.g., tender made and accepted in response to the Issuer's or the
----
Transfer Agent and Registrar's invitation) necessitating a reduction in the
aggregate number of Preferred Securities outstanding evidenced by a global
certificate, DTC, in its discretion: (a) may request the Issuer or the Transfer
Agent and Registrar to issue and countersign a new global certificate; or (b)
may make an appropriate notation on such global certificate indicating the date
and amount of such reduction.

<PAGE>

11. DTC may discontinue its services as a securities depositary with
respect to the Preferred Securities at any time by giving reasonable prior
written notice to the Issuer and the Transfer Agent and Registrar (at which time
DTC will confirm with the Issuer or the Transfer Agent and Registrar the
aggregate number of Preferred Securities deposited with it) and discharging its
responsibilities with respect thereto under applicable law. Under such
circumstances, the Issuer may determine to make alternative arrangements for
book-entry settlement for the Preferred Securities, make available one or more
separate global certificates evidencing Preferred Securities to any Participant
having Preferred Securities credited to its DTC account, or issue definitive
Preferred Securities to the beneficial owners thereof, and in any such case, DTC
agrees to cooperate fully with the Issuer and the Transfer Agent and Registrar
and to return the global certificates duly endorsed for transfer as directed by
the Issuer or the Transfer Agent and Registrar, together with any other
documents of transfer reasonably requested by the Issuer or the Transfer Agent
and Registrar.

12. In the event that the Issuer determines that beneficial owners of
the global certificate(s) evidencing Preferred Securities shall be able to
obtain definitive Preferred Securities, the Issuer or the Transfer Agent and
Registrar shall notify DTC of the availability of such definitive Preferred
Securities. In such event, the Issuer or the Transfer Agent and Registrar shall
issue, transfer and exchange definitive Preferred Securities in appropriate
amounts, as required by DTC and others, and DTC agrees to cooperate fully with
the Issuer and the Transfer Agent and Registrar and to return the global
certificate(s), duly endorsed for transfer as directed by the Issuer or the
Transfer Agent and Registrar, together with any other documents of transfer
reasonably requested by the Issuer or the Transfer Agent and Registrar.

13. This letter may be executed in any number of counterparts, each
of which when so executed shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same instrument.

<PAGE>

Nothing herein shall be deemed to require the Transfer Agent and
Registrar to advance funds on behalf of the Issuer.

Very truly yours,

PSE&G CAPITAL TRUST II
(As Issuer)

By:
--------------------
Name: ____________________, as
Administrative Trustee

----------------------------------
(As Transfer Agent and Registrar)

By:
------------------------------------------
Name:
Title:

RECEIVED AND ACCEPTED:

THE DEPOSITORY TRUST COMPANY

By:
---------------------------
Authorized Officer

<PAGE>

EXHIBIT C

THIS CERTIFICATE IS NOT TRANSFERABLE

Certificate Number
C-1

Number of Common Securities

__________

Certificate Evidencing Common Securities
of
PSE&G Capital Trust II

_____% Common Securities
(liquidation amount $_____ per Common Security)

PSE&G Capital Trust II, a statutory business trust created under the
laws of the State of Delaware (the "Trust"), hereby certifies that Public
Service Electric and Gas Company (the "Holder") is the registered owner of
____________________ (__________) common securities of the Trust representing
undivided beneficial interests in the assets of the Trust and designated as the
_____% Common Securities (liquidation amount $_____ per Common Security) (the
"Common Securities"). In accordance with Section 5.10 of the Trust Agreement
(as defined below) the Common Securities are not transferable and any attempted
transfer hereof shall be void. The designations, rights, privileges,
restrictions, preferences and other terms and provisions of the Common
Securities are set forth in, and this certificate and the Common Securities
represented hereby are issued and shall in all respects be subject to the terms
and provisions of, the Amended and Restated Trust Agreement of the Trust dated
as of _______ __, ____, as the same may be amended from time to time (the "Trust
Agreement"). The Trust will furnish a copy of the Trust Agreement to the Holder
without charge upon written request to the Trust at its principal place of
business or registered office.

Upon receipt of this certificate, the Holder is bound by the Trust
Agreement and is entitled to the benefits thereunder.

<PAGE>

IN WITNESS WHEREOF, the Administrative Trustee of the Trust has
executed this certificate this _____ day of _______, ____.

PSE&G CAPITAL TRUST II

By:
------------------------------------------
Name: ____________________
Administrative Trustee

<PAGE>

EXHIBIT D

Certificate Number

_____

Number of Preferred Securities
CUSIP NO. __________

Certificate Evidencing Preferred Securities
of
PSE&G Capital Trust II

_____% Cumulative Quarterly Income Preferred Securities,
Series B
(liquidation amount $_____ per Preferred Security)

PSE&G Capital Trust II, a statutory business trust created under the
laws of the State of Delaware (the "Trust"), hereby certifies that Cede & Co.
(the "Holder") is the registered owner of _________, _________________________
(_________) preferred securities of the Trust representing an undivided
beneficial interest in the assets of the Trust and designated the PSE&G Capital
Trust II _____% Cumulative Quarterly Income Preferred Securities, Series B
(liquidation amount $_____ 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 as provided in Section 5.04 of the
Trust Agreement (as defined below). The designations, rights, privileges,
restrictions, preferences and other terms and provisions of the Preferred
Securities are set forth in, and this certificate and the Preferred Securities
represented hereby are issued and shall in all respects be subject to the terms
and provisions of, the Amended and Restated Trust Agreement of the Trust dated
as of __________, ____, as the same may be amended from time to time (the "Trust
Agreement"). The Holder is entitled to the benefits of the Guarantee Agreement
entered into by Public Service Electric and Gas Company, a New Jersey
corporation, and First Union National Bank as guarantee trustee, dated as
of_________, ____ (the "Guarantee") to the extent provided therein, together
with the obligations of Public Service Electric and Gas Company under the Trust
Agreement, its Deferrable Interest Subordinated Debentures and the Indenture
related to such Deferrable Interest Subordinated Debentures. The Trust will
furnish a copy of the Trust Agreement and the Guarantee to the Holder without
charge upon written request to the Trust at its principal place of business or
registered office.

<PAGE>

Upon receipt of this certificate, the Holder is bound by the Trust
Agreement and is entitled to the benefits thereunder.

IN WITNESS WHEREOF, the Administrative Trustee of the Trust has
executed this certificate this _____ day of ______, ____.

PSE&G CAPITAL TRUST II

By:
------------------------------------------
Name: ____________________
Administrative Trustee

[To be included in Book-Entry Preferred Securities Certificate]

This Preferred Security is a Book-Entry Preferred Securities Certificate within
the meaning of the Trust Agreement previously referred to and is registered in
the name of The Depository Trust Company (the "Depository") or a nominee of the
Depository. This Preferred Security is exchangeable for Preferred Securities
registered in the name of a person other than the Depository or its nominee only
in the limited circumstances described in the Trust Agreement and no transfer of
this Preferred Security (other than a transfer of this Preferred Security 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 Preferred Security is presented by an authorized representative of
The Depository Trust Company, a New York corporation, (55 Water Street, New
York) to PSE&G Capital Trust II or its agent for registration of transfer,
exchange or payment, and any Preferred Security issued 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. or to
such other entity as is requested by an authorized representative of The
Depository Trust Company, ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY A PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede
& Co., has an interest herein.

<PAGE>

ASSIGNMENT

FOR VALUE RECEIVED, the undersigned assigns and transfers to:
(Insert assignee's social security or tax identification number)
(Insert address and zip code of assignee)

__________ Preferred Securities represented by this Preferred Securities
Certificate and irrevocably appoints

agent to transfer said Preferred Securities 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)

Exhibit 3-9

Amended and Restated
Trust Agreement for PSE&G Capital Trust III

among

PUBLIC SERVICE ELECTRIC AND GAS COMPANY
(as Depositor)

FIRST UNION NATIONAL BANK
(as Property Trustee)

FIRST UNION BANK OF DELAWARE
(as Delaware Trustee)

and

THE ADMINISTRATIVE TRUSTEE NAMED HEREIN

Dated as of
_______ __, ____

<PAGE>

TABLE OF CONTENTS

Page
----

ARTICLE I

Defined Terms

Section 1.01. Definitions . . . . . . . . . . . . . . . . . . . . . . 2

ARTICLE II

Continuation of the Trust

Section 2.01. Name . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 2.02. Office of the Delaware Trustee; Principal Place
of Business . . . . . . . . . . . . . . . . . . . . . . 10
Section 2.03. Initial Contribution of Trust Property; Expenses
of the Trust . . . . . . . . . . . . . . . . . . . . . . 10
Section 2.04. Issuance of the Trust Securities . . . . . . . . . . . . 11
Section 2.05. Purchase of Debentures . . . . . . . . . . . . . . . . . 11
Section 2.06. Declaration of Trust . . . . . . . . . . . . . . . . . . 11
Section 2.07. Authorization to Enter into Certain
Transactions . . . . . . . . . . . . . . . . . . . . . . 12
Section 2.08. Assets of Trust . . . . . . . . . . . . . . . . . . . . 15
Section 2.09. Title to Trust Property . . . . . . . . . . . . . . . . 15

ARTICLE III

Payment Account

Section 3.01. Payment Account . . . . . . . . . . . . . . . . . . . . 16

ARTICLE IV

Distributions; Redemption

ARTICLE V

Trust Securities Certificates

Section 5.01. Initial Ownership . . . . . . . . . . . . . . . . . . . 21
Section 5.02. The Trust Securities Certificates . . . . . . . . . . . 21
Section 5.03. Delivery of Trust Securities Certificates . . . . . . . 21
Section 5.04. Registration of Transfer and Exchange of

(i)

<PAGE>

Page
----

Preferred Securities Certificates . . . . . . . . . . . 22
Section 5.05. Mutilated, Destroyed, Lost or Stolen Trust
Securities Certificates . . . . . . . . . . . . . . . . 23
Section 5.06. Persons Deemed Securityholders . . . . . . . . . . . . . 23
Section 5.07. Access to List of Securityholders' Names and
Addresses . . . . . . . . . . . . . . . . . . . . . . . 23
Section 5.08. Maintenance of Office or Agency . . . . . . . . . . . . 24
Section 5.09. Appointment of Paying Agent . . . . . . . . . . . . . . 24
Section 5.10. No Transfer of Common Securities by Depositor . . . . . 25
Section 5.11. Book-Entry Preferred Securities Certificates;
Common Securities Certificate . . . . . . . . . . . . . 25
Section 5.12. Definitive Preferred Securities Certificates . . . . . . 25
Section 5.13. Rights of Securityholders . . . . . . . . . . . . . . . 26

ARTICLE VI

Acts of Securityholders; Meetings; Voting

Section 6.01. Limitations on Voting Rights . . . . . . . . . . . . . . 26
Section 6.02. Notice of Meetings . . . . . . . . . . . . . . . . . . . 27
Section 6.03. Meetings of Preferred Securityholders . . . . . . . . . 28
Section 6.04. Voting Rights . . . . . . . . . . . . . . . . . . . . . 28
Section 6.05. Proxies, etc. . . . . . . . . . . . . . . . . . . . . . 28
Section 6.06. Securityholder Action by Written Consent . . . . . . . . 28
Section 6.07. Record Date for Voting and Other Purposes . . . . . . . 29
Section 6.08. Acts of Securityholders . . . . . . . . . . . . . . . . 29
Section 6.09. Inspection of Records . . . . . . . . . . . . . . . . . 30

ARTICLE VII

The Trustees

Section 7.01. Certain Duties and Responsibilities . . . . . . . . . . 30
Section 7.02. Notice of Defaults; Direct Action by
Securityholders . . . . . . . . . . . . . . . . . . . . 31
Section 7.03. Certain Rights of Property Trustee . . . . . . . . . . . 32
Section 7.04. Not Responsible for Recitals or Issuance of
Securities . . . . . . . . . . . . . . . . . . . . . . . 33
Section 7.05. May Hold Securities . . . . . . . . . . . . . . . . . . 33
Section 7.06. Compensation; Indemnity; Fees . . . . . . . . . . . . . 33
Section 7.07. Corporate Property Trustee Required; Eligibility
of Trustees . . . . . . . . . . . . . . . . . . . . . . 34
Section 7.08. Conflicting Interests . . . . . . . . . . . . . . . . . 35
Section 7.09. Co-Trustees and Separate Trustee . . . . . . . . . . . . 35
Section 7.10. Resignation and Removal; Appointment of
Successor . . . . . . . . . . . . . . . . . . . . . . . 37
Section 7.11. Acceptance of Appointment by Successor . . . . . . . . . 38
Section 7.12. Merger, Conversion, Consolidation or Succession
to Business . . . . . . . . . . . . . . . . . . . . . . 39

(ii)

<PAGE>

Page
----

ARTICLE VIII

Termination and Liquidation

ARTICLE IX

Mergers, Etc.

Section 9.01. Mergers, Consolidations, Amalgamations or
Replacements of the Trust . . . . . . . . . . . . . . . 44

ARTICLE X

Miscellaneous Provisions

Section 10.01. Limitation of Rights of Securityholders . . . . . . . . 46
Section 10.02. Amendment . . . . . . . . . . . . . . . . . . . . . . . 46
Section 10.03. Severability . . . . . . . . . . . . . . . . . . . . . 47
Section 10.04. Governing Law . . . . . . . . . . . . . . . . . . . . . 47
Section 10.05. Payments Due on Non-Business Day . . . . . . . . . . . 47
Section 10.06. Successors and Assigns . . . . . . . . . . . . . . . . 48
Section 10.07. Headings . . . . . . . . . . . . . . . . . . . . . . . 48
Section 10.08. Reports, Notices and Demands . . . . . . . . . . . . . 48
Section 10.09. Agreement Not to Petition . . . . . . . . . . . . . . . 49
Section 10.10. Trust Indenture Act; Conflict with Trust
Indenture Act . . . . . . . . . . . . . . . . . . . . . 49
Section 10.11. Acceptance of Terms of Trust Agreement,
Guarantee and Indenture . . . . . . . . . . . . . . . . 49

(iii)

<PAGE>

Page
----

PSE&G Capital Trust III

Certain Sections of this Trust Agreement relating to
Sections 310 through 318 of the
Trust Indenture Act of 1939

Trust Indenture Trust Agreement
Act Section Section
- --------------- ---------------

__________________
Note: This reconciliation and tie sheet shall not, for any
purpose, be deemed to be a part of the Trust Agreement.

(iv)

<PAGE>

AMENDED AND RESTATED TRUST AGREEMENT of PSE&G Capital Trust III
(the "Trust"), dated as of _______ __, ____, among (i) Public Service
Electric and Gas Company, a New Jersey corporation (the "Depositor"), (ii)
First Union National Bank, a national banking association, as trustee (the
"Property Trustee"), (iii) First Union Bank of Delaware, a
_________________, whose address in Delaware is 1225 King Street,
Wilmington, Delaware 19801, as Delaware trustee (the "Delaware Trustee"),
(iv) Fred F. Saunders, an individual whose address is c/o Public Service
Electric and Gas Company, 80 Park Plaza, P.O. Box 570, Newark, New Jersey
07101 (the "Administrative Trustee") (the Property Trustee, the Delaware
Trustee and the Administrative Trustee are referred to collectively as the
"Trustees"), and (v) the several Holders, as hereinafter defined.

WITNESSETH:

<PAGE>

ARTICLE I

Defined Terms

Section 1.01. Definitions. For all purposes of this Trust
-----------
Agreement, except as otherwise expressly provided or unless the context
otherwise requires:

(a) each term defined in this Article I has the meaning
assigned to it in this Article I and includes the plural as well as
the singular;

(b) each of the other terms used herein that is defined in
the Trust Indenture Act, either directly or by reference therein, has
the meaning assigned to it therein;

(c) unless the context otherwise requires, any reference to
an "Article" or a "Section" refers to an Article or a Section, as the
case may be, of this Trust Agreement; and

(d) the words "herein", "hereof" and "hereunder" and other
words of similar import refer to this Trust Agreement as a whole and
not to any particular Article, Section or other subdivision.

"Act" has the meaning specified in Section 6.08.
---

"Bankruptcy Event" means, with respect to any Person, the
----------------
occurrence of any of the following events:

(a) Such Person, pursuant to or within the meaning of any
Bankruptcy Law:

<PAGE>

(i) commences a voluntary case or proceeding;

(ii) consents to the entry of an order for relief
against it in an involuntary case or proceeding;

(iii) consents to the appointment of a Custodian, as
hereinafter defined, of it or for all or
substantially all of its property, and such
Custodian is not discharged within 60 days;

(iv) makes a general assignment for the benefit of its
creditors; or

(v) admits in writing its inability to pay its debts
generally as they become due; or

(b) A court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:

(i) is for relief against such Person in an
involuntary case or proceeding;

(ii) appoints a Custodian of such Person for all or
substantially all of its properties;

(iii) orders the liquidation of such Person;

(iv) and in each case the order or decree remains
unstayed and in effect for 60 days.

<PAGE>

"Closing Date" means the Time of Delivery as defined in the
------------
Underwriting Agreement, which date is also the date of execution and
delivery of this Trust Agreement.

"Code" means the Internal Revenue Code of 1986, as amended.
----

"Common Security" means an undivided beneficial interest in the
---------------
assets of the Trust, having a Liquidation Amount of $_____ and having the
rights provided therefor in this Trust Agreement, including the right to
receive Distributions and a Liquidation Distribution as provided herein.

"Common Securities Certificate" means a certificate evidencing
-----------------------------
ownership of Common Securities, substantially in the form attached hereto
as Exhibit C.

"Corporate Trust Office" means the principal corporate trust
----------------------
office of the Property Trustee located in the State of New

<PAGE>

Jersey which at the date hereof is 765 Broad Street, Newark, New Jersey
07107.

"Creditor" has the meaning specified in Section 2.03.
--------

"Debenture Event of Default" means an "Event of Default" as
--------------------------
defined in the Indenture with respect to the Debentures.

"Debenture Redemption Date" means "Redemption Date" as defined in
-------------------------
the Indenture with respect to the Debentures.

"Debentures" means the Depositor's _____% Deferrable Interest
----------
Subordinated Debentures, Series C, issued pursuant to the Indenture.

"Delaware Business Trust Act" means Chapter 38 of Title 12 of the
---------------------------
Delaware Code, 12 Del. C. Sec. 3801, et seq., as it may be amended from time
to time.

"Depositor" has the meaning specified in the preamble to this
---------
Trust Agreement.

"Distribution Date" has the meaning specified in Section 4.01(a).
-----------------

"Distributions" means amounts payable in respect of the Trust
-------------
Securities as provided in Section 4.01.

<PAGE>

"Expiration Date" has the meaning specified in Section 8.01.
---------------

"Indenture" means the Indenture, dated as of June 1, 1996,
---------
between the Depositor and the Debenture Trustee, as trustee thereunder, as
amended or supplemented from time to time.

"Liquidation Amount" means the stated amount of $_____ per Trust
------------------
Security.

"Liquidation Distribution" has the meaning specified in Section
------------------------
8.04(d).

"1940 Act" means the Investment Company Act of 1940, as amended.
--------

"Officers' Certificate" means a certificate signed by the
---------------------
Chairman, the President, any Vice President, the Treasurer, any

<PAGE>

Assistant Treasurer, the Secretary or any Assistant Secretary of the
Depositor.

"Original Trust Agreement" has the meaning specified in the
------------------------
recitals to this Trust Agreement.

(a) Trust Securities theretofore cancelled by the
Administrative Trustee or delivered to the Administrative Trustee for
cancellation;

(d) as provided in Section 8.04(c);

<PAGE>

"Paying Agent" means the Property Trustee and any co-paying agent
------------
appointed pursuant to Section 5.09.

"Preferred Security" means a __% Cumulative Quarterly Income
------------------
Preferred Security, Series C issued by the Trust, and having an undivided
beneficial interest in the assets of the Trust, having a Liquidation Amount
of $_____ and having rights provided therefor in this Trust Agreement,
including the right to receive Distributions and a Liquidation Distribution
as provided herein.

"Redemption Price" means, with respect to any Trust Security, the
----------------
Liquidation Amount of such Trust Security, plus accumulated and unpaid
Distributions thereon to the Redemption Date.

<PAGE>

"Securities Register" and "Securities Registrar" have the
------------------- --------------------
respective meanings specified in Section 5.04.

"Successor Securities" has the meaning specified in Section 8.05.
--------------------

"Trust" means the Delaware business trust created and continued
-----
hereby and identified on the cover page to this Trust Agreement.

"Trust Security" means any one of the Common Securities or the
--------------
Preferred Securities.

"Trust Securities Certificate" means any one of the Common
----------------------------
Securities Certificates or the Preferred Securities Certificates.

"Underwriting Agreement" means the Underwriting Agreement, dated
----------------------
_______ __, ____, among the Trust, the Depositor and the Underwriters named
therein.

<PAGE>

ARTICLE II

Continuation of the Trust

Section 2.01. Name. The Trust created and continued hereby
----
shall be known as "PSE&G Capital Trust III" as such name may be modified
from time to time by the Administrative Trustee following written notice to
the Holders of Trust Securities and the other Trustees, in which name the
Trustees may conduct the business of the Trust, make and execute contracts
and other instruments on behalf of the Trust and sue and be sued.

Section 2.03. Initial Contribution of Trust Property; Expenses
------------------------------------------------
of the Trust.
- ------------

<PAGE>

(e) The Depositor shall make no claim upon the Trust Property
for the payment of such expenses.

<PAGE>

Section 2.07. Authorization to Enter into Certain Transactions.
------------------------------------------------

(i) As among the Trustees, the Administrative Trustee
shall have the power and authority to act on behalf of the Trust with
respect to the following matters:

(A) executing and delivering the Trust Securities on
behalf of the Trust;

<PAGE>

(ii) As among the Trustees, the Property Trustee shall
have the power, duty and authority to act on behalf of the Trust with
respect to the following matters:

(A) establishing and maintaining the Payment Account
and appointing Paying Agents (subject to Section 5.09);

(B) receiving payment of the purchase price of the
Trust Securities;

(D) collecting interest, premium, if any, and
principal payments on the Debentures and depositing them in the Payment
Account;

(E) making Distributions and other payments to the
Securityholders in respect of the Trust Securities;

(F) exercising all of the rights, powers and
privileges of a holder of the Debentures;

<PAGE>

(J) registering transfers and exchanges of the
Preferred Securities in accordance with this Trust Agreement (but only if
at such time the Property Trustee shall be the Securities Registrar).

(i) preparing for filing with the Commission and
executing on behalf of the Trust a registration statement on Form S-3 in
relation to the Preferred Securities, including any amendments thereto;

(ii) determining the States in which to take appropriate
action to qualify or register for sale all or part of

<PAGE>

(v) negotiating the terms of, and executing and
delivering, the Underwriting Agreement providing for the sale of the
Preferred Securities; and

(vi) taking any other actions necessary or desirable to
carry out any of the foregoing activities.

Section 2.08. Assets of Trust. The assets of the Trust shall
---------------
consist of the Trust Property.

<PAGE>

ARTICLE III

Payment Account

Section 3.01. Payment Account.
---------------

ARTICLE IV

Distributions; Redemption

Section 4.01. Distributions.
-------------

(a) Distributions on the Trust Securities shall be cumulative,
and will accumulate whether or not there are funds of the Trust available
for the payment of Distributions. Distributions shall accumulate from
_______ __, ____ and, except during an Extension Period for the Debentures
pursuant to the Indenture, shall be payable quarterly in arrears on
March 31, June 30, September 30 and December 31 of each year, commencing on
_______ __, ____. If any date on which Distributions are otherwise payable
on the Trust Securities is not a Business Day, then the payment of such
Distributions shall be made on the next succeeding day which 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, payment of such Distributions shall be made on the
immediately preceding Business Day, in each case with the same force and
effect as if made on such date (each date on which Distributions are
payable in accordance with this Section 4.01(a) is referred to as a
"Distribution Date").

<PAGE>

Section 4.02. Redemption.
----------

<PAGE>

appearing in the Securities Register. All notices of redemption shall
state:

(i) the Redemption Date;

(ii) the Redemption Price;

(iii) the CUSIP number;

(iv) the place or places where Trust Securities
Certificates are to be surrendered for payment of the Redemption Price;

(vi) if less than all of the Outstanding Trust Securities
are to be redeemed, the identification and total Liquidation Amount of the
particular Trust Securities to be redeemed.

<PAGE>

(e) If less than all the Outstanding Trust Securities are to be
redeemed on a Redemption Date, then the aggregate Liquidation Amount of
Trust Securities to be redeemed shall be allocated __% to the Common
Securities and __% to the Preferred Securities. The particular Preferred
Securities to be redeemed shall be selected by the Property Trustee from
the Outstanding Preferred Securities not previously called for redemption,
by such method as the Property Trustee shall deem fair and appropriate.
The Property Trustee shall promptly notify the Securities Registrar in
writing of the Preferred Securities selected for redemption. If fewer than
all of the Trust Securities represented by a Trust Securities Certificate
are redeemed, the Administrative Trustee shall execute for the Holder a new
Trust Securities Certificate representing the unredeemed Trust Securities.
For all purposes of this Trust Agreement, unless the context otherwise
requires, all provisions relating to the redemption of Preferred Securities
shall relate, in the case of any Preferred Securities redeemed or to be
redeemed only in part, to the portion of the Liquidation Amount of
Preferred Securities which has been or is to be redeemed.

Section 4.03. Subordination of Common Securities.
----------------------------------

<PAGE>

Redemption Price, the full amount of such Redemption Price on all
Outstanding Preferred Securities then being redeemed, shall have been made
or provided for, and all funds immediately available to the Property
Trustee shall first be applied to the payment in full in cash of all
Distributions on, or the Redemption Price of, Preferred Securities then due
and payable.

<PAGE>

Trustees shall comply with United States Federal withholding and backup
withholding tax laws and information reporting requirements with respect to
any payments to Securityholders under the Trust Securities.

ARTICLE V

Trust Securities Certificates

<PAGE>

provided in Sections 2.04 and 2.05, to be executed on behalf of the Trust
as provided in Section 5.02 and delivered to or upon a written order of the
Depositor signed by its Chairman of the Board, its President, any Vice
President or the Treasurer, without further corporate action by the
Depositor, in authorized denominations. The written order of the Depositor
shall be accompanied by an Officer's Certificate and an Opinion of Counsel.

No service charge shall be made for any registration of transfer
or exchange of Preferred Securities, but the Securities Registrar may
require payment of a sum sufficient to cover any tax

<PAGE>

or governmental charge that may be imposed in connection with any transfer
or exchange of Preferred Securities.

Section 5.07. Access to List of Securityholders' Names and
--------------------------------------------
Addresses. In the event that the Property Trustee is no longer the
- ---------
Securities Registrar, the Administrative Trustee or the Depositor shall
furnish or cause to be furnished (a) to the Property Trustee, quarterly not
later than 10 days prior to a Distribution Date, a list, in such form as
the Property Trustee may reasonably require, of the names and addresses of
the Securityholders as of the most recent record date and (b) to the
Property Trustee, promptly after receipt by the Administrative Trustee or
the Depositor of a request therefor from the Property Trustee in order to
enable the Paying Agent to pay Distributions in accordance with Section
4.01 hereof), in each case to the extent such information is in the
possession or control of the Administrative Trustee or the Depositor and is
not identical to a

<PAGE>

Section 5.11. Book-Entry Preferred Securities Certificates;
---------------------------------------------
Common Securities Certificate.
- -----------------------------

(b) A single Common Securities Certificate representing the
Common Securities shall be issued to the Depositor in the form of a
definitive Common Securities Certificate.

<PAGE>

ARTICLE VI

Acts of Securityholders; Meetings; Voting

Section 6.01. Limitations on Voting Rights.
----------------------------

(b) The Trustees shall not (i) direct the time, method and place
of conducting any proceeding for any remedy available to the Debenture
Trustee or executing any trust or power conferred on

<PAGE>

the Debenture Trustee with respect to such Debentures, (ii) waive any past
default which may be waived under Section 6.04 of the Indenture, (iii)
exercise any right to rescind or annul an acceleration of the principal of
all the Debentures or (iv) consent to any amendment or modification of the
Indenture, where such consent shall be required, without, in each case,
obtaining the prior consent of the Holders of at least a majority in
aggregate Liquidation Amount of all Outstanding Preferred Securities;
provided, however, that where such consent under the Indenture would
- -------- -------
require the consent of each holder of Debentures affected thereby, no such
consent shall be given by the Property Trustee without the prior written
consent of each Holder of Outstanding Preferred Securities. The Trustees
shall not revoke any action previously authorized or approved by a vote of
the Holders of Preferred Securities, except by a subsequent vote of the
Holders of Preferred Securities. The Property Trustee shall notify all
Holders of the Preferred Securities of any notice received from the
Debenture Trustee as a result of the Trust being the holder of the
Debentures. In addition to obtaining the consent of the Holders of the
Preferred Securities, prior to taking any of the foregoing actions, the
Trustees shall, at the expense of the Depositor, obtain an Opinion of
Counsel experienced in such matters to the effect that the Trust will not
be classified as an association taxable as a corporation or partnership for
United States Federal income tax purposes on account of such action and
will continue to be classified as a grantor trust for United States Federal
income tax purposes.

<PAGE>

Holders of at least 50% of the aggregate Liquidation Amount of
the Outstanding Preferred Securities, present in person or by proxy, shall
constitute a quorum at any meeting of Securityholders.

Section 6.04. Voting Rights. A Securityholder shall be entitled
-------------
to one vote for each Trust Security in respect of any matter as to which
such Securityholder is entitled to vote.

<PAGE>

Outstanding Preferred Securities required to approve such action shall
consent to the action in writing.

The ownership of Preferred Securities shall be proved by the
Securities Register.

<PAGE>

lieu thereof in respect of anything done, omitted or suffered to be done by
the Trustees or the Trust in reliance thereon, whether or not notation of
such action is made upon such Trust Security.

ARTICLE VII

The Trustees

Section 7.01. Certain Duties and Responsibilities.
-----------------------------------

<PAGE>

in the name of the Trust if such action has not been taken by the Property
Trustee. To the fullest extent permitted by law, the foregoing shall be in
addition to and not in limitation of any direct rights provided to the
Holders of the Preferred Securities under the terms of the Indenture,
including the right, without any notice or other demand on the Property
Trustee, to institute suit for the enforcement of any payment of the
principal of and any premium and interest on Debentures as provided in
Section 6.07 of the Indenture.

