PREFERRED SECURITIES GUARANTEE AGREEMENT
Potomac Electric Power Company Trust I
Dated as of , 1998
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS AND INTERPRETATIONS
SECTION 1.1 Definitions and Interpretation 1
ARTICLE II
TRUST INDENTURE ACT
SECTION 2.1 Trust Indenture Act; Application 3
SECTION 2.2 Lists of Holders of Securities 3
SECTION 2.3 Reports by the Preferred Guarantee Trustee 4
SECTION 2.4 Periodic Reports to Preferred Guarantee Trustee 4
SECTION 2.5 Evidence of Compliance with Conditions Precedent 4
SECTION 2.6 Events of Default; Waiver 4
SECTION 2.7 Event of Default; Notice 4
SECTION 2.8 Conflicting Interests 5
ARTICLE III
POWERS, DUTIES AND RIGHTS OF PREFERRED GUARANTEE TRUSTEE
SECTION 3.1 Powers and Duties of the Preferred Guarantee Trustee 5
SECTION 3.2 Certain Rights of Preferred Guarantee Trustee 6
SECTION 3.3 Not Responsible for Recitals or Issuance of
Preferred Securities Guarantee 7
ARTICLE IV
PREFERRED GUARANTEE TRUSTEE
SECTION 4.1 Preferred Guarantee Trustee; Eligibility 8
SECTION 4.2 Appointment, Removal and Resignation of Preferred
Guarantee Trustee 8
ARTICLE V
GUARANTEE
SECTION 5.1 Guarantee 9
SECTION 5.2 Waiver of Notice and Demand 9
SECTION 5.3 Obligations Not Affected 9
SECTION 5.4 Enforcement of Guarantee; Rights of Holders 10
SECTION 5.5 Guarantee of Payment 10
SECTION 5.6 Subrogation 10
SECTION 5.7 Independent Obligations 11
ARTICLE VI
LIMITATION OF TRANSACTIONS; SUBORDINATION
SECTION 6.1 Limitation of Transactions 11
SECTION 6.2 Ranking 11
ARTICLE VII
TERMINATION
SECTION 7.1 Termination 12
ARTICLE VIII
INDEMNIFICATION
SECTION 8.1 Exculpation 12
SECTION 8.2 Indemnification 12
ARTICLE IX
MISCELLANEOUS
SECTION 9.1 Successors and Assigns 13
SECTION 9.2 Amendments 13
SECTION 9.3 Notices 13
SECTION 9.4 Benefit 14
SECTION 9.5 Governing Law 14
SECTION 9.6 Genders 14
SECTION 9.7 Counterparts 14
PREFERRED SECURITIES GUARANTEE AGREEMENT
This GUARANTEE AGREEMENT (the "Preferred Securities
Guarantee"), dated as of , 1998, is executed and delivered
by Potomac Electric Power Company, a District of Columbia and
Virginia corporation (the "Guarantor"), and The Bank of New York,
a New York banking corporation, as trustee for the benefit of the
Holders (as defined herein) of Potomac Electric Power Company Trust
I, a Delaware statutory business trust (the "Issuer").
WHEREAS, pursuant to an Amended and Restated Declaration of
Trust (the "Declaration"), dated as of , 1998, among the
trustees of the Issuer named therein, the Guarantor, as sponsor,
and the holders from time to time of undivided beneficial interests
in the assets of the Issuer, the Issuer is issuing on the date
hereof [ ] preferred securities, having an aggregate
liquidation amount of $ , designated the %
Preferred Securities (the "Preferred Securities"); and
WHEREAS, as incentive for the Holders to purchase the
Preferred Securities, the Guarantor desires irrevocably and
unconditionally to agree, to the extent set forth in this Preferred
Securities Guarantee, to pay to the Holders the Guarantee Payments
(as defined herein) and to make certain other payments on the terms
and conditions set forth herein.
WHEREAS, the Guarantor is also executing and delivering a
guarantee agreement (the "Common Securities Guarantee") in
substantially identical terms to this Preferred Securities
Guarantee for the benefit of the holders of the Common Securities
(as defined herein), except that if an Event of Default (as defined
by the Indenture), has occurred and is continuing, the rights of
holders of the Common Securities to receive Guarantee Payments
under the Common Securities Guarantee are subordinated to the
rights of Holders to receive Guarantee Payments under this
Preferred Securities Guarantee.
NOW, THEREFORE, in consideration of the purchase by each
Holder, which purchase the Guarantor hereby agrees shall benefit
the Guarantor, the Guarantor executes and delivers this Preferred
Securities Guarantee for the benefit of the Holders.
ARTICLE I
DEFINITIONS AND INTERPRETATION
SECTION 1.1 Definitions and Interpretation
In this Preferred Securities Guarantee, unless the context
otherwise requires:
(a) Capitalized terms used in this Preferred Securities
Guarantee but not defined in the preamble above have the respective
meanings assigned to them in this Section 1.1;
(b) a term defined anywhere in this Preferred Securities
Guarantee has the same meaning throughout;
(c) all references to "the Preferred Securities Guarantee" or
"this Preferred Securities Guarantee" are to this Preferred
Securities Guarantee as modified, supplemented or amended from time
to time;
(d) all references in this Preferred Securities Guarantee to
Articles and Sections are to Articles and Sections of this
Preferred Securities Guarantee, unless otherwise specified;
(e) a term defined in the Trust Indenture Act has the same
meaning when used in this Preferred Securities Guarantee, unless
otherwise defined in this Preferred Securities Guarantee or unless
the context otherwise requires; and
(f) a reference to the singular includes the plural and vice
versa.
