-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JY8d7fNj9sD1a9uqE4s5k7eZsRqTVzAD3ViwTNkIk6IA7oHO5bvX3ZLOqFEPxuSz e7vUKpuYZ+AaBQnRY+/kSw== 0000079732-98-000108.txt : 19981027 0000079732-98-000108.hdr.sgml : 19981027 ACCESSION NUMBER: 0000079732-98-000108 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 12 FILED AS OF DATE: 19981026 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: POTOMAC ELECTRIC POWER CO CENTRAL INDEX KEY: 0000079732 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 530127880 STATE OF INCORPORATION: VA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3 SEC ACT: SEC FILE NUMBER: 333-66127 FILM NUMBER: 98730698 BUSINESS ADDRESS: STREET 1: 1900 PENNSYLVANIA AVE NW STREET 2: C/O M T HOWARD RM 841 CITY: WASHINGTON STATE: DC ZIP: 20068 BUSINESS PHONE: 2028722456 S-3 1 FORM S-3 As filed with the Securities and Exchange Commission on October 26, 1998 Registration No. ================================================================= UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ____________________ FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ____________________ POTOMAC ELECTRIC POWER COMPANY (Exact name of registrant as specified in its charter) ____________________ DISTRICT OF COLUMBIA AND VIRGINIA 53-0127880 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) ____________________ 1900 PENNSYLVANIA AVENUE, N.W., WASHINGTON, D.C. 20068 (202) 872-2000 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) ____________________ ELLEN SHERIFF ROGERS, ESQ. Associate General Counsel, Secretary and Assistant Treasurer Potomac Electric Power Company 1900 Pennsylvania Avenue, N.W. Washington, D.C. 20068 (202) 872-3526 (Name, address, including zip code, and telephone number, including area code, of agent for service of process) ____________________ With Copies to: D. Michael Lefever, Esq. Stephen K. Waite, Esq. Covington & Burling Winthrop, Stimson, Putnam & 1201 Pennsylvania Avenue, N.W. Roberts Washington, D.C. 20004 One Battery Park Plaza New York, New York 10004 Approximate date of commencement of proposed sale to the public: From time to time after the effective date of this Registration Statement. 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. [_] ____________________ Calculation of Registration Fee Proposed Maximum Aggregate Title of Each Class of Offering Price(1) Amount of Securities to be Registered Registration Fee - ----------------------------------------------------------------- Senior Notes.............. $270,000,000 $75,060 - ----------------------------------------------------------------- (1) Estimated solely for the purpose of calculating the registration fee. ____________________ The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. PRELIMINARY PROSPECTUS DATED OCTOBER 26, 1998 SUBJECT TO COMPLETION POTOMAC ELECTRIC POWER COMPANY SENIOR NOTES ____________________ Potomac Electric Power Company (the "Company") may offer from time to time up to $270,000,000 in principal amount of Senior Notes (the "Senior Notes"). The Company will offer the Senior Notes in separate series. The aggregate principal amount, rate (or method of calculation) and time of payment of interest, maturity, offering price, any redemption terms and other specific terms of each such series of Senior Notes will be determined at the time of sale and will be described in a Prospectus Supplement that will accompany this Prospectus (the "Prospectus Supplement"). Until the Release Date, payment of principal, premium, if any, and interest on the Senior Notes will be secured by a corresponding series of First Mortgage Bonds issued under the Company's Mortgage and Deed of Trust. The First Mortgage Bonds will have terms that are substantially the same as the Senior Notes, including the same interest rate, interest payment dates and maturity date. The payment of principal, premium, if any, and interest on all First Mortgage Bonds issued under the Mortgage and Deed of Trust is secured by a first lien on substantially all of the Company's assets. The trustee under the indenture for the Senior Notes will hold the First Mortgage Bonds for the benefit of the holders of the secured series of Senior Notes. The Release Date is the date on which all outstanding First Mortgage Bonds, other than First Mortgage Bonds that secure any series of Senior Notes, are repaid. From and after the Release Date, the Senior Notes (and all other series of Senior Notes that are secured by First Mortgage Bonds) will cease to be secured by Senior Note Mortgage Bonds or any other specific assets, and instead will become general unsecured obligations of the Company. See "Description of Senior Notes" "Description of the Indenture" and "Description of Senior Note Mortgage Bonds and Mortgage." The Company may sell the Senior Notes through underwriters that it selects or through dealers or agents. The Company also may sell Senior Notes directly to a limited number of institutional purchasers. See "Plan of Distribution." The Prospectus Supplement will set forth the names of any underwriters, dealers or agents, the amount of any commissions or discounts allowed them for selling the Senior Notes, and the net proceeds the Company receives from the sale of the Senior Notes. ________________________________ NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ____________________ THE DATE OF THIS PROSPECTUS IS ________, 1998 The Information in this Prospectus is not complete and may be changed. The Company may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This Prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS OR ANY PROSPECTUS SUPPLEMENT IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND ANY PROSPECTUS SUPPLEMENT AND, IF GIVEN OR MADE, ANY SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY US. NEITHER THIS PROSPECTUS NOR ANY PROSPECTUS SUPPLEMENT IS AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, BY ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. EXCEPT AS OTHERWISE INDICATED HEREIN, THIS PROSPECTUS AND ANY PROSPECTUS SUPPLEMENT SPEAKS AS OF THE DATE THEREOF AND DOES NOT PURPORT TO REFLECT ANY CHANGES IN OUR AFFAIRS THEREAFTER. ____________________ INCORPORATION OF CERTAIN INFORMATION BY REFERENCE The following documents filed by the Company with the Securities and Exchange Commission (the "SEC") under the Securities Exchange Act of 1934, as amended (the "1934 Act"), are incorporated by reference in this Prospectus: (a) The Company's Annual Report on Form 10-K for the year ended December 31, 1997. (b) The Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998. (c) The Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998. (d) The Company's Current Reports on Form 8-K, dated January 26, 1998, and July 1, 1998. All documents that the Company files with the SEC pursuant to Sections 13(a), 13(c), 14 or 15(d) of the 1934 Act after the date of this Prospectus and prior to the termination of this offering will be deemed to be incorporated by reference in this Prospectus and to be a part hereof from the date of the filing of such documents. Any statement contained in an incorporated document will be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in any other incorporated document subsequently filed or in an accompanying Prospectus Supplement 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. -2- The Company will provide to each person, including any beneficial owner, to whom a copy of this Prospectus has been delivered, a copy of any or all of the information that has been or may be incorporated by reference in this Prospectus but not delivered with the Prospectus (including any exhibits that are specifically incorporate by reference in that information). The Company will provide this information upon written or oral request and at no cost to the requestor. Requests for such information should be directed to Ellen Sheriff Rogers, Associate General Counsel, Secretary and Assistant Treasurer, Potomac Electric Power Company, 1900 Pennsylvania Avenue, N.W., Washington, D.C. 20068 (202-872-3526). The Company is subject to the informational reporting requirements of the 1934 Act, and therefore files Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements and other information with the SEC. Information concerning directors and officers, their remuneration and any material interest of such persons in transactions with the Company, as of particular dates, is disclosed in such documents. The public may read and copy these documents at the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The address of that site is http://www.sec.gov. Information concerning the Company also can be obtained at the Company's website, the address of which is http://www.pepco.com. The Company has filed a registration statement on Form S-3 with the SEC relating to the Senior Notes that are being offered by this Prospectus (which, together with all amendments and exhibits, is referred to herein as the "Registration Statement") under the Securities Act of 1933, as amended (the "1933 Act"). This Prospectus does not contain all of the information set forth in the Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the SEC. For further information, please read the Registration Statement. -3- THE COMPANY Potomac Electric Power Company, a District of Columbia and Virginia corporation (the "Company"), is engaged in the generation, transmission, distribution and sale of electric energy in the Washington, D.C. metropolitan area, including the District of Columbia and major portions of Montgomery and Prince George's Counties in Maryland. It also supplies, at wholesale, electric energy to the Southern Maryland Electric Cooperative, Inc., which distributes electricity in Calvert, Charles, Prince George's and St. Mary's Counties in southern Maryland. The Company's wholly owned nonutility subsidiary, Potomac Capital Investment Corporation ("PCI"), was organized in late 1983 to provide a vehicle to conduct the Company's ongoing nonutility businesses and investment programs. PCI's principal investments consist of equipment leases and marketable securities, primarily preferred stock with mandatory redemption features, and real estate. PCI also is involved with activities which provide telecommunication and energy services. The mailing address of the Company's executive offices is 1900 Pennsylvania Avenue, N.W., Washington, D.C. 20068, and its telephone number is 202-872-2000. USE OF PROCEEDS The Company may offer from time to time pursuant to this Prospectus up to an aggregate principal amount of $270,000,000 of Senior Notes. Except as more fully described in the Supplemental Prospectus, the proceeds from the sale of the Senior Notes will be used for one or more of the following purposes (i) to refund short-term debt incurred primarily to finance, on a temporary basis, the Company's utility construction program and operations or (ii) to refund the Company's senior securities, including the retirement of long-term debt and the satisfaction of contractual sinking fund requirements, as more fully set forth in the Prospectus Supplement. SELECTED FINANCIAL INFORMATION The following is a selection of certain consolidated financial information of the Company which was derived from, and is qualified in its entirety by, the audited consolidated financial statements contained in the Company's Annual Report on Form 10-K for the year ended December 31, 1997, and the unaudited consolidated financial information contained in its Quarterly Report on Form 10-Q for the quarter ended June 30, 1998, which are available as described herein under "Incorporation of Certain Information by Reference." The interim financial data are unaudited; however, in the opinion of the management of the Company, such data reflect all adjustments, consisting of normal recurring accruals, necessary for a fair statement of the results of operations for the interim periods presented. -4-
12 Months Ended ------------------------------------------------------- June 30, Dec. 31, Dec. 31, Dec. 31, 1998 1997 1996 1995 -------- -------- -------- -------- (Thousands of Dollars Except Per Share Data) Income Statement Data: Total Revenue............................... $1,932,387 $1,863,510 $2,010,311 $1,876,102 Operating Revenue........................... 1,845,999 1,810,829 1,834,857 1,822,432 Net Income.................................. 182,224 181,830 236,960 94,391 Earnings for Common Stock................... 159,814 165,251 220,356 77,540 Basic Earnings Per Share of Common Stock.... 1.35 1.39 1.86 .65 Diluted Earnings Per Share of Common Stock.. 1.34 1.38 1.82 .65 Balance Sheet Data at end of period: Property and Plant, net..................... $4,507,943 $4,486,334 $4,423,249 $4,400,311
As of June 30, 1998 ------------------------------- Amount Ratio ----------- ----- (Thousands) Capital Structure (excluding nonutility subsidiary debt and current maturities): Long-Term Debt.................................................... $1,857,893 46.9% Preferred Securities.............................................. 125,000 3.2 Preferred Stock................................................... 150,000 3.8 Common Equity..................................................... 1,826,723 46.1 ---------- ------ Total Capitalization............................................ $3,959,616 100.0% ========== ====== Parent Company Long-Term Debt and Preferred Stock Redemption Due in One Year and Short-Term Debt............................... $ 290,400 ==========
RATIOS OF EARNINGS TO FIXED CHARGES
12 Months Ended ------------------------------------------------------------- June 30, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, 1998 1997 1996 1995 1994 1993 -------- -------- -------- -------- -------- -------- Parent company only..................... 2.57 2.54 3.08 3.05 3.23 3.20 Fully consolidated...................... 2.17 2.03 2.24 1.52 2.37 2.31
For purposes of computing the ratio of earnings to fixed charges for rate-regulated public utilities, earnings represent net income before cumulative effect of accounting changes plus income taxes and fixed charges. Fixed charges represent interest charges on debt (exclusive of credits arising from the allowance for funds used during construction) and the portion of rentals deemed representative of the interest factor. -5- DESCRIPTION OF SENIOR NOTES GENERAL. The Senior Notes will be issued under an Indenture, dated as of __________, 1998, between the Company and The Bank of New York, as trustee (the "Indenture Trustee"), as supplemented by a separate supplemental indenture (a "Senior Note Supplemental Indenture") each time a new series of Senior Notes is issued. The Indenture will be qualified under the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). The terms of the Indenture consist of those set forth in the Indenture and those made part of the Indenture by the Trust Indenture Act. The Indenture, as supplemented by each Senior Note Supplemental Indenture, is referred to herein as the "Indenture." See "Description of Indenture." The Indenture and the form of Senior Note Supplemental Indenture are filed as exhibits to the Registration Statement and are hereby incorporated herein by reference. Reference is made to the accompanying Prospectus Supplement for the following terms and other information with respect to the Senior Notes being offered hereby: (i) the designation and aggregate principal amount of such Senior Notes, (ii) the date on which such Senior Notes will mature, (iii) the rate per annum at which such Senior Notes will bear interest, or the method of determining such rate, (iv) the dates on which such interest will be payable, (v) any redemption terms; (vi) whether such Senior Notes will be issued in certificated or book-entry form, and (vii) other specific terms applicable to such Senior Notes. Until the Release Date (as hereinafter defined), the Senior Notes will be secured by a corresponding series of Mortgage Bonds ("Senior Note Mortgage Bonds") issued under the Mortgage (as hereinafter defined) and delivered to and held by the Indenture Trustee. On the Release Date, all outstanding Senior Notes issued under the Indenture (including the Senior Notes offered hereby) will cease to be secured by a corresponding series Senior Note Mortgage Bonds, and will become unsecured general obligations of the Company and will rank on a parity with all other unsecured indebtedness of the Company. See "Security; Release of Security." The Indenture does not contain any covenants or other provisions that specifically are intended to afford holders of the Senior Notes special protection in the event of a highly leveraged transaction. The following summary of the terms of the Senior Notes does not purport to be complete and is subject in all respects to the provisions of, and is qualified in its entirety by reference to, the Indenture and the Prospectus Supplement. The cited Articles and Sections, unless otherwise indicated, are citations to the Indenture. -6- REGISTRATION OF TRANSFER AND EXCHANGE. The Senior Notes will be fully registered and will be issued in either certificated or book-entry form without coupons (Section 302). Except as otherwise specified in the Prospectus Supplement, the Senior Notes will be issued in denominations of $1,000 or any integral multiple thereof (Section 302). So long as a Senior Note remains outstanding, the Company is required to maintain an office or agency where the Senior Notes may be presented or surrendered for payment or for registration of transfer or exchange and where notices and demands to or upon the Company may be served. The Company has designated the corporate trust office of the Indenture Trustee in New York, New York, as its agent for these purposes (Section 1002). See "Relationships with Indenture Trustee." Senior Notes in certificated form may be exchanged for other Senior Notes of the same series of any authorized denomination and of a like aggregate principal amount and tenor (Section 305(c)). In the event that a series of Senior Notes is to be redeemed in whole or in part, the Indenture Trustee is not required to register the transfer or exchange of the Senior Notes called or to be selected for redemption, except, in the case of a Senior Note to be redeemed in part, for the portion thereof that is not to be redeemed (Section 305(g)). No service charge will be made to holders of Senior Notes for any registration of transfer or exchange of Senior Notes, but the Company may require payment of a sum sufficient to cover any tax or governmental charge incident to the registration of transfer or exchange (Section 305(f)). PAYMENT OF PRINCIPAL AND INTEREST. Payments of principal, premium, if any, and interest at maturity (or on the redemption date, if redeemed prior to maturity) on Senior Notes in certificated form will be made in immediately available funds at the corporate trust office of the Institutional Trustee or at the office of any paying agent designated by the Company (Section 1002). Interest payments other than at maturity will be made in the same manner or, at the option of the Company, by check mailed to the address of the registered holder of a Senior Note. If the date on which any payment of principal, premium or interest is due to be made is not a Business Day in the place of payment, then such payment need not be made on such date and instead may be made, at the election of the Company, on the next succeeding Business Day in the place of payment with the same effect as if made on the scheduled payment date, and no interest shall accrue from the scheduled payment date through such next succeeding Business Day (Section 114). The term "Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday that is not a day in the place of payment on which banking institutions are authorized or obligated by law or executive order to close. -7- BOOK-ENTRY SENIOR NOTES. The Senior Notes of any series may be issued in whole or in part in the form of one or more fully-registered global notes (each, a "Book-Entry Note"), which will be deposited with a depositary (the "Depositary") and registered in the name of the Depositary or its nominee (Section 301). So long as the Depositary or its nominee is the registered owner of a Book-Entry Note, the Depositary or its nominee, as the case may be, will be considered the sole owner of the Senior Notes represented by such Book-Entry Note for all purposes under the Indenture (Section 308). Except as described below, owners of beneficial interests in a Book-Entry Note will not be entitled to have Senior Notes represented by such Book-Entry Note registered in their names, will not receive or be entitled to receive physical delivery of Senior Notes in certificated form, and will not be considered the owners thereof under the Indenture. Principal, premium, if any, and interest payments on Senior Notes issued in book-entry form and represented by one or more Book-Entry Notes will be made by the Company to the Depositary or its nominee as the registered owner of the related Book-Entry Note. Neither the Company nor the Indenture 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 Book-Entry Note, or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. Payments of principal, premium, if any, and interest on the Senior Notes issued in the form of Book-Entry Notes will be made to DTC in immediately available funds. A Book-Entry Note may not be transferred other than to the Depositary or its nominee or to a successor of the Depositary or its nominee, except that, if at any time (i) the Depositary is unwilling or unable to continue as depository or it ceases to be a "clearing agency" registered under the 1934 Act and a successor depository is not appointed by the Company within 90 days, (ii) the Company determines that one or more Book-Entry Notes will be exchangeable for certificated Senior Notes, or (iii) an Event of Default under the Indenture (or any event which with notice or the lapse of time or both would become an Event of Default under the Indenture) has occurred and is continuing with respect to Senior Notes represented by a Book-Entry Note, all affected Book-Entry Notes may be exchanged for Senior Notes in certificated form registered in the names of such persons as the Depositary shall direct (Section 305(h)). If any series of Senior Notes is issued in whole or in part in the form of a Book-Entry Note, the Depository Trust Company ("DTC") will act as the Depositary for such series of Senior Notes and such Senior Notes will be issued in the name of Cede & Co., as DTC's nominee. The following description of DTC and its activities is based on information provided to the Company by DTC. DTC has advised the Company that it is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New -8- 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 1934 Act. DTC holds securities that its participants deposit with DTC. DTC also facilitates the clearance and settlement of securities transactions among its participants in deposited securities through electronic book-entry changes in the accounts of the participants, thereby eliminating the need for physical movement of securities certificates. Participants in DTC include securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations. DTC is owned by a number of its participants and by The New York Stock Exchange, Inc., the American Stock Exchange, Inc., and the National Association of Securities Dealers, Inc. Access to DTC's book-entry system also is available to others, such as securities brokers and dealers, banks and trust companies that clear transactions through, or maintain a custodial relationship with, a participant, either directly or indirectly. The rules of DTC are on file with the SEC. Purchasers of Senior Notes within the DTC system must be made by or through participants, which will receive a credit for the Senior Notes on DTC's records. The ownership interest of each actual purchaser of a Senior Note (a "beneficial owner") will in turn to be recorded on the records of direct and indirect DTC participants. 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 participant or indirect participant through which the beneficial owners purchase Senior Notes. Transfers of ownership interests in the Senior Notes will be accomplished by entries made on the books of participants acting directly or indirectly on behalf of beneficial owners. DTC will credit participants' accounts on the relevant payment date in accordance with their respective holdings shown on DTC's records. Payments by participants and indirect participants to beneficial owners will be governed by standing instructions and customary practices and will be the responsibility of such participants and indirect participants and not of DTC, the Indenture Trustee or the Company, subject to any statutory or regulatory requirements as may be in effect from time to time. DTC has no knowledge of the actual beneficial owners of the Senior Notes in book-entry form. DTC's records reflect only the identity of the participants to whose accounts such Senior Notes are credited, which may or may not be the beneficial owners. The participants and indirect participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to participants, by participants to indirect participants, and by participants and indirect participants to beneficial owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. -9- Redemption notices in respect of the Senior Notes held in book-entry form will be sent to DTC or its nominee. If less than all of the Senior Notes are being redeemed, DTC will determine the pro rata amount of the interest of each participant to be redeemed in accordance with its procedures. The laws of some jurisdictions require that certain purchasers of securities take physical delivery of securities in certificated form. Such laws may impair the ability to transfer beneficial interests in Senior Notes represented by a Book-Entry Note. SECURITY; RELEASE OF SECURITY. Until the Release Date, Senior Notes of each series offered hereby and under the accompanying Prospectus Supplement will be secured by a corresponding series of Senior Note Mortgage Bonds issued under, and secured by the lien of, the Mortgage. See "Description of Senior Note Mortgage Bonds and Mortgage". The "Release Date" is the date on which all Mortgage Bonds issued and outstanding under the Mortgage, other than Senior Note Mortgage Bonds securing any Senior Notes issued under the Indenture, have been retired through payment or redemption (including those Mortgage Bonds "deemed to have been paid" within the meaning of Article XVI of the Mortgage). From and after the Release Date, the Senior Note Mortgage Bonds held by the Indenture Trustee will cease to secure any obligation of the Company under the Indenture or the Senior Notes, including the payment of principal of, and any premium or interest on, the Senior Notes, and the Senior Notes will become unsecured general obligations of the Company (Section 1404). Pledge of Senior Note Mortgage Bonds. Simultaneously with or prior to the issuance of the Senior Notes of each series, the Company will issue, deliver and pledge to the Indenture Trustee, for the benefit of the holders of the Senior Notes of such series, Senior Note Mortgage Bonds registered in the name of the Indenture Trustee (i) in an aggregate principal amount equal to or exceeding the aggregate principal amount of the Senior Notes of such series, (ii) with a stated maturity date not earlier than the stated maturity date of the Senior Notes of such series, (iii) bearing an interest rate equal to the interest rate borne by the Senior Notes of such series, (iv) having interest payment dates that are the same as the interest payment dates of the Senior Notes of such series, (v) with the same redemption provisions, if any, as the Senior Notes of such series (in addition to those described below under "Description of Senior Note Mortgage Bonds and Mortgage -- Mandatory Redemption"), and (vi) in all other material respects conforming as nearly as is practicable to the terms of the Senior Notes of such series (Section 1402). Until the Release Date, the Senior Note Mortgage Bonds delivered to and pledged with the Indenture Trustee will be held in trust by the Indenture Trustee for the equal and proportionate benefit and security of the holders from time to time of the corresponding series of Senior Notes, and shall serve as security for (i) the full and prompt payment of the principal of and premium, if any, on the corresponding series of Senior Notes when and as the same -10- shall become due in accordance with the terms and provisions of the Senior Notes and the Indenture, whether at the stated maturity or by declaration of acceleration, call for redemption or otherwise, and (ii) the full and prompt payment of interest on such Senior Notes when and as the same shall become due in accordance with the terms and provisions of the Senior Notes and the Indenture (Section 1404). Each series of Senior Notes will be secured by only one corresponding series of Senior Note Mortgage Bonds, and each such series of Senior Note Mortgage Bonds will secure only that series of Senior Notes (Section 1402). No series of Senior Notes will be secured by any particular assets, franchises, rights, powers or entitlements of the Company other than the series of Senior Note Mortgage Bonds pledged to the Indenture Trustee with respect to such series of Senior Notes (Section 1405). Payment of Principal, Premium and Interest on Senior Note Mortgage Bonds. The obligation of the Company to make any payment of principal of, or premium, if any, or interest on, any Senior Note Mortgage Bonds securing Senior Notes will be deemed to be satisfied and discharged to the extent that payment of the principal of, or premium, if any, or interest on, the corresponding Senior Notes has been made or otherwise discharged by the Company (Section 1406). Restrictions on Transfer of Senior Note Mortgage Bonds. Except as required to effect an assignment of its rights and obligations under the Indenture to a successor trustee and except for the release of the Senior Note Mortgage Bonds to the Company or the Mortgage Trustee in accordance with the Indenture, the Indenture Trustee may not transfer any Senior Note Mortgage Bonds pledged to it as security for Senior Notes (Section 1408). Redemption of Senior Note Mortgage Bonds. The Senior Note Mortgage Bonds securing any series of Senior Notes will be redeemable upon the acceleration of maturity of the series of Senior Notes secured thereby as the result of any Event of Default under the Indenture, at a redemption price equal to the principal amount of such Senior Note Mortgage Bonds, plus accrued and unpaid interest thereon to the date of the redemption demand (Part III, Section 2, of the Mortgage Bond Supplemental Indenture). In such event, the Indenture Trustee is required under the Indenture to file with the Company a demand for redemption (Section 502). Effect of Release Date. After the Release Date (which is the date on which the Mortgage ceases to secure any debt obligations of the Company, other than Senior Note Mortgage Bonds) the Indenture Trustee is required to surrender to the Company or the Mortgage Trustee all Senior Note Mortgage Bonds then held by it and the Company is required to terminate the Mortgage and may not issue any additional Mortgage Bonds thereunder (Sections 1404 and 1409). The Company is required to cause the Indenture Trustee to provide notice to all holders of Senior Notes of the occurrence of the Release Date. (Section 1409(e)). -11- Release of Security Prior to Release Date. The Indenture permits the Company to reduce, prior to the Release Date, the aggregate principal amount of a series of Senior Note Mortgage Bonds securing a series of Senior Notes to the extent of payment or provision for the payment, in whole or part, of the principal of such Senior Notes. In no event may the principal amount of Senior Note Mortgage Bonds pledged to the Indenture Trustee as security for the Senior Notes of any series be reduced prior to the Release Date to an amount less than the aggregate principal amount of outstanding Senior Notes of such series (Section 1409). Voting of Senior Note Mortgage Bonds. At any meeting of the holders of any series of Senior Note Mortgage Bonds, or if the consent of holders of such series of Senior Note Mortgage Bonds is sought without a meeting, the Indenture Trustee is required to vote all Senior Note Mortgage Bonds of such series then held by it, or to grant or withhold its consent with respect thereto, as the Indenture Trustee determines to be in the best interests of the holders of the corresponding series of Senior Notes, unless the Trustee is directed otherwise by the holders of not less than a majority in aggregate principal amount of such series of Senior Notes. In exercising such responsibilities, the Trustee may solicit instructions from the holders of any series of Senior Notes and, if so, shall vote or shall grant or withhold its consent with respect to the Senior Note Mortgage Bonds as directed by the holders of a majority in aggregate principal amount of the Senior Notes (Section 1407). DESCRIPTION OF INDENTURE The following summary of the terms of the Indenture does not purport to be complete and is subject in all respects to the provisions of, and is qualified in its entirety by reference to, the Indenture. The cited Articles and Sections are citations to the Indenture. Capitalized terms that are not defined in this Prospectus are used as defined in the Indenture. ISSUANCE OF ADDITIONAL SENIOR NOTES. The principal amount of debt securities that may be issued under the Indenture is unlimited (Section 301). However, the principal amount of Mortgage Bonds that may be issued under the Mortgage (and thereby serve as security for Senior Notes) is limited by the terms of the Mortgage. See "Description of Senior Note Mortgage Bonds and Mortgage -- Issuance of Additional Bonds." As determined by the Board of Directors of the Company, debt securities issued under the Indenture (i) may be secured as to payment of principal, premium, if any, and interest by Senior Note Mortgage Bonds or they may be unsecured (Section 301) and (ii) may have such other terms and conditions consistent with the Indenture as are established by the Board of Directors at the time of issuance. CERTAIN COVENANTS OF THE COMPANY. Limitations on Liens. From and after the Release Date and so long as the Senior Notes of any series are outstanding, the Company may not create, incur, assume or permit to exist -12- any indebtedness that is secured by a mortgage, deed of trust, lien, pledge or similar encumbrance (a "Lien") on its property or assets, unless all Senior Notes then outstanding and subsequently issued under the Indenture are secured equally and ratably with all other indebtedness secured by such Lien (Section 1006). This restriction does not apply to certain Liens, including (i) Liens existing as of _________, 1998, (ii) any Lien existing on any property or asset prior to the acquisition thereof by the Company (provided that such Lien was not created in contemplation of or in connection with such acquisition and does not extend to any other property or assets of the Company), (iii) Liens for taxes not yet due or that are being contested, (iv) various types of Liens incurred in the ordinary course of business, (v) restrictions on the use of real property and similar encumbrances that are not substantial in amount and do not materially detract from the value of such property or interfere with the ordinary course of business of the Company, (vi) Liens on any property acquired, constructed or improved by the Company that are created or incurred within 18 months after such acquisition, construction or improvement to secure or provide for payment of any part of the purchase price for such property or the cost of construction or improvement, (vii) liens upon bills, notes and accounts receivable, cash, contracts, operating agreements and leases in which the Company is the lessor, (viii) liens on stock, bonds, notes or other securities owned by the Company, (ix) liens on equipment and material not installed as a part of the fixed property of the Company and merchandise and supplies acquired by the Company for the purpose of resale or leasing to customers in the ordinary course of business, (x) liens on electric energy and other materials or products generated, manufactured, produced or purchased by the Company for sale, distribution or use in the ordinary course of business, (xi) extensions, renewals and replacements of Liens referred to in clauses (i) through (x) above, (xii) Liens on the capital stock or assets of any subsidiary of the Company, and (xiii) Liens to secure indebtedness if immediately after the incurrence thereof the amount of all indebtedness secured by Liens that would not be permitted but for this clause (xiii) does not exceed 20% of the Company's stockholders' equity (in each case, a "Permitted Lien"). Limitation on Sale and Lease-back Transactions. From and after the Release Date and so long as the Senior Notes of any series are outstanding, the Company will not enter into any arrangement pursuant to which the Company sells any electric generation plant or electric transmission and distribution facility located in the United States (except for any plant or facility that the Board of Directors of the Company by resolution determines is not of material importance to the total business conducted by the Company and its subsidiaries as an entirety) and thereafter leases back such property (Section 1007). This limitation does not apply to any sale and lease-back transaction (i) entered into prior to September __, 1998, (ii) involving a lease with a term of four years or less, (iii) if the lease with respect to any property is entered into within 18 months after the later of the acquisition, completion of construction or commencement of operation such property, or (iv) if within 120 days after the effective date of the lease the Company applies to the retirement of indebtedness maturing more than one year from the date of such payment an amount equal to the greater of (a) the net proceeds from the sale of the property and (b) the fair market value of the property. -13- INDENTURE DEFAULTS. Events of Default under the Indenture with respect to the Senior Notes of any series include (i) the failure to pay principal when it becomes due (whether at the stated maturity or otherwise), (ii) the failure to pay interest or to satisfy any sinking fund obligation within 30 days after it becomes due, (iii) the failure to observe or perform any other covenant or agreement, which failure continues for at least 60 days after notice to the Company by the Trustee or the holders of at least a majority in principal amount of such series of Senior Notes, and (iv) certain events of bankruptcy, insolvency or reorganization (Section 501). In the case of Senior Notes of any series that are secured by Senior Note Mortgage Bonds, the occurrence of an "event of default" under the Mortgage (a "Mortgage Default") also constitutes an Event of Default under the Indenture (Section 501). See "Description of Senior Note Mortgage Bonds and Mortgage -- Mortgage Defaults". Upon the occurrence of an Event of Default under the Indenture, other than as the result of a Mortgage Default, the Indenture Trustee or the holders of not less than 33% in outstanding principal amount of the Senior Notes of the affected series may declare all of the Senior Notes of such series to be immediately due and payable (Section 502(a)). In the case of an Event of Default under the Indenture by reason of a Mortgage Default, the Senior Notes of all series that are secured by Senior Note Mortgage Bonds automatically will become due and payable effective upon the acceleration of the Senior Note Mortgage Bonds in accordance with the terms of the Mortgage (Section 502(b)). If following a declaration that the principal of any series of Senior Notes is immediately due and payable, and before any judgment or decree for the payment of the moneys due is obtained, all matured installments of interest have been paid and all defaults have been cured, then the holders of a majority is aggregate principal amount of the Senior Notes of such series may waive such defaults and rescind the acceleration of the Senior Notes (Section 502(c)). The waiver or cure of any Mortgage Default and the rescission and annulment of its consequences in accordance with the terms of the Mortgage also will constitute an automatic waiver of the corresponding Event of Default under the Indenture and a rescission and annulment of the consequences thereunder (Section 502(b)). If an Event of Default with respect to any series of Senior Notes occurs and is continuing, the Indenture Trustee may, in its discretion, proceed to protect and enforce its rights and the rights of the holders of Senior Notes of such series by such appropriate judicial proceeds as the Indenture Trustee shall deem most effectual to protect and enforce such rights, including, prior to the Release Date, the exercise of all rights that the Indenture Trustee may have as the holder of the Senior Note Mortgage Bonds securing that series of Senior Notes (Sections 504 and 518). The holders of a majority in principal amount of Senior Notes of such series, subject to certain limitations, may direct the time, method and place of conducting any proceeding for -14- any remedy available to the Indenture Trustee, or for exercising any trust or power conferred on the Indenture Trustee, including the exercise by the Indenture Trustee of the rights, powers and privileges possessed by the Indenture Trustee as a holder of the Senior Note Mortgage Bonds securing such series of Senior Notes (Section 513). No Holder of Senior Notes of any series has the right to institute any proceeding for the enforcement of the Indenture, or for any remedy thereunder, unless (i) such holder previously has given written notice to the Indenture Trustee of a continuing Event of Default with respect to the Senior Notes of that series, (ii) the holders of not less than a majority in principal amount of the Senior Notes of that series have requested in writing that the Indenture Trustee institute proceedings in respect of such Event of Default, (iii) such holder or holders have offered to the Indenture Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request, (iv) the Indenture Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding, and (v) no direction inconsistent with such written request has been given to the Indenture Trustee during such 60-day period by the holders of a majority in principal amount of the Senior Notes of that series (Section 508). However, this provision does not impair the right of any holder of a Senior Note to enforce the obligation of the Company to pay principal and any premium or interest on such Senior Note (Section 509). The Indenture requires the Company to furnish to the Indenture Trustee annually a certificate as to compliance with the terms of the Indenture (Section 1005). MODIFICATION OF INDENTURE. The Company with the consent of the holders of not less than a majority in principal amount of Senior Notes of all series affected by such change (voting as a single class), by entry into a supplemental indenture, may add to, change in any manner or eliminate any of the provisions of the Indenture or modify the rights of the holders of Senior Notes, except that, without the consent of the holder of each Senior Note affected thereby, the Indenture may not be amended (i) to change the terms of payment of the principal or interest on any Senior Notes, (ii) to reduce the percentage of holders of Senior Notes required to effect any amendment to the Indenture or any waiver provided for in the Indenture, and (iii) with respect to any Senior Notes secured by Senior Note Mortgage Bonds, to impair the security interest under the Indenture in such Senior Note Mortgage Bonds or reduce the principal amount of such Senior Note Mortgage Bonds held by the Indenture Trustee to an amount that is less than the outstanding principal amount of the Senior Notes secured thereby (Section 902). Certain changes to the Indenture may be effected by the Company without the consent of the holders of the Senior Notes, including (i) to add to the covenants of the Company for the benefit of the holders of all or any series of Senior Notes and (ii) to cure any ambiguity, to correct or supplement any provision that is inconsistent with any other provision, or to make any other provisions with respect to matters or questions arising under the Indenture, provided -15- that such action does not adversely affect the interests of the holders of Senior Notes of any series in any material respect (Section 901). DEFEASANCE AND DISCHARGE. The Indenture provides that the Company will be deemed to have paid and discharged its entire indebtedness with respect to the Senior Notes of any series and to have satisfied all of its obligations under the Indenture in respect of such series of Senior Notes (except for certain obligations, including the obligation to register the transfer or exchange of Senior Notes, the replacement of lost, stolen or mutilated Senior Notes and the maintenance of a paying agency) if the Company, in addition to satisfying certain other requirements, irrevocably deposits with the Trustee, in trust for the benefit of holders of Senior Notes of such series, (i) money in an amount, (ii) certain United States government obligations, which through the scheduled payment of principal and interest in accordance with their terms will provide money in an amount, or (iii) a combination of money and such United States Government obligations, that is sufficient, without reinvestment, to make all payments of principal of, and any premium and interest on, the Senior Notes on the dates such payments are due in accordance with the terms of the Indenture and the Senior Notes. Thereafter, the holders of Senior Notes of such series may look only to such deposit for payment of the principal and any interest or premium (Article 13). CONSOLIDATIONS, MERGERS AND DISPOSITION OF ASSETS. Nothing contained in the Indenture, or in any Senior Notes issued under the Indenture, prevents the consolidation or merger of the Company with or into any other entity, or the sale or other disposition of the Company's property or assets to another entity, provided that (i) the entity formed by such consolidation or into which the Company is merged or any entity that acquires the property or assets of the Company as an entirety or substantially as an entirety must be a corporation organized and existing under the laws of the United States, any State thereof or the District of Columbia that is authorized to acquire and operate the assets acquired, (ii) such successor assumes by supplemental indenture under the Indenture the due and punctual payment of the principal of, and any premium or interest on, the Senior Notes and the due and punctual performance and observance of all covenants and conditions under the Indenture, and (iii) if prior to the Release Date, such successor also assumes by supplemental indenture under the Mortgage the due and punctual payment of the principal of, and any premium or interest on, the Senior Note Mortgage Bonds securing any series of Senior Notes and the due and punctual performance and observance of all covenants and conditions of the Mortgage required to be performed by the Company with respect to such Senior Note Mortgage Bonds (Section 801(a)). Upon any such consolidation, merger or sale or transfer of assets as an entirety or substantially as an entirety, the successor corporation will succeed to and be substituted for the Company under the Indenture, and will be entitled to exercise every right and power of the Company under the Indenture (Section 802(a)). Nothing contained in the Indenture or in any of the Senior Notes issued under the Indenture prevents -16- the Company from merging into itself any other entity, from acquiring by purchase or otherwise all or part of the property or assets or any other entity, or from selling or disposing of its property or assets not as an entirety or substantially as an entirety (Section 802(b)). For purposes of the Indenture, the conveyance or other transfer by the Company, in a single transaction or a series of related transactions, of either (i) all or any portion of the Company's facilities for the generation and transmission of electric energy or (ii) all or any portion of the Company's facilities for the distribution of electric energy, in either case alone or in combination with other assets (but not in combination with the other) will not be deemed to constitute a conveyance or other transfer of the properties and assets of the Company as an entirety or substantially as an entirety. The character of particular facilities will be determined in accordance with the Uniform System of Accounts prescribed for public utilities and licensees subject to the Federal Power Act, as amended, to the extent applicable (Section 801(b)). RESIGNATION OR REMOVAL OF THE INDENTURE TRUSTEE. The Indenture Trustee may resign at any time with respect to the Senior Notes of any series, which resignation shall become effective upon the appointment of a successor trustee (Section 609). If the Indenture Trustee acquires a conflicting interest within the meaning of the Trust Indenture Act, the Indenture Trustee is obligated to eliminate such conflicting interest or resign (Section 607). The Indenture Trustee may be removed as trustee with respect to any series or Senior Notes at any time by action of the holders of a majority of the principal amount of Senior Notes of such series, and under certain circumstances may be removed by the Company (Section 609). GOVERNING LAW. The Indenture and the Senior Notes are governed by, and construed in accordance with, New York law. RELATIONSHIPS WITH INDENTURE TRUSTEE. The Bank of New York, the Indenture Trustee under the Indenture, also is the trustee under the Mortgage and under other indentures of the Company relating to its (i) medium-term notes, (ii) 5% Convertible Debentures due 2002, (iii) 7% Convertible Debentures due 2018, (iv) 7-3/8% Junior Subordinated Debentures due 2038 and (v) sale and leaseback of the Company's Control Center. The Company maintains with The Bank of New York or its affiliates, as it does with various other banks, a demand deposit account and conventional and revolving credit arrangements. The Bank of New York also is the issuing and paying agent -17- for medium-term notes issued by PCI and is the institutional trustee of Potomac Electric Power Company Trust I, the Company's wholly owned financing subsidiary trust. The Indenture provides that any money collected by the Trustee following an Event of Default first shall be applied to discharge the Company's obligations to compensate the Indenture Trustee, to reimburse the Indenture Trustee for expenses, disbursements and advances, and to satisfy the Company's indemnification obligations to the Trustee (Sections 507 and 606). DESCRIPTION OF SENIOR NOTE MORTGAGE BONDS AND MORTGAGE GENERAL. The Senior Note Mortgage Bonds will be issued under the Mortgage and Deed of Trust, dated July 1, 1936, between the Company and The Bank of New York, as trustee and as successor in such capacity to The Riggs National Bank of Washington, D.C. (the "Mortgage Trustee"), as amended and supplemented and as to be further supplemented by a separate supplemental indenture (a "Mortgage Bond Supplemental Indenture") each time a new series of Mortgage Bonds is issued under the Mortgage and Deed of Trust (including a series of Senior Note Mortgage Bonds issued in connection with the issuance of a new series of Senior Notes). The Mortgage and Deed of Trust, as so amended and supplemented and as it is further supplemented, is referred to herein as the "Mortgage." Copies of the documents currently constituting the Mortgage and the form of Mortgage Bond Supplemental Indenture are filed as exhibits to the Registration Statement and are hereby incorporated by reference. The Mortgage does not contain any covenants or other provisions that specifically are intended to afford holders of the Senior Note Mortgage Bonds special protection in the event of a highly leveraged transaction. The following summary of the terms of the Senior Note Mortgage Bonds and the Mortgage does not purport to be complete and is subject in all respects to the provisions of, and is qualified by reference to, the Mortgage and the Prospectus Supplement. The cited Sections and Articles, unless otherwise indicated, are citations to the Mortgage. Capitalized terms that are not defined in this Prospectus are used as defined in the Mortgage. Unless the context otherwise requires, all references to Mortgage Bonds include the Senior Note Mortgage Bonds. ISSUANCE OF ADDITIONAL BONDS. Additional Mortgage Bonds may be issued under the Mortgage in an aggregate principal amount of up to (i) 60% of the net bondable value of property additions that are not subject to a prior lien, (ii) the amount of cash deposited with the Mortgage Trustee for such purpose (which cash thereafter may be withdrawn on the same basis that additional Mortgage -18- Bonds may be issued, and if not withdrawn within three years must be used by the Mortgage Trustee to purchase or redeem outstanding Mortgage Bonds), and (iii) the aggregate principal amount of Mortgage Bonds paid at maturity, redeemed or repurchased (other than with funds from the trust estate) and not previously used as the basis for the issuance of additional Mortgage Bonds, the withdrawal of cash or the reduction of the amount of cash required to be paid to the Mortgage Trustee upon the release of property ("Refundable Bonds"), in each case, subject to the limitation described below (Sections 4, 6 and 7 of Article III; and Section 4 of Article VIII). Additional Mortgage Bonds may not be issued unless Net Earnings of the Company Available for Interest and Property Retirement Appropriations (defined generally as earnings before depreciation, amortization, income taxes and interest charges) for any 12 consecutive calendar months during the immediately preceding 15 calendar months have been at least two times the aggregate annual interest charges on all outstanding Mortgage Bonds and the additional Mortgage Bonds then being issued. However, this limitation does not apply if the Mortgage Bonds are being issued on the basis of (i) Mortgage Bonds paid at or redeemed or purchased within two years prior to maturity or (ii) under limited circumstances, certain property additions (Sections 3, 4 and 7 of Article III). Giving effect to the issuance of the Senior Note Mortgage Bonds at an assumed rate of interest of 7%, such Net Earnings for the twelve months ended June 30, 1998, would be approximately 5.4 times such annual interest charges. This level of coverage would permit issuance of approximately $2.9 billion of additional Mortgage Bonds (in addition to the Senior Note Mortgage Bonds) at an assumed average interest rate of 7% per annum, against property additions or cash deposits, although only approximately $650 million of additional Mortgage Bonds could be issued on the basis of unbonded net property additions. So long as any Senior Note Mortgage Bonds are outstanding, property additions constructed or acquired on or before December 31, 1946, may not be made the basis for the issuance of Mortgage Bonds, the withdrawal of cash or the reduction of cash required to be paid to the Mortgage Trustee (Part IV, Section 2, of the Mortgage Bond Supplemental Indenture). The issuance by the Company of bonds secured by a lien that is prior to the lien of the Mortgage is permitted by the Mortgage under certain circumstances (Section 16 of Article IV). After giving effect to the issuance of the Senior Note Mortgage Bonds (which are to be issued against property additions), approximately $630 million of property additions and $1.2 billion of Refundable Bonds will remain available for the purposes permitted in the Mortgage, including the issuance of additional Mortgage Bonds. -19- SECURITY. Mortgage Lien. The Senior Note Mortgage Bonds will be secured, together with all other Mortgage Bonds now or hereafter issued under the Mortgage, by a direct first lien (subject to certain permitted leases, liens and other minor encumbrances) on substantially all of the properties and franchises of the Company (the principal properties being the Company's generating stations and its electric transmission and distribution systems), but excluding cash, accounts receivable and other liquid assets, securities (including securities evidencing investments in subsidiaries of the Company), leases by the Company as lessor, equipment and materials not installed as part of the fixed property, other materials, merchandise and supplies acquired by the Company for the