Section 7.03. Certain Rights of Property Trustee. Subject to
----------------------------------
the provisions of Section 7.01:

<PAGE>

Section 7.06. Compensation; Indemnity; Fees. The Depositor
-----------------------------
agrees:

No Trustee may claim any Lien or charge on any Trust Property as
a result of any amount due pursuant to this Section 7.06.

The provisions of this Section 7.06 shall survive the termination
of this Trust Agreement.

Section 7.07. Corporate Property Trustee Required; Eligibility
------------------------------------------------
of Trustees.
- -----------

<PAGE>

Every co-trustee or separate trustee shall, to the extent
permitted by law, but to such extent only, be appointed subject to the
following terms, namely:

<PAGE>

(d) No co-trustee or separate trustee hereunder shall be
personally liable by reason of any act or omission of the Property Trustee,
or any other trustee hereunder.

(e) The Property Trustee shall not be liable by reason of any
act of a co-trustee or separate trustee.

(f) Any Act of Holders delivered to the Property Trustee shall
be deemed to have been delivered to each such co-trustee and separate
trustee.

Subject to the immediately preceding paragraph, any Trustee may
resign at any time with respect to the Trust Securities by giving written
notice thereof to the Securityholders.

<PAGE>

No successor Trustee shall accept its appointment unless at the
time of such acceptance such successor Trustee shall be qualified and
eligible under this Article.

<PAGE>

within 60 days after each May 31 following the date of this Trust Agreement
deliver to Holders a brief report, dated as of such May 31, which complies
with the provisions of such Section 313(a).

Section 7.17. Statements Required in Officer's Certificate and
------------------------------------------------
Opinion of Counsel.
- ------------------

Each Officer's Certificate and Opinion of Counsel with respect to
compliance with a covenant or condition provided for in this Trust
Agreement shall include:

(1) a statement that each Person making such Officer's
Certificate or Opinion of Counsel 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 Officer's Certificate or Opinion of Counsel are based;

(4) a statement that, in the opinion of such Person, such
covenant or condition has been complied with; provided, however, that with
respect to matters of fact not involving any

<PAGE>

legal conclusion, an Opinion of Counsel may rely on an Officer's
Certificate or certificates of public officials.

Section 7.18. Number of Trustees.
------------------

Section 7.19. Delegation of Power.
-------------------

Section 7.20. Voting. Except as otherwise provided in this
------
Trust Agreement, the consent or vote of the Trustees shall be approved by
not less than a majority of the Administrative Trustees.

<PAGE>

ARTICLE VIII

Termination and Liquidation

Section 8.01. Termination Upon Expiration Date. Unless earlier
--------------------------------
terminated, the Trust shall automatically terminate on _______ __, ____
(the "Expiration Date"), following the distribution of the Trust Property
in accordance with Section 8.04.

Section 8.02. Early Termination. The earliest to occur of any
-----------------
of the following events is an "Early Termination Event":

(b) upon the election of the Depositor to liquidate the Trust
and cause the distribution of a Like Amount of Debentures to the Holders of
the Trust Securities;

(d) an order for termination of the Trust shall have been
entered by a court of competent jurisdiction.

Section 8.04. Liquidation.
-----------

(a) If an Early Termination Event specified in clause (a), (c)
or (d) of Section 8.02 occurs or upon the Expiration Date,

<PAGE>

the Trust shall be liquidated by the Trustees as expeditiously as the
Trustees determine to be possible by distributing, after satisfaction of
liabilities to creditors of the Trust as provided by applicable law, to
each Securityholder a Like Amount of Debentures, subject to Section
8.04(d). If an Early Termination Event specified in clause (b) occurs, the
Trust shall be liquidated by the Trustee on the date of distribution of the
Debentures specified by the Depositor in its notice delivered pursuant to
Section 8.02. Notice of liquidation shall be given by the Property Trustee
by first-class mail, postage prepaid, mailed not later than 30 nor more
than 60 days prior to the Liquidation Date to each Holder of Trust
Securities at such Holder's address appearing in the Securities Register.
All notices of liquidation shall:

(i) state the Liquidation Date;

(c) Except where Section 8.02(c) or 8.04(d) applies, on or after
the Liquidation Date, (i) the Trust Securities will no longer be deemed to
be Outstanding, (ii) certificates representing a Like Amount of Debentures
will be issued to Holders of Trust Securities Certificates, upon surrender
of such certificates to the Administrative Trustee or its agent for
exchange, (iii) the Depositor shall use its best efforts to have the
Debentures listed on the New York Stock Exchange or such other exchange as
the Preferred Securities are then listed and shall take any reasonable
action necessary to effect the distribution of the Debentures, (iv) any
Trust Securities Certificates not so surrendered for exchange will be
deemed to represent a Like Amount of Debentures, accruing interest at the
rate provided for in the Debentures from the last Distribution Date on
which a Distribution was made on such Trust

<PAGE>

Certificates until such certificates are so surrendered (and until such
certificates are so surrendered, no payments or interest or principal will
be made to Holders of Trust Securities Certificates with respect to such
Debentures) and (v) all rights of Securityholders holding Trust Securities
will cease, except the right of such Securityholders to receive Debentures
upon surrender of Trust Securities Certificates.

ARTICLE IX

Mergers, Etc.

Section 9.01. Mergers, Consolidations, Amalgamations or
-----------------------------------------
Replacements of the Trust. The Trust may not merge with or into,
- -------------------------
consolidate, amalgamate, or be replaced by, or convey, transfer or lease
its properties and assets as an entirety or substantially as an entirety to
any corporation or other entity, except as described below. The Trust may,
at the request of the Depositor, with the consent of the Administrative
Trustee and without the consent of the Holders of the Preferred Securities,
merge with or into,

<PAGE>

consolidate, amalgamate, or be replaced by, a trust organized as such under
the laws of any State; provided, that (i) such successor entity either
(a) expressly assumes all of the obligations of the Trust with respect to
the Preferred 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 the payment
of Distributions and payments upon liquidation and redemption, (ii) the
Depositor expressly appoints a trustee of such successor entity possessing
the same powers and duties as the Property Trustee as the holder of the
Debentures, (iii) the Successor Securities are listed, or any Successor
Securities will be listed upon notification of issuance, on any national
securities exchange or other organization on which the Preferred Securities
are then listed, (iv) such merger, consolidation, amalgamation or
replacement does not cause the Preferred Securities (including 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 Preferred Securities
(including any Successor Securities) in any material respect, (vi) such
successor entity has a purpose substantially similar to that of the Trust,
(vii) prior to such merger, consolidation, amalgamation or replacement, the
Depositor has received an Opinion of Counsel 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
Preferred Securities (including any Successor Securities) in any material
respect, and (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 (viii) the
Depositor or any permitted successor assignee owns all of the common
securities of such successor entity and guarantees the obligations of such
successor entity under the Successor Securities at least to the extent
provided by the Guarantee and this Trust Agreement. Notwithstanding the
foregoing, the Trust shall not, except with the consent of all Holders of
the Preferred Securities, merge with or into, consolidate, amalgamate, 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 not to be classified as a grantor trust for United States Federal
income tax purposes.

<PAGE>

ARTICLE X

Miscellaneous Provisions

Section 10.02. Amendment.
---------

<PAGE>

without the unanimous consent of the Securityholders (such consent being
obtained in accordance with Section 6.03 or 6.06 hereof), paragraphs (b)
and (c) of this Section 10.02 may not be amended.

(f) In the event that any amendment to this Trust Agreement is
made, the Administrative Trustee shall promptly provide to the Depositor a
copy of such amendment.

<PAGE>

payment), and no interest shall accumulate thereon for the period after
such date to the date of payment on such succeeding day.

Section 10.07. Headings. The Article and Section headings are
--------
for convenience only and shall not affect the construction of this Trust
Agreement.

Any notice, demand or other communication which by any provision
of this Trust Agreement is required or permitted to be given or served to
or upon the Trust, the Property Trustee or the Administrative Trustee shall
be given in writing addressed (until another address is published by the
Trust) as follows: (a) with respect to the Property Trustee to First Union
National Bank, 765 Broad Street, Newark, New Jersey 07101, Attention:
Corporate Trust Office; (b) with respect to the Delaware Trustee, to 1225
King Street, Wilmington, Delaware 19801 Attention: Corporate Trust
Department; and (c) with respect to the Administrative Trustee, to the
address above for notices to the Depositor, marked "Attention:
Administrative Trustee of PSE&G Capital Trust III c/o Treasurer." Such
notice, demand or other communication to or upon the Trust or the Property
Trustee shall be deemed to have been sufficiently given or made only upon
actual receipt of the writing by the Trust or the Property Trustee.

<PAGE>

Section 10.10. Trust Indenture Act; Conflict with Trust
----------------------------------------
Indenture Act.
- -------------

(b) The Property Trustee shall be the only Trustee which is a
trustee for the purposes of the Trust Indenture Act.

<PAGE>

PUBLIC SERVICE ELECTRIC AND GAS COMPANY,
as Depositor

By:
-------------------------------------
Name:
Title:

FIRST UNION NATIONAL BANK, as Property
Trustee

By:
-------------------------------------
Name:
Title:

FIRST UNION BANK OF DELAWARE, as
Delaware Trustee

By:
-------------------------------------
Name:
Title:

_____________________________,
as Administrative Trustee
Name:

<PAGE>

EXHIBIT A

CERTIFICATE OF TRUST
OF
PSE&G CAPITAL TRUST III

THIS CERTIFICATE OF TRUST of PSE&G Capital Trust III (the
"Trust"), dated April 19, 1996, is being duly executed and filed by the
undersigned, as trustees, to form a business trust under the Delaware
Business Trust Act (12 Del. C. Sec. 3801 et seq.).
------- -------

(i) Name. The name of the business trust being formed hereby
----
is PSE&G Capital Trust III.

(iii) Counterparts. This Certificate of Trust may be executed
------------
in one or more counterparts, all of which together shall constitute one and
the same instrument.

(iv) Effective Date. This Certificate of Trust shall be
--------------
effective as of its filing.

IN WITNESS WHEREOF, the undersigned, being the trustees of the
Trust, have executed this Certificate of Trust as of the date first above
written.

FIRST UNION NATIONAL BANK, as Trustee

By:
-------------------------------------
Name:
Title:

FIRST UNION BANK OF DELAWARE, as Trustee

By:
-------------------------------------
Name:
Title:

_____________________________,
as Trustee
Name: Fred F. Saunders

A-1

<PAGE>

EXHIBIT B

_______ __, ____

The Depository Trust Company
55 Water Street, 49th Floor
New York, New York 10041-0099

Attention:
General Counsel's Office

Re: PSE&G Capital Trust III Preferred Securities
--------------------------------------------

Ladies and Gentlemen:

The purpose of this letter is to set forth certain matters
relating to the issuance and deposit with The Depository Trust Company
("DTC") of the PSE&G Capital Trust III _____% Cumulative Quarterly Income
Preferred Securities, Series C (the "Preferred Securities"), of PSE&G
Capital Trust III, a Delaware business trust (the "Issuer"), created
pursuant to a Trust Agreement between Public Service Electric and Gas
Company ("PSE&G"), First Union National Bank, as Property Trustee, the
Delaware Trustee named therein and the Administrative Trustee named
therein. The payment of distributions on the Preferred Securities and
payments due upon liquidation of the Issuer or redemption of the Preferred
Securities are guaranteed by PSE&G, to the extent the Issuer has funds
available for the payment thereof and to the extent set forth in a
Guarantee Agreement dated _______ __, ____ by PSE&G and backup undertakings
relating thereto with respect to the Preferred Securities. The Issuer
proposes to sell the Preferred Securities to certain Underwriters (the
"Underwriters") pursuant to an Underwriting Agreement dated _______ __,
____ by and among the Underwriters, the Issuer and PSE&G and the
Underwriters wish to take delivery of the Preferred Securities through DTC.
First Union National Bank is acting as transfer agent and registrar with
respect to the Preferred Securities (the "Transfer Agent and Registrar").

<PAGE>

1. Prior to the closing of the sale of the Preferred Securities
to the Underwriters, which is expected to occur on or about _____________,
there shall be deposited with DTC one or more global certificates
(individually and collectively, the "Global Certificate") registered in the
name of DTC's nominee, Cede & Co., representing an aggregate of __________
Preferred Securities and bearing the following legend:

<PAGE>

Manager, Announcements
Dividend Department
The Depository Trust Company
7 Hanover Square, 22nd Floor
New York, New York 10004-2695

The Issuer or the Transfer Agent and Registrar shall confirm
DTC's receipt of such telecopy by telephoning the Dividend Department at
(212) 709-1270.

Call Notification Department
The Depository Trust Company
711 Stewart Avenue
Garden City, New York 11530-4719

<PAGE>

Manager, Reorganization Department
Reorganization Window
The Depository Trust Company
7 Hanover Square, 23rd Floor
New York, New York 10004-2695

7. All notices and payment advances sent to DTC shall contain
the CUSIP number or numbers of the Preferred Securities and the
accompanying designation of the Preferred Securities, which, as of the date
of this letter, is "PSE&G Capital Trust III _____% Cumulative Quarterly
Income Preferred Securities, Series C".

NDFS Redemption Department
The Depository Trust Company
7 Hanover Square, 23rd Floor
New York, New York 10004-2695

<PAGE>

Nothing herein shall be deemed to require the Transfer Agent and
Registrar to advance funds on behalf of the Issuer.

Very truly yours,

PSE&G CAPITAL TRUST III
(As Issuer)

By:
--------------------
Name: ____________________, as
Administrative Trustee

___________________ (As Transfer Agent
and Registrar)

By:
-------------------------------------
Name:
Title:

RECEIVED AND ACCEPTED:

THE DEPOSITORY TRUST COMPANY

By:
---------------------------
Authorized Officer

<PAGE>

EXHIBIT C

THIS CERTIFICATE IS NOT TRANSFERABLE

Certificate Number
C-1

Number of Common Securities

__________

Certificate Evidencing Common Securities
of
PSE&G Capital Trust III

_____% Common Securities
(liquidation amount $_____ per Common Security)

PSE&G Capital Trust III, a statutory business trust created under
the laws of the State of Delaware (the "Trust"), hereby certifies that
Public Service Electric and Gas Company (the "Holder") is the registered
owner of ____________________ (__________) common securities of the Trust
representing undivided beneficial interests in the assets of the Trust and
designated as the _____% Common Securities (liquidation amount $_____ per
Common Security) (the "Common Securities"). In accordance with Section
5.10 of the Trust Agreement (as defined below) the Common Securities are
not transferable and any attempted transfer hereof shall be void. The
designations, rights, privileges, restrictions, preferences and other terms
and provisions of the Common Securities are set forth in, and this
certificate and the Common Securities represented hereby are issued and
shall in all respects be subject to the terms and provisions of, the
Amended and Restated Trust Agreement of the Trust dated as of _______ __,
____, as the same may be amended from time to time (the "Trust Agreement").
The Trust will furnish a copy of the Trust Agreement to the Holder without
charge upon written request to the Trust at its principal place of business
or registered office.

Upon receipt of this certificate, the Holder is bound by the
Trust Agreement and is entitled to the benefits thereunder.

<PAGE>

IN WITNESS WHEREOF, the Administrative Trustee of the Trust has
executed this certificate this _____ day of _______, ____.

PSE&G CAPITAL TRUST III

By:
-------------------------------------
Name: ____________________
Administrative Trustee

<PAGE>

EXHIBIT D

Certificate Number

_____

Number of Preferred Securities
CUSIP NO. __________

Certificate Evidencing Preferred Securities
of
PSE&G Capital Trust III

_____% Cumulative Quarterly Income Preferred Securities,
Series C
(liquidation amount $_____ per Preferred Security)

PSE&G Capital Trust III, a statutory business trust created under
the laws of the State of Delaware (the "Trust"), hereby certifies that Cede
& Co. (the "Holder") is the registered owner of _________,
_________________________ (_________) preferred securities of the Trust
representing an undivided beneficial interest in the assets of the Trust
and designated the PSE&G Capital Trust III _____% Cumulative Quarterly
Income Preferred Securities, Series C (liquidation amount $_____ 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 as provided in Section 5.04 of the Trust
Agreement (as defined below). The designations, rights, privileges,
restrictions, preferences and other terms and provisions of the Preferred
Securities are set forth in, and this certificate and the Preferred
Securities represented hereby are issued and shall in all respects be
subject to the terms and provisions of, the Amended and Restated Trust
Agreement of the Trust dated as of __________, ____, as the same may be
amended from time to time (the "Trust Agreement"). The Holder is entitled
to the benefits of the Guarantee Agreement entered into by Public Service
Electric and Gas Company, a New Jersey corporation, and First Union
National Bank as guarantee trustee, dated as of_________, ____ (the
"Guarantee") to the extent provided therein, together with the obligations
of Public Service Electric and Gas Company under the Trust Agreement, its
Deferrable Interest Subordinated Debentures and the Indenture related to
such Deferrable Interest Subordinated Debentures. The Trust will furnish a
copy of the Trust Agreement and the Guarantee to the Holder without charge
upon written request to the Trust at its principal place of business or
registered office.

<PAGE>

Upon receipt of this certificate, the Holder is bound by the
Trust Agreement and is entitled to the benefits thereunder.

IN WITNESS WHEREOF, the Administrative Trustee of the Trust has
executed this certificate this _____ day of ______, ____.

PSE&G CAPITAL TRUST III

By:
-------------------------------------
Name: ____________________
Administrative Trustee

[To be included in Book-Entry Preferred Securities Certificate]

Unless this Preferred Security is presented by an authorized representative
of The Depository Trust Company, a New York corporation, (55 Water Street,
New York) to PSE&G Capital Trust III or its agent for registration of
transfer, exchange or payment, and any Preferred Security issued 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. or to such other entity as is requested by an
authorized representative of The Depository Trust Company, ANY TRANSFER,
PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY A PERSON IS WRONGFUL
inasmuch as the registered owner hereof, Cede & Co., has an interest
herein.

<PAGE>

ASSIGNMENT

FOR VALUE RECEIVED, the undersigned assigns and transfers to:
(Insert assignee's social security or tax identification number)
(Insert address and zip code of assignee)

__________ Preferred Securities represented by this Preferred Securities
Certificate and irrevocably appoints

agent to transfer said Preferred Securities 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)

Exhibit 4-3

PUBLIC SERVICE ELECTRIC AND GAS COMPANY

and

FIRST UNION NATIONAL BANK, as Trustee

INDENTURE

Dated as of June 1, 1996

Providing for the Issuance of
Deferrable Interest Subordinated Debentures in Series
including

_____% Deferrable Interest Subordinated Debentures, Series A

<PAGE>

TABLE OF CONTENTS

Page
----

ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE

SECTION 1.01 Definitions . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 1.02 Other Definitions . . . . . . . . . . . . . . . . . . . . . 7
SECTION 1.03 Incorporation by Reference of Trust Indenture Act . . . . . 7
SECTION 1.04 Rules of Construction . . . . . . . . . . . . . . . . . . . 8
SECTION 1.05 Acts of Holders and Holders of Preferred Securities . . . . 8

ARTICLE 2
THE DEBENTURES; THE SERIES A DEBENTURES

SECTION 2.01 Issue of Debentures Generally . . . . . . . . . . . . . . . 9
SECTION 2.02 Terms and Form of the Series A Debentures . . . . . . . . . 11
SECTION 2.03 Payment of Principal and Interest . . . . . . . . . . . . . 12
SECTION 2.04 Execution, Authentication and Delivery . . . . . . . . . . . 14
SECTION 2.05 Registrar and Paying Agent . . . . . . . . . . . . . . . . . 16
SECTION 2.06 Paying Agent to Hold Money in Trust . . . . . . . . . . . . 16
SECTION 2.07 Debentureholder Lists . . . . . . . . . . . . . . . . . . . 17
SECTION 2.08 Transfer and Exchange . . . . . . . . . . . . . . . . . . . 17
SECTION 2.09 Replacement Debentures . . . . . . . . . . . . . . . . . . . 18
SECTION 2.10 Outstanding Debentures; Determinations of
Holders' Action . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 2.11 Temporary Debentures . . . . . . . . . . . . . . . . . . . . 19
SECTION 2.12 Book-Entry System . . . . . . . . . . . . . . . . . . . . . 20
SECTION 2.13 Cancellation . . . . . . . . . . . . . . . . . . . . . . . . 21

ARTICLE 3
REDEMPTION

SECTION 3.01 Redemption: Notice to Trustee . . . . . . . . . . . . . . . 22
SECTION 3.02 Selection of Debentures to be Redeemed . . . . . . . . . . . 22
SECTION 3.03 Notice of Redemption . . . . . . . . . . . . . . . . . . . . 22
SECTION 3.04 Effect of Notice of Redemption . . . . . . . . . . . . . . . 23
SECTION 3.05 Deposit of Redemption Price . . . . . . . . . . . . . . . . 23
SECTION 3.06 Debentures Redeemed in Part . . . . . . . . . . . . . . . . 24

<PAGE>

ARTICLE 4
COVENANTS

SECTION 4.01 Payment of Debentures . . . . . . . . . . . . . . . . . . . 24
SECTION 4.02 Prohibition Against Dividends . . . . . . . . . . . . . . . 25
SECTION 4.03 SEC Reports . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 4.04 Compliance Certificates . . . . . . . . . . . . . . . . . . 25
SECTION 4.05 Further Instruments and Acts . . . . . . . . . . . . . . . . 26
SECTION 4.06 Payments for Consents . . . . . . . . . . . . . . . . . . . 26
SECTION 4.07 Payment of Expenses of Trust I . . . . . . . . . . . . . . . 26

ARTICLE 5
SUCCESSOR CORPORATION

SECTION 5.01 When the Company May Merge . . . . . . . . . . . . . . . . . 27

ARTICLE 6
DEFAULTS AND REMEDIES

SECTION 6.01 Events of Default . . . . . . . . . . . . . . . . . . . . . 27
SECTION 6.02 Acceleration . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 6.03 Other Remedies . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 6.04 Waiver of Past Defaults . . . . . . . . . . . . . . . . . . 30
SECTION 6.05 Control by Majority . . . . . . . . . . . . . . . . . . . . 31
SECTION 6.06 Limitation on Suits . . . . . . . . . . . . . . . . . . . . 31
SECTION 6.07 Rights of Holders to Receive Payment . . . . . . . . . . . . 32
SECTION 6.08 Collection Suit by the Trustee . . . . . . . . . . . . . . . 32
SECTION 6.09 The Trustee May File Proofs of Claim . . . . . . . . . . . . 32
SECTION 6.10 Priorities . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 6.11 Undertaking for Costs . . . . . . . . . . . . . . . . . . . 33
SECTION 6.12 Waiver of Stay . . . . . . . . . . . . . . . . . . . . . . . 34

ARTICLE 7
THE TRUSTEE

SECTION 7.01 Duties of the Trustee . . . . . . . . . . . . . . . . . . . 34
SECTION 7.02 Rights of the Trustee . . . . . . . . . . . . . . . . . . . 35
SECTION 7.03 Individual Rights of the Trustee . . . . . . . . . . . . . . 36
SECTION 7.04 The Trustee's Disclaimer . . . . . . . . . . . . . . . . . . 36
SECTION 7.05 Notice of Defaults . . . . . . . . . . . . . . . . . . . . . 36
SECTION 7.06 Reports by Trustee to Holders . . . . . . . . . . . . . . . 36
SECTION 7.07 Compensation and Indemnity . . . . . . . . . . . . . . . . . 37
SECTION 7.08 Replacement of Trustee . . . . . . . . . . . . . . . . . . . 38

<PAGE>

SECTION 7.09 Successor Trustee by Merger . . . . . . . . . . . . . . . . 39
SECTION 7.10 Eligibility: Disqualification . . . . . . . . . . . . . . . 39
SECTION 7.11 Preferential Collection of Claims Against
the Company . . . . . . . . . . . . . . . . . . . . . . . . 39

ARTICLE 8
SATISFACTION AND DISCHARGE OF INDENTURE;
DEFEASANCE OF CERTAIN OBLIGATIONS; UNCLAIMED MONEYS

SECTION 8.01 Satisfaction and Discharge of Indenture . . . . . . . . . . 39
SECTION 8.02 Application by Trustee of Funds Deposited for
Payment of Debentures . . . . . . . . . . . . . . . . . . . 41
SECTION 8.03 Repayment of Moneys Held by Paying Agent . . . . . . . . . . 41
SECTION 8.04 Return of Moneys Held by the Trustee and Paying
Agent Unclaimed for Three Years . . . . . . . . . . . . . . 41

ARTICLE 9
AMENDMENTS

SECTION 9.01 Without Consent of Holders . . . . . . . . . . . . . . . . . 41
SECTION 9.02 With Consent of Holders . . . . . . . . . . . . . . . . . . 42
SECTION 9.03 Compliance with Trust Indenture Act . . . . . . . . . . . . 43
SECTION 9.04 Revocation and Effect of Consents; Waivers and Actions . . . 43
SECTION 9.05 Notation on or Exchange of Debentures . . . . . . . . . . . 44
SECTION 9.06 Trustee to Execute Supplemental Indentures . . . . . . . . . 44
SECTION 9.07 Effect of Supplemental Indentures . . . . . . . . . . . . . 44

ARTICLE 10
SUBORDINATION

SECTION 10.01 Debentures Subordinated to Senior Indebtedness . . . . . . . 45
SECTION 10.02 Priority and Payment of Proceeds in Certain
Events: Remedies Standstill . . . . . . . . . . . . . . . . 45
SECTION 10.03 Payments which May Be Made Prior to Notice . . . . . . . . . 46
SECTION 10.04 Rights of Holders of Senior Indebtedness Not to Be Impaired 46
SECTION 10.05 Trustee May Take Action to Effectuate Subordination . . . . 47
SECTION 10.06 Subrogation . . . . . . . . . . . . . . . . . . . . . . . . 47
SECTION 10.07 Obligations of Company Unconditional: Reinstatement . . . . 48
SECTION 10.08 Trustee Entitled to Assume Payments Not Prohibited
in Absence of Notice . . . . . . . . . . . . . . . . . . . . 48
SECTION 10.09 Right of Trustee to Hold Senior Indebtedness . . . . . . . . 49

<PAGE>

ARTICLE 11
MISCELLANEOUS

SECTION 11.01 Trust Indenture Act Controls . . . . . . . . . . . . . . . . 49
SECTION 11.02 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 11.03 Communication by Holders with Other Holders . . . . . . . . 50
SECTION 11.04 Certificate and Opinion as to Conditions Precedent . . . . . 51
SECTION 11.05 Statements Required in Certificate or Opinion . . . . . . . 51
SECTION 11.06 Severability Clause . . . . . . . . . . . . . . . . . . . . 51
SECTION 11.07 Rules by Trustee, Paying Agent and Registrar . . . . . . . . 52
SECTION 11.08 Legal Holidays . . . . . . . . . . . . . . . . . . . . . . . 52
SECTION 11.09 Governing Law . . . . . . . . . . . . . . . . . . . . . . . 52
SECTION 11.10 No Recourse Against Others . . . . . . . . . . . . . . . . . 52
SECTION 11.11 Successors . . . . . . . . . . . . . . . . . . . . . . . . . 52
SECTION 11.12 Multiple Original Copies of this Indenture . . . . . . . . . 52
SECTION 11.13 No Adverse Interpretation of Other Agreements . . . . . . . 53
SECTION 11.14 Table of Contents: Headings . . . . . . . . . . . . . . . . 53
SECTION 11.15 Benefits of the Indenture . . . . . . . . . . . . . . . . . 53

<PAGE>

PSE&G Indenture
Certain Sections of this Indenture relating to
Sections 310 through 318 of the
Trust Indenture Act of 1939

Trust Indenture Indenture
Act Section Section
- --------------- ------------------

Sec. 310(a)(1) . . . . . . . . . . . . . 7.10
(a)(2) . . . . . . . . . . . . . 7.10
(a)(3) . . . . . . . . . . . . . Not Applicable
(a)(4) . . . . . . . . . . . . . Not Applicable
(a)(5) . . . . . . . . . . . . . Not Applicable
(b) . . . . . . . . . . . . . 7.08; 7.10; 11.01
(c) . . . . . . . . . . . . . Not Applicable
Sec. 311(a) . . . . . . . . . . . . . 7.11
(b) . . . . . . . . . . . . . 7.11
(c) . . . . . . . . . . . . . Not Applicable
Sec. 312(a) . . . . . . . . . . . . . 2.07
(b) . . . . . . . . . . . . . 11.03
(c) . . . . . . . . . . . . . 11.03
Sec. 313(a) . . . . . . . . . . . . . 7.06
(b)(1) . . . . . . . . . . . . . Not Applicable
(b)(2) . . . . . . . . . . . . . 7.06
(c) . . . . . . . . . . . . . 7.06; 11.02
(d) . . . . . . . . . . . . . 7.06
Sec. 314(a) . . . . . . . . . . . . . 4.03; 11.02
(b) . . . . . . . . . . . . . Not Applicable
(c)(1) . . . . . . . . . . . . . 2.02; 11.04; 11.05
(c)(2) . . . . . . . . . . . . . 2.02; 11.04; 11.05
(c)(3) . . . . . . . . . . . . . Not Applicable
(d) . . . . . . . . . . . . . Not Applicable
(e) . . . . . . . . . . . . . 11.05
(f) . . . . . . . . . . . . . Not Applicable
Sec. 315(a) . . . . . . . . . . . . . 7.01(b)
(b) . . . . . . . . . . . . . 7.05, 11.02
(c) . . . . . . . . . . . . . 7.01(a)
(d) . . . . . . . . . . . . . 7.01(c)
(e) . . . . . . . . . . . . . 6.11
Sec. 316(a)(1)(A) . . . . . . . . . . . . . 6.05
(a)(1)(B) . . . . . . . . . . . . . 6.04
(a)(2) . . . . . . . . . . . . . Not Applicable
(a)(last sentence) . . . . . . . . . . . . . 2.10
(b) . . . . . . . . . . . . . 6.07
(c) . . . . . . . . . . . . . 1.05
Sec. 317(a)(1) . . . . . . . . . . . . . 6.08
(a)(2) . . . . . . . . . . . . . 6.09
(b) . . . . . . . . . . . . . 2.06
Sec. 318(a) . . . . . . . . . . . . . 11.01
(b) . . . . . . . . . . . . . Not Applicable
(c) . . . . . . . . . . . . . 11.01
__________________
Note: This reconciliation and tie sheet shall not, for any purpose,
be deemed to be a part of the Indenture.