"Affiliate" has the same meaning as given to that term in Rule
405 of the Securities Act of 1933, as amended, or any successor
rule thereunder.
"Authorized Officer" of a Person means any Person that is
authorized to bind such Person.
"Business Day" means any day other than a day on which federal
or state banking institutions in the Borough of Manhattan, The City
of New York, are authorized or obligated by any law, executive
order or regulation to close.
"Common Securities" means the securities representing common
undivided beneficial interests in the assets of the Issuer.
"Corporate Trust Office" means the office of the Preferred
Guarantee Trustee at which the corporate trust business of the
Preferred Guarantee Trustee shall, at any particular time, be
principally administered, which office at the date of execution of
this Agreement is located at ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇
▇▇▇▇▇.
"Covered Person" means any Holder or beneficial owner of
Preferred Securities.
"Debentures" means the % Junior Subordinated Deferrable
Interest Debentures due 2038 issued by the Guarantor to the Issuer.
"Event of Default" means a default by the Guarantor on any of
its payment or other obligations under this Preferred Securities
Guarantee.
"Guarantee Payments" means the following payments or
distributions, without duplication, with respect to the Preferred
Securities, to the extent not paid or made by the Issuer: (i) any
accrued and unpaid Distributions (as defined in the Declaration)
that are required to be paid on such Preferred Securities, to the
extent the Issuer shall have funds available therefor, (ii) the
redemption price, including all accrued and unpaid Distributions to
the date of redemption (the "Redemption Price"), to the extent the
Issuer has funds available therefor, with respect to any Preferred
Securities called for redemption by the Issuer, and (iii) upon a
voluntary or involuntary dissolution, winding-up or termination of
the Issuer (other than in connection with the distribution of
Debentures to the Holders or the redemption of all of the Preferred
Securities as provided in the Declaration), the lesser of (a) the
aggregate of the liquidation amount and all accrued and unpaid
Distributions on the Preferred Securities to the date of payment,
to the extent the Issuer shall have funds available therefor, and
(b) the amount of assets of the Issuer remaining available for
distribution to Holders in liquidation of the Issuer (in either
case, the "Liquidation Distribution"). If an event of default
under the Indenture has occurred and is continuing, the rights of
holders of the Common Securities to receive payments under the
Common Securities Guarantee Agreement are subordinated to the
rights of Holders to receive Guarantee Payments.
"Holder" means any holder, as registered on the books and
records of the Issuer, of any Preferred Securities; provided,
however, that, in determining whether the holders of the requisite
percentage of Preferred Securities have given any request, notice,
consent or waiver hereunder, "Holder" shall not include the
Guarantor or any Affiliate of the Guarantor, but only to the
extent that the Issuer has actual knowledge of such ownership.
"Indemnified Person" means the Preferred Guarantee Trustee,
any Affiliate of the Preferred Guarantee Trustee, or any officers,
directors, shareholders, members, partners, employees,
representatives, nominees, custodians or agents of the Preferred
Guarantee Trustee.
"Indenture" means the Indenture dated as of , 1998,
among the Guarantor (the "Debenture Issuer") and The Bank of New
York, as trustee, and any indenture supplemental thereto pursuant
to which the Debentures are to be issued to the Institutional
Trustee (as defined by the Declaration) of the Issuer.
"Majority in liquidation amount of the Preferred Securities"
means, except as provided by the Trust Indenture Act, a vote by
Holder(s), voting separately as a class, of more than 50% of the
liquidation amount (consisting of the stated amount that would be
paid on redemption, liquidation or otherwise, plus accrued and
unpaid Distributions to the date upon which the voting percentages
are determined) of all outstanding Preferred Securities.
"Officers' Certificate" means, with respect to any Person, a
certificate signed by two Authorized Officers of such Person. Any
Officers' Certificate delivered with respect to compliance with a
condition or covenant provided for in this Preferred Securities
Guarantee shall include:
(a) a statement that each officer signing the Officers'
Certificate has read the covenant or condition and the definition
relating thereto;
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(b) a brief statement of the nature and scope of the
examination or investigation undertaken by each officer in
rendering the Officers' Certificate;
(c) a statement that each such officer has made such
examination or investigation as, in such officer's opinion, is
necessary to enable such officer to express an informed opinion as
to whether or not such covenant or condition has been complied
with; and
(d) a statement as to whether, in the opinion of each such
officer, such condition or covenant has been complied with.
"Preferred Guarantee Trustee" means The Bank of New York, a
New York banking corporation, until a Successor Preferred Guarantee
Trustee has been appointed and has accepted such appointment
pursuant to the terms of this Preferred Securities Guarantee and
thereafter means each such Successor Preferred Guarantee Trustee.
"Person" means a legal person, including any individual,
corporation, estate, partnership, joint venture, association, joint
stock company, limited liability company, trust, unincorporated
association, or government or any agency or political subdivision
thereof, or any other entity of whatever nature.
"Resignation Request" has the meaning set forth in Section
4.2(c).
"Responsible Officer" means, with respect to the Preferred
Guarantee Trustee, any officer within the Corporate Trust Office of
the Preferred Guarantee Trustee, including any vice president, any
assistant vice president, any assistant secretary, any assistant
treasurer or other officer of the Corporate Trust Office of the
Preferred Guarantee Trustee customarily performing functions
similar to those performed by any of the above designated officers
and also means, with respect to a particular corporate trust
matter, any other officer to whom such matter is referred because
of that officer's knowledge of and familiarity with the particular
subject.