purpose of resale or leasing to its customers in the ordinary course of business, and all electric energy and other materials or products generated, manufactured, produced or purchased by the Company for sale, distribution or use in the ordering course of business. The Company's 9.72% undivided interest in a mine-mouth, steam-electric generating station, known as the Conemaugh Generating Station, which is located in Indiana County, Pennsylvania, and its associated transmission lines is that of a tenant in common with eight other utility owners. Substantially all of the Company's transmission and distribution lines of less than 230,000 volts, portions of its 230,000 and 500,000 volt transmission lines, substantially all of the Conemaugh transmission lines, and 11 substations are located on land owned by others or on public streets and highways. The lien of the Mortgage extends to after-acquired property, subject to rights of persons having superior equities attaching prior to the recording or filing of an appropriate supplemental indenture. Release of Property from Mortgage Lien. The Mortgage permits property to be released from the lien of the Mortgage upon the deposit with the Mortgage Trustee of cash or purchase money obligations secured by the property released, in an aggregate amount at least equal to the fair value of the property to be released. The Mortgage alternatively permits the Company to reduce the amount required to be deposited upon the release of property by reducing by an equal amount the principal amount of Refundable Bonds against which additional Mortgage Bonds may be issued. The Mortgage also contains certain requirements relating to the withdrawal of cash deposited to obtain a release of property (Articles VII and VIII). MORTGAGE DEFAULTS. Upon the occurrence of an Event of Default under the Mortgage, the Mortgage Trustee may, and upon the written request of the holders of not less than 25% of the principal amount of all outstanding Mortgage Bonds the Mortgage Trustee shall, declare all of the outstanding Mortgage Bonds immediately due and payable. Such declaration, however, is subject to the condition that, if all interest in arrears has been paid and all defaults have been cured, the -20- holders of a majority of the outstanding principal amount of Mortgage Bonds may waive such default and rescind such acceleration (Section 1 of Article IX). Upon the occurrence of an Event of Default the Mortgage Trustee may, and upon the written request of the holders of not less than 25% of the principal amount of all outstanding Mortgage Bonds the Mortgage Trustee shall, enforce the lien of the Mortgage by foreclosing on the trust estate (Section 4 of Article IX). The holders of a majority in principal amount of Mortgage Bonds may direct proceedings for the sale of the trust estate, or for the appointment of a receiver or any other proceedings under the Mortgage, but may not involve the Mortgage Trustee in any personal liability without indemnifying it to its satisfaction (Section 11 of Article IX). No holder of a Mortgage Bond has the right to institute proceedings for the enforcement of the Mortgage, unless (i) such holder previously has given the Mortgage Trustee written notice of an existing default, (ii) the holders of at least 25% of the outstanding principal amount of the Mortgage Bonds have requested in writing that the Mortgage Trustee take action under the Mortgage (and provided the Mortgage Trustee with indemnity satisfactory to it), and (iii) the Mortgage Trustee refuses or neglects to comply with such request within a reasonable time (Section 12 of Article IX). However, this provision does not impair the right of any holder of a Mortgage Bond to enforce the obligation of the Company to pay the principal and interest on such Mortgage Bond when due. Events of Defaults under the Mortgage include (i) the failure to pay principal when it becomes due (whether at the stated maturity or otherwise), (ii) the failure to pay interest or to satisfy any sinking fund obligation within 30 days after the date on which it becomes due, (iii) the failure to perform or observe any other covenant, agreement or condition of the Mortgage, which failure continues for at least 60 days after notice to the Company by the Mortgage Trustee or the holders of at least 15% in principal amount of Mortgage Bonds, and (iv) certain events of bankruptcy, insolvency or reorganization (Section 1 of Article IX). While the Mortgage by its terms does not require that periodic evidence be furnished to the Mortgage Trustee as to the absence of defaults or as to compliance with the terms of the Mortgage, the Trust Indenture Act requires the Company to provide to the Mortgage Trustee annually a certificate as to compliance with the conditions and covenants under the Mortgage. MODIFICATION OF MORTGAGE. With the consent of the holders of 80% in principal amount of Mortgage Bonds, and of 80% in principal amount of Mortgage Bonds of each series affected if less than all are affected, the Mortgage may be amended to alter the rights and obligations of the Company and of the holders of Mortgage Bonds, except that no such amendment may change the terms of payment of the principal or interest on any Mortgage Bonds or reduce the percentage of holders whose consent is required to effect any change (Section 6 of Article XV). -21- The Mortgage Bond Supplemental Indenture provides that the foregoing percentages shall be reduced to 60% upon the consent or agreement to such change by the holders of all outstanding Mortgage Bonds. The Indenture Trustee, as registered holder of the Senior Note Mortgage Bonds, will be deemed to have agreed to such reduction pursuant to the terms of the Mortgage Bond Supplemental Indenture. This change will become effective as to all of the outstanding Mortgage Bonds, including the Senior Note Mortgage Bonds that will secure the Senior Notes to be issued pursuant to this Prospectus, at such time as all of the supplemental indentures with respect to outstanding Mortgage Bonds include this provision. After giving effect to the issuance of Senior Note Mortgage Bonds securing the Senior Notes offered hereby, 7.8% of the outstanding Mortgage Bonds will have been issued under a supplemental indenture containing the modified provision. DEFEASANCE AND DISCHARGE. If moneys for the payment or redemption of Mortgage Bonds, including the payment of all interest due thereon, is deposited with the Mortgage Trustee and the Company has observed all of its covenants under the Mortgage, the Mortgage Bonds will be deemed paid under the Mortgage and, upon the request of the Company, the Mortgage Trustee is obligated cancel and discharge the lien of the Indenture (Article XVI). CONSOLIDATIONS, MERGERS AND DISPOSITIONS OF ASSETS. Nothing contained in the Mortgage, or any Mortgage Bonds issued under the Mortgage, prevents the consolidation with the Company or the merger into the Company of another corporation, the merger of the Company into another corporation, or the sale or lease by the Company of its property as an entirety or substantially as an entirety, provided that (i) the transaction is permitted by law and is approved by all required governmental entities, (ii) the terms of the transaction do not impair the lien and security of the Mortgage on any part of the trust estate or the rights and powers of the Mortgage Trustee or the holders of Mortgage Bonds, (iii) in the case that the Company is not the surviving corporation or in the case of a sale of assets, the surviving or acquiring corporation satisfies certain financial requirements, and (iv) the successor corporation assumes by supplemental indenture the obligations of the Company under the Mortgage (Section 1 of Article XII). PLAN OF DISTRIBUTION The Company may sell the Senior Notes: (i) through underwriters or dealers; (ii) directly to one or more purchasers; (iii) through agents; or (iv) through a combination of any such methods of sale. The Prospectus Supplement with respect to any Senior Notes being offered thereby sets forth the terms of the offering of such Senior Notes, including the name or names of any underwriters, the purchase price of such Senior Notes and the proceeds to the Company from such sale, any underwriting discounts and other items constituting -22- underwriters' compensation, any initial public offering price and any discounts or concessions allowed or reallowed or paid to dealers and any securities exchanges on which such Senior Notes may be listed. If underwriters are used in the sale, the Senior Notes will be acquired by the underwriters for their own account and may be resold from time to time in one or more transactions, including negotiated transactions, at a fixed public offering price or at varying prices determined at the time of sale. The Senior Notes may be offered to the public, either through underwriting syndicates represented by the underwriter or underwriters to be designated by the Company or directly by one or more of such firms. Unless otherwise set forth in the Prospectus Supplement, the obligations of the underwriters to purchase the Senior Notes offered thereby will be subject to certain conditions precedent, and the underwriters will be obligated to purchase all such Senior Notes if any are purchased. Any initial public offering price and any discounts or concessions allowed or reallowed or paid to dealers may be changed from time to time. Senior Notes may be sold directly by the Company or through agents designated by the Company from time to time. The Prospectus Supplement sets forth the name of any agent involved in the offer or sale of the Senior Notes in respect of which the Prospectus Supplement is delivered as well as any commission payable by the Company to such agent. Unless otherwise indicated in the Prospectus Supplement, any such agent is acting on a best efforts basis for the period of its appointment. If so indicated in the Prospectus Supplement, the Company will authorize agents, underwriters or dealers to solicit offers by certain specified institutions to purchase the Senior Notes from the Company at the public offering price set forth in the Prospectus Supplement pursuant to delayed delivery contracts providing for payment and delivery on a specified date in the future. Such contracts will be subject to those conditions set forth in the Prospectus Supplement, and the Prospectus Supplement will set forth the commission payable for solicitation of such contracts. Agents and underwriters may be entitled under agreements entered into with the Company to indemnification by the Company against certain civil liabilities, including liabilities under the 1933 Act. Agents and underwriters may be customers of, engaged in transactions with, or perform services for the Company in the ordinary course of business. EXPERTS The consolidated financial statements incorporated in this Prospectus by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1997 have been so incorporated in reliance on the report of PricewaterhouseCoopers LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. -23- With respect to the unaudited consolidated financial information of the Company for the six- and twelve-month periods ended June 30, 1998 and 1997 incorporated by reference in this Prospectus, PricewaterhouseCoopers LLP reported that they have applied limited procedures in accordance with professional standards for a review of such information. However, their separate report dated August 11, 1998, incorporated by reference herein, states that they did not audit and they do not express opinions on that unaudited consolidated financial information. PricewaterhouseCoopers LLP has not carried out any significant or additional audit tests beyond those which would have been necessary if the report had not been included. Accordingly, the degree of reliance on their report on such information should be restricted in light of the limited nature of the review procedures applied. PricewaterhouseCoopers LLP is not subject to the liability provisions of Section 11 of the 1933 Act for their report on the unaudited consolidated financial information because such report is not a "report" or a "part" of the registration statement prepared or certified by PricewaterhouseCoopers LLP within the meaning of Sections 7 and 11 of the 1933 Act. LEGAL OPINIONS Certain legal matters in connection with the securities to be offered hereby will be passed upon for the Company by Covington & Burling, 1201 Pennsylvania Avenue, N.W., Washington, D.C., and William T. Torgerson, Esq., 1900 Pennsylvania Avenue, N.W., Washington, D.C. Mr. Torgerson is regularly employed by the Company as Senior Vice President and General Counsel. Unless otherwise indicated in the accompanying Prospectus Supplement, the legality of such securities will be passed upon for the underwriter, dealer or agents by Winthrop, Stimson, Putnam & Roberts, One Battery Park Plaza, New York, N.Y., who will, however, not pass on the incorporation of the Company. -24- PART II. INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION Estimated expenses relating to the Senior Notes (assuming an issuance of $270,000,000) are as follows: Registration fee...................... $ 79,650 Recordation taxes..................... 1,200,000 Rating Agency fees.................... 50,000 Printing.............................. 40,000 Trustee's fees and expenses........... 50,000 Fee of independent accountants........ 25,000 Fees of counsel....................... 115,000 Expenses incidental to qualification under Blue Sky Laws................. 10,000 Miscellaneous......................... 20,305 ---------- Total....................... $1,590,000 ========== ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS Under Section 29-304(1b) of the District of Columbia Business Corporation Act, a corporation may indemnify against expenses any directors or officers made party to a proceeding by reason of his service as such, except in relation to matters as to which any such director or officer shall be adjudged to be liable for negligence or misconduct in the performance of duty. Such indemnification is not exclusive of any other rights to which those indemnified may be entitled under any by-law, agreement, vote of shareholders or otherwise. Under Section 13.1-697 of the Virginia Stock Corporation Act ("VSCA"), a Virginia corporation may indemnify a director who was, is or is threatened to be made a party to any proceeding if the director acted in good faith and (i) he believed, in the case of conduct in his official capacity with the corporation, that his conduct was in the best interests of the corporation or, in the case of other conduct, that his conduct was at least not opposed to the best interests of the corporation, or (ii) in the case of a criminal proceeding, he had no reasonable cause to believe his conduct was unlawful. A corporation may not indemnify a director in connection with (i) a proceeding by or in the right of the corporation in which the director was found liable to the corporation or (ii) any other proceeding charging improper personal benefit to him, whether or not involving action in his official capacity, in which he was adjudged liable on the basis that personal benefit was improperly received. Indemnification permitted under this section of the VSCA in connection with a proceeding by or in the right of the corporation is limited to reasonable expenses incurred in connection with the proceeding. II-1 Under Section 13.1-698, unless limited by its Articles of Incorporation, a corporation must indemnify against reasonable expenses a director who entirely prevails in the defense of any proceeding to which he was a party because he is or was a director of the corporation. Under Section 13.1-700.1, a court of appropriate jurisdiction, upon the application of a director, may order a corporation to advance or reimburse expenses or provide indemnification if the court determines that the director is so entitled. With respect to a proceeding by or in the right of the corporation, a court may order indemnification of the director to the extent of his reasonable expenses even though he was adjudged liable to the corporation. Under Section 13.1-699, a corporation may advance reasonable expenses to a director made a party to a proceeding under certain circumstances, including the furnishing by the director of (i) a written statement of his good faith belief that he has met the standard of conduct necessary to obtain indemnification and (ii) a written undertaking to repay the advance if it is ultimately determined that he did not meet that standard. Under Section 13.1-702, a corporation may indemnify an officer, employee or agent of a corporation to the same extent as a director. Under Section 13.1-704, a corporation may provide indemnification in addition to that provided by statute if authorized by its Articles of Incorporation, a by-law made by the shareholders, or any resolution adopted by the shareholders, except indemnification against willful misconduct or a knowing violation of the criminal law. The By-Laws of the Company provide that the Company shall indemnify each director or officer and each former director and officer of the Company against expenses actually and reasonably incurred in connection with the defense of any action, suit or proceeding by reason of his or her being or having been such director or officer, including liabilities incurred under the Securities Act of 1933, as amended, except in relation to matters as to which such director or officer shall be finally adjudged in such action, suit or proceeding to have knowingly violated the criminal law or to be liable for willful misconduct in the performance of his or her duty to the Company; and that such indemnification shall be in addition to, and not exclusive of, any other rights to which those indemnified may be entitled under any by-law, agreement, vote of stockholders, or otherwise. In the Underwriting Agreement, the underwriters will agree to indemnify the Company, its directors, officers and controlling persons against certain civil liabilities that may arise under the Securities Act of 1933 in connection with this offering. The Company also has policies of insurance which insure officers and directors against certain liabilities and expenses incurred by them in such capacities. II-2 ITEM 16. EXHIBITS. EXHIBIT NO. DESCRIPTION OF EXHIBIT REFERENCE* - ----------- ---------------------- ---------- 1.1 --Form of Underwriting Agreement Filed herewith. for the Senior Notes 4.1 --Form of the Senior Note Mortgage Included in Bonds Exhibit No. 4.4. 4.2 --Form of the Senior Notes Included in Exhibit No. 4.6. 4.3.1 --Mortgage and Deed of Trust, Exh. B-4 to dated July 1, 1936, of the Company First Amendment, to The Riggs National Bank of 6/19/36, to Washington, D.C., as Trustee, Registration securing First Mortgage Bonds Statement No. of the Company, and Supplemental 2-2232. Indenture dated 7/1/36 --Supplemental Indentures, to the aforesaid Mortgage and Deed of Trust, dated-- 4.3.2 December 1, 1939 and Exhs. A & B December 10, 1939 to Form 8-K, 1/3/40. 4.3.3 August 1, 1940 Exh. A to Form 8-K, 9/25/40. 4.3.4 July 15, 1942 and August 10, 1942 Exh. B-1 to Amendment No. 2, 8/24/42, and B-3 to Post- Effective Amendment, 8/31/42, to Registration Statement No. 2-5032. 4.3.5 August 1, 1942 Exh. B-4 to Form 8-A, 10/8/42. 4.3.6 October 15, 1942 Exh. A to Form 8-K, 12/7/42. 4.3.7 October 15, 1947 Exh. A to Form 8-K, 12/8/47. 4.3.8 January 1, 1948 Exh. 7-B to Post-Effective Amendment No. 2, 1/28/48, to Registration Statement No. 2-7349. II-3 EXHIBIT NO. DESCRIPTION OF EXHIBIT REFERENCE* - ----------- ---------------------- ---------- 4.3.9 December 31, 1948 Exh. A-2 to Form 10-K, 4/13/49. 4.3.10 May 1, 1949 Exh. 7-B to Post-Effective Amendment No. 1, 5/10/49, to Registration Statement No. 2-7948. 4.3.11 December 31, 1949 Exh. (a)-1 to Form 8-K, 2/8/50. 4.3.12 May 1, 1950 Exh. 7-B to Amendment No. 2, 5/8/50, to Registration Statement No. 2-8430. 4.3.13 February 15, 1951 Exh. (a) to Form 8-K, 3/9/51. 4.3.14 March 1, 1952 Exh. 4-C to Post-Effective Amendment No. 1, 3/12/52, to Registration Statement No. 2-9435. 4.3.15 February 16, 1953 Exh. (a)-1 to Form 8-K, 3/5/53. 4.3.16 May 15, 1953 Exh. 4-C to Post-Effective Amendment No. 1, 5/26/53, to Registration Statement No. 2-10246. 4.3.17 March 15, 1954 and Exh. 4-B to March 15, 1955 Registration Statement No. 2-11627, 5/2/55. 4.3.18 May 16, 1955 Exh. A to Form 8-K, 7/6/55. 4.3.19 March 15, 1956 Exh. C to Form 10-K, 4/4/56. 4.3.20 June 1, 1956 Exh. A to Form 8-K, 7/2/56. 4.3.21 April 1, 1957 Exh. 4-B to Registration Statement No. 2-13884, 2/5/58. 4.3.22 May 1, 1958 Exh. 2-B to Registration Statement No. 2-14518, 11/10/58. 4.3.23 December 1, 1958 Exh. A to Form 8-K, 1/2/59. II-4 EXHIBIT NO. DESCRIPTION OF EXHIBIT REFERENCE* - ----------- ---------------------- ---------- 4.3.24 May 1, 1959 Exh. 4-B to Amendment No. 1, 5/13/59, to Registration Statement No. 2-15027. 4.3.25 November 16, 1959 Exh. A to Form 8-K, 1/4/60. 4.3.26 May 2, 1960 Exh. 2-B to Registration Statement No. 2-17286, 11/9/60. 4.3.27 December 1, 1960 and Exh. A-1 to April 3, 1961 Form 10-K, 4/24/61. 4.3.28 May 1, 1962 Exh. 2-B to Registration Statement No. 2-21037, 1/25/63. 4.3.29 February 15, 1963 Exh. A to Form 8-K, 3/4/63. 4.3.30 May 1, 1963 Exh. 4-B to Registration Statement No. 2-21961, 12/19/63. 4.3.31 April 23, 1964 Exh. 2-B to Registration Statement No. 2-22344, 4/24/64. 4.3.32 May 15, 1964 Exh. A to Form 8-K, 6/2/64. 4.3.33 May 3, 1965 Exh. 2-B to Registration Statement No. 2-24655, 8/16/66. 4.3.34 April 1, 1966 Exh. A to Form 10-K, 4/21/66. 4.3.35 June 1, 1966 Exh. 1 to Form 10-K, 4/11/67. 4.3.36 April 28, 1967 Exh. 2-B to Post-Effective Amendment No. 1 to Registration Statement No. 2-26356, 5/3/67. 4.3.37 May 1, 1967 Exh. A to Form 8-K, 6/1/67. 4.3.38 July 3, 1967 Exh. 2-B to Registration Statement No. 2-28080, 1/25/68. 4.3.39 February 15, 1968 Exh. II-I to Form 8-K, 3/7/68. 4.3.40 May 1, 1968 Exh. 2-B to Registration Statement No. 2-31896, 2/28/69. 4.3.41 March 15, 1969 Exh. A-2 to Form 8-K, 4/8/69. II-5 EXHIBIT NO. DESCRIPTION OF EXHIBIT REFERENCE* - ----------- ---------------------- ---------- 4.3.42 June 16, 1969 Exh. 2-B to Registration Statement No. 2-36094, 1/27/70. 4.3.43 February 15, 1970 Exh. A-2 to Form 8-K, 3/9/70. 4.3.44 May 15, 1970 Exh. 2-B to Registration Statement No. 2-38038, 7/27/70. 4.3.45 August 15, 1970 Exh. 2-D to Registration Statement No. 2-38038, 7/27/70. 4.3.46 September 1, 1971 Exh. 2-C to Registration Statement No. 2-45591, 9/1/72. 4.3.47 September 15, 1972 Exh. 2-E to Registration Statement No. 2-45591, 9/1/72. 4.3.48 April 1, 1973 Exh. A to Form 8-K, 5/9/73. 4.3.49 January 2, 1974 Exh. 2-D to Registration Statement No. 2-49803, 12/5/73. 4.3.50 August 15, 1974 Exhs. 2-G and 2-H to Amendment No. 1 to Registration Statement No. 2-51698, 8/14/74. 4.3.51 June 15, 1977 Exh. 4-A to Form 10-K, 3/19/81. 4.3.52 July 1, 1979 Exh. 4-B to Form 10-K, 3/19/81. 4.3.53 June 16, 1981 Exh. 4-A to Form 10-K, 3/19/82. 4.3.54 June 17, 1981 Exh. 2 to Amendment No. 1, 6/18/81, to Form 8-A. 4.3.55 December 1, 1981 Exh. 4-C to Form 10-K, 3/19/82. 4.3.56 August 1, 1982 Exh. 4-C to Amendment No. 1 to Registration Statement No. 2-78731, 8/17/82. 4.3.57 October 1, 1982 Exh. 4 to Form 8-K, 11/8/82. 4.3.58 April 15, 1983 Exh. 4 to Form 10-K, 3/23/84. II-6 EXHIBIT NO. DESCRIPTION OF EXHIBIT REFERENCE* - ----------- ---------------------- ---------- 4.3.59 November 1, 1985 Exh. 2-B to Form 8-A, 11/1/85. 4.3.60 March 1, 1986 Exh. 4 to Form 10-K, 3/28/86. 4.3.61 November 1, 1986 Exh. 2-B to Form 8-A, 11/5/86. 4.3.62 March 1, 1987 Exh. 2-B to Form 8-A, 3/27/87. 4.3.63 September 16, 1987 Exh. 4-B to Registration Statement No. 33-18229, 10/30/87. 4.3.64 May 1, 1989 Exh. 4-C to Registration Statement No. 33-29382, 6/16/89. 4.3.65 August 1, 1989 Exh. 4 to Form 10-K, 3/28/90. 4.3.66 April 5, 1990 Exh. 4-C to Registration Statement No. 33-36875, 9/24/90. 4.3.67 May 21, 1991 Exh. 4 to Form 10-K, 3/27/92. 4.3.68 May 7, 1992 Exh. 4-C to Registration Statement No. 33-48325, 6/2/92. 4.3.69 September 1, 1992 Exh. 4 to Form 10-K, 3/26/93. 4.3.70 November 1, 1992 Exh. 4 to Form 10-K, 3/26/93. 4.3.71 March 1, 1993 Exh. 4 to Form 10-K, 3/26/93. 4.3.72 March 2, 1993 Exh. 4 to Form 10-K, 3/26/93. 4.3.73 July 1, 1993 Exh. 4.4 to Registration Statement No. 33-49973, 8/11/93. 4.3.74 August 20, 1993 Exh. 4.4 to Registration Statement No. 33-50377, 9/23/93. 4.3.75 September 29, 1993 Exh. 4 to Form 10-K, 3/25/94. 4.3.76 September 30, 1993 Exh. 4 to Form 10-K, 3/25/94. 4.3.77 October 1, 1993 Exh. 4 to Form 10-K, 3/25/94. 4.3.78 February 10, 1994 Exh. 4 to Form 10-K, 3/25/94. II-7 EXHIBIT NO. DESCRIPTION OF EXHIBIT REFERENCE* - ----------- ---------------------- ---------- 4.3.79 February 11, 1994 Exh. 4 to Form 10-K, 3/25/94. 4.3.80 March 10, 1995 Exh. 4.3 to Registration Statement No. 33-61379, 7/28/95. 4.3.81 September 6, 1995 Exh. 4 to Form 10-K, 4/1/96. 4.3.82 September 7, 1995 Exh. 4 to Form 10-K, 4/1/96. 4.3.83 October 2, 1997 Exh. 4 to Form 10-K, 3/26/98. 4.4 --Form of Supplemental Indenture Filed herewith. between the Registrant and The Bank of New York, as successor Trustee, with respect to the Senior Note Mortgage Bonds 4.5 Form of Indenture, dated ________, Filed herewith. 1998, between the Registrant and The Bank of New York, as Indenture Trustee, with respect to the Senior Notes 4.6 --Form of Supplemental Indenture Filed herewith. between the Registrant and The Bank of New York, as Indenture Trustee, with respect to the Senior Notes 5 --Opinion of William T. Torgerson Filed herewith. 12 --Computation of Ratios Exh. 12 to Form 10-Q, 8/11/98. 15 --Letter re Unaudited Financial Filed herewith. Information 23.1 --Consent of Filed herewith. PricewaterhouseCoopers LLP 23.2 --Consent of William T. Torgerson Contained in Exhibit 5. 23.3 --Consent of Covington & Burling Filed herewith. 24 --Power of Attorney Filed herewith. II-8 EXHIBIT NO. DESCRIPTION OF EXHIBIT REFERENCE* - ----------- ---------------------- ---------- 25.1 --Form T-1 Statement of Filed herewith. Eligibility and Qualification under the Trust Indenture Act of 1939 of The Bank of New York, with respect to the Senior Note Mortgage Bonds 25.2 --Form T-1 Statement of Filed herewith. Eligibility and Qualification under the Trust Indenture Act of 1939 of The Bank of New York, with respect to the Senior Notes * The exhibits referred to in this column by specific designations and date have heretofore been filed with the Securities and Exchange Commission under such designations and are hereby incorporated herein by reference. The Forms 8-A, 8-K and 10-K referred to above were filed by the Company under the Commission's File No. 1-1072 and the Registration Statements referred to are registration statements of the Company. ITEM 17. UNDERTAKINGS The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end and of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement. II-9 (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the registration statement is on Form S-3 or Form S-8, and the information required to be included in a post-effective amendment by these paragraphs is contained in periodic reports filed by the registrant pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at the time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (4) That, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the By-Laws of the registrant or Virginia or District of Columbia law, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted against the registrant by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. II-10 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Washington, District of Columbia, on the 26th day of October, 1998. POTOMAC ELECTRIC POWER COMPANY By John M. Derrick, Jr.* ------------------------------------ (JOHN M. DERRICK, JR., PRESIDENT AND CHIEF EXECUTIVE OFFICER) Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the date indicated. (i) Principal Executive Officer: John M. Derrick, Jr.* President, Chief Executive - ----------------------- (JOHN M. DERRICK, JR.) Officer and Director April 22, 1998 (ii) Principal Financial Officer and (iii) Principal Accounting Officer: D. R. Wraase* Senior Vice President, - ----------------------- (DENNIS R. WRAASE) Chief Financial Officer and Director April 22, 1998 (iv) Directors: Roger R. Blunt, Sr.* Director - ----------------------- (ROGER R. BLUNT, SR.) April 22, 1998 Edmund B. Cronin, Jr.* Director - ----------------------- (EDMUND B. CRONIN, JR.) April 22, 1998 Richard E. Marriott* Director - ----------------------- (RICHARD E. MARRIOTT) April 22, 1998 II-11 David O. Maxwell* Director - ----------------------- (DAVID O. MAXWELL) April 22, 1998 Floretta D. McKenzie* Director - ----------------------- (FLORETTA D. McKENZIE) April 22, 1998 Edward F. Mitchell* Director - ----------------------- (EDWARD F. MITCHELL) April 22, 1998 Peter F. O'Malley* Director - ----------------------- (PETER F. O'MALLEY) April 22, 1998 Director - ----------------------- (LOUIS A. SIMPSON) A. Thomas Young* Director - ----------------------- (A. THOMAS YOUNG) April 22, 1998 *By: /s/ Ellen Sheriff Rogers ------------------------ (ELLEN SHERIFF ROGERS, ATTORNEY-IN-FACT) II-12 EX-1 2 FORM OF UNDERWRITING AGREEMENT POTOMAC ELECTRIC POWER COMPANY Senior Notes UNDERWRITING AGREEMENT [Date] To the Representatives named in Schedule I hereto of the Underwriters named in Schedule II hereto Ladies and Gentlemen: The undersigned Potomac Electric Power Company (the "Company") hereby confirms its agreement with the several underwriters named in Schedule II hereto (the "Underwriters") as set forth below to sell its Senior Notes of the designation, with the terms and in the amount, specified in Schedule I hereto (the "Senior Notes"). If the firm or firms listed in Schedule I hereto (the "Representatives") are the same as the firm or firms listed in Schedule II hereto, then the terms "Underwriters" and "Representatives," as used herein, shall each be deemed to refer to such firm or firms. SECTION I. Description of Senior Notes. The Company has --------------------------- authorized by appropriate corporate action and proposes to issue and sell the Senior Notes, to be issued under an Indenture, dated _______________, 1998, between the Company and The Bank of New York, as trustee (the "Indenture Trustee"), and the indenture supplemental thereto relating to the Senior Notes (herein collectively called the "Senior Note Indenture"). The Senior Notes will be secured by a corresponding series of First Mortgage Bonds (the "First Mortgage Bonds") issued under the Company's Mortgage and Deed of Trust dated July 1, 1936 to The Bank of New York, as successor trustee (the "Trustee"), and the indentures supplemental thereto including the supplemental indenture relating to the First Mortgage Bonds (herein collectively called the "Mortgage Bond Indenture"). Certain of the terms and provisions relating to the Senior Notes, the First Mortgage Bonds, the Senior Note Indenture and the Mortgage Bond Indenture are summarized in the Registration Statement and Prospectus hereinafter referred to. SECTION 2. Representations and Warranties of the Company. --------------------------------------------- The Company represents and warrants to each of the Underwriters that: (a) The Company has filed with the Securities and Exchange Commission (the "Commission") a registration statement on Form S-3 (No. 333- )(the "Registration Statement"), including a prospectus, for the registration of the Senior Notes under the Securities Act of 1933, as amended (the "1933 Act"), and the qualification of the Indenture under the Trust Indenture Act of 1939 (the "1939 Act"), which Registration Statement has been declared effective by the Commission and which Indenture has been qualified under the 1939 Act. Such Registration Statement, as amended to the date of this Agreement, including the documents incorporated by reference, but excluding the Form T-1 Statement of Eligibility and Qualification of the Indenture Trustee, and the prospectus contained in the Registration Statement as supplemented either by a prospectus supplement, dated the date hereof, relating to the terms and offering of the Senior Notes to be filed pursuant to Rule 424 ("Rule 424") of the rules and regulations of the Commission under the 1933 Act (the "1933 Act Regulations") and/or by a term sheet or abbreviated term sheet, if any, sent or given in reliance upon Rule 434 of the 1933 Act Regulations and to be filed pursuant to Rule 424 (including, in each case, the documents incorporated by reference therein pursuant to Item 12 of Form S-3 under the 1933 Act) is hereinafter called the "Prospectus;" any reference herein to the terms "amend," or "amendment" with respect to the Registration Statement or the Prospectus shall be deemed to include any document incorporated by reference therein after the date hereof and prior to the termination of the offering of the Senior Notes by the Underwriters; provided, however, that any prospectus supplement, term sheet or abbreviated term sheet filed with the Commission pursuant to Rule 424 under the 1933 Act with respect to an offering of senior notes other than the Senior Notes shall not be deemed to be a supplement to, or a part of, the Prospectus. If any revised prospectus shall be provided to the Underwriters by the Company for use in connection with the offering of the Senior Notes (whether or not such revised prospectus is required to be filed by the Company pursuant to Rule 424(b) of the 1933 Act Regulations), the term "Prospectus" shall refer to such revised prospectus from and after the time it is first provided to the Underwriters for such use. (b) At the time the Registration Statement became effective, the Registration Statement, the form of Senior Note Indenture and the Mortgage Bond Indenture fully complied, and at the Closing Date, as hereinafter defined, the Registration Statement and the Prospectus, as they may be amended or supplemented, and the Senior Note Indenture and the Mortgage Bond Indenture will fully comply, in all material respects with the applicable provisions of the 1933 Act, the 1933 Act Regulations, and the 1939 Act; on said dates the Registration Statement did not, and the Registration Statement, as it may be amended or supplemented, will not, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; when the Registration Statement became effective, the prospectus included therein did not, and at the Closing Date and on the date it is filed with, or transmitted for filing to, the Commission pursuant to Rule 424 the Prospectus, as it may be amended or supplemented, will not, contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that the foregoing representations and warranties in this subparagraph (b) shall not apply to statements or omissions made in reliance upon and in conformity with information furnished herein or in writing to the Company by the Representatives or by or on behalf of any - 2 - Underwriter through the Representatives expressly for use in the Registration Statement or the Prospectus. (c) The documents incorporated by reference in the Registration Statement and the Prospectus pursuant to Item 12 of Form S-3 under the 1933 Act, when they were filed with the Commission, complied in all material respects with the applicable requirements of the 1933 Act and the Securities Exchange Act of 1934, as amended (the "1934 Act"), and the rules and regulations of the Commission thereunder, and any documents so filed and incorporated by reference subsequent to the date hereof will, when they are filed with the Commission, comply in all material respects with the requirements of the 1934 Act and the rules and regulations of the Commission thereunder; and none of such documents when filed included or will include any untrue statement of a material fact or omitted or will omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. (d) The financial statements incorporated by reference in the Registration Statement and the Prospectus present fairly the financial condition and operations of the Company and its consolidated subsidiaries at the respective dates or for the respective periods to which they apply; such financial statements have been prepared in accordance with generally accepted accounting principles consistently applied throughout the periods involved, except as set forth therein; and the supporting schedules incorporated by reference in the Registration Statement and the Prospectus present fairly the information required to be stated therein and PricewaterhouseCoopers LLP ("PWC"), who have examined certain of the financial statements, are independent accountants as required by the 1933 Act, and the rules and regulations of the Commission. (e) Except as reflected in, or contemplated by, the Registration Statement and the Prospectus, since the respective dates as of which information is given in the Registration Statement and the Prospectus, and prior to the Closing Date, (i) there has not been any material, adverse change in the business, property or financial condition of the Company and its subsidiaries considered as one enterprise and (ii) there have been no transactions entered into by the Company or any of its subsidiaries, other than those in the ordinary course of business, which are material with respect to the Company and its subsidiaries considered as one enterprise. The Company has no material contingent obligation which is not disclosed in or contemplated by the Registration Statement and the Prospectus. (f) The sale by the Company to the Underwriters, severally, of the Senior Notes for the consideration herein specified and upon the terms and conditions herein contained will not result in a breach of any of the - 3 - terms or provisions of or constitute a default under the Company's Certificate of Incorporation or By-Laws, each as amended, or any indenture or other agreement or instrument which the Company has assumed or to which it is now a party or any applicable law, administrative regulation or administrative court decree. (g) There are no contracts or documents of the Company or any of its subsidiaries which are required to be filed as exhibits to the Registration Statement by the 1933 Act or by the 1933 Act Regulations which have not been so filed. SECTION 3. Sale of the Senior Notes. On the basis of the ------------------------ representations and warranties herein contained and subject to the terms and conditions herein set forth, the Company agrees to sell to each of the Underwriters and each Underwriter agrees, severally and not jointly, to purchase from the Company, at the purchase price set forth in Schedule I hereto, the respective principal amounts of Senior Notes set forth opposite the name of such Underwriter in Schedule II hereto. SECTION 4. Time and Place of Closing. Payment for the ------------------------- Senior Notes shall be made at the place, date and time specified in Schedule I hereto (or such other place, date and time as the Representatives and the Company may agree upon), against delivery of the Senior Notes, at the office of The Bank of New York, 101 Barclay Street, New York, N.Y., to the Representatives for the respective accounts of the several Underwriters. The date and time of such delivery and payment are herein called the "Closing Date." Payment for the Senior Notes shall be in immediately available funds. Certificates for the Senior Notes shall be delivered to the Representatives for the respective accounts of the several Underwriters in such names and denominations as the Representatives shall specify not later than the beginning of business on the third full business day before the Closing Date. For the purpose of expediting the checking of the certificates by the Representatives, the Company agrees to make the certificates for the Senior Notes available to the Representatives not later than 1:00 p.m., New York Time, on the last full business day prior to the Closing Date at said office of Bank of New York. SECTION 5. Covenants of the Company. The Company agrees ------------------------ that: (a) As soon as possible after the execution and delivery of this Agreement, the Company will file the Prospectus with the Commission pursuant to Rule 424 setting forth, among other things, the necessary information with respect to the terms of offering of the Senior Notes. (b) The Company will give the Representatives notice of its intention to file any amendment to the Registration Statement or any amendment or supplement to the Prospectus, will furnish the - 4 - Representatives and counsel for the Underwriters copies of any such amendment or supplement a reasonable time in advance of filing, and will not file any such amendment or supplement to which the Representatives or counsel for the Underwriters shall reasonably object prior to such filing. (c) The Company will promptly deliver to the Representatives one fully executed copy of the Registration Statement as originally filed with the Commission and of each amendment or supplement thereto, heretofore or hereafter made, including any post-effective amendment (in each case including all exhibits filed therewith not previously furnished to the Representatives) and signed copies of each consent and certificate included therein or filed as an exhibit thereto. The Company will also send to the Representatives as soon as practicable after the date of this Agreement and thereafter from time to time not later than nine months after the date of this Agreement, as many copies of the Prospectus (excluding documents incorporated by reference under Item 12 of Form S-3) as the Representatives may reasonably request for the purposes contemplated by the 1933 Act, the 1934 Act and the rules and regulations of the Commission thereunder. (d) The Company will pay or cause to be paid all expenses in connection with (i) the preparation and filing by it of the Registration Statement and Prospectus and the preparation and delivery of this Agreement, (ii) the preparation, rating, issue and delivery of the Senior Notes to be sold by it as provided herein, (iii) the printing and delivery to the Underwriters in reasonable quantities of copies of the Registration Statement, each preliminary prospectus and the Prospectus, (iv) all filing fees and fees and disbursements not to exceed $5,000 of Winthrop, Stimson, Putnam & Roberts incurred in connection with the qualification of the Senior Notes under securities laws and the determination of the legality of the Senior Notes in accordance with the provisions of Section 5(i), and (v) the printing and delivery to the Underwriters of copies of the Blue Sky Survey; and will pay all taxes, if any (but not including any transfer taxes), on the issue of said Senior Notes; provided, however, that the Underwriters shall pay all of their own costs and expenses, including the fees and expenses of their counsel (subject however to the provisions of this subparagraph requiring the payment by the Company of certain fees and expenses, not to exceed $5,000), any transfer taxes on the Senior Notes which they may sell. (e) If, during the period when delivery of the Prospectus is required under the 1933 Act, any event relating to or affecting the Company, or of which the Company shall be advised in writing by the Representatives, shall occur which, in the Company's opinion, should be set forth in an amendment to the Prospectus, including an appropriate filing pursuant to Section 13(a) or (c) or Section 14 of the 1934 Act, in - 5 - order to make the Prospectus not misleading in the light of the circumstances when it is delivered to a purchaser, or if it is necessary to amend the Prospectus to comply with the 1933 Act, the Company will forthwith at its expense prepare and file with the Commission (in form and substance satisfactory to counsel for the Underwriters) and furnish to the Representatives a reasonable number of copies of such amendment or amendments to the Prospectus, including any filing pursuant to Section 13(a) or (c) or Section 14 of the 1934 Act, which will amend the Prospectus so that as amended it will comply with the 1933 Act and will not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances when the Prospectus is delivered to a purchaser, not misleading. In case any of the several Underwriters is required to deliver a prospectus after the expiration of nine months after the date of this Agreement, the Company, upon such Underwriter's request, will furnish to such Underwriter, at the expense of such Underwriter, a reasonable number of copies of the Prospectus complying with Section 10(a) of the 1933 Act. (f) The Company will advise the Representatives promptly (confirming such advice in writing) (i) of the filing of the Prospectus pursuant to Rule 424 and of any amendment to the Prospectus or Registration Statement, (ii) of the receipt of any comments from the Commission, (iii) of any official request made by the Commission for amendments to the Registration Statement or Prospectus or for additional information with respect thereto or (iv) of official notice of institution of proceedings for, or the entry of, a stop order suspending the effectiveness of the Registration Statement. The Company will make every reasonable effort to prevent the issuance of any stop order and, if such a stop order should be entered by the Commission, will make every reasonable effort to obtain the lifting or removal thereof as soon as possible. (g) For a period of five years, the Company will (i) furnish to the Representatives as soon as practicable after the close of each fiscal year a consolidated balance sheet of the Company as of the close of such fiscal year, in reasonable detail, together with consolidated statements of earnings and of cash flows, in reasonable detail, of the Company, for such fiscal year, such consolidated balance sheet, statements of earnings and of cash flows, to be accompanied by an opinion thereon rendered by independent accountants, who may be the regular auditors for the Company; (ii) upon request, will furnish to the Representatives as soon as practicable after the close of each of the first three quarters of each fiscal year an interim earnings statement of the Company for the twelve months ended with the close of such quarter, which need not be audited, similar to that furnished pursuant to clause (i) of this this subparagraph; and - 6 - (iii) will furnish to the Representatives copies of all such financial statements as it shall file with the Commission or any governmental agency substituted therefor, and from time to time, copies of any reports or other communications which it shall send to stockholders generally. (h) The Company will make generally available to its security holders, as soon as reasonably practicable, but in any event not later than 16 months after the end of the fiscal quarter in which the filing of the Prospectus pursuant to Rule 424 occurs, an earning statement (in form complying with the provisions of Section 11(a) of the 1933 Act and Rule 158 of the 1933 Act Regulations, which need not be certified by independent public accountants) covering a period of twelve months beginning not later than the first day of the Company's fiscal quarter next following the filing of the Prospectus pursuant to Rule 424. (i) The Company will use its best efforts to qualify the Senior Notes for offer and sale under the applicable securities and legal investment laws of such jurisdictions as the Representatives may designate, and will file and make such statements or reports as are or may be reasonably required by the laws of such jurisdictions; provided, however, that the Company shall not be required to qualify as a foreign corporation or dealer in securities, or to file any general consents to service of process under the laws of any jurisdiction. The fees and disbursements of Winthrop, Stimson, Putnam & Roberts, who are acting as counsel for the Underwriters for the purposes of this Agreement, shall be paid by the Underwriters (subject however to provisions of subparagraph (d) hereof requiring payment by the Company of counsel fees and disbursements not to exceed $5,000), provided, however, that if this Agreement is terminated in accordance with the provisions of Section 6, 7 or 9, the Company shall reimburse the Underwriters for the amount of such fees and disbursements. The Company shall not be required to pay any amount for any expenses of the Underwriters except as provided in this Section 5. The Company shall not in any event be liable to the Underwriters for damages on account of the loss of anticipated profits. (j) The Company, during the period when the Prospectus is required to be delivered under the 1933 Act, will file promptly all documents required to be filed with the Commission pursuant to Section 13(a) or (c) or Section 14 of the 1934 Act subsequent to the time of execution of this Agreement. (k) Between the date hereof and the Closing Date, the Company will not, without prior written consent of the Representatives, offer or sell, or enter into any agreement to sell, any additional Senior Notes or First Mortgage Bonds of the Company. - 7 - (l) The Company will use the net proceeds received from the sale of the Senior Notes in the manner specified in the Prospectus under "Use of Proceeds". SECTION 6. Conditions of Underwriters' Obligations. The --------------------------------------- several obligations of the Underwriters to purchase and pay for the Senior Notes shall be subject to the accuracy of the representations and warranties on the part of the Company, to the substantial accuracy of the statements of Company officers made pursuant to the provisions hereof, and to the following further conditions: (a) That, at the Closing Date, the Representatives shall receive the signed opinions of the following counsel, substantially in the respective forms attached hereto: Winthrop, Stimson, Putnam & Roberts, counsel for the Underwriters, and Covington & Burling and William T. Torgerson, Esq., each counsel for the Company. (b) That no amendment to the Registration Statement or Prospectus, filed subsequent to the execution of this Agreement, shall be unsatisfactory in substance to the Representatives or unsatisfactory in form to counsel for the Underwriters. (c) That, at or prior to 6:00 p.m., New York Time, on the date hereof, or at such later time and date as the Representatives may have from time to time consented to in writing or by telephone, confirmed in writing, all orders of the Public Service Commission of the District of Columbia necessary to permit the issue, sale and delivery of the Senior Notes shall be in effect; that at or prior to the Closing Date the certificate of such Public Service Commission permitting the issue of the Senior Notes shall have been recorded on the books of the Company; that prior to the Closing Date no stop order with respect to the effectiveness of the Registration Statement shall have been issued under the 1933 Act by the Commission and that at the Closing Date no proceedings therefor shall be pending or threatened; and that at the Closing Date the Prospectus shall not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances which they were made, not misleading, other than any statement contained in, or any matter omitted from, the Prospectus in reliance upon, and in conformity with, information furnished to the Company in writing by the Representatives or by or on behalf of any of the several Underwriters through the Representatives expressly for use in the Registration Statement or the Prospectus. (d) That, subsequent to the respective dates as of which information is given in the Registration Statement and Prospectus and prior to the Closing Date, no material and adverse change in the condition - 8 - of the Company and its subsidiaries, taken as a whole, financial or otherwise, shall have taken place (other than as referred to in or contemplated by the Registration Statement and Prospectus) and that the Company shall, at the Closing Date, deliver to the Representatives, a signed certificate of its President or a Vice President and its Treasurer or an Assistant Treasurer to the effect that (i) there has been no material adverse change, (ii) the representations and warranties in Section 2 are true and correct with the same force and effect as though expressly made at and as of the Closing Date, (iii) the Company has complied with all agreements and satisfied all conditions on its part to be performed or satisfied at or prior to Closing Date, and (iv) no stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose have been initiated or threatened by the Commission. (e) That at the Closing Date the Representatives shall have received a letter from PWC in form and substance satisfactory to the Representatives, dated the Closing Date, confirming that they are independent accountants within the meaning of the 1933 Act, the 1934 Act and published rules and regulations thereunder and to the effect that (i) in their opinion the audited consolidated financial statements included in the Company's Annual Report to the Commission on Form 10-K, incorporated by reference in the Registration Statement (the "Form 10-K"), comply as to form in all material respects with the applicable accounting requirements of the 1933 Act, the 1934 Act and the published rules and regulations of the Commission issued thereunder with respect to Form 10-K and registration statements on Form S-3, and (ii) on the basis of a reading of the unaudited consolidated financial data included in the Company's Quarterly Reports to the Commission on Form 10-Q, if any (the "Forms 10-Q"), incorporated by reference in the Registration Statement, and on the basis of the following procedures (but not on the basis of an audit in accordance with generally accepted auditing standards) to be performed by PWC: (A) a reading of the minutes of the Board of Directors of the Company and the Executive Committee thereof as set forth in the minute books to a specified date not more than three business days prior to the date of such letter, (B) a reading of the latest available unaudited interim consolidated financial data (if any), and (C) inquiries of certain officials of the Company who have responsibility for financial and accounting matters, nothing has come to their attention which in their judgment would indicate that (1) the unaudited consolidated financial data included in the Forms 10-Q (if any) do not comply as to form in all material respects with the applicable accounting requirements of the 1934 Act and the published rules and regulations of the Commission thereunder, or that any material modifications should be made to such unaudited consolidated financial data for such unaudited consolidated financial data to be in conformity with generally accepted accounting principles; (2) the - 9 - unaudited amounts of operating revenue, net income, earnings applicable for common stock and earnings per share of common stock and unaudited amounts for property and plant -- net, long-term debt, preferred and preference stock and common equity outstanding, as included in the Registration Statement, were not determined on a basis substantially consistent with that of the corresponding amounts in the audited consolidated statements of earnings and consolidated balance sheets incorporated by reference in the Registration Statement; (3) the ratios of earnings to fixed charges, actual and (if any) pro forma, as set forth in the Registration Statement were not arithmetically correct; (4) at the date of the latest available unaudited interim financial data there was any change in the common stock outstanding or long-term debt of the Company or any decrease in the common equity of the Company (before giving effect to dividends declared on common stock) as compared with amounts shown in the most recent consolidated balance sheet incorporated by reference in the Registration Statement; or for the period from the date of such consolidated balance sheet to the date of the latest available unaudited interim consolidated financial data there were any decreases, as compared with the corresponding period in the preceding year, in operating revenue or in net income or earnings per share; or (5) at a specified date not more than three business days prior to the date of such letter there was any change in the common stock outstanding or long-term debt of the Company, in each case as compared with amounts shown in the most recent consolidated balance sheet incorporated by reference in the Registration Statement; except in all instances for (i) changes or decreases which the Registration Statement discloses have occurred or may occur or (ii) changes or decreases not in excess of $500,000 or (iii) changes occasioned by the issuance of common stock pursuant to the Company's Shareholder Dividend Reinvestment Plan, Savings Plan for Exempt Employees, Savings Plan for Bargaining Unit Employees and