<PAGE>

INDENTURE, dated as of June 1, 1996, by and between Public Service
Electric and Gas Company, a corporation duly organized and existing under the
laws of the State of New Jersey (the "Company"), and First Union National Bank,
a national banking association duly organized and existing under the laws of the
United States of America, as trustee (the "Trustee").

WHEREAS, the Company may from time to time create or establish one or
more statutory business trusts for the purpose of issuing undivided beneficial
interests in the assets thereof (the "Trust Securities") and using the proceeds
thereof to acquire the Company's Deferrable Interest Subordinated Debentures.

WHEREAS, pursuant to an Amended and Restated Trust Agreement dated as
of June 1, 1996 (the "Trust I Agreement") among the Company, as depositor, First
Union National Bank, as Property Trustee (the "Property Trustee I"), the
Delaware Trustee named therein and the Administrative Trustee named therein,
there has been declared and established PSE&G Capital Trust I, a Delaware
business trust ("Trust I").

WHEREAS, Trust I intends to issue its Trust Securities, including its
____% Cumulative Quarterly Income Preferred Securities, Series A, representing
undivided beneficial interests in the assets of Trust I, having a liquidation
amount of $25 per security and having rights provided therefor in the Trust I
Agreement (the "Series A Preferred Securities").

WHEREAS, the Company has authorized the issuance of its ____%
Deferrable Interest Subordinated Debentures, Series A (the "Series A
Debentures") to be purchased by Trust I with the proceeds from the issuance and
sale of its Trust Securities, and to provide therefor, the Company has duly
authorized the execution and delivery of this Indenture.

WHEREAS, all things necessary to make the securities issued hereunder,
when duly issued and executed by the Company and authenticated and delivered
hereunder, the valid obligations of the Company, and to make this Indenture a
valid and binding agreement of the Company, enforceable in accordance with its
terms, have been done.

NOW THEREFORE:

Each of the Company and the Trustee, intending to be legally bound
hereby, agrees as follows for the benefit of the other party and for the equal
and ratable benefit of the Holders (as hereinafter defined) of the securities
issued hereunder, including the Series A Debentures:

<PAGE>

ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE

SECTION 1.01 Definitions.
-----------

"Affiliate" of any specified Person means any other Person, directly
or indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. When used with respect to any Person,
"control" means the power to direct the management and policies of such Person,
directly or indirectly, whether through the ownership of voting securities, by
contract or otherwise; and the terms "controlling" and "controlled" have
meanings correlative to the foregoing.

"Board of Directors" means the Board of Directors of the Company or
any committee thereof duly authorized to act on behalf of such Board.

"Board Resolution" means (i) a copy of a resolution certified by the
Secretary or the 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 and delivered to the Trustee or (ii) a certificate signed by the
authorized officer or officers to whom the Board of Directors has delegated its
authority, and in each case, delivered to the Trustee.

"Business Day" means any day that is not a Saturday, a Sunday or a day
on which banking institutions in The City of New York or the State of New Jersey
are authorized or required by law or executive order to close.

"Capital Lease Obligations" of a Person means any obligation which is
required to be classified and accounted for as a capital lease on the face of a
balance sheet of such Person prepared in accordance with GAAP.

"Capital Stock" means any and all shares, interests, rights to
purchase, warrants, options, participation or other equivalents of or interests
in (however designated) corporate stock.

"Company" means Public Service Electric and Gas Company, a New Jersey
corporation, or any successor thereto.

"Company Order" means a written request or order signed in the name of
the Company by an Officer of the Company and delivered to the Trustee.

"Debentureholder" or "Holder" means a Person in whose name a Debenture
is registered on the Registrar's books.

<PAGE>

"Debentures" shall mean any of the securities of any series issued,
authenticated and delivered under this Indenture.

"Default" means any event which is, or after notice or passage of
time, or both, would be, an Event of Default pursuant to Section 6.01 hereof.

"Exchange Act" means the Securities Exchange Act of 1934, as amended.

"Extension Period", with respect to any series of Debentures, means
the period during which the Company may elect to extend the interest payment
period on such series of the Debentures pursuant to Section 4.01(b) hereof;
provided that no Extension Period shall extend beyond the Stated Maturity Date
or the Redemption Date of any Debenture of such series.

"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board.

"Indebtedness" means, without duplication, (i) the principal of and
premium (if any) 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 obligation, any letter of credit, banker's acceptance,
security purchase facility or similar credit transaction (other than obligations
with respect to letters of credit securing obligations (other than obligations
described in (i) through (iii) above) entered into in the ordinary course of
business by the Company to the extent such letters of credit are not drawn upon
or, if and to the extent drawn upon, such drawing is reimbursed no later than
the third business day following receipt by the Company of a demand for
reimbursement following payment on the applicable letter of credit); (v) all
obligations of the type referred to in clauses (i) through (iv) of other Persons
and all dividends of other Persons (other than the Preferred Securities or
similar securities) for the payment of which, in either case, the Company is
responsible or liable as obligor, guarantor or otherwise (other than the
Series A Guarantee Agreement or obligations ranking pari passu with the Series A
Guarantee Agreement); and (vi) all obligations of the type referred to in
clauses (i) through (v) 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),
the amount of such obligation being deemed to be the lesser of the value of such
property or assets or the amount of the obligation so secured; provided,
however, that

<PAGE>

Indebtedness will not include endorsements of negotiable instruments for
collection in the ordinary course of business.

"Indenture" means this indenture, as amended or supplemented from time
to time in accordance with the terms hereof, including the provisions of the TIA
that are deemed to be a part hereof.

"Interest Payment Date", when used with respect to the Debentures of
any series, means the stated maturity of any installment of interest on the
Debentures of that series.

"Issue Date", with respect to a series of Debentures, means the date
on which the Debentures of such series are originally issued.

"Officer" means, with respect to any corporation, the Chairman of the
Board, the Chief Executive Officer, the President, any Vice President, the
Treasurer, any Assistant Treasurer, the Secretary or any Assistant Secretary of
such corporation.

"Officer's Certificate" means a written certificate containing the
applicable information specified in Sections 11.04 and 11.05 hereof, signed in
the name of the Company by any one of its Officers, and delivered to the
Trustee.

"Opinion of Counsel" means a written opinion containing the applicable
information specified in Sections 11.04 and 11.05 hereof, by legal counsel who
is reasonably acceptable to the Trustee.

"Paying Agent" means any Person authorized by the Company to pay the
principal of and premium, if any, and interest on the Debentures of any series
on behalf of the Company.

"Person" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint-stock company, trust,
unincorporated organization, government or any agency or political subdivision
thereof or any other entity.

"Predecessor Debentures" of any particular Debenture means every
previous Debenture evidencing all or a portion of the same debt as that
evidenced by such particular Debenture; and for purposes of this definition, any
Debenture authenticated and delivered under Section 2.09 hereof in exchange for
or in lieu of a mutilated, destroyed, lost or stolen Debenture shall be deemed
to evidence the same debt as the mutilated, destroyed, lost or stolen Debenture.

"Preferred Securities" means the Cumulative Quarterly Income Preferred
Securities of a Trust, representing undivided beneficial interests in the assets
of such Trust.

4
<PAGE>

"Property Trustee I" means First Union National Bank and its
successors and assigns, as property trustee under the Trust I Agreement.

"Record Date", with respect to any series of the Debentures, means the
Regular Record Date, the Special Record Date or any date set to determine the
Holders of Debentures of such series entitled to vote, consent, make a request
or exercise any other right associated with such Debentures.

"Redemption Date", with respect to the Debentures of any series to be
redeemed, means the date specified for the redemption thereof in accordance with
the terms thereof and pursuant to Article 3 of this Indenture.

"Redemption Price", with respect to the Debentures of any series to be
redeemed, means the price at which such Debenture is to be redeemed in
accordance with the terms thereof and pursuant to Article 3 of this Indenture.

"Regular Record Date", with respect to an interest payment on the
Debentures of a series, means the date set forth in this Indenture or the
supplemental indenture creating such series for the determination of Holders
entitled to receive payment of interest on the next succeeding Interest Payment
Date.

"SEC" or "Commission" means the Securities and Exchange Commission.

"Securities Act" means the Securities Act of 1933, amended.

"Senior Indebtedness" means all Indebtedness, except for Indebtedness
that is by its terms subordinated to or pari passu with the Debentures.
Notwithstanding anything to the contrary in the foregoing, Senior Indebtedness
shall not include the Company's Deferrable Interest Subordinated Debentures
issued and outstanding from time to time under the Indenture dated as of
November 1, 1994, as amended and supplemented, between the Company and First
Fidelity Bank, National Association, as trustee, with which the Debentures are
intended to be pari passu, or any Indebtedness between or among the Company and
any Affiliate.

"Series A Debentures" means any of the Company's ____% Deferrable
Interest Subordinated Debentures, Series A issued under this Indenture.

"Series A Guarantee Agreement" means the Guarantee Agreement dated as
of June 1, 1996 from the Company, as guarantor, to First Union National Bank, as
guarantee trustee, with respect to the Series A Preferred Securities.

5
<PAGE>

"Series A Preferred Securities" means the undivided beneficial
interests in the assets of Trust I, having a liquidation amount of $25 per
security and having rights provided therefor in the Trust I Agreement.

"Special Record Date" for the payment of any Defaulted Interest on the
Debentures of any series means the date determined pursuant to Section 2.03
hereof.

"Stated Maturity Date", with respect to any Debenture, means the date
specified for such Debenture as the fixed date on which the principal of such
Debenture is due and payable.

"Subsidiary" means any corporation, association, partnership, trust or
other business entity of which more than 50% of the total voting power of shares
of Capital Stock or other interests (including partnership interests) entitled
(without regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof is at the time owned or controlled,
directly or indirectly, by (i) the Company, (ii) the Company and one or more
Subsidiaries, or (iii) one or more Subsidiaries.

"TIA" means the Trust Indenture Act of 1939, as amended and as in
effect on the date of this Indenture; provided, however, that if the TIA is
amended after such date, TIA means, to the extent required by any such
amendment, the TIA as so amended.

"Trust" means any statutory business trust created by the Company to
issue Trust Securities and to use the proceeds from the sale thereof to purchase
Debentures.

"Trust I" means PSE&G Capital Trust I, a Delaware statutory business
trust created under the Delaware Business Trust Act, Chapter 38 of Title 12 of
the Delaware Code, 12 Del. C. Sec. 3801, et seq.

"Trust I Agreement" means the Amended and Restated Trust Agreement
dated as of June 1, 1996, among the Company, as Depositor, First Union National
Bank, as Property Trustee, the Delaware Trustee named therein and the
Administrative Trustee named therein, as the same may be amended and modified
from time to time.

"Trust Officer", when used with respect to the Trustee, means any
Senior Vice President, any Vice President, any Assistant Vice President, any
Trust Officer, or Assistant Trust Officer or any other officer of the Corporate
Trust Department of the 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.

6
<PAGE>

"Trust Securities" means the undivided beneficial interests in the
assets of a Trust.

"Trustee" means First Union National Bank, until a successor replaces
it pursuant to the applicable provisions of this Indenture and, thereafter,
shall mean such successor.

"U.S. Government Obligations" means direct obligations (or
certificates representing an ownership interest in such obligations) of the
United States of America (including any agency or instrumentality thereof) for
the payment of which the full faith and credit of the United States of America
is pledged and which are not callable at the issuer's option.

"Wholly Owned Subsidiary" means a Subsidiary all the Capital Stock of
which (other than directors' qualifying shares) is owned by the Company or
another Wholly Owned Subsidiary.

SECTION 1.02 Other Definitions.
-----------------

TERM DEFINED IN SECTION
---- ------------------

"Act" . . . . . . . . . . . . . . . . . . . . . . 1.05
"Bankruptcy Law" . . . . . . . . . . . . . . . . . . . 6.01
"Custodian" . . . . . . . . . . . . . . . . . . . . . 6.01
"Defaulted Interest" . . . . . . . . . . . . . . . . . 2.03
"Depositary" . . . . . . . . . . . . . . . . . . . . . 2.12
"global Debenture" . . . . . . . . . . . . . . . . . . 2.12
"Legal Holiday" . . . . . . . . . . . . . . . . . . . 11.08
"Notice of Default" . . . . . . . . . . . . . . . . . 6.01
"Register" . . . . . . . . . . . . . . . . . . . . . . 2.05
"Registrar" . . . . . . . . . . . . . . . . . . . . . 2.05
"Successor" . . . . . . . . . . . . . . . . . . . . . 5.01

SECTION 1.03 Incorporation by Reference of Trust Indenture Act.
-------------------------------------------------

Whenever this Indenture refers to a provision of the TIA, such
provision is incorporated by reference in and made a part of this Indenture. The
following TIA terms used in this Indenture have the following meanings:

"indenture securities" means the Debentures.

"indenture security holder" means a Debentureholder or Holder.

7
<PAGE>

"indenture to be qualified" means this Indenture.

"indenture trustee" or "institutional trustee" means the Trustee.

"obligor" on the indenture securities means the Company and any other
obligor on the Debentures.

All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by SEC rule have the
meanings assigned to them by such definitions.

SECTION 1.04 Rules of Construction.
---------------------

Unless the context otherwise requires:

(1) Each capitalized term has the meaning assigned to it;

(2) an accounting term not otherwise defined has the meaning assigned
to it in accordance with GAAP;

(3) "or" is not exclusive;

(4) "including" means including, without limitation;

(5) words in the singular include the plural, and words in the plural
include the singular; and

(6) "herein," "hereof" and other words of similar import refer to
this Indenture as a whole and not to any particular Article,
Section or other subdivision.

SECTION 1.05 Acts of Holders and Holders of Preferred Securities.
---------------------------------------------------

(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Holders or by holders of Preferred Securities may be embodied in and evidenced
by one or more instruments of substantially similar tenor signed by such Holders
or holders of Preferred Securities, as applicable, in person or by an agent duly
appointed in writing and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Trustee and, where it is hereby expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of Holders or holders of
Preferred Securities signing such instrument or instruments. Proof of execution
of any such instrument

8
<PAGE>

or of a writing appointing any such agent shall be sufficient for any purpose of
this Indenture and conclusive in favor of the Trustee and the Company, if made
in the manner provided in this Section.

(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved in any manner which the Trustee deems
sufficient.

(d) Any request, demand, authorization, direction, notice, consent,
waiver or other Act of the Holder of any Debenture shall bind every future
Holder of the same Debenture and the Holder of every Debenture issued upon the
registration transfer thereof or in exchange therefor or in lieu thereof in
respect of anything done, omitted or suffered to be done by the Trustee or the
Company in reliance thereon, whether or not notation of such action is made upon
such Debenture.

(e) If the Company solicits from the Holders any request, demand,
authorization, direction, notice, consent, waiver or other Act, the Company may,
at its option, by or pursuant to a resolution of its Board of Directors, fix in
advance a Record Date for the determination of Holders entitled to give such
request, demand, authorization, direction, notice, consent, waiver or other Act,
but the 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 Act may be given before or after such Record Date, but only Holders of
record at the close of business on such Record Date shall be deemed to be
Holders for the purposes of determining whether Holders of the requisite
proportion of outstanding Debentures have authorized or agreed or consented to
such request, demand, authorization, direction, notice, consent, waiver or other
Act, and for that purpose the outstanding Debentures shall be computed as of
such Record Date.

ARTICLE 2
THE DEBENTURES; THE SERIES A DEBENTURES

SECTION 2.01 Issue of Debentures Generally.
-----------------------------

The aggregate principal amount of any series of Debentures which may
be authenticated and delivered under this Indenture is limited to the aggregate
liquidation amount of the Trust Securities of the Trust purchasing such
Debentures.

The Debentures may be issued in one or more series as from time to
time shall be authorized by the Board of Directors.

The Debentures of each series and the Trustee's Certificate of
Authentication shall be substantially in the forms to be attached as exhibits to
the Indenture or supplemental

9
<PAGE>

indenture creating such series, but in the case of any series of Debentures
other than the Series A Debentures, with such inclusions, omissions and
variations as to letters, numbers or other marks of identification or
designation and such legends or endorsements printed, lithographed or engraved
thereon as the Company may deem appropriate and as are not inconsistent with the
provisions of this Indenture, or as may be required to comply with any law or
with any rule or regulation made pursuant thereto or with any rule or regulation
of any securities exchange on which such Debentures may be listed, or to conform
to usage.

Other series of Debentures may differ from the Series A Debentures,
and as and between series, in respect of any or all of the following matters:

(a) designation;

(b) Stated Maturity Date or Dates, which may be serial and the
Company's option, if any, to change the Stated Maturity Date or
Dates;

(d) the basis upon which interest shall be computed if other than a
360-day year composed of twelve 30-day months;

(e) Interest Payment Dates and the Regular Record Dates therefor;

(f) the maximum duration of the Extension Period;

(g) Issue Date or Dates and interest accrual provisions;

(h) authorized denominations;

(i) the place or places for the payment of principal (and premium, if
any) and interest;

(j) the aggregate principal amount of Debentures of such series which
may be issued;

(k) the optional and mandatory redemption provisions, if any;

(l) provisions, if any, for any sinking or analogous fund; and

(m) any other provisions expressing or referring to the terms and
conditions upon which the Debentures of such series are to be
issued under this Indenture which are not in conflict with the
provisions of this Indenture.

10
<PAGE>

in each case as determined by the Board of Directors and specified in the
supplemental indenture creating such series.

SECTION 2.02 Terms and Form of the Series A Debentures.
-----------------------------------------

(a) The Series A Debentures shall be designated "Public Service
Electric and Gas Company, ____% Deferrable Interest Subordinated Debentures,
Series A." The Series A Debentures and the Trustee's Certificate of
Authentication shall be substantially in the form of Exhibit A attached hereto.
The Series A Debentures shall initially be issued as global Debentures in
accordance with the provisions of Section 2.12 of this Indenture, with The
Depository Trust Company as Depositary. The terms and provisions contained in
the Series A Debentures shall constitute, and are hereby expressly made, a part
of this Indenture. The Company and the Trustee, by their execution and delivery
of this Indenture, expressly agree to such terms and provisions and to be bound
thereby.

(b) The aggregate principal amount of Series A Debentures outstanding
at any time may not exceed $___________ except as provided in Section 2.09
hereof. The Series A Debentures shall be authenticated and delivered upon
delivery to the Trustee of items specified in Section 2.04(d) hereof.

(d) The interest rate of the Series A Debentures is ____% per annum.
The Interest Payment Dates for the Series A Debentures are March 31, June 30,
September 30 and December 31 of each year, commencing June 30, 1996. In the
event that any date on which interest is payable on the Series A Debentures is
not a Business Day, then payment of interest payable on such date will be made
on the next day which 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 such date. The Regular Record Date for each Interest Payment Date for the
Series A Debentures shall be the 15th day (whether or not a Business Day) of the
last month of each calendar quarter, provided that if Trust I is the sole Holder
of the Series A Debentures or the Series A Debentures are issued in book-entry-
only form, the Regular Record Date shall be the close of business on the
Business Day immediately preceding such Interest Payment Date.

Each Series A Debenture shall bear interest from its Issue Date or
from the most recent Interest Payment Date to which interest has been paid or
duly provided for with respect to such Series A Debenture; except that, so long
as there is no existing Defaulted Interest (as defined in Section 2.03 hereof)
or Extension Period on the Series A Debentures, any Series A Debenture
authenticated by the Trustee between the Regular Record Date for

11
<PAGE>

any Interest Payment Date and such Interest Payment Date shall bear interest
from such Interest Payment Date.

Overdue principal of and interest on any Series A Debenture and
interest which has been deferred pursuant to Section 4.01(b) hereof shall bear
interest (to the extent that the payment of such interest shall be legally
enforceable) at a rate per annum equal to the interest rate per annum payable on
such Series A Debenture.

(e) The Series A Debentures shall be issuable only in registered form
without coupons and only in denominations of $25 and any integral multiple
thereof.

(f) The maximum Extension Period for the Series A Debentures shall be
20 consecutive quarters.

SECTION 2.03 Payment of Principal and Interest.
---------------------------------

Unless otherwise specified pursuant to Section 2.01(d), interest on
the Debentures shall be computed on the basis of a 360-day year composed of
twelve 30-day months, and for any period shorter than thirty days, interest will
be computed on the basis of the actual number of days elapsed in such period.

Unless otherwise provided with respect to a series of Debentures,

(i) the principal and Redemption Price of and interest on each
Debenture shall be payable in such coin or currency of the United
States of America as at the time of payment is legal tender for
the payment of public and private debts;

(ii) the principal and Redemption Price of any Debenture and interest
payable on the Stated Maturity Date (if other than an Interest
Payment Date) or Redemption Date shall be payable upon surrender
of such Debenture at the office or agency of any Paying Agent
therefor; and

(iii) interest on any Debenture shall be paid on each Interest Payment
Date therefor to the Holder thereof at the close of business on
the Record Date therefor, such interest to be payable by check
mailed to the address of the Person entitled thereto as such
address appears on the Register; provided however, that (1) at
the written request of the Holder of at least $10,000,000
aggregate principal amount of Debentures received by the
Registrar not later than the Regular Record Date for such
Interest Payment Date, interest accrued on such Debenture will be
payable by wire transfer within the continental United States in
immediately available funds to the bank account

12
<PAGE>

number of such Holder specified in such request and entered on
the Register by the Registrar and (2) payments made in respect of
global Debentures shall be made in immediately available funds to
the Depositary.

Except as specified pursuant to Section 2.01 or Section 4.01(b)
hereof, interest on any Debenture which is payable, and is punctually paid or
duly provided for, on any Interest Payment Date shall be paid to the Person in
whose name that Debenture (or one or more Predecessor Debentures) is registered
at the close of business on the Regular Record Date for such interest. Any
interest on any Debenture which is payable, but is not punctually paid or duly
provided for, on any Interest Payment Date (herein called "Defaulted Interest")
shall forthwith cease to be payable to the Holder on the relevant Regular Record
Date by virtue of having been such Holder, and such Defaulted Interest may be
paid by the Company, at its election in each case, as provided in Clause (1) and
(2) below:

(1) The Company may elect to make payment of any Defaulted
Interest to the Persons in whose names the Debentures (or their respective
Predecessor Debentures) 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, not less than 15
Business Days prior to the date of the proposed payment, notify the Trustee
and the Paying Agent in writing of the amount of Defaulted Interest
proposed to be paid on each Debenture and the date of the proposed payment,
and at the same time the Company shall deposit with the Paying Agent 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 Paying Agent 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.
The Special Record Date for the payment of such Defaulted Interest shall be
the close of business on the tenth calendar day prior to the date of the
proposed payment. The Trustee shall, in the name and at the expense of the
Company, cause notice of the proposed payment of such Defaulted Interest
and the Special Record Date therefor to be given to the Holders thereof,
not less than 7 calendar days prior to such Special Record Date. Notice of
the proposed payment of such Defaulted Interest and the Special Record Date
therefor having been given, such Defaulted Interest shall be paid to the
Persons in whose names the Debentures (or their respective Predecessor
Debentures) are registered at the close of business on such Special Record
Date and shall no longer be payable pursuant to the following Clause (2).

(2) The Company may make payment of any Defaulted Interest on
the Debentures in any other lawful manner not inconsistent with the
requirements of any securities exchange on which such Debentures may be
listed, and upon such notice as may be required by such exchange, if, after
notice given by the Company to

13
<PAGE>

the Trustee and the Paying Agent of the proposed payment pursuant to this
Clause, such manner of payment shall be deemed practicable by the Paying
Agent.

Subject to the foregoing provisions of this Section, each Debenture
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Debenture shall carry the rights to interest accrued
and unpaid, and to accrue, which were carried by such other Debenture.

SECTION 2.04 Execution, Authentication and Delivery.
--------------------------------------

(a) The Debentures shall be executed on behalf of the Company by its
Chairman, its President or one of its Vice Presidents, under its corporate seal
imprinted or reproduced thereon and attested by its Secretary or one of its
Assistant Secretaries. The signature of any such Officer on the Debentures may
be manual or facsimile.

(b) Debentures bearing the manual or facsimile signatures of
individuals who were at any time the proper Officers of the Company shall bind
the Company, notwithstanding that such individuals or any of them have ceased to
hold such offices prior to the authentication and delivery of such Debentures or
did not hold such offices at the date of such Debentures.

(c) No Debenture shall be entitled to any benefit under this
Indenture or be valid or obligatory for any purpose unless there appears on such
Debenture a Certificate of Authentication duly executed by the Trustee by manual
signature of a Trust Officer, and such Certificate of Authentication upon any
Debenture shall be conclusive evidence, and the only evidence, that such
Debenture has been duly authenticated and made available for delivery hereunder.

(d) The Trustee shall authenticate and deliver Debentures of a
series, for original issue, at one time or from time to time in accordance with
the Company Order referred to below, upon receipt by the Trustee of:

(1) a Board Resolution approving the form or forms and terms of such
Debentures;

(2) a Company Order requesting the authentication and delivery of
such Debentures and stating the identity of the Trust and the aggregate
liquidation amount of the Trust Securities to be issued concurrently with
such Debentures;

(3) unless previously delivered, this Indenture or a supplemental
indenture hereto setting forth the form of such Debentures and establishing
the terms thereof;

14
<PAGE>

(4) the Debentures of such series, executed on behalf of the Company
in accordance with Section 2.04(a) hereof;

(5) an Opinion of Counsel to the effect that:

(i) the form or forms of such Debentures have been duly
authorized by the Company and have been established in conformity with
the provisions of this Indenture; and

(ii) such Debentures, when authenticated and delivered by
the Trustee and issued and delivered by the Company in the manner and
subject to any conditions specified in such Opinion of Counsel, will
have been duly issued under this Indenture and will constitute valid
and legally binding obligations of the Company, entitled to the
benefits provided by this Indenture, and enforceable in accordance
with their terms, subject, as to enforcement to laws relating to or
affecting generally the enforcement of creditors' rights, including,
without limitation, bankruptcy and insolvency laws and to general
principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law); and

(iii) that this Indenture or any supplemental indenture
referred to in clause (3) above has been duly authorized, executed and
delivered by the Company and is a valid instrument legally binding
upon the Company, enforceable in accordance with its terms, subject as
to enforcement to laws relating to or affecting creditors' rights,
including, without limitation, bankruptcy and insolvency laws and to
general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law); and

(iv) that all consents, approvals and orders of any
commission, governmental authority or agency required in connection
with the issuance and delivery of such Debentures have been obtained.

(e) an Officer's Certificate certifying that no Default or Event of
Default has occurred and is continuing.

(f) The Trustee shall act as the initial authenticating agent.
Thereafter, the Trustee may appoint an authenticating agent. An authenticating
agent may authenticate Debentures whenever the Trustee may do so. Each reference
in this Indenture to authentication by the Trustee includes authentication by
such agent. The Trustee shall pay any authenticating agent appointed by the
Trustee reasonable compensation for its services and the Trustee shall be
reimbursed for such payment by the Company pursuant to Section

15
<PAGE>

7.07 hereof. The provisions set forth in Section 7.02, Section 7.03, Section
7.04 and Section 7.07 hereof shall be applicable to any authenticating agent.

SECTION 2.05 Registrar and Paying Agent.
--------------------------

The Company shall maintain or cause to be maintained, within or
outside the State of New Jersey, an office or agency where the Debentures may be
presented for registration of transfer or for exchange ("Registrar"), a Paying
Agent at whose office the Debentures may be presented or surrendered for
payment, and an office or agency where notices and demands to or upon the
Company in respect of the Debentures and this Indenture may be served. The
Registrar shall keep a register (the "Register") of the Debentures and of their
transfer and exchange. The Company may have one or more co-Registrars and one or
more additional Paying Agents. The term Registrar includes any additional
registrar and the term Paying Agent includes any additional paying agent. The
corporate office of the Trustee in Newark, New Jersey, shall initially be the
Registrar for the Series A Debentures and agent for service of notice or demands
on the Company, and the Trustee shall initially be the Paying Agent for the
Series A Debentures.

The Company shall enter into an appropriate agency agreement with any
Registrar, Paying Agent or co-Registrar (if not the Company or the Trustee or an
affiliate of the Trustee). The agreement shall implement the provisions of this
Indenture that relate to such agent. The Company shall give prompt written -
notice to the Trustee and to the Holders of any change of location of such
office or agency. If at any time the Company shall fail to maintain or cause to
be maintained any such required office or agency or shall fail to furnish the
Trustee with the address thereof, such presentations, surrenders, notices and
demands may be made or served at the address of the Trustee set forth in Section
11.02 hereof. The Company shall notify the Trustee of the name and address of
any such agent. If the Company fails to maintain a Registrar, Paying Agent or
agent for service of notices or demands, the Trustee shall act as such and shall
be entitled to appropriate compensation therefor pursuant to Section 7.07
hereof. The Company or any Affiliate of the Company may act Paying Agent,
Registrar or co-Registrar or agent for service of notices and demands.

The Company may also from time to time designate one or more other
offices or agencies where the Debentures may be presented or surrendered for any
or all such purposes and may from time to time rescind such designations. The
Company will give prompt written notice to the Trustee and to the Holders of any
such designation or rescission and of any change in location of any such other
office or agency.

SECTION 2.06 Paying Agent to Hold Money in Trust.
-----------------------------------

Except as otherwise provided herein, prior to or on each due date of
the principal of and premium (if any) and interest on any Debenture, the Company
shall deposit with the Paying Agent a sum of money sufficient to pay such
principal, premium (if any) and

16
<PAGE>

interest so becoming due. The Company shall require each Paying Agent (other
than the Trustee or the Company) to agree in writing that such Paying Agent
shall hold in trust for the benefit of Holders or the Trustee all money held by
the Paying Agent for the payment of principal of and premium (if any) and
interest on the Debentures and shall notify the Trustee of any Default by the
Company in making any such payment. At any time during the continuance of any
such Default, the Paying Agent shall, upon the request of the Trustee, forthwith
pay to the Trustee all money so held in trust and account for any money
disbursed by it. The Company at any time may require a Paying Agent to pay all
money held by it to the Trustee and to account for any money disbursed by it.
Upon doing so, the Paying Agent shall have no further liability for the money so
paid over to the Trustee. If the Company, a Subsidiary or an Affiliate of either
of them acts as Paying Agent, it shall segregate the money held by it as Paying
Agent and hold it as a separate trust fund.