"Successor Preferred Guarantee Trustee" means a successor
Preferred Guarantee Trustee possessing the qualifications to act as
Preferred Guarantee Trustee under Section 4.1.
"Trust Indenture Act" means the Trust Indenture Act of 1939,
as amended.
ARTICLE II
TRUST INDENTURE ACT
SECTION 2.1 Trust Indenture Act; Application
(a) This Preferred Securities Guarantee is subject to the
provisions of the Trust Indenture Act that are required to be part
of this Preferred Securities Guarantee and shall, to the extent
applicable, be governed by such provisions.
(b) If and to the extent that any provision of this Preferred
Securities Guarantee limits, qualifies or conflicts with the duties
imposed by Section 310 to 317, inclusive, of the Trust Indenture
Act, such imposed duties shall control.
(c) The application of the Trust Indenture Act to this
Preferred Securities Guarantee shall not affect the nature of the
Preferred Securities as equity securities representing undivided
beneficial interests in the assets of the Issuer.
SECTION 2.2 Lists of Holders of Securities
(a) The Guarantor shall provide the Preferred Guarantee
Trustee (i) on a semi-annual basis, within five Business Days after
a record date, with a list, in such form as the Preferred Guarantee
Trustee may reasonably require, of the names and addresses of the
Holders as of such date,and (ii) at any other time within 30 days
of receipt by the Guarantor of a written request therefor. Such
list of Holders shall be as of a date no more than 15 days before
such list is given to the Preferred Guarantee Trustee. The
Guarantor shall not be obligated to provide such list of Holders if
at any time the list does
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not differ from the most recent list given to the Preferred
Guarantee Trustee by the Guarantor. The Preferred Guarantee
Trustee may destroy any list of Holders previously given to it on
receipt of a new list of Holders.
(b) The Preferred Guarantee Trustee shall comply with its
obligations under Sections 311(a), 311(b) and Section 312 of the
Trust Indenture Act.
SECTION 2.3 Reports by the Preferred Guarantee Trustee
Within 60 days after April 15 of each year, the Preferred
Guarantee Trustee shall provide to the Holders such reports as are
required by Section 313(a) of the Trust Indenture Act, and any
reports required by Section 313(b) of the Trust Indenture Act,
within the timeframes specified therein, in the form and in the
manner provided by Section 313 of the Trust Indenture Act. The
Preferred Guarantee Trustee shall also comply with the requirements
of Section 313(d) of the Trust Indenture Act.
SECTION 2.4 Periodic Reports to Preferred Guarantee Trustee
The Guarantor shall provide to the Preferred Guarantee Trustee
and to the Securities and Exchange Commission such documents,
reports and information as required by Section 314 (if any) and the
compliance certificates required by Section 314 of the Trust
Indenture Act in the form, in the manner and at the times required
by Section 314 of the Trust Indenture Act. Delivery of such
reports, information and documents to the Trustee is for
informational purposes only and the Trustee's receipt of such shall
not constitute constructive notice of any information contained
therein or determinable from information contained therein,
including the Company's compliance with any of its covenants
hereunder (as to which the Trustee is entitled to rely exclusively
on Officers' Certificates).
SECTION 2.5 Evidence of Compliance with Conditions Precedent
The Guarantor shall provide to the Preferred Guarantee Trustee
such evidence of compliance with any conditions precedent, if any,
provided for in this Preferred Securities Guarantee that relate to
any of the matters set forth in Section 314(c) of the Trust
Indenture Act. Any certificate or opinion required to be given by
an officer pursuant to Section 314(c)(1) may be given in the form
of an Officers' Certificate.
SECTION 2.6 Events of Default; Waiver
(a) The Holders of a Majority in liquidation amount of
Preferred Securities may, by vote, on behalf of all of the Holders
waive any Event of Default and its consequences. Upon such waiver,
any such Event of Default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured, for
every purpose of this Preferred Securities Guarantee, but no such
waiver shall extend to any subsequent or other default or Event of
Default or impair any right consequent thereon.
(b) Notwithstanding the provisions of subsection (a) of this
Section 2.6, the right of any Holder of Preferred Securities to
receive payment of the Guarantee Payments in accordance with this
Preferred Securities Guarantee, or to institute suit for the
enforcement of any such payment, shall not be impaired without the
consent of each such Holder.
SECTION 2.7 Event of Default; Notice
(a) The Preferred Guarantee Trustee shall, within 90 days
after the occurrence of an Event of Default, transmit by mail,
first class postage prepaid, to the Holders notices of all Events
of Default actually known to a Responsible Officer of the Preferred
Guarantee Trustee, unless such defaults have been cured before the
giving of such notice; provided, that, the Preferred Guarantee
Trustee shall be protected in withholding such notice if and so
long as a Responsible Officer in good faith determines that the
withholding of such notice is in the interests of the Holders of
the Preferred Securities.
(b) The Preferred Guarantee Trustee shall not be deemed to
have actual knowledge of any Event of Default unless the Preferred
Guarantee Trustee shall have received written notice thereof, or of
which a Responsible Officer charged with the administration of this
Preferred Securities Guarantee shall have obtained actual
knowledge.
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SECTION 2.8 Conflicting Interests
The Declaration shall be deemed to be specifically described
in this Preferred Securities Guarantee for the purposes of clause
(i) of the first proviso contained in Section 310(b) of the Trust
Indenture Act.