Savings Plan for Non- Bargaining Unit, Non-Exempt Employees, or Long-Term Incentive Plan or upon the conversion of the Company's 7% Convertible Debentures and the 5% Convertible Debentures. The letter of PWC also shall be to the effect that they have carried out certain specified procedures, not constituting an audit, with respect to certain amounts, percentages and financial information which are derived from the general accounting records of the Company, which appear in the Registration Statement and Prospectus and which are specified by the Representatives, and have compared such amounts, percentages and financial information with the accounting records of the Company and have found them to be in agreement. (f) That the Company shall have performed such of its obligations under this Agreement as are to be performed by the terms hereof at or before the Closing Date. (g) At the Closing Date counsel for the Underwriter shall have - 10 - been furnished with such certificates, documents and opinions as they may reasonably require for the purpose of enabling them to pass upon the issuance and sale of the Bonds as herein contemplated and related proceedings, or in order to evidence the accuracy of any of the representations and warranties, or the fulfillment of any of the conditions herein contained; and all proceedings taken by the Company in connection with the issuance and sale of the Senior Notes as herein contemplated shall be satisfactory in form and substance to the Representatives and counsel for the Underwriters. If any condition specified in this Section shall not have been fulfilled when and as required to be fulfilled, this Agreement may be terminated by the Representatives by notice to the Company at any time at or prior to the Closing Date and such termination shall be without liability of any party to any other party except as provided in Section 5 and Section 8. SECTION 7. Conditions of Company's Obligations. The ----------------------------------- obligations of the Company with respect to the issue, sale and delivery of the Senior Notes shall be subject to the following conditions: (a) That, at or before 6:00 p.m., New York Time, on the date hereof, or such later time and day as the Company may have from time to time consented to in writing or by telephone, confirmed in writing, all orders of the Public Service Commission of the District of Columbia necessary to permit the issue, sale and delivery of the Senior Notes shall be in effect; and that prior to the Closing Date no stop order with respect to the effectiveness of the Registration Statement shall have been issued under the 1933 Act by the Commission and that at the Closing Date no proceedings therefor shall be pending or threatened. (b) That no order of the Public Service Commission of the District of Columbia relating to the issue or sale of the Senior Notes or to the application of the proceeds thereof, which may be entered after the execution of this Agreement and prior to the Closing Date, shall contain any conditions which are not acceptable to the Company. In case any of the conditions specified in this Section shall not have been fulfilled, this Agreement may be terminated by the Company, upon notice thereof to the Representatives, at any time prior to Closing Date, and such termination shall be without liability of any party to any other party except as provided in Section 5 and Section 8. SECTION 8. Indemnification. (a) The Company agrees to --------------- indemnify and hold harmless the several Underwriters and each person who controls any of the several Underwriters within the meaning of Section 15 of the 1933 Act against any and all losses, claims, damages or liabilities, as incurred, joint or several, to which - 11 - they or any of them may become subject under the 1933 Act or under any other statute or common law, and to reimburse each such Underwriter and each such controlling person for any legal or other expenses (including, to the extent hereinafter provided, reasonable counsel fees) incurred by them in connection with investigating any such losses, claims, damages or liabilities, or in connection with defending or settling (if settled with the written consent of the Company) any actions, insofar as such losses, claims, damages, liabilities, expenses or actions arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement as originally filed or as subsequently amended, or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading, or arising out of any untrue statement or alleged untrue statement of a material fact contained in the Prospectus as originally filed or as subsequently amended or supplemented, or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that the indemnity agreement contained in this Section shall not apply to any such losses, claims, damages, liabilities, expenses or actions arising out of, or based upon any such untrue statement or alleged untrue statement, or any such omission or alleged omission, if such statement or omission was made in reliance upon and in conformity with information furnished herein or in writing to the Company by the Representatives or by or on behalf of any of the several Underwriters through the Representatives expressly for use in the Registration Statement as originally filed or as subsequently amended or in the Prospectus as originally filed or as subsequently amended or supplemented; and provided, further, that the indemnity agreement contained in this Section shall not inure to the benefit of any Underwriter (or of any person controlling such Underwriter) on account of any such losses, claims, damages, liabilities, expenses or actions arising from the sale of Senior Notes to any person if such Underwriter failed to send or give a copy of the Prospectus (as it may have been amended or supplemented) (excluding documents incorporated by reference) to such person with or prior to the written confirmation of the sale involved. The indemnity agreement of the Company contained in this Section and the representations and warranties of the Company contained in Section 2 hereof shall remain operative and in full force and effect regardless of any investigation made by or on behalf of any Underwriter, or any such controlling person, and shall survive the delivery of the Senior Notes. The Underwriters agree to notify the Company promptly of the commencement of any litigation or proceedings against them or any of them or against any such controlling person in connection with the sale of Senior Notes. (b) Each Underwriter agrees to indemnify and hold harmless the Company, its officers and directors, and each person who controls the Company or any of its officers and directors within the meaning of Section 15 of the 1933 Act against any and all losses, claims, damages or liabilities, as incurred, joint or several, to which they or any of them may become subject under the 1933 Act - 12 - or under any other statute or common law, and to reimburse each of them for any legal or other expenses (including, to the extent hereinafter provided, reasonable counsel fees) incurred by them in connection with investigating any such losses, claims, damages or liabilities, or in connection with defending or settling (if settled with the written consent of the Representatives) any actions, insofar as such losses, claims, damages, liabilities, expenses or actions arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement as originally filed or as subsequently amended, or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading, or arising out of any untrue statement or alleged untrue statement of a material fact contained in the Prospectus as originally filed or as subsequently amended or supplemented, or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, if such statement or omission was made in reliance upon and in conformity with information furnished herein or in writing to the Company by the Representatives or by or on behalf of the several Underwriters through the Representatives expressly for use in the Registration Statement as originally filed or as subsequently amended or in the Prospectus as originally filed or as subsequently amended or supplemented. The indemnity agreement contained in this Section shall remain operative and in full force and effect regardless of any investigation made by or on behalf of the Company, or any such controlling person, and shall survive the receipt of the proceeds of the sale of the Senior Notes. The Company agrees promptly to notify the Representatives of the commencement of any litigation or proceedings against the Company, any of its officers or directors or any controlling person in connection with the sale of Senior Notes. The foregoing indemnity agreement is in addition to any further liability which any Underwriter may otherwise have to the Company or any of its directors, officers or controlling persons. (c) The Company and each of the several Underwriters agree that, upon the receipt of notice of the commencement of any action against it, its officers and directors, or any person controlling it as aforesaid in respect of which indemnity may be sought on account of any indemnity agreement contained herein, it will promptly give written notice of the commencement thereof to the party or parties against whom indemnity shall be sought hereunder. The omission so to notify such indemnifying party or parties of any such action shall relieve such indemnifying party or parties from any liability which it or they may have to the indemnified party on account of any indemnity agreement contained in (a) or (b) above, but shall not relieve such indemnifying party or parties from any liability which it or they may have to the indemnified party otherwise than on account of such indemnity agreement. In case such notice of any such action shall be so given, such indemnifying party shall be entitled to participate at its own expense in the defense or, if it so elects, to assume (in conjunction with any other indemnifying parties) the defense of such action, in which event - 13 - such defense shall be conducted by counsel chosen by such indemnifying party or parties and reasonably satisfactory to the indemnified party or parties who shall be defendant or defendants in such action, and such defendant or defendants shall bear the fees and expenses of any additional counsel retained by them; but if the indemnifying party shall elect not to assume the defense of such action, such indemnifying party will reimburse such indemnified party or parties for the reasonable fees and expenses of any counsel retained by them. In the event that the parties to any such action (including impleaded parties) include both the indemnified party or parties and the indemnifying party and any of the indemnified parties shall have been advised by counsel chosen by it and reasonably satisfactory to the Company that there may be one or more legal defenses available to it which are different from or additional to those available to the indemnifying party, the indemnifying party shall not have the right to assume the defense of such action on behalf of the indemnified party or parties and will reimburse the indemnified party or parties as aforesaid for the reasonable fees and expenses of any counsel retained by such indemnified party or parties, it being understood that the indemnifying party shall not, in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the reasonable fees and expenses of more than one separate firm of attorneys for all such indemnified parties, which firm shall, in connection with indemnification provided for in (a) above, be designated in writing by the Representatives, and, in connection with indemnification provided for in (b) above, be designated in writing by the Company. (d) In order to provide for just and equitable contribution in circumstances in which the indemnity agreement provided for in this Section 8 is for any reason held to be unenforceable by the indemnified parties although applicable in accordance with its terms, then each indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of the losses, liabilities, claims, damages and expenses of the nature contemplated in said indemnity agreement in such proportion as is equitable and as shall reflect both the relative benefits received by the Company on the one hand and the Underwriter or Underwriters, as the case may be, on the other hand from the offering of the Senior Notes, and the relative fault, if any, of the Company on the one hand and of the Underwriter or Underwriters, as the case may be, on the other hand in connection with the statements or omissions which resulted in such losses, liabilities, claims, damages or expenses, as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Underwriter or Underwriters, as the case may be, on the other hand in connection with the offering of the Senior Notes shall be deemed to be in the same proportion as the total net proceeds from the offering of such Senior Notes (before deducting expenses) received by the Company bear to the total commissions and underwriting discounts received by the Underwriter or Underwriters, as the case may be. The relative fault shall be determined by reference to, among other things, whether - 14 - the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company on the one hand or the Underwriter or the Underwriters on the other hand and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Subsection (d) were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to above. The amount paid or payable by an indemnified party as a result of the losses, liabilities, claims, damages and expenses referred to above shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section, each person, if any, who controls an Underwriter within the meaning of Section 15 of the 1933 Act shall have the same rights to contribution as such Underwriter, and each director of the Company, each officer of the Company who signed the Registration Statement, and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act shall have the same rights to contribution as the Company. SECTION 9. Termination. This Agreement may be terminated ----------- any time prior to the Closing Date by the Representatives by giving notice thereof to the Company, if at or prior to such time (i) there shall have occurred any general suspension of trading in securities on the New York Stock Exchange or there shall have been established by the New York Stock Exchange or by the Commission or by any federal or state agency or by the decision of any court any limitation on prices for such trading, or (ii) if a banking moratorium has been declared by any Federal, New York, District of Columbia or Virginia authority, or (iii) there shall have occurred any new outbreak or escalation of hostilities or other national or international calamity or crisis, the effect of which on the financial markets of the United States shall be such as to make it impracticable for the Underwriters to enforce contracts for the sale of the Senior Notes, or (iv) the Company shall have sustained a substantial loss by fire, flood, accident or other calamity which renders it impracticable to consummate the sale of the Senior Notes and the delivery of the Senior Notes by the several Underwriters at the initial public offering price. Any termination hereof pursuant to this Section 9 shall be without liability of any party to any other party except as otherwise provided in Section 5 and Section 8. SECTION 10. Default. If one or more of the Underwriters ------- shall fail on the Closing Date to purchase the Senior Notes which it or they are obligated to purchase hereunder (the "Defaulted Senior Notes"), then the remaining Underwriters (the "Non- Defaulting Underwriters") shall have the right, within 24 - 15 - hours after the Closing Date, to make arrangements for one or more of the Non-Defaulting Underwriters, or any other underwriters, to purchase all, but not less than all, of the Defaulted Senior Notes in such amounts as may be agreed upon and upon the terms herein set forth. If, however, during such 24 hours such arrangements shall not have been completed for the purchase of all of the Defaulted Senior Notes, then: (a) If the principal amount of the Defaulted Senior Notes does not exceed 10% of the principal amount of the Senior Notes, the Non-Defaulting Underwriters shall be obligated to purchase the total number of such Defaulted Senior Notes in the proportions that their respective underwriting obligations hereunder bear to the underwriting obligations of all Non-Defaulting Underwriters. (b) If the principal amount of the Defaulted Senior Notes exceeds 10% of the principal amount of the Senior Notes, this Agreement shall terminate without any liability on the part of the Company or any Non-Defaulting Underwriter. Nothing in this Section 10 and no action taken pursuant to this Section 10 shall relieve any defaulting party from liability in respect of its default. In the event of a default by one or more Underwriters as set forth in this Section 10 which does not result in a termination of this Agreement, either the Non-Defaulting Underwriters or the Company shall have the right to postpone the Closing Date for a period of not exceeding 7 days in order that any required changes in the Registration Statement or the Prospectus or in any other documents or arrangements may be effected. SECTION 11. Representations, Warranties and Agreements to --------------------------------------------- Survive Delivery. All representations, warranties and agreements - ---------------- contained in this Agreement, or contained in certificates of officers of the Company submitted pursuant hereto, shall remain operative and in full force and effect, regardless of any investigation made by or on behalf of any Underwriter or controlling person, or by or on behalf of the Company, and shall survive delivery of the Senior Notes to the Underwriters. SECTION 12. Miscellaneous. This Agreement shall inure to ------------- the benefit of the several Underwriters and the Company and with respect to the provisions of Section 8, the officers and directors and each controlling person referred to in Section 8, and their respective successors, heirs or legal representatives. Nothing in this Agreement is intended or shall be construed to give to any other person, firm or corporation, other than the Underwriters and the Company and their respective successors and the controlling persons and officers and directors referred to in Section 8 and their heirs and legal representatives, any legal or equitable right, remedy or claim under or in respect of this Agreement - 16 - or any provision herein contained. The term "successors" as used in this Agreement shall not include any purchaser, as such purchaser, of any Senior Notes from the Underwriters. In all dealings hereunder, the Representatives shall act on behalf of the Underwriters, and the parties hereto shall be entitled to act and rely upon any statement, request, notice or agreement on behalf of any Underwriter made or given by the Representatives (or by any one of the Representatives authorized by the agreement among the Underwriters relating to the Senior Notes to act on behalf of all the Underwriters). SECTION 13. Notices. All communications hereunder shall be ------- in writing and shall be deemed to have been duly given if mailed or transmitted by any standard form of telecommunication. Notices to the Underwriters shall be directed to the Representatives at the address set forth in Schedule I hereto, and notices to the Company shall be directed to it at 1900 Pennsylvania Avenue, N. W., Washington, D. C. 20068, Attention of Ellen Sheriff Rogers, Associate General Counsel, Secretary and Assistant Treasurer. SECTION 14. Governing Law. This Agreement shall be governed ------------- by the laws of the State of New York. SECTION 15. Counterparts. This Agreement may be ------------ simultaneously executed in counterparts, each of which when so executed shall be deemed to be an original. Such counterparts shall together constitute one and the same instrument. - 17 - If the foregoing is in accordance with your understanding of our agreement, kindly sign and return to the Company the enclosed duplicate hereof, whereupon it will become a binding agreement between the Company and the several Underwriters in accordance with its terms. Very truly yours, POTOMAC ELECTRIC POWER COMPANY By _________________________________ Dennis R. Wraase Senior Vice President and Chief Financial Officer The foregoing Underwriting Agreement is hereby confirmed and accepted as of the date first above written. ____________________ ____________________ ____________________ ____________________ By____________________________ - 18 - SCHEDULE I Underwriting Agreement dated _______________ Registration Statement No. 333-_____ Representative and Address: Senior Notes: Designation: Senior Notes, _____% Series due ____ Principal Amount: $___________ Supplemental Indenture dated as of _________, 199_ Date of Maturity: Interest Rate: Purchase Price: ______% of the principal amount thereof Public Offering Price: ______% of the principal amount thereof, plus accrued interest, if any, from the date of delivery to the Underwriters Closing Date and Location: _________, 199_ at 10:00 a.m. At the offices of Potomac Electric Power Company Suite 841 1900 Pennsylvania Avenue, N.W. Washington, DC 20068 - 19 - SCHEDULE II Principal Amount Name of Underwriters of Senior Notes $ Total $ - 20 - [LETTERHEAD OF POTOMAC ELECTRIC POWER COMPANY] Ladies and Gentlemen: This opinion is being delivered to you in connection with the issuance and sale by Potomac Electric Power Company (the "Company") of $_____ aggregate principal amount of its Senior Notes, ___% Series due _____ (the "Senior Notes"), which are being issued under an Indenture, dated ____, 1998 (the "Senior Note Indenture"), between the Company and The Bank of New York, as trustee (the "Senior Note Trustee"), as supplemented by a Supplemental Indenture thereto, dated _____, 19__, with respect to the Senior Notes (the "Senior Note Supplemental Indenture"), and which are being purchased by the Underwriters named in the Underwriting Agreement, dated _____, 19__, and between the Underwriters and the Company with respect to the Senior Notes (the "Underwriting Agreement"). The Senior Notes will be secured by First Mortgage Bonds, ___% Series due ____ (the "First Mortgage Bonds"), of an equal principal amount issued under the Mortgage and Deed of Trust, dated July 1, 1936, between the Company and The Bank of New York, as successor trustee (the "Mortgage Bond Trustee"), as heretofore supplemented and amended (the "Mortgage Bond Indenture"), and as now further supplemented and amended by a Supplemental Indenture, dated ____, 19__, with respect to the First Mortgage Bonds (the "Mortgage Bond Supplemental Indenture"). As used herein, the term "Registration Statement" means the registration statement of the Company on Form S-3 filed with the Securities and Exchange Commission, File No. 33- ___. All other capitalized terms used in this opinion letter that are not defined herein, but which are defined, either directly or by cross-reference, in the Underwriting Agreement, are used herein with the respective meanings assigned to such terms in the Underwriting Agreement. As counsel for the Company, I have examined such corporate records, certificates and other documents and such questions of law as I have considered necessary or appropriate for the purpose of this opinion. I have not examined the Senior Notes, except for the specimen thereof attached as Exhibit A to the certificate of the Senior Note Trustee of even date herewith as to due authentication and delivery of the Senior Notes, have assumed that the Senior Notes conform in all respects to such specimen, and have relied on such certificate as to the due authentication and delivery of the Senior Notes. I likewise have not examined the First Mortgage Bonds, except for the specimen thereof attached as Exhibit A to the certificate of the Mortgage Bond Trustee of even date herewith as to the due authentication and delivery of the First - 21 - Mortgage Bonds, have assumed that the First Mortgage Bonds conform in all respects to such specimen, and have relied on such certificate as to the due authentication and delivery of the First Mortgage Bonds. On the basis of my examinations as aforesaid, I advise you that, in my opinion: 1. The Company has been duly incorporated and is now validly existing as a corporation in good standing under the laws of the District of Columbia; is also now validly existing and in good standing as a domestic corporation of the Commonwealth of Virginia; has charter power to carry on the business in which it is now engaged as set forth in the Prospectus, is legally qualified to carry on in the State of Maryland the business in which it is now engaged in said State; and is legally qualified to carry on business within the Commonwealth of Pennsylvania, limited however to its participation in the construction, ownership and operation of the Conemaugh generating station and certain related transmission lines. 2. The Underwriting Agreement has been duly authorized, executed and delivered by the Company. 3. The Senior Note Indenture and the Senior Note Supplemental Indenture each has been duly and validly authorized, executed and delivered by the Company. The Senior Note Indenture, as supplemented by the Senior Note Supplemental Indenture, is a valid and legally binding instrument of the Company that is enforceable against the Company in accordance with its terms, except as the same may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance or other laws of general application relating to the enforcement of creditors' rights or by general principles of equity. 4. The Mortgage Bond Indenture and the Mortgage Bond Supplemental Indenture each has been duly and validly authorized, executed and delivered by the Company. The Mortgage Bond Indenture, as supplemented by the Mortgage Bond Supplemental Indenture, is a valid and legally binding instrument of the Company that is enforceable against the Company in accordance with its terms, except as the same may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance or other laws of general application relating to the enforcement of creditors' rights or by general principles of equity. 5. The Senior Notes have been duly and validly authorized by all necessary corporate action, have been duly and validly issued in accordance with the provisions of the Senior Note Indenture and the Senior Note Supplemental Indenture, and constitute valid and legally binding obligations of the Company enforceable in accordance with their terms, except as the same may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance or other laws of general application relating to the enforcement of creditors' rights or by general principles of equity, and are entitled to the benefit and security afforded by the Senior Note Indenture. - 22 - 6. The First Mortgage Bonds have been duly and validly authorized by all necessary corporate action, have been duly and validly issued in accordance with the provisions of the Mortgage Bond Indenture and the Mortgage Bond Supplemental Indenture, and constitute valid and legally binding obligations of the Company enforceable in accordance with their terms, except as the same may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance or other laws of general application relating to the enforcement of creditors' rights or by general principles of equity, and are entitled to the benefit and security afforded by the Mortgage Bond Indenture. 7. The Registration Statement is effective under the Securities Act of 1933, as amended (the "1933 Act"), no stop order suspending the effectiveness of the Registration Statement has been issued, and, to the best of my knowledge, no proceedings for that purpose are pending or threatened under Section 8(d) of the 1933 Act. 8. The approval of the Public Service Commission of the District of Columbia, which is required for the valid authorization, issuance and sale of the Senior Notes by the Company in accordance with the Underwriting Agreement has been obtained and is in full force and effect. No approval by the State Corporation Commission of Virginia is necessary for the valid authorization, issuance and sale of the Senior Notes by the Company in accordance with the Underwriting Agreement. No approval, consent or order of the Maryland Public Service Commission or any other regulatory authority of the State of Maryland is required for the valid authorization, issuance and sale of the Senior Notes by the Company in accordance with the Underwriting Agreement (other than any applicable requirements of the Maryland Securities Law, as to which I express an opinion). I do not know of any other approvals, consents or orders of any governmental body that are legally required as a condition to the valid authorization and issuance of the Senior Notes (other than compliance with the securities or "blue sky" laws of any jurisdiction, as to which I express no opinion). 9. The summary of the terms of the Senior Note Indenture, the Senior Notes, the Mortgage Bond Indenture and the First Mortgage Bonds contained in the Registration Statement and Prospectus fairly describes the provisions thereof required to be described by the registration form. 10. The Mortgage Bond Indenture constitutes a valid first lien or charge, to the extent that it purports to be such, upon the interest held by the Company in its property covered by the Mortgage Bond Indenture, subject only to such exceptions, defects, qualifications and other matters as may be permitted by the Mortgage Bond Indenture and to such other matters as in my opinion do not materially affect the security for the First Mortgage Bonds. The Mortgage and Deed of Trust dated July 1, 1936, and the supplements and amendments thereto, other than the Mortgage Bond Supplemental Indenture, have been duly recorded and - 23 - filed for record in the only counties in which any real property subject to the lien of the Mortgage Bond Indenture is located, and the Mortgage Bond Supplemental Indenture also has been so recorded and filed, and all requisite steps have been taken to perfect the security interest of the Mortgage Bond Indenture in personal property of the Company. 11. The Senior Note Indenture constitutes a valid first lien on the First Mortgage Bonds. 12. The Company holds valid franchises, permits and other rights adequate for the business of the Company in the territory which it serves, and such franchises, permits and other rights contain no unduly burdensome restrictions. 13. There are no material pending legal proceedings (other than ordinary routine litigation incidental to the business or as disclosed in the Prospectus) to which the Company is a party or of which any of its property is the subject. 14. The Company has good and valid title in and to all of the real property reflected in its most recent audited balance sheet that is incorporated by reference in the Registration Statement (except real property disposed of in the ordinary course of business since that date), free and clear of all liens, charges and encumbrances against the same, except for the lien of the Mortgage Bond Indenture and for such liens, charges, encumbrances, defects, qualifications and other matters affecting title, possession or use as may be permitted by the Mortgage Bond Indenture. I also advise you that, in my opinion, Registration Statement, as of the effective date thereof, appeared on its face to be appropriately responsive in all material respects to the requirements of the 1933 Act, and to the extent applicable, the Securities Exchange Act of 1934, as amended, and the applicable rules and regulations of the Securities and Exchange Commission thereunder, and that the Senior Note Indenture and the Senior Note Supplemental Indenture appear on their face to be appropriately responsive in all material respects to the requirements of the 1939 Act and the applicable rules and regulations of the Securities and Exchange Commission thereunder. Except as set forth in paragraph 9 above, I am not passing upon, and do not assume any responsibility for, the accuracy, completeness or fairness of the statements contained in the Registration Statement and Prospectus and make no representation that I have independently verified the accuracy, completeness or fairness of such statements, except insofar as such statements relate to me. However, based on my examination of the Registration Statements and Prospectus and of the documents specifically referred to in the section thereof entitled "Description of Senior Notes," "Description of Indenture" and "Description of Senior Note Mortgage Bonds and Mortgage," on my general familiarity with the affairs of the Company, and on my participation in conferences with officials and - 24 - other representatives of, and other counsel for, the Company, with PricewaterhouseCoopers LLP, the independent accountants of the Company, and with your representatives and your counsel, I do not believe that Registration Statement, at the time it became effective, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or that the Prospectus, at the time it was filed with the Commission pursuant to Rule 424(b) under the 1933 Act or at the date hereof, contained or contains an untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. I am expressing no belief, however, as to the financial statements or other financial or statistical data constituting a part of, or incorporated by reference in, the Registration Statement or the Prospectus or as to the parts of the Registration Statement the constitute the statement of eligibility of the Senior Note Trustee. I have assumed, with your approval, but not independently verified, that the signatures on all documents examined by me are genuine. - 25 - [Letterhead of Covington & Burling] Ladies and Gentlemen: We have acted as special counsel to Potomac Electric Power Company (the "Company") in connection with the issuance and sale by the Company of $____ in principal amount of Senior Notes, ___% Series due ____ (the "Senior Notes"), which are being issued under an Indenture, dated _____, 1998 (the "Senior Note Indenture") between the Company and The Bank of New York, as trustee (the "Senior Note Trustee"), as supplemented by a Supplemental Indenture thereto, dated _____, 19__, with respect to the Senior Notes (the "Senior Note Supplemental Indenture"), and which are being purchased by the Underwriters named in the Underwriting Agreement dated _____, 19__ between the Underwriters and the Company with respect to the Senior Notes (the "Underwriting Agreement"). The Senior Notes will be secured by First Mortgage Bonds, ___% Series due ____ (the "First Mortgage Bonds") of an equal principal amount issued under the Mortgage and Deed of Trust, dated July 1, 1936, between the Company and The Bank of New York, as successor trustee (the "Mortgage Bond Trustee"), as heretofore supplemented and amended (the "Mortgage Bond Indenture") and as now further supplemented and amended by a Supplemental Indenture, dated _____, 19__, with respect to the First Mortgage Bonds (the "Mortgage Bond Supplemental Indenture"). As used herein, the term "Registration Statement" means the registration statement of the Company on Form S-3, File No. 33- _____. All other terms used herein that are not defined herein but which are defined, either directly or by cross-reference, in the Underwriting Agreement are used herein with the respective meanings assigned to such terms therein. As counsel for the Company, we have examined originals (or copies certified or otherwise identified to our satisfaction) of such instruments, certificates and documents and have reviewed such questions of law as we have deemed necessary or appropriate for the purpose of the opinions rendered below. In such examination, we have assumed the genuiness of all signatures, the authenticity of all documents submitted to us as originals, the conformity to the original documents of all documents submitted to us as copies, the conformity of the Senior Notes to the specimen thereof attached as Exhibit A to the certificate of the Senior Note Trustee of even date herewith regarding the due authentication and delivery of the Senior Notes and the conformity of the First Mortgage Bonds to the specimen thereof attached as Exhibit A to the certificate of the Mortgage Bond Trustee of even date herewith regarding due authentication and delivery of the First Mortgage Bonds. As to any facts material to our opinion we have, when relevant facts were not independently established, relied upon the aforesaid certificates. - 26 - Based on the foregoing, and subject to the following limitations and qualifications, we are of the opinion that: 1. The Company has been duly incorporated and is validly existing as a corporation under the laws of the District of Columbia and under the laws of the Commonwealth of Virginia, and has the corporate power and authority to execute the Underwriting Agreement, the Senior Note Indenture, the Senior Note Supplemental Indenture and the Mortgage Bond Supplemental Indenture, and to issue and sell the Senior Notes and to issue the First Mortgage Bonds. 2. The Underwriting Agreement has been duly authorized, executed and delivered by the Company. 3. The Senior Note Indenture and the Senior Note Supplemental Indenture each have been duly and validly authorized by all necessary corporate action, and have been duly and validly executed and delivered by the Company. As supplemented by the Senior Note Supplemental Indenture, the Senior Note Indenture constitutes a valid and legally binding instrument of the Company that is enforceable against the Company in accordance with its terms, except as such enforcement may be limited by bankruptcy, insolvency, reorganization or other laws affecting the enforcement of creditors' rights or by general principles of equity. The Senior Note Indenture, as supplemented by the Senior Note Supplemental Indenture, has been qualified under the Trust Indenture Act of 1939, as amended (the "1939 Act"). 4. The Mortgage Bond Supplemental Indenture has been duly and validly authorized by all necessary corporate action, has been duly and validly executed and delivered by the Company. As supplemented and amended by the Mortgage Bond Supplemental Indenture, the Mortgage Bond Indenture constitutes a valid and legally binding instrument of the Company that is enforceable against the Company in accordance with its terms, except as such enforcement may be limited by bankruptcy, insolvency, reorganization or other laws affecting the enforcement of creditors' rights or by general principles of equity. 5. The Senior Notes have been duly and validly authorized by all necessary corporate action, have been duly and validly issued in accordance with the provisions of the Senior Note Indenture and the Senior Note Supplemental Indenture, and constitute valid and legally binding obligations of the Company enforceable in accordance with their terms, except as such enforcement may be limited by bankruptcy, insolvency, reorganization or other laws affecting enforcement of creditors' rights or by general principles of equity, and are entitled to the benefit and security afforded by the Senior Note Indenture. - 27 - 6. The Mortgage Bonds have been duly and validly authorized by all necessary corporate action, have been duly and validly issued in accordance with the provisions of the Mortgage Bond Indenture and the Mortgage Bond Supplemental Indenture, and constitute valid and legally binding obligations of the Company enforceable in accordance with their terms, except as such enforcement may be limited by bankruptcy, insolvency, reorganization or other laws affecting enforcement of creditors' rights or by general principles of equity, and are entitled to the benefit and security afforded by the Mortgage Bond Indenture. 7. The Registration Statement is effective under the Securities Act of 1933, as amended (the "1933 Act"), and to the best of our knowledge no stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose are pending or threatened under Section 8(d) of the 1933 Act. The Registration Statement, at the time it became effective, and the Prospectus, at the time it was filed with the Securities and Exchange Commission (the "Commission") pursuant to Rule 424 under the 1933 Act (except for the financial statements and other financial and statistical data constituting a part thereof, as to which we express no opinion), complied as to form in all material respects with the applicable requirements of the 1933 Act and the 1939 Act, and the applicable rules and regulations of the Commission thereunder, except that we express no opinion on the Form T-1 filed as an exhibit thereto. The documents or portions thereof filed with the Commission pursuant to the Securities Exchange Act of 1934, as amended (the "1934 Act"), and incorporated by reference in the Registration Statement and the Prospectus, at the times they were filed with the Commission, complied as to form in all material respects with the 1934 Act, and the rules and regulations of the Commission thereunder. 8. The approval of the Public Service Commission of the District of Columbia which is required for the valid authorization, issuance and sale of the Senior Notes by the Company in accordance with the Underwriting Agreement has been obtained and, to the best of our knowledge, such approval is in full force and effect. No approval by the State Corporation Commission of the Commonwealth of Virginia is necessary for the valid authorization, issuance and sale of the Senior Notes by the Company in accordance with the Underwriting Agreement, and we do not know of any other approvals, consents or orders of any governmental body under the laws of the District of Columbia or the Commonwealth of Virginia that are legally required as a condition to the valid authorization and issuance of the Senior Notes (other compliance with the securities or "blue sky" laws of such jurisdiction, as to which we express no opinion). 9. The summary of the terms of the Senior Note Indenture, the Senior Notes, the Mortgage Bond Indenture and the First Mortgage Bonds contained in the Registration Statement and the Prospectus fairly describes the provisions thereof required to be described by the registration statement form. - 28 - In passing upon the forms of the Registration Statement and the form of the Prospectus, we necessarily assume the correctness and completeness of the statements made and information included therein by the Company and take no responsibility therefor, except insofar as such statements relate to us and as set forth in paragraph 9 above. In connection with the Company's preparation of the Registration Statement and the Prospectus, we had discussions with certain of its officers and representatives. Our examination of the Registration Statement and the Prospectus and our discussions did not disclose to us any information which gives us reason to believe that, at the time the Registration Statement became effective, it contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or that the Prospectus, at the time it was filed with the Commission pursuant to Rule 424(b) or at the date hereof, contained or contains any untrue statement of a material fact or omitted or omits to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. We are not making any statement as to the financial statements and other financial and statistical data constituting a part of the Registration Statement or the Prospectus. The opinions set forth herein are solely for your benefit in connection with the consummation of the transactions contemplated by the Underwriting Agreement, and may not be relied upon by you for any other purpose or by any other person for any purpose. Very truly yours, Covington & Burling - 29 - [LETTERHEAD OF WINTHROP, STIMSON, PUTMAN & ROBERTS] Ladies and Gentlemen: We have acted as counsel for you in connection with your purchase from Potomac Electric Power Company (the "Company") of $___ principal amount of its Senior Notes, ___% Series due _____ (the "Senior Bonds"), pursuant to the Underwriting Agreement, dated _____, 19__, between you and the Company (the "Underwriting Agreement"). The Senior Notes have been issued under an Indenture, dated ____, 1998 (the "Senior Note Indenture"), between the Company and The Bank of New York, as trustee (the "Senior Note Trustee"), as supplemented by a Supplemental Indenture thereto, dated _____, 19__, with respect to the Senior Notes (the "Senior Note Supplemental Indenture"). The Senior Notes will be secured by First Mortgage Bonds, ___% series due ____ (the "First Mortgage Bonds"), of an equal principal amount issued under the Mortgage and Deed of Trust, dated July 1, 1936, between the Company and The Bank of New York, as successor trustee (the "Mortgage Bond Trustee"), as heretofore supplemented and amended (the "Mortgage Bond Indenture"), and as now further supplemented and amended by a Supplemental Indenture, dated _____, 19__, with respect to the First Mortgage Bonds (the "Mortgage Bond Supplemental Indenture"). We are members of the New York Bar and, for purposes of this opinion, do not hold ourselves out as experts on the laws of the District of Columbia, the State of Maryland or the Commonwealths of Pennsylvania or Virginia. We understand that you are relying and, in rendering this opinion, we have, with your consent, relied upon the opinion of even date herewith addressed to you by William T. Torgerson, Esq., Senior Vice President and General Counsel of the Company, as to all matters covered in such opinion relating to the laws of the District of Columbia, the State of Maryland and the Commonwealths of Pennsylvania or Virginia. We do not pass upon the organization of the Company, titles to property, franchises or the lien of the Senior Note Indenture or the Mortgage Bond Indenture. As to such matters, it is our understanding that you are relying on the above-mentioned opinion. We have reviewed such opinion and believe it is satisfactory and that you and we are justified in relying thereon. We have examined the documents described in the list of closing papers as having been delivered to you at the closing and such other documents and have satisfied ourselves as to such other matters as we have deemed necessary in order to enable us to express this opinion. We have not examined the Senior Notes or the First Mortgage Bonds, except for specimens thereof, and we have relied upon certificates of the Senior Note Trustee and the Mortgage Bond Trustee, respectively, as to the authentication and delivery thereof. As to various questions of fact material to this opinion, we have relied upon representations of the Company and statements in the Registration Statements and the Prospectus hereinafter mentioned. In such examination, we have assumed the genuineness of - 30 - all signatures, the authenticity of all documents submitted to us, and the genuineness and conformity to original documents of documents submitted to us as certified or photostatic copies. Subject to the foregoing and to the further exceptions and qualifications set forth below, we are of the opinion that: 1. The Senior Notes have been duly and validly authorized by all necessary corporate action of the Company, have been duly and validly issued in accordance with the provisions of the Senior Note Indenture and the Senior Note Supplemental Indenture, and constitute legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, except as may be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization, or other laws affecting the enforcement of mortgagees' and other creditors' rights and by general principles of equity (regardless of whether enforceability is considered in a proceeding at equity or in law), and by an implied covenant of good faith and fair dealing; and the Senior Notes are entitled to the benefits and security afforded by the Senior Note Indenture. 2. The Mortgage Bonds have been duly and validly authorized by all necessary corporate action of the Company, have been duly and validly issued in accordance with the provisions of the Mortgage Bond Indenture and the Mortgage Bond Supplemental Indenture, and constitute legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, except as may be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization, or other laws of general application affecting the enforcement of mortgagees' and other creditors' rights and by general principles of equity (regardless of whether enforceability is considered in a proceeding at equity or in law), and by an implied covenant of good faith and fair dealing; and the Mortgage Bonds are entitled to the benefits and security afforded by the Mortgage Bond Indenture. 3. The Underwriting Agreement has been duly authorized, executed and delivered by the Company. 4. The Senior Note Indenture and the Senior Note Supplemental Indenture, each has been duly and validly authorized, executed and delivered by the Company, and is a legal, valid and binding instrument, enforceable against the Company in accordance with its terms, except as limited by bankruptcy, insolvency, fraudulent conveyance, reorganization, or other laws of general application relating to the enforcement of mortgagees' and other creditors' rights and by general principles of equity (regardless of whether enforceability is considered in a proceeding at equity or in law), and by an implied covenant of good faith and fair dealing. The Senior Note Indenture has been qualified under the Trust Indenture Act of 1939, as amended (the "1939 Act"). - 31 - 5. The Mortgage Bond Indenture and the Mortgage Bond Supplemental each has been duly and validly authorized, executed and delivered by the Company, and is a legal, valid and binding instrument, enforceable against the Company in accordance with its terms, except as limited by bankruptcy, insolvency, fraudulent conveyance, reorganization, or other laws of general application relating to the enforcement of mortgagees' and other creditors' rights and by general principles of equity (regardless of whether enforceability is considered in a proceeding at equity or in law), and by an implied covenant of good faith and fair dealing. 6. The Registration Statement is effective under the Securities Act of 1933, as amended (the "1933 Act"), and, to the best of our knowledge, no stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose are pending or threatened under Section 8(d) of the 1933 Act. The Registration Statement, at the time it became effective, and the Prospectus, at the time it was filed with the Securities and Exchange Commission (the "Commission") pursuant to Rule 424(b) under the 1933 Act (except as to the financial statements and other financial or statistical data constituting a part thereof or incorporated by reference therein, upon which we express no opinion), complied as to form in all material respects with the applicable requirements of the 1933 Act and the 1939 Act and the applicable instructions, rules and regulations of the Commission thereunder, except that we express no opinion on the Form T-1 filed as an exhibit thereto. The documents or portions thereof filed with the Commission pursuant to the Securities Exchange Act of 1934, as amended (the "1934 Act"), and incorporated by reference in the Registration Statement and the Prospectus pursuant to Item 12 of Form S-3 (except as to the financial statements and other financial or statistical data constituting a part thereof or incorporated by reference therein, upon which we express no opinion), at the time they were filed with the Commission, complied as to form in all material respects with the applicable requirements of the 1934 Act and the applicable instructions, rules, and regulations of the Commission thereunder. 7. The summary of the terms of the Senior Note Indenture, the Senior Notes, the Mortgage Bond Indenture, and the First Mortgage Bonds contained in the Registration Statement and Prospectus fairly describes the provisions thereof required to be described by the registration statement form, except that we express no opinion as to the statements contained under "Description of the Senior Note Mortgage Bonds and Mortgage -- Security." 