SECTION 2.07 Debentureholder Lists.
---------------------

The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Debentureholders. If the Trustee is not the Registrar, the Company shall cause
to be furnished to the Trustee on or before the Record Date for each Interest
Payment Date and at such other times as the Trustee may request in writing,
within five Business Days of such request, a list, in such form as the Trustee
may reasonably require of the names and addresses of Debentureholders.

SECTION 2.08 Transfer and Exchange.
---------------------

When Debentures are presented to the Registrar or a co-Registrar with
a request to register the transfer or to exchange them for an equal principal
amount of Debentures of the same series of other authorized denominations, the
Registrar shall register the transfer or make the exchange as requested if its
reasonable requirements for such transactions are met. To permit registrations
of transfer and exchanges, the Company shall execute and the Trustee shall
authenticate Debentures, all at the Registrar's request.

Every Debenture presented or surrendered for registration of transfer
or for exchange shall (if so required by the Company or the Registrar) be duly
endorsed, or be accompanied by a written instrument of transfer in form
satisfactory to the Registrar duly executed by the Holder or his attorney duly
authorized in writing.

The Company shall not require payment of a service charge for any
registration of transfer or exchange of Debentures, but the Company may require
payment of a sum sufficient to pay all taxes, assessments or other governmental
charges that may be imposed in connection with the registration of the transfer
or exchange of Debentures from the Debentureholder requesting such transfer or
exchange (other than any exchange of a temporary Debenture for a definitive
Debenture not involving any change in ownership).

17
<PAGE>

The Company shall not be required to make, and the Registrar need not
register, transfers or exchanges of (a) any Debenture for a period beginning at
the opening of business 15 days before the mailing of a notice of redemption of
Debentures and ending at the close of business on the day of such mailing or (b)
any Debenture selected, called or being called for redemption, except, in the
case of any Debenture to be redeemed in part, the portion thereof not to be
redeemed.

SECTION 2.09 Replacement Debentures.
----------------------

If (a) any mutilated Debenture is surrendered to the Company or the
Trustee, or (b) the Company and the Trustee receive evidence to their
satisfaction of the destruction, loss or theft of any Debenture, and there is
delivered to the Company and the Trustee such Debenture or indemnity as may be
required by them to save each of them harmless, then, in the absence of notice
to the Company or the Trustee that such Debenture has been acquired by a bona
fide purchaser, the Company shall execute in exchange for any such mutilated
Debenture or in lieu of any such destroyed, lost or stolen Debenture, a new
Debenture of the same series and of like tenor and principal amount, bearing a
number not contemporaneously outstanding, and the Trustee shall authenticate and
make such new Debenture available for delivery.

In case any such mutilated, destroyed, lost or stolen Debenture has
become or is about to become due and payable, or is about to be redeemed by the
Company pursuant to Article 3 hereof, the Company in its discretion may, instead
of issuing a new Debenture, pay or purchase such Debenture, as the case may be.

Upon the issuance of any new Debentures under this Section 2.09, 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 (including the fees and expenses of the Trustee) in connection
therewith.

Every new Debenture issued pursuant to this Section 2.09 in lieu of
any mutilated, destroyed, lost or stolen Debenture shall constitute an original
additional contractual obligation of the Company (whether or not the mutilated,
destroyed, lost or stolen Debenture shall be at any time enforceable) and shall
be entitled to all benefits of this Indenture equally and ratably with any and
all other Debentures duly issued hereunder.

The provisions of this Section 2.09 are exclusive and shall preclude
(to the extent lawful) all other rights and remedies with respect to the
replacement or payment of mutilated, destroyed, lost or stolen Debentures.

18
<PAGE>

SECTION 2.10 Outstanding Debentures; Determinations of Holders'
--------------------------------------------------
Action.
------

Debentures outstanding at any time are all the Debentures
authenticated by the Trustee except for those canceled by it, those delivered to
it for cancellation, those mutilated, destroyed, lost or stolen Debentures
referred to in Section 2.09 hereof, those redeemed by the Company pursuant to
Article 3 hereof, and those described in this Section 2.10 as not outstanding. A
Debenture does not cease to be outstanding because the Company or a Subsidiary
or Affiliate thereof holds the Debenture; provided, however, that in determining
whether the Holders of the requisite principal amount of Debentures have given
or concurred in any request, demand, authorization, direction, notice, consent
or waiver hereunder, Debentures owned by the Company or a Subsidiary or
Affiliate (other than any Trust so long as any of the Preferred Securities of
such Trust are outstanding) shall be disregarded and deemed not to be
outstanding.

Subject to the foregoing, only Debentures outstanding at the time of
such determination shall be considered in any such determination (including
determinations pursuant to Articles 3, 6 and 9).

If a Debenture is replaced pursuant to Section 2.09 hereof, it ceases
to be outstanding unless the Trustee receives proof satisfactory to it that the
replaced Debenture is held by a bona fide purchaser.

If the Paying Agent (other than the Company) holds, in accordance with
this Indenture, at the Stated Maturity Date or on a Redemption Date, money
sufficient to pay the Debentures payable on that date, then immediately on the
Stated Maturity Date or such Redemption Date, as the case may be, such
Debentures shall cease to be outstanding, and interest, if any, on such
Debentures shall cease to accrue.

SECTION 2.11 Temporary Debentures.
--------------------

The Company may execute temporary Debentures, and upon the Company's
Order, the Trustee shall authenticate and make such temporary Debentures
available for delivery. Temporary Debentures shall be printed, lithographed,
typewritten, mimeographed or otherwise produced, in any authorized denomination,
in the same series and principal amount and of like tenor as the definitive
Debentures in lieu of which they are issued and with such appropriate
insertions, omissions, substitutions and other variations as the Officers of the
Company executing such Debentures may determine, as conclusively evidenced by
their execution of such Debentures.

After the preparation of definitive Debentures, the temporary
Debentures shall be exchangeable for definitive Debentures of the same series
upon surrender of the temporary Debentures at the office or agency of the
Company designated for such purpose pursuant to

19
<PAGE>

Section 2.05 hereof, without charge to the Holders thereof. Upon surrender for
cancellation of any one or more temporary Debentures, the Company shall execute
a like principal amount of definitive Debentures of the same series of
authorized denominations, and the Trustee, upon receipt of a Company Order,
shall authenticate and make such Debentures available for delivery in exchange
therefor. Until so exchanged, the temporary Debentures shall in all respects be
entitled to the same benefits under this Indenture as definitive Debentures.

SECTION 2.12 Book-Entry System.
-----------------

In order to utilize a book-entry-only system for all or any portion of
the Debentures of any series, all or a portion of the Debentures of any series
may be issued in the form of one or more fully registered Debentures of the same
series for the aggregate principal amount of such Debentures of each Issue Date,
interest rate and Stated Maturity Date (a "global Debenture"), which global
Debenture shall be registered in the name of the depositary (the "Depositary")
selected by the Company or in the name of such Depositary's nominee. Each global
Debenture shall be delivered by the Trustee to the Depositary or pursuant to the
Depositary's instruction and shall bear a legend substantially to the following
effect: "Except as otherwise provided in Section 2.12 of the Indenture, this
Debenture may be transferred, in whole but not in part, only to another nominee
of the Depositary or to a successor Depositary or to a nominee of such successor
Depositary."

Notwithstanding any other provision of this Section 2.12 or of Section
2.08 hereof, a global Debenture may be transferred in whole but not in part and
in the manner provided in Section 2.08 hereof, only by a nominee of the
Depositary for such series, or by the Depositary or any such nominee of a
successor Depositary for such series selected or approved by the Company or to a
nominee of such successor Depositary.

If (i) at any time the Depositary for global Debentures of any series
of Debentures notifies the Company that it is unwilling or unable to continue as
Depositary for such global Debentures or if at any time the Depositary for such
global Debentures shall no longer be registered or in good standing under the
Exchange Act or other applicable statute or regulation, and a successor
Depositary for such global Debentures is not appointed by the Company within 90
days after the Company receives such notice or becomes aware of such condition,
as the case may be, (ii) the Company determines in its sole discretion, that the
Debentures of any series shall no longer be represented by one or more global
Debentures and delivers to the Trustee an Officer's Certificate evidencing such
determination or (iii) an Event of Default occurs and is continuing, then the
provisions of this Section 2.12 shall no longer apply to the Debentures of such
series. In such event, the Company will execute and the Trustee, upon receipt
of an Officer's Certificate evidencing such determination by the Company, will
authenticate and deliver Debentures of such series and of like tenor in
definitive registered form, in authorized denominations, and in aggregate
principal amount equal to the principal amount of the global Debentures of such
series in exchange for such

20
<PAGE>

global Debentures. Upon the exchange of global Debentures for such Debentures in
definitive registered form without coupons, in authorized denominations, the
global Debentures shall be cancelled by the Trustee. Such Debentures in
definitive registered form issued in exchange for global Debentures pursuant to
this Section 2.12 shall be registered in such names and in such authorized
denominations as the Depositary, pursuant to instructions from its direct or
indirect participants or otherwise, shall instruct the Trustee. The Trustee
shall deliver such Debentures to the Persons in whose names such Debentures are
so registered.

Except as provided above, owners of beneficial interests in a global
Debenture shall not be entitled to receive physical delivery of Debentures in
definitive form and will not be considered the Holders thereof for any purpose
under this Indenture.

Members of or participants in the Depositary shall have no rights
under this Indenture with respect to any global Debenture held on their behalf
by the Depositary, and such Depositary or its nominee, as the case may be, may
be treated by the Company, the Trustee, and any agent of the Company or the
Trustee as the Holder of such global Debentures for all purposes whatsoever.
Notwithstanding the foregoing, nothing herein shall prevent the Company, the
Trustee, or any agent of the Company or the Trustee, from giving effect to any
written certification proxy or other authorization furnished by the Depositary
or impair, as between the Depositary and its members or participants, the
operation of customary practices governing exercise of the rights of a Holder of
any Debenture, including without limitation the granting of proxies or other
authorization of participants to give or take any request, demand,
authorization, direction, notice, consent, waiver or other action which a Holder
is entitled to give or take under this Indenture.

SECTION 2.13 Cancellation.
------------

All Debentures surrendered for payment, redemption by the Company
pursuant to Article 3 hereof or registration of transfer or exchange shall, if
surrendered to any Person other than the Trustee, be delivered to the Trustee
and shall be promptly canceled by the Trustee. The Company may at any time
deliver to the Trustee for cancellation any Debentures previously authenticated
and made available for delivery hereunder which the Company may have acquired in
any manner whatsoever, and all Debentures so delivered shall be promptly
canceled by the Trustee. The Company may not reissue or issue new Debentures to
replace Debentures it has paid or delivered to the Trustee for cancellation. No
Debentures shall be authenticated in lieu of or in exchange for any Debentures
canceled as provided in this Section 2.13, except as expressly permitted by this
Indenture. All canceled Debentures held by the Trustee shall be destroyed by the
Trustee, and the Trustee shall deliver a certificate of destruction to the
Company.

21
<PAGE>

ARTICLE 3
REDEMPTION

SECTION 3.01 Redemption: Notice to Trustee.
-----------------------------

(a) The Series A Debentures are subject to redemption prior to
maturity as provided therein.

(b) The redemption terms for any additional series of Debentures
shall be as specified in the supplemental indenture creating such series of
Debentures.

(c) If any or all of the Debentures are to be redeemed pursuant to
Section 3.01 (a) or (b) hereof, the Company shall deliver to the Trustee at
least 45 days prior to the Redemption Date a Company Order specifying the series
and principal amount of Debentures to be redeemed and the Redemption Date and
Redemption Price for such Debentures. Such Company Order shall be accompanied by
a Board Resolution authorizing such redemption. If the Debentures of a series
are held by a Trust, the Company shall also deliver a copy of such Company Order
to the Property Trustee for such Trust.

SECTION 3.02 Selection of Debentures to be Redeemed.
--------------------------------------

If less than all the outstanding Debentures of a series are to be
redeemed at any time, the Trustee shall select the Debentures of such series to
be redeemed by lot or by any other method the Trustee considers fair and
appropriate. The Trustee shall make the selection at least 30 but not more than
60 days before the Redemption Date from outstanding Debentures of such series
not previously called for redemption. Provisions of this Indenture that apply to
Debentures called for redemption also apply to portions of Debentures called for
redemption. The Trustee shall notify the Company promptly of the Debentures or
portions of Debentures to be redeemed.

SECTION 3.03 Notice of Redemption.
--------------------

At least 30 days but not more than 60 days before the Redemption Date,
the Trustee, in the Company's name and at the Company's expense, shall mail or
cause to be mailed a notice of redemption by first-class mail, postage prepaid,
to each Holder of Debentures to be redeemed at such Holder's last address as it
appears in the Register.

The notice of redemption shall identify the Debentures to be redeemed,
the provision of the Debentures or this Indenture pursuant to which the
Debentures called for redemption are being redeemed and shall state:

(1) the Redemption Date;

22
<PAGE>

(2) the Redemption Price;

(3) the name and address of the Paying Agent;

(4) that payment of the Redemption Price of Debentures called for
redemption will be made only upon surrender of such Debentures to the Paying
Agent;

(5) if fewer than all the outstanding Debentures of any series are to
be redeemed, the identification and principal amounts of the particular
Debentures to be redeemed and that, on and after the Redemption Date, upon
surrender of such Debentures, a new Debenture or Debentures of the same series
and of like tenor and in a principal amount equal to the unredeemed portion
thereof will be issued; and

(6) that, unless the Company defaults in paying the Redemption Price
of the Debentures called for redemption, plus accrued interest thereon to the
Redemption Date, interest will cease to accrue on such Debentures on and after
the Redemption Date.

Any notice of redemption given in the manner provided herein shall be
conclusively presumed to have been given, whether or not such notice is actually
received. Failure to mail any notice or defect in the mailed notice or the
mailing thereof in respect of any Debenture shall not affect the validity of the
redemption of any other Debenture.

SECTION 3.04 Effect of Notice of Redemption.
------------------------------

After notice of redemption has been given, Debentures called for
redemption shall become due and payable on the Redemption Date and at the
Redemption Price and from and after the Redemption Date (unless the Company
shall default in the payment of the Redemption Price and accrued interest), such
Debentures shall cease to bear interest. Upon the later of the Redemption Date
and the date such Debentures are surrendered to the Paying Agent, such
Debentures shall be paid at the Redemption Price, plus accrued interest to the
Redemption Date, provided that installments of interest on Debentures with an
Interest Payment Date which is on or prior to the Redemption Date shall be
payable to the Holders of such Debentures, or one or more Predecessor
Debentures, registered as such at the close of business on the Regular Record
Dates therefor according to their terms and provisions.

SECTION 3.05 Deposit of Redemption Price.
---------------------------

On or prior to the Redemption Date, the Company shall deposit with the
Paying Agent (or if the Company or an Affiliate is the Paying Agent, shall
segregate and hold in trust or cause such Affiliate to segregate and hold in
trust) money sufficient to pay the Redemption Price of, and accrued interest on,
all Debentures to be redeemed on that Redemption Date. The Paying Agent shall
return to the Company any money in excess of

23
<PAGE>

the amount sufficient to pay the Redemption Price of, and accrued interest on,
all Debentures to be redeemed and any interest accrued on the amount deposited
pursuant to this Section 3.05.

SECTION 3.06 Debentures Redeemed in Part.
---------------------------

Upon surrender of a Debenture that is redeemed in part, the Trustee
shall authenticate for the Holder a new Debenture of the same series and in a
principal amount equal to the unredeemed portion of such Debenture.

ARTICLE 4
COVENANTS

SECTION 4.01 Payment of Debentures.
---------------------

(a) The Company shall pay the principal of and premium, if any, and
interest (including interest accruing during an Extension Period and/or on or
after the filing of a petition in bankruptcy or reorganization relating to the
Company, whether or not a claim for post-filing interest is allowed in such
proceeding) on the Debentures on or prior to the dates and in the manner
provided in such Debentures or pursuant to this Indenture. An installment of
principal, premium, if any, or interest shall be considered paid on the
applicable due date if on such date the Trustee or the Paying Agent holds, in
accordance with this Indenture, money sufficient to pay all of such installment
then due. With respect to any Debenture, the Company shall pay interest on
overdue principal and interest on overdue installments of interest (including
interest accruing during an Extension Period and/or on or after the filing of a
petition in bankruptcy or reorganization relating to the Company, whether or not
a claim for post-filing interest is allowed in such proceeding), to the extent
lawful, at the rate per annum borne by such Debenture, compounded quarterly.
Interest on overdue interest shall accrue from the date such amounts become
overdue.

(b) Notwithstanding the provisions of Section 4.01(a) hereof or any
other provision herein to the contrary, the Company shall have the right in its
sole and absolute discretion at any time and from time to time while the
Debentures of any series are outstanding, so long as no Event of Default with
respect to such series of Debentures has occurred and is continuing, to defer
payments of interest by extending the interest payment period for such series of
Debentures for the Extension Period, if any, for such series of Debentures,
provided that such Extension Period shall not extend beyond the Stated Maturity
Date or Redemption Date of any Debenture of such series, and provided further
that at the end of each Extension Period the Company shall pay all interest then
accrued and unpaid (together with interest thereon to the extent permitted by
applicable law at the rate per annum borne by such Debentures). Prior to the
termination of an Extension Period, the Company may shorten or may further
extend the interest payment

24
<PAGE>

period for such series of Debentures, provided that such Extension Period
together with all such previous and further extensions may not exceed the
maximum duration of the Extension Period for such series of Debentures or extend
beyond the Stated Maturity Date or Redemption Date of any Debenture of such
series. The Company shall give the Trustee notice of the Company's election to
begin an Extension Period for any series of Debentures and any shortening or
extension thereof at least one Business Day prior to the date the notice of the
record or payment date of the related distribution on the Preferred Securities
issued by the Trust which is the Holder of the Debentures of such series or the
date payment of interest on such Debentures is required to be given to any
national securities exchange on which such Preferred Securities or Debentures
are then listed or other applicable self-regulatory organization, but in any
event not less than two Business Days prior to the Record Date fixed by the
Company for the payment of such interest. The Company shall give or cause the
Trustee to give notice (a form of which shall be provided by the Company to the
Trustee) of the Company's election to begin an Extension Period to the Holders
by first class mail, postage prepaid.

SECTION 4.02 Prohibition Against Dividends. etc.
-----------------------------------

The Company shall not declare or pay any dividend on, or redeem,
purchase, acquire or make a liquidation payment with respect to, any of its
Capital Stock (i) during an Extension Period, (ii) if at such time there shall
have occurred and is continuing any Default or Event of Default, or (iii) if the
Company shall be in default with respect to its payment or other obligations
under any Guarantee Agreement.

SECTION 4.03 SEC Reports.
-----------

The Company shall file with the Trustee, within 15 days after it files
them with the SEC, copies of its annual report and of the information, documents
and other reports (or copies of such portions of any of the foregoing as the SEC
may by rules and regulations prescribe) which the Company is required to file
with the SEC pursuant to Section 13 or 15(d) of the Exchange Act. If the Company
is not subject to the reporting requirements of Section 13 or 15(d) of the
Exchange Act, the Company shall file with the Trustee such information,
documents and other reports (or copies of such portions of any of the foregoing
as the SEC may by rules and regulations prescribe) which are specified in
Sections 13 or 15(d) of the Exchange Act. The Company shall also comply with the
provisions of Section 314(a) of the TIA.

SECTION 4.04 Compliance Certificates.
-----------------------

(a) The Company shall deliver to the Trustee, within 90 days after
the end of each of the Company's fiscal years, an Officer's Certificate stating
whether or not the signer knows of any Default or Event of Default. Such
certificate shall contain a certification from the principal executive officer,
principal financial officer or principal accounting officer

25
<PAGE>

of the Company as to his or her knowledge of the Company's compliance with all
conditions and covenants under this Indenture. For purposes of this Section
4.04(a), such compliance shall be determined without regard to any period of
grace or requirement of notice provided under this Indenture. If such Officer
does know of such a Default or Event of Default, the Officer's Certificate shall
describe any such Default or Event of Default, and its status. Such Officer's
Certificate need not comply with Sections 11.04 and 11.05 hereof.

(b) The Company shall deliver to the Trustee any information
reasonably requested by the Trustee in connection with the compliance by the
Trustee or the Company with the TIA.

SECTION 4.05 Further Instruments and Acts.
----------------------------

Upon request of the Trustee, the Company shall execute and deliver
such further instruments and do such further acts as may be reasonably necessary
or proper to carry out more effectively the purposes of this Indenture.

SECTION 4.06 Payments for Consents.
---------------------

Neither the Company nor any Subsidiary shall, directly or indirectly,
pay or cause to be paid any consideration, whether by way of interest, fee or
otherwise, to any Holder of any Debentures for or as an inducement to any
consent, waiver or amendment of any of the terms or provisions of this Indenture
or the Debentures unless such consideration is offered to be paid or agreed to
be paid to all Holders of the Debentures who so consent, waive or agree to amend
in the time frame set forth in the documents soliciting such consent, waiver or
agreement.

SECTION 4.07 Payment of Expenses of Trust I.
------------------------------

The Company covenants for the benefit of the Holders of the Series A
Debentures to pay all of the obligations, costs and expenses of Trust I in
accordance with Section 2.03(b) of the Trust I Agreement and to pay the taxes of
Trust I in accordance with Section 2.03(c) of the Trust I Agreement in order to
permit Trust I to make distributions on and redemptions of the Series A
Preferred Securities in accordance with Article IV of the Trust I Agreement.

26
<PAGE>

ARTICLE 5
SUCCESSOR CORPORATION

SECTION 5.01 When the Company May Merge, Etc.
-------------------------------

The Company may not consolidate with or merge with or into, or sell,
convey, transfer or lease its properties and assets as an entirety or
substantially as an entirety (either in one transaction or a series of
transactions) to, any Person unless:

(1) the Person formed by or surviving such consolidation or merger or
to which such sale, conveyance, transfer or lease shall have been made (the
"Successor") if other than the Company, (a) is organized and existing under the
laws of the United States of America or any State thereof or the District of
Columbia, and (b) shall expressly assume by a supplemental indenture, executed
and delivered to the Trustee, in form satisfactory to the Trustee, all the
obligations of the Company under the Debentures and the Indenture;

(2) immediately prior to and after giving effect to such transaction
(and treating any Indebtedness which becomes an obligation of the Successor
Person or any Subsidiary as a result of such transaction as having been incurred
by such Person or such Subsidiary at the time of such transaction), no Default
or Event of Default shall have occurred and be continuing; and

(3) the Company delivers to the Trustee an Officer's Certificate and
an Opinion of Counsel, each stating that such consolidation, merger, sale,
conveyance, transfer or lease and such supplemental indenture comply with this
Indenture.

The Successor will be the successor to the Company, and will be
substituted for, and may exercise every right and power and become the obligor
on the Debentures with the same effect as if the Successor had been named as the
Company herein but, in the case of a sale, conveyance, transfer or lease of all
or substantially all of the assets of the Company, the predecessor Company will
not be released from its obligation to pay the principal of and premium, if any,
and interest on the Debentures.

ARTICLE 6
DEFAULTS AND REMEDIES

SECTION 6.01 Events of Default.
-----------------

An "Event of Default" occurs with respect to the Debentures of any
series if one of the following shall have occurred and be continuing:

27
<PAGE>

(1) The Company defaults in the payment, when due and payable, of (a)
interest on any Debenture of that series and the default continues for a period
of 30 days; provided, that during an Extension Period for the Debentures of that
series, failure to pay interest on the Debentures of that series shall not
constitute a Default or Event of Default hereunder, or (b) the principal of or
premium, if any, on any Debentures of that series when the same becomes due and
payable on the Stated Maturity Date thereof, upon acceleration, on any
Redemption Date, or otherwise;

(2) The Company defaults in the performance of or fails to comply
with any of its other covenants or agreements in the Debentures of that series
or this Indenture or in any supplemental indenture under which the Debentures of
that series may have been issued and such failure continues for 60 days after
receipt by the Company of a "Notice of Default";

(3) The Company, pursuant to or within the meaning of any Bankruptcy
Law:

(a) commences a voluntary case or proceeding;

(b) consents to the entry of an order for relief against it in
an involuntary case or proceeding;

(c) consents to the appointment of a Custodian of it or for all
or substantially all of its property, and such Custodian is
not discharged within 60 days;

(d) makes a general assignment for the benefit of its creditors;
or

(e) admits in writing its inability to pay its debts generally
as they become due; or

(4) A court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that:

(a) is for relief against the Company in an involuntary case or
proceeding;

(b) appoints a Custodian of the Company for all or substantially
all of its properties;

28
<PAGE>

(d) and in each case the order or decree remains unstayed and in
effect for 60 days.

The foregoing will constitute an Event of Default whatever the reason
for any such Event of Default and whether it is voluntary or involuntary or is
effected by operation of law or pursuant to any judgment, decree or order of any
court or any order, rule or regulation of any administrative or governmental
body.

The term "Bankruptcy Law" means Title 11 of the United States Code, or
any similar federal or state law for the relief of debtors. "Custodian" means
any receiver, trustee, assignee, liquidator, sequestrator, custodian or similar
official under any Bankruptcy Law.

A Default under clause (2) above is not an Event of Default until (i)
the Trustee provides a "Notice of Default" to the Company or the Holders of at
least 25% in aggregate principal amount of the Debentures of that series at the
time outstanding or, if that series of Debentures is held by a Trust, the
holders of at least 25% in aggregate liquidation amount of the outstanding
Preferred Securities of that Trust provide a "Notice of Default" to the Company
and the Trustee and (ii) the Company does not cure such Default within the time
specified in clause (2) above after receipt of such notice. Any such notice must
specify the Default, demand that it be remedied and state that such notice is a
"Notice of Default."

SECTION 6.02 Acceleration.
------------

If any Event of Default with respect to the Debentures of any series
other than an Event of Default under clause (3) or (4) of Section 6.01 hereof
occurs and is continuing, the Trustee or the Holders of at least 25% in
aggregate principal amount of the Debentures of that series then outstanding may
declare the principal of all the Debentures of that series due and payable,
provided that in the case of a series of Debentures then held by a Trust, if
upon an Event of Default with respect to the Debentures of that series the
Trustee has or the Holders of at least 25% in aggregate principal amount of the
Debentures of that series have failed to declare the principal of the Debentures
of that series to be immediately due and payable, the holders of at least 25% in
aggregate liquidation amount of the outstanding Preferred Securities of that
Trust shall have such right by a notice in writing to the Company and the
Trustee. If an Event of Default specified in clause (3) or (4) of Section 6.01
hereof occurs, the principal of and interest on all the Debentures shall ipso
facto become and be immediately due and payable without any declaration or other
act on the part of the Trustee or any Debentureholders. Upon such an
acceleration, such principal, together with all interest accrued thereon, shall
be due and payable immediately.

The Holders of at least a majority in aggregate principal amount of
the Debentures of that series at the time outstanding, in each case, by notice
to the Trustee, may rescind such an acceleration and its consequences if the
rescission would not conflict with any judgment or decree and if all existing
Events of Default with respect to such series of

29
<PAGE>

Debentures have been cured or waived except nonpayment of principal or interest
that has become due solely because of acceleration, provided that if the
principal of a series of Debentures has been declared due and payable by the
holders of the Preferred Series of a Trust, no rescission of acceleration will
be effective unless consented to by the holders of at least a majority in
aggregate liquidation amount of the Preferred Securities of that Trust. No such
rescission shall affect any subsequent Default or impair any right consequent
thereto.

SECTION 6.03 Other Remedies.
--------------

If an Event of Default occurs and is continuing, the Trustee may, in
its own name or as trustee of an express trust, institute, pursue and prosecute
any proceeding, including, without limitation, any action at law or suit in
equity or other judicial or administrative proceeding to collect the payment of
principal of or premium, if any, or interest on the Debentures of the series
that is in default, to enforce the performance of any provision of the
Debentures of that series or this Indenture or to obtain any other available
remedy.

The Trustee may maintain a proceeding even if it does not possess any
of the Debentures or does not produce any of the Debentures in the proceeding. A
delay or omission by the Trustee, any Debentureholder or the holders of
Preferred Securities in exercising any right or remedy accruing upon an Event of
Default shall not impair such right or remedy or constitute a waiver of, or
acquiescence in, such Event of Default. No remedy is exclusive of any other
remedy. All available remedies are cumulative.

SECTION 6.04 Waiver of Past Defaults.
-----------------------

If a Default or Event of Default with respect to a series of
Debentures has occurred and is continuing, the Holders of at least a majority in
aggregate principal amount of the Debentures of that series at the time
outstanding, or, if that series of Debentures is held by a Trust, the holders of
at least a majority in aggregate liquidation amount of the Preferred Securities
of that Trust, in each case by notice to the Trustee and the Company, may waive
an existing Default or Event of Default and its consequences except a Default or
Event of Default in the payment of the principal of or premium, if any, or
interest on any Debenture of that series. When a Default or Event of Default is
waived, it is deemed cured and shall cease to exist, but no such waiver shall
extend to any subsequent or other Default or Event of Default or impair any
consequent right.

30
<PAGE>

SECTION 6.05 Control by Majority.
-------------------

The Holders of at least a majority in aggregate principal amount of
the Debentures of each series affected (with each such series voting as a class)
or, if that series of Debentures is held by a Trust, the holders of at least a
majority in aggregate liquidation amount of the Preferred Securities of that
Trust, may direct the time, method and place of conducting any proceeding for
any remedy available to the Trustee or of exercising any trust or power
conferred on the Trustee. However, the Trustee may refuse to follow any
direction that conflicts with law or this Indenture or that the Trustee
determines in good faith is unduly prejudicial to the rights of other
Debentureholders or may involve the Trustee in personal liability. The Trustee
may take any other action deemed proper by the Trustee which is not inconsistent
with such direction, including withholding notice to the Holders of the
Debentures of continuing default (except in the payment of the principal of
(other than any mandatory sinking fund payment) or premium, if any, or interest
on any Debentures) if the Trustee considers it in the interest of the Holders of
the Debentures to do so.