ARTICLE III
POWERS, DUTIES AND RIGHTS OF PREFERRED
GUARANTEE TRUSTEE
SECTION 3.1 Powers and Duties of the Preferred Guarantee
Trustee
(a) This Preferred Securities Guarantee shall be held by the
Preferred Guarantee Trustee in trust for the benefit of the
Holders, and the Preferred Guarantee Trustee shall not transfer its
right, title and interest in this Preferred Securities Guarantee to
any Person except a Holder exercising his or her rights pursuant to
Section 5.4(d) or a Successor Preferred Guarantee Trustee on
acceptance by such Successor Preferred Guarantee Trustee of its
appointment to act as Successor Preferred Guarantee Trustee. The
right, title and interest of the Preferred Guarantee Trustee shall
automatically vest in any Successor Preferred Guarantee Trustee,
and such vesting and cessation of title shall be effective whether
or not conveyancing documents have been executed and delivered
pursuant to the appointment of such Successor Preferred Guarantee
Trustee.
(b) If an Event of Default actually known to a Responsible
Officer has occurred and is continuing, the Preferred Guarantee
Trustee shall enforce this Preferred Securities Guarantee for the
benefit of the Holders.
(c) This Preferred Securities Guarantee and all moneys
received by the Preferred Guarantee Trustee hereunder in respect of
the Guarantee Payments will not be subject to any right, charge,
security interest, lien or claim of any kind in favor of, or for
the benefit of, the Preferred Guarantee Trustee or its agents or
their creditors.
(d) The Preferred Guarantee Trustee, prior to the occurrence
of any Event of Default and after the curing of all Events of
Default that may have occurred, shall undertake to perform only
such duties as are specifically set forth in this Preferred
Securities Guarantee, and no implied covenants shall be read into
this Preferred Securities Guarantee against the Preferred Guarantee
Trustee. In case an Event of Default has occurred (that has not
been cured or waived pursuant to Section 2.6) and is actually known
to a Responsible Officer, the Preferred Guarantee Trustee shall
exercise such of the rights and powers vested in it by this
Preferred Securities Guarantee, and use the same degree of care and
skill in its exercise thereof as a prudent person would exercise or
use under the circumstances in the conduct of his own affairs.
(e) No provision of this Preferred Securities Guarantee shall
be construed to relieve the Preferred Guarantee Trustee from
liability for its own negligent action, its own negligent failure
to act, or its own willful misconduct, except that:
(i) prior to the occurrence of any Event of Default and
after the curing or waiving of all such Events of Default that
may have occurred:
(A) the duties and obligations of the Preferred
Guarantee Trustee shall be determined solely by the express
provisions of this Preferred Securities Guarantee, and the
Preferred Guarantee Trustee shall not be liable except for the
performance of such duties and obligations as are specifically
set forth in this Preferred Securities Guarantee, and no
implied covenants or obligations shall be read into this
Preferred Securities Guarantee against the Preferred Guarantee
Trustee; and
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(B) in the absence of bad faith on the part of the
Preferred Guarantee Trustee, the Preferred Guarantee Trustee
may conclusively rely, as to the truth of the statements and
the correctness of the opinions expressed therein, upon any
certificates or opinions furnished to the Preferred Guarantee
Trustee and conforming to the requirements of this Preferred
Securities Guarantee; but in the case of any such certificates
or opinions that by any provision hereof are specifically
required to be furnished to the Preferred Guarantee Trustee,
the Preferred Guarantee Trustee shall be under a duty to
examine the same to determine whether or not they conform to
the requirements of this Preferred Securities Guarantee (but
need not confirm or investigate the accuracy of mathematical
calculations or other facts stated therein);
(ii) the Preferred Guarantee Trustee shall not be liable
for any error of judgment made in good faith by a Responsible
Officer, unless it shall be proved that the Preferred
Guarantee Trustee was negligent in ascertaining the pertinent
facts upon which such judgment was made;
(iii) the Preferred Guarantee Trustee shall not be liable
with respect to any action taken or omitted to be taken by it
in good faith in accordance with the direction of the Holders
of not less than a Majority in liquidation amount of the
Preferred Securities relating to the time, method and place of
conducting any proceeding for any remedy available to the
Preferred Guarantee Trustee, or exercising any trust or power
conferred upon the Preferred Guarantee Trustee under this
Preferred Securities Guarantee; and
(iv) no provision of this Preferred Securities Guarantee
shall require the Preferred Guarantee Trustee to expend or
risk its own funds or otherwise incur personal financial
liability in the performance of any of its duties or in the
exercise of any of its rights or powers.
SECTION 3.2 Certain Rights of Preferred Guarantee Trustee
(a) Subject to the provisions of Section 3.1:
(i) The Preferred Guarantee Trustee may conclusively
rely, and shall be fully protected in acting or refraining
from acting upon, any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction,
consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document believed by it in good
faith to be genuine and to have been signed, sent or presented
by the proper party or parties.
(ii) Any direction or act of the Guarantor contemplated
by this Preferred Securities Guarantee shall be sufficiently
evidenced by an Officers' Certificate.
(iii) Whenever, in the administration of this Preferred
Securities Guarantee, the Preferred Guarantee Trustee shall
deem it desirable that a matter be proved or established
before taking, suffering or omitting any action hereunder, the
Preferred Guarantee Trustee (unless other evidence is herein
specifically prescribed) may, in the absence of bad faith on
its part, request and conclusively rely upon an Officers'
Certificate which, upon receipt of such request, shall be
promptly delivered by the Guarantor.