8. The approval of the Public Service Commission of the District of Columbia, which is required for the valid authorization, issuance and sale of the Senior Notes by the Company in accordance with the Underwriting Agreement, has been obtained and, to the best of our knowledge, such approval is in full force and effect. No approval by the State Corporation Commission of the Commonwealth of Virginia is necessary for the valid authorization, issuance and sale of the - 32 - Senior Notes by the Company in accordance with the Underwriting Agreement, and we do not know of any other approvals of any governmental body required in that connection (other than in connection or in compliance with the provisions of the securities or "blue sky" laws of any jurisdiction, as to which we express no opinion herein.) All legal proceedings and legal opinions rendered in connection with the issuance and sale of the Senior Notes, including the opinion of William T. Torgerson, Esq., of even date herewith, are satisfactory in form to us. In passing upon the forms of the Registration Statement and the form of the Prospectus, we necessarily assume the correctness and completeness of the statements made and information included therein by the Company and take no responsibility therefor, except insofar as such statements relate to us and as set forth in paragraph 7 above. In connection with the Company's preparation of the Registration Statement and the Prospectus, we have had conferences with certain of its officers and representatives, with counsel for the Company, with PricewaterhouseCoopers LLP, the Company's independent public accountants, and with your representatives. We did not participate in the preparation of the documents incorporated by reference in the Registration Statements and the Prospectus. Our examination of the Registration Statement and the Prospectus, and our discussions in the above-mentioned conferences, did not disclose to us any information that gives us reason to believe that the Registration Statement, at the time it became effective, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or that the Prospectus, at the time it was filed with the Commission pursuant to Rule 424(b) under the 1933 Act or at the date hereof, contained or contains any untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. We do not express any opinion or belief as to the financial statements or other financial or statistical data constituting a part of, or incorporated by reference in, the Registration Statement or the Prospectus or as to the parts of the Registration Statement that constitute the statement of eligibility of the Senior Note Trustee. This opinion is given to you solely for your use in connection with the Underwriting Agreement and the transactions contemplated thereunder and may not be relied upon by any other person or for any other purpose, without our prior written consent. - 33 - EX-4 3 1ST MTG. BONDS SUPPLEMENTAL INDENTURE ================================================================== POTOMAC ELECTRIC POWER COMPANY 1900 Pennsylvania Avenue, N.W., Washington, D.C. TO THE BANK OF NEW YORK 101 Barclay Street, New York, NY as Trustee ------------------ Supplemental Indenture Dated as of __________ __, 199_ ------------------ Supplemental to Mortgage and Deed of Trust Dated July 1, 1936 ------------------ FIRST MORTGAGE BONDS, ____ % SERIES DUE ____ ================================================================== POTOMAC ELECTRIC POWER COMPANY SUPPLEMENTAL INDENTURE DATED AS OF __________ __, 199_ TABLE OF CONTENTS* PAGE Parties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Recitals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PART I Description of Bonds Section 1. General description of Bonds of ____ Series. . . . . . Section 2. Form of face of Bond of ____ Series. . . . . . . . . . Form of Trustee's certificate. . . . . . . . . . . . . Text appearing on reverse side of Bond of ____ Series. Section 3. Denominations of Bonds of ____ Series. . . . . . . . . Section 4. Execution and form of temporary Bonds of ___ Series. . PART II Issue of Bonds Section 1. Limitation as to principal amount. . . . . . . . . . . Section 2. Issue of Bonds of ___ Series . . . . . . . . . . . . . PART III Redemption at Option of Company Section 1. Bonds of ____ Series redeemable. . . . . . . . . . . . Section 2. Event of Default under Senior Note Indenture . . . . . Section 3. Occurrence of Release Date . . . . . . . . . . . . . . Section 4. Cancellation . . . . . . . . . . . . . . . . . . . . . PART IV Additional Particular Covenants of the Company Section 1. Company not to withdraw moneys pursuant to Section 2 of Article VIII in excess of an amount equal to principal amount of issued refundable bonds. . . . . . . . . . . Section 2. No property additions made on or prior to December 31, 1946 to be used for any purpose under the Indenture . PART V Amendment of Indenture to Permit Qualification Under Trust Indenture Act of 1939. . . . . . . . . . . . . . . . . . . . PART VI Amendment of Original Indenture. . . . . . . . . . . . . . . . . . PART VII The Trustee Acceptance of trusts by the Trustee. . . . . . . . . . . . . . . . Trustee not responsible for validity of the Supplemental Indenture PART VIII Miscellaneous Provisions Execution of Supplemental Indenture in counterparts. . . . . . . . Appointment of attorneys-in-fact by parties. . . . . . . . . . . . Testimonium. . . . . . . . . . . . . . . . . . . . . . . . . . . . Execution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Company's Acknowledgments. . . . . . . . . . . . . . . . . . . . . Trustee's Acknowledgments. . . . . . . . . . . . . . . . . . . . . ____________________ The Table of Contents is not part of the Supplemental Indenture and should not be considered as such. It is included herein only for purposes of convenient reference. ii SUPPLEMENTAL INDENTURE, dated as of the ___ day of _________, nineteen hundred and ninety-_________ (199_), made by and between Potomac Electric Power Company, a corporation organized and existing under the laws of the District of Columbia and a domestic corporation of the Commonwealth of Virginia (hereinafter sometimes called the "Company"), party of the first part, and The Bank of New York, a New York banking corporation organized and existing under the laws of the State of New York (hereinafter sometimes called the "Trustee"), as trustee under the Mortgage and Deed of Trust dated July 1, 1936, hereinafter mentioned, party of the second part; WHEREAS, the Company has heretofore executed and delivered its Mortgage and Deed of Trust, dated July 1, 1936 (hereinafter sometimes referred to as the "Original Indenture"), to The Riggs National Bank of Washington, D.C., as trustee, to secure an issue of First Mortgage Bonds of the Company, issuable in series; and WHEREAS, the Trustee has succeeded The Riggs National Bank of Washington, D.C. as trustee under the Original Indenture pursuant to Article XIII, Section 3 thereof; and WHEREAS, pursuant to the terms and provisions of the Original Indenture, indentures supplemental thereto dated as of July 1, 1936, December 1, 1939, August 1, 1940, August 1, 1942, January 1, 1948, May 1, 1949, May 1, 1950, March 1, 1952, May 15, 1953, May 16, 1955, June 1, 1956, December 1, 1958, November 16, 1959, December 1, 1960, February 15, 1963, May 15, 1964, April 1, 1966, May 1, 1967, February 15, 1968, March 15, 1969, February 15, 1970, August 15, 1970, September 15, 1972, April 1, 1973, January 2, 1974, August 15, 1974, August 15, 1974, June 15, 1977, July 1, 1979, June 16, 1981, June 17, 1981, December 1, 1981, August 1, 1982, October 1, 1982, April 15, 1983, November 1, 1985, March 1, 1986, November 1, 1986, March 1, 1987, September 16, 1987, May 1, 1989, August 1, 1989, April 5, 1990, May 21, 1991, May 7, 1992, September 1, 1992, November 1, 1992, March 1, 1993, March 2, 1993, July 1, 1993, August 20, 1993, September 29, 1993, September 30, 1993, October 1, 1993, February 10, 1994, February 11, 1994, March 10, 1995, September 6, 1995, September 7, 1995 and October 2, 1997 have been heretofore entered into between the Company and the Trustee to provide, respectively, for the creation of the first through the sixty-second series of Bonds thereunder and, in the case of the supplemental indentures dated January 1, 1948, March 1, 1952, May 15, 1953, May 16, 1955, June 1, 1956, September 15, 1972, July 1, 1979, June 17, 1981, November 1, 1985, September 16, 1987, May 1, 1989, May 21, 1991, May 7, 1992, July 1, 1993, October 2, 1997 and one of the supplemental indentures dated August 15, 1974, to convey additional property; and WHEREAS, $20,000,000 principal amount of Bonds of the 3-1/4% Series due 1966 (the first series), $5,000,000 principal amount of Bonds of the 3-1/4% Series due 1974 (the second series), $10,000,000 principal amount of Bonds of the 3-1/4% Series due 1975 (the third series), $5,000,000 principal amount of Bonds of the 3-1/4% Series due 1977 (the fourth series), $15,000,000 principal amount of Bonds of the 3% Series due 1983 (the fifth series), $10,000,000 principal amount of Bonds of the 2-7/8% Series due 1984 (the sixth series), $30,000,000 principal amount of Bonds of the 2-3/4% Series due 1985 (the seventh series), $15,000,000 principal amount of Bonds of the 3-1/4% Series due 1987 (the eighth series), $10,000,000 principal amount of Bonds of the 3-7/8% Series due 1988 (the ninth series), $10,000,000 principal amount of Bonds of the 3-3/8% Series due 1990 (the tenth series), $10,000,000 principal amount of Bonds of the 3-5/8% - 2- Series due 1991 (the eleventh series), $25,000,000 principal amount of Bonds of the 4-5/8% Series due 1993 (the twelfth series), $15,000,000 principal amount of Bonds of the 5-1/4% Series due 1994 (the thirteenth series), $40,000,000 principal amount of Bonds of the 5% Series due 1995 (the fourteenth series), $50,000,000 principal amount of Bonds of the 4-3/8% Series due 1998 (the fifteenth series); $45,000,000 principal amount of Bonds of the 7-3/4% Series due 2004 (the twentieth series), $35,000,000 principal amount of Bonds of the 8.85% Series due 2005 (the twenty- first series), $70,000,000 principal amount of Bonds of the 9-1/2% Series due August 15, 2005 (the twenty-second series), $50,000,000 principal amount of Bonds of the 7-3/4% Series due 2007 (the twenty-third series), $25,000,000 principal amount of Bonds of the 5-5/8% Series due 1997 (the twenty-fourth series), $100,000,000 principal amount of Bonds of the 8-3/8% Series due 2009 (the twenty-fifth series), $50,000,000 principal amount of Bonds of the 10-1/4% Series due 1981 (the twenty-sixth series), $50,000,000 principal amount of Bonds of the 10-3/4% Series due 2004 (the twenty-seventh series), $38,300,000 principal amount of Bonds of the 6-1/8% Series due 2007 (the twenty-eighth series), $15,000,000 principal amount of Bonds of the 6-1/2% Series due 2004 (the twenty-ninth series), $20,000,000 principal amount of Bonds of the 6-1/2% Series due 2007 (the thirtieth series), $7,500,000 principal amount of Bonds of the 6-5/8% Series due 2009 (the thirty-first series), $30,000,000 principal amount of Bonds of the Floating Rate Series due 2010 (the thirty-second series), $50,000,000 principal amount of Bonds of the 14-1/2% Series due 1991 (the thirty-third series), $60,000,000 principal amount of Bonds of the 14-1/4% Series due 1992 (the thirty-fifth series), $50,000,000 principal amount of Bonds of the 11-7/8% Series due 1989 (the thirty-sixth series), $37,000,000 principal amount of Bonds of the 8-3/4% Series due 2010 (the thirty-seventh series), $75,000,000 principal amount of Bonds of the 11-1/4% Series due 2015 (the thirty-eighth series), $75,000,000 principal amount of Bonds of the 9-1/4% Series due 2016 (the thirty-ninth series), $75,000,000 principal amount of Bonds of the 8-3/4% Series due 2016 (the fortieth series), $75,000,000 principal amount of Bonds of the 8-1/4% Series due 2017 (the forty- first series), $75,000,000 principal amount of Bonds of the 9% Series due 1990 (the forty-second series), $75,000,000 principal amount of Bonds of the 9-3/4% Series due 2019 (the forty-third series) and $75,000,000 principal amount of Bonds of the 8-5/8% Series due 2019 (the forty-fourth series) have been heretofore redeemed and retired and there are now issued and outstanding under the Original Indenture and under the supplemental indentures referred to above: $45,000,000 principal amount of Bonds of the 4-1/2% Series due 1999 (the sixteenth series); $15,000,000 principal amount of Bonds of the 5-1/8% Series due 2001 (the seventeenth series); $35,000,000 principal amount of Bonds of the 5-7/8% Series due 2002 (the eighteenth series); $40,000,000 principal amount of Bonds of the 6-5/8% Series due 2003 (the nineteenth series); $50,000,000 principal amount of Bonds of the Adjustable Rate Series due 2001 (the thirty-fourth series); $100,000,000 principal amount of Bonds of the 9% Series due 2000 (the forty-fifth series); $100,000,000 principal amount of Bonds of the 9% Series due 2021 (the forty-sixth series); $75,000,000 principal amount of Bonds of the 8-1/2% Series due 2027 (the forty- seventh series); $30,000,000 principal amount of Bonds of the 6% Series due 2022 (the forty-eighth series); $37,000,000 principal amount of Bonds of the 6-3/8% Series due 2023 (the forty-ninth series); $78,000,000 principal amount of Bonds of the 6-1/2% Series due 2008 (the fiftieth series); $40,000,000 principal amount of Bonds of the 7-1/2% Series due 2028 (the fifty-first series); - 3 - $100,000,000 principal amount of Bonds of the 7-1/4% Series due 2023 (the fifty-second series); $100,000,000 principal amount of Bonds of the 6-7/8% Series due 2023 (the fifty-third series); $50,000,000 principal amount of Bonds of the 5-5/8% Series due 2003 (the fifty-fourth series); $50,000,000 principal amount of Bonds of the 5-7/8% Series due 2008 (the fifty-fifth series); $75,000,000 principal amount of Bonds of the 6-7/8% Series due 2024 (the fifty- sixth series); $42,500,000 principal amount of Bonds of the 5-3/8% Series due 2024 (the fifty-seventh series); $38,300,000 principal amount of Bonds of the 5-3/8% Series due 2024 (the fifty-eighth series); $16,000,000 principal amount of Bonds of the 5-3/4% Series due 2010 (the fifty-ninth series); $100,000,000 principal amount of Bonds of the 6-1/2% series due 2005 (the sixtieth series); $75,000,000 principal amount of Bonds of the 7-3/8% Series due 2025 (the sixty-first series); and $175,000,000 principal amount of Bonds of the 6-1/4% Series due 2007 (the sixty-second series); and WHEREAS, for the purpose of conforming the Original Indenture to the standards prescribed by the Trust Indenture Act of 1939 or otherwise modifying certain of the provisions of the Original Indenture, indentures supplemental thereto dated December 10, 1939, August 10, 1942, October 15, 1942, April 1, 1966, June 16, 1981, June 17, 1981, December 1, 1981, August 1, 1982, October 1, 1982, April 15, 1983, November 1, 1985, March 1, 1986, November 1, 1986, March 1, 1987, September 16, 1987, May 1, 1989, August 1, 1989, April 5, 1990, May 21, 1991, May 7, 1992, September 1, 1992, November 1, 1992, March 1, 1993, March 2, 1993, July 1, 1993, August 20, 1993, September 29, 1993, September 30, 1993, October 1, 1993, February 10, 1994, February 11, 1994, March 10, 1995, September 6, 1995, September 7, 1995 and October 2, 1997 have been heretofore entered into between the Company and the Trustee, and for the purpose of conveying additional property, indentures supplemental thereto dated July 15, 1942, October 15, 1947, December 31, 1948, December 31, 1949, February 15, 1951, February 16, 1953, March 15, 1954, March 15, 1955, March 15, 1956, April 1, 1957, May 1, 1958, May 1, 1959, May 2, 1960, April 3, 1961, May 1, 1962, May 1, 1963, April 23, 1964, May 3, 1965, June 1, 1966, April 28, 1967, July 3, 1967, May 1, 1968, June 16, 1969, May 15, 1970, September 1, 1971, June 17, 1981, November 1, 1985, September 16, 1987, May 1, 1989, May 21, 1991, May 7, 1992, July 1, 1993 and October 2, 1997 have been heretofore entered into between the Company and the Trustee, and for the purpose of better securing and protecting the Bonds then or thereafter issued and confirming the lien of the Original Indenture, an indenture dated October 15, 1942 supplemental thereto has been heretofore entered into between the Company and the Trustee; the Original Indenture as heretofore amended and supplemented being hereinafter referred to as the "Original Indenture as amended"; and [WHEREAS, the Company is entitled to have authenticated and delivered additional Bonds on the basis of the net bondable value of property additions, upon compliance with the provisions of Section 4 of Article III of the Original Indenture as amended; and] WHEREAS, the Company has entered into an Indenture, dated as of __________ __, 1998 (the "Senior Note Indenture"), with The Bank of New York, as trustee (the "Senior Note Trustee"), providing for the issuance thereunder of senior debt securities ("Senior Notes"); and - 4 - WHEREAS, the Company has determined to issue pursuant to a supplemental indenture to be entered into under the Senior Note Indenture a series of Senior Notes in the principal amount of $___,000,000, to be known as the Senior Notes, __% Series due ____ (hereinafter called "Senior Notes of ____ Series); and WHEREAS, pursuant to Article Fourteen of the Senior Note Indenture, the Company wishes to issue to the Senior Note Trustee, as security for the Senior Notes of ____ Series, a new Series of Bonds under the Original Indenture as amended (i) that have an aggregate principal amount equal to the principal amount of the Senior Notes of ___ Series, (ii) that have a stated maturity date not earlier than the stated maturity of the Senior Notes of ___ Series, (iii) that bear interest at a rate equal to the interest rate borne by the Senior Notes of ____ Series, (iv) that have interest payment dates that are the same as the interest payment dates of the Senior Notes of ____ Series, and (v) that in all other material respects conform as nearly as is practicable to the terms of the Senior Notes of ____ Series; and WHEREAS, for such purposes the Company has determined to issue a sixty-third series of Bonds under the Original Indenture as amended in the principal amount of $___,000,000, to be known as First Mortgage Bonds, __% Series due ____ (hereinafter called "Bonds of ____ Series"); and WHEREAS, the Original Indenture as amended provides that certain terms and provisions, as determined by the Board of Directors of the Company, of the Bonds of any particular series may be expressed in and provided by the execution of an appropriate supplemental indenture; and WHEREAS, the Original Indenture as amended provides that the Company and the Trustee may enter into indentures supplemental thereto to add to the covenants and agreements of the Company contained therein other covenants and agreements thereafter to be observed; and to surrender any right or power reserved to or conferred upon the Company in the Original Indenture as amended; and WHEREAS, the Company, in the exercise of the powers and authority conferred upon and reserved to it under the provisions of the Original Indenture as amended and pursuant to appropriate resolutions of its Board of Directors, has duly resolved and determined to make, execute and deliver to the Trustee a supplemental indenture in the form hereof for the purposes herein provided; and WHEREAS, all conditions and requirements necessary to make this Supplemental Indenture a valid, binding and legal instrument have been done, performed and fulfilled, and the execution and delivery hereof have been in all respects duly authorized; NOW, THEREFORE, THIS INDENTURE WITNESSETH: That Potomac Electric Power Company, in consideration of the premises and of One Dollar to it duly paid by the Trustee at or before the ensealing and delivery of these presents, and for other valuable considerations, the receipt whereof is hereby acknowledged, hereby covenants, declares and agrees with the - 5 - Trustee and its successors in the trust under the Original Indenture as amended, for the benefit of those who hold the Bonds and coupons, or any of them, issued or to be issued hereunder or under the Original Indenture as amended, as follows: PART I. DESCRIPTION OF BONDS. SECTION 1. The Bonds of ____ Series shall, subject to the provisions of Section 1 of Article II of the Original Indenture as amended, be designated as "First Mortgage Bonds, __% Series due ____" of the Company. The Bonds of ____ Series shall be executed, authenticated and delivered in accordance with the provisions of, and shall in all respects be subject to, all of the terms, conditions and covenants of the Original Indenture as amended, except in so far as the terms and provisions of the Original Indenture as amended are amended or modified by this Supplemental Indenture. The Bonds of ____ Series shall mature __________________, and shall bear interest at the rate of________________ (___%) per annum, payable semiannually, commencing _______________, on the ____ day of _______ and the ____ day of ___________________ in each year (each such ______________ and _________________ being hereinafter called an "interest payment date"). The Bonds of ____ Series shall be payable as to principal and interest in lawful money of the United States of America, and shall be payable (as well the interest as the principal thereof) at the Agency of the Company in the Borough of Manhattan, The City of New York. Upon any payment of the principal of, premium, if any, and interest on, all or any portion of the Senior Notes of ____ Series, whether at maturity or prior to maturity by redemption or otherwise, or upon provision for the payment thereof having been made in accordance with Section ___ of the Senior Note Indenture, Bonds of ____ Series in a principal amount equal to the principal amount of such Senior Notes of ____ Series shall, to the extent of such payment of principal, premium, if any, and interest, be deemed paid and the obligation of the Company thereunder to make such payment shall be discharged to such extent and, in the case of the payment of principal (and premium, if any) Bonds of _____ Series shall be surrendered to the Company for cancellation as provided in Section 1409 of the Senior Note Indenture. The Trustee may at anytime and all times conclusively assume that the obligation of the Company to make payments with respect to the principal of, premium, if any, and interest on the Bonds of ____ Series, so far as such payments at the time have become due, has been fully satisfied and discharged pursuant to the foregoing sentence unless and until the Trustee shall have received a written notice from the Senior Note Trustee signed by one of its officers stating (i) that timely payment of principal of or premium or interest on, the Senior Notes of ____ Series has not been so made and (ii) providing the details of such nonpayment. Subject to the preceding paragraph, the interest payable on any interest payment date shall be paid to the persons in whose names the Bonds of ____ Series are registered at the close of business on the last business day (hereinafter called the "record date") which is more than ten days prior to such interest - 6 - payment date, a "business day" being any day that is not a day on which banks in the City of New York, are authorized by law to close; except that if the Company shall default in the payment of any interest due on such interest payment date, such defaulted interest shall be paid to the persons in whose names the Bonds of ____ Series are registered on the date of payment of such defaulted interest, or in accordance with the regulations of any securities exchange on which the Bonds of ____ Series are listed. Each Bond of ____ Series is to be issued to and registered in the name of the Senior Note Trustee to be held under the terms of the Senior Note Indenture as security for the Senior Notes of ____ Series. The Bonds of ____ Series shall not be assignable or transferable except as permitted or required by Section 1408 of the Senior Note Indenture. Except as provided hereinafter, every Bond of ____ Series shall be dated as of the date of its authentication and delivery, or if that is an interest payment date, the next day, and shall bear interest from the interest payment date next preceding its date or the date of delivery of the initial Bonds of ____ Series, whichever is later. Notwithstanding Section 6 of Article II of the Original Indenture, any Bond of ____ Series authenticated and delivered by the Trustee after the close of business on the record date with respect to any interest payment date and prior to such interest payment date shall be dated as of the date next following such interest payment date and shall bear interest from such interest payment date; except that if the Company shall default in the payment of any interest due on such interest payment date, such Bond shall bear interest from the next preceding interest payment date or the date of delivery of the initial Bonds of ____ Series, whichever is later. SECTION 2. The Bonds of ____ Series, and the Trustee's certificate to be endorsed on the Bonds of ____ Series, shall be substantially in the following forms, respectively: [FORM OF FACE OF BOND OF ____ SERIES] THIS BOND IS NOT TRANSFERABLE EXCEPT TO A SUCCESSOR TRUSTEE UNDER THE INDENTURE, DATED _____, 1998, AS SUPPLEMENTED, BETWEEN POTOMAC ELECTRIC POWER COMPANY AND THE BANK OF NEW YORK, AS TRUSTEE POTOMAC ELECTRIC POWER COMPANY (A District of Columbia and Virginia corporation) First Mortgage Bond, __% Series Due ____ No. $_______ CUSIP No. _______ POTOMAC ELECTRIC POWER COMPANY, a corporation organized and existing under the laws of the District of Columbia and a domestic corporation of the - 7 - Commonwealth of Virginia (hereinafter called the "Company", which term shall include any successor corporation as defined in the Amended Indenture hereinafter referred to), for value received, hereby promises to pay to The Bank of New York, as trustee, or registered assigns, the sum of __________________ dollars, on the ____ day of ______________, in lawful money of the United States of America, and to pay interest thereon in like money from the later of the date of delivery of the initial Bonds of ____ Series or the interest payment date __________ or __________ next preceding the date of this Bond, or if the Company shall default in the payment of interest due on such interest payment date, then from the next preceding interest payment date or the date of delivery of the initial Bonds of ____ Series, whichever is later, at the rate of _______________________ per annum, payable semiannually, commencing __________________, on the ____ day of ________________ and _________________ in each year until maturity, or, if the Company shall default in the payment of the principal hereof, until the Company's obligation with respect to the payment of such principal shall be discharged as provided in the Amended Indenture. The interest so payable on any ___________ or ________________ will, subject to certain exceptions provided in the indenture dated as of ___________________, supplemental to the Amended Indenture, be paid to the person in whose name this Bond is registered at the close of business on the last business day which is more than ten days prior to such __________________ or _________________. Both principal of, and interest on, this Bond are payable at the agency of the Company in the Borough of Manhattan, The City of New York. Under an Indenture dated as of ________, 1998 (hereinafter sometimes referred to as the "Senior Note Indenture"), between Potomac Electric Power Company and The Bank of New York, as trustee (hereinafter sometimes called the "Senior Note Trustee"), the Company will issue, concurrently with the issuance of this Bond, an issue of senior notes under the Senior Note Indenture entitled Senior Notes, ___% Series due _____________ (the "Senior Notes of ____ Series"). Pursuant to Article XIV of the Senior Note Indenture, this Bond is issued to the Senior Note Trustee to secure any and all obligations of the Company under the Senior Notes of ____ Series. Payment of principal of, or premium, if any, or interest on, the Senior Notes of ____ Series shall constitute payments on this Bond. Reference is made to the further provisions of this Bond set forth on the reverse hereof, and such further provisions shall for all purposes have the same effect as though fully set forth at this place. This Bond shall not be entitled to any benefit under the Amended Indenture or any indenture supplemental thereto, or become valid or obligatory for any purpose, until The Bank of New York, the Trustee under the Amended Indenture, or a successor trustee thereto under the Amended Indenture, shall have signed the form of certificate endorsed hereon. IN WITNESS WHEREOF, Potomac Electric Power Company has caused this Bond to be signed in its name by the signature (or a facsimile thereof) of its President or a Vice President, and its corporate seal (or a facsimile thereof) to be hereto - 8 - affixed and attested by the facsimile signature of its Secretary or an Assistant Secretary. POTOMAC ELECTRIC POWER COMPANY By __________________________ Vice President Attest: ____________________________ Secretary [FORM OF TRUSTEE'S CERTIFICATE] This Bond is one of the Bonds, of the series designated therein, described in the within-mentioned Amended Indenture and the Supplemental Indenture dated as of _____________________. Dated: The Bank of New York Trustee. By __________________________ Authorized Signatory [TEXT APPEARING ON REVERSE SIDE OF BOND OF ____ SERIES] This Bond is one of a duly authorized issue of Bonds of the Company (hereinafter called the "Bonds") in unlimited aggregate principal amount, of the series hereinafter specified, all issued and to be issued under and equally secured (except in so far as any purchase or sinking fund or analogous provisions for any particular series of Bonds, established by any indenture supplemental to the Amended Indenture hereinafter mentioned, may afford additional security for such Bonds) by a mortgage and deed of trust, dated July 1, 1936, executed by the Company to The Bank of New York as successor to The Riggs National Bank of Washington, D.C. (herein called the "Trustee"), as trustee, as amended by indentures supplemental thereto dated December 10, 1939, August 10, 1942, October 15, 1942, April 1, 1966, June 16, 1981, June 17, 1981, December 1, 1981, August 1, 1982, October 1, 1982, April 15, 1983, November 1, 1985, March 1, 1986, November 1, 1986, March 1, 1987, September 16, 1987, May 1, 1989, August 1, 1989, April 5, 1990, May 21, 1991, May 7, 1992, September 1, 1992, November 1, 1992, March 1, 1993, March 2, 1993, July 1, 1993, August 20, 1993, September 29, 1993, September 30, 1993, October 1, 1993, February 10, 1994, February 11, 1994, March 10, 1995, September 6, 1995, September 7, 1995 and October 2, 1997 (said mortgage and deed of trust, as so amended, being herein called the "Amended Indenture") and all indentures supplemental thereto, to which Amended Indenture and supplemental indentures reference is hereby made for a description of the properties mortgaged and pledged, the nature and extent of the security, the rights of the owners of the Bonds and of the Trustee in respect thereto, and the - 9 - terms and conditions upon which the Bonds are, and are to be, secured. To the extent permitted by, and as provided in, the Amended Indenture, modifications or alterations of the Amended Indenture, or of any indenture supplemental thereto, and of the rights and obligations of the Company and of the holders of the Bonds may be made with the consent of the Company by an affirmative vote of not less than 80% in amount of the Bonds entitled to vote then outstanding, at a meeting of Bondholders called and held as provided in the Amended Indenture, and by an affirmative vote of not less than 80% in amount of the Bonds of any series entitled to vote then outstanding and affected by such modification or alteration, in case one or more but less than all of the series of Bonds then outstanding under the Amended Indenture are so affected; provided, however, that no such modification or alteration shall be made which will affect the terms of payment of the principal of, or interest on, this Bond, which are unconditional, or which reduces the percentage of Bonds the affirmative vote of which is required for the making of such modifications or alterations. The Company is proposing an amendment to the Amended Indenture which would replace "80%" with "60%" in the preceding sentence, which amendment will become effective upon the consent or agreement thereto of the holders of all the outstanding Bonds. The holder of this Bond will be deemed to have approved such amendment. The Bonds may be issued in series, for various principal sums, may mature at different times, may bear interest at different rates and may otherwise vary as in the Amended Indenture provided. This Bond is one of a series designated as the "First Mortgage Bonds, ___% Series due ____ (herein called the "Bonds of ____ Series") of the Company, issued under and secured by the Amended Indenture and all indentures supplemental thereto and described in the indenture (herein called the "New Supplemental Indenture"), dated as of _______________, between the Company and the Trustee, supplemental to the Amended Indenture. Upon any payment of the principal of, premium, if any, and interest on, all or any portion of the Senior Notes of ___ Series, whether at maturity or prior to maturity by redemption or otherwise or upon provision for the payment thereof having been made in accordance with Section 1302 of the Senior Note Indenture, Bonds of___ Series in a principal amount equal to the principal amount of such Senior Notes of ___ Series (having both a corresponding maturity date and interest rate) shall, to the extent of such payment of principal, premium, if any, and interest, be deemed paid and the obligation of the Company thereunder to make such payment shall be discharged to such extent and, in the case of the payment of principal (and premium, if any) such Bonds of ___ Series shall be surrendered to the Company for cancellation as provided in Section 1409 of the Senior Note Indenture. The Trustee may at anytime and all times conclusively assume that the obligation of the Company to make payments with respect to the principal of and premium, if any, and interest on the Senior Notes of ___ Series, so far as such payments at the time have become due, has been fully satisfied and discharged pursuant to the foregoing sentence unless and until the Trustee shall have received a written notice from the Senior Note Trustee signed by one of its officers stating (i) that timely payment of, or premium or interest on, the Senior Notes of ___ Series not been made (ii) providing the details thereof. - 10 - This Bond is redeemable (i) on such dates, in such principal amounts and at the redemption prices as the corresponding Senior Notes of ____ Series and (ii) upon written demand of the Senior Note Trustee following the occurrence of an Event of Default under the Senior Note Indenture and the acceleration of the corresponding Senior Notes of ____ Series as provided in Section 502 of the Senior Note Indenture. This Bond shall not be assignable or transferable except as permitted or required by Section 1408 of the Senior Note Indenture. As provided in Section 1409 of the Senior Note Indenture, from and after the Release Date (as defined in the Senior Note Indenture), the obligation of the Company with respect to this Bond shall be deemed to be satisfied and discharged, this Bond shall cease to secure in any manner the Senior Notes of ___ Series or any other senior notes outstanding under the Senior Note Indenture and, pursuant to Section 1409 of the Senior Note Indenture, the Senior Note Trustee shall forthwith deliver this Bond to the Company for cancellation. In case an event of default, as defined in the Amended Indenture, shall occur, the principal of all the Bonds at any such time outstanding under the Amended Indenture may be declared or may become due and payable, upon the conditions and in the manner and with the effect provided in the Amended Indenture. The Amended Indenture provides that such declaration may in certain events be waived by the holders of a majority in principal amount of the Bonds entitled to vote then outstanding. No recourse shall be had for the payment of the principal of, or the interest on, this Bond, or for any claim based hereon or otherwise in respect hereof or of the Amended Indenture or any indenture supplemental thereto, against any incorporator, or against any stockholder, director or officer, past, present or future, of the Company or of any predecessor or successor corporation, either directly or through the Company or any such predecessor or successor corporation, whether for amounts unpaid on stock subscriptions or by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise, all such liability, whether at common law, in equity, by any constitution, statute or otherwise, of incorporators, stockholders, directors or officers being released by every owner hereof by the acceptance of this Bond and as part of the consideration for the issue hereof, and being likewise released by the terms of the Amended Indenture. Section 3. The Bonds of____ Series shall be registered Bonds without coupons in denominations of any multiple of $1,000, numbered consecutively upwards from ____. Section 4. Until Bonds of____ Series in definitive form are ready for delivery, the Company may execute, and upon its request in writing the Trustee shall authenticate and deliver, in lieu thereof, Bonds for such series in temporary form, as provided in Section 9 of Article II of the Original Indenture as amended. - 11 - PART II. Issue of Bonds. Section 1. Except for Bonds of ____ Series issued pursuant to Section 13 of Article II of the Original Indenture as amended, the principal amount of Bonds of ____ Series which may be authenticated and delivered hereunder is limited to $___,000,000 aggregate principal amount. Section 2. Bonds of____ Series, in the aggregate principal amount permitted in Section 1 of this Part II, may at any time subsequent to the execution hereof be executed by the Company and delivered to the Trustee and shall be authenticated by the Trustee and delivered (either before or after the recording hereof) to or upon the order of the Company evidenced by a writing or writings, signed by its President or one of its Vice Presidents and its Treasurer or one of its Assistant Treasurers, at such time or times as may be requested by the Company subsequent to the receipt by the Trustee of (1) the certified resolution and the officers' certificate required by Section 3(a) and Section 3(b) of Article III of the Original Indenture as amended; (2) the opinion of counsel required by Section 3(c) of Article III of the Original Indenture as amended; (3) cash, if any, in the amount required to be deposited by Section 3(d) of Article III of the Original Indenture as amended, which shall be held and applied by the Trustee as provided in said Section 3(d); (4) the certificates, instruments, opinions of counsel, prior lien bonds and cash, if any, required by Section 4 of Article III of the Original Indenture as amended, except that, as required by Part V of this Supplemental Indenture, property additions purchased, constructed or otherwise acquired on or before December 31, 1946 shall not be made the basis for the authentication and delivery of Bonds of ____ Series; and (5) the certificates and opinions required by Article XVIII of the Original Indenture as amended. PART III. Redemption and Cancellation of Bonds. SECTION 1. Bonds of _____ Series shall not be redeemable except on the respective dates, in the respective principal amounts and for the respective redemption prices that correspond to the redemption dates for, the principal amounts to be redeemed of, and the redemption prices for, the Senior Notes of ____ Series and except as set forth in Section 2 herein. In the event the Company redeems any Senior Notes of ____ Series prior to maturity in accordance with the provisions of the Senior Note Indenture, the - 12 - Senior Note Trustee shall on the same date deliver to the Company the Bonds of ____ Series in principal amounts corresponding to the Senior Notes of ____ Series so redeemed, as provided in Section 1409 of the Senior Note Indenture. The Company agrees to give the Senior Note Trustee notice of any such redemption of the Senior Notes of ____ Series on or before the date fixed for any such redemption. SECTION 2. Upon the occurrence of an Event of Default under the Senior Note Indenture and the acceleration of the Senior Notes of ____ Series, the Bonds of ____ Series shall be redeemable in whole upon receipt by the Company of a written demand (hereinafter called a "Redemption Demand") from the Senior Note Trustee stating that there has occurred under the Senior Note Indenture both an Event of Default and a declaration of acceleration of payment of principal, accrued interest and premium, if any, on the Senior Notes of ____ Series, specifying the last date to which interest on such notes has been paid (such date being hereinafter referred to as the "Initial Interest Accrual Date") and demanding redemption of Bonds of ____ Series. The Company waives any right it may have to prior notice of such redemption under the Original Indenture as amended. Upon surrender of the Bonds of ____ Series by the Senior Note Trustee to the Trustee, the Bonds of ____ Series shall be redeemed at a redemption price equal to the principal amount thereof plus accrued interest thereon from the Initial Interest Accrual Date to the date of the Redemption Demand; provided, however, that in the event of a rescission of acceleration of Senior Notes of ___ Series pursuant to paragraph of Section ___ of the Senior Note Indenture, then any Redemption Demand shall thereby be deemed to be rescinded by the Senior Note Trustee; but no such rescission or annulment shall extend to or affect any subsequent default or impair any right consequent thereon. SECTION 3. As provided in Section 1404 of the Senior Note Indenture, from and after the Release Date (as defined in the Senior Note Indenture), the obligations of the Company with respect to the Bonds of ___ Series shall be deemed to be satisfied and discharged, the Bonds of ___ Series shall cease to secure in any manner the Senior Notes of ___ Series or any other senior notes outstanding under the Senior Note Indenture and, pursuant to Section 1409 of the Senior Note Indenture, the Senior Note Trustee shall forthwith deliver the Bonds of ___ Series to the Company for cancellation. Section 4. All Bonds delivered to or redeemed by the Trustee pursuant to the provisions of this Part III shall forthwith be cancelled. PART IV. Additional Particular Covenants of the Company. The Company hereby covenants, warrants and agrees that so long as any Bonds of____ Series are outstanding: Section 1. The Company will not withdraw, pursuant to the provisions of Section 2 of Article VIII of the Original Indenture as amended, any moneys held by the Trustee as part of the trust estate in excess of an amount equal to the aggregate principal amount of such of the refundable Bonds as were theretofore - 13 - issued by the Company; and that upon any such withdrawal by the Company refundable Bonds equal in aggregate principal amount to the amount so withdrawn shall be deemed to have been made the basis of such withdrawal. Section 2. Property additions purchased, constructed or otherwise acquired on or before December 31, 1946 shall not be made the basis for the authentication and delivery of Bonds, or the withdrawal of cash, or the reduction of the amount of cash required to be paid to the Trustee under any provision of the Indenture. PART V. Amendment of Indenture to Permit Qualification Under Trust Indenture Act of 1939. The Company and the Trustee, from time to time and at any time, without any vote or consent of the holders of the Bonds of ____ Series, may enter into such indentures supplemental to the Original Indenture as may or shall by them be deemed necessary or desirable to add to or modify or amend any of the provisions of the Original Indenture so as to permit the qualification of the Original Indenture under the Trust Indenture Act of 1939. Except to the extent specifically provided herein, no provision of this Supplemental Indenture is intended to modify, and the parties hereto do hereby adopt and confirm, the provisions of Section 318(c) of the Trust Indenture Act of 1939 which amend and supersede provisions of the Original Indenture, as supplemented, in effect prior to November 15, 1990. PART VI. Amendment of Original Indenture. Notwithstanding any other provisions of the Original Indenture as amended, the holders of the Bonds of ____ Series, by their holding of such Bonds, are deemed to have approved the following amendment to the Original Indenture as amended and to have authorized the Trustee to take any action necessary to evidence or effectuate such approval: Sections 5 and 6 of Article XV of the Original Indenture as amended are hereby amended by changing the words and figures "eighty percent. (80%)" to the words and figures "sixty percent. (60%)" wherever in such Sections such words and figures occur. PART VII. The Trustee. The Trustee hereby accepts the trusts hereby declared and provided and agrees to perform the same upon the terms and conditions in the Original Indenture as amended set forth and upon the following terms and conditions: - 14 - The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Supplemental Indenture or the due execution hereof by the Company or for or in respect of the recitals contained herein, all of which recitals are made by the Company solely. In general, each and every term and condition contained in Article XIII of the Original Indenture as amended shall apply to this Supplemental Indenture with the same force and effect as if the same were herein set forth in full, with such omissions, variations and modifications thereof as may be appropriate to make the same conform to this Supplemental Indenture. PART VIII. Miscellaneous Provisions. This Supplemental Indenture may be simultaneously executed in any number of counterparts, each of which when so executed shall be deemed to be an original; but such counterparts shall together constitute but one and the same instrument. Potomac Electric Power Company hereby constitutes and appoints Dennis R. Wraase, one of its Senior Vice Presidents, to be its true and lawful attorney-in-fact, for it and in its name to appear before any officer authorized by law to take and certify acknowledgments of deeds to be recorded in the District of Columbia, in the State of Maryland, in the Commonwealth of Virginia, and in the Commonwealth of Pennsylvania and to acknowledge and deliver these presents as the act and deed of said Potomac Electric Power Company. The Bank of New York, hereby constitutes and appoints ___________________, one of its _________________, to be its true and lawful attorney-in-fact, for it and in its name to appear before any officer authorized by law to take and certify acknowledgments of deeds to be recorded in the District of Columbia, in the State of Maryland, in the Commonwealth of Virginia, and in the Commonwealth of Pennsylvania and to acknowledge and deliver these presents as the act and deed of said The Bank of New York. IN WITNESS WHEREOF, said Potomac Electric Power Company has caused this Supplemental Indenture to be executed on its behalf by its President or one of its Vice Presidents and its corporate seal to be hereto affixed and said seal and this Supplemental Indenture to be attested by its Secretary or one of its Assistant Secretaries; and said The Bank of New York, in evidence of its acceptance of the trust hereby created, has caused this Supplemental Indenture to be executed on its behalf by one of its ________________, and its corporate seal to be hereto affixed and said seal and this Supplemental Indenture to be - 15 - attested by one of its _________________, all as of the ____ day of ______________, One thousand nine hundred and ninety-____. Potomac Electric Power Company (Corporate Seal) By ........................ DENNIS R. WRAASE, Senior Vice President Attested: .................................. ELLEN SHERIFF ROGERS, Secretary Signed, sealed and delivered by Potomac Electric Power Company in the presence of: ................................... ................................... As Witnesses The Bank of New York, as Trustee (Corporate Seal) By ............................ Vice President Attested: ................................... MARY BETH LEWICKI Assistant Vice President Signed, sealed and delivered by The Bank of New York in the presence of: ................................... ................................... As Witnesses - 16 - City of Washington, District of Columbia, ss.: I, Lisa A. Poole, a Notary Public in and for the District of Columbia, United States of America, whose commission as such will expire ______________, do hereby certify that Dennis R. Wraase and Ellen Sheriff Rogers, whose names as Senior Vice President and Secretary, respectively, of Potomac Electric Power Company, a corporation, are signed to the foregoing and hereto attached deed, bearing date as of the ____ day of _________________, 199_ personally appeared this day before me in my District aforesaid and acknowledged themselves to be, respectively, a Senior Vice President and the Secretary of Potomac Electric Power Company, and that they as such, being authorized so to do, executed the said deed by signing the name of Potomac Electric Power Company by Dennis R. Wraase, as Senior Vice President, and attested by Ellen Sheriff Rogers, as Secretary, and acknowledged the same before me in my District aforesaid and acknowledged the foregoing instrument to be the act and deed of Potomac Electric Power Company. Given under my hand and official seal this ____ day of ____________, 199_. (Notarial Seal) .................................. Notary Public District of Columbia - 17 - City of Washington, District of Columbia, ss.: I, Lisa A. Poole, a Notary Public in and for the District of Columbia, United States of America, do hereby certify that Dennis R. Wraase, a Senior Vice President of Potomac Electric Power Company, a corporation, one of the parties to the foregoing instrument bearing date as of the ____ day of _____________, 199_ and hereto annexed, this day personally appeared before me in the City of Washington, the said Dennis R. Wraase being personally well known to me as the person who executed the said instrument as a Senior Vice President of and on behalf of said Potomac Electric Power Company and known to me to be the attorney-in-fact duly appointed therein to acknowledge and deliver said instrument on behalf of said corporation, and, as such attorney-in-fact, he acknowledged said instrument to be the act and deed of said Potomac Electric Power Company, and delivered the same as such. I further certify that the said Dennis R. Wraase, being by me duly sworn, did depose and say that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal and was so affixed by order of the Board of Directors of said corporation; and that he signed his name thereto by like order. My commission expires ________________. Given under my hand and official seal this ___ day of ______________, 199_. (Notarial Seal) ........................... Notary Public District of Columbia - 18 - City of New York, State of New York, ss.: I, _______________, a Notary Public in and for the City of New York, State of New York, do hereby certify that ______________ and Mary Beth Lewicki, whose names as Vice President and Assistant Vice President, respectively, of The Bank of New York, a corporation, are signed to the foregoing and hereto attached deed, bearing date as of the ___ day of _____________, 199_, personally appeared before me this day in the State aforesaid and acknowledged themselves to be, respectively, a Vice President and an Assistant Vice President of The Bank of New York, and that they as such, being authorized so to do, executed the said deed by signing the name of The Bank of New York, by ______________________ as Vice President, and attested by Mary Beth Lewicki, as Assistant Vice President, and acknowledged the same before me in the State aforesaid and acknowledged the foregoing instrument to be the act and deed of The Bank of New York, as therein set forth. Given under my hand and notarial seal this ____ day of ____________, 199_. (Notarial Seal) ............................. Notary Public New York, New York My Commission Expires . City of New York, State of New York, ss.: ______________________, of full age, being sworn according to law, on his oath deposes and says that he is a ______________________ of The Bank of New York, the Trustee named in the foregoing Supplemental Indenture, dated as of the ___ day of _________________, 199_, that he is the agent of said Trustee for the purpose of perfecting such Supplemental Indenture and that the consideration in the Original Indenture referred to therein and in all indentures supplemental to said Original Indenture, including the foregoing Supplemental Indenture, is true and bona fide as therein set forth. ............................. Subscribed and sworn to before me this ____ day of ___________, 199_. ................................... Notary Public My Commission Expires . (Notarial Seal) - 19 - City of New York, State of New York ss.:, I, ___________________, a Notary Public in and for the City of New York, State of New York, do hereby certify that _________________ a Vice President of The Bank of New York, a corporation, one of the parties to the foregoing instrument bearing date as of the ____ day of _______________, 199_, and hereto annexed, this day personally appeared before me in the City of New York, the said ________________________, being personally well known to me as the person who executed the said instrument as a Vice President of and on behalf of said The Bank of New York, and known to me to be the attorney-in-fact duly appointed therein to acknowledge and deliver said instrument on behalf of said corporation, and, as such attorney-in-fact, he acknowledged said instrument to be the act and deed of said The Bank of New York, and delivered the same as such. I further certify that the said _______________________, being by me duly sworn, did depose and say that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal and was so affixed by order of the Board of Directors of said corporation; and that he signed his name thereto by like order. Given under my hand and official seal this ___ day of _____________, 199_. (Notarial Seal) ........................... Notary Public New York, New York My Commission Expires ____________. - 20 - CERTIFICATE OF RESIDENCE The Bank of New York, Mortgagee and Trustee within named, hereby certifies that its precise residence is 101 Barclay Street, New York, NY 10286. The Bank of New York By ........................ MARY BETH LEWICKI, Assistant Vice President EX-4 4 SENIOR DEBT SECURITIES INDENTURE POTOMAC ELECTRIC POWER COMPANY AND THE BANK OF NEW YORK, Trustee ___________________ SENIOR DEBT SECURITIES ___________________ INDENTURE Dated as of ____________ __, 1998 ___________________ Certain Sections of this Indenture relating to Sections 310 through 318, inclusive, of the Trust Indenture Act of 1939: Trust Indenture Indenture Act Section Section - --------------- --------- Section 310 (a)(1) ........................... 609 (a)(2) ........................... 609 (a)(3) ........................... Not Applicable (a)(4) ........................... Not Applicable (a)(5) ........................... 609 (b)............................... 608, 610 Section 311 (a)............................... 613 (b)............................... 613 Section 312 (a)............................... 701, 702(a) (b)............................... 702(b) (c)............................... 702(c) Section 313 (a)............................... 703(a) (b)............................... 703(a) (c)............................... 703(a) (d)............................... 703(b) Section 314 (a)............................... 704 (a)(4) ........................... 101, 1007 (b)(1)............................ 303(c) (b)(2)............................ 1008 (c)(1) ........................... 102 (c)(2) ........................... 102 (c)(3) ........................... Not Applicable (d)(1)............................ 1409 (d)(2)............................ 1403 (d)(3) ........................... Not Applicable (e)............................... 102 Section 315 (a)............................... 601(a) (b)............................... 602 (c)............................... 601(b) (d)............................... 601 (e)............................... 514 Section 316 (a)............................... 101 (a)(1)(A)......................... 502, 512 (a)(1)(B)......................... 513 (a)(2)............................ Not Applicable (b)............................... 508 (c)............................... 104(c) Section 317 (a)(1)............................ 503(b) (a)(2)............................ 504 (b)............................... 1004 Section 318 (a)............................... 108 ______________ NOTE: This reconciliation and tie shall not, for any purpose, be deemed to be a part of the Indenture. TABLE OF CONTENTS Page ---- PARTIES .................................................. RECITALS OF THE COMPANY .................................. ARTICLE ONE Definitions and Other Provisions of General Application Section 101. Definitions ............................... Section 102. Compliance Certificates and Opinions ...... Section 103. Form of Documents Delivered to Trustee .... Section 104. Acts of Holders; Record Dates ............. Section 105. Notices, Etc., to Trustee and Company ..... Section 106. Notice to Holders; Waiver ................. Section 107. Language of Notices ....................... Section 108. Conflict with Trust Indenture Act ......... Section 109. Effect of Headings and Table of Contents... Section 110. Successors and Assigns .................... Section 111. Separability Clause ....................... Section 112. Benefits of Indenture ..................... Section 113. Governing Law ............................. Section 114. Legal Holidays ............................ ARTICLE TWO Security Forms Section 201. Forms Generally ........................... Section 202. Form of Legend for Global Security ........ Section 203. Form of Trustee's Certificate of Authentication .......................... ARTICLE THREE The Securities Section 301. Amount Unlimited; Issuable in Series....... Section 302. Denominations.............................. Section 303. Execution, Authentication, Delivery and Dating..................................... Section 304. Temporary Securities....................... Section 305. Registration, Registration of Transfer and Exchange................................... Section 306. Mutilated, Destroyed, Lost and Stolen Securities................................. Section 307. Payment of Interest; Interest Rights Preserved.................................. Section 308. Persons Deemed Owners...................... Section 309. Cancellation............................... Section 310. Computation of Interest.................... Section 311. CUSIP Numbers.............................. ______________ NOTE: This table of contents shall not, for any purpose, be deemed to be a part of the Indenture. Page ---- ARTICLE FOUR Satisfaction and Discharge Section 401. Satisfaction and Discharge of Indenture.... Section 402. Application of Trust Money................. ARTICLE FIVE Remedies Section 501. Events of Default.......................... Section 502. Acceleration of Maturity; Rescission and Annulment.................................. Section 503. Collection of Indebtedness Section 504. Suits for Enforcement by Trustee .......... Section 505. Trustee May File Proofs of Claim........... Section 506. Trustee May Enforce Claims Without Possession of Securities................... Section 507. Application of Money Collected............. Section 508. Limitation on Suits........................ Section 509. Unconditional Right of Holders to Receive Principal, Premium and Interest............ Section 510. Restoration of Rights and Remedies......... Section 511. Rights and Remedies Cumulative............. Section 512. Delay or Omission Not Waiver............... Section 513. Control by Holders......................... Section 514. Waiver of Past Defaults.................... Section 515. Undertaking for Costs...................... Section 516. Waiver of Stay or Extension Laws........... Section 517. Notice of Defaults......................... Section 518. Defaults under the Mortgage ............... ARTICLE SIX The Trustee Section 601. Certain Duties and Responsibilities........ Section 602. Certain Rights of Trustee.................. Section 603. Not Responsible for Recitals or Issuance of Securities................................. Section 604. May Hold Securities........................ Section 605. Money Held in Trust........................ Section 606. Compensation and Reimbursement............. Section 607. Disqualification; Conflicting Interests.... Section 608. Corporate Trustee Required; Eligibility.... Section 609. Resignation and Removal; Appointment of Successor.................................. Section 610. Acceptance of Appointment by Successor..... ______________ NOTE: This table of contents shall not, for any purpose, be deemed to be a part of the Indenture. - ii - Page ---- Section 611. Merger, Conversion, Consolidation or Succession to Business..................... Section 612. Preferential Collection of Claims Against Company.................................... Section 613. Appointment of Authenticating Agent........ ARTICLE SEVEN Holders' Lists and Reports by Trustee and Company Section 701. Company to Furnish Trustee Names and Addresses of Holders....................... Section 702. Preservation of Information; Communications to Holders.................................... Section 703. Reports by Trustee......................... Section 704. Reports by Company......................... ARTICLE EIGHT Consolidation, Merger, Conveyance, Transfer or Lease Section 801. Company May Consolidate, Etc., Only on Certain Terms.............................. Section 802. Successor Corporation to be Substituted.... Section 803. Opinion of Counsel to Be Given Trustee..... ARTICLE NINE Supplemental Indentures Section 901. Supplemental Indentures Without Consent of Holders.................................... Section 902. Supplemental Indentures with Consent of Holders.................................... Section 903. Execution of Supplemental Indentures....... Section 904. Effect of Supplemental Indentures.......... Section 905. Conformity with Trust Indenture Act........ Section 906. Reference in Securities to Supplemental Indentures................................. ARTICLE TEN Covenants Section 1001. Payment of Principal, Premium and Interest................................. Section 1002. Maintenance of Office or Agency............ Section 1003. Vacancy in the Office of Trustee........... Section 1004. Money for Securities Payments to Be Held in Trust............................ _______________ NOTE: This table of contents shall not, for any purpose, be deemed to be a part of the Indenture. - iii - Page ---- Section 1005. Officers' Certificate Concerning Defaults; Notices of Default under Mortgage........ Section 1006. Liens...................................... Section 1007. Limitation on Sale and Leaseback Transactions............................. Section 1008. Perfection of Security Interests .......... Section 1009. Calculation of Original Issue Discount..... ARTICLE ELEVEN Redemption of Securities Section 1101. Applicability of Article................... Section 1102. Election to Redeem; Notice to Trustee...... Section 1103. Selection by Trustee of Securities to Be Redeemed................................... Section 1104. Notice of Redemption....................... Section 1105. Deposit of Redemption Price................ Section 1106. Securities Payable on Redemption Date...... Section 1107. Securities Redeemed in Part................ ARTICLE TWELVE Sinking Funds Section 1201. Applicability of Article................... Section 1202. Satisfaction of Sinking Fund Payments with Securities................................. Section 1203. Redemption of Securities for Sinking Fund.. ARTICLE THIRTEEN Defeasance and Covenant Defeasance Section 1301. Applicability of Article; Company's Option to Effect Defeasance or Covenant Defeasance...................... Section 1302. Defeasance and Discharge................... Section 1303. Covenant Defeasance........................ Section 1304. Conditions to Defeasance or Covenant Defeasance............................... Section 1305. Deposited Money and U.S. Government Obligations to be Held in Trust; Other Miscellaneous Provisions................ Section 1306. Reinstatement.............................. ARTICLE FOURTEEN Security Section 1401. Applicability of Article................... _______________ NOTE: This table of contents shall not, for any purpose, be deemed to be a part of the Indenture. - iv - Page ---- Section 1402. Delivery of First Mortgage Bonds to Trustee.................................. Section 1403. Authentication of Securities............... Section 1404. First Mortgage Bonds as Security for Securities............................... Section 1405. No Other Security; No Modification of Mortgage................................. Section 1406. Payments on First Mortgage Bonds........... Section 1407. Certain Responsibilities of Trustee with Respect to First Mortgage Bonds.......... Section 1408. Permitted Transfers of First Mortgage Bonds by the Trustee..................... Section 1409. Release of First Mortgage Bonds............ Section 1410. Further Assurances......................... ARTICLE FIFTEEN Immunity of Incorporators, Stockholders, Officers and Directors Section 1501. Indenture, Securities and First Mortgage Bonds Solely Corporate Obligations ....... TESTIMONIUM............................................... SIGNATURES AND SEALS...................................... ACKNOWLEDGMENTS........................................... ______________ NOTE: This table of contents shall not, for any purpose, be deemed to be a part of the Indenture. - v - This INDENTURE, dated as of __________ __, 1998, is entered into between Potomac Electric Power Company, a corporation duly organized and existing under the laws of the District of Columbia and the Commonwealth of Virginia (herein called the "Company"), having its principal offices at 1900 Pennsylvania Avenue, N.W., Washington, D.C. 20068, and The Bank of New York, a New York banking corporation, as trustee (herein called the "Trustee"), having its Corporate Trust Office (as hereinafter defined) at 101 Barclay Street, Floor 21 West, New York, New York 10286. RECITALS OF THE COMPANY WHEREAS, the Company has duly authorized the execution and delivery of this Indenture to provide for the issuance from time to time of its senior debentures, notes or other evidences of indebtedness (herein called the "Securities"), to be issued in one or more series as in this Indenture provided; WHEREAS, the Securities to be issued hereunder may include one or more series of Securities that are secured by First Mortgage Bonds (as hereinafter defined) issued under the Mortgage (as hereinafter defined), but with such security to remain in effect only for so long as any First Mortgage Bonds issued under the Mortgage (other than the First Mortgage Bonds that secure Securities issued under this Indenture) remain outstanding, at which time each series of Securities issued under this Indenture that is secured by First Mortgage Bond would cease to be so secured; and WHEREAS, all things necessary to make this Indenture a valid agreement of the Company, in accordance with its terms, have been done. NOW, THEREFORE, THIS INDENTURE WITNESSETH: In order to declare the terms and conditions upon which Securities are to be authenticated, issued and delivered, and for and in consideration of the premises and the purchase of the Securities by the Holders thereof, the Company and the Trustee covenant and agree, for the equal and proportionate benefit of all Holders of the Securities and of any series thereof, as follows: ARTICLE ONE Definitions and Other Provisions of General Application Section 101. Definitions. ----------- For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires: (i) the terms defined in this Article One have the meanings assigned to them in this Article and include the plural as well as the singular; - 2 - (ii) all other terms used herein that are defined in the Trust Indenture Act, either directly or by reference therein, have the meanings assigned to them therein; (iii) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles, and, except as otherwise herein expressly provided, the term "generally accepted accounting principles" with respect to any computation required or permitted hereunder shall mean such accounting principles as are generally accepted at the date of such computation; and (iv) the words "herein", "hereof" and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. "Act", when used with respect to any Holder, has the --- meaning specified in Section 104. "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 term "controlling" and "controlled" have meanings correlative to the foregoing. "Authenticating Agent" means any Person authorized by the -------------------- Trustee pursuant to Section 614 to act on behalf of the Trustee to authenticate Securities of one or more series. "Board of Directors" means either the Board of Directors ------------------ of the Company or any duly authorized committee of the Board or Directors to which the Board of Directors shall have delegated its authority to act hereunder. "Board Resolution" means a copy of a resolution that is ---------------- certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, and that is delivered to the Trustee. "Business Day", when used with respect to any Place of ------------ Payment, means each Monday, Tuesday, Wednesday, Thursday and Friday that is not a day on which banking institutions in that Place of Payment are authorized or obligated by law or executive order to close. "Capitalization" shall mean the total of all the -------------- following items appearing on, or included in, the consolidated balance sheet of the Company: (i) liabilities for Indebtedness maturing more than twelve months from the date of determination and (ii) common stock, preferred stock, Hybrid Preferred Securities, premium on capital stock, capital surplus, capital in excess of par value, and retained earnings (however the foregoing may be designated), - 3 - less, to the extent not otherwise deducted, the cost of shares of capital stock of the Company held in its treasury. "Commission" means the Securities and Exchange ---------- Commission, as from time to time constituted, created under the Exchange Act, or, if at any time after the execution of this instrument such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time. "Company" means the Person named as the "Company" in the ------- first paragraph of this instrument until a successor Person shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Company" shall mean such successor Person. "Company Order" or "Company Request" means a written ------------- --------------- order or request delivered to the Trustee that is signed in the name of the Company (i) by the Chairman of the Board, the President, a Vice President, the Chief Financial Officer or the Controller and (ii) by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary. "Company Sale" has the meaning specified in Section 801. ------------ "Corporate Trust Office" means the office of the Trustee ---------------------- at which at any particular time its corporate trust business shall be principally administered, which initially shall be the address set forth in the first paragraph of this Indenture. "Corporation" (whether or not capitalized) means a ----------- corporation, association, company, joint-stock company or business trust. "Defaulted Interest" has the meaning specified in Section ------------------ 307(b). "Defeasible Covenant" has the meaning specified in ------------------- Section 1303. "Depositary" means, with respect to the Securities of any ---------- series issuable or issued in whole or in part in the form of one or more Global Securities, the Person designated as Depositary for such series by the Company pursuant to Section 301, which Person shall be a "clearing agency" registered under the Exchange Act; and if at any time there is more than one such Person, "Depositary", as used with respect to the Securities of any series, shall mean the Depositary with respect to the Securities of such series. "Event of Default" has the meaning specified in Section ---------------- 501. "Exchange Act" means the Securities Exchange Act of 1934, ------------ as it may be amended, and any successor act thereto. "First Mortgage Bonds" shall mean mortgage bonds issued -------------------- and outstanding under the Mortgage. "Funded Debt" of any Person means all Indebtedness of ----------- such Person that will mature, pursuant to a mandatory sinking fund or prepayment provision - 4 - or otherwise, and all installments of Indebtedness that will fall due, more than one year from the date of determination. In calculating the maturity of any Indebtedness, there shall be included the term of any unexercised right of the debtor to renew or extend such Indebtedness existing at the time of determination. "GAAP" means United States generally accepted accounting ---- principles applied on a consistent basis. "Global Security" means a Security bearing the legend --------------- prescribed in Section 202 (or such legend as may be specified as contemplated by Section 301 for such Securities) evidencing all or part of a series of Securities, authenticated and delivered to the Depositary for such series or to its nominee, and registered in the name of such Depositary or nominee. "Holder" means a Person in whose name a Security is ------ registered in the Security Register. "Hybrid Preferred Securities" shall mean any preferred --------------------------- securities issued by a Hybrid Preferred Securities Subsidiary, where such preferred securities have the following characteristics: (i) such Hybrid Preferred Securities Subsidiary uses substantially all of the proceeds from the issuance of such preferred securities to purchase Junior Subordinated Indebtedness issued by the Company; (ii) such preferred securities contain terms providing for the deferral of interest payments corresponding to provisions, if any, providing for the deferral of interest payments on the Junior Subordinated Indebtedness; and (iii) the Company makes periodic interest payments on the Junior Subordinated Indebtedness, which interest payments are in turn used by the Hybrid Preferred Securities Subsidiary to make corresponding payments to the holders of the preferred securities. "Hybrid Preferred Securities Subsidiary" shall mean any -------------------------------------- business trust (or similar entity) (i) all of the common equity interest of which is owned (either directly or indirectly through one or more wholly owned Subsidiaries of the Company) at all times by the Company, (ii) that has been formed for the purpose of issuing Hybrid Preferred Securities, and (iii) substantially all of the assets of which consist at all times of Junior Subordinated Indebtedness issued by the Company and payments made from time to time in respect of such Junior Subordinated Indebtedness. "Indebtedness" of any Person shall mean, as at any date ------------ of determination, all indebtedness (including capitalized lease obligations) of such Person and its consolidated subsidiaries at such date that would be required to be included as a liability on a consolidated balance sheet (excluding the footnotes thereto) of such Person prepared in accordance with GAAP. - 5 - "Indenture" means this instrument as originally executed --------- or as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof, including, for all purposes of this instrument, and any such supplemental indenture, the provisions of the Trust Indenture Act that are deemed to be a part of and govern this instrument and any such supplemental indenture, respectively. The term "Indenture" also shall include the terms of particular series of Securities established as contemplated by Section 301. "Independent Expert" shall mean an accounting firm, an ------------------ investment banking firm, an appraiser or valuation firm or other expert selected by the Company that is not generally engaged in a major part in the service of the Company. "Interest" (whether or not capitalized), when used with -------- respect to an Original Issue Discount Security that by its terms bears interest only after Maturity, means interest payable after Maturity. "Interest Payment Date", when used with respect to any --------------------- Security, means the Stated Maturity of an installment of interest on such Security. "Issuance Fair Value Certificate" means a certificate or ------------------------------- opinion delivered to the Trustee in accordance with Section 1403, which includes: (i) a statement that the Person executing the Certificate is familiar with the provisions of the First Mortgage Bonds that are being pledged as security for a series of Securities and with the provisions of this Indenture, (ii) a statement of the principal amount of the First Mortgage Bonds to be pledged, the stated interest rate of such First Mortgage Bonds and the stated maturity date of such First Mortgage Bonds, (iii) a statement of the fair value to the Company of such First Mortgage Bonds, (iv) a statement identifying the Securities that are to be secured by such First Mortgage Bonds, and (v) a statement that, based solely upon the provisions of the First Mortgage Bonds and the Securities, the fair value of the Securities to be secured by such First Mortgage Bonds does not exceed the fair value to the Company of such First Mortgage Bonds. For this purpose, the "fair value to the Company" of First Mortgage Bonds and the "fair value" of Securities that are secured by First Mortgage Bonds shall mean the principal amount thereof. The Issuance Fair Value Certificate shall be made by an Independent Expert, unless the Trust Indenture Act permits the Certificate to be made by an engineer, appraiser or other expert who is an officer or employee of the Company and who is duly authorized to make such Certificate by the Company. "Junior Subordinated Indebtedness" shall mean any -------------------------------- unsecured Indebtedness of the Company (i) issued in consideration of the proceeds of the sale of Hybrid Preferred Securities and (ii) subordinated to the rights of the Holders hereunder. "Lien" means, with respect to any asset of any Person, ---- (i) any mortgage, deed of trust, lien, pledge, encumbrance, charge or security interest in or on such asset, (ii) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement (or any financing lease having substantially the same economic effect as any of - 6 - the foregoing) relating to such asset, and (iii) in the case of securities that constitute assets of such Person, any purchase option, call or similar right of a third party with respect to such securities. "Maturity", when used with respect to any Security, means -------- the date on which the principal of such Security or an installment of principal becomes due and payable as therein or herein provided, whether at the Stated Maturity or by declaration of acceleration as authorized by or pursuant to this Indenture, upon call for redemption or otherwise. "Mortgage" means the Mortgage and Deed of Trust, dated as -------- of July 1, 1936, from the Company to The Bank of New York, as successor trustee to The Riggs National Bank of Washington, D.C., as it heretofore has been and hereafter is supplemented and amended. "Mortgage Default" has the meaning specified in Section ---------------- 501(7). "Mortgage Trustee" means the Person serving as trustee at ---------------- the time under the Mortgage. "Officers' Certificate" means a certificate delivered to --------------------- the Trustee that is signed (i) by the Chairman of the Board, the President, a Vice President, the Chief Financial Officer or the Controller of the Company and (ii) by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary of the Company. One of the officers signing an Officers' Certificate given pursuant to Section 1005 shall be the principal executive officer, the principal financial officer or the principal accounting officer of the Company. "Opinion of Counsel" means a written opinion of counsel, ------------------ who may (expect as otherwise expressly provided in this Indenture) be an employee of or be counsel for the Company. "Original Issue Discount Security" means any Security -------------------------------- that provides for an amount less than the principal amount thereof to be due and payable upon a declaration of acceleration of the Maturity thereof pursuant to Section 502. "Outstanding", when used with respect to Securities, ----------- means, as of the date of determination, all Securities theretofore authenticated and delivered under this Indenture, except: (i) Securities theretofore cancelled by the Trustee or delivered to the Trustee for cancellation; (ii) Securities for whose payment or redemption money in the necessary amount has been theretofore deposited with the Trustee or any Paying Agent (other than the Company) in trust or set aside and segregated in trust by the Company (if the Company shall act as its own Paying Agent) for the Holders of such Securities; provided that, if such Securities are to be redeemed, notice of such redemption has been duly - 7 - given pursuant to this Indenture or provision therefor satisfactory to the Trustee has been made; (iii) Securities as to which defeasance has been effected pursuant to Section 1302; and (iv) Securities that have been paid pursuant to Section 306 or in exchange for or in lieu of which other Securities have been authenticated and delivered pursuant to this Indenture, other than any such Securities in respect of which there shall have been presented to the Trustee proof satisfactory to it that such Securities are held by a bona fide purchaser in whose hands such Securities are valid obligations of the Company; provided, however, that in determining whether the Holders of the requisite principal amount of the Outstanding Securities have given any request, demand, authorization, direction, notice, consent or waiver hereunder, (i) the principal amount of an Original Issue Discount Security that shall be deemed to be Outstanding shall be the amount of the principal thereof that would be due and payable as of the date of such determination upon acceleration of the Maturity thereof pursuant to Section 502, (ii) the principal amount of a Security denominated in one or more foreign currencies or currency units shall be the U.S. dollar equivalent, determined in the manner provided as contemplated by Section 301 on the date of original issuance of such Security, of the principal amount (or, in the case of an Original Issue Discount Security, the U.S. dollar equivalent on the date of original issuance of such security of the amount determined as provided in (i) above) of such Security, and (iii) Securities owned by the Company or any other obligor upon the Securities or any Affiliate of the Company or of such other obligor shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Securities which a Responsible Officer of the Trustee actually knows to be so owned shall be so disregarded. Securities owned by the Company or any other obligor upon the Securities or any Affiliate of the Company or of such other obligor that have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee (i) the pledgee's right so to act with respect to such Securities and (ii) that the pledgee is not the Company or any other obligor upon the Securities or any Affiliate of the Company or of such other obligor. "Paying Agent" means any Person authorized by the Company ------------ to pay the principal of or any premium or interest on any Securities on behalf of the Company. Unless otherwise provided in one or more indentures supplemental hereto, in a Board Resolution or in an Officers' Certificate pursuant to a Board Resolution, the Trustee shall be the Paying Agent with respect to the Securities of each series. "Person" means a legal person, including any individual, ------ corporation, estate, partnership, limited liability company, joint venture, trust, unincorporated organization, or government or any agency or political subdivision thereof or any other entity of whatever nature. - 8 - "Place of Payment", when used with respect to the ---------------- Securities of any series, means the place or places where the principal of and any premium or interest on the Securities of that series are payable as contemplated by Section 301. "Predecessor Security" of any particular Security means -------------------- every previous Security evidencing all or a portion of the same debt as that evidenced by such particular Security; and, for the purposes of this definition, any Security authenticated and delivered under Section 306 in exchange for or in lieu of a mutilated, destroyed, lost or stolen Security shall be deemed to evidence the same debt as the mutilated, destroyed, lost or stolen Security. "Principal Property" means all electric generation plants ------------------ and all electric transmission and distribution facilities (but excluding all equipment and material not installed as part of the fixed property) of the Company that is located within the United States of America, except any such plant or facility that the Board of Directors by resolution determines is not of material importance to the total business conducted by the Company and its Subsidiaries as an entirety. "Redemption Date", when used with respect to any Security --------------- to be redeemed, means the date fixed for such redemption by or pursuant to this Indenture. "Redemption Price", when used with respect to any ---------------- Security to be redeemed, means the price at which the Security is to be redeemed pursuant to this Indenture. "Regular Record Date" for the interest payable on any ------------------- Interest Payment Date on the Securities of any series means the date specified for that purpose as contemplated by Section 301. "Release Date" means the date as of which all First ------------ Mortgage Bonds, other than First Mortgage Bonds held by the Trustee pursuant to Article Fourteen, have been retired through payment or redemption (including those First Mortgage Bonds "deemed to have been paid" within the meaning of that term as used in Article XVI of the Mortgage) at, before or after the maturity thereof. "Release Fair Value Certificate" means a certificate or ------------------------------ opinion delivered to the Trustee in accordance with Section 1409, which includes: (i) a statement that the Person executing the Certificate is familiar with the provisions of the First Mortgage Bonds that are being released from the lien of this Indenture and with the provisions of this Indenture, (ii) a statement of the principal amount of the First Mortgage Bonds to be released, the stated interest rate of such First Mortgage Bonds and the stated maturity date of such First Mortgage Bonds, (iii) a statement of the fair value of such First Mortgage Bonds, (iv) a statement identifying the Securities, the payment of the interest on and principal of which has been secured by such First Mortgage Bonds, and (v) a statement that, in the opinion of the Person executing the Certificate, such release will not, in contravention of the provisions of this - 9 - Indenture, impair the lien of the Indenture on the First Mortgage Bonds not being released. For this purpose, the "fair value" of First Mortgage Bonds shall mean the principal amount thereof. The Release Fair Value Certificate shall be made by an Independent Expert, unless the Trust Indenture Act permits the Certificate to be made by an engineer, appraiser or other expert who is an officer or employee of the Company and who is duly authorized to make such Certificate by the Company. "Responsible Officer", when used with respect to the ------------------- Trustee, means any officer in the Corporate Trust Office of the Trustee or any other officer 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 his knowledge of and familiarity with the particular subject. "Sale and Lease-Back Transaction" shall mean any ------------------------------- arrangement with any Person providing for the leasing to the Company of any Principal Property, which Principal Property has been, or prior to the leasing thereof to the Company is, sold by the Company to such Person; provided, however, Sale and Lease-back Transaction shall not include any arrangement first entered into prior to the date of this Indenture. "Securities" has the meaning stated in the first recital ---------- of this Indenture and more particularly means any Securities authenticated and delivered under this Indenture. "Security Register" and "Security Registrar" have the ----------------- ------------------ respective meanings specified in Section 305. Unless otherwise provided in one or more indentures supplemental hereto, in a Board Resolution or in an Officers' Certificate pursuant to a Board Resolution, the Trustee shall be the Security Registrar and shall maintain the Security Register with respect to the Securities of each series of Securities. "Special Record Date" for the payment of any Defaulted ------------------- Interest means a date fixed by the Trustee pursuant to Section 307(b). "Stated Maturity", when used with respect to any Security --------------- or any installment of principal thereof or interest thereon, means the date specified in such Security as the fixed date on which the principal of such Security or such installment of principal or interest is due and payable. "Subsidiary" means a Person (other than an individual or ---------- a government or any agency or political subdivision thereof) more than 50% of the outstanding voting interest of which is owned, directly or indirectly, by the Company or by one or more other Subsidiaries, or by the Company and one or more other Subsidiaries. "Successor Company" has the meaning specified in Section ----------------- 801. "Trustee" means the Person named as the "Trustee" in the ------- first paragraph of this Indenture until a successor Trustee shall have become such - 10 - pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean or include each Person who is then a Trustee hereunder, and if at any time there is more than one such Person, "Trustee" as used with respect to the Securities of any series shall mean the Trustee with respect to Securities of that series. "Trust Indenture Act" means the Trust Indenture Act of ------------------- 1939 as in force at the date as of which this Indenture 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. "U.S. Government Obligations" means securities that are --------------------------- (i) direct obligations of the United States of America for the payment of which its full faith and credit is pledged or (ii) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America the payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America, which, in either case, are not callable or redeemable at the option of the issuer thereof, and shall also include a depository receipt issued by a bank (as defined in Section 3(a)(2) of the Securities Act of 1933, as amended) as custodian with respect to any such U.S. Government Obligation or a specific payment of principal of or interest on any such U.S. Government Obligation held by such custodian for the account of the holder of such depository receipt, provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the U.S. Government Obligation or the specific payment of principal of or interest on the U.S. Government Obligation evidenced by such depository receipt. "Vice President", when used with respect to the Company -------------- or the Trustee, means any vice president, whether or not designated by a number or a word or words added before or after the title "vice president". Section 102. Compliance Certificates and Opinions. ------------------------------------ (a) Upon any application or request by the Company to the Trustee to take any action under any provision of this Indenture, the Company shall furnish to the Trustee such certificates and opinions as may be required under the Trust Indenture Act. Each such certificate or opinion shall be given in the form of an Officers' Certificate, if to be given by an officer of the Company, or an Opinion of Counsel, if to be given by counsel, and shall comply with the requirements of the Trust Indenture Act and any other requirements set forth in this Indenture. (b) Every certificate (other than the Officers' Certificate provided pursuant to Section 1005) or opinion with respect to compliance with a condition or covenant provided for in this Indenture shall include: (1) a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto; - 11 - (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of each such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with. Section 103. Form of Documents Delivered to Trustee. -------------------------------------- (a) In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. (b) Any certificate or opinion of an officer of the Company may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which his certificate or opinion is based are erroneous. Any such certificate or opinion of counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Company stating that the information with respect to such factual matters is in the possession of the Company, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous. (c) Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument. Section 104. Acts of Holders; Record Dates. ----------------------------- (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by agent duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are received by 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 the - 12 - Holders 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 Indenture and (subject to Section 601) conclusive in favor of the Trustee and the Company, if made in the manner provided in this Section 104. Without limiting the generality of the foregoing, a Holder, including a Depositary that is a Holder of a Global Security, may make, give or take, by a proxy or proxies, duly appointed in writing, any request, demand, authorization, direction, notice, consent, waiver or other Act provided or permitted in this Indenture to be made, given or taken by Holders, and a Depositary that is a Holder of a Global Security may provide its proxy or proxies to the beneficial owners of interest in any such Global Security. (b) The fact and date of the execution by any Person of any 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 the execution thereof. Where such execution is by a signer acting in a capacity other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of his authority. The fact and date of the execution of any instrument or writing, or the authority of the Person executing the same, also may be proved in any other manner which the Trustee deems sufficient. (c) The Company may, in the circumstances permitted by the Trust Indenture Act, fix any day as the record date for the purpose of determining the Holders of Securities of any series entitled to give or take any request, demand, authorization, direction, notice, consent, waiver or other Act, or to vote on any action authorized or permitted to be given or taken by Holders of Securities of such series. If not set by the Company prior to the first solicitation of a Holder of Securities of such series made by any Person in respect of any such action, or, in the case of any such vote, prior to such vote, the record date for any such action or vote shall be the 30th day (or, if later, the date of the most recent list of Holders required to be provided pursuant to Section 701) prior to such first solicitation or vote, as the case may be. Any request, demand, authorization, direction, notice, consent, waiver or other Act may be given before or after such record date, but only the 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 Securities have authorized, or agreed or consented to, such request, demand, authorization, direction, notice, consent, waiver or other Act, and for that purpose the Outstanding Securities shall be computed as of such record date. (d) The ownership of Securities, including the dates of holding thereof, shall be proved by the Security Register. (e) Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Holder of any Security shall bind every future Holder of the same Security and the Holder of every Security issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the - 13 - Trustee or the Company in reliance thereon, whether or not notation of such action is made upon such Security. (f) Without limiting the foregoing, a Holder entitled hereunder to give or take any action hereunder with regard to any particular Security may do so with regard to all or any part of the principal amount of such 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 different part of such principal amount. Section 105. Notices, Etc., to Trustee and Company. ------------------------------------- Any request, demand, authorization, direction, notice, consent, waiver or Act of the Holders or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with: (1) the Trustee by any Holder or by the Company shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing to or with the Trustee at its Corporate Trust Office, or (2) the Company by the Trustee or by any Holder shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to the Company addressed to it at the address of its principal office specified in the first paragraph of this instrument, marked "Attention: Treasurer", or at any other address previously furnished in writing to the Trustee by the Company. Section 106. Notice to Holders; Waiver. ------------------------- (a) Where this Indenture provides for any notice to Holders, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to each Holder entitled to receive such notice, at his address as it appears in the Security Register, not later than the latest date (if any), and not earlier than the earliest date (if any), prescribed for the giving of such notice. In any case where notice to Holders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder shall affect the sufficiency of such notice with respect to other Holders. Any notice that is mailed in the manner herein provided shall be conclusively presumed to have been duly given or provided, whether or not such notice is received by the Holder. (b) In case, by reason of the suspension of regular mail service or by reason of any other cause, it shall be impracticable to give notice by mail, then such notification as shall be made with the approval of the Trustee shall constitute a sufficient notification for every purpose hereunder. (c) Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of - 14 - such notice. Waivers of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. Section 107. Language of Notices. ------------------- Any request, demand, authorization, direction, notice, consent, election or waiver required or permitted under this Indenture shall be in the English language. Section 108. Conflict with Trust Indenture Act. --------------------------------- If any provision hereof limits, qualifies or conflicts with a provision of the Trust Indenture Act that is required under the Trust Indenture Act to be a part of and govern this Indenture, the provision of the Trust Indenture Act shall control. If any provision of this Indenture modifies or excludes any provision of the Trust Indenture Act that may be so modified or excluded, the provision of the Trust Indenture Act shall be deemed to apply to this Indenture as so modified or to be excluded. Section 109. Effect of Headings and Table of Contents. ---------------------------------------- The Article and Section headings herein and the Table of Contents are for convenience of reference only and shall not affect the construction of this Indenture. Section 110. Successors and Assigns. ---------------------- All covenants and agreements in this Indenture by the Company shall bind its successors and assigns, whether or not so expressed. Section 111. Separability Clause. ------------------- In case any provision in this Indenture or in the Securities 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 112. Benefits of Indenture. --------------------- Nothing in this Indenture or in the Securities, express or implied, shall give to any Person, other than the parties hereto and their successors hereunder and the Holders, any benefit or any legal or equitable right, remedy or claim under this Indenture. Section 113. Governing Law. ------------- This Indenture and the Securities shall be governed by and construed in accordance with the laws of the State of New York, without regard to the conflicts of laws principles thereof. - 15 - Section 114. Legal Holidays. -------------- In any case where any Interest Payment Date, Redemption Date or Stated Maturity of any Security shall not be a Business Day at any Place of Payment, then (notwithstanding any other provision of this Indenture or of the Securities (other than a provision of the Securities of any series which specifically states that such provision shall apply in lieu of this Section)) payment of the principal, premium or interest need not be made at such Place of Payment on such date, but may be made on the next succeeding Business Day at such Place of Payment with the same force and effect as if made on the Interest Payment Date or Redemption Date, or at the Stated Maturity, and no interest shall accrue for the period from and after such Interest Payment Date, Redemption Date or Stated Maturity. ARTICLE TWO Security Forms Section 201. Forms Generally. --------------- (a) The Securities of each series shall be in substantially the form set forth in Attachment A to this Indenture, or in such other form as shall be established by one or more indentures supplemental hereto, by a Board Resolution or by an Officers' Certificate pursuant to a Board Resolution, in each case with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture, and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may be required to comply with the rules of any securities exchange or as may, consistently herewith, be determined by the officers executing such Securities, as evidenced by their execution of the Securities. If the form of Securities of any series is established by action taken pursuant to a Board Resolution or an Officers' Certificate pursuant to a Board Resolution, the Board Resolution or Officers' Certificate (accompanied by the Board Resolution) shall be delivered to the Trustee at or prior to the delivery of the Company Order contemplated by Section 303 for the authentication and delivery of such Securities. (b) The definitive Securities shall be printed, lithographed or engraved on steel engraved borders or may be produced in any other manner, all as determined by the officers executing such Securities, as evidenced by their execution of such Securities. Section 202. Form of Legend for Global Security. ---------------------------------- Unless otherwise specified as contemplated by Section 301 for the Securities evidenced thereby, any Global Security authenticated and delivered hereunder shall bear a legend in substantially the following form: "This Security is a Global Security within the meaning of the Indenture hereinafter referred to and is registered in the name of a Depositary or a nominee thereof. This Security may not be transferred to, or registered or exchanged for Securities registered in the name of, - 16 - any Person other than the Depositary or a nominee thereof and no such transfer may be registered, except in the limited circumstances described in the Indenture. Every Security authenticated and delivered upon registration of transfer of, or in exchange for or in lieu of, this Security shall be a Global Security that is subject to the foregoing, except in such limited circumstances." Section 203. Form of Trustee's Certificate of Authentication. ----------------------------------------------- The Trustee's certificate of authentication shall be in substantially the following form: This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture. Dated: THE BANK OF NEW YORK As Trustee By: _________________________ Authorized Signatory ARTICLE THREE The Securities Section 301. Amount Unlimited; Issuable in Series. ------------------------------------ (a) The aggregate principal amount of Securities that may be authenticated and delivered under this Indenture is unlimited. (b) Securities may be issued in one or more series. Prior to the issuance of Securities of any series, there shall be established, by an indenture supplemental hereto, by a Board Resolution or by an Officer's Certificate pursuant to a Board Resolution, with respect to such series: (1) the title of the Securities of the series (which shall distinguish the Securities of the series from Securities of any other series); (2) any limit upon the aggregate principal amount of the Securities of the series that may be authenticated and delivered under this Indenture (except for Securities authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Securities of the series pursuant to Section 304, 305, 306, 906 or 1107, and except for any Securities which, pursuant to Section 303(h), are deemed never to have been authenticated and delivered hereunder); - 17 - (3) the Person to whom any interest on a Security of the series shall be payable, if other than the Person in whose name that Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest; (4) the date or dates on which the principal of the Securities of the series is payable; (5) the rate or rates at which the Securities of the series shall bear interest, if any, the date or dates from which such interest shall accrue, the Interest Payment Dates on which any such interest shall be payable and the Regular Record Date for any interest payable on any Interest Payment Date; (6) the place or places where the principal of and any premium or interest on Securities of the series shall be payable; (7) the period or periods within which, the price or prices at which and the terms and conditions upon which Securities of the series may be redeemed, in whole or in part, at the option of the Company; (8) the obligation, if any, of the Company to redeem or purchase Securities of the series pursuant to any sinking fund or analogous provisions or at the option of a Holder thereof, and the period or periods within which, the price or prices at which and the terms and conditions upon which Securities of the series shall be redeemed or purchased, in whole or in part, pursuant to such obligation; (9) if other than denominations of $1,000 and any integral multiple thereof, the denominations in which Securities of the series shall be issuable; (10) the currency, currencies or currency units in which payment of the principal of and any premium or interest on any Securities of the series shall be payable, if other than the currency of the United States of America, and the manner of determining the equivalent thereof in the currency of the United States of America for purposes of the definition of "Outstanding" in Section 101; (11) if the amount of payments of principal of or any premium or interest on any Securities of the series may be determined by reference to an index or formula, the manner in which such amounts shall be determined; (12) if the principal of or any premium or interest on any Securities of the series is to be payable, at the election of the Company or a Holder thereof, in one or more currencies or currency units other than that or those in which the Securities are stated to be payable, the currency, currencies or currency units in which payment of the principal of and any premium or interest on Securities of such series as to which such election is made shall be payable, and the - 18 - periods within which and the terms and conditions upon which such election is to be made; (13) if other than the principal amount thereof, the portion of the principal amount of Securities of the series that shall be payable upon declaration of acceleration of the Maturity thereof pursuant to Section 502; (14) the application, if any, of either or both of Section 1302 and Section 1303 to the Securities of the series; (15) whether the Securities of the series shall be issuable in whole or in part in the form of one or more Global Securities and, in such case, the Depositary or Depositaries for such Global Security or Global Securities, and any circumstances, other than those set forth in Section 305(h), in which any such Global Security may be transferred to, and registered and exchanged for Securities registered in the name of, a Person other than the Depositary for such Global Security or a nominee thereof and in which any such transfer may be registered; (16) if other than as specified in Section 501, the events of default applicable with respect to the Securities of the series; (17) if other than as specified in Section 502, the events of default the occurrence of which would permit the declaration of the acceleration of maturity pursuant to Section 502; (18) any other covenant or warranty included for the benefit of Securities of the series in addition to (and not inconsistent with) those included in this Indenture for the benefit of Securities of all series, or any other covenant or warranty included for the benefit of Securities of the series in lieu of any covenant or warranty included in this Indenture for the benefit of Securities of all series, or any provision that any covenant or warranty included in this Indenture for the benefit of Securities of all series shall not be for the benefit of Securities of such series, or any combination of such covenants, warranties or provisions; (19) prior to the Release Date, whether the Securities shall be secured by First Mortgage Bonds as provided in Article Fourteen and, if so, the designation of the related series of First Mortgage Bonds being delivered to the Trustee in connection with the issuance of the securities; and (20) any other term of the series (which terms shall not be inconsistent with the provisions of this Indenture, except as permitted by Section 901(7)). (c) All Securities of any one series shall be substantially identical, except as to denomination and except as may otherwise be provided in or pursuant to the indenture supplemental hereto, the Board Resolution or - 19 - the Officers' Certificate pursuant to a Board Resolution with respect to such series. (d) If any of the terms of the Securities of any series are established by action taken pursuant to a Board Resolution, a copy of an appropriate record of such action shall be certified by the Secretary or an Assistant Secretary of the Company and delivered to the Trustee at or prior to the delivery of the Officers' Certificate setting forth the terms of such series. Section 302. Denominations. ------------- The Securities of each series shall be issuable in registered form without coupons in such denominations as shall be specified as contemplated by Section 301. In the absence of any such provisions with respect to the Securities of any series, the Securities of such series shall be issuable in denominations of $1,000 and any integral multiple thereof. Section 303. Execution, Authentication, Delivery and Dating. ---------------------------------------------- (a) The Securities shall be executed on behalf of the Company by its Chairman of the Board, President or a Vice President, under its corporate seal, or a facsimile thereof, reproduced thereon and attested by its Secretary or an Assistant Secretary. The signature of any of these officers on the Securities may be manual or facsimile. (b) Securities 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 Securities or did not hold such offices at the date of such Securities. (c) At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Securities of any series executed by the Company to the Trustee for authentication, together with the supplemental indenture, Board Resolution or Officers' Certificate with respect to such Securities referred to in Section 301 and a Company Order for the authentication and delivery of such Securities, and the Trustee in accordance with the Company Order, subject to the provisions hereof, shall authenticate and deliver such Securities. In authenticating such Securities, and accepting the additional responsibilities under this Indenture in relation to such Securities, the Trustee shall be entitled to receive, and (subject to Section 601) shall be fully protected in relying upon, an Opinion of Counsel stating to the effect: (1) that the form and terms of such Securities have been established in conformity with the provisions of this Indenture; (2) that all conditions precedent to the execution and delivery by the Company of the Securities have been complied with; - 20 - (3) that such Securities, when authenticated and delivered by the Trustee and issued by the Company in the manner and subject to any conditions specified in such Opinion of Counsel, will constitute valid and legally binding obligations of the Company enforceable in accordance with their terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law); (4) that all laws in respect of the issuance, execution and delivery by the Company of the Securities have been complied with; and (5) in the case of the issuance of a series of Securities that is secured by First Mortgage Bonds in accordance with Article Fourteen, that the security interest of the Trustee in the First Mortgage Bonds delivered to the Trustee pursuant to Section 1402 is a valid and perfected first priority security interest. (d) Notwithstanding the provisions of Section 301 and paragraph (c) of this Section 303, if all Securities of a series are not to be originally issued at one time, it shall not be necessary to deliver the Board Resolution or Officers' Certificate otherwise required pursuant to Section 301, or the Company Order and Opinion of Counsel otherwise required pursuant to paragraph (c), at or prior to the time of authentication of each Security of such series if such documents are delivered at or prior to the authentication upon original issuance of the first Security of such series to be issued. (e) The Trustee shall not be required to authenticate such Securities if the issue of such Securities pursuant to this Indenture would affect the Trustee's own rights, duties or immunities under the Securities and this Indenture or otherwise in a manner that is not reasonably acceptable to the Trustee or if the Trustee, being advised by counsel, determines that such action may not lawfully be taken. (f) If the Company shall establish pursuant to Section 301 that the Securities of a series are to be issued in whole or in part in the form of one or more Global Securities, then the Company shall execute and the Trustee shall, in accordance with this Section 303 and the Company Order with respect to such series, authenticate and deliver one or more Global Securities in permanent form that (i) shall represent and shall be denominated in an amount equal to the aggregate principal amount of the Outstanding Securities of such series to be represented by such Global Security or Securities, (ii) shall be registered in the name of the Depositary for such Global Security or Securities or the nominee of such Depositary, (iii) shall be delivered by the Trustee to such Depositary or pursuant to such Depositary's instruction. (g) Each Security shall be dated the date of its authentication. (h) No Security shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on - 21 - such Security a certificate of authentication substantially in the form provided for herein executed by the Trustee by manual signature of an authorized signatory of the Trustee, and such certificate upon any Security shall be conclusive evidence, and the only evidence, that such Security has been duly authenticated and delivered hereunder. Notwithstanding the foregoing, if any Security shall have been authenticated and delivered hereunder, but never issued and sold by the Company, and the Company shall deliver such Security to the Trustee for cancellation as provided in Section 309, for all purposes of this Indenture such Security shall be deemed never to have been authenticated and delivered hereunder and shall never be entitled to the benefits of this Indenture. Section 304. Temporary Securities. -------------------- (a) Pending the preparation of definitive Securities of any series, the Company may execute, and upon Company Order the Trustee shall authenticate and deliver, temporary Securities that are printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Securities in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Securities may determine, as evidenced by their execution of such Securities. (b) If temporary Securities of any series are issued, the Company will cause definitive Securities of that series to be prepared without unreasonable delay. After the preparation of definitive Securities of such series, the temporary Securities of such series shall be exchangeable, upon the request of the