SECTION 6.06 Limitation on Suits.
-------------------

Except as provided in Section 6.07 hereof, no holder of Debentures or
holder of Preferred Securities of the Trust which is the Holder of that series
of Debentures may pursue any remedy with respect to this Indenture or the
Debentures unless:

(1) the Holders of Debentures or the holders of such Preferred
Securities give to the Trustee written notice stating that an Event of Default
with respect to the corresponding Debentures is continuing;

(2) the Holders of at least 25% in aggregate principal amount of the
Debentures of that series or the holders of at least 25% in aggregate
liquidation amount of such Preferred Securities make a written request to the
Trustee to pursue a remedy;

(3) the Holders of Debentures or the holders of such Preferred
Securities provide to the Trustee reasonable security and indemnity against any
loss, liability or expense satisfactory to the Trustee;

(4) the Trustee does not comply with the request within 60 days after
receipt of the notice, the request and the offer of security and indemnity; and

(5) during such 60 day period, the Holders of at least a majority in
aggregate principal amount of the Debentures of that series or the holders of at
least a majority in aggregate liquidation amount of such Preferred Securities do
not give the Trustee a direction inconsistent with the request.

31
<PAGE>

A Holder of Debentures or a holder of Preferred Securities may not use
this Indenture to prejudice the rights of another Debentureholder or a holder of
Preferred Securities or to obtain a preference or priority over another
Debentureholder or holder of Preferred Securities.

SECTION 6.07 Rights of Holders to Receive Payment.
------------------------------------

Notwithstanding any other provision of this Indenture, the right of
any Holder to receive payment of the principal of and premium (if any) or
interest on the Debentures held by such Holder, on or after the respective due
dates expressed in the Debentures (in the case of interest, as the same may be
extended pursuant to Section 4.01(b) hereof) or any Redemption Date, is absolute
and unconditional and such right and the right to bring suit for the enforcement
of any such payment on or after such respective dates shall not be impaired or
affected adversely without the consent of such Holder. If the Debentures of a
series are then held by a Trust, each holder of Preferred Securities of such
Trust shall have the right to bring suit for the enforcement of payment of
Debentures of such series in a principal amount equal to the aggregate
liquidation amount of the Preferred Securities of such holder.

SECTION 6.08 Collection Suit by the Trustee.
------------------------------

If an Event of Default described in Section 6.01(1) hereof occurs and
is continuing, the Trustee may recover judgment in its own name and as trustee
of an express trust against the Company or any obligor on the Debentures for the
whole amount owing with respect to the Debentures and the amounts provided for
in Section 7.07 hereof.

SECTION 6.09 The Trustee May File Proofs of Claim.
------------------------------------

In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company or its properties or assets, the
Trustee shall be entitled and empowered, by intervention in such proceeding or
otherwise:

(1) to file and prove a claim for the whole amount of the principal
of and premium, if any, and interest on the Debentures and to file such other
papers or documents as may be necessary or advisable in order to have the claims
of the Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and of the
Holders allowed in such judicial proceeding; and

(2) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same; and any Custodian in
any such judicial proceeding is hereby authorized by each Holder to make such
payments to the Trustee and, in the event that the Trustee shall consent to the
making of such payments

32
<PAGE>

directly to the Holders, to pay the Trustee any amount due it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section 7.07 hereof.

Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Debentures
or the rights of any Holder thereof, or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding.

SECTION 6.10 Priorities.
----------

If the Trustee collects any money pursuant to this Article 6, it
shall, subject to Article 10 hereof, pay out the money in the following order:

FIRST: to the Trustee for amounts due under Section 7.07 hereof;

SECOND: to Holders of Debentures in respect of which or for the benefit
of which such money has been collected for amounts due and unpaid
on such Debentures for the principal amount, Redemption Price or
interest, if any, as the case may be, ratably, without preference
or priority of any kind, according to such amounts due and
payable on such Debentures; and

THIRD: the balance, if any, to the Company.

Except as otherwise set forth in the Debentures, the Trustee may fix a
Record Date and payment date for any payment to Debentureholders pursuant to
this Section 6.10.

SECTION 6.11 Undertaking for Costs.
---------------------

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, a court in its discretion may require the filing by any party
litigant (other than the Trustee) in the suit of an undertaking to pay the costs
of the suit, and the court in its discretion may assess reasonable costs,
including reasonable attorneys' fees and expenses, against any party litigant in
the suit, having due regard to the merits and good faith of the claims or
defenses made by the party litigant. This Section 6.11 does not apply to a suit
by the Trustee, a suit by a Holder of Debentures or holder of Preferred
Securities pursuant to Section 6.07 hereof or a suit by Holders of Debentures of
more than 10% in aggregate principal amount of the Debentures of any series or,
if a series of Debentures is held by a Trust, the holders of more than 10% in
aggregate liquidation amount of the Preferred Securities of that Trust.

33
<PAGE>

SECTION 6.12 Waiver of Stay; Extension or Usury Laws.
---------------------------------------

The Company covenants (to the extent that it may lawfully do so) that
it will not at any time insist upon, or plead or in any manner whatsoever claim
or take the benefit or advantage of, any stay or extension law or any usury or
other law wherever enacted, now or at any time hereafter in force, that would
prohibit or forgive the Company from paying all or any portion of the principal
of or premium, if any, or interest on the Debentures as contemplated herein or
affect the covenants or the performance by the Company of its obligations under
this Indenture; and the Company (to the extent that it may lawfully do so)
hereby expressly waives all benefit or advantage of any such law, and covenants
that it will not hinder, delay or impede the execution of any power herein
granted to the Trustee, but will suffer and permit the execution of every such
power as though no such law had been enacted.

ARTICLE 7
THE TRUSTEE

SECTION 7.01 Duties of the Trustee.
---------------------

(a) If an Event of Default occurs and is continuing with respect to
the Debentures of any series, the Trustee shall exercise the rights and powers
vested in it by this Indenture with respect to that series and use the same
degree of care and skill in its exercise as a prudent man would exercise or use
under the circumstances in the conduct of his own affairs.

(b) Except during the continuance of an Event of Default with respect
to the Debentures of any series, (i) the Trustee need perform only those duties
with respect to that series that are specifically set forth in this Indenture or
the TIA and no others; and (ii) in the absence of bad faith on its part, the
Trustee may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or opinions
furnished to the Trustee and conforming to the requirements of this Indenture.
However, in the case of any certificates or opinions which by any provision
hereof are specifically required to be furnished to the Trustee, the Trustee
shall examine the certificates and opinions to determine whether or not they
conform to the requirements of this Indenture.

(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act or its own willful
misconduct, except that:

(i) this Section 7.01(c) does not limit the effect of Section
7.01(b) hereof;

34
<PAGE>

(ii) the Trustee shall not be liable for any error of judgment
made in good faith by a Trust Officer unless it is proved
that the Trustee was negligent in ascertaining the pertinent
facts; and

(iii) the Trustee shall not be liable with respect to any action
it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 6.05 hereof.

(d) Every provision of this Indenture that in any way relates to the
Trustee is subject to Section 7.01(a), (b), (c) and (e) and Section 7.02 hereof.

(e) The Trustee may refuse to perform any duty or exercise any right
or power or extend or risk its own funds or otherwise incur any financial
liability unless it receives security and indemnity reasonably satisfactory to
it against any loss, liability or expense (including reasonable counsel fees).

(f) Money held by the Trustee in trust hereunder need not be
segregated from other funds except to the extent required by law. Except as
otherwise provided in Section 3.05 and Section 8.01 hereof, the Trustee shall
not be liable for interest on any money held by it hereunder.

SECTION 7.02 Rights of the Trustee.
---------------------

(a) The Trustee may rely on any document believed by it to be genuine
and to have been signed or presented by the proper person. The Trustee need not
investigate any fact or matter stated in the document.

(b) Before the Trustee acts or refrains from acting, it may require
an Officer's Certificate and, if appropriate, an Opinion of Counsel. The Trustee
shall not be liable for any action it takes or omits to take in good faith in
reliance on such Officer's Certificate and Opinion of Counsel.

(c) The Trustee may act through agents and shall not be responsible
for the misconduct or negligence of any agent appointed with due care.

(d) The Trustee shall not be liable for any action it takes or omits
to take in good faith which it reasonably believes to be authorized or within
its rights or powers.

(e) The Trustee may consult with counsel of its selection and the
advice of such counsel or any 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 reliance thereon.

35
<PAGE>

(f) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction of
any of the Holders pursuant to this Indenture, unless such Holders shall have
offered to the Trustee reasonable security and indemnity against the costs,
expenses and liabilities (including reasonable counsel fees) which might be
incurred by it in compliance with such request or direction.

SECTION 7.03 Individual Rights of the Trustee.
--------------------------------

The Trustee in its individual or any other capacity may become the
owner or pledgee of Debentures and may otherwise deal with the Company or its
Affiliates with the same rights it would have if it were not Trustee. Any Paying
Agent, Registrar or co-registrar may do the same with like rights. However, the
Trustee must comply with Sections 7.10 and 7.11 hereof.

SECTION 7.04 The Trustee's Disclaimer.
------------------------

The Trustee makes no representation as to the validity or adequacy of
this Indenture or the Debentures. The Trustee shall not be accountable for the
Company's use of the proceeds from the Debentures, and the Trustee shall not be
responsible for any statement in this Indenture or the Debentures or any report
or certificate issued by the Company hereunder or any registration statement
relating to the Debentures (other than the Trustee's Certificate of
Authentication and the Trustee's Statement of Eligibility on Form T-1), or the
determination as to which beneficial owners are entitled to receive any notices
hereunder.

SECTION 7.05 Notice of Defaults.
------------------

If a Default occurs and is continuing with respect to the Debentures
of any series and if it is known to the Trustee, the Trustee shall mail to each
Holder of a Debenture of that series notice of the Default within 90 days after
it becomes known to the Trustee unless such Default shall have been cured or
waived. Except in the case of a Default described in Section 6.01(1) hereof, the
Trustee may withhold such notice if and so long as a committee of Trust Officers
in good faith determines that the withholding of such notice is in the interests
of the Holders of the Debentures of that series. The Trustee shall not be
charged with knowledge of any Default (except in the case of a Default under
Section 6.01(1) hereof) unless a responsible Trust Officer assigned to the
Corporate Trust Department of the Trustee shall have actual knowledge of the
Default. The second sentence of this Section 7.05 shall be in lieu of the
proviso to TIA Section 315(b). Said proviso is hereby expressly excluded from
this Indenture, as permitted by the TIA.

SECTION 7.06 Reports by Trustee to Holders.
-----------------------------

Within 60 days after each May 31, beginning with the May 31 next
following the date of this Indenture, the Trustee shall mail to each
Debentureholder, and such other

36
<PAGE>

holders that have submitted their names to the Trustee for such purpose, a brief
report dated as of such May 31 in accordance with and to the extent required
under TIA Section 313.

A copy of each report at the time of its mailing to Debentureholders
shall be filed with the Company, the SEC and any securities exchange on which
the Debentures are listed. The Company agrees to promptly notify the Trustee
whenever the Debentures become listed on any securities exchange and of any
listing thereof.

SECTION 7.07 Compensation and Indemnity.
--------------------------

The Company agrees:

(1) to pay to the Trustee from time to time such compensation as
shall be agreed in writing between the Company and the Trustee for all services
rendered by it hereunder (which compensation shall not be limited by any
provision of law in regard to the compensation of a trustee of an express
trust);

(2) to reimburse the Trustee upon its request for reasonable
expenses, disbursements and advances incurred or made by the Trustee in
accordance with any provision of this Indenture (including the reasonable
compensation and the expenses, and advances of its agents and counsel, provided
that prior to any Event of Default, the Trustee shall only have one counsel),
including all reasonable expenses and advances incurred or made by the Trustee
in connection with any Event of Default or any membership on any creditors'
committee, except any such expense or advance as may be attributable to its
negligence or bad faith; and

(3) to indemnify the Trustee, its officers, directors and
shareholders, for, and to hold it harmless against, any and all 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 this
trust, including the costs and expenses of defending itself against any claim or
liability in connection with the exercise or performance of any of its powers or
duties hereunder.

Before, after or during an Event of Default with respect to the
Debentures of a series, the Trustee shall have a claim and lien prior to the
Debentures of that series as to all property and funds held by it hereunder for
any amount owing it for its fees and expenses or any predecessor Trustee
pursuant to this Section 7.07, except with respect to funds held by the Trustee
or any Paying Agent in trust for the payment of principal of or premium, if any,
or interest on particular Debentures pursuant to Section 2.06 or Section 8.01
hereof.

The Company's payment obligations pursuant to this Section 7.07 are
not subject to Article 10 of this Indenture and shall survive the discharge of
this Indenture. When the Trustee renders services or incurs expenses after the
occurrence of a Default specified in

37
<PAGE>

Section 6.01 hereof, the compensation for services and expenses are intended to
constitute expenses of administration under any Bankruptcy Law.

SECTION 7.08 Replacement of Trustee.
----------------------

The Trustee may resign at any time, by so notifying the Company in
writing at least 30 days prior to the date of the proposed resignation;
provided, however, no such resignation shall be effective until a successor
Trustee has accepted its appointment pursuant to this Section 7.08. The Holders
of at least a majority in aggregate principal amount of the Debentures at the
time outstanding may remove the Trustee by so notifying the Trustee in writing
and may appoint a successor Trustee, which shall be subject to the consent of
the Company unless an Event of Default has occurred and is continuing. The
Trustee shall resign if:

(1) the Trustee fails to comply with Section 7.10 hereof;

(2) the Trustee is adjudged bankrupt or insolvent;

(3) a receiver or public officer takes charge of the Trustee or its
property; or

(4) the Trustee otherwise becomes incapable of act .

If the Trustee resigns or is removed or if a vacancy exists in the office of
Trustee for any reason, the Company shall promptly appoint a successor Trustee.
A successor Trustee shall deliver a written acceptance of its appointment to the
retiring Trustee and to the Company. Thereupon the resignation or removal of the
retiring Trustee shall become effective, and the successor Trustee shall have
all the rights, powers and duties of the Trustee under this Indenture. The
successor Trustee shall mail a notice of its succession to Debentureholders.
Subject to payment of all amounts owing to the Trustee under Section 7.07 hereof
and subject further to its lien under Section 7.07, the retiring Trustee shall
promptly transfer all property held by it as Trustee to the successor Trustee.
If a successor Trustee does not take office within 30 days after the retiring
Trustee resigns or is removed, the Company or the Holders of at least a majority
in aggregate principal amount of the Debentures at the time outstanding may
petition any court of competent jurisdiction for the appointment of a successor
Trustee.

If the Trustee fails to comply with Section 7.10 hereof, any
Debentureholder may petition any court of competent jurisdiction for its removal
and the appointment of a successor Trustee.

38
<PAGE>

SECTION 7.09 Successor Trustee by Merger.
---------------------------

If the Trustee consolidates with, merges or converts into, or
transfers all or substantially all its corporate trust business or assets to
another corporation, the resulting, surviving or transferee corporation without
any further act shall be the successor Trustee.

SECTION 7.10 Eligibility: Disqualification.
-----------------------------

The Trustee shall at all times satisfy the requirements of TIA
Sections 310(a)(1) and 310(a)(2). The Trustee (or any Affiliate thereof which
has unconditionally guaranteed the obligations of the Trustee hereunder) shall
have a combined capital and surplus of at least $50,000,000 as set forth in its
most recently published annual report of condition. The Trustee shall comply
with TIA Section 310(b). In determining whether the Trustee has conflicting
interests as defined in TIA Section 310(b)(1), the provisions contained in the
proviso to TIA Section 310(b)(1) and the Trustee's Statement of Eligibility on
Form
T-1 shall be deemed incorporated herein.

SECTION 7.11 Preferential Collection of Claims Against the Company.
-----------------------------------------------------

If and when the Trustee shall be or become a creditor of the Company,
the Trustee shall be subject to the provisions of the TIA regarding the
collection of claims against the Company.

ARTICLE 8
SATISFACTION AND DISCHARGE OF INDENTURE;
DEFEASANCE OF CERTAIN OBLIGATIONS; UNCLAIMED MONEYS

SECTION 8.01 Satisfaction and Discharge of Indenture.
---------------------------------------

The Company shall be deemed to have paid and discharged the entire
indebtedness on any series of the Debentures outstanding on the date the Company
has irrevocably deposited or caused to be irrevocably deposited with the Trustee
or any Paying Agent as trust funds in trust, specifically pledged as security
for, and dedicated solely to, the benefit of the Holders of the Debentures of
such series (1) cash (which may be held in an interest bearing account insured
by the Federal Deposit Insurance Corporation) in an amount, or (2) U.S.
Government Obligations, maturing as to principal and interest at such times and
in such amounts as will ensure the availability of cash, or (3) a combination
thereof, sufficient to pay the principal of and premium, if any, and interest on
all Debentures of such series then outstanding, provided that in the case of
redemption, notice of redemption shall have been given or the Company shall have
irrevocably instructed the Trustee to give such notice; and further provided
that the following conditions shall have been met:

39
<PAGE>

(A) no Default or Event of Default with respect to the Debentures
of such series has occurred and is continuing on the date of such deposit
or occurs as a result of such deposit;

(B) the Company has delivered to the Trustee an Officer's
Certificate certifying that there does not exist (i) a default in the
payment of all or any portion of any Senior Indebtedness or (ii) any other
default affecting Senior Indebtedness permitting its acceleration as the
result of which the maturity of Senior Indebtedness has been accelerated;

(C) the Company has delivered to the Trustee (i) either a private
Internal Revenue Service ruling or an Opinion of Counsel to the effect that
the Holders of the Debentures of such series will not recognize income,
gain or loss for federal income tax purposes as a result of such deposit,
defeasance and discharge and will be subject to federal income tax on the
same amount and in the manner and at the same times as would have been the
case if such deposit, defeasance and discharge had not occurred, and an
Opinion of Counsel to the effect that (A) the deposit shall not result in
the Company, the Trustee or, if the Debentures of such series are held by a
Trust, such Trust being deemed to be an "investment company" under the
Investment Company Act of 1940, as amended, and (B) such deposit creates a
valid trust in which the Holders of the Debentures of such series have the
sole beneficial interest or that the Holders of the Debentures of such
series have a nonavoidable first priority security interest in such trust;
and

(D) the Company has delivered to the Trustee an Officer's
Certificate and an Opinion of Counsel, each stating that all conditions
precedent relating to the defeasance contemplated by this provision have
been complied with.

Upon such deposit, provisions of this Indenture with respect to such series of
Debentures shall no longer be in effect (except as to (1) the rights of
registration of transfer and exchange of Debentures of such series, (2) the
replacement of apparently mutilated, defaced, destroyed, lost or stolen
Debentures of such series, (3) the rights of the Holders of the Debentures of
such series to receive payments of the principal thereof and premium, if any,
and interest thereon, (4) the rights of the Holders of the Debentures of such
series as beneficiaries hereof with respect to the property so deposited with
the Trustee payable to all or any of them, (5) the obligation of the Company to
maintain an office or agency for payments on and registration of transfer of the
Debentures of such series, (6) the rights, obligations and immunities of the
Trustee hereunder, and (7) the obligations of the Company to the Trustee for
compensation and indemnity under Section 7.07 hereof; and the Trustee shall, at
the request and expense of the Company, execute proper instruments acknowledging
the same.

40
<PAGE>

SECTION 8.02 Application by Trustee of Funds Deposited for Payment
-----------------------------------------------------
of Debentures.
-------------

Subject to Section 8.04 hereof, all moneys deposited with the Trustee
pursuant to Section 8.01 hereof shall be held in trust and applied by it to the
payment, either directly or through any Paying Agent (including the Company
acting as its own Paying Agent), to the Holders of the Debentures of the series
for the payment or redemption of which such moneys have been deposited with the
Trustee, of all sums due and to become due thereon for principal and interest;
but such money need not be segregated from other funds except to the extent
required by law.

SECTION 8.03 Repayment of Moneys Held by Paying Agent.
----------------------------------------

In connection with the satisfaction and discharge of this Indenture,
all moneys then held by any Paying Agent under this Indenture shall, upon 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 8.04 Return of Moneys Held by the Trustee and Paying Agent
-----------------------------------------------------
Unclaimed for Three Years.
-------------------------

Any moneys deposited with or paid to the Trustee or any Paying Agent
for the payment of the principal of and premium, if any, or interest on the
Debentures of any series and not applied but remaining unclaimed for three years
after the date when such principal, premium, if any, or interest shall have
become due and payable shall, unless otherwise required by mandatory provisions
of applicable escheat or abandoned or unclaimed property law, be repaid to the
Company by the Trustee or such Paying Agent, and the Holders of such Debentures
shall, unless otherwise required by mandatory provisions of applicable escheat
or abandoned or unclaimed property laws, thereafter look only to the Company for
any payment which such Holder may be entitled to collect, and all liability of
the Trustee or any Paying Agent with respect to such moneys shall thereupon
cease.

ARTICLE 9
AMENDMENTS

SECTION 9.01 Without Consent of Holders.
--------------------------

From time to time, when authorized by a resolution of the Board of
Directors, the Company and the Trustee, without notice to or the consent of any
Holders of the Debentures, may amend or supplement this Indenture:

(1) to cure any ambiguity, defect or inconsistency;

41
<PAGE>

(2) to comply with Article 5 hereof;

(3) to provide for uncertificated Debentures in addition to or in
place of certificated Debentures;

(4) to make any other change that does not in the reasonable judgment
of the Company adversely affect the rights of any Debentureholder;

(5) to comply with any requirement of the SEC in connection with the
qualification of this Indenture under the TIA; or

(6) to set forth the terms and conditions, which shall not be
inconsistent with this Indenture, of any series of Debentures (other than the
Series A Debentures) that are to be issued hereunder and the form of Debentures
of such series.

SECTION 9.02 With Consent of Holders.
-----------------------

The Company and the Trustee may amend this Indenture in any manner not
permitted by Section 9.01 or may waive future compliance by the Company with any
provisions of this Indenture with the consent of the Holders of at least a
majority in aggregate principal amount of the Debentures of each series affected
thereby. Such an amendment or waiver may not, without the consent of each
Holder of the Debentures affected thereby:

(1) reduce the principal amount of such Debentures;

(2) reduce the principal amount of such Debentures the Holders of
which must consent to an amendment of this Indenture or a waiver;

(3) change the stated maturity of the principal of or the interest on
or rate of interest of such Debentures;

(4) change adversely to the Holders the redemption provisions of
Article 3 hereof;

(5) change the currency in respect of which the payments on such
Debentures are to be made;

(6) make any change in Article 10 hereof that adversely affects the
rights of the Holders of the Debentures or any change to any other Section
hereof that adversely affects their rights under Article 10 hereof; or

(7) change Section 6.07 hereof;

42
<PAGE>

provided that, in the case of the outstanding Debentures of a series then held
by a Trust, no such amendment shall be made that adversely affects the holders
of the Preferred Securities of that Trust, and no waiver of any Event of Default
with respect to the Debentures of that series or compliance with any covenant
under this Indenture shall be effective, without the prior consent of the
holders of at least a majority of the aggregate liquidation amount of the
outstanding Preferred Securities of that Trust or the holder of each such
Preferred Security, as applicable.

A supplemental indenture that changes or eliminates any covenant or
other provision of this Indenture that has expressly been included solely for
the benefit of one or more particular series of Debentures, or which modifies
the rights of the Holders of Debentures of such series with respect to such
covenant or other provision, shall be deemed not to affect the rights under this
Indenture of the Holders of Debentures of any other series.

It shall not be necessary for the consent of the Holders of Debentures
or holders of Preferred Securities under this Section 9.02 to approve the
particular form of any proposed amendment, but it shall be sufficient if such
consent approves the substance thereof.

If certain Holders agree to defer or waive certain obligations of the
Company hereunder with respect to Debentures held by them, such deferral or
waiver shall not affect the rights of any other Holder to receive the payment or
performance required hereunder in a timely manner.

After an amendment or waiver under this Section 9.02 becomes
effective, the Company shall mail to each Holder a notice briefly describing the
amendment or waiver. Any failure of the Company to mail such notices, or any
defect therein, shall not, however, in any way impair or affect the validity of
such amendment or waiver.

SECTION 9.03 Compliance with Trust Indenture Act.
-----------------------------------

Every supplemental indenture executed pursuant to this Article 9 shall
comply with the TIA.

SECTION 9.04 Revocation and Effect of Consents; Waivers and Actions.
------------------------------------------------------

Until an amendment, waiver or other action by Holders becomes
effective, a consent to it or any other action by a Holder of a Debenture
hereunder is a continuing consent by the Holder and every subsequent Holder of
that Debenture or portion of the Debenture that evidences the same obligation as
the consenting Holder's Debenture, even if notation of the consent, waiver or
action is not made on such Debenture. However, any such Holder or subsequent
Holder may revoke the consent, waiver or action as to such

43
<PAGE>

Holder's Debenture or portion of the Debenture if the Trustee receives the
notice of revocation before the consent of the requisite aggregate principal
amount of such Debentures then outstanding has been obtained and not revoked.
After an amendment, waiver or action becomes effective, it shall bind every
Holder of the Debentures of the related series, except as provided in Section
9.02 hereof.

The Company may, but shall not be obligated to, fix a Record Date for
the purpose of determining the Persons entitled to consent to any amendment or
waiver. If a Record Date is fixed, then, notwithstanding the first two sentences
of the immediately preceding paragraph, only Holders of Debentures or holders of
Preferred Securities, as applicable, on such Record Date or their duly
designated proxies, and only those Persons, shall be entitled to consent to such
amendment, supplement or waiver or to revoke any consent previously given,
whether or not such Persons continue to be such after such Record Date. No such
consent shall be valid or effective for more than 90 days after such Record
Date.

SECTION 9.05 Notation on or Exchange of Debentures.
-------------------------------------

Debentures of the related series authenticated and made available for
delivery after the execution of any supplemental indenture pursuant to this
Article 9 may, and shall, if required by the Trustee, bear a notation in form
approved by the Trustee as to any matter provided for in such supplemental
indenture. If the Company shall so determine, new Debentures so modified as to
conform, in the opinion of the Trustee and the Board of Directors, to any such
supplemental indenture may be prepared and executed by the Company and
authenticated and made available for delivery by the Trustee in exchange for
outstanding Debentures.

SECTION 9.06 Trustee to Execute Supplemental Indentures.
------------------------------------------

The Trustee shall execute any supplemental indenture authorized
pursuant to this Article 9 if the supplemental indenture does not adversely
affect the rights, duties, liabilities or immunities of the Trustee. If it does,
the Trustee may, but need not, execute it. In executing such supplemental
indenture the Trustee shall be entitled to receive, and shall be fully protected
in relying upon, an Officer's Certificate and Opinion of Counsel stating that
such supplemental indenture is authorized or permitted by this Indenture.

SECTION 9.07 Effect of Supplemental Indentures.
---------------------------------

Upon the execution of any supplemental indenture under this Article 9,
this Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes and every Holder
of Debentures of the related series theretofore or thereafter authenticated and
made available for delivery hereunder shall be bound thereby.

44
<PAGE>

ARTICLE 10
SUBORDINATION

SECTION 10.01 Debentures Subordinated to Senior Indebtedness.
----------------------------------------------

Notwithstanding the provisions of Section 6.10 hereof or any other
provision herein or in any Debenture, the Company and the Trustee and, by their
acceptance thereof, the Holders of the Debentures (a) covenants and agrees that
all payments by the Company of the principal of and premium, if any, and
interest on the Debentures (other than Debentures which have been discharged
pursuant to Article 8) shall be subordinated in accordance with the provisions
of this Article 10 to the prior payment in full, in cash or cash equivalents, of
all amounts payable on, under or in connection with Senior Indebtedness, and (b)
acknowledges that holders of Senior Indebtedness are or shall be relying on this
Article 10.

SECTION 10.02 Priority and Payment of Proceeds in Certain Events:
---------------------------------------------------
Remedies Standstill.
-------------------

(a) Upon any payment or distribution of assets or securities of the
Company, as the case may be, of any kind or character, whether in cash, property
or securities, upon any dissolution or winding up or total or partial
liquidation or reorganization of the Company, whether voluntary or involuntary,
or in bankruptcy, insolvency, receivership or other proceedings, all amounts
payable on, under or in connection with Senior Indebtedness (including any
interest accruing on such Senior Indebtedness subsequent to the commencement of
a bankruptcy, insolvency or similar proceeding) shall first be paid in full in
cash, or payment provided for in cash or cash equivalents, before the Holders or
the Trustee on behalf of the Holders or the holders of Preferred Securities
shall be entitled to receive from the Company any payment of principal of or
premium, if any, or interest on the Debentures or distribution of any assets or
securities.

(b) No direct or indirect payment by or on behalf of the Company of
principal of or premium, if any, or interest on the Debentures (other than
Debentures which have been discharged pursuant to Article 8), whether pursuant
to the terms of the Debentures or upon acceleration or otherwise, shall be made
if, any the time of such payment, there exists (i) a default in the payment of
all or any portion of any Senior Indebtedness and the Trustee has received
written notice thereof from the Company, from holders of Senior Indebtedness or
from any trustee, representative or agent therefor, or (ii) any other default
affecting Senior Indebtedness, as a result of which the maturity of Senior
Indebtedness has been accelerated and the Trustee has received written notice
from the Company, from holders of Senior Indebtedness or from any trustee,
representative or agent therefor, and such default shall not have been cured or
waived by or on behalf of the holders of such Senior Indebtedness.

45
<PAGE>

(c) If, notwithstanding the foregoing provisions prohibiting such
payment or distribution, the Trustee or any Holder shall have received any
payment on account of the principal of or premium, if any, or interest on the
Debentures when such payment is prohibited by this Section 10.02 and before all
amounts payable on, under or in connection with Senior Indebtedness are paid in
full in cash or cash equivalents, then and in such event (subject to the
provisions of Section 10.08 hereof) such payment or distribution shall be
received and held in trust for the holders of Senior Indebtedness and, at the
written direction of the trustee, representative or agent for the holders of the
Senior Indebtedness, shall be paid to the holders of the Senior Indebtedness
remaining unpaid to the extent necessary to pay such Senior Indebtedness in full
in cash or cash equivalents.