(iv) The Preferred Guarantee Trustee shall have no duty
to see to any recording, filing or registration of any
instrument (or any rerecording, refiling or registration
thereof).
(v) The Preferred Guarantee Trustee may consult with
counsel of its selection, and the advice or opinion of such
counsel with respect to legal matters shall be full and
complete authorization and protection in respect of any action
taken, suffered or omitted by it hereunder in good faith and
in accordance with such advice or opinion. Such counsel may
be counsel to the Guarantor or any of its Affiliates and may
include any of its employees. The Preferred Guarantee Trustee
shall have the right at any time to seek instructions
concerning the administration of this Preferred Securities
Guarantee from any court of competent jurisdiction.
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(vi) The Preferred Guarantee Trustee shall be under no
obligation to exercise any of the rights or powers vested in
it by this Preferred Securities Guarantee at the request or
direction of any Holder, unless such Holder shall have
provided to the Preferred Guarantee Trustee such security and
indemnity, reasonably satisfactory to the Preferred Guarantee
Trustee, against the costs, expenses (including attorneys'
fees and expenses and the expenses of the Preferred Guarantee
Trustee's agents, nominees or custodians) and liabilities that
might be incurred by it in complying with such request or
direction, including such reasonable advances as may be
requested by the Preferred Guarantee Trustee; provided that,
nothing contained in this Section 3.2(a)(vi) shall relieve the
Preferred Guarantee Trustee, upon the occurrence of an Event
of Default which has not been cured or waived, of its
obligation to exercise the rights and powers vested in it by
this Preferred Securities Guarantee and to use the same degree
of care and skill in this exercise, as a prudent person would
exercise or use under the circumstances in the conduct of his
or her own affairs.
(vii) The Preferred Guarantee Trustee shall not be bound
to make any investigation into the facts or matters stated in
any resolution, certificate, statement, instrument, opinion,
report, notice, request, direction, consent, order, bond,
debenture, note, other evidence of indebtedness or other paper
or document, but the Preferred Guarantee Trustee, in its
discretion, may make such further inquiry or investigation
into such facts or matters as it may see fit.
(viii) The Preferred Guarantee Trustee may execute any of
the trusts or powers hereunder or perform any duties hereunder
either directly or by or through agents, nominees, custodians
or attorneys, and the Preferred Guarantee Trustee shall not be
responsible for any misconduct or negligence on the part of
any agent or attorney appointed with due care by it hereunder.
(ix) Any action taken by the Preferred Guarantee Trustee
or its agents hereunder shall bind the Holders, and the
signature of the Preferred Guarantee Trustee or its agents
alone shall be sufficient and effective to perform any such
action. No third party shall be required to inquire as to the
authority of the Preferred Guarantee Trustee to so act or as
to its compliance with any of the terms and provisions of this
Preferred Securities Guarantee, both of which shall be
conclusively evidenced by the Preferred Guarantee Trustee's or
its agent's taking such action.
(x) Whenever in the administration of this Preferred
Securities Guarantee the Preferred Guarantee Trustee shall
deem it desirable to receive instructions with respect to
enforcing any remedy or right or taking any other action
hereunder, the Preferred Guarantee Trustee (i) may request
instructions from the Holders of a Majority in liquidation
amount of the Preferred Securities, (ii) may refrain from
enforcing such remedy or right or taking such other action
until such instructions are received, and (iii) shall be
protected in conclusively relying on or acting in accordance
with such instructions.
(b) No provision of this Preferred Securities Guarantee shall
be deemed to impose any duty or obligation on the Preferred
Guarantee Trustee to perform any act or acts or exercise any right,
power, duty or obligation conferred or imposed on it in any
jurisdiction in which it shall be illegal, or in which the
Preferred Guarantee Trustee shall be unqualified or incompetent in
accordance with applicable law, to perform any such act or acts or
to exercise any such right, power, duty or obligation. No
permissive power or authority available to the Preferred Guarantee
Trustee shall be construed to be a duty.
SECTION 3.3. Not Responsible for Recitals or Issuance of
Preferred Securities Guarantee
The recitals contained in this Preferred Securities Guarantee
shall be taken as the statements of the Guarantor, and the
Preferred Guarantee Trustee does not assume any responsibility for
their correctness. The Preferred Guarantee Trustee makes no
representation as to the validity or sufficiency of this Preferred
Securities Guarantee.
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ARTICLE IV
PREFERRED GUARANTEE TRUSTEE
SECTION 4.1 Preferred Guarantee Trustee; Eligibility
(a) There shall at all times be a Preferred Guarantee Trustee
which shall:
(i) not be an Affiliate of the Guarantor; and
(ii) be a corporation organized and doing business under
the laws of the United States of America or any state or
territory thereof or of the District of Columbia, or a
corporation or Person permitted by the Securities and Exchange
Commission to act as an institutional trustee under the Trust
Indenture Act, authorized under such laws to exercise
corporate trust powers, having a combined capital and surplus
of at least 50 million U.S. dollars ($50,000,000), and subject
to supervision or examination by federal, state, territorial
or District of Columbia authority. If such corporation or
Person publishes reports of condition at least annually,
pursuant to law or to the requirements of the supervising or
examining authority referred to above, then, for the purposes
of this Section 4.1(a)(ii), the combined capital and surplus
of such corporation or Person shall be deemed to be its
combined capital and surplus as set forth in its most recent
report of condition so published.