Holder, for definitive Securities of such series upon surrender of the temporary Securities of such series at the office or agency of the Company in a Place of Payment for that series, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Securities of any series the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor one or more definitive Securities of the same series, of any authorized denominations and of a like aggregate principal amount and tenor. Until so exchanged, the temporary Securities of any series shall in all respects be entitled to the same benefits under this Indenture as definitive Securities of such series and tenor. Section 305. Registration, Registration of Transfer and Exchange. --------------------------------------------------- (a) The Company shall cause to be kept at an office or agency maintained by the Company in accordance with Section 1002 a register (herein sometimes referred to as the "Security Register") in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of Securities and of transfers of Securities. (b) Upon surrender for registration of transfer of any Security of any series at the office or agency in a Place of Payment for that series, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new - 22 - Securities of the same series, of any authorized denominations and of a like aggregate principal amount and tenor. (c) At the option of the Holder, Securities of any series may be exchanged for other Securities of the same series, of any authorized denominations and of a like aggregate principal amount and tenor, upon surrender of the Securities to be exchanged at such office or agency. Whenever any Securities are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and deliver, the Securities which the Holder making the exchange is entitled to receive. (d) All Securities issued upon any registration of transfer or exchange of Securities shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Securities surrendered upon such registration of transfer or exchange. (e) Every Security presented or surrendered for registration of transfer or for exchange shall (if so required by the Company or the Trustee) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed, by the Holder thereof or his attorney duly authorized in writing. (f) No service charge shall be made to a Holder for any registration of transfer or exchange of Securities, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Securities, other than exchanges pursuant to Section 304, 906 or 1107 not involving any transfer. (g) The Company shall not be required (i) to issue, register the transfer of or exchange Securities of any series during a period beginning at the opening of business 15 days before the day of the mailing of a notice of redemption of Securities of that series selected for redemption under Section 1103 and ending at the close of business on the day of such mailing, or (ii) to register the transfer of or exchange any Security so selected for redemption in whole or in part, except the unredeemed portion of any Security being redeemed in part. (h) Notwithstanding the foregoing and except as otherwise specified or contemplated by Section 301, no Global Security shall be exchangeable pursuant to this Section 305 or Sections 304, 906 and 1107 for Securities registered in the name of, and no transfer of a Global Security of any series may be registered to, any Person other than the Depositary for such Security or its nominee, unless (i) such Depositary (A) notifies the Company that it is unwilling or unable to continue as Depositary for such Global Security or (B) ceases to be a "clearing agency" registered under the Exchange Act, and the Company within 90 days after it receives such notice or becomes aware of such ineligibility does not appoint successor Depository, (ii) the Company executes and delivers to the Trustee a Company Order that such Global Security shall be so exchangeable and the transfer thereof so registerable, or (iii) there shall have occurred and be continuing an Event of Default, or an - 23 - event which with notice or lapse of time or both would become an Event of Default, with respect to the Securities evidenced by such Global Security. Upon the occurrence in respect of any Global Security of any series of any one or more of the conditions specified in clause (i), (ii) or (iii) of the preceding sentence or such other conditions as may be specified as contemplated by Section 301 for such series, such Global Security may be exchanged for Securities registered in the names of, and the transfer of such Global Security may be registered to, such Persons (including Persons other than the Depositary with respect to such series and its nominees) as such Depositary shall direct. Notwithstanding any other provision of this Indenture, any Security authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, any Global Security shall also be a Global Security and shall bear the legend specified in Section 202, except for any Security authenticated and delivered in exchange for, or upon registration of transfer of, a Global Security pursuant to the preceding sentence. Section 306. Mutilated, Destroyed, Lost and Stolen Securities. ------------------------------------------------ (a) If any mutilated Security is surrendered to the Trustee, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a new Security of the same series and of like tenor and principal amount and bearing a number not contemporaneously outstanding. (b) If there shall be delivered to the Company and the Trustee (i) evidence to their satisfaction of the destruction, loss or theft of any Security and (ii) such security or indemnity as may be required by them to save each of them and any agent of either of them harmless, then, in the absence of notice to the Company or the Trustee that such Security has been acquired by a bona fide purchaser, the Company shall execute and the Trustee shall authenticate and deliver, in lieu of any such destroyed, lost or stolen Security, a new Security of the same series and of like principal amount and tenor and bearing a number not contemporaneously outstanding. (c) In case any such mutilated, destroyed, lost or stolen Security has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Security, pay such Security. (d) Upon the issuance of any new Security under this Section 306, 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) connected therewith. (e) Every new Security of any series issued pursuant to this Section 306 in lieu of any destroyed, lost or stolen Security shall constitute an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Security shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Securities of that series duly issued hereunder. - 24 - (f) The provisions of this Section 306 are exclusive and shall preclude (to the extent permitted by law) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities. Section 307. Payment of Interest; Interest Rights Preserved. ---------------------------------------------- (a) Except as otherwise provided as contemplated by Section 301 with respect to any series of Securities, interest on any Security 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 Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest. (b) Any interest on any Security of any series 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) or (2) below: (1) The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Securities of such series (or their respective Predecessor Securities) are registered at the close of business on a Special Record Date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Security of such series and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this clause provided. Thereupon the Trustee shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than 15 days and not less than ten days prior to the date of the proposed payment and not less than ten days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such Special Record Date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first-class postage prepaid, to each Holder of Securities of such series at his address as it appears in the Security Register, not less than ten days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been so mailed, such Defaulted Interest shall be paid to the Persons in whose names the Securities of such series (or their respective Predecessor Securities) are registered at the close of business on such Special Record Date and shall not be payable pursuant to the following clause (2). - 25 - (2) The Company may make payment of any Defaulted Interest on the Securities of any series in any other lawful manner not inconsistent with the requirements of any securities exchange on which such Securities may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this clause, such manner of payment shall be deemed practicable by the Trustee. (c) Subject to the foregoing provisions of this Section 307, each Security delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Security shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Security. Section 308. Persons Deemed Owners. --------------------- Prior to due presentment of a Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name such Security is registered as the owner of such Security for the purpose of receiving payment of principal of and any premium or (subject to Section 307) interest on such Security and for all other purposes whatsoever, whether or not such Security be overdue, and neither the Company, the Trustee nor any agent of the Company or the Trustee shall be affected by notice to the contrary. Section 309. Cancellation. ------------ All Securities surrendered for payment, redemption, registration of transfer or exchange or for credit against any sinking fund payment shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee and shall be promptly cancelled by the Trustee. The Company may at any time deliver to the Trustee for cancellation any securities previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and may deliver to the Trustee (or to any other Person for delivery to the Trustee) for cancellation any Securities previously authenticated hereunder which the Company has not issued and sold, and all securities so delivered shall be promptly cancelled by the Trustee. No Securities shall be authenticated in lieu of or in exchange for any Securities cancelled as provided in this Section 309, except as expressly permitted by this Indenture. All cancelled Securities held by the Trustee shall be disposed of as directed by a Company Order; provided that the Trustee shall not be required to destroy such cancelled Securities. Section 310. Computation of Interest. ----------------------- Except as otherwise specified as contemplated by Section 301 for Securities of any series, interest on the Securities of each series shall be computed on the basis of a 360-day year of twelve 30-day months. - 26 - Section 311. CUSIP Numbers. ------------- The Company in issuing the Securities may use "CUSIP" numbers (if then generally in use), and, if so, the Trustee shall use "CUSIP" numbers in notices of redemption as a convenience to Holders; provided that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Securities or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Securities, and any such redemption shall not be affected by any defect in or omission of such numbers. The Company will promptly notify the Trustee of any change in the "CUSIP" numbers. ARTICLE FOUR Satisfaction and Discharge Section 401. Satisfaction and Discharge of Indenture. --------------------------------------- (a) Upon the direction of the Company, by a Company Order, this Indenture shall cease to be of further effect (except as to any surviving rights of registration of transfer or exchange of Securities herein expressly provided for), and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture, when (1) either: (A) all Securities theretofore authenticated and delivered (other than (i) Securities which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 306 and (ii) Securities the payment for which money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust, as provided in Section 1004) have been delivered to the Trustee for cancellation; or (B) all such Securities not theretofore delivered to the Trustee for cancellation (i) have become due and payable, (ii) will become due and payable at their Stated Maturity within one year, or (iii) are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company, and the Company, in the case of (i), (ii) or (iii) above, has deposited or caused to be deposited with the Trustee as trust funds in trust (A) lawful money of the United States, (B) U.S. Government Obligations which through the payment of scheduled principal and interest in accordance with the terms thereof will provide, not later than one day before the due date of any payment such money, or (C) a combination thereof, in an amount sufficient, without reinvestment, to pay and discharge the entire indebtedness on such Securities not theretofore delivered to the Trustee for cancellation for principal and any premium or interest to the date of such deposit (in the case of Securities which - 27 - have become due and payable) or to the Stated Maturity or Redemption Date, as the case may be; (2) the Company has paid or caused to be paid all other sums payable hereunder by the Company; and (3) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture have been complied with. (b) Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Company to the Trustee under Section 606, the obligations of the Company to any Authenticating Agent under Section 613, and, if money or U.S. Government Securities shall have been deposited with the Trustee pursuant to paragraph (a)(1)(B) of this Section 401, the obligations of the Trustee under Section 402 and paragraph (e) of Section 1004, shall survive. (c) The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the U.S. Government Securities deposited pursuant to this Section 401, or the principal and interest received in respect thereof, other than any such tax, fee or other charge that by law is for the account of the Holders of Outstanding Securities. Section 402. Application of Trust Money. -------------------------- Subject to the provisions of paragraph (e) of Section 1004, all money deposited with the Trustee pursuant to Section 401 shall be held in trust and applied by it, in accordance with the provisions of the Securities and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal and any premium or interest for the payment of which such money has been deposited with the Trustee. ARTICLE FIVE Remedies Section 501. Events of Default. ----------------- "Event of Default", wherever used herein with respect to Securities of any particular series, means any one of the following events (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): (1) default in the due and punctual payment of any installment of interest upon any of the Securities of that series as and - 28 - when the same shall become due and payable, and continuance of such default for a period of 30 days; or (2) default in the due and punctual payment of the principal of (or premium, if any, on) any of the Securities of that series as and when the same shall become due and payable at Maturity; or (3) default in the deposit of any sinking fund payment, when and as due by the terms of a Security of that series, and the continuance of such default for a period of 30 days; or (4) failure on the part of the Company duly to observe or perform any covenant or agreement on the part of the Company (other than a failure that constitutes another Event of Default under this Section 501) set forth in this Indenture or in the Securities of a particular series (other than those covenants and agreements that have been included in this Indenture for the benefit of Securities of other series or are set forth exclusively in the terms of Securities of another series), and the continuance of such failure for a period of 60 days after there has been given, by registered or certified mail, to the Company by the Trustee, or to the Company and the Trustee by the Holders of at least a majority in principal amount of the Securities of that series at the time Outstanding, a written notice specifying such failure and requiring the same to be remedied and stating that such notice is a "Notice of Default" hereunder; or (5) the entry of a decree or order by a court having jurisdiction in the premises granting relief in respect of the Company in an involuntary case under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law adjudging the Company as being bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Company under any applicable Federal or State law, or appointing a receiver, liquidator, custodian, assignee, trustee, sequestrator (or other similar official) of the Company, or of any substantial part of its properties, or ordering the winding up or liquidation of the affairs of the Company, and the continuance of any such decree or order unstayed and in effect for a period of 60 consecutive days; or (6) the institution by the Company of proceedings to be adjudicated as being bankrupt or insolvent, or the consent by the Company to the institution of bankruptcy or insolvency proceedings against it, or the filing by the Company of a petition or answer or consent seeking reorganization or relief under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law, or the consent by the Company to the filing of any such petition or to the appointment of a receiver, liquidator, custodian, assignee, trustee, sequestrator (or other similar official) of the Company, or of any substantial part of its properties, or the making by the Company of an assignment for the benefit of creditors, or the admission by the Company in writing of its inability to pay its debts generally as they become - 29 - due, or the taking of corporate action by the Company in furtherance of any such action; or (7) in the case of any series of Securities that is secured by First Mortgage Bonds in accordance with Article Fourteen, prior to the Release Date, an "event of default" under Article IX, Section 1, of the Mortgage has occurred and is continuing (a "Mortgage Default"); or (8) any other Event of Default provided for in accordance with Section 301 with respect to Securities of that series. Section 502. Acceleration of Maturity; Rescission and Annulment. -------------------------------------------------- (a) In case one or more of the Events of Default specified in Section 501 (other than as provided in Section 501(7)) shall have occurred and be continuing with respect to any particular series of Securities, then and in each and every such case (unless the principal of all of the Securities of that series shall have already become due and payable) either the Trustee or the Holders of not less than thirty-three percent (33%) in aggregate principal amount of the Securities of that series then Outstanding hereunder, by notice in writing to the Company (and to the Trustee, if given by Holders), may declare the principal (or, in the case of Original Issue Discount Securities, such amount of principal as may be provided for in such Securities) of all the Securities of that series to be due and payable immediately, and upon any such declaration the same shall become and shall be immediately due and payable, anything in this Indenture or in the Securities of that series contained to the contrary notwithstanding, subject only to the provisions paragraph (c) of this Section 502. (b) In the case of an Event of Default specified in Section 501(7), (i) the principal (or, in the case of Original Issue Discount Securities, such amount of principal as may be provided for in such Securities) of all of the Securities of each series of Securities that is secured by First Mortgage Bonds in accordance with Article Fourteen (unless the principal of all of the Securities of any such series shall have already become due and payable) shall become immediately due and payable if and only if the First Mortgage Bonds securing such series of Securities shall have become immediately due and payable in accordance with the terms of the Mortgage (which acceleration shall occur without any further action on the part of the Trustee (other than action by the Trustee as a holder of Mortgage Bonds under the Mortgage) or the Holders of such Securities, and (ii) the waiver or cure of any Mortgage Default and the rescission and annulment of its consequences in accordance with the terms of the Mortgage shall constitute an automatic waiver of the corresponding Event of Default under this Indenture and rescission and annulment of the consequences thereof under this Indenture, in either case, anything in this Indenture or in the Securities of that series contained to the contrary notwithstanding, subject only to paragraph (c) of this Section 502. Upon an acceleration of the Securities pursuant to this paragraph (b), the Trustee shall immediately file with the Company a written demand for redemption of the Mortgage Bonds, if any, securing such Securities pursuant to Article Fourteen to the extent such redemption is provided for - 30 - with respect to such series of First Mortgage Bonds either in the Mortgage or in an indenture supplemental thereto. (c) The provisions of paragraphs (a) and (b) are subject to the condition that if, at any time after the principal or the amount of principal, as the case may be, of any series of Securities, shall have been so declared or shall have become due and payable, and before any judgment or decree for the payment of the moneys due shall have been obtained or entered as hereinafter provided, (1) the Company shall pay or shall deposit with the Trustee a sum sufficient to pay (A) all matured installments of interest upon all Securities of that series and the principal of (and premium, if any, on) any and all Securities of that series that shall have become due otherwise than by acceleration (with interest on overdue installments of interest (to the extent that payment of such interest is enforceable under applicable law) and on such principal (and premium, if any) at the rate of interest prescribed therefor by such Securities, to the date of such payment or deposit), and (B) the fees and expenses of the Trustee, including the reasonable fees and disbursements of its counsel, and (2) any and all defaults under this Indenture with respect to the Securities of the series, other than the nonpayment of principal of (and premium, if any) and accrued interest on the Securities of that series which shall have become due solely by acceleration, shall have been cured or waived (including, if applicable, a Mortgage Default) then the Holders of a majority in aggregate principal amount of the Securities of that series then Outstanding, by written notice to the Company and to the Trustee, may waive all defaults and rescind and annul such declaration and its consequences; but no such waiver or rescission and annulment shall extend to or shall affect any subsequent default, or shall impair any right consequent thereon. Section 503. Collection of Indebtedness. -------------------------- (a) The Company covenants that if: (1) default is made in the payment of any interest on any Security when such interest becomes due and payable and such default continues for a period of 30 days, or (2) default is made in the payment of the principal of (or premium, if any, on) any Security at the Maturity thereof, the Company will, upon written demand of the Trustee, pay to the Trustee, for the benefit of the Holders of such Securities, the whole amount then due and payable on such Securities for principal and any premium or interest and, to - 31 - the extent that payment of such interest shall be legally enforceable, interest on any overdue principal and premium and on any overdue interest, at the rate or rates prescribed therefor in such Securities, and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. Section 504. Suits for Enforcement by Trustee. -------------------------------- If an Event of Default with respect to Securities of any series occurs and is continuing, the Trustee, in its own name and as trustee as an express trust, may in its discretion proceed to protect and enforce its rights and the rights of the Holders of Securities of such series by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights (including, prior to the Release Date, in the case of any series of Securities that is secured by First Mortgage Bonds in accordance with Article Fourteen, the exercise of all rights to that end that the Trustee may have as a holder of the First Mortgage Bonds that secure such series of Securities), whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted under this Indenture, or to enforce any other legal or equitable right vested in the Trustee by this Indenture or by law. Section 505. Trustee May File Proofs of Claim. -------------------------------- (a) In case of any judicial proceeding relative to the Company (or any other obligor upon the Securities), its property or its creditors, the Trustee shall be entitled and empowered, by intervention in such proceeding or otherwise, to take any and all actions authorized under the Trust Indenture Act in order to have claims of the Holders and the Trustee allowed in any such proceeding (including, prior to the Release Date, in the case of any series of Securities that is secured by First Mortgage Bonds in accordance with Article Fourteen, any claims of the Trustee as a holder of First Mortgage Bonds). In particular, the Trustee shall be authorized to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official 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 directly to the Holders, to pay to the Trustee any amount due it for the compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 606. (b) No provision of this Indenture 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 Securities 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; provided, however, the Trustee may vote on behalf of the Holders for the election of a trustee in bankruptcy or similar official and may be a member of a creditors' or other similar committee. - 32 - Section 506. Trustee May Enforce Claims Without Possession of ------------------------------------------------ Securities. - ---------- All rights of action and claims under this Indenture or the Securities may be prosecuted and enforced by the Trustee without the possession of any of the Securities or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Holders of the Securities in respect of which such judgment has been recovered. Section 507. Application of Money Collected. ------------------------------ Any money collected by the Trustee pursuant to this Article Five shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money on account of principal or any premium or interest, upon presentation of the Securities and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid: FIRST: To the payment of all amounts due the Trustee under Section 606; SECOND: To the payment of the amounts then due and unpaid for principal of and any premium or interest on the Securities in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Securities for principal and any premium or interest, respectively; and THIRD: To the Company or its assigns, or as a court of competent jurisdiction may determine. Section 508. Limitation on Suits. ------------------- No Holder of any Security of any series shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless (1) such Holder has previously given written notice to the Trustee of a continuing Event of Default with respect to the Securities of that series; (2) the Holders of not less than a majority in principal amount of the Outstanding Securities of that series shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder; - 33 - (3) such Holder or Holders have offered to the Trustee indemnity and security satisfactory to the Trustee against the costs, expenses and liabilities to be incurred in compliance with such request; (4) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity and security has failed to institute any such proceeding; and (5) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority in principal amount of the Outstanding Securities of that series; it being understood and intended that no one or more of such Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other of such Holders or the Holders of any other series, or to obtain or to seek to obtain priority or preference over any other of such Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all of such Holders. Section 509. Unconditional Right of Holders to Receive Principal, --------------------------------------------------- Premium and Interest. -------------------- Notwithstanding any other provision in this Indenture, the Holder of any Security shall have the right, which is absolute and unconditional, to receive payment of the principal of and any premium and (subject to Section 307) any interest on such Security on the Stated Maturity or Maturities expressed in such Security (or, in the case of redemption, on the Redemption Date) and to institute suit for the enforcement of any such payment, and such rights shall not be impaired without the consent of such Holder. Section 510. Restoration of Rights and Remedies. ---------------------------------- If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case, subject to any determination in such proceeding, the Company, the Trustee and the Holders shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted. Section 511. Rights and Remedies Cumulative. ------------------------------ Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities in Section 306(f), no right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter - 34 - existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. Section 512. Delay or Omission Not Waiver. ---------------------------- No delay or omission of the Trustee or of any Holder of any Securities to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article Five or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be. Section 513. Control by Holders. ------------------ The Holders of a majority in principal amount of the Outstanding Securities of any series shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee (including, prior to the Release Date, in the case of First Mortgage Bonds that secure any series of Securities in accordance with Article Fourteen, the exercise by the Trustee of any rights, powers or privileges possessed by the Trustee as a holder of such First Mortgage Bonds under terms of such First Mortgage Bonds or under the Mortgage), with respect to the Securities of such series, provided that: (1) such direction shall not be in conflict with any provision of law or with this Indenture (and, in the case of the First Mortgage Bonds, the terms such First Mortgage Bonds and the Mortgage), and (2) the Trustee may take any other action deemed proper by the Trustee that is not inconsistent with such direction. Section 514. Waiver of Past Defaults. ----------------------- The Holders of not less than a majority in principal amount of the Outstanding Securities of any series may on behalf of the Holders of all the Securities of such series waive any past default hereunder with respect to such series and its consequences, except a default (1) in the payment of the principal of, or any premium or interest on, any Security of such series, or (2) in respect of a covenant or provision hereof which under Article Nine cannot be modified or amended without the consent of the Holder of each Outstanding Security of such series affected. Upon any such waiver, such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every - 35 - purpose of this Indenture; but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon. Section 515. Undertaking for Costs. --------------------- Each party to this Indenture agrees, and each Holder of any Security by his acceptance thereof shall be deemed to have agreed, that 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, suffered or omitted by it as Trustee, a court may in its discretion require any party litigant in such suit to file an undertaking to pay the costs of such suit, and may assess reasonable costs, including reasonable attorneys' fees and disbursements, against any party litigant in any such suit, in the manner and to the extent provided in the Trust Indenture Act. This Section 515 does not apply to a suit instituted (i) by the Trustee, (ii) by a Holder pursuant to Section 509, or (iii) by a Holder or Holders of more than 10% in principal amount of the then Outstanding Securities. Section 516. Waiver of Stay or Extension 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 wherever enacted, now or at any time hereafter in force, that may affect the covenants or the performance of 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. Section 517. Notice of Defaults. ------------------ If a default occurs hereunder with respect to Securities of any series that is actually known to a Responsible Officer of the Trustee, the Trustee shall give the Holders of Securities of such series notice of such default as and to the extent required, and in the manner provided, by the Trust Indenture Act. For the purpose of this Section 517, the term "default" means any event which is, or after notice or lapse of time or both would become, an Event of Default with respect to Securities of such series. Section 518. Defaults Under the Mortgage. --------------------------- In the case of any series of Securities that is secured by First Mortgage Bonds in accordance with Article Fourteen, in addition to every other right and remedy provided in this Indenture, the Trustee, subject to Section 513, may exercise any right or remedy available to the Trustee in its capacity as owner and holder of First Mortgage Bonds that arises as a result of a default under the Mortgage. - 36 - ARTICLE SIX The Trustee Section 601. Certain Duties and Responsibilities. ----------------------------------- (a) Except during the continuance of an Event of Default, (1) the Trustee undertakes to perform such duties, and only such duties, as specifically are set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (2) in the absence of bad faith on 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; but in the case of any such certificates or opinions which by any provisions hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine such certificates or opinions to determine whether or not they conform to the requirements of this Indenture. (b) In case an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs. (c) No provision of this Indenture shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (1) this paragraph (c) shall not be construed to limit the effect of paragraph (a) of this Section 601; (2) the 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 Trustee was negligent in ascertaining the pertinent facts; (3) the Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders of a majority in principal amount of the Outstanding Securities of any series, relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Indenture with respect to the Securities of such series, provided such direction shall not be in conflict with any rule of law or with this Indenture; and - 37 - (4) no provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers. (d) Whether or not therein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section 601. Section 602. Certain Rights of Trustee. ------------------------- Subject to the provisions of Section 601: (1) the Trustee may conclusively rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, 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 or presented by the proper party or parties; (2) any request or direction of the Company referred to herein shall be sufficiently evidenced by a Company Order or Company Request and any resolution of the Board of Directors may be sufficiently evidenced by a Board Resolution; (3) whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon an Officers' Certificate, except that in the case of any such Officers' Certificate that by any provision hereof is specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not it conforms to the requirements of this Indenture; (4) 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, except that in the case of any such Opinion of Counsel that by any provision hereof is specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not it conforms to the requirements of this Indenture; (5) 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 security or indemnity satisfactory to the Trustee against the costs, expenses and - 38 - liabilities which might be incurred by it in compliance with such request or direction; (6) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney; (7) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the 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; (8) the Trustee shall not be liable for any action taken, suffered or omitted to be taken by it in good faith and reasonably believed by it to be authorized or within the discretion, rights or powers conferred upon it by this Indenture; (9) the Trustee shall not be deemed to have notice of any default or Event of Default unless a Responsible Officer of the Trustee has actual knowledge thereof or unless (i) written notice of any event which is in fact such a default or Event of Default is received by the Trustee at the Corporate Trust Office of the Trustee and (ii) such notice references the Securities and this Indenture; and (10) the rights, privileges, protections, immunities and benefits given to the Trustee, including, without limitation, its right to be indemnified, are extended to, and shall be enforceable by, the Trustee in each of its capacities hereunder, and to each agent, custodian and other Person employed to act hereunder. Section 603. Not Responsible for Recitals or Issuance of ------------------------------------------- Securities. - ---------- The recitals contained in this Indenture and in the Securities, except the Trustee's certificate of authentication, shall be taken as the statements of the Company, and the Trustee or any Authenticating Agent assumes no responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Securities. The Trustee or any Authenticating Agent shall not be accountable for the use or application by the Company of Securities or the proceeds thereof. Section 604. May Hold Securities. ------------------- The Trustee, any Authenticating Agent, any Paying Agent, any Security Registrar or any other agent of the Company, in its individual or any - 39 - other capacity, may become the owner or pledgee of Securities and, subject to Sections 607 and 612, may otherwise deal with the Company with the same rights it would have if it were not Trustee, Authenticating Agent, Paying Agent, Security Registrar or such other agent. Section 605. Money Held in Trust. ------------------- Money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise agreed in writing with the Company. Section 606. Compensation and Reimbursement. ------------------------------ (a) The Company agrees: (1) to pay to the Trustee from time to time such compensation as the Company and the Trustee agree in writing 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) except as otherwise expressly provided herein, to reimburse the Trustee upon its request for all 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 disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its negligence or bad faith; and (3) to indemnify the Trustee for, and to hold it harmless against, any and all loss, damage, claim, liability or expense, including taxes (other than taxes based on the income of the Trustee), incurred without negligence or willful misconduct on its part, arising out of or in connection with the acceptance or administration of the trust or trusts hereunder, including the costs and expenses of defending itself against any claim (whether asserted by the Company, any Holder or any other Person) or liability in connection with the exercise or performance of any of its powers or duties hereunder; provided that: (i) with respect to any such claim, the Trustee shall have given the Company written notice thereof promptly after the Trustee shall have knowledge thereof, but failure by the Trustee to give such notice shall not affect the Trustee's right or the Company's obligation to indemnity hereunder; (ii) while maintaining absolute control over its own defense, the Trustee shall cooperate and consult with the Company in preparing such defense; and (iii) notwithstanding anything to the contrary in this Section 606(3), the Company shall not be liable for settlement of any - 40 - such claim by the Trustee entered into without the prior written consent of the Company, which consent shall not be unreasonably withheld. (b) The Trustee shall have a lien prior to the Securities as to all property and funds held by it hereunder for any amount owing it or any predecessor Trustee pursuant to this Section 606, except with respect to funds held in trust for the benefit of the Holders of particular Securities. (c) When the Trustee incurs expenses or renders services in connection with an Event of Default specified in Section 501(5) or Section 501(6), the expenses (including the reasonable charges and expenses of its counsel) and the compensation for the services are intended to constitute expenses of administration under any applicable Federal or State bankruptcy, insolvency or other similar law. (d) The provisions of this Section 606 shall survive the termination of this Indenture. Section 607. Disqualification; Conflicting Interests. --------------------------------------- If the Trustee has or shall acquire a conflicting interest within the meaning of the Trust Indenture Act, the 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 Indenture. Section 608. Corporate Trustee Required; Eligibility. --------------------------------------- There shall at all times be a Trustee under this Indenture which shall be a corporation that (i) is organized and doing business under the laws of the United States, any State thereof or the District of Columbia, (ii) is authorized under such laws to exercise corporate trust power, (iii) has a combined capital and surplus of at least $50,000,000, (iv) is subject to supervision or examination by Federal, State or District of Columbia authority, (v) has its Corporate Trust Office in the United States, and (vi) is otherwise qualified to act as Trustee under the Trust Indenture Act. If such Person publishes reports of condition at least annually, pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section 609, 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 of condition so published. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section 609, it shall resign immediately in the manner and with the effect hereinafter specified in this Article Six. Section 609. Resignation and Removal; Appointment of Successor. ------------------------------------------------- (a) No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article Six shall become effective until the acceptance of appointment by the successor Trustee in accordance with the applicable requirements of Section 610. - 41 - (b) The Trustee may resign at any time with respect to the Securities of one or more series by giving written notice thereof to the Company. If the instrument of acceptance by a successor Trustee required by Section 610 shall not have been delivered to the Trustee within 60 days after the giving of such notice of resignation, the resigning Trustee may petition, at the expense of the Company, any court of competent jurisdiction for the appointment of a successor Trustee with respect to the Securities of such series. (c) The Trustee may be removed at any time with respect to the Securities of any series by Act of the Holders of a majority in principal amount of the Outstanding Securities of such series, delivered to the Trustee and to the Company. If the instrument of acceptance by a successor Trustee required by Section 610 shall not have been delivered to the Trustee within 60 days after the giving of such notice of removal, the Trustee being removed may petition, at the expense of the Company, any court of competent jurisdiction for the appointment of a successor Trustee with respect to the Securities of such series. (d) If at any time: (1) the Trustee shall fail to comply with Section 607 after written request therefor by the Company or by any Holder who has been a bona fide Holder of a Security for at least six months, or (2) the Trustee shall cease to be eligible under Section 608 and shall fail to resign after written request therefor by the Company or by any such Holder, or (3) the Trustee shall become incapable of acting or shall be adjudged as being bankrupt or insolvent or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then, in any such case, (i) the Company by a Board Resolution may remove the Trustee with respect to all Securities, or (ii) subject to Section 515, any Holder who has been a bona fide Holder of a Security for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee with respect to all Securities and the appointment of a successor Trustee or Trustees. (e) If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause, with respect to the Securities of one or more series, the Company, by a Board Resolution, shall promptly appoint a successor Trustee or Trustees with respect to the Securities of that or those series (it being understood that any such successor Trustee may be appointed with respect to the Securities of one or more or all of such series and that at any time there shall be only one Trustee with respect to the Securities of any particular series) and shall comply with the applicable requirements of Section 610. If, within one year after such resignation, removal or incapability, or the occurrence of such - 42 - vacancy, a successor Trustee with respect to the Securities of any series shall be appointed by Act of the Holders of a majority in principal amount of the Outstanding Securities of such series delivered to the Company and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment in accordance with the applicable requirements of Section 610, become the successor Trustee with respect to the Securities of such series and to that extent supersede the successor Trustee appointed by the Company. If no successor Trustee with respect to the Securities of any series shall have been so appointed by the Company or the Holders and accepted appointment in the manner required by Section 610, any Holder who has been a bona fide Holder of a Security of such series 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 with respect to the Securities of such series. (f) The Company shall give notice of each resignation and each removal of the Trustee with respect to the Securities of any series and each appointment of a successor Trustee with respect to the Securities of any series to all Holders of Securities of such series in the manner provided in Section 106. Each notice shall include the name of the successor Trustee with respect to the Securities of such series and the address of its Corporate Trust Office. Section 610. Acceptance of Appointment by Successor. -------------------------------------- (a) In case of the appointment hereunder of a successor Trustee or Trustees with respect to all Securities, every successor Trustee so appointed shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and 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; but, on the request of the Company or the successor Trustee, such retiring Trustee shall, upon payment of its fees and expenses, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder (including all right, title and interest in any Mortgage Bonds held by the retiring Trustee in accordance with Article Fourteen). (b) In case of the appointment hereunder of a successor Trustee with respect to the Securities of one or more (but not all) series, the Company, the retiring Trustee and each successor Trustee with respect to the Securities of such series shall execute and deliver an indenture supplemental hereto wherein each successor Trustee shall accept such appointment and which (i) 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 with respect to the Securities of that or those series to which the appointment of such successor Trustee relates, (ii) if the retiring Trustee is not retiring with respect to all Securities, shall contain such provisions as shall be deemed necessary or desirable to confirm that all the rights, powers, trusts and duties of the - 43 - retiring Trustee with respect to the Securities of that or those series as to which the retiring Trustee is not retiring shall continue to be vested in the retiring Trustee, and (iii) shall add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, it being understood that nothing herein or in such supplemental indenture shall constitute such Trustees co-trustees of the same trust and that each such Trustee shall be trustee of a trust or trusts hereunder separate and apart from any trust or trusts hereunder administered by any other such Trustee and that no Trustee shall be responsible for any notice given to, or received by, or any act or failure to act on the part of any other Trustee; and upon the execution and delivery of such supplemental indenture 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 with respect to the Securities of that or those series to which the appointment of such successor Trustee relates; but, on request of the Company or any successor Trustee, such retiring Trustee shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder with respect to the Securities of that or those series to which the appointment of such successor Trustee relates (including all right, title and interest in any Mortgage Bonds held by the retiring Trustee in accordance with Article Fourteen). (c) Upon request of any such successor Trustee, the Company 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 paragraph (a) or (b) of this Section 610, as the case may be. (d) 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 Six. Section 611. Merger, Conversion, Consolidation or Succession to -------------------------------------------------- Business. - -------- Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation shall be otherwise qualified and eligible under this Article Six, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Securities shall have been authenticated, but not delivered by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Securities so authenticated with the same effect as if such successor Trustee had itself authenticated such Securities. - 44 - Section 612. Preferential Collection of Claims Against Company. ------------------------------------------------- If and when the Trustee shall be or become a creditor of the Company (or any other obligor upon the Securities), the Trustee shall be subject to the provisions of the Trust Indenture Act regarding the collection of claims against the Company (or any such other obligor). Section 613. Appointment of Authenticating Agent. ----------------------------------- (a) The Trustee may appoint an Authenticating Agent or Agents acceptable to the Company with respect to one or more series of Securities which shall be authorized to act on behalf of the Trustee to authenticate Securities of such series issued upon original issue and upon exchange, registration of transfer or partial redemption thereof or pursuant to Section 306, and Securities so authenticated shall be entitled to the benefits of this Indenture and shall be valid and obligatory for all purposes as if authenticated by the Trustee hereunder. Wherever reference is made in this Indenture to the authentication and delivery of Securities by the Trustee or the Trustee's certificate of authentication, such reference shall be deemed to include authentication and delivery on behalf of the Trustee by an Authenticating Agent and a certificate of authentication executed on behalf of the Trustee by an Authenticating Agent. Each Authenticating Agent shall be at all times be a corporation organized and doing business under the laws of the United States of America, any State thereof or the District of Columbia, authorized under such laws to act as Authenticating Agent, having a combined capital and surplus of not less than $50,000,000 and subject to supervision or examination by Federal, State or District of Columbia authority. If such Authenticating Agent publishes reports of condition at least annually, pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section 613, the combined capital and surplus of such Authenticating Agent shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time an Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section 613, such Authenticating Agent shall resign immediately in the manner and with the effect specified in this Section. (b) Any corporation into which an Authenticating Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which such Authenticating Agent shall be a party, or any corporation succeeding to all or substantially all of the corporate agency or corporate trust business of an Authenticating Agent, shall continue to be an Authenticating Agent, provided such corporation shall be otherwise eligible under this Section 613, without the execution or filing of any paper or any further act on the part of the Trustee or the Authenticating Agent. (c) An Authenticating Agent may resign at any time by giving written notice thereof to the Trustee and to the Company. The Trustee may at any time terminate the agency of an Authenticating Agent by giving written notice thereof to such Authenticating Agent and to the Company. Upon receiving such a notice of resignation or upon such a termination, or in case - 45 - at any time such Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section 613, the Trustee may appoint a successor Authenticating Agent which shall be acceptable to the Company and shall mail written notice of such appointment by first-class mail, postage prepaid, to all Holders of Securities of the series with respect to which such Authenticating Agent will serve, as their names and addresses appear in the Security Register. Any successor Authenticating Agent upon acceptance of its appointment hereunder shall become vested with all the rights, powers and duties of an Authenticating Agent hereunder, with like effect as if originally named as an Authenticating Agent. No successor Authenticating Agent shall be appointed unless eligible under the provisions of this Section 613. (d) The Company agrees to pay to each Authenticating Agent from time to time reasonable compensation for its services under this Section 613. (e) If an appointment of an Authenticating Agent with respect to one or more series is made pursuant to this Section 613, the Securities of such series may have endorsed thereon an alternative certificate of authentication in the following form: This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture. THE BANK OF NEW YORK As Trustee By: ______________________________ As Authenticating Agent By: ______________________________ Authorized Signatory ARTICLE SEVEN Holders' Lists and Reports by Trustee and Company Section 701. Company to Furnish Trustee Names and Addresses of ------------------------------------------------- Holders. - ------- The Company will furnish or cause to be furnished to the Trustee: (1) semi-annually, not later then June 30 and December 31 in each year, a list for each series of Securities, in such form as the Trustee may reasonably require, of the names and addresses of the Holders of Securities of such series as of the preceding June 15 or December 15, and (2) at such other times as the Trustee may request in writing, within 30 days after the receipt by the Company of any such - 46 - request, a list of similar form and content as of a date not more than 45 days prior to the time such list is furnished; provided, however, that if the Trustee is acting in the capacity as Security Registrar, no delivery of such lists shall be required. Section 702. Preservation of Information; Communications to ---------------------------------------------- Holders. - ------- (a) The Trustee shall preserve, in as current a form as is reasonably practicable and for so long as is required by the Trust Indenture Act, the names and addresses of Holders of each series of Securities (i) contained in the most recent list, if any, furnished to the Trustee as provided in Section 701 and (ii) received by the Trustee in the capacity as Security Registrar, if the Trustee is then acting in such capacity. (b) The rights of the Holders to communicate with other Holders with respect to their rights under this Indenture