Upon any payment or distribution of assets or securities referred to
in this Article 10, the Trustee and the Holders shall be entitled to rely upon
any order or decree of a court of competent jurisdiction in which such
dissolution, winding up, liquidation or reorganization proceedings are pending,
and upon a certificate of the receiver, trustee in bankruptcy, liquidating
trustee, agent or other Person making any such payment or distribution,
delivered to the Trustee for the purpose of ascertaining the Persons entitled to
participate in such distribution, the holders of Senior Indebtedness and other
Indebtedness of the Company, the amount thereof or payable thereon, the amount
or amounts paid or distributed thereon and all other facts pertinent thereto or
to this Article 10.

SECTION 10.03 Payments which May Be Made Prior to Notice.
------------------------------------------

Nothing in this Article 10 or elsewhere in this Indenture shall
prevent (i) the Company, except under the conditions described in Section 10.02
hereof, from making payments of principal of or premium, if any, or interest on
the Debentures or from depositing with the Trustee any monies for such payments,
or (ii) the application by the Trustee of any monies deposited with it for the
purpose of making such payments of principal of or premium, if any, or interest
on the Debentures, to the Holders entitled thereto, unless at least one Business
Day prior to the date when such payment would otherwise (except for the
prohibitions contained in Section 10.02 hereof) become due and payable the
Trustee shall have received the written notice provided for in Section
10.02(b)(i) or (ii) hereof.

SECTION 10.04 Rights of Holders of Senior Indebtedness Not to Be
--------------------------------------------------
Impaired.
--------

No right of any present or future holder of any Senior Indebtedness to
enforce subordination as herein provided shall at any time or in any way be
prejudiced or impaired by any act or failure to act in good faith by any such
holder, or by any noncompliance by the Company with the terms and provisions and
covenants herein regardless of any knowledge thereof any such holder may have or
otherwise be charged with.

46
<PAGE>

The provisions of this Article 10 are intended to be for the benefit
of, and shall be enforceable directly by, the holders of Senior Indebtedness.
Notwithstanding anything to the contrary in this Article 10, to the extent any
Holders or the Trustee have paid over or delivered to any holder of Senior
Indebtedness any payment or distribution received on account of the principal of
or premium (if any) or interest on the Debentures to which any other holder of
Senior Indebtedness shall be entitled to share in accordance with Section 10.02
hereof, no holder of Senior Indebtedness shall have a claim or right against any
Holders or the Trustee with respect to any such payment or distribution or as a
result of the failure to make payments or distributions to such other holder of
Senior Indebtedness.

SECTION 10.05 Trustee May Take Action to Effectuate Subordination.
---------------------------------------------------

Each Holder of a Debenture, by his acceptance thereof, authorizes and
directs the Trustee on his behalf to take such action as may be required by the
trustee, representative or agent for holders of Senior Indebtedness or by the
Company to effectuate, as between the holders of Senior Indebtedness and the
Holders, the subordination as provided in this Article 10 and appoints the
Trustee his attorney-in-fact for any and all such purposes.

SECTION 10.06 Subrogation.
-----------

Upon the payment in full, in cash or cash equivalents, of all Senior
Indebtedness, any Holder shall be subrogated to the rights of the holders of
such Senior Indebtedness to receive payments or distributions of assets of the
Company made on such Senior Indebtedness until the Debentures shall be paid in
full; and for the purposes of such subrogation, no payments or distributions to
holders of such Senior Indebtedness of any cash property or securities to which
such Holders of the Debentures would be entitled except for this Article 10, and
no payment pursuant to this Article 10 to holders of such Senior Indebtedness by
such Holders of the Debentures, shall, as between the Company, its creditors
other than holders of such Senior Indebtedness and such Holders of the
Debentures, be deemed to be a payment by the Company to or on account of such
Senior Indebtedness, it being understood that the provisions of this Article 10
are solely for the purpose of defining the relative rights of the holders of
such Senior Indebtedness, on the one hand, and such Holders of the Debentures,
on the other hand.

If any payment or distribution to which Holders of Debentures would
otherwise have been entitled but for the provisions of this Article 10 shall
have been applied, pursuant to this Article 10, to the payment of all Senior
Indebtedness then and in such case such Holders of the Debentures shall be
entitled to receive from the holders of such Senior Indebtedness at the time
outstanding any payments or distributions received by such holders of Senior
Indebtedness in excess of the amount sufficient to pay, in cash or cash
equivalents, all such Senior Indebtedness in full.

47
<PAGE>

SECTION 10.07 Obligations of Company Unconditional: Reinstatement.
---------------------------------------------------

Nothing in this Article 10 or elsewhere in this Indenture or in any
Debenture is intended to or shall impair, as between the Company and Holders of
the Debentures, the obligations of the Company, which are absolute and
unconditional, to pay to such Holders the principal of and premium, if any, and
interest on the Debentures 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 such Holders of the Debentures and creditors of the Company other than
the holders of the Senior Indebtedness, nor shall anything herein or therein
prevent the Trustee or any Holder of Debentures or holder of Preferred
Securities, as applicable, from exercising all remedies otherwise permitted by
applicable law under this Indenture, subject to the rights, if any, under this
Article 10 of the holders of such Senior Indebtedness in respect of cash,
property or securities of the Company received upon the exercise of any such
remedy.

The failure to make a scheduled payment of principal of or premium, if
any, or interest on the Debentures by reason of Section 10.02 shall not be
construed as preventing the occurrence of an Event of Default under Section 6.01
hereof; provided, however, that if (i) the conditions preventing the making of
such payment no longer exist, and (ii) such Holders of the Debentures are made
whole with respect to such omitted payments, the Event of Default relating
thereto (including any failure to pay any accelerated amounts) shall be
automatically waived, and the provisions of the Indenture shall be reinstated as
if no such Event of Default had occurred.

SECTION 10.08 Trustee Entitled to Assume Payments Not Prohibited in
-----------------------------------------------------
Absence of Notice.
-----------------

The Trustee or Paying Agent shall not be charged with the knowledge of
the existence of any default in the payment of all or a portion of any Senior
Indebtedness or any other default affecting Senior Indebtedness, as a result of
which the maturity of the Senior Indebtedness has been accelerated, unless and
until the Trustee or Paying Agent shall have received written notice thereof
from the Company or one or more holders of Senior Indebtedness or from any
trustee, representative or agent therefor or unless the Trustee or Paying Agent
otherwise had actual knowledge thereof; and, prior to the receipt of any such
written notice or actual knowledge of a responsible Trust Officer in the
Corporate Trust Department of the Trustee or Paying Agent, the Trustee or Paying
Agent may conclusively assume that no such facts exist.

Unless at least one Business Day prior to the date when by the terms
of this Indenture any monies are to be deposited by the Company with the Trustee
or any Paying Agent for any purpose (including, without limitation, the payment
of the principal of or premium, if any, or interest on any Debenture), the
Trustee or Paying Agent shall have

48
<PAGE>

received with respect to such monies the notice provided for in Section 10.02 or
a responsible Trust Officer in the Corporate Trust Department of the Trustee or
Paying Agent shall have actual knowledge of default in the payment of all or a
portion of any Senior Indebtedness or any other default affecting Senior
Indebtedness as the result of which the maturity of the Senior Indebtedness has
been accelerated, the Trustee or Paying Agent shall have full power and
authority to receive and apply such monies to the purpose for which they were
received. Neither of them shall be affected by any notice to the contrary,
which may be received by either on or after such date. The foregoing shall not
apply to the Paying Agent if the Company is acting as Paying Agent. Nothing in
this Section 10.08 shall limit the right of the holders of Senior Indebtedness
to recover payments as contemplated by Section 10.02 hereof. The Trustee or
Paying Agent shall be entitled to rely on the delivery to it of a written notice
by a Person representing himself or itself to be a holder of such Senior
Indebtedness (or a trustee, representative or agent on behalf of such holder) to
establish that such notice has been given by a holder of such Senior
Indebtedness or a trustee, representative or agent on behalf of any such holder.
The Trustee shall not be deemed to have any duty to the holders (and shall be
fully protected in relying upon such notice) of Senior Indebtedness.

SECTION 10.09 Right of Trustee to Hold Senior Indebtedness.
--------------------------------------------

The Trustee and any Paying Agent shall be entitled to all of the
rights set forth in this Article 10 in respect of any Senior Indebtedness at any
time held by them to the same extent as any other holder of such Senior
Indebtedness, and nothing in this Indenture shall be construed to deprive the
Trustee or any Paying Agent of any of its rights as such holder.

ARTICLE 11
MISCELLANEOUS

SECTION 11.01 Trust Indenture Act Controls.
----------------------------

If any provision of this Indenture limits, qualifies or conflicts with
the duties imposed by operation of subsection (c) of Section 318 of the TIA, the
imposed duties shall control. The provisions of Sections 310 to 317, inclusive,
of the TIA that impose duties on any Person (including provisions automatically
deemed included in an indenture unless the indenture provides that such
provisions are excluded) are a part of and govern this Indenture, except as, and
to the extent, they are expressly excluded from this Indenture, as permitted by
the TIA.

SECTION 11.02 Notices.
-------

Any notice, request or other communication required or permitted to be
given hereunder shall be in writing and delivered, telecopied or mailed by
first-class mail, postage prepaid, addressed as follows:

49
<PAGE>

if to the Company:

Public Service Electric and Gas Company
80 Park Plaza, T6B
P.O. Box 570
Newark, New Jersey 07101
Facsimile No.:
Attention: Treasurer

if to the Trustee:

First Union National Bank
765 Broad Street
Newark, New Jersey 07101
Facsimile No.
Attention: Corporate Trust Department

The Company or the Trustee, by giving notice to the other, may
designate additional or different addresses for subsequent notices of
communications. The Company shall notify the holder, if any, of Senior
Indebtedness of any such additional or different addresses of which the Company
receives notice from the Trustee.

Any notice or communication given to a Debentureholder shall be mailed
or delivered to the Debentureholder at the Debentureholder's address as it
appears on the Register of the Registrar and shall be sufficiently given if
mailed within the time prescribed.

Failure to mail a notice or communication to a Debentureholder or any
defect in it shall not affect its sufficiency with respect to other
Debentureholders. If a notice or communication is mailed in the manner provided
above, it is duly given, whether or not received by the addressee.

If the Company mails a notice or communication to the
Debentureholders, it shall mail a copy to the Trustee and each Registrar, Paying
Agent or co-Registrar.

SECTION 11.03 Communication by Holders with Other Holders.
-------------------------------------------

Debentureholders may communicate, pursuant to TIA Section 312(b), with
other Debentureholders with respect to their rights under this Indenture or the
Debentures. The Company, the Trustee, the Registrar, the Paying Agent and anyone
else shall have the protection of TIA Section 312(c).

50
<PAGE>

SECTION 11.04 Certificate and Opinion as to Conditions Precedent.
--------------------------------------------------

Upon any request or application by the Company to the Trustee to take
any action under this Indenture, the Company shall furnish to the Trustee:

(1) an Officer's Certificate (complying with Section 11.05 hereof)
stating that, in the opinion of such Officer, all conditions precedent to the
taking of such action have been complied with; and

(2) if appropriate, an Opinion of Counsel (complying with Section
11.05 hereof) stating that, in the opinion of such counsel all such conditions
precedent to the taking of such action have been complied with.

SECTION 11.05 Statements Required in Certificate or Opinion.
---------------------------------------------

Each Officer's Certificate and Opinion of Counsel with respect to
compliance with a covenant or condition provided for in this Indenture shall
include:

(1) a statement that each Person making such Officer's Certificate or
Opinion of Counsel 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
Officer's Certificate or Opinion of Counsel are based;

(3) a statement that, in the opinion of each such Person, such Person
has made such examination or investigation as is necessary to enable such Person
to express an informed opinion as to whether or not such covenant or condition
has been complied with; and

(4) a statement that, in the opinion of such Person, such covenant or
condition has been complied with; provided, however, that with respect to
matters of fact not involving any legal conclusion, an Opinion of Counsel may
rely on an Officer's Certificate or certificates of public officials.

SECTION 11.06 Severability Clause.
-------------------

If any provision in this Indenture or in the Debentures shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.

51
<PAGE>

SECTION 11.07 Rules by Trustee, Paying Agent and Registrar.
--------------------------------------------

The Trustee may make reasonable rules for action by or a meeting of
Debentureholders. The Registrar and Paying Agent may make reasonable rules for
their functions.

SECTION 11.08 Legal Holidays.
--------------

A "Legal Holiday" is any day other than a Business Day. If any
specified date (including a date for giving notice) is a Legal Holiday, the
action to be taken on such date shall be taken on the next succeeding day that
is not a Legal Holiday, and if such action is a payment in respect of the
Debentures, unless otherwise specified pursuant to Section 2.01 hereof no
principal, premium (if any) or interest installment shall accrue for the
intervening period; except that if any interest payment is due on a Legal
Holiday and the next succeeding day is in the next succeeding calendar year,
such payment shall be made on the Business Day immediately preceding such Legal
Holiday.

SECTION 11.09 Governing Law.
-------------

This Indenture and the Debentures shall be governed by and construed
in accordance with the laws of the State of New Jersey as applied to contracts
made and performed within the State of New Jersey, without regard to its
principles of conflicts of laws.

SECTION 11.10 No Recourse Against Others.
--------------------------

No director, officer, employee or stockholder, as such, of the Company
shall have any liability for any obligations of the Company under the Debentures
or this Indenture or for any claim based on, in respect of or by reason of such
obligations their creation. By accepting a Debenture, each Debentureholder shall
waive and release all such liability. The waiver and release shall be part of
the consideration for the issue of the Debentures.

SECTION 11.11 Successors.
----------

All agreements of the Company in this Indenture and Debentures shall
bind its successors and assigns. All agreements of the Trustee in this Indenture
shall bind its successors and assigns.

SECTION 11.12 Multiple Original Copies of this Indenture.
------------------------------------------

The parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together represent the same
agreement. Any signed copy shall be sufficient proof of this Indenture.

52
<PAGE>

SECTION 11.13 No Adverse Interpretation of Other Agreements.
---------------------------------------------

This Indenture may not be used to interpret another indenture, loan or
debt agreement of the Company or any subsidiary. Any such indenture, loan or
debt agreement may not be used to interpret this Indenture.

SECTION 11.14 Table of Contents: Headings. Etc.
--------------------------------

The Table of Contents, Cross-Reference Table, 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 11.15 Benefits of the Indenture.
-------------------------

Except as otherwise expressly provided herein with respect to holders
of Senior Indebtedness and holders of Preferred Securities, nothing in this
Indenture or in the Debentures, express or implied, shall give to any person,
other than the parties hereto and their successors hereunder and the Holders of
the Debentures, any benefit or any legal or equitable right, remedy or claim
under this Indenture.

53
<PAGE>

SIGNATURES

IN WITNESS WHEREOF, the undersigned, being duly authorized, have
executed this Indenture on behalf of the respective parties hereto as of the
date first above written.

PUBLIC SERVICE ELECTRIC AND
GAS COMPANY

By:
------------------------------------------

Name:
---------------------------------------

Title:
--------------------------------------

FIRST UNION NATIONAL BANK,
as Trustee

By:
------------------------------------------

Name:
---------------------------------------

Title:
--------------------------------------

54
<PAGE>

Exhibit A

PUBLIC SERVICE ELECTRIC AND GAS COMPANY
_% Deferrable Interest Subordinated Debenture,
Series A

No. __

Public Service Electric and Gas Company, a New Jersey corporation (the
"Company", which term includes any successor corporation under the Indenture
hereinafter referred to), for value received, hereby promises to pay to
____________________ or registered assigns, the principal sum of __________
Dollars on __________, ____, and to pay interest on said principal sum from
__________, ____ or from the most recent Interest Payment Date (as defined
below) to which interest has been paid or duly provided for, quarterly in
arrears on March 31, June 30, September 30 and December 31, commencing June 30,
1996 (each, an "Interest Payment Date") at the rate of ___% per annum until the
principal hereof shall have become 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 same rate per annum. 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 for any period shorter than
thirty days, interest will be computed on the basis of the actual number of days
elapsed in such period. In the event that any Interest Payment Date is not a
Business Day, then interest will be payable on the next succeeding day which 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 such date. 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 is registered at the close of business on the
Regular Record Date for such interest installment, which shall be the 15th day
(whether or not a Business Day) of the last month of each quarter, provided that
if all of the Series A Debentures (as defined below) are then held by PSE&G
Capital Trust I (the "Trust") or the Series A Debentures are held in
book-entry-only form, the Regular Record Date shall be the close of business on
the Business Day next preceding such Interest Payment Date. Any such interest
installment not punctually paid or duly provided for shall forthwith cease to be
payable to the Holder on such Regular Record Date, and may be paid to the Person
in whose name this Debenture is registered at the close of business on a Special
Record Date to be fixed by the Trustee (as defined below) for the payment of
such defaulted interest, notice whereof shall be given to the Holders of the
Series A Debentures not less than 7 days prior to such Special Record Date, as
more fully provided in the Indenture.

A-1

<PAGE>

Payment of the principal of and interest on this Debenture will be
made in such coin or currency of the United States of America as at the time of
payment is legal tender for payment of public and private debts. Payments of
interest on an Interest Payment Date will be made by check mailed to the Holder
hereof at the address shown in the Register or, at the option of the Holder
hereof, to such other place in the United States of America as the Holder hereof
shall designate to the Trustee in writing. At the request of a Holder of at
least $10,000,000 aggregate principal amount of Series A Debentures, interest on
such Debentures will be payable by wire transfer within the continental United
States in immediately available funds to the bank account number specified in
writing by such Holder to the Registrar prior to the Regular Record Date.

The principal amount hereof and any interest due on the Stated
Maturity Date or a Redemption Date (other than an Interest Payment Date) will be
paid only upon surrender of this Debenture at the principal corporate office of
First Union National Bank, Paying Agent, in Newark, New Jersey, or at such other
office or agency of the Paying Agent as the Company shall designate by written
notice to the Holder of this Debenture.

The indebtedness evidenced by this Debenture is, to the extent
provided in the Indenture, subordinate and subject in right of payment to the
prior payment in full of all Senior Indebtedness, and this Debenture is issued
subject to the provisions of the Indenture with respect thereto. The 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 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 attorney-in-fact for
any and all such purposes. The Holder of this Debenture, by his 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, whether now outstanding or hereafter incurred, and waives reliance
by each such holder upon said provisions.

This Debenture is one of a duly authorized series of Debentures of the
Company (herein sometimes referred to as the "Series A Debentures"), specified
in the Indenture, limited in aggregate principal amount to $______ , issued
under and pursuant to an Indenture dated as June 1, 1996 (the "Indenture")
executed and delivered between the Company and First Union National Bank, as
trustee (the "Trustee"). The Series A Debentures are initially being issued to
the Trust, to be held on behalf of the Trust by its property trustee (the
"Property Trustee"). Concurrently with the issuance of the Series A Debentures,
the Trust is issuing its trust securities, representing undivided beneficial
interests in the assets of the Trust and having an aggregate liquidation amount
equal to the principal amount of the Series A Debentures, including the Trust's
____% Cumulative Quarterly Income Preferred Securities, Series A (the "Preferred
Securities"). By the terms of the Indenture, Debentures are issuable in series
which may vary as to amount, date of maturity, rate of interest and in other
respects as in the Indenture provided. Reference is made to the Indenture for a
description of the rights, limitations of rights, obligations, duties and

A-2

<PAGE>

immunities thereunder of the Trustee, the Company and Holders of the Debentures.
Each term used in this Debenture which is defined in the Indenture and not
defined herein shall have the meaning assigned to it in the Indenture.

At the option of the Company, the Series A Debentures are redeemable
prior to maturity (i) at any time on or after __________, 2001, in whole or in
part, and (ii) if a Special Event shall occur and be continuing, in whole (but
not in part), in each case at 100% of the principal amount thereof plus accrued
interest to the Redemption Date. A "Special Event" shall mean either a "Tax
Event" or an "Investment Company Event." "Tax Event" shall mean that the
Company shall have received an opinion of counsel (which may be regular counsel
to the Company or an Affiliate, but not an employee thereof and which must be
acceptable to the Property Trustee of the Trust) experienced in such matters to
the effect that, as a result of 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 affecting taxation, or as a result of any official administrative
pronouncement or judicial decision interpreting or applying such laws or
regulations, which amendment or change is effective or such interpretation or
pronouncement is announced on or after the date of original issuance of
Preferred Securities, there is more than an insubstantial risk that (i) the
Trust is subject to United States Federal income tax with respect to interest
received on the Debentures, (ii) interest payable by the Company to the Trust on
the Series A Debentures will not be deductible for United States Federal income
tax purposes or (iii) the Trust is subject to more than a de minimis amount of
other taxes, duties, assessments or other governmental charges. "Investment
Company Event" shall mean the occurrence of a change in law or regulation or a
change in interpretation or application of law or regulation by any legislative
body, court, governmental agency or regulatory authority (a "Change in 1940 Act
Law") to the effect that the Trust is or will be considered an "investment
company" that is required to be registered under the Investment Company Act of
1940, as amended, which Change in 1940 Act Law becomes effective on or after the
date of original issuance of the Preferred Securities.

At least 30 days but not more than 60 days before the Redemption Date,
the Trustee shall mail or caused to be mailed a notice of redemption by
first-class mail, postage prepaid, to each Holder of Series A Debentures to be
redeemed.

In the event of redemption of this Debenture in part only, a new
Series A Debenture or Debentures 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 with respect to the Series A Debentures
occurs and is continuing, the principal of and interest on the Series A
Debentures may (and, in certain circumstances, shall) 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.

A-3

<PAGE>

The Indenture contains provisions for defeasance at any time of the
entire indebtedness of this Debenture upon compliance by the Company with
certain conditions set forth therein.

Subject to certain exceptions in the Indenture which require the
consent of every Holder, the Company and the Trustee may amend the Indenture or
may waive future compliance by the Company with any provisions of the Indenture,
with the consent of the Holders of at least a majority in aggregate principal
amount of the Debentures of each series affected thereby, provided that if the
Series A Debentures are held by the Trust, no such amendment or waiver that
adversely affects the holders of the Preferred Securities shall be effective
without the prior consent of the holders of at least a majority in aggregate
liquidation amount of the outstanding Preferred Securities. Subject to certain
exceptions in the Indenture, without the consent of any Debentureholder, the
Company and the Trustee may amend the Indenture to cure any ambiguity, defect or
inconsistency, to bind a successor to the obligations of the Indenture, to
provide for uncertificated Debentures in addition to certificated Debentures, to
comply with any requirements of the Debentures and the Securities and Exchange
Commission in connection with the qualification of the Indenture under the TIA,
or to make any change that, in the reasonable judgment of the Company, does not
adversely affect the rights of any Debentureholder. Amendments bind all Holders
and subsequent Holders.

No reference herein to the Indenture and no provision of this
Debenture or 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.

So long as no Event of Default with respect to the Series A Debentures
has occurred and is continuing, the Company shall have the right at any time and
from time to time to extend the interest payment period of the Series A
Debentures for up to 20 consecutive quarters (the "Extension Period"), provided
that no Extension Period shall extend beyond the Stated Maturity Date or
Redemption Date of any Series A Debenture. At the end of the Extension Period,
the Company shall pay all interest then accrued and unpaid (together with
interest thereon at the rate specified for the Series A Debentures, compounded
quarterly, to the extent that payment of such interest is enforceable under
applicable law). During such Extension Period, the Company may not declare or
pay any dividend on, redeem, purchase, acquire or make a liquidation payment
with respect to, any of its capital stock. Prior to the termination of any such
Extension Period, the Company may further extend such Extension Period, provided
that such Extension Period, together with all such previous and further
extensions, shall not exceed 20 consecutive quarters and shall not extend beyond
the Stated Maturity Date or Redemption Date of any Series A Debenture. At the
termination of any such Extension Period and upon the payment of all amounts
then due, the Company may elect to begin a new Extension Period, subject to the
foregoing restrictions.

A-4

<PAGE>

Series A Debentures 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 therein set forth, this
Debenture is exchangeable for a like aggregate principal amount of Series A
Debentures of a different authorized denomination, as requested by the Holder
surrendering the same.

As provided in the Indenture and subject to certain limitations
therein set forth, this Debenture is transferable by the Holder hereof upon
surrender of this Debenture for registration of transfer at the office or agency
of the Registrar accompanied by a written instrument or instruments of transfer
inform satisfactory to the Registrar duly executed by the Holder hereof or his
attorney duly authorized in writing, and thereupon one or more new Series A
Debentures of authorized denominations and for the same aggregate principal
amount will be issued to the designated transferee or transferees. No service
charge will be made for any such transfer, but the Company may require payment
of a sum sufficient to cover any tax or other governmental charge payable in
relation thereto.

Prior to presentment for registration of transfer of this Debenture,
the Company, the Trustee, any Paying Agent and any Registrar may deem and treat
the 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 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 neither the Company nor the Trustee nor any Paying Agent nor any
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.

This Debenture shall not be valid until an authorized signatory of the
Trustee manually signs and dates the Trustee's Certificate of Authentication
below.

A-5

<PAGE>

IN WITNESS WHEREOF, the Company has caused this Debenture to be signed
manually or by facsimile by its duly authorized officers and a facsimile of its
corporate seal to be affixed hereto or imprinted hereon.

PUBLIC SERVICE ELECTRIC AND
GAS COMPANY

By
-------------------------------------------

[SEAL] Name:
Title:

Attest:

_______________________
(Assistant) Secretary

A-6

<PAGE>

TRUSTEE'S CERTIFICATE OF AUTHENTICATION

This is one of the Debentures, of the series
designated, referred to in the within-mentioned Indenture.

FIRST UNION NATIONAL BANK, as Trustee

By: ____________________________
Authorized Signatory

Dated: __________________________

A-7

<PAGE>

ASSIGNMENT FORM

To assign this Debenture, fill in the form below: (I) or (we) assign
and transfer this Debenture to:

- --------------------------------------------------------------------------------
(Insert assignee's social security or tax I.D. number)

- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)

and irrevocably appoint ____________________ agent to transfer this Debenture on
the books of the Register. The agent may substitute another to act for him.

Dated: _______________ Signature:
---------------------------------------
(Sign exactly as your name appears on the other
side of this Debenture)

Signature Guaranty: ____________________

A-8

Exhibit 4-5

============================================================================

Guarantee Agreement

between

PUBLIC SERVICE ELECTRIC AND GAS COMPANY
(as Guarantor)

and

FIRST UNION NATIONAL BANK
(as Guarantee Trustee)

Dated as of

June __, 1996

============================================================================

<PAGE>

TABLE OF CONTENTS

Page
----

ARTICLE I

DEFINITIONS
SECTION 1.01. Definitions . . . . . . . . . . . . . . . . . . . . . . 1

ARTICLE II

TRUST INDENTURE ACT

TION 2.01. Trust Indenture Act; Application. . . . . . . . . . . . 4
SECTION 2.02. List of Holders. . . . . . . . . . . . . . . . . . . . . 4
SECTION 2.03. Reports by the Guarantee Trustee. . . . . . . . . . . . 4
SECTION 2.04. Periodic Reports to Guarantee Trustee. . . . . . . . . . 4
SECTION 2.05. Evidence of Compliance with Conditions Precedent. . . . 5
SECTION 2.06. Events of Default; Waiver. . . . . . . . . . . . . . . . 5
SECTION 2.07. Event of Default; Notice. . . . . . . . . . . . . . . . 5

ARTICLE III

POWERS, DUTIES AND RIGHTS OF THE
GUARANTEE TRUSTEE
SECTION 3.01. Powers and Duties of the Guarantee Trustee. . . . . . . 6

SECTION 3.02. Certain Rights of Guarantee Trustee. . . . . . . . . . . 8

SECTION 3.03. Indemnity. . . . . . . . . . . . . . . . . . . . . . . . 9

ARTICLE IV

GUARANTEE TRUSTEE

SECTION 4.01. Guarantee Trustee; Eligibility. . . . . . . . . . . . . 10
SECTION 4.02. Appointment, Removal and Resignation of the Guarantee
Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

ARTICLE V

GUARANTEE
SECTION 5.01. Guarantee. . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 5.02. Waiver of Notice and Demand. . . . . . . . . . . . . . . 11
SECTION 5.03. Obligations Not Affected. . . . . . . . . . . . . . . . 11
SECTION 5.04. Rights of Holders. . . . . . . . . . . . . . . . . . . . 12

(i)

<PAGE>

Page
----

SECTION 5.05. Guarantee of Payment. . . . . . . . . . . . . . . . . . 13
SECTION 5.06. Subrogation. . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 5.07. Independent Obligations. . . . . . . . . . . . . . . . . 13

ARTICLE VI

COVENANTS AND SUBORDINATION
SECTION 6.01. Subordination. . . . . . . . . . . . . . . . . . . . . . 13
SECTION 6.02. Pari Passu Guarantees. . . . . . . . . . . . . . . . . . 13

ARTICLE VII

TERMINATION

SECTION 7.01. Termination. . . . . . . . . . . . . . . . . . . . . . . 14

ARTICLE VIII

MISCELLANEOUS
SECTION 8.01. Successors and Assigns. . . . . . . . . . . . . . . . . 14
SECTION 8.02. Amendments. . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 8.03. Notices. . . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 8.04. Benefit. . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 8.05. Interpretation. . . . . . . . . . . . . . . . . . . . . 15
SECTION 8.06. Governing Law. . . . . . . . . . . . . . . . . . . . . . 16

(ii)

<PAGE>

CROSS-REFERENCE TABLE*

Section of Section of
Trust Indenture Act Guarantee
of 1939, as amended Agreement
- ------------------- ---------------

310(a) . . . . . . . . . . . . . . . . . . 4.01(a)
310(b) . . . . . . . . . . . . . . . . . . 4.01(c), 2.08
310(c) . . . . . . . . . . . . . . . . . . Inapplicable
311(a) . . . . . . . . . . . . . . . . . . 2.02(b)
311(b) . . . . . . . . . . . . . . . . . . 2.02(b)
311(c) . . . . . . . . . . . . . . . . . . Inapplicable
312(a) . . . . . . . . . . . . . . . . . . 2.02(a)
312(b) . . . . . . . . . . . . . . . . . . 2.02(b)

313 . . . . . . . . . . . . . . . . . . 2.03

314(a) . . . . . . . . . . . . . . . . . . 2.04
314(b) . . . . . . . . . . . . . . . . . . Inapplicable
314(c) . . . . . . . . . . . . . . . . . . 2.05
314(d) . . . . . . . . . . . . . . . . . . Inapplicable
314(e) . . . . . . . . . . . . . . . . . .
1.01, 2.05, 3.02

314(f) . . . . . . . . . . . . . . . . . 2.01, 3.02

315(a) . . . . . . . . . . . . . . . . . . 3.01(d)
315(b) . . . . . . . . . . . . . . . . . . 2.07
315(c) . . . . . . . . . . . . . . . . . . 3.01
315(d) . . . . . . . . . . . . . . . . . . 3.01(d)
316(a) . . . . . . . . . . . . . . . . . .
1.01, 2.06, 5.04
316(b) . . . . . . . . . . . . . . . . . . 5.03
316(c) . . . . . . . . . . . . . . . . . . 8.02
317(a) . . . . . . . . . . . . . . . . . . Inapplicable
317(b) . . . . . . . . . . . . . . . . . . Inapplicable
318(a) . . . . . . . . . . . . . . . . . . 2.01(b)
318(b) . . . . . . . . . . . . . . . . . . 2.01
318(c) . . . . . . . . . . . . . . . . . . 2.01(a)

________________________

* This Cross-Reference Table does not constitute part of the Guarantee
Agreement and shall not affect the interpretation of any of its terms
or provisions.