(b) If at any time the Preferred Guarantee Trustee shall
cease to be eligible to so act under Section 4.1(a), the Preferred
Guarantee Trustee shall immediately resign in the manner and with
the effect set out in Section 4.2(c).
(c) If the Preferred Guarantee Trustee has or shall acquire
any "conflicting interest" within the meaning of Section 310(b) of
the Trust Indenture Act, the Preferred Guarantee Trustee and
Guarantor shall in all respects comply with the provisions of
Section 310(b) of the Trust Indenture Act.
SECTION 4.2 Appointment, Removal and Resignation of Preferred
Guarantee Trustee
(a) Subject to Section 4.2(b), the Preferred Guarantee
Trustee may be appointed or removed without cause by the Guarantor
at any time while there is no continuing Event of Default.
(b) The Preferred Guarantee Trustee shall not be removed in
accordance with Section 4.2(a) until a Successor Preferred
Guarantee Trustee has been appointed and has accepted such
appointment by written instrument executed by such Successor
Preferred Guarantee Trustee and delivered to the Guarantor and to
the Preferred Guarantee Trustee being removed.
(c) The Preferred Guarantee Trustee appointed to office shall
hold office until a Successor Preferred Guarantee Trustee shall
have been appointed or until its removal or resignation. The
Preferred Guarantee Trustee may resign from office (without need
for prior or subsequent accounting) by an instrument (a
"Resignation Request") in writing executed by the Preferred
Guarantee Trustee and delivered to the Guarantor which resignation
shall take effect upon such delivery or upon such later date as is
specified therein; provided, however, that no such resignation of
the Preferred Guarantee Trustee shall be effective until a
Successor Preferred Guarantee Trustee has been appointed and has
accepted such appointment by instrument in writing executed by such
Successor Preferred Guarantee Trustee and delivered to the
Guarantor and the resigning Preferred Guarantee Trustee.
(d) If no Successor Preferred Guarantee Trustee shall have
been appointed and accepted appointment as provided in this Section
4.2 within 60 days after delivery to the Guarantor of a Resignation
Request, the resigning Preferred Guarantee Trustee may, at the
expense of the Guarantor, petition any court of competent
jurisdiction for appointment of a
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Successor Preferred Guarantee Trustee. Such court may thereupon,
after prescribing such notice, if any, as it may deem proper,
appoint a Successor Preferred Guarantee Trustee.
(e) No Preferred Guarantee Trustee shall be liable for the
acts or omissions to act of any Successor Preferred Guarantee
Trustee.
(f) Upon termination of this Preferred Securities Guarantee
or removal or resignation of the Preferred Guarantee Trustee
pursuant to this Section 4.2, the Guarantor shall pay to the
Preferred Guarantee Trustee all amounts payable to the Preferred
Guarantee Trustee that have accrued to the date of such
termination, removal or resignation.
ARTICLE V
GUARANTEE
SECTION 5.1 Guarantee
The Guarantor irrevocably and unconditionally agrees to pay in
full to the Holders the Guarantee Payments (without duplication of
amounts theretofore paid by the Issuer), as and when due,
regardless of any defense, right of set-off or counterclaim that
the Issuer may have or assert. The Guarantor's obligation to make
a Guarantee Payment may be satisfied by direct payment of the
required amounts by the Guarantor to the Holders or by causing the
Issuer to pay such amounts to the Holders.
SECTION 5.2 Waiver of Notice and Demand
The Guarantor hereby waives notice of acceptance of this
Preferred Securities Guarantee and of any liability to which it
applies or may apply, presentment, demand for payment, any right to
require a proceeding first against the Issuer or any other Person
before proceeding against the Guarantor, protest, notice of
nonpayment, notice of dishonor, notice of redemption and all other
notices and demands.
SECTION 5.3 Obligations Not Affected
The obligations, covenants, agreements and duties of the
Guarantor under this Preferred Securities Guarantee shall in no way
be affected or impaired by reason of the happening from time to
time of any of the following:
(a) the release or waiver, by operation of law or otherwise,
of the performance or observance by the Issuer of any express or
implied agreement, covenant, term or condition relating to the
Preferred Securities to be performed or observed by the Issuer;
(b) the extension of time for the payment by the Issuer of
all or any portion of the Distributions, Redemption Price,
Liquidation Distribution or any other sums payable under the terms
of the Preferred Securities or the extension of time for the
performance of any other obligation under, arising out of, or in
connection with, the Preferred Securities (other than an extension
of time for payment of Distributions, Redemption Price, Liquidation
Distribution or other sum payable that results from the extension
of any interest payment period on the Debentures or any extension
of the maturity date of the Debentures permitted by the Indenture);
(c) any failure, omission, delay or lack of diligence on the
part of the Holders to enforce, assert or exercise any right,
privilege, power or remedy conferred on the Holders pursuant to the
terms of the Preferred Securities, or any action on the part of the
Issuer granting indulgence or extension of any kind;
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(d) the voluntary or involuntary liquidation, dissolution,
sale of any collateral, receivership, insolvency, bankruptcy,
assignment for the benefit of creditors, reorganization,
arrangement, composition or readjustment of debt of, or other
similar proceedings affecting, the Issuer or any of the assets of
the Issuer;
(e) any invalidity of, or defect or deficiency in, the
Preferred Securities;
(f) the settlement or compromise of any obligation guaranteed
hereby or hereby incurred; or
(g) any other circumstance whatsoever that might otherwise
constitute a legal or equitable discharge or defense of a
guarantor, it being the intent of this Section 5.3 that the
obligations of the Guarantor hereunder shall be absolute and
unconditional under any and all circumstances.