or under the Securities of any series, and the corresponding rights and privileges of the Trustee, shall be as provided by the Trust Indenture Act. (c) Every Holder of Securities, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company nor the Trustee nor any agent of either of them shall be held accountable by reason of any disclosure of information as to names and addresses of Holders made pursuant to the Trust Indenture Act. Section 703. Reports by Trustee. ------------------ (a) The Trustee shall transmit to Holders such reports concerning the Trustee, its relationship to the Company (or any other obligor under the Securities) and its actions under this Indenture as are required pursuant to the Trust Indenture Act at the times or such intervals and in the manner provided for in the Trust Indenture Act. If required, the report contemplated by Section 313(a) of the Trust Indenture Act, shall be dated May 15 and shall be delivered to the Holders by the Trustee within sixty days after each May 15 following the date of this Indenture. (b) A copy of each report required by paragraph (a), at the time of transmission to Holders, shall be filed by the Trustee with the Commission and with each stock exchange upon which any Securities of any series are listed and shall be furnished to the Company. If and when Securities of any series are listed on any stock exchange, the Company shall notify the Trustee promptly of such listing and of any subsequent delisting thereof. Section 704. Reports by Company. ------------------ (a) The Company shall: (1) file with the Trustee, within 15 days after the Company is required to file the same with the Commission, copies of the annual reports and of the information, documents and other reports (or copies of such portions of any of the foregoing as the Commission may - 47 - from time to time by rules and regulations prescribe pursuant to the Trust Indenture Act) that the Company is required to file with the Commission pursuant to Section 13 or Section 15(d) of the Exchange Act; or, if the Company is not required to file information, documents or reports pursuant to either of said sections of the Exchange Act, then it shall file with the Trustee and the Commission, in accordance with rules and regulations prescribed from time to time by the Commission pursuant to the Trust Indenture Act, such of the supplementary and periodic information, documents and reports which may be required pursuant to Section 13 of the Exchange Act in respect of a security listed and registered on a national securities exchange as may be prescribed from time to time in such rules and regulations; (2) file with the Trustee and the Commission, in accordance with rules and regulations prescribed from time to time by the Commission pursuant to the Trust Indenture Act, such additional information, documents and reports with respect to compliance by the Company with the conditions and covenants of this Indenture as may be required from time to time by such rules and regulations; and (3) transmit, within 30 days after the filing thereof with the Trustee, in the manner and to the extent required by the Trust Indenture Act, such summaries of any information, documents and reports required to be filed by the Company pursuant to clauses (1) and (2) of this Section 704 as may be required by rules and regulations prescribed from time to time by the Commission pursuant to the Trust Indenture Act. (b) Delivery to the Trustee of the reports, information and documents contemplated by this Section 704 is for informational purposes only and the Trustee's receipt thereof shall not constitute (unless otherwise provided in the Trust Indenture Act or the rules and regulations of the Commission thereunder) 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 an Officers' Certificate). ARTICLE EIGHT Consolidation, Merger, Conveyance, Transfer or Lease Section 801. Company may Consolidate, Etc., Only on Certain ---------------------------------------------- Terms. - ----- (a) Nothing contained in this Indenture or in any of the Securities shall prevent any consolidation or merger of the Company with or into any other Person, or successive consolidations or mergers in which the Company or its successor or successors shall be a party or parties, or shall prevent any sale, conveyance, transfer, lease or other disposition of the properties and assets of the Company, or its successor or successors, to any other Person; provided that (i) the Person formed by such consolidation or into which the Company is merged or any Person that acquires by sale, conveyance, transfer or otherwise, or which leases, the properties and assets of the Company as an entirety or substantially as an entirety (a "Company - 48 - Sale") shall be a corporation, organized and validly existing under the laws of the United States of America, any State thereof or the District of Columbia and shall be authorized to acquire and operate the assets so acquired (the "Successor Company"), (ii) as a condition precedent to a Company Sale, (A) the due and punctual payment of the principal of and any premium or interest on all of the Securities, according to their tenor, and the due and punctual performance and observance of all of the covenants and conditions of this Indenture to be performed by the Company shall be expressly assumed by supplemental indenture to this Indenture, reasonably satisfactory in form to the Trustee, executed and delivered to the Trustee by the Successor Company and (B) if the Company Sale occurs prior to the Release Date, the due and punctual payment of the principal of and any premium or interest on the First Mortgage Bonds securing any series of Securities, according to their tenor, and the due and punctual performance and observance of all of the covenants and conditions of the Mortgage to be performed by the Company with respect to such First Mortgage Bonds shall be expressly assumed by supplemental indenture to the Mortgage executed and delivered to the Mortgage Trustee by the Successor Company, and (iii) the Company shall not be permitted to effect any Company Sale if the completion of such Company Sale would create an Event of Default or an event under this Indenture which, with the passage of time or the giving of notice or both, would become an Event of Default. (b) Anything in this Indenture to the contrary notwithstanding, the conveyance or other transfer by the Company, in a single transaction or a series of related transactions, of either (i) all or any portion of its facilities for the generation and transmission of electric energy or (ii) all of any portion of its facilities for the distribution of electric energy, in either case alone or in combination with other assets (but not in combination with the other) shall in no event be deemed to constitute a conveyance or other transfer of the properties and assets of the Company as an entirety or substantially as an entirety. The character of particular facilities shall be determined in accordance with the Uniform System of Accounts prescribed for public utilities and licensees subject to the Federal Power Act, as amended, to the extent applicable. Section 802. Successor Corporation to Be Substituted. --------------------------------------- (a) In case of any Company Sale, the Successor Company shall succeed to and be substituted for the Company, with the same effect as if it had been named herein as the Company. The Successor Company thereupon may cause to be signed, and may issue either in its own name or in the name of Potomac Electric Power Company or in the name of any corporation which previously shall have become the Company in accordance with the provisions of this Article Eight any or all of the Securities issuable hereunder, which theretofore shall not have been signed by the Company and delivered to the Trustee; and, upon the order of the Successor Company instead of the Company, and subject to all the terms, conditions and limitations in this Indenture prescribed, the Trustee shall authenticate and shall deliver, any Securities which previously shall have been signed and delivered by the officers of the Company to the Trustee for authentication, and any Securities which the Successor Company thereafter shall cause to be signed and delivered to the Trustee for that purpose. All of the Securities of a particular series so - 49 - issued shall in all respects have the same legal rank and benefit under this Indenture as the Securities of such series theretofore or thereafter issued in accordance with the terms of this Indenture as though all of such Securities had been issued at the date or the execution hereof. (b) Nothing contained in this Indenture or in any of the Securities shall prevent the Company (i) from merging into itself any other Person, (ii) from selling or otherwise disposing of its property or assets not as an entirety or substantially as an entirety, or (iii) from acquiring by purchase or otherwise all or any part of the property of any other Person. Section 803. Opinion of Counsel to Be Given Trustee. -------------------------------------- The Trustee, subject to Sections 601 and 602, may receive an Opinion of Counsel as conclusive evidence that any such consolidation, merger, sale or conveyance and any such assumption complies with the provisions of this Article Eight. ARTICLE NINE Supplemental Indentures Section 901. Supplemental Indentures Without Consent of Holders. -------------------------------------------------- Without the consent of any Holders, the Company, when authorized by a Board Resolution, and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto, in form reasonably satisfactory to the Trustee, for any of the following purposes: (1) to evidence the succession of another Person to the Company and the assumption by any such successor of the covenants of the Company herein and in the Securities; or (2) to add to the covenants of the Company for the benefit of the Holders of all or any series of Securities (and if such covenants are to be for the benefit of less than all series of Securities, stating that such covenants are expressly being included solely for the benefit of such series) or to surrender any right or power herein conferred upon the Company; or (3) to add to or change any of the provisions of this Indenture to such extent as shall be necessary to permit or facilitate the issuance of Securities in bearer form, registrable or not registrable as to principal, and with or without interest coupons, or to permit or facilitate the issuance of Securities in uncertificated form; or (4) to establish the form and terms of Securities of any series as permitted by Sections 201 and 301; or (5) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee with respect to the - 50 - Securities of one or more series and to add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, pursuant to the requirements of Section 610(b); or (6) to cure any ambiguity, to correct or supplement any provision herein that may be inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Indenture, provided that such action shall not adversely affect the interests of the Holders of Securities of any series in any material respect; or (7) to add to, change or eliminate any of the provisions of this Indenture in respect of one or more series of Securities, provided that any such addition, change or elimination (i) shall neither (A) apply to any Security of any series created prior to the execution of such supplemental indenture and entitled to the benefit of such provision nor (B) modify the rights of the Holders of any such Security with respect to such provision or (ii) shall become effective only when there is no such Security Outstanding; or (8) to secure the Securities of one or more series (other than as provided in Article Fourteen); or (9) to establish the terms upon which the Securities of one or more series may be convertible into, or exchangeable for, shares of common stock, preferred stock or other securities of the Company; or (10) to modify, eliminate or add to the provisions of this Indenture to such extent as shall be necessary to effect the qualification of this Indenture under the Trust Indenture Act or under any similar Federal statute hereafter enacted and to add to this Indenture such other provisions as may be expressly required under the Trust Indenture Act. Section 902. Supplemental Indentures with Consent of Holders. ----------------------------------------------- (a) With the consent of the Holders of not less than a majority in principal amount of the Outstanding Securities of all series affected by such supplemental indenture (voting as a single class), by Act of said Holders delivered to the Company and the Trustee, the Company, when authorized by a Board Resolution, and the Trustee may enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders of Securities of each such series under this Indenture; provided, however that no such supplemental indenture shall, without the consent of the Holder of each Outstanding Security affected thereby, (1) change the Stated Maturity of the principal of, or any installment of principal of or interest on, any Security, or reduce the principal amount thereof or the rate of interest thereon or any premium - 51 - payable upon the redemption thereof, or reduce the amount of the principal of an Original Issue Discount Security that would be due and payable upon a declaration of acceleration of the Maturity thereof pursuant to Section 502, or change any Place of Payment where, or the coin or currency in which, any Security or any premium or interest thereon is payable or impair the right to institute suit for the enforcement of any such payment on or after the Stated Maturity thereof (or, in the case of redemption, on or after the Redemption Date), or (2) reduce the percentage in principal amount of the Outstanding Securities of any series, the consent of whose Holders is required for any such supplemental indenture, or the consent of whose Holders is required for any waiver (of compliance with certain provisions of this Indenture or certain defaults hereunder and their consequences) provided for in this Indenture, or (3) modify any of the provisions of this Section 902 or Section 514, except to increase any such percentage or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each Outstanding Security affected thereby, provided, however, that this clause shall not be deemed to require the consent of any Holder with respect to changes in the references to "the Trustee" and concomitant changes in this Section 902, or the deletion of this proviso, in accordance with the requirements of Sections 610(b) and 901(5), or (4) in the case of any series of Securities that is secured by First Mortgage Bonds in accordance with Article Fourteen, impair the security interest of the Trustee hereunder in such First Mortgage Bonds, or reduce the principal amount of First Mortgage Bonds securing the Securities of a series to an amount less than the principal amount of Outstanding Securities of such series. (b) 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 Securities, or that modifies the rights of the Holders of Securities 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 Securities of any other series. (c) It shall not be necessary for any Act of Holders under this Section 902 to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof. Section 903. Execution of Supplemental Indentures. ------------------------------------ In executing, or accepting the additional trusts created by, any supplemental indenture permitted by this Article Nine or the modifications thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and (subject to Section 601) shall be fully protected in conclusively relying upon, an Opinion of Counsel and an Officers' Certificate - 52 - stating that the execution of such supplemental indenture is authorized or permitted by this Indenture. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. Section 904. Effect of Supplemental Indentures. --------------------------------- Upon the execution of any supplemental indenture under this Article Nine, 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 Securities (or the applicable series) theretofore or thereafter authenticated and delivered hereunder shall be bound thereby. Section 905. Conformity with Trust Indenture Act. ----------------------------------- Every supplemental indenture executed pursuant to this Article Nine shall conform to the requirements of the Trust Indenture Act. Section 906. Reference in Securities to Supplemental Indentures. -------------------------------------------------- Securities of any series authenticated and delivered after the execution of any supplemental indenture pursuant to this Article Nine 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 Securities of any series so modified as to conform, in the opinion of the Trustee and the Company, to any such supplemental indenture may be prepared and executed by the Company and authenticated and delivered by the Trustee in exchange for outstanding Securities of such series. ARTICLE TEN Covenants Section 1001. Payment of Principal, Premium and Interest. The Company covenants and agrees for the benefit of each series of Securities that it will duly and punctually pay or cause to be paid the principal of and any premium or interest on the Securities of that series in accordance with the terms of the Securities and this Indenture. Interest on Securities shall be payable without presentment of such Securities, and only to the registered Holders thereof determined as provided in Section 307. The Company shall have the right to require a Holder, in connection with the payment of the principal of and any premium or interest on a Security, to present at the office or agency of the Company at which such payment is made a certificate, in such form as the Company may from time to time prescribe, to enable the Company to determine its duties and liabilities with respect to any taxes, assessments or governmental charges that it may be required to deduct or withhold therefrom under any present or future law of the United States of America or of any State, county, municipality or taxing or withholding authority therein, and the Company shall be entitled to determine its duties - 53 - and liabilities with respect to such deduction or withholding on the basis of information contained in such certificate or, if no such certificate shall be so presented, on the basis of any presumption created by any such law, and shall be entitled to act in accordance with such determination. Section 1002. Maintenance of Office or Agency. ------------------------------- (a) So long as any Securities remain outstanding, the Company will maintain in each Place of Payment for any series of Securities an office or agency where Securities of that series may be presented or surrendered for payment, where Securities of that series may be surrendered for registration of transfer or exchange, and where notices and demands to or upon the Company in respect of the Securities of that series and this Indenture may be served. The Company will give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain 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 Corporate Trust Office of the Trustee, and the Company hereby appoints the Trustee as its agent to receive all such presentations, surrenders, notices and demands. (b) The Company may also from time to time designate one or more other offices or agencies where the Securities of one or more series may be presented or surrendered for any or all purposes referred to in paragraph (a) and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in each Place of Payment for Securities of any series for such purposes. The Company will give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. (c) Unless otherwise set forth in one or more indentures supplemental hereto, a Board Resolution or an Officers' Certificate pursuant to a Board Resolution with respect to a series of Securities, the Company hereby designates, as the Place of Payment for each series of Securities, the Borough of Manhattan, The City of New York, and initially appoints The Bank of New York at its Corporate Trust Office as the Company's office or agency for each of such purposes in such city. Section 1003. Vacancy in the Office of Trustee. -------------------------------- The Company, whenever necessary to avoid or fill a vacancy in the office of Trustee, will appoint, in the manner provided in Article Six, a Trustee, so that there shall at all times be a Trustee hereunder. Section 1004. Money for Securities Payments to Be Held in Trust. ------------------------------------------------- (a) If the Company shall at any time act as its own Paying Agent with respect to any series of Securities, it will, on or before each due date of the principal of or any premium or interest on any of the Securities of that series, segregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay the principal and any premium or - 54 - interest so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided, and will promptly notify the Trustee of its action or failure so to act. (b) Whenever the Company shall have one or more Paying Agents for any series of Securities, it will, prior to 10:00 a.m. (New York City time) on due date for the payment of the principal of or any premium or interest on any Securities of that series, deposit with a Paying Agent a sum sufficient to pay such amount, such sum to be held as provided by the Trust Indenture Act, and (unless such Paying Agent is the Trustee) the Company will promptly notify the Trustee of its action or failure so to act. (c) The Company will cause each Paying Agent for any series of Securities, other than the Trustee, to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section 1004, that such Paying Agent will (i) hold all sums held by it for the payment of the principal of and any premium or interest on Securities of that series in trust for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as herein provided, (ii) give the Trustee notice of any default by the Company (or any other obligor upon the Securities of that series) in the making of any payment of principal, premium or interest on the Securities of that series, and (iii) during the continuance of any default by the Company (or any other obligor upon the Securities of that series) in the making of any payment in respect of the Securities of that series, and upon the written request of the Trustee, forthwith pay to the Trustee all sums held in trust by such Paying Agent for payment in respect of the Securities of that series. (d) The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same trusts as those upon which such sums were held by the Company or such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such money. (e) Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of or any premium or interest on any Security of any series and remaining unclaimed for two years after such principal, premium or interest has become due and payable shall be paid to the Company on Company Request, or (if then held by the Company) shall be discharged from such trust; and the Holder of such Security shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in a newspaper published in the English language customarily published on each Business Day and of general circulation in the Place of Payment, notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days - 55 - after the date of such publication, any unclaimed balance of such money then remaining will be repaid to the Company. Section 1005. Officers' Certificate Concerning Defaults; Notice of ---------------------------------------------------- Default Under Mortgage. ---------------------- (a) The Company shall deliver to the Trustee, within 120 days after the end of each fiscal year of the Company ending after the date hereof, an Officers' Certificate covering such preceding fiscal year and stating whether or not, to the knowledge of the signers thereof, the Company has complied with all conditions and covenants under this Indenture (determined without regard to any period of grace or requirement of notice provided hereunder) and, if not, describing in reasonable detail such noncompliance and the status thereof. (b) Prior to the Release Date, upon the occurrence of an "event of default" under Article IX, Section 1, of the Mortgage, the Company shall promptly deliver to the Trustee an Officers' Certificate notifying the Trustee of such Event of Default. Section 1006. Liens. ----- (a) Except as provided in paragraph (b) of this Section 1006, from and after the Release Date and for so long as the Securities of any series are Outstanding, the Company will not create, incur, assume or permit to exist any Indebtedness secured by any Lien on any property or assets now owned or hereafter acquired by the Company without making effective provision, and the Company covenants that in any such case it will make effective provision, whereby the Securities of any series then or thereafter Outstanding shall be secured by such Lien equally and ratably with the Indebtedness thereby secured, so long as such Indebtedness shall be so secured. (b) Nothing in this Section 1006 shall be construed to prevent the Company from creating, incurring, assuming or permitting to exist any Lien of the following character, to all of which the provisions of paragraph (a) of this Section 1006 shall not be applicable: (1) Liens on property or assets of the Company existing on the date hereof, provided that such Liens shall secure only those obligations which they secure as of the date hereof; (2) any Lien existing on any property or asset prior to the acquisition thereof by the Company, provided that (i) such Lien is not created in contemplation of or in connection with such acquisition and (ii) such Lien does not extend to any other property or assets of the Company; (3) Liens for taxes not yet due or that are being contested in good faith by appropriate proceedings and with respect to which adequate reserves, to the extent required by GAAP, have been set aside; - 56 - (4) carriers', warehousemen's, mechanics', materialmen's, repairmen's or other like Liens arising in the ordinary course of business and securing obligations that are not due and payable or that are being contested in good faith by appropriate proceedings and with respect to which adequate reserves, to the extent required by GAAP, have been set aside; (5) pledges and deposits made in the ordinary course of business in compliance with workmen's compensation, unemployment insurance and other social security laws or regulations; (6) deposits to secure the performance of bids, trade contracts (other than for Indebtedness), leases (other than capital leases), statutory obligations, surety and appeal bonds, advance payment bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business; (7) zoning restrictions, easements, rights-of-way, restrictions on use of real property and other similar encumbrances incurred in the ordinary course of business which, in the aggregate, are not substantial in amount and do not materially detract from the value of the property subject thereto or interfere with the ordinary conduct of the business of the Company; (8) Liens upon any property acquired, constructed or improved by the Company that are created or incurred within 18 months after such acquisition, construction or improvement to secure or provide for the payment of any part of the purchase price of such property or the cost of such construction or improvement, including carrying costs; provided that any such Lien shall not apply to any other property of the Company; (9) Liens upon bills, notes and accounts receivable, cash, contracts, operating agreements, and leases in which the Company is lessor; (10) Liens upon shares of stock and other certificates or evidences of interest therein, and all bonds, notes and other evidences of indebtedness or certificates of interest therein and other securities now owned or hereafter acquired or possessed by the Company; (11) Liens upon equipment and materials not installed as a part of the fixed property of the Company and merchandise and supplies acquired by the Company for the purpose of resale or leasing to its customers in the ordinary course and conduct of its business; (12) Liens upon electric energy and other materials or products generated, manufactured, produced or purchased by the Company for sale, distribution or use in the ordinary course and conduct of its business; - 57 - (13) extensions, renewals and replacements of Liens referred to in paragraphs (1) through (12) of this Section 1006(b), provided that any such extension, renewal or replacement Lien shall be limited to the property or assets covered by the Lien extended, renewed or replaced and that the obligations secured by any such extension, renewal or replacement Lien shall be in an amount not greater than the amount of the obligations secured by the Lien extended, renewed or replaced; (14) any Lien, of the type described in clause (iii) of the definition of the term "Lien", on securities imposed pursuant to an agreement entered into for the sale or disposition of such securities pending the closing of such sale or disposition; provided such sale or disposition is otherwise permitted under this Indenture; (15) Liens on the capital stock or other securities, or on the property, permits, franchises or other assets of, any Subsidiary of the Company; and (16) Liens to secure Indebtedness if, immediately after the grant thereof, the aggregate amount of all Indebtedness secured by Liens that would not be permitted but for this clause (16) does not exceed 20% of Capitalization as shown on the most recent consolidated balance sheet of the Company and its Subsidiaries filed with the Commission pursuant to the Exchange Act. (c) If the Company shall issue, assume, or guarantee any Indebtedness secured by any Lien and if Section 1006(a) requires that the outstanding Securities be secured equally and ratably with such Indebtedness, the Company will promptly execute, at its expense, any instruments necessary to so equally and ratably secure the outstanding Securities and deliver the same to the Trustee along with: (i) An Officers' Certificate stating that the covenant of the Company contained in this Section 1006(c) has been complied with; and (ii) An Opinion of Counsel to the effect that the Company has complied with the covenant contained in that Section 1006(c), and that all instruments executed by the Company in the performance of such covenant comply with the requirements of such covenant and this Indenture. (d) In the event that the Company shall hereafter secure outstanding Securities equally and ratably with any other Indebtedness pursuant to the provisions of this Section 1006, the Company will enter into an indenture or agreement supplemental hereto and take such other action, if any, as is reasonably necessary to enable the Trustee to enforce effectively the rights of the Holders of outstanding Securities so secured equally and ratably with such other Indebtedness. - 58 - Section 1007. Limitation on Sale and Leaseback Transactions. --------------------------------------------- From and after the Release Date, and for so long as the Securities of any series are Outstanding, the Company will not enter into or permit to exist any Sale and Lease-Back Transaction; provided, however, that this Section 1007 shall not prevent the Company from; (1) entering into any Sale and Lease-Back Transaction not involving a lease with a term of more than four years; (2) entering into any Sale and Lease-Back Transaction to the extent a Lien on the Principal Property subject to such Sale and Lease-Back Transaction would be permitted under Section 1006; (3) entering into any Sale and Lease-Back Transaction with respect to any property if such lease is entered into within eighteen months after the later of the acquisition, completion of construction or commencement of operation of such Principal Property; and (4) entering into any Sale and Lease-Back Transaction if the Company, within 120 days after the effective date of the lease, applies an amount equal to the greater of (i) the net proceeds of the sale of the Principal Property leased in such Sale and Lease-Back Transaction or (ii) the fair market value (as determined in good faith by the Board of Directors) of such Principal Property on any date within 90 days prior to the effective date of the lease, to the retirement of Funded Debt of the Company; provided, however, that the amount required to be applied to the retirement of Funded Debt of the Company shall be reduced by: (A) the principal amount of any Securities surrendered to the Trustee by the Company for cancellation within 120 days after the effective date of the lease, and (B) the principal amount of Funded Debt, other than Securities, voluntarily retired by the Company within 120 days after the effective date of the lease; and provided further that no retirement referred to in this clause (4) may be effected by payment on Maturity or pursuant to any mandatory sinking fund or prepayment provision. Section 1008. Perfection of Security Interests. -------------------------------- (a) The Company will cause this Indenture, any indentures supplemental to this Indenture, and any financing or continuation statements to be promptly recorded and filed, and re-recorded and refiled, in such a manner, at such times and in such places as may be required by law in order fully to preserve, protect and perfect the security, if any, for any series of Securities (including the security contemplated by Article Fourteen) and all rights therein of the Trustee. - 59 - (b) The Company shall deliver to the Trustee, within 120 days after the end of each fiscal year of the Company ending after the date hereof, an Opinion of Counsel stating that in the opinion of such counsel either (i) such action has been taken, with respect to the recording, filing, re-recording and refiling of this Indenture, each supplemental indenture and any financing or continuation statements, as is necessary to maintain and perfect the security interest of the Trustee intended to be created by this Indenture or any supplemental indenture for the benefit of the Holders from time to time of any series of Securities that is so secured (including any series of Securities that is secured by First Mortgage Bonds in accordance with Article Fourteen), and reciting the details of such action, or (ii) no such action is necessary to maintain and perfect such security interest. Section 1009. Calculation of Original Issue Discount. -------------------------------------- In the event that there is issued and outstanding under this Indenture any Original Issue Discount Security, the Company shall file with the Trustee promptly following the end of each calendar year (i) a written notice specifying the amount of original issue discount (including daily rates and accrual periods) accrued on such Securities as of the end of such year and (ii) such other specific information relating to such original issue discount as may then be relevant under the Internal Revenue Code of 1986, as amended from time to time. ARTICLE ELEVEN Redemption of Securities Section 1101. Applicability of Article. ------------------------ Securities of any series that are redeemable before their Stated Maturity shall be redeemable in accordance with their terms and (except as otherwise specified as contemplated by Section 301 for Securities of any series) in accordance with this Article Eleven. Section 1102. Election to Redeem; Notice to Trustee. ------------------------------------- The election of the Company to redeem any Securities shall be evidenced by a Board Resolution. In case of any redemption at the election of the Company of the Securities of any series, the Company shall, at least 60 days prior to the Redemption Date fixed by the Company (unless a shorter notice period shall be satisfactory to the Trustee), notify the Trustee of such Redemption Date, of the principal amount of Securities of such series to be redeemed and, if applicable, of the tenor of the Securities to be redeemed. In the case that the redemption of Securities of any series is subject to any restriction on such redemption provided for in the terms of such Securities or elsewhere in this Indenture, the Company shall furnish the Trustee with an Officers' Certificate evidencing compliance with such restriction. - 60 - Section 1103. Selection by Trustee of Securities to Be Redeemed. ------------------------------------------------- (a) If less than all the Securities of any series are to be redeemed in accordance with this Article Eleven (unless all of the Securities of such series and of a specified tenor are to be redeemed), the particular Securities to be redeemed shall be selected not more than 60 days prior to the Redemption Date by the Trustee, from the Outstanding Securities of such series not previously called for redemption, pro rata, by lot or by such other method as the Trustee shall deem fair and appropriate and which may provide for the selection for redemption of portions (equal to the minimum authorized denomination for Securities of that series or any integral multiple thereof) of the principal amount of Securities of such series of a denomination larger than the minimum authorized denomination for Securities of that series. If less than all of the Securities of such series and of a specified tenor are to be redeemed, the particular Securities to be redeemed shall be selected not more than 60 days prior to the Redemption Date by the Trustee from the Outstanding Securities of such series and specified tenor not previously called for redemption in accordance with the preceding sentence. (b) The Trustee shall promptly notify the Company in writing of the Securities selected for redemption and, in the case of any Securities selected for partial redemption, the principal amount thereof to be redeemed. (c) For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to the redemption of Securities shall relate, in the case of any Securities redeemed or to be redeemed only in part, to the portion of the principal amount of such Securities which has been or is to be redeemed. Section 1104. Notice of Redemption. -------------------- (a) Notice of redemption shall be given by first-class mail, postage prepaid, mailed not less than 30 nor more than 60 days prior to the Redemption Date (unless a shorter period is specified in the Securities to be redeemed), to each Holder of Securities to be redeemed, at his address appearing in the Security Register. (b) All notices of redemption shall identify the Securities to be redeemed (including the CUSIP number(s)) and shall state: (1) the Redemption Date, (2) the Redemption Price and accrued interest, if any, (3) if less than all the Outstanding Securities of any series are to be redeemed, the identification (and, in the case of partial redemption of any Securities, the principal amounts) of the particular securities to be redeemed, (4) in case any Security is to be redeemed in part only, the notice that relates to such Security shall state that on and after the Redemption Date, upon surrender of such Security, the Holder of such - 61 - Security will receive, without charge, a new Security or Securities of authorized denominations for the principal amount thereof remaining unredeemed, (5) that on the Redemption Date the Redemption Price and accrued interest, if any, will become due and payable upon each such Security to be redeemed and, if applicable, that interest thereon will cease to accrue on and after said date, (6) the place or places where such Securities are to be surrendered for payment of the Redemption Price and accrued interest, if any, and (7) that the redemption is for a sinking fund, if such is the case. (c) Notice of redemption of Securities to be redeemed at the election of the Company shall be given by the Company or, at the Company's written request, by the Trustee in the name and at the expense of the Company and shall be irrevocable. Section 1105. Deposit of Redemption Price. --------------------------- Prior to any Redemption Date, the Company shall deposit by 10:00 a.m. (New York City time) on the Redemption Date) with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 1004) an amount of money sufficient to pay the Redemption Price of, and (except if the Redemption Date shall be an Interest Payment Date) accrued interest on, all the Securities which are to be redeemed on that date. Section 1106. Securities Payable on Redemption Date. ------------------------------------- (a) Notice of redemption having been given as aforesaid, the Securities so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price therein specified, and from and after such date (unless the Company shall default in the payment of the Redemption Price and accrued interest) such Securities shall cease to bear interest. Upon surrender of any such Security for redemption in accordance with said notice, such Security shall be paid by the Company at the Redemption Price, together with accrued interest to the Redemption Date; provided, however, that, unless otherwise specified as contemplated by Section 301, installments of interest whose Stated Maturity is on or prior to the Redemption Date shall be payable to the Persons who are Holders of such Securities, or one or more Predecessor Securities, at the close of business on the Regular Record Dates according to their terms and the provisions of Section 307. (b) If any Security called for redemption shall not be so paid upon surrender thereof for redemption due to the failure of Company to deposit the Redemption Price as provided in Section 1105, the principal and any premium shall, until paid, bear interest from the Redemption Date at the rate prescribed therefor in the Security. - 62 - Section 1107. Securities Redeemed in Part. --------------------------- Any Security that is to be redeemed only in part shall be surrendered at a Place of Payment therefor (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder thereof or his attorney duly authorized in writing), and the Company shall execute, and the Trustee shall authenticate and deliver to the Holder of such Security, without service charge, a new Security or Securities of the same series and of like tenor, of any authorized denomination as requested by such Holder, in aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the Security so surrendered. ARTICLE TWELVE Sinking Funds Section 1201. Applicability of Article. ------------------------ (a) The provisions of this Article Twelve shall be applicable to any sinking fund for the retirement of Securities of a series except as otherwise specified as contemplated by Section 301 for Securities of such series. (b) The minimum amount of any sinking fund payment provided for by the terms of Securities of any series is herein referred to as a "mandatory sinking fund payment", and any payment in excess of such minimum amount provided for by the terms of Securities of any series is herein referred to as an "optional sinking fund payment". If provided for by the terms of Securities of any series, the cash amount of any sinking fund payment may be subject to reduction as provided in Section 1202. Each sinking fund payment shall be applied to the redemption of Securities of any series as provided for by the terms of Securities of such series. Section 1202. Satisfaction of Sinking Fund Payments with ------------------------------------------ Securities. - ---------- The Company may, in satisfaction of all or any part of any sinking fund payment with respect to the Securities of such series required to be made pursuant to the terms of such Securities as provided for by the terms of such series, (i) deliver Outstanding Securities of a series (other than any Securities previously called for redemption) and (ii) apply as a credit Securities of a series that have been redeemed either at the election of the Company pursuant to the terms of such Securities or through the application of permitted optional sinking fund payments pursuant to the terms of such Securities; provided that such Securities have not been previously so credited. Such Securities shall be received and credited for such purpose by the Trustee at the Redemption Price specified in such Securities for redemption through operation of the sinking fund and the amount of such sinking fund payment shall be reduced accordingly. - 63 - Section 1203. Redemption of Securities for Sinking Fund. ----------------------------------------- Not less than 60 days prior to each sinking fund payment date for any series of Securities, the Company shall deliver to the Trustee an Officers' Certificate specifying the amount of the next ensuing sinking fund payment for that series pursuant to the terms of that series, the portion thereof, if any, that is to be satisfied by payment of cash and the portion thereof, if any, that is to be satisfied by delivering and crediting Securities of that series pursuant to Section 1202 and also shall deliver to the Security Registrar any Securities to be so delivered. If such Officers' Certificate shall specify an optional amount to be added in cash to the next ensuing mandatory sinking fund payment, the Company shall thereupon be obligated to pay the amount therein specified. Not less than 30 days before each such sinking fund payment date the Trustee shall select the Securities to be redeemed upon such sinking fund payment date in the manner specified in Section 1103 and cause notice of the redemption thereof to be given in the name of and at the expense of the Company in the manner provided in Section 1104. Such notice having been duly given, the redemption of such Securities shall be made upon the terms and in the manner stated in Sections 1106 and 1107. ARTICLE THIRTEEN Defeasance and Covenant Defeasance Section 1301. Applicability of Article; Company's Option to Effect ---------------------------------------------------- Defeasance or Covenant Defeasance. --------------------------------- If pursuant to Section 301 provision is made for either or both of (i) defeasance of the Securities of a series under Section 1302 or (ii) covenant defeasance of the Securities of a series under Section 1303, then the provisions of such Section or Sections, as the case may be, together with the other provisions of this Article Thirteen, shall be applicable to the Securities of such series, and the Company may at its option by Board Resolution, at any time, with respect to the Securities of such series, elect to have either Section 1302 (if applicable) or Section 1303 (if applicable) be applied to the Outstanding Securities of such series upon compliance with the conditions set forth below in this Article Thirteen. Section 1302. Defeasance and Discharge. ------------------------ Upon the Company's exercise of the above option applicable to this Section 1302, the Company shall be deemed to have been discharged from its obligations with respect to the Outstanding Securities of such series on and after the date the conditions precedent set forth in Section 1304 are satisfied (hereinafter, "defeasance"). For this purpose, such defeasance means that the Company shall be deemed to have paid and discharged the entire indebtedness represented by the Outstanding Securities of such series and to have satisfied all of its other obligations under such Securities and this Indenture insofar as such Securities are concerned (and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging the same), except for the following which shall survive until otherwise terminated - 64 - or discharged hereunder: (i) the rights of Holders of Outstanding Securities of such series to receive, solely from the trust fund described in Section 1305 as more fully set forth in such Section, payments of the principal of and any premium or interest on such Securities when such payments are due, (ii) the Company's obligations with respect to such Securities under Sections 304, 305, 306, 1002 and 1004 and such obligations as shall be ancillary thereto, (iii) the rights, powers, trusts, duties, immunities and other provisions in respect of the Trustee under this Indenture and (iv) this Article Thirteen. Subject to compliance with this Article Thirteen, the Company may exercise its option under this Section 1302 notwithstanding the prior exercise of its option under Section 1303 with respect to the Securities of such series. Following a defeasance, payment of the Securities of such series may not be accelerated because of an Event of Default. Section 1303. Covenant Defeasance. ------------------- Upon the Company's exercise of the above option applicable to this Section 1303 and after the date the conditions set forth in Section 1304 are satisfied, the Company shall be released from its obligations under any additional or substitute covenant established with respect to the Securities of any series pursuant to Section 301(20) if the Securities of such series have been determined pursuant to Section 301 to be subject to this provision (with any such additional or substitute covenant referred to herein as a "Defeasible Covenant"), and the occurrence of an event specified in Section 501(4) with respect to such Defeasible Covenant shall not be deemed to be an Event of Default with respect to the Outstanding Securities of such series (hereinafter, "covenant defeasance"). For this purpose, such covenant defeasance means that, with respect to the Outstanding Securities of such series, the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such Defeasible Covenant whether directly or indirectly by reason of any reference elsewhere herein to any such Defeasible Covenant or by reason of any reference in any such Defeasible Covenant to any other provision herein or in any other document, but the remainder of this Indenture and such Securities shall be unaffected thereby. Following a covenant defeasance, payment of the Securities of such series may not be accelerated because of an Event of Default specified in Section 501(5) or Section 501(6) or by reference to Section 501(4) and such Defeasible Covenant. Section 1304. Conditions to Defeasance or Covenant Defeasance. ----------------------------------------------- The following shall be the conditions precedent to application of either Section 1302 or Section 1303 to the Outstanding Securities of such series: (1) The Company shall irrevocably have deposited or caused to be deposited with the Trustee (or another trustee satisfying the requirements of Section 608 who shall agree to comply with the provisions of this Article Thirteen applicable to it) as trust funds in trust for the purpose of making the following payments, specifically pledged as security for, and dedicated solely to the benefit of the Holders of such Securities, (A) money in an amount, or (B) U.S. - 65 - Government Obligations which through the scheduled payment of principal and interest in respect thereof in accordance with their terms will provide, not later than one day before the due date of any payment, money in an amount, or (C) a combination thereof, sufficient, without reinvestment, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge, and which shall be applied by the Trustee (or other qualifying trustee) to pay and discharge, the principal of and any premium or interest on the Outstanding Securities of such series on the Maturity of such principal, premium or interest and any mandatory sinking fund payments or analogous payments applicable to the Outstanding Securities of such series on the due dates thereof. Before such a deposit, the Company may make arrangements satisfactory to the Trustee for the redemption of Securities at a future date or dates in accordance with Article Eleven, which shall be given effect in applying the foregoing. (2) No Event of Default or event which with notice or lapse of time or both would become an Event of Default with respect to the Securities of such series shall have occurred and be continuing (A) on the date of such deposit or (B) insofar as subsections 501(5) and (6) are concerned, at any time during the period ending on the 91st day after the date of such deposit or, if longer, ending on the day following the expiration of the longest preference period applicable to the Company in respect of such deposit (it being understood that the condition in this clause (B) shall not be deemed satisfied until the expiration of such period). (3) Such defeasance or covenant defeasance shall not (A) cause the Trustee for the Securities of such series to have a conflicting interest referred to in Section 607 or for purposes of the Trust Indenture Act with respect to any securities of the Company or (B) result in the trust arising from such deposit to constitute, unless it is qualified as, a regulated investment company under the Investment Company Act of 1940, as amended. (4) Such defeasance or covenant defeasance shall not result in a breach or violation of, or constitute a default under, this Indenture or any other agreement or instrument to which the Company is a party or by which it is bound. (5) Such defeasance or covenant defeasance shall not cause any Securities of such series then listed on any registered national securities exchange under the Exchange Act to be delisted. (6) In the case of an election under Section 1302, the Company shall have delivered to the Trustee an Opinion of Counsel stating that (i) the Company has received from, or there has been published by, the Internal Revenue Service a ruling, or (ii) since the date of this Indenture there has been a change in the applicable Federal income tax law, in either case to the effect that, and based thereon such opinion shall confirm that, the Holders of the Outstanding - 66 - Securities of such series will not recognize income, gain or loss for Federal income tax purposes as a result of such defeasance and will be subject to Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such defeasance had not occurred. (7) In the case of an election under Section 1303, the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that the Holders of the Outstanding Securities of such series will not recognize income, gain or loss for Federal income tax purposes as a result of such covenant defeasance and will be subject to Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such covenant defeasance had not occurred. (8) Such defeasance or covenant defeasance shall be effected in compliance with any additional terms, conditions or limitations which may be imposed on the Company in connection therewith pursuant to Section 301. (9) The Company shall have paid, or provided for the payment of, the fees and expenses of the Trustee payable pursuant to Section 606. (10) The Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for relating to either the defeasance under Section 1302 or the covenant defeasance under Section 1303 (as the case may be) have been complied with. Section 1305. Deposited Money and U.S. Government Obligations to -------------------------------------------------- Be Held in Trust; Other Miscellaneous Provisions. ------------------------------------------------ (a) Subject to the provisions of Section 1004(e), all money and U.S. Government Obligations (including the proceeds thereof) deposited with the Trustee or other qualifying trustee (collectively, for purposes of this Section 1305, the "Trustee") pursuant to Section 1304 in respect of the Outstanding Securities of such series shall be held in trust and applied by the Trustee, in accordance with the provisions of such Securities and this Indenture, to the payment, either directly or through any Paying Agent (but not including the Company acting as its own Paying Agent) as the Trustee may determine, to the Holders of such Securities, of all sums due and to become due thereon in respect of principal and any premium or interest, but such money need not be segregated from other funds (except to the extent required by law). (b) The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the money or U.S. Government Obligations deposited pursuant to Section 1304 or the principal and interest received in respect thereof. - 67 - (c) Anything herein to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon Company Request any money or U.S. Government Obligations held by it as provided in Section 1304 which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, are in excess of the amount thereof which would then be required to be deposited to effect an equivalent defeasance or covenant defeasance. Section 1306. Reinstatement. ------------- If the Trustee or the Paying Agent is unable to apply any money in accordance with Section 1305 by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the Company's obligations under the Securities of such series shall