(iii)

<PAGE>

GUARANTEE AGREEMENT

This GUARANTEE AGREEMENT, dated as of June __, 1996, is executed and
delivered by Public Service Electric and Gas Company, a New Jersey
corporation (the "Guarantor"), to First Union National Bank, a national
banking association duly organized and existing under the laws of the
United States of America, as trustee (the "Guarantee Trustee"), for the
benefit of the Holders (as defined herein) from time to time of the
Preferred Securities (as defined herein) of PSE&G Capital Trust I, a
Delaware statutory business trust (the "Issuer").

WHEREAS, pursuant to an Amended and Restated Trust Agreement for PSE&G
Capital Trust I (the "Trust Agreement"), dated as of June __, 1996 among
the Trustees named therein, the Guarantor, as Depositor, and the Holders
from time to time of undivided beneficial interests in the assets of the
Issuer, the Issuer is issuing $________ aggregate liquidation amount of its
___% Cumulative Quarterly Income Preferred Securities, Series A
(liquidation amount of $25 per preferred security) (the "Preferred
Securities") representing undivided beneficial interests in the assets of
the Issuer and having the terms set forth in the Trust Agreement;

WHEREAS, the Preferred Securities will be issued by the Issuer and the
proceeds thereof, together with the proceeds from the sale by the Issuer of
its Common Securities will be used to purchase the Debentures (as defined
in the Trust Agreement) of the Guarantor which will be deposited with First
Union National Bank, as Property Trustee under the Trust Agreement, as
Trust Property (as defined in the Trust Agreement); and

WHEREAS, as incentive for the Holders to purchase Preferred
Securities, the Guarantor desires irrevocably and unconditionally to agree,
to the extent set forth herein, to pay to the Holders of the Preferred
Securities the Guarantee Payments (as defined herein) and to make certain
other payments on the terms and conditions set forth herein.

NOW, THEREFORE, in consideration of the purchase by each Holder of
Preferred Securities, which purchase the Guarantor hereby agrees shall
benefit the Guarantor, the Guarantor executes and delivers this Guarantee
Agreement for the benefit of the Holders from time to time of the Preferred
Securities.

ARTICLE I

DEFINITIONS

SECTION 1.01. Definitions. As used in this Guarantee Agreement, each
of the terms set forth below shall, unless the context otherwise requires,
have the following meaning. Each capitalized or otherwise defined term
used but not otherwise defined herein shall have the

<PAGE>

meaning assigned to such terms in the Trust Agreement as in effect on the
date hereof.

"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.

"Common Securities" means the securities representing undivided
beneficial interests in the assets of the Issuer and having the rights
provided therefor in the Trust Agreement.

"Event of Default" means a default by the Guarantor on any of its
payment or other obligations under this Guarantee Agreement; provided, that
except with respect to a default resulting from a failure to pay any
Guarantee Payment, the Guarantor shall have received notice of default and
shall not have cured such default within 60 days after receipt of such
notice.

"Guarantee Payments" means the following payments or Distributions (as
defined in the Trust Agreement) , without duplication, with respect to the
Preferred Securities, to the extent not paid or made by or on behalf of the
Issuer: (i) any accumulated and unpaid Distributions required to be paid
on the Preferred Securities, to the extent the Issuer shall have funds
available therefor, (ii) the redemption price, including all accumulated
and unpaid Distributions to the date of redemption (the "Redemption
Price"), with respect to the Preferred Securities called for redemption by
the Issuer, to the extent the Issuer shall have funds available therefor,
and (iii) upon a voluntary or involuntary termination, winding-up or
liquidation of the Issuer, unless Debentures are distributed to the
Holders, the lesser of (a) the aggregate of the liquidation amount of $25
per Preferred Security plus accumulated 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").

"Guarantee Trustee" means First Union National Bank, until a Successor
Guarantee Trustee (as defined below) has been appointed and has accepted
such appointment pursuant to the terms of this Guarantee Agreement and
thereafter means each such Successor Guarantee Trustee.

<PAGE>

"Holder" shall not include the Guarantor, the Guarantee Trustee or any
Affiliate of the Guarantor or the Guarantee Trustee.

"Indenture" means the Indenture dated as of June 1, 1996, between
Public Service Electric and Gas Company and First Union National Bank, as
trustee thereunder.

"List of Holders" has the meaning specified in Section 2.02(a).

"Majority in liquidation amount of the Preferred Securities" means,
except as provided by the Trust Indenture Act, a vote by the Holders, of
more than 50% of the aggregate liquidation amount of all then outstanding
Preferred Securities issued by the Issuer.

"Officers' Certificate" means a certificate signed by the Chairman,
the President, any Vice President, the Treasurer, any Assistant Treasurer,
the Secretary or any Assistant Secretary of the Guarantor.

"Responsible Officer" means, with respect to the Guarantee Trustee,
any Vice President, any Assistant Vice President, any Trust Officer or
Assistant Trust Officer or any other officer of the Corporate Trust
Department of the 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.

"Senior Indebtedness" means Senior Indebtedness as defined in the
Indenture.

"Successor Guarantee Trustee" means a successor Guarantee Trustee
possessing the qualifications to act as Guarantee Trustee under Section
4.01.

"Trust Indenture Act" means the Trust Indenture Act of 1939 as in
force at the date as of which this instrument was executed; provided,
--------
however, that in the event the Trust Indenture Act of 1939 is amended after
- -------
such date, "Trust Indenture Act" means, to the extent required by any such
amendment, the Trust Indenture Act of 1939, as so amended.

<PAGE>

ARTICLE II

TRUST INDENTURE ACT

SECTION 2.01. Trust Indenture Act; Application.

(a) This Guarantee Agreement is subject to the provisions of the
Trust Indenture Act that are required to be part of this Guarantee
Agreement and shall, to the extent applicable, be governed by such
provisions.

(b) If and to the extent that any provision of this Guarantee
Agreement limits, qualifies or conflicts with the duties imposed by
Sections 310 to 317, inclusive, of the Trust Indenture Act, such
imposed duties shall control.

SECTION 2.02. List of Holders.

(a) The Guarantor shall furnish or cause to be furnished to the
Guarantee Trustee (a) semiannually, on or before January 15 and July
15 of each year, a list, in such form as the Guarantee Trustee may
reasonably require, of the names and addresses of the Holders ("List
of Holders") as of a date not more than 15 days prior to the delivery
thereof, and (b) at such other times as the Guarantee Trustee may
request in writing, within 30 days after the receipt by the Guarantor
of any such request, a List of Holders as of a date not more than 15
days prior to the time such list is furnished, in each case to the
extent such information is in the possession or control of the
Guarantor and is not identical to a previously supplied List of
Holders or has not otherwise been received by the Guarantee Trustee in
its capacity as such. The Guarantee Trustee may destroy any List of
Holders previously given to it on receipt of a new List of Holders.

(b) The Guarantee Trustee shall comply with its obligations
under Sections 311(a), Section 311(b) and Section 312(b) of the Trust
Indenture Act.

SECTION 2.03. Reports by the Guarantee Trustee. Within 60 days after
May 31 of each year, the Guarantee Trustee shall provide to the Holders
such 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 Guarantee Trustee shall also comply with the
requirements of Section 313(d) of the Trust Indenture Act.

<PAGE>

Act and the compliance certificate required by Section 314 of the Trust
Indenture Act in the form and manner and at the times required by Section
314 of the Trust Indenture Act.

SECTION 2.05. Evidence of Compliance with Conditions Precedent. The
Guarantor shall provide to the Guarantee Trustee such evidence of
compliance with such conditions precedent, if any, provided for in this
Guarantee Agreement that relate to any of the matters set forth in Section
314(c) of the Trust Indenture Act. Each Officers' Certificate and Opinion
of Counsel delivered with respect to compliance with a condition or
covenant provided for in this Guarantee Agreement shall include:

(a) a statement that each officer signing the Officers'
Certificate or Opinion of Counsel has read the covenant or condition
and the definition relating thereto;

(b) a brief statement of the nature and scope of the examination
or investigation undertaken by each officer in rendering the Officers'
Certificate or Opinion of Counsel and upon which the statements
contained therein are based;

(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.

SECTION 2.06. Events of Default; Waiver. The Holders of a Majority
in liquidation amount of the Preferred Securities may, by vote, on behalf
of the Holders, waive any past 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 Guarantee Agreement, but no such waiver shall extend to any
subsequent or other default or Event of Default or impair any right
consequent therefrom.

SECTION 2.07. Event of Default; Notice.

(a) The 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
known to the Guarantee Trustee, unless such defaults have been cured
before the giving of such notice, provided, that, except in the case
of a default in the payment of a Guarantee Payment, the Guarantee
Trustee shall be protected in withholding such notice if and so long
as the Board of Directors, the executive committee or a trust
committee of directors and/or Responsible Officers of the Guarantee
Trustee

<PAGE>

in good faith determines that the withholding of such notice is in the
interests of the Holders.

(b) The Guarantee Trustee shall not be deemed to have knowledge
of any Event of Default unless the Guarantee Trustee shall have
received written notice, or a Responsible Officer charged with the
administration of the Trust Agreement shall have obtained written
notice, of such Event of Default.

ARTICLE III

POWERS, DUTIES AND RIGHTS OF THE
GUARANTEE TRUSTEE

SECTION 3.01. Powers and Duties of the Guarantee Trustee.

(a) This Guarantee Agreement shall be held by the Guarantee
Trustee for the benefit of the Holders, and the Guarantee Trustee
shall not transfer this Guarantee Agreement to any Person except a
Holder exercising his or her rights pursuant to Section 5.04(iv) or to
a Successor Guarantee Trustee on acceptance by such Successor
Guarantee Trustee of its appointment to act as Successor Guarantee
Trustee. The right, title and interest of the Guarantee Trustee shall
automatically vest in any Successor Guarantee Trustee upon acceptance
by such Successor Guarantee Trustee of its appointment hereunder 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 Guarantee Trustee.

(b) If an Event of Default has occurred and is continuing, the
Guarantee Trustee shall enforce this Guarantee Agreement for the
benefit of the Holders.

(c) The Guarantee Trustee, before 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 Guarantee Agreement, and no implied
covenants shall be read into this Guarantee Agreement against the
Guarantee Trustee. In case an Event of Default has occurred and is
continuing (and has not been cured or waived pursuant to Section
2.06), the Guarantee Trustee shall exercise such of the rights and
powers vested in it by this Guarantee Agreement, and use the same
degree of care and skill in its exercise thereof, as a prudent person
would exercise or use in the conduct of his or her own affairs.

<PAGE>

(d) No provision of this Guarantee Agreement shall be construed
to relieve the 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 Guarantee
Trustee shall be determined solely by the express provisions
of this Guarantee Agreement, and the Guarantee Trustee shall
not be liable except for the performance of such duties and
obligations as are specifically set forth in this Guarantee
Agreement; and

(B) in the absence of bad faith on the part of the
Guarantee Trustee, the 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 Guarantee Trustee and conforming
to the requirements of this Guarantee Agreement; but in the
case of any such certificates or opinions that by any
provision hereof or of the Trust Indenture Act are
specifically required to be furnished to the Guarantee
Trustee, the Guarantee Trustee shall be under a duty to
examine the same to determine whether or not they conform to
the requirements of this Guarantee Agreement;

(ii) the Guarantee Trustee shall not be liable for any
error of judgment made in good faith by a Responsible Officer of
the Guarantee Trustee, unless it shall be proved that the
Guarantee Trustee was negligent in ascertaining the pertinent
facts upon which such judgment was made;

(iii) the 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 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 Guarantee Trustee, or
exercising any trust or power conferred upon the Guarantee
Trustee under this Guarantee Agreement; and

(iv) no provision of this Guarantee Agreement shall require
the 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, if the Guarantee Trustee shall have reasonable grounds
for believing that the repayment of such funds or liability is
not reasonably assured

<PAGE>

to it under the terms of this Guarantee Agreement or reasonable
indemnity against such risk or liability is not reasonably
assured to it.

SECTION 3.02. Certain Rights of Guarantee Trustee.

(a) Subject to the provisions of Section 3.01:

(i) The Guarantee Trustee may 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 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 Guarantee Agreement shall be sufficiently evidenced by an
Officers' Certificate unless otherwise prescribed herein.

(iii) Whenever, in the administration of this Guarantee
Agreement, the Guarantee Trustee shall deem it desirable that a
matter be proved or established before taking, suffering or
omitting to take any action hereunder, the Guarantee Trustee
(unless other evidence is herein specifically prescribed) may, in
the absence of bad faith on its part, request and rely upon an
Officers' Certificate which, upon receipt of such request from
the Guarantee Trustee, shall be promptly delivered by the
Guarantor.

(iv) The Guarantee Trustee may consult with legal counsel,
and the written advice or Opinion of Counsel with respect to
legal matters shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted to
be taken by it hereunder in good faith and in accordance with
such advice or opinion. Such legal counsel may be legal counsel
to the Guarantor or any of its Affiliates and may be one of its
employees. The Guarantee Trustee shall have the right at any
time to seek instructions concerning the administration of this
Guarantee Agreement from any court of competent jurisdiction.

<PAGE>

complying with such request or direction; provided that, nothing
contained in this Section 3.02(a)(v) shall be taken to relieve
the Guarantee Trustee, upon the occurrence of an Event of
Default, of its obligation to exercise the rights and powers
vested in it by this Guarantee Agreement.

(vi) The 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
Guarantee Trustee, in its discretion, may make such further
inquiry or investigation into such facts or matters as it may see
fit.

(vii) The Guarantee Trustee may execute any of the trusts
or powers hereunder or perform any duties hereunder either
directly or by or through its agents or attorneys, and the
Guarantee Trustee shall not be responsible for any misconduct or
negligence on the part of any such agent or attorney appointed
with due care by it hereunder.

(viii) Whenever in the administration of this Guarantee
Agreement the Guarantee Trustee shall deem it desirable to
receive instructions with respect to enforcing any remedy or
right or taking any other action hereunder, the Guarantee Trustee
(A) may request instructions from the Holders, (B) may refrain
from enforcing such remedy or right or taking such other action
until such instructions are received, and (C) shall be protected
in acting in accordance with such instructions.

(b) No provision of this Guarantee Agreement shall be deemed to
impose any duty or obligation on the 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 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 Guarantee Trustee shall be
construed to be a duty to act in accordance with such power and
authority.

SECTION 3.03. Indemnity. The Guarantor agrees to indemnify the
Guarantee Trustee for, and to hold it harmless against, any loss, liability
or expense incurred without negligence or willful misconduct on the part of
the Guarantee Trustee, arising out of or in connection with the acceptance
or administration of this Guarantee Agreement, including the costs and
expenses of defending itself against any claim or liability in connection
with the exercise or performance of any of its powers or duties hereunder.
The Guarantee Trustee will

<PAGE>

not claim or exact any lien or charge on any Guarantee Payments as a result
of any amount due to it under this Guarantee Agreement.

ARTICLE IV

GUARANTEE TRUSTEE

SECTION 4.01. Guarantee Trustee; Eligibility.

(a) There shall at all times be a Guarantee Trustee which shall:

(i) not be an Affiliate of the Guarantor; and

(ii) be a Person that is eligible pursuant to the Trust
Indenture Act to act as such and has a combined capital and
surplus of at least fifty million U.S. dollars ($50,000,000), and
shall be a corporation meeting the requirements of Section 310(a)
of the Trust Indenture Act. If such corporation publishes
reports of condition at least annually, pursuant to law or to the
requirements of the supervising or examining authority, then, for
the purposes of this Section and to the extent permitted by the
Trust Indenture Act, 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.

(b) If at any time the Guarantee Trustee shall cease to be
eligible to so act under Section 4.01(a), the Guarantee Trustee shall
immediately resign in the manner and with the effect set out in
Section 4.02(c).

(c) If the Guarantee Trustee has or shall acquire any
"conflicting interest" within the meaning of Section 310(b) of the
Trust Indenture Act, the Guarantee Trustee and Guarantor shall in all
respects comply with the provisions of Section 310(b) of the Trust
Indenture Act. In determining whether the Guarantee Trustee has a
"conflicting interest" within the meaning of Section 310(b)(1) of the
Trust Indenture Act, the provisions contained in the proviso to
Section 310(b)(1) of the Trust Indenture Act and the Guarantee
Trustee's Statement of Eligibility on Form T-1 shall be deemed
incorporated herein.

SECTION 4.02. Appointment, Removal and Resignation of the Guarantee
Trustee.

(a) Subject to Section 4.02(b), the Guarantee Trustee may be
appointed or removed without cause at any time by the Guarantor.

<PAGE>

(b) The Guarantee Trustee shall not be removed until a new,
eligible guarantee trustee has been appointed (a "Successor Guarantee
Trustee") and has accepted such appointment and assumed the applicable
obligations hereunder by written instrument executed by such Successor
Guarantee Trustee and delivered to the Guarantor.

(c) The Guarantee Trustee may resign from office (without need
for prior or subsequent accounting) by an instrument in writing
executed by the Guarantee Trustee and delivered to the Guarantor,
which resignation shall not take effect until a Successor Guarantee
Trustee has been appointed and has accepted such appointment by
instrument in writing executed by such Successor Guarantee Trustee and
delivered to the Guarantor and the resigning Guarantee Trustee.

(d) If no Successor Guarantee Trustee shall have been appointed
and accepted appointment as provided in this Section 4.02 within 60
days after delivery to the Guarantor of an instrument of resignation,
the resigning Guarantee Trustee may petition, at the expense of the
Guarantor, any court of competent jurisdiction for appointment of a
Successor Guarantee Trustee. Such court may thereupon, after
prescribing such notice, if any, as it may deem proper, appoint a
Successor Guarantee Trustee.

ARTICLE V

GUARANTEE

SECTION 5.01. Guarantee. The Guarantor irrevocably and
unconditionally agrees to pay in full to the Holders of the Outstanding
Preferred Securities the Guarantee Payments (without duplication of amounts
theretofore paid by or on behalf of the Issuer pursuant to the Trust
Agreement or by the Guarantor pursuant to the Indenture), as and when due,
regardless of any defense, right of set-off or counterclaim which 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 5.02. Waiver of Notice and Demand. The Guarantor hereby
waives notice of acceptance of the Guarantee Agreement and of any liability
to which it applies or may apply, presentment, demand for payment, any
right to require a proceeding first against the Guarantee Trustee, 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.

<PAGE>

SECTION 5.03. Obligations Not Affected. The obligations, covenants,
agreements and duties of the Guarantor under this Guarantee Agreement 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 (other than an extension of time
for payment of Distributions that results from an Extension Period on
the Debentures as so provided in the Indenture), 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;

(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;

(d) the voluntary or involuntary liquidation, termination, 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 detect or deficiency in, the Preferred
Securities;

(f) the settlement or compromise of any obligation guaranteed
hereby or hereby incurred; or

(g) to the extent permitted by law, 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 5.03 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 the consent of, the Guarantor with respect to the happening of any
of the foregoing.

<PAGE>

behalf of the Holders; (iii) 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 in respect of this Guarantee Agreement or exercise or
direct the exercise of any trust or power conferred upon the Guarantee
Trustee under this Guarantee Agreement; and (iv) if the Guarantee Trustee
has failed to enforce this Guarantee Agreement as above provided, any
Holder may institute a legal proceeding directly against the Guarantor to
enforce its rights under this Guarantee Agreement, without first
instituting a legal proceeding against the Guarantee Trustee, the Issuer or
any other Person.

SECTION 5.05. Guarantee of Payment. This Guarantee Agreement creates
a guarantee of payment and not of collection. This Guarantee Agreement will
not be discharged except by payment of the Guarantee Payments in full
(without duplication of amounts theretofore paid by the Issuer) or upon
distribution of Debentures to Holders as provided in the Trust Agreement.

SECTION 5.06. Subrogation. The Guarantor shall be subrogated to all
(if any) rights of the Holders against the Issuer in respect of any amounts
paid to the Holders by the Guarantor under this Guarantee Agreement and
shall have the right to waive payment by the Issuer pursuant to Section
5.01; provided, however, that the Guarantor shall not (except to the extent
required by mandatory provisions of law) be entitled to enforce or exercise
any rights which it may acquire by way of subrogation or any indemnity,
reimbursement or other agreement, in all cases as a result of payment under
this Guarantee Agreement, if, at the time of any such payment, any amounts
are due and unpaid under this Guarantee Agreement. 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 5.07. 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 Guarantee Agreement notwithstanding
the occurrence of any event referred to in subsections (a) through (g),
inclusive, of Section 5.03 hereof.

ARTICLE VI

COVENANTS AND SUBORDINATION

SECTION 6.01. Subordination. This Guarantee Agreement will
constitute an unsecured obligation of the Guarantor and will rank
subordinate and junior in right of payment to all general liabilities of
the Guarantor.

<PAGE>

SECTION 6.02. Pari Passu Guarantees. This Guarantee Agreement shall
rank pari passu with any similar Guarantee Agreements issued by the
Guarantor on behalf of the holders of Cumulative Quarterly Income Preferred
Securities issued by PSE&G Capital Trust II and PSE&G Capital Trust III and
on behalf of the holders of the 9-3/8% Cumulative Monthly Income Preferred
Securities, Series A and the 8% Cumulative Monthly Income Preferred
Securities, Series B issued by Public Service Electric and Gas Capital,
L.P.

ARTICLE VII

TERMINATION

SECTION 7.01. Termination. This Guarantee Agreement shall terminate
and be of no further force and effect upon (i) full payment by the Issuer
or the Guarantor, as the case may be, of the Redemption Price for all
Preferred Securities, (ii) the distribution of the Debentures to the
Holders in accordance with Article VIII of the Trust Agreement upon
liquidation of the Issuer or (iii) full payment by the Issuer or the
Guarantor, as the case may be, of the amounts payable in accordance with
the Trust Agreement upon liquidation of the Issuer. Notwithstanding the
foregoing, this Guarantee Agreement 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 with respect to Preferred Securities or this
Guarantee Agreement.

ARTICLE VIII

MISCELLANEOUS

SECTION 8.01. Successors and Assigns. All guarantees and agreements
contained in this Guarantee Agreement 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.
The Guarantor may not consolidate with or merge with or into, or sell,
convey, transfer or lease its properties and assets as an entirety or
substantially as an entirety (either in one transaction or a series of
transactions) to, any Person unless permitted under Article Five of the
Indenture. In connection with a consolidation, merger or sale involving
the Guarantor that is permitted under Article Five of the Indenture the
Person formed by or surviving such consolidation or merger or to which such
sale, conveyance, transfer or lease shall have been made, if other than the
Guarantor, shall expressly assume all of the obligations of the Guarantor
hereunder and under the Trust Agreement.

<PAGE>

approval of the Holders of a Majority in liquidation amount of the
Preferred Securities (excluding any Preferred Securities held by the
Guarantor or an affiliate thereof). The provisions of Article VI of the
Trust Agreement concerning meetings of the Holders shall apply to the
giving of such approval.

SECTION 8.03. Notices. Any notice, request or other communication
required or permitted to be given hereunder shall be in writing and
delivered, telecopied or mailed by first class mail, postage prepaid, as
follows:

(a) if given to the Guarantor, to the address set forth below or
such other address as the Guarantor may give notice of to the Holders:

Public Service Electric and Gas Company
80 Park Plaza
P.O. Box 570
Newark, NJ 07101
Facsimile No:
Attention: Treasurer

(b) if given to the Issuer, in care of the Guarantee Trustee, at
the Issuer's (and the Guarantee Trustee's) address set forth below or
such other address as the Guarantee Trustee on behalf of the Issuer
may give notice to the Holders:

PSE&G Capital Trust I
80 Park Plaza
Newark, NJ 07101
Facsimile No:
Attention: Treasurer

with a copy to:

First Union National Bank
765 Broad Street
Newark, NJ 07101
Facsimile No:
Attention: Corporate Trust Department

All notices hereunder 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

<PAGE>

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.

SECTION 8.04. Benefit. This Guarantee Agreement is solely for the
benefit of the Holders and is not separately transferable from the
Preferred Securities.

SECTION 8.05. Interpretation. In this Guarantee Agreement, unless
the context otherwise requires:

(a) all references to "the Guarantee Agreement" or "this
Guarantee Agreement" are to this Guarantee Agreement as modified,
supplemented or amended from time to time;

(b) all references in this Guarantee Agreement to Articles and
Sections are to Articles and Sections of this Guarantee Agreement
unless otherwise specified;

(c) a term defined in the Trust Indenture Act has the same
meaning when used in this Guarantee Agreement unless otherwise defined
in this Guarantee Agreement or unless the context otherwise requires;

(d) a reference to the singular includes the plural and vice
versa; and

(e) the masculine, feminine or neuter genders used herein shall
include the masculine, feminine and neuter genders.

SECTION 8.06. Governing Law. THIS GUARANTEE AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NEW JERSEY AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN
THE STATE OF NEW JERSEY WITHOUT REGARD TO THE CONFLICT OF LAW PRINCIPLES
THEREOF.

This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same instrument.

<PAGE>

THIS GUARANTEE AGREEMENT is executed as of the day and year first
above written.

PUBLIC SERVICE ELECTRIC AND GAS COMPANY, as
Guarantor

By:
------------------------------------------
Name:
Title:

FIRST UNION NATIONAL BANK,
as Guarantee Trustee

By:
------------------------------------------
Name:
Title:

Exhibit 4-6

================================================================================

Guarantee Agreement

between

PUBLIC SERVICE ELECTRIC AND GAS COMPANY
(as Guarantor)

and

FIRST UNION NATIONAL BANK
(as Guarantee Trustee)

Dated as of

__________ __, _____

================================================================================

<PAGE>

TABLE OF CONTENTS

Page
----

ARTICLE I

DEFINITIONS
SECTION 1.01. Definitions . . . . . . . . . . . . . . . . . . . . . . . . 1

ARTICLE II

TRUST INDENTURE ACT
SECTION 2.01. Trust Indenture Act; Application. . . . . . . . . . . . . . 4
SECTION 2.02. List of Holders. . . . . . . . . . . . . . . . . . . . . . . 4
SECTION 2.03. Reports by the Guarantee Trustee. . . . . . . . . . . . . . 4
SECTION 2.04. Periodic Reports to Guarantee Trustee. . . . . . . . . . . . 4
SECTION 2.05. Evidence of Compliance with Conditions Precedent. . . . . . 5
SECTION 2.06. Events of Default; Waiver. . . . . . . . . . . . . . . . . . 5
SECTION 2.07. Event of Default; Notice. . . . . . . . . . . . . . . . . . 5

ARTICLE III

POWERS, DUTIES AND RIGHTS OF THE
GUARANTEE TRUSTEE
SECTION 3.01. Powers and Duties of the Guarantee Trustee. . . . . . . . . 6
SECTION 3.02. Certain Rights of Guarantee Trustee. . . . . . . . . . . . . 8
SECTION 3.03. Indemnity. . . . . . . . . . . . . . . . . . . . . . . . . . 9

ARTICLE IV

GUARANTEE TRUSTEE
SECTION 4.01. Guarantee Trustee; Eligibility. . . . . . . . . . . . . . . 10
SECTION 4.02. Appointment, Removal and Resignation of the Guarantee Trustee.
10

ARTICLE V

(i)

<PAGE>
Page
----

SECTION 5.05. Guarantee of Payment. . . . . . . . . . . . . . . . . . . . 13
SECTION 5.06. Subrogation. . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 5.07. Independent Obligations. . . . . . . . . . . . . . . . . . . 13

ARTICLE VI

COVENANTS AND SUBORDINATION
SECTION 6.01. Subordination. . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 6.02. Pari Passu Guarantees. . . . . . . . . . . . . . . . . . . . 13

ARTICLE VII

TERMINATION
SECTION 7.01. Termination. . . . . . . . . . . . . . . . . . . . . . . . . 14

ARTICLE VIII

MISCELLANEOUS
SECTION 8.01. Successors and Assigns. . . . . . . . . . . . . . . . . . . 14
SECTION 8.02. Amendments. . . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 8.03. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 8.04. Benefit. . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 8.05. Interpretation. . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 8.06. Governing Law. . . . . . . . . . . . . . . . . . . . . . . . 16

(ii)

<PAGE>

CROSS-REFERENCE TABLE*

Section of Section of
Trust Indenture Act Guarantee
of 1939, as amended Agreement
- ------------------- ---------------

310(a) . . . . . . . . . . . . . . . . . . . . . . . 4.01(a)
310(b) . . . . . . . . . . . . . . . . . . . . . . . 4.01(c), 2.08
310(c) . . . . . . . . . . . . . . . . . . . . . . . Inapplicable
311(a) . . . . . . . . . . . . . . . . . . . . . . . 2.02(b)
311(b) . . . . . . . . . . . . . . . . . . . . . . . 2.02(b)
311(c) . . . . . . . . . . . . . . . . . . . . . . . Inapplicable
312(a) . . . . . . . . . . . . . . . . . . . . . . . 2.02(a)
312(b) . . . . . . . . . . . . . . . . . . . . . . . 2.02(b)
313 . . . . . . . . . . . . . . . . . . . . . . . 2.03
314(a) . . . . . . . . . . . . . . . . . . . . . . . 2.04
314(b) . . . . . . . . . . . . . . . . . . . . . . . Inapplicable
314(c) . . . . . . . . . . . . . . . . . . . . . . . 2.05
314(d) . . . . . . . . . . . . . . . . . . . . . . . Inapplicable
314(e) . . . . . . . . . . . . . . . . . . . . . . .
1.01, 2.05, 3.02
314(f) . . . . . . . . . . . . . . . . . . . . . . 2.01, 3.02
315(a) . . . . . . . . . . . . . . . . . . . . . . . 3.01(d)
315(b) . . . . . . . . . . . . . . . . . . . . . . . 2.07
315(c) . . . . . . . . . . . . . . . . . . . . . . . 3.01
315(d) . . . . . . . . . . . . . . . . . . . . . . . 3.01(d)
316(a) . . . . . . . . . . . . . . . . . . . . . . .
1.01, 2.06, 5.04
316(b) . . . . . . . . . . . . . . . . . . . . . . . 5.03
316(c) . . . . . . . . . . . . . . . . . . . . . . . 8.02
317(a) . . . . . . . . . . . . . . . . . . . . . . . Inapplicable
317(b) . . . . . . . . . . . . . . . . . . . . . . . Inapplicable
318(a) . . . . . . . . . . . . . . . . . . . . . . . 2.01(b)
318(b) . . . . . . . . . . . . . . . . . . . . . . . 2.01
318(c) . . . . . . . . . . . . . . . . . . . . . . . 2.01(a)

________________________

* This Cross-Reference Table does not constitute part of the Guarantee
Agreement and shall not affect the interpretation of any of its terms or
provisions.