There shall be no obligation of the Holders to give notice to,
or obtain consent of, the Guarantor with respect to the happening
of any of the foregoing.
SECTION 5.4 Enforcement of Guarantee; Rights of Holders
The Guarantor and the Preferred Guarantee Trustee expressly
acknowledge that:
(a) this Preferred Securities Guarantee will be deposited
with the Preferred Guarantee Trustee to be held for the benefit of
the Holders;
(b) the Preferred Guarantee Trustee has the right to enforce
this Preferred Securities Guarantee on behalf of the Holders;
(c) the Holders of a Majority in liquidation amount of the
Preferred Securities have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the
Preferred Guarantee Trustee in respect of this Preferred Securities
Guarantee or exercising any trust or power conferred upon the
Preferred Guarantee Trustee under this Preferred Securities
Guarantee; and
(d) any Holder may institute a legal proceeding directly
against the Guarantor to enforce the Preferred Guarantee Trustee's
rights and the obligations of the Guarantor under this Preferred
Securities Guarantee, without first instituting a legal proceeding
against the Issuer, the Preferred Guarantee Trustee or any other
person or entity, and the Guarantor waives any right or remedy to
require that any action be brought first against the Issuer or any
other person or entity before proceeding directly against the
Guarantor.
SECTION 5.5 Guarantee of Payment
This Preferred Securities Guarantee creates a guarantee of
payment and not of collection. This Preferred Securities Guarantee
will not be discharged except by payment of the Guarantee Payments
in full (without duplication of amounts therefor paid by the
Issuer).
SECTION 5.6 Subrogation
The Guarantor shall be subrogated to all (if any) rights of
the Holders against the Issuer in respect of any amounts paid to
such Holders by the Guarantor under this Preferred Securities
Guarantee; provided, however, that the Guarantor shall not (except
to the extent required by mandatory provisions of law) be entitled
to enforce or exercise any right that it may acquire by way of
subrogation or any indemnity, reimbursement or other agreement, in
all cases as a result of payment under this Preferred Securities
Guarantee, if, at the time of any such payment, any amounts are due
and unpaid under this
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Preferred Securities Guarantee. If any amount shall be paid to the
Guarantor in violation of the preceding sentence, the Guarantor
agrees to hold such amount in trust for the Holders and to pay over
such amount to the Holders.
SECTION 5.7 Independent Obligations
The Guarantor acknowledges that its obligations hereunder are
independent of the obligations of the Issuer with respect to the
Preferred Securities, and that the Guarantor shall be liable as
principal and as debtor hereunder to make Guarantee Payments
pursuant to the terms of this Preferred Securities Guarantee
notwithstanding the occurrence of any event referred to in
subsections (a) through (g), inclusive, of Section 5.3 hereof.
ARTICLE VI
LIMITATION OF TRANSACTIONS; SUBORDINATION
SECTION 6.1 Limitation of Transactions
So long as any Preferred Securities remain outstanding, if (a)
there shall have occurred an Event of Default, (b) there shall have
occurred an Event of Default (as defined by the Indenture) or (c)
the Guarantor has exercised its option to defer interest payments
on the Debentures by extending the interest payment period as
provided in Article IV of the First Supplemental Indenture to the
Indenture and such period or extension thereof shall be continuing,
then (i) the Guarantor shall not declare or pay any dividend on,
make any distribution with respect to, or redeem, purchase,
acquire, or make a liquidation payment with respect to, any of its
capital stock (other than (A) purchases or acquisitions of shares
of Guarantor's common stock in connection with the satisfaction by
the Guarantor of its obligations under any employee benefit plans
or any other contractual obligation of the Guarantor (other than a
contractual obligation ranking pari passu with or junior to the
Debentures), or (B) the purchase of fractional interests in shares
of the Guarantor's capital stock pursuant to the conversion or
exchange provisions of such capital stock or the security being
converted or exchanged), (ii) the Guarantor shall not make any
payment of interest, principal or premium, if any, on or repay,
repurchase or redeem any debt securities issued by the Guarantor
that rank pari passu with or junior to the Debentures and (iii) the
Guarantor shall not make any guarantee payments with respect to the
foregoing (other than pursuant to this Preferred Securities
Guarantee).
In addition, so long as any Preferred Securities remain
outstanding, the Guarantor (i) will remain the sole direct or
indirect owner of all of the outstanding Common Securities;
provided that any permitted successor of the Guarantor under the
Indenture may succeed to the Guarantor's ownership of the Common
Securities and (ii) will not take any action which would cause the
Issuer to cease to be treated as a grantor trust for United States
federal income tax purposes except in connection with a
distribution of Debentures as provided in the Declaration.
SECTION 6.2 Ranking
This Preferred Securities Guarantee will constitute an
unsecured obligation of the Guarantor and will rank (i) subordinate
and junior in right of payment to all other liabilities of the
Guarantor, except those made pari passu or subordinate by their
terms, (ii) pari passu with the most senior preferred or preference
stock now or hereafter issued by the Guarantor and with any
guarantee now or hereafter entered into by the Guarantor in respect
of any preferred or preference stock of any Affiliate of the
Guarantor, and (iii) senior to the Guarantor's common stock.