be revived and reinstated as though no deposit had occurred pursuant to this Article Thirteen until such time as the Trustee or Paying Agent is permitted to apply all such money in accordance with Section 1305; provided, however, that if the Company makes any payment of principal, premium or interest on any such Security following the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Securities to receive such payment from the money held by the Trustee or the Paying Agent. ARTICLE FOURTEEN Security Section 1401. Applicability of Article. ------------------------ If pursuant to Section 301 provision is made to secure the payment of the principal of, premium, if any, and interest on any series of Securities issued under this Indenture by delivery to and pledging with the Trustee of First Mortgage Bonds issued under the Mortgage, this Article Fourteen shall apply. Section 1402. Delivery of First Mortgage Bonds to Trustee. ------------------------------------------- (a) In order to secure by the lien of the Mortgage the obligation of the Company to pay duly and punctually the principal of, premium, if any, and interest on the Securities of any series issued under this Indenture, the Company, at any time prior to or concurrently with its delivery to the Trustee of any Securities for authentication and delivery in accordance with a Company Order pursuant to Section 303, shall deliver to the Trustee and pledge as security for payment of the principal of, premium, if any, and interest on such Securities, and the Trustee, subject to Section 1403, shall accept therefor, First Mortgage Bonds registered in the name of the Trustee (i) in an aggregate principal amount equal to or exceeding the aggregate principal amount of Securities of such series to be authenticated and delivered pursuant to such Company Order, (ii) with a stated maturity date not earlier than the Stated Maturity of such Securities, (iii) bearing an interest rate equal to the interest rate borne by such Securities, (iv) having interest payment dates that are the same as the - 68 - Interest Payment Dates of such Securities, and (v) in all other material respects conforming as nearly as is practicable to the terms of such Securities. (b) The First Mortgage Bonds shall be in the form established by or in accordance with the Mortgage and with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by the Mortgage, or are required or permitted by this Indenture and consistent with the Mortgage. (c) Any series of First Mortgage Bonds may secure the payment of the principal, premium, if any, and interest on only one corresponding series of Securities, and no series of Securities shall be secured by more than one series of First Mortgage Bonds. Each Security of a series shall specify the series of First Mortgage Bond that secures the Securities of such series. Section 1403. Authentication of Securities. ---------------------------- Prior to the authentication of any Securities secured by First Mortgage Bonds, in addition to the deliveries to the Trustee contemplated by Sections 301 and 303, the Trustee shall receive from the Company, and (subject to Section 601 hereof) shall be fully protected in relying upon: (1) the Board Resolution authorizing the issuance and delivery to the Trustee of the First Mortgage Bonds; (2) a copy of the Combined Engineer's, Officers' and Accountant's Certificate delivered to the Mortgage Trustee pursuant to Article III, Sections 3(b) and 4(a), and Article XVIII, Sections 1(a), 1(c), 2 and 3(c), of the Mortgage, on which the Trustee shall be entitled conclusively to rely as if such Certificate were addressed to the Trustee; (3) a copy of the Order of the District of Columbia Public Service Commission and of the order of any other applicable regulatory authority the consent or approval of which is required for the issuance of the First Mortgage Bonds; (4) a copy of the opinion of counsel delivered to the Mortgage Trustee pursuant to Article III, Section 4, of the Mortgage, which shall state that the Trustee shall be entitled conclusively to rely thereon as if addressed to the Trustee; and (5) if required by the Trust Indenture Act, an Issuance Fair Value Certificate. Section 1404. First Mortgage Bonds as Security for Securities. ----------------------------------------------- (a) Until the Release Date, the First Mortgage Bonds delivered to and pledged with the Trustee pursuant to Section 1402 shall be held in trust by the Trustee for the equal and proportionate benefit and security of the Holders from time to time of the corresponding series of Securities, and shall serve as security for (i) the full and prompt payment of the principal - 69 - of and premium, if any, on such Securities when and as the same shall become due in accordance with the terms and provisions of the Securities and this Indenture, whether at the Stated Maturity or by declaration of acceleration, call for redemption or otherwise, and (ii) the full and prompt payment of any interest on such Securities when and as the same shall become due in accordance with the terms and provisions of the Securities and this Indenture. (b) Notwithstanding anything in this Indenture to the contrary, from and after the Release Date, (i) the First Mortgage Bonds held by the Trustee shall cease to secure any obligation of the Company under this Indenture, including the payment of principal of and any premium or interest on all Securities issued in accordance with this Article Fourteen, (ii) the obligation of the Company to make payment with respect to the principal of and any premium or interest on the First Mortgage Bonds held by the Trustee shall cease, and (iii) the Trustee shall release the First Mortgage Bonds as provided for in Section 1409. (c) Following the Release Date, the Company shall cause the Mortgage to be terminated and the Company shall not issue any additional First Mortgage Bonds under the Mortgage. Section 1405. No Other Security; No Modification of Mortgage. ---------------------------------------------- (a) Except for the designated First Mortgage Bonds, the Securities issued in accordance with this Article Fourteen shall not be secured by any particular assets, franchises, rights, powers or entitlements of the Company or any other Person. (b) The rights, powers, obligations and duties of the Company and the Mortgage Trustee under the First Mortgage Bonds are governed exclusively by the terms thereof and the Mortgage, and nothing herein shall create any additional rights or powers, or any additional obligation or duty, of any Person in, under or to the Mortgage or the First Mortgage Bonds (other than the rights and powers of the Trustee as a holder of First Mortgage Bonds). Section 1406. Payments on First Mortgage Bonds. -------------------------------- (a) The obligation of the Company to make any payment of the principal of, or any premium or interest on, any First Mortgage Bonds securing any series of Securities in accordance with this Article Fourteen, whether at Stated Maturity, upon call for redemption, or otherwise, shall be fully or partially, as the case may be, deemed to have been satisfied and discharged to the extent that (i) at the time any such payment shall be due, the then due principal of or any premium or interest on the corresponding principal amount of Securities that such First Mortgage Bonds secure shall have been fully or partially paid, deemed to have been paid or otherwise satisfied or discharged in accordance with the terms thereof or this Indenture or (ii) the amount of the Company's obligation to make any such payment in respect of such First Mortgage Bonds exceeds the obligation of the Company at that time to make payment of the principal of, premium, if any, and interest on the Securities that are secured by such First Mortgage Bonds. - 70 - (b) In the event that the Company fails to make payment of any principal of, or premium or interest on, any series of Securities that are secured by First Mortgage Bonds in accordance with this Article XIV, the Trustee shall, within five days after the date such payment was due, notify the Mortgage Trustee in writing of the details of such nonpayment. Section 1407. Certain Responsibilities of Trustee with ---------------------------------------- Respect to First Mortgage Bonds. ------------------------------- (a) The Trustee, as a holder of First Mortgage Bonds, or its agent shall attend any meeting of the holders of First Mortgage Bonds duly called under the Mortgage as to which it receives due notice, or, at its option, shall deliver its proxy in connection therewith, as to matters with respect to which it is entitled to vote or consent. Either at such meeting, or otherwise where the consent of holders of First Mortgage Bonds under the Mortgage is sought without a meeting, the Trustee shall vote the First Mortgage Bonds held by it, or shall grant or withhold its consent with respect thereto, as the Trustee determines to be in the best interests of the Holders of the series of Securities secured by such First Mortgage Bonds, unless the Trustee is directed otherwise by the Holders of not less than a majority in aggregate principal amount of such series of Securities. (b) In exercising its responsibilities under paragraph (a), the Trustee may solicit instructions from the Holders of any series of Securities that is secured by First Mortgage Bonds and, if so, shall vote or shall grant or withhold its consent with respect to the First Mortgage Bonds as directed by the Holders of a majority in aggregate principal amount of the Securities of that series. Section 1408. Permitted Transfers of First Mortgage Bonds ___________________________________________ by the Trustee. -------------- Except (i) as required to effect an assignment to a successor Trustee under this Indenture, (ii) in accordance with Section 1409 or (iii) in compliance with a final order of a court of competent jurisdiction in connection with any bankruptcy or reorganization proceeding of the Company, the Trustee shall not sell, assign or transfer the First Mortgage Bonds delivered to the Trustee pursuant to Section 1402, and the Company shall issue stop transfer instructions to the Mortgage Trustee and to any transfer agent for the First Mortgage Bonds to effect compliance with this Section 1408. Section 1409. Release of First Mortgage Bonds. ------------------------------- (a) Following the Release Date, the Trustee shall, upon the request of the Company set forth in a Company Order and (if required to be delivered under the Trust Indenture Act) the receipt of a Release Fair Value Certificate, surrender to the Company or the Mortgage Trustee (as directed by the Company Order), together with such appropriate instruments of transfer or release as may be reasonably requested by the Company, without any payment of consideration by the Company therefor, all of the First Mortgage Bonds held by the Trustee. - 71 - (b) If, prior to the Release Date, there shall be delivered to the Trustee for cancellation all of the Outstanding Securities of any series that is secured in accordance with this Article Fourteen by First Mortgage Bonds, or the Company pays or causes to be paid, or deposits or causes to be deposited with the Trustee in accordance with Section 1302 funds or U.S. Government Securities sufficient to pay, the principal of and any premium or interest on all of the Outstanding Securities of such series, (i) such Securities shall cease to be entitled to any lien, benefit or security pursuant to this Article Fourteen, (ii) the obligation of the Company to make payment with respect to the principal of and any premium or interest on the First Mortgage Bonds securing such Securities shall be deemed satisfied and discharged, and (iii) upon the written request of the Company set forth in a Company Order and (if required to be delivered under the Trust Indenture Act) the receipt of a Release Fair Value Certificate, the Trustee shall surrender to the Company or the Mortgage Trustee (as directed by the Company Order), together with such appropriate instruments of transfer or release as may be reasonably requested by the Company, without any payment of consideration by the Company therefor, all of the First Mortgage Bonds securing such Securities. (c) If, prior to the Release Date, there shall be delivered to the Trustee for cancellation (excluding Securities delivered to the Trustee for cancellation following the registration of transfer or exchange thereof pursuant to Section 305 or the replacement thereof pursuant to Section 306) less than all of the Outstanding Securities of any series that is secured in accordance with this Article Fourteen by First Mortgage Bonds, or the Company pays or causes to be paid, the principal of and any premium or interest on less than all of the Outstanding Securities of any series, (i) the Securities cancelled shall cease to be entitled to any lien, benefit or security pursuant to this Article Fourteen, (ii) the obligation of the Company to make payment with respect to the principal of and any premium or interest on the First Mortgage Bonds securing such Securities shall be deemed satisfied and discharged, and (iii) upon the written request of the Company set forth in a Company Order and (if required to be delivered under the Trust Indenture Act) the receipt of a Release Fair Value Certificate, the Trustee shall surrender to the Company or the Mortgage Trustee (as directed by the Company Order), together with such appropriate instruments of transfer or release as may be reasonably requested by the Company, without any payment of consideration by the Company therefor, First Mortgage Bonds securing such Securities in an aggregate principal amount equal to the aggregate principal amount of Securities delivered to the Trustee for cancellation. (d) Prior to the Release Date, the Company shall not cause the surrender by the Trustee, as contemplated by this Section 1409, of First Mortgage Bonds of any series if, after such surrender, the aggregate principal amount of First Mortgage Bonds of such series held by the Trustee would be less than the aggregate principal amount of Securities that are secured by such series of First Mortgage Bonds. (e) The Company shall notify the Trustee promptly in writing of the occurrence of the Release Date. Notice of the occurrence of the Release Date shall be prepared by the Company and, at the written request of the - 72 - Company, shall be given by the Trustee to the Holders of the Securities in the manner provided in Section 1.06 hereof not later than 30 days after the receipt of such notice from the Company. Section 1410. Further Assurances. ------------------ The Company, at its own expense, shall do such further lawful acts and things, and execute and deliver such additional conveyances, assignments, assurances, agreements, financing statements and instruments, as may be necessary in order to better assign, assure, perfect and confirm to the Trustee its security interest in the First Mortgage Bonds and for maintaining, protecting and preserving such security interest. ARTICLE FIFTEEN Immunity of Incorporators, Stockholders, Officers and Directors Section 15.01. Indenture, Securities and First Mortgage Bonds ---------------------------------------------- Solely Corporate Obligations. ---------------------------- No recourse for the payment of the principal of or any premium or interest on any Security or on any First Mortgage Bond, or for any claim based thereon or otherwise in respect thereof, and no recourse under or upon any obligation, covenant or agreement of the Company, contained in this Indenture, the Mortgage or in any supplemental indenture, or in any Security or in any First Mortgage Bond, or because of the creation of any indebtedness represented thereby, shall be had against any incorporator, stockholder, officer or director, as such, past, present or future, of the Company or of any successor corporation, either directly or through the Company or any successor corporation, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise; it being expressly understood that all such liability is hereby expressly waived and released as a condition of, and as a consideration for, the execution of this Indenture and the issuance of the Securities. * * * 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. - 73 - IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, all as of the day and year first above written. POTOMAC ELECTRIC POWER COMPANY By: _________________________ Name: Title: THE BANK OF NEW YORK, as Trustee By: ___________________________ Name: Title: - 74 - Schedule A Form of Face of Security. - ------------------------ [Insert any legend required by the Internal Revenue Code and the regulations thereunder.] POTOMAC ELECTRIC POWER COMPANY No._________ $__________ CUSIP No. _________ Potomac Electric Power Company, a corporation duly organized and existing under the laws of the District of Columbia and the Commonwealth of Virginia (herein called the "Company", which term includes any successor Person under the Indenture hereinafter referred to), for value received, hereby promises to pay to ____________, or registered assigns, the principal sum of __________________ [Dollars] on _____________, [if the Security is to bear interest prior to Maturity, insert -- , and to pay interest thereon from __________ or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semi-annually on __________ and ___________ in each year (an "Interest Payment Date"), commencing _________, at the rate of ___% per annum, until the principal hereof is paid or made available for payment [if applicable, insert -- , and (to the extent that the payment of such interest shall be legally enforceable) at the rate of __% per annum on any overdue principal and premium and on any overdue installment of interest]. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in such Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the last business day which is more than ten days prior to Interest Payment Date. Any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the Holder on such Regular Record Date and may either be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Securities of this series not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities of this series may be listed, and upon such notice as may be required by such exchange, all as more fully provided in said Indenture]. [If the Security is not to bear interest prior to Maturity, insert -- The principal of this Security shall not bear interest, except in the case of a default in payment of principal upon acceleration, upon redemption or at Stated Maturity and in such case the overdue principal of this Security shall bear interest at the rate of ___% per annum (to the extent that the payment of such interest shall be legally enforceable), which shall accrue from the date of such default in payment to the date payment of such principal has been made - 75 - or duly provided for. Interest on any overdue principal shall be payable on demand. Any such interest on any overdue principal that is not so paid on demand shall bear interest at the rate of ____% per annum (to the extent that the payment of such interest shall be legally enforceable), which shall accrue from the date of such demand for payment to the date payment of such interest has been made or duly provided for, and such interest shall also be payable on demand.] Payment of the principal of (and premium, if any) and [if applicable, insert -- any such] interest on this Security will be made at the office or agency of the Company maintained for that purpose [insert place of payment] in such coin or currency of the United States of America [or insert other currency], as at the time of payment is legal tender for payment of public and private debts [if applicable, insert --; provided, however, that at the option of the Company payment of interest may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register]. Until the Release Date, the due and punctual payment of the principal of, premium, if any, and interest on this Security is secured pursuant to Article XIV of the Indenture by a series of First Mortgage Bonds issued by the Company under the Mortgage and Deed of Trust, dated July 1, 1936, as amended and supplemented, between the Company and The Bank of New York, as trustee and as successor in such capacity to The Riggs National Bank of Washington, D.C., and designated as "First Mortgage Bonds, ___% Series due _____" and delivered and pledged by the Company to the Trustee. Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed under its corporate seal. Dated: POTOMAC ELECTRIC POWER COMPANY By: _________________________ Attest: _____________________ - 76 - Form of Reverse of Security. - --------------------------- This Security is one of a duly authorized issue of securities of the Company (herein called the "Securities"), issued and to be issued under an Indenture, dated as of _____ __, 1998 (herein called the "Indenture"), between the Company and The Bank of New York, as Trustee (herein called the "Trustee", which term includes any successor trustee under the Indenture), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. This Security is one of the series designated on the face hereof[, limited in aggregate principal amount to $ ________]. [If applicable, insert -- The Securities of this series are subject to redemption upon not less than 30 days' notice by mail, [if applicable, insert -- (i) on ___________ in any year commencing with the year ____ and ending with the year ____ through operation of the sinking fund for this series at a Redemption Price equal to 100% of the principal amount, and (ii)] at any time on or after _________, 19__], as a whole or in part, at the election of the Company, at the following Redemption Prices (expressed as percentages of the principal amount): If redeemed [on or before ___________, __%, and if redeemed] during the 12-month period beginning _________ of the years indicated, Redemption Redemption Year Price Year Price ---- ---------- ---- ---------- and thereafter at a Redemption Price equal to ___% of the principal amount, together in the case of any such redemption [if applicable, insert -- (whether through operation of the sinking fund or otherwise)] with accrued interest to the Redemption Date, but interest installments whose Stated Maturity is on or prior to such Redemption Date will be payable to the Holders of such Securities, or one or more Predecessor Securities, of record at the close of business on the relevant Record Dates referred to on the face hereof, all as provided in the Indenture.] [If applicable, insert -- The Securities of this series are subject to redemption upon not less than 30 days' notice by mail, (i) on _______ in any year commencing with the year ____ and ending with the year ____ through operation of the sinking fund for this series at the Redemption Prices for redemption through operation of the sinking fund (expressed as percentages of the principal amount) set forth in the table below, and (ii) at any time [on or after ____________], as a whole or in part, at the election of the Company, at the Redemption Prices for redemption otherwise than through operation of the sinking fund (expressed as percentages of the principal amount) set forth in the table below: If redeemed during the 12-month period beginning ___________ of the years indicated, - 77 - Redemption Price Redemption Price For For Redemption Redemption Otherwise Through Operation Than Through Operation Year of the Sinking Fund of the Sinking Fund ---- ------------------- ---------------------- and thereafter at a Redemption Price equal to ___% of the principal amount, together in the case of any such redemption (whether through operation of the sinking fund or otherwise) with accrued interest to the Redemption Date, but interest installments whose Stated Maturity is on or prior to such Redemption Date will be payable to the Holders of such Securities, or one or more Predecessor Securities, of record at the close of business on the relevant Record Date referred to on the face hereof, all as provided in the Indenture.] [The sinking fund for this series provides for the redemption on ________ in each year beginning with the year ____ and ending with the year of____ [not less than $_________ ("mandatory sinking fund") and not more than] $________ aggregate principal amount of Securities of this series. Securities of this series acquired or redeemed by the Company otherwise than through [mandatory] sinking fund payments may be credited against subsequent [mandatory] sinking fund payments otherwise required to be made [if applicable, insert -- in the inverse order in which they become due]. [If the Security is subject to redemption, insert -- In the event of redemption of this Security in part only, a new Security or Securities of this series and of like tenor for the unredeemed portion hereof will be issued in the name of the Holder hereof upon the cancellation hereof.] [If applicable, insert -- This Security is not subject to redemption prior to maturity.] [If applicable, insert -- The Indenture contains provisions for defeasance at any time of [(i)] (the entire indebtedness evidenced by this Security] [and (ii)] [certain restrictive covenants,] [in each case] upon compliance by the Company with certain conditions set forth therein, which provisions apply to this Security.] [If the Security is not an Original Issue Discount Security, insert -- If an Event of Default with respect to Securities of this series shall occur and be continuing, the principal of the Securities of this series may be declared due and payable in the manner and with the effect provided in the Indenture.] [If the Security is an Original Issue Discount Security, insert -- If an Event of Default with respect to Securities of this series shall occur and be continuing, an amount of principal of the Securities of this series may be declared due and payable in the manner and with the effect provided in the Indenture. Such amount shall be equal to [-- insert formula for determining the amount]. Upon payment [if applicable, insert -- (i)] of the amount of principal so declared due and payable [if applicable, insert -- and (ii) of interest on any overdue principal and overdue interest (in each case to the extent that the payment of such interest shall be legally enforceable)], - 78 - all of the Company's obligations in respect of the payment of the principal of and interest, if any, on the Securities of this series shall terminate.] The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Securities of each series to be affected under the Indenture at any time by the Company and the Trustee with the consent of the Holders of a majority in principal amount of the Securities at the time Outstanding of all series to be affected (voting as a single class). The Indenture also contains provisions permitting the Holders of specified percentages in principal amount of the Securities of each series at the time Outstanding, on behalf of the Holders of all Securities of such series, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security. No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and any premium or interest on this Security at the times, place and rate, and in the coin or currency, herein prescribed. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registerable in the Security Register, upon surrender of this Security for registration of transfer at the office or agency of the Company in any place where the principal of and any premium and interest on this Security are payable, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities of this series and of like tenor, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. The Securities of this series are issuable only in registered form without coupons in denominations of $ ______ and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, Securities of this series are exchangeable for a like aggregate principal amount of Securities of this series and of like tenor of a different authorized denomination, as requested by the Holder surrendering the same. No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Prior to due presentment of this Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee - 79 - may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. This Security and the Indenture are governed by and shall be construed in accordance with the laws of the State of New York, without regard to the conflicts of law principles thereof. All terms used in this Security that are defined in the Indenture shall have the meanings assigned to them in the Indenture. EX-4 5 SR. NOTES SUPPLEMENTAL INDENTURE ================================================================= POTOMAC ELECTRIC POWER COMPANY 1900 Pennsylvania Avenue, N.W., Washington, D.C. and THE BANK OF NEW YORK, Trustee 101 Barclay Street, New York, NY ------------------ Supplemental Indenture Dated as of __________ __, 1998 ------------------ Supplemental to Indenture Dated ___________ __, 1998 ------------------ SENIOR NOTES, ____ % SERIES DUE ____ ================================================================= THIS SUPPLEMENTAL INDENTURE, dated as of ________________, is entered into by and between Potomac Electric Power Company, a corporation organized and existing under the laws of the District of Columbia and the Commonwealth of Virginia (herein called the "Company"), and The Bank of New York, a New York banking corporation organized and existing under the laws of the State of New York (herein called the "Trustee"), having its Corporate Trust Office at 101 Barclay Street, Floor 21 West, New York, New York 10286. WHEREAS, the Company has heretofore executed and delivered to the Trustee that certain indenture, dated ___________, 1998 (the "Indenture"), providing for the issuance by the Company from time to time of its senior debt securities to be issued in one or more series (the "Senior Notes"); and WHEREAS, the Company is entitled to have authenticated and delivered Senior Notes upon compliance with the provisions of the Indenture; and WHEREAS, the Company has determined to issue a series of Senior Notes under the Indenture in the principal amount of $___,000,000, to be known as Senior Notes, __% Series due ____ (hereinafter called "Senior Notes of ____ Series"); and WHEREAS, the Indenture provides that certain terms and provisions of the Senior Notes of any particular series, as determined by the Board of Directors of the Company, may be expressed in and provided by the execution of an appropriate supplemental indenture; WHEREAS, the Company, in the exercise of the powers and authority conferred upon and reserved to it under the provisions of the Indenture and pursuant to appropriate resolutions of its Board of Directors, has duly resolved and determined to make, execute and deliver to the Trustee a supplemental indenture in the form hereof for the purposes herein provided; and WHEREAS, all conditions and requirements necessary to make this Supplemental Indenture a valid, binding and legal instrument have been done, performed and fulfilled, and the execution and delivery hereof have been in all respects duly authorized; NOW, THEREFORE, THIS INDENTURE WITNESSETH, that in order to establish the terms of the Senior Notes of ____ Series, and for and in consideration of the premises and of the covenants contained herein and in the Indenture, and for other good ad valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Trustee hereby covenant and agree as follows: PART I. DESCRIPTION OF SENIOR NOTES. Section 1. The Senior Notes of ____ Series shall be designated as "Senior Notes, __% Series due ____" of the Company. The Notes of ____ Series shall be executed, authenticated and delivered in accordance with the provisions of, and shall in all respects be subject to, all of the terms, conditions and covenants of the Indenture. -2- Section 2. Except for Senior Notes of ____ Series issued pursuant to Sections [304,] 305, 306, 906 or 1107 of the Indenture, the principal amount of Senior Notes of ____ Series which may be authenticated and delivered hereunder is limited to $___,000,000 aggregate principal amount. Section 3. The principal of the Senior Notes of ____ Series shall be due and payable on __________________. Section 4. Each Senior Note of ____ Series shall be dated as of the date of its authentication. Each Senior Note of ____ Series shall bear interest at the rate of________________ (___%) per annum from _________________ or from the most recent Interest Payment Date (as hereinafter defined) to which interest has been paid or duly provided for [and (to the extent that the payment of such interest shall be legally enforceable) at the rate of __% per annum on any overdue principal and premium and on any overdue installment of interest]. Interest shall be calculated on the basis of a 360- day year of twelve 30-day months. Interest on the Senior Notes of ___ Series shall be payable semiannually on the ____ day of _______ and the ____ day of _________ in each year (each such ______________ and _________________, an "Interest Payment Date"), commencing _______________. The interest payable, and punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Persons in whose names the Senior Notes of ____ Series are registered at the close of business on the last business day which is more than ten days prior to such Interest Payment Date (each such date, a "Regular Record Date"). Any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the holder of Senior Notes of ___ Series on such Regular Record Date and may either be paid to the Persons in whose name the Senior Notes of ___ Series are registered at the close of business on a Special Record Date for the payment of such defaulted interest to be fixed by the Trustee, notice whereof shall be given to holders of Senior Notes of ___ Series not less than ten days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Senior Notes of ___ Series may be listed, and upon such notice as may be required by such exchange. Section 5. The Senior Notes of ____ Series shall be payable as to principal, premium, if any, and interest 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, and shall be payable at agency of the Company in the Borough of Manhattan, The City of New York; provided, however, that at the option of the Company payment of interest may be made by check mailed to the address of the Person entitled thereto as such address shall appear on the Security Register. Section 6. The Senior Notes of ____ Series shall be issued in registered form without coupons in denominations of any multiple of $1,000, numbered consecutively upwards from ____. [The Senior Notes of ___ Series initially shall be issued in the form of Global Securities, and The Depository Trust Company is hereby designated as the Depositary for such Global Securities. Global Securities representing Senior Notes of ___ Series may be transferred to, and registered and exchanged for Senior Notes registered in the name of, a Person other than the Depositary only in accordance with the terms of Section 305(h) of the Indenture.] -3- [Section 7. The Senior Notes of ___ Series shall be subject to the provisions of Section 1302 Section 1303 of the Indenture.] Section 8. Until the Release Date, the due and punctual payment of the principal of, premium, if any, and interest on Senior Notes of ____ Series shall be secured pursuant to Article XIV of the Indenture by a series of First Mortgage Bonds issued by the Company concurrently with the issuance of the Senior Notes of ___ Series, pursuant to a Supplemental Indenture, dated ______, 1998, under the Mortgage and Deed of Trust, dated July 1, 1936, as amended and supplemented, between the Company and The Bank of New York, as trustee and as successor in such capacity to The Riggs National Bank of Washington, D.C., and designated as "First Mortgage Bonds, __% Series due ______" and delivered and pledged by the Company to the Trustee. Section 9. The Senior Notes of ____ Series, and the Trustee's certificate to be endorsed on the Senior Notes of ____ Series, shall be substantially in the following forms, respectively: [FORM OF FACE OF SENIOR NOTE OF ___ SERIES] [THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE THEREOF. THIS SECURITY MAY NOT BE TRANSFERRED TO, OR REGISTERED OR EXCHANGED FOR SECURITIES REGISTERED IN THE NAME OF, ANY PERSON OTHER THAN THE DEPOSITARY OR A NOMINEE THEREOF AND NO SUCH TRANSFER MAY BE REGISTERED, EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE. EVERY SECURITY AUTHENTICATED AND DELIVERED UPON REGISTRATION OF TRANSFER OF, OR IN EXCHANGE FOR OR IN LIEU OF, THIS SECURITY SHALL BE A GLOBAL SECURITY SUBJECT TO THE FOREGOING, EXCEPT IN SUCH LIMITED CIRCUMSTANCES.] POTOMAC ELECTRIC POWER COMPANY No._________ $__________ CUSIP No. ______ Potomac Electric Power Company, a corporation duly organized and existing under the laws of the District of Columbia and the Commonwealth of Virginia (herein called the "Company", which term includes any successor Person under the Indenture hereinafter referred to), for value received, hereby promises to pay to ____________, or registered assigns, the principal sum of __________________ [Dollars] on _____________, [if the Senior Notes of ____ Series are to bear interest prior to Maturity, insert -- , and to pay interest thereon from __________ or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semi-annually on __________ and ___________ in each year (an "Interest Payment Date"), commencing _________, at the rate of ___% per annum, until the principal hereof is paid or made available for payment [if applicable, insert -- , and (to the extent that the payment of such interest shall be legally enforceable) at the rate of __% per annum on any overdue principal and premium and on any overdue installment of interest]. The interest so payable, and punctually paid or duly provided for, on any Interest -4- Payment Date will, as provided in such Indenture, be paid to the Person in whose name this Senior Note of ____ Series (or one or more Predecessor Securities) is registered at the close of business on the last business day which is more than ten days prior to Interest Payment Date (each such date a "Regular Record Date"). Any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the Holder on such Regular Record Date and may either be paid to the Person in whose name this Senior Note of ____ Series (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Senior Notes of ____ Series not less than ten days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Senior Notes of ____ Series may be listed, and upon such notice as may be required by such exchange, all as more fully provided in said Indenture]. Payment of the principal of (and premium, if any) and [if applicable, insert -- any such] interest on this Security will be made at the office or agency of the Company maintained for that purpose [in ____________] in such coin or currency of [the United States of America] [insert other currency, if applicable] as at the time of payment is legal tender for payment of public and private debts [if applicable, insert -- ; provided, however, that at the option of the Company payment of interest may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register]. Until the Release Date, the due and punctual payment of the principal of, premium, if any, and interest on the Senior Notes of ____ Series is secured pursuant to Article XIV of the Indenture by a series of First Mortgage Bonds issued by the Company under the Mortgage and Deed of Trust, dated July 1, 1936, as amended and supplemented, between the Company and The Bank of New York, as trustee and as successor in such capacity to The Riggs National Bank of Washington, D.C., and designated as "First Mortgage Bonds, __% Series due ______" and delivered and pledged by the Company to the Trustee. Reference is hereby made to the further provisions of the Senior Notes of ____ Series set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Senior Note of ____ Series shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. -5- IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed under its corporate seal. POTOMAC ELECTRIC POWER COMPANY By:___________________________ Attest: _____________________ [FORM OF TRUSTEE'S CERTIFICATE] This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture. THE BANK OF NEW YORK Dated: As Trustee By:_________________________ Authorized Signatory [FORM OF REVERSE OF SENIOR NOTES OF __ SERIES] This Senior Note of ____ Series is one of a duly authorized issue of securities of the Company, issued and to be issued in under an Indenture, dated as of __________, 1998 (herein called the "Indenture"), between the Company and The Bank of New York, as Trustee (herein called the "Trustee", which term includes any successor trustee under the Indenture), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the Holders of the Senior Notes of ____ Series and of the terms upon which the Senior Notes of ____ Series are, and are to be, authenticated and delivered. This Senior Note of ____ Series is one of the series designated on the face hereof[, limited in aggregate principal amount to $ ________]. [If applicable, insert -- The Senior Notes of ____ Series are subject to redemption upon not less than 30 days' notice by mail, [if applicable, insert ---- (i) on ___________ in any year commencing with the year ____ and ending with -6- the year ____ through operation of the sinking fund for this series at a Redemption Price equal to 100% of the principal amount, and (ii)] at any time on or after _________, 19__], as a whole or in part, at the election of the Company, at the following Redemption Prices (expressed as percentages of the principal amount): If redeemed [on or before ___________, __%, and if redeemed] during the 12-month period beginning _________ of the years indicated, Redemption Redemption Year Price Year Price ---- ---------- ---- ---------- and thereafter at a Redemption Price equal to ___% of the principal amount, together in the case of any such redemption [if applicable, insert -- (whether through operation of the sinking fund or otherwise)] with accrued interest to the Redemption Date, but interest installments whose Stated Maturity is on or prior to such Redemption Date will be payable to the Holders of Senior Notes of ____ Series, or one or more Predecessor Securities, of record at the close of business on the relevant Record Dates referred to on the face hereof, all as provided in the Indenture.] [If applicable, insert -- The Senior Notes of ____ Series are subject to redemption upon not less than 30 days' notice by mail, (i) on _______ in any year commencing with the year ____ and ending with the year ____ through operation of the sinking fund for this series at the Redemption Prices for redemption through operation of the sinking fund (expressed as percentages of the principal amount) set forth in the table below, and (ii) at any time [on or after ____________], as a whole or in part, at the election of the Company, at the Redemption Prices for redemption otherwise than through operation of the sinking fund (expressed as percentages of the principal amount) set forth in the table below: If redeemed during the 12-month period beginning ___________ of the years indicated, Redemption Price Redemption Price For For Redemption Redemption Otherwise Through Operation Than Through Operation Year of the Sinking Fund of the Sinking Fund ---- ------------------- ---------------------- and thereafter at a Redemption Price equal to ___% of the principal amount, together in the case of any such redemption (whether through operation of the sinking fund or otherwise) with accrued interest to the Redemption Date, but interest installments whose Stated Maturity is on or prior to such Redemption Date will be payable to the Holders of Senior Notes of ____ Series, or one or more Predecessor Securities, of record at the close of business on the relevant Record Date referred to on the face hereof, all as provided in the Indenture.] [The sinking fund for this series provides for the redemption on ________ in each year beginning with the year ____ and ending with the year of____ [not less than $_________ ("mandatory sinking fund") and not more than] $________ aggregate principal amount of Senior Notes of ____ Series acquired or -7- redeemed by the Company otherwise than through [mandatory] sinking fund payments may be credited against subsequent [mandatory] sinking fund payments otherwise required to be made [if applicable, insert -- in the inverse order in which they become due]. [If the Senior Notes of ____ Series are subject to redemption, insert -- In the event of redemption of this Senior Note of ____ Series in part only, a new Senior Note of ____ Series and of like tenor for the unredeemed portion hereof will be issued in the name of the Holder hereof upon the cancellation hereof.] [If applicable, insert -- The Senior Notes of ____ Series are not subject to redemption prior to maturity.] [If applicable, insert -- The Indenture contains provisions for defeasance at any time of [(i)] (the entire indebtedness evidenced by the Senior Notes of ____ Series] [and (ii)] [certain restrictive covenants,] [in each case] upon compliance by the Company with certain conditions set forth therein, which provisions apply to this Senior Note of ____ Series.] If an Event of Default with respect to the Senior Notes of ____ Series shall occur and be continuing, the principal of the Securities of this series may be declared due and payable in the manner and with the effect provided in the Indenture. The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Securities of each series to be affected under the Indenture at any time by the Company and the Trustee with the consent of the Holders of a majority in principal amount of the Securities at the time Outstanding of all series to be affected (voting as a single class). The Indenture also contains provisions permitting the Holders of specified percentages in principal amount of the Securities of each series at the time Outstanding, on behalf of the Holders of all Securities of such series, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Senior Note of ____ Series shall be conclusive and binding upon such Holder and upon all future Holders of this Senior Note of ____ Series and of any security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Senior Note of ____ Series. No reference herein to the Indenture and no provision of this Senior Note of ____ Series or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and any premium or interest on this Senior Note of ____ Series at the times, place and rate, and in the coin or currency, herein prescribed. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Senior Note of ____ Series is registerable in the Security Register, upon surrender of this Senior Note of ____ Series for registration of transfer at the office or agency of the Company in any -8- place where the principal of and any premium and interest on this Senior Note of ____ Series are payable, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Senior Notes of ____ Series and of like tenor, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. The Senior Notes of ____ Series are issuable only in registered form without coupons in denominations of $ ______ and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, the Senior Notes of ____ Series are exchangeable for a like aggregate principal amount of the Senior Notes of ____ Series and of like tenor of a different authorized denomination, as requested by the Holder surrendering the same. No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Prior to due presentment of this Senior Note of ____ Series for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Senior Note of ____ Series is registered as the owner hereof for all purposes, whether or not this Senior Note of ____ Series be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. No recourse shall be had for the payment of the principal of, or the interest on, this Senior Note of ____ Series, or for any claim based hereon or otherwise in respect hereof or of the Indenture or any indenture supplemental thereto, against any incorporator, or against any stockholder, director or officer, past, present or future, of the Company or of any predecessor or successor corporation, either directly or through the Company or any such predecessor or successor corporation, whether for amounts unpaid on stock subscriptions or by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise, all such liability, whether at common law, in equity, by any constitution, statute or otherwise, of incorporators, stockholders, directors or officers being released by every owner hereof by the acceptance of this Senior Note of ____ Series and as part of the consideration for the issue hereof, and being likewise released by the terms of the Indenture. This Senior Note and the Indenture are governed by and shall be construed in accordance with the laws of the State of New York, without regard to the conflicts of law provisions thereof. All terms used in this Senior Note of ___ Series that are defined in the Indenture shall have the meanings assigned to them in the Indenture. -9- PART II. ISSUE OF SENIOR NOTES. Section 1. Senior Notes of____ Series, in the aggregate principal amount permitted by Section 2 of Part I, may at any time and from time to time subsequent to the execution hereof be executed by the Company and delivered to the Trustee and, upon compliance by the Company with the terms of the Indenture, shall be authenticated by the Trustee and delivered in accordance with the terms of the Indenture. [Section 2. Until Senior Notes of____ Series in definitive form are ready for delivery, the Company may execute, and upon a Company Order the Trustee shall authenticate and deliver, in lieu thereof, Senior Notes of ____ Series in temporary form, as provided in Section 304 of the Indenture.] PART III. REDEMPTION AND CANCELLATION OF SENIOR NOTES [Section 1. The Senior Notes of ___ Series are not redeemable prior to __________. The Company shall, in accordance with the terms of Article XI of the Indenture, have the right to redeem the Senior Notes of _____ Series, in whole, at any time, or in part, from time to time, on or after ______________, at the redemption price applicable to the respective periods set forth in the form of Senior Note of ___ Series contained in Section 9 of Part I hereof, together, in each case, with all accrued and unpaid interest thereon to the redemption date.] Section 2. All Senior Notes of ___ Series delivered to or redeemed by the Trustee pursuant to the provisions of this Part III shall forthwith be cancelled. PART IV. MISCELLANEOUS Section 1. Capitalized terms not otherwise defined herein shall have the meanings ascribed to such terms in the Indenture. Section 2. In case any one or more of the provisions contained in this Supplemental Indenture or in the Senior Notes of ____ Series issued hereunder should be invalid, illegal, or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and therein shall not in any way be affected, impaired, prejudiced or disturbed thereby. Section 3. The recitals contained herein are made by the Company solely and not by the Trustee, and the Trustee assumes no responsibility for the correctness thereof. The Trustee makes no representation as to the validity or -10- sufficiency of this Supplemental Indenture or the due execution hereof by the Company. Section 4. This Supplemental Indenture 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. IN WITNESS WHEREOF, said Potomac Electric Power Company has caused this Supplemental Indenture to be executed on its behalf by its President or one of its Vice Presidents and its corporate seal to be hereto affixed and said seal and this Supplemental Indenture to be attested by its Secretary or one of its Assistant Secretaries; and said The Bank of New York, in evidence of its acceptance of the trust hereby created, has caused this Supplemental Indenture to be executed on its behalf by its President or one of its Vice Presidents, and its corporate seal to be hereto affixed and said seal and this Supplemental Indenture to be attested by one of its Assistant Vice Presidents, all as of the ___ day of _______, One thousand nine hundred and ninety-___. POTOMAC ELECTRIC POWER COMPANY By: ____________________________ Name: Title: Attest: ____________________ Secretary THE BANK OF NEW YORK, as Trustee By: _____________________________ Name: Title: Attest: ___________________________ EX-5 6 OPINION OF WILLIAM T. TORGERSON Exhibit 5 October 26, 1998 Potomac Electric Power Company Washington, D. C. Dear Sirs: Reference is made to the proposed issuance and sale, pursuant to rule 415, by Potomac Electric Power Company (the "Company") of up to $270,000,000 aggregate principal amount of Senior Notes; and with respect to which the Company is today filing with the Securities and Exchange Commission a registration statement on Form S-3 under the Securities Act of 1933, as amended (the "1933 Act") (which registration statement, as amended by all amendments, is hereinafter called the "Registration Statement"). As counsel for the Company, I have examined such certificates, corporate records and other documents and such questions of law as I have considered necessary or appropriate for the purposes of this opinion, and, on the basis of such examination, advise that, in my opinion: (1) The Company has been duly incorporated and is now validly existing as a corporation under the laws of the District of Columbia and is also now validly existing as a domestic corporation of the Commonwealth of Virginia. (2) The Senior Notes will have been duly and validly issued and will constitute legal, valid and binding obligations of the Company upon (a) the due authorization, by the Board of Directors or by the Executive Committee of the Board of Directors of the Company, of the terms of the Senior Notes and of their issuance and sale in the manner and upon the terms set forth in the Registration Statement and in the form of Prospectus contained therein or issued supplemental thereto, (b) the Registration Statement becoming effective under the 1933 Act, (c) the qualification under the 1939 Act of an indenture governing the issuance of the Senior Notes (the "Indenture"), (d) the execution of the Senior Notes by the Company, the filing with the Trustee under the Indenture of the appropriate Potomac Electric Power Company Page 2 October 26, 1998 certificates, instruments and opinions called for thereby, and the authentication of the Senior Notes by the Trustee, if required, all in accordance with the provisions of the Indenture, and (e) the delivery of the Notes against payment therefor in accordance with such authorizations of the Board of Directors or the Executive Committee of the Board of Directors of the Company and of said Public Service Commission. I hereby consent to the filing of a copy of this opinion as an exhibit to said Registration Statement and to the making in the said Registration Statement of the statements with respect to me which are made under the captions "Experts" and "Legal Opinions" in the form of Prospectus which constitutes a part of said Registration Statement. Very truly yours, /s/ WILLIAM T. TORGERSON William T. Torgerson EX-15 7 CONSENT OF INDEPENDENT ACCOUNTANTS Exhibit 15 October 26, 1998 Securities and Exchange Commission 450 Fifth Street, NW Washington, DC 20549 Ladies and Gentlemen: We are aware that Potomac Electric Power Company has incorporated by reference our reports dated May 13, 1998 and August 11, 1998 (issued pursuant to the provisions of Statement on Auditing Standards Number 71) in the Prospectus constituting part of its Registration Statement on Form S-3 to be filed on or about October 26, 1998. We are also aware of our responsibilities under the Securities Act of 1933. Yours very truly, /s/ PRICEWATERHOUSECOOPERS LLP EX-23 8 LETTER RE UNAUDITED FINANCIAL INFO Exhibit 23.1 Consent of Independent Accountants ---------------------------------- We hereby consent to the incorporation by reference in the Prospectus constituting part of this Registration Statement on Form S-3 of our report dated January 16, 1998, which appears on page 32 of the 1997 annual Report to Shareholders of Potomac Electric Power Company, which is incorporated by reference in Potomac Electric Power Company's annual Report on Form 10-K for the year ended December 31, 1997. We also consent to the incorporation by reference of our report on the Financial Statement Schedule, which appears on page 49 of such annual report on Form 10-K. We also consent to the references to us under the heading "Experts" in such Prospectus. However, it should be noted that PricewaterhouseCoopers, LLP, has not prepared or certified such "Selected Financial Data". /s/