(iii)

<PAGE>

GUARANTEE AGREEMENT

This GUARANTEE AGREEMENT, dated as of _______ __, ____, is executed and
delivered by Public Service Electric and Gas Company, a New Jersey corporation
(the "Guarantor"), to First Union National Bank, a national banking association
duly organized and existing under the laws of the United States of America, as
trustee (the "Guarantee Trustee"), for the benefit of the Holders (as defined
herein) from time to time of the Preferred Securities (as defined herein) of
PSE&G Capital Trust II, a Delaware statutory business trust (the "Issuer").

WHEREAS, pursuant to an Amended and Restated Trust Agreement for PSE&G
Capital Trust II (the "Trust Agreement"), dated as of _______ __, ____ among the
Trustees named therein, the Guarantor, as Depositor, and the Holders from time
to time of undivided beneficial interests in the assets of the Issuer, the
Issuer is issuing $________ aggregate liquidation amount of its ___% Cumulative
Quarterly Income Preferred Securities, Series B (liquidation amount of $_____
per preferred security) (the "Preferred Securities") representing undivided
beneficial interests in the assets of the Issuer and having the terms set forth
in the Trust Agreement;

WHEREAS, the Preferred Securities will be issued by the Issuer and the
proceeds thereof, together with the proceeds from the sale by the Issuer of its
Common Securities will be used to purchase the Debentures (as defined in the
Trust Agreement) of the Guarantor which will be deposited with First Union
National Bank, as Property Trustee under the Trust Agreement, as Trust Property
(as defined in the Trust Agreement); and

WHEREAS, as incentive for the Holders to purchase Preferred Securities, the
Guarantor desires irrevocably and unconditionally to agree, to the extent set
forth herein, to pay to the Holders of the Preferred Securities the Guarantee
Payments (as defined herein) and to make certain other payments on the terms and
conditions set forth herein.

NOW, THEREFORE, in consideration of the purchase by each Holder of
Preferred Securities, which purchase the Guarantor hereby agrees shall benefit
the Guarantor, the Guarantor executes and delivers this Guarantee Agreement for
the benefit of the Holders from time to time of the Preferred Securities.

ARTICLE I

DEFINITIONS

SECTION 1.01. Definitions. As used in this Guarantee Agreement, each of
the terms set forth below shall, unless the context otherwise requires, has the
following meaning.

<PAGE>

Each capitalized or otherwise defined terms used but not otherwise defined
herein shall have the meaning assigned to such terms in the Trust Agreement as
in effect on the date hereof.

"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.

"Common Securities" means the securities representing undivided beneficial
interests in the assets of the Issuer and having the rights provided therefor in
the Trust Agreement.

"Event of Default" means a default by the Guarantor on any of its payment
or other obligations under this Guarantee Agreement; provided, that except with
respect to a default resulting from a failure to pay any Guarantee Payment, the
Guarantor shall have received notice of default and shall not have cured such
default within 60 days after receipt of such notice.

"Guarantee Payments" means the following payments or Distributions (as
defined in the Trust Agreement) , without duplication, with respect to the
Preferred Securities, to the extent not paid or made by or on behalf of the
Issuer: (i) any accumulated and unpaid Distributions required to be paid on the
Preferred Securities, to the extent the Issuer shall have funds available
therefor, (ii) the redemption price, including all accumulated and unpaid
Distributions to the date of redemption (the "Redemption Price"), with respect
to the Preferred Securities called for redemption by the Issuer, to the extent
the Issuer shall have funds available therefor, and (iii) upon a voluntary or
involuntary termination, winding-up or liquidation of the Issuer, unless
Debentures are distributed to the Holders, the lesser of (a) the aggregate of
the liquidation amount of $_____ per Preferred Security plus accumulated 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").

"Guarantee Trustee" means First Union National Bank, until a Successor
Guarantee Trustee (as defined below) has been appointed and has accepted such
appointment pursuant to the terms of this Guarantee Agreement and thereafter
means each such Successor Guarantee Trustee.

"Holder" means a Person in whose name a Preferred Security is registered in
the Securities Register; 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, the Guarantee Trustee or any Affiliate of the Guarantor or the
Guarantee Trustee.

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"Indenture" means the Indenture dated as of June 1, 1996, between Public
Service Electric and Gas Company and First Union National Bank, as trustee
thereunder.

"List of Holders" has the meaning specified in Section 2.02(a).

"Majority in liquidation amount of the Preferred Securities" means, except
as provided by the Trust Indenture Act, a vote by the Holders, of more than 50%
of the aggregate liquidation amount of all then outstanding Preferred Securities
issued by the Issuer.

"Officers' Certificate" means a certificate signed by the Chairman, the
President, any Vice President, the Treasurer, any Assistant Treasurer, the
Secretary or any Assistant Secretary of the Guarantor.

"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.

"Responsible Officer" means, with respect to the Guarantee Trustee, any
Vice President, any Assistant Vice President, any Trust Officer or Assistant
Trust Officer or any other officer of the Corporate Trust Department of the
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.

"Senior Indebtedness" means Senior Indebtedness as defined in the
Indenture.

"Successor Guarantee Trustee" means a successor Guarantee Trustee
possessing the qualifications to act as Guarantee Trustee under Section 4.01.

"Trust Indenture Act" means the Trust Indenture Act of 1939 as in force at
the date as of which this instrument was executed; provided, however, that in
-------- -------
the event the Trust Indenture Act of 1939 is amended after such date, "Trust
Indenture Act" means, to the extent required by any such amendment, the Trust
Indenture Act of 1939, as so amended.

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ARTICLE II

TRUST INDENTURE ACT

SECTION 2.01. Trust Indenture Act; Application.

SECTION 2.02. List of Holders.

(a) The Guarantor shall furnish or cause to be furnished to the
Guarantee Trustee (a) semiannually, on or before January 15 and July 15 of
each year, a list, in such form as the Guarantee Trustee may reasonably
require, of the names and addresses of the Holders ("List of Holders") as
of a date not more than 15 days prior to the delivery thereof, and (b) at
such other times as the Guarantee Trustee may request in writing, within 30
days after the receipt by the Guarantor of any such request, a List of
Holders as of a date not more than 15 days prior to the time such list is
furnished, in each case to the extent such information is in the possession
or control of the Guarantor and is not identical to a previously supplied
List of Holders or has not otherwise been received by the Guarantee Trustee
in its capacity as such. The Guarantee Trustee may destroy any List of
Holders previously given to it on receipt of a new List of Holders.

(b) The Guarantee Trustee shall comply with its obligations under
Sections 311(a), Section 311(b) and Section 312(b) of the Trust Indenture
Act.

SECTION 2.03. Reports by the Guarantee Trustee. Within 60 days after May
31 of each year, the Guarantee Trustee shall provide to the Holders such 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
Guarantee Trustee shall also comply with the requirements of Section 313(d) of
the Trust Indenture Act.

SECTION 2.04. Periodic Reports to Guarantee Trustee. The Guarantor shall
provide to the Guarantee Trustee, the Securities and Exchange Commission and the
Holders such documents, reports and information, if any, as required by Section
314 of the Trust Indenture Act and the compliance certificate required by
Section 314 of the Trust Indenture Act in the form and manner and at the times
required by Section 314 of the Trust Indenture Act.

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SECTION 2.05. Evidence of Compliance with Conditions Precedent. The
Guarantor shall provide to the Guarantee Trustee such evidence of compliance
with such conditions precedent, if any, provided for in this Guarantee Agreement
that relate to any of the matters set forth in Section 314(c) of the Trust
Indenture Act. Each Officers' Certificate and Opinion of Counsel delivered with
respect to compliance with a condition or covenant provided for in this
Guarantee Agreement shall include:

(a) a statement that each officer signing the Officers' Certificate
or Opinion of Counsel has read the covenant or condition and the definition
relating thereto;

(b) a brief statement of the nature and scope of the examination or
investigation undertaken by each officer in rendering the Officers'
Certificate or Opinion of Counsel and upon which the statements contained
therein are based;

(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.

SECTION 2.06. Events of Default; Waiver. The Holders of a Majority in
liquidation amount of the Preferred Securities may, by vote, on behalf of the
Holders, waive any past 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
Guarantee Agreement, but no such waiver shall extend to any subsequent or other
default or Event of Default or impair any right consequent therefrom.

SECTION 2.07. Event of Default; Notice.

(a) The 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 known to the Guarantee
Trustee, unless such defaults have been cured before the giving of such
notice, provided, that, except in the case of a default in the payment of a
Guarantee Payment, the Guarantee Trustee shall be protected in withholding
such notice if and so long as the Board of Directors, the executive
committee or a trust committee of directors and/or Responsible Officers of
the Guarantee Trustee in good faith determines that the withholding of such
notice is in the interests of the Holders.

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(b) The Guarantee Trustee shall not be deemed to have knowledge of
any Event of Default unless the Guarantee Trustee shall have received
written notice, or a Responsible Officer charged with the administration of
the Trust Agreement shall have obtained written notice, of such Event of
Default.

ARTICLE III

POWERS, DUTIES AND RIGHTS OF THE
GUARANTEE TRUSTEE

SECTION 3.01. Powers and Duties of the Guarantee Trustee.

(a) This Guarantee Agreement shall be held by the Guarantee Trustee
for the benefit of the Holders, and the Guarantee Trustee shall not
transfer this Guarantee Agreement to any Person except a Holder exercising
his or her rights pursuant to Section 5.04(iv) or to a Successor Guarantee
Trustee on acceptance by such Successor Guarantee Trustee of its
appointment to act as Successor Guarantee Trustee. The right, title and
interest of the Guarantee Trustee shall automatically vest in any Successor
Guarantee Trustee upon acceptance by such Successor Guarantee Trustee of
its appointment hereunder 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 Guarantee Trustee.

(b) If an Event of Default has occurred and is continuing, the
Guarantee Trustee shall enforce this Guarantee Agreement for the benefit of
the Holders.

(c) The Guarantee Trustee, before 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 Guarantee Agreement, and no implied covenants shall be
read into this Guarantee Agreement against the Guarantee Trustee. In case
an Event of Default has occurred and is continuing (and has not been cured
or waived pursuant to Section 2.06), the Guarantee Trustee shall exercise
such of the rights and powers vested in it by this Guarantee Agreement, and
use the same degree of care and skill in its exercise thereof, as a prudent
person would exercise or use in the conduct of his or her own affairs.

(d) No provision of this Guarantee Agreement shall be construed to
relieve the Guarantee Trustee from liability for its own negligent action,
its own negligent failure to act or its own willful misconduct, except
that:

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(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 Guarantee Trustee
shall be determined solely by the express provisions of this
Guarantee Agreement, and the Guarantee Trustee shall not be
liable except for the performance of such duties and obligations
as are specifically set forth in this Guarantee Agreement; and

(B) in the absence of bad faith on the part of the
Guarantee Trustee, the 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 Guarantee Trustee and conforming to the
requirements of this Guarantee Agreement; but in the case of any
such certificates or opinions that by any provision hereof or of
the Trust Indenture Act are specifically required to be furnished
to the Guarantee Trustee, the Guarantee Trustee shall be under a
duty to examine the same to determine whether or not they conform
to the requirements of this Guarantee Agreement;

(ii) the Guarantee Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer of the Guarantee
Trustee, unless it shall be proved that the Guarantee Trustee was
negligent in ascertaining the pertinent facts upon which such judgment
was made;

(iii) the 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 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 Guarantee Trustee, or exercising any trust or power conferred
upon the Guarantee Trustee under this Guarantee Agreement; and

(iv) no provision of this Guarantee Agreement shall require the
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, if the Guarantee
Trustee 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 Guarantee Agreement or reasonable indemnity against such
risk or liability is not reasonably assured to it.

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SECTION 3.02. Certain Rights of Guarantee Trustee.

(a) Subject to the provisions of Section 3.01:

(i) The Guarantee Trustee may 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 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
Guarantee Agreement shall be sufficiently evidenced by an Officers'
Certificate unless otherwise prescribed herein.

(iii) Whenever, in the administration of this Guarantee
Agreement, the Guarantee Trustee shall deem it desirable that a matter
be proved or established before taking, suffering or omitting to take
any action hereunder, the Guarantee Trustee (unless other evidence is
herein specifically prescribed) may, in the absence of bad faith on
its part, request and rely upon an Officers' Certificate which, upon
receipt of such request from the Guarantee Trustee, shall be promptly
delivered by the Guarantor.

(iv) The Guarantee Trustee may consult with legal counsel, and
the written advice or Opinion of Counsel with respect to legal matters
shall be full and complete authorization and protection in respect of
any action taken, suffered or omitted to be taken by it hereunder in
good faith and in accordance with such advice or opinion. Such legal
counsel may be legal counsel to the Guarantor or any of its Affiliates
and may be one of its employees. The Guarantee Trustee shall have the
right at any time to seek instructions concerning the administration
of this Guarantee Agreement from any court of competent jurisdiction.

(v) The Guarantee Trustee shall be under no obligation to
exercise any of the rights or powers vested in it by this Guarantee
Agreement at the request or direction of any Holder, unless such
Holder shall have provided to the Guarantee Trustee such reasonable
indemnity as would satisfy a reasonable person in the position of the
Guarantee Trustee, against the costs, expenses (including attorneys'
fees and expenses) and liabilities that might be incurred by it in
complying with such request or direction; provided that, nothing
contained in this Section 3.02(a)(v) shall be taken to relieve the
Guarantee Trustee, upon the occurrence of an Event of Default, of its
obligation to exercise the rights and powers vested in it by this
Guarantee Agreement.

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(vi) The 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 Guarantee Trustee, in
its discretion, may make such further inquiry or investigation into
such facts or matters as it may see fit.

(vii) The Guarantee Trustee may execute any of the trusts or
powers hereunder or perform any duties hereunder either directly or by
or through its agents or attorneys, and the Guarantee Trustee shall
not be responsible for any misconduct or negligence on the part of any
such agent or attorney appointed with due care by it hereunder.

(viii) Whenever in the administration of this Guarantee
Agreement the Guarantee Trustee shall deem it desirable to receive
instructions with respect to enforcing any remedy or right or taking
any other action hereunder, the Guarantee Trustee (A) may request
instructions from the Holders, (B) may refrain from enforcing such
remedy or right or taking such other action until such instructions
are received, and (C) shall be protected in acting in accordance with
such instructions.

(b) No provision of this Guarantee Agreement shall be deemed to
impose any duty or obligation on the 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 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 Guarantee Trustee shall be construed to be a duty to act
in accordance with such power and authority.

SECTION 3.03. Indemnity. The Guarantor agrees to indemnify the Guarantee
Trustee for, and to hold it harmless against, any loss, liability or expense
incurred without negligence or willful misconduct on the part of the Guarantee
Trustee, arising out of or in connection with the acceptance or administration
of this Guarantee Agreement, including the costs and expenses of defending
itself against any claim or liability in connection with the exercise or
performance of any of its powers or duties hereunder. The Guarantee Trustee
will not claim or exact any lien or charge on any Guarantee Payments as a result
of any amount due to it under this Guarantee Agreement.

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ARTICLE IV

GUARANTEE TRUSTEE

SECTION 4.01. Guarantee Trustee; Eligibility.

(a) There shall at all times be a Guarantee Trustee which shall:

(i) not be an Affiliate of the Guarantor; and

(ii) be a Person that is eligible pursuant to the Trust
Indenture Act to act as such and has a combined capital and surplus of
at least fifty million U.S. dollars ($50,000,000), and shall be a
corporation meeting the requirements of Section 310(a) of the Trust
Indenture Act. If such corporation publishes reports of condition at
least annually, pursuant to law or to the requirements of the
supervising or examining authority, then, for the purposes of this
Section and to the extent permitted by the Trust Indenture Act, 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.

(b) If at any time the Guarantee Trustee shall cease to be eligible
to so act under Section 4.01(a), the Guarantee Trustee shall immediately
resign in the manner and with the effect set out in Section 4.02(c).

(c) If the Guarantee Trustee has or shall acquire any "conflicting
interest" within the meaning of Section 310(b) of the Trust Indenture Act,
the Guarantee Trustee and Guarantor shall in all respects comply with the
provisions of Section 310(b) of the Trust Indenture Act. In determining
whether the Guarantee Trustee has a "conflicting interest" within the
meaning of Section 310(b)(1) of the Trust Indenture Act, the provisions
contained in the proviso to Section 310(b)(1) of the Trust Indenture Act
and the Guarantee Trustee's Statement of Eligibility on Form T-1 shall be
deemed incorporated herein.

SECTION 4.02. Appointment, Removal and Resignation of the Guarantee
Trustee.

(a) Subject to Section 4.02(b), the Guarantee Trustee may be
appointed or removed without cause at any time by the Guarantor.

(b) The Guarantee Trustee shall not be removed until new, eligible
guarantee trustee has been appointed (a "Successor Guarantee Trustee") and
has accepted such appointment and assumed the applicable obligations
hereunder by written instrument executed by such Successor Guarantee
Trustee and delivered to the Guarantor.

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(c) The Guarantee Trustee may resign from office (without need for
prior or subsequent accounting) by an instrument in writing executed by the
Guarantee Trustee and delivered to the Guarantor, which resignation shall
not take effect until a Successor Guarantee Trustee has been appointed and
has accepted such appointment by instrument in writing executed by such
Successor Guarantee Trustee and delivered to the Guarantor and the
resigning Guarantee Trustee.

(d) If no Successor Guarantee Trustee shall have been appointed and
accepted appointment as provided in this Section 4.02 within 60 days after
delivery to the Guarantor of an instrument of resignation, the resigning
Guarantee Trustee may petition, at the expense of the Guarantor, any court
of competent jurisdiction for appointment of a Successor Guarantee Trustee.
Such court may thereupon, after prescribing such notice, if any, as it may
deem proper, appoint a Successor Guarantee Trustee.

ARTICLE V

GUARANTEE

SECTION 5.01. Guarantee. The Guarantor irrevocably and unconditionally
agrees to pay in full to the Holders of the Outstanding Preferred Securities the
Guarantee Payments (without duplication of amounts theretofore paid by or on
behalf of the Issuer pursuant to the Trust Agreement or by the Guarantor
pursuant to the Indenture), as and when due, regardless of any defense, right of
set-off or counterclaim which 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 5.02. Waiver of Notice and Demand. The Guarantor hereby waives
notice of acceptance of the Guarantee Agreement and of any liability to which it
applies or may apply, presentment, demand for payment, any right to require a
proceeding first against the Guarantee Trustee, 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 5.03. Obligations Not Affected. The obligations, covenants,
agreements and duties of the Guarantor under this Guarantee Agreement 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,

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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 (other than an extension of time for payment
of Distributions that results from an Extension Period on the Debentures as
so provided in the Indenture), 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;

(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;

(d) the voluntary or involuntary liquidation, termination, 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 detect or deficiency in, the Preferred
Securities;

(f) the settlement or compromise of any obligation guaranteed hereby
or hereby incurred; or

(g) to the extent permitted by law, 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 5.03 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
the consent of, the Guarantor with respect to the happening of any of the
foregoing.

SECTION 5.04. Rights of Holders. The Guarantor expressly acknowledges
that: (i) this Guarantee Agreement will be deposited with the Guarantee Trustee
to be held for the benefit of the Holders; (ii) the Guarantee Trustee has the
right to enforce this Guarantee Agreement on behalf of the Holders; (iii) 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 in respect of this Guarantee Agreement
or exercise or direct the exercise of any trust or power conferred upon the
Guarantee Trustee under this Guarantee Agreement; and (iv) if the Guarantee
Trustee has failed to enforce this Guarantee Agreement as above provided, any
Holder may institute a legal proceeding directly against the

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Guarantor to enforce its rights under this Guarantee Agreement, without first
instituting a legal proceeding against the Guarantee Trustee, the Issuer or any
other Person.

SECTION 5.05. Guarantee of Payment. This Guarantee Agreement creates a
guarantee of payment and not of collection. This Guarantee Agreement will not be
discharged except by payment of the Guarantee Payments in full (without
duplication of amounts theretofore paid by the Issuer) or upon distribution of
Debentures to Holders as provided in the Trust Agreement.

SECTION 5.06. Subrogation. The Guarantor shall be subrogated to all (if
any) rights of the Holders against the Issuer in respect of any amounts paid to
the Holders by the Guarantor under this Guarantee Agreement and shall have the
right to waive payment by the Issuer pursuant to Section 5.01; provided,
however, that the Guarantor shall not (except to the extent required by
mandatory provisions of law) be entitled to enforce or exercise any rights which
it may acquire by way of subrogation or any indemnity, reimbursement or other
agreement, in all cases as a result of payment under this Guarantee Agreement,
if, at the time of any such payment, any amounts are due and unpaid under this
Guarantee Agreement. 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 5.07. 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 Guarantee Agreement notwithstanding the occurrence of any event
referred to in subsections (a) through (g), inclusive, of Section 5.03 hereof.

ARTICLE VI

COVENANTS AND SUBORDINATION

SECTION 6.01. Subordination. This Guarantee Agreement will constitute an
unsecured obligation of the Guarantor and will rank subordinate and junior in
right of payment to all general liabilities of the Guarantor.

SECTION 6.02. Pari Passu Guarantees. This Guarantee Agreement shall rank
pari passu with any similar Guarantee Agreements issued by the Guarantor on
behalf of the holders of Cumulative Quarterly Income Preferred Securities issued
by PSE&G Capital Trust I and PSE&G Capital Trust III and on behalf of the
holders of the 9-3/8% Cumulative Monthly Income Preferred Securities, Series A
and the 8% Cumulative Monthly Income Preferred Securities, Series B issued by
Public Service Electric and Gas Capital, L.P.

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ARTICLE VII

TERMINATION

SECTION 7.01. Termination. This Guarantee Agreement shall terminate and
be of no further force and effect upon (i) full payment by the Issuer or the
Guarantor, as the case may be, of the Redemption Price for all Preferred
Securities, (ii) the distribution of the Debentures to the Holders in accordance
with Article VIII of the Trust Agreement upon liquidation of the Issuer or (iii)
full payment by the Issuer or the Guarantor, as the case may be, of the amounts
payable in accordance with the Trust Agreement upon liquidation of the Issuer.
Notwithstanding the foregoing, this Guarantee Agreement 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 with respect to Preferred Securities or
this Guarantee Agreement.

ARTICLE VIII

MISCELLANEOUS

SECTION 8.01. Successors and Assigns. All guarantees and agreements
contained in this Guarantee Agreement 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. The
Guarantor may not consolidate with or merge with or into, or sell, convey,
transfer or lease its properties and assets as an entirety or substantially as
an entirety (either in one transaction or a series of transactions) to, any
Person unless permitted under Article Five of the Indenture. In connection with
a consolidation, merger or sale involving the Guarantor that is permitted under
Article Five of the Indenture the Person formed by or surviving such
consolidation or merger or to which such sale, conveyance, transfer or lease
shall have been made, if other than the Guarantor, shall expressly assume all of
the obligations of the Guarantor hereunder and under the Trust Agreement.

SECTION 8.02. Amendments. Except with respect to any changes which do not
adversely affect the rights of the Holders in any material respect (in which
case no consent of the Holders will be required), this Guarantee Agreement may
only be amended with the prior approval of the Holders of a Majority in
liquidation amount of the Preferred Securities (excluding any Preferred
Securities held by the Guarantor or an affiliate thereof). The provisions of
Article VI of the Trust Agreement concerning meetings of the Holders shall apply
to the giving of such approval.

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SECTION 8.03. Notices. Any notice, request or other communication
required or permitted to be given hereunder shall be in writing and delivered,
telecopied or mailed by first class mail, postage prepaid, as follows:

(a) if given to the Guarantor, to the address set forth below or such
other address as the Guarantor may give notice of to the Holders:

Public Service Electric and Gas Company
80 Park Plaza
P.O. Box 570
Newark, NJ 07101
Facsimile No:
Attention: Treasurer

(b) if given to the Issuer, in care of the Guarantee Trustee, at the
Issuer's (and the Guarantee Trustee's) address set forth below or such
other address as the Guarantee Trustee on behalf of the Issuer may give
notice to the Holders:

PSE&G Capital Trust II
80 Park Plaza
Newark, NJ 07101
Facsimile No:
Attention: Treasurer

with a copy to:

First Union National Bank
765 Broad Street
Newark, NJ 07101
Facsimile No:
Attention: Corporate Trust Department

All notices hereunder 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.

SECTION 8.04. Benefit. This Guarantee Agreement is solely for the benefit
of the Holders and is not separately transferable from the Preferred Securities.

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SECTION 8.05. Interpretation. In this Guarantee Agreement, unless the
context otherwise requires:

(a) all references to "the Guarantee Agreement" or "this Guarantee
Agreement" are to this Guarantee Agreement as modified, supplemented or
amended from time to time;

(b) all references in this Guarantee Agreement to Articles and
Sections are to Articles and Sections of this Guarantee Agreement unless
otherwise specified;

(c) a term defined in the Trust Indenture Act has the same meaning
when used in this Guarantee Agreement unless otherwise defined in this
Guarantee Agreement or unless the context otherwise requires;

(d) a reference to the singular includes the plural and vice versa;
and

(e) the masculine, feminine or neuter genders used herein shall
include the masculine, feminine and neuter genders.

SECTION 8.06. Governing Law. THIS GUARANTEE AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
JERSEY AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW JERSEY
WITHOUT REGARD TO THE CONFLICT OF LAW PRINCIPLES THEREOF.

This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.

16
<PAGE>

THIS GUARANTEE AGREEMENT is executed as of the day and year first above
written.

PUBLIC SERVICE ELECTRIC AND GAS COMPANY,
as Guarantor

By:
-------------------------------------
Name:
Title:

FIRST UNION NATIONAL BANK,
as Guarantee Trustee

By:
-------------------------------------
Name:
Title:

Exhibit 4-7

===============================================================================

Guarantee Agreement

between

PUBLIC SERVICE ELECTRIC AND GAS COMPANY
(as Guarantor)

and

FIRST UNION NATIONAL BANK
(as Guarantee Trustee)

Dated as of

__________ __, _____

================================================================================

<PAGE>

TABLE OF CONTENTS

Page
----

ARTICLE I

DEFINITIONS
SECTION 1.01. Definitions . . . . . . . . . . . . . . . . . . . . . . . . 1

ARTICLE II

ARTICLE III

ARTICLE IV

GUARANTEE TRUSTEE
SECTION 4.01. Guarantee Trustee; Eligibility. . . . . . . . . . . . . . . 10
SECTION 4.02. Appointment, Removal and Resignation of the Guarantee Trustee.
10

ARTICLE V

GUARANTEE
SECTION 5.01. Guarantee. . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 5.02. Waiver of Notice and Demand. . . . . . . . . . . . . . . . . 11
SECTION 5.03. Obligations Not Affected. . . . . . . . . . . . . . . . . . 11
SECTION 5.04. Rights of Holders. . . . . . . . . . . . . . . . . . . . . . 12
SECTION 5.05. Guarantee of Payment. . . . . . . . . . . . . . . . . . . . 13
SECTION 5.06. Subrogation. . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 5.07. Independent Obligations. . . . . . . . . . . . . . . . . . . 13

(i)

<PAGE>
Page
----

ARTICLE VI

COVENANTS AND SUBORDINATION
SECTION 6.01. Subordination. . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 6.02. Pari Passu Guarantees. . . . . . . . . . . . . . . . . . . . 13

ARTICLE VII

TERMINATION
SECTION 7.01. Termination. . . . . . . . . . . . . . . . . . . . . . . . . 14

ARTICLE VIII

(ii)

<PAGE>

CROSS-REFERENCE TABLE*

Section of Section of
Trust Indenture Act Guarantee
of 1939, as amended Agreement
- ------------------- ---------------

________________________

* This Cross-Reference Table does not constitute part of the Guarantee
Agreement and shall not affect the interpretation of any of its terms or
provisions.

(iii)

<PAGE>

GUARANTEE AGREEMENT

This GUARANTEE AGREEMENT, dated as of _______ __, ____, is executed and
delivered by Public Service Electric and Gas Company, a New Jersey corporation
(the "Guarantor"), to First Union National Bank, a national banking association
duly organized and existing under the laws of the United States of America, as
trustee (the "Guarantee Trustee"), for the benefit of the Holders (as defined
herein) from time to time of the Preferred Securities (as defined herein) of
PSE&G Capital Trust III, a Delaware statutory business trust (the "Issuer").

WHEREAS, pursuant to an Amended and Restated Trust Agreement for PSE&G
Capital Trust III (the "Trust Agreement"), dated as of _______ __, ____ among
the Trustees named therein, the Guarantor, as Depositor, and the Holders from
time to time of undivided beneficial interests in the assets of the Issuer, the
Issuer is issuing $________ aggregate liquidation amount of its ___% Cumulative
Quarterly Income Preferred Securities, Series C (liquidation amount of $_____
per preferred security) (the "Preferred Securities") representing undivided
beneficial interests in the assets of the Issuer and having the terms set forth
in the Trust Agreement;