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ARTICLE VII
TERMINATION
SECTION 7.1 Termination
This Preferred Securities Guarantee shall terminate and be of
no further force and effect upon (i) full payment of the Redemption
Price of all Preferred Securities, (ii) upon the distribution of
all of the Debentures to the Holders or (iii) upon full payment of
the amounts payable in accordance with the Declaration upon
liquidation of the Issuer. Notwithstanding the foregoing, this
Preferred Securities Guarantee will continue to be effective or
will be reinstated, as the case may be, if at any time any Holder
must restore payment of any sums paid under the Preferred
Securities or under this Preferred Securities Guarantee.
ARTICLE VIII
INDEMNIFICATION
SECTION 8.1 Exculpation
(a) No Indemnified Person shall be liable, responsible or
accountable in damages or otherwise to the Guarantor or any Covered
Person for any loss, damage or claim incurred by reason of any act
or omission performed or omitted by such Indemnified Person in good
faith in accordance with this Preferred Securities Guarantee and in
a manner that such Indemnified Person reasonably believed to be
within the scope of the authority conferred on such Indemnified
Person by this Preferred Securities Guarantee or by law, except
that an Indemnified Person shall be liable for any such loss,
damage or claim incurred by reason of such Indemnified Person's
negligence or willful misconduct with respect to such acts or
omissions.
(b) An Indemnified Person shall be fully protected in relying
in good faith upon the records of the Guarantor and upon such
information, opinions, reports or statements presented to the
Guarantor by any Person as to matters the Indemnified Person
reasonably believes are within such other Person's professional or
expert competence and who has been selected with reasonable care by
or on behalf of the Guarantor, including information, opinions,
reports or statements as to the value and amount of the assets,
liabilities, profits, losses, or any other facts pertinent to the
existence and amount of assets from which Distributions to Holders
might properly be paid.
SECTION 8.2 Indemnification
To the fullest extent permitted by applicable law, the
Guarantor agrees to indemnify each Indemnified Person for, and to
hold each Indemnified Person harmless against, any loss, liability
or expense incurred by such Indemnified Person by reason of any act
or omission performed or omitted by such Indemnified Person without
negligence or bad faith on its part, arising out of or in
connection with the acceptance or administration of the trust or
trusts hereunder, including the costs and expenses (including
reasonable legal fees and expenses) of defending itself against, or
investigating, any claim or liability in connection with the
exercise or performance of any of its powers or duties hereunder.
The obligation to indemnify as set forth in this Section 8.2 shall
survive the termination of this Preferred Securities Guarantee.
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ARTICLE IX
MISCELLANEOUS
SECTION 9.1 Successors and Assigns
All guarantees and agreements contained in this Preferred
Securities Guarantee shall bind the successors, assigns, receivers,
trustees and representatives of the Guarantor and shall inure to
the benefit of the Holders of the Preferred Securities then
outstanding. Except in connection with any merger or consolidation
of the Guarantor with or into another entity or any sale, transfer
or lease of the Guarantor's assets to another entity, each as
permitted by the Indenture, the Guarantor may not assign its rights
or delegate its obligations under this Preferred Securities
Guarantee without the prior approval of the Holders of at least a
Majority in liquidation amount of the Preferred Securities then
outstanding.
SECTION 9.2 Amendments
Except with respect to any changes that do not adversely
affect the rights of Holders (in which case no consent of Holders
will be required), this Preferred Securities Guarantee may only be
amended with the prior approval of the Holders of at least a
Majority in liquidation amount of the Preferred Securities. The
provisions of Section 12.2 of the Declaration with respect to
meetings of Holders apply to the giving of such approval.
SECTION 9.3 Notices
All notices provided for in this Preferred Securities
Guarantee shall be in writing, duly signed by the party giving such
notice, and shall be delivered, telecopied or mailed by registered
or certified mail, as follows:
(a) If given to the Preferred Guarantee Trustee, at the
Preferred Guarantee Trustee's mailing address set forth below (or
such other address as the Preferred Guarantee Trustee may give
notice of to the Holders):
The Bank of New York
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: Corporate Trust Trustee Administration
(b) If given to the Guarantor, at the Guarantor's mailing
address set forth below (or such other address as the Guarantor may
give notice of to the Holders):
Potomac Electric Power Company
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇.▇.
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: Treasurer
(c) If given to any Holder, at the address set forth on the
books and records of the Issuer.
All such notices shall be deemed to have been given when
received in person, telecopied with receipt confirmed, or mailed by
first class mail, postage prepaid except that if a notice or other
document is refused delivery or cannot be delivered because of a
changed address of which no notice was given, such notice or other
document shall be deemed to have been delivered on the date of such
refusal or inability to deliver.
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SECTION 9.4 Benefit
This Preferred Securities Guarantee is solely for the benefit
of the Holders and is not separately transferable from the
Preferred Securities.
SECTION 9.5 Governing Law
THIS PREFERRED SECURITIES GUARANTEE SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE
OF NEW YORK AND ALL RIGHTS AND REMEDIES SHALL BE GOVERNED BY SUCH
LAWS WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS.
SECTION 9.6 Genders
The masculine, feminine and neuter genders used herein shall
include the masculine, feminine and neuter genders.
SECTION 9.7 Counterparts
This Preferred Securities Guarantee may be executed in
counterparts, each of which shall be an original, but such
counterparts shall together constitute one and the same instrument.
THIS PREFERRED SECURITIES GUARANTEE is executed as of the day
and year first above written.
Potomac Electric Power Company, as Guarantor
By: ________________________________________
Name:
Title:
The Bank of New York,
as Preferred Guarantee Trustee
By: _______________________________________
Name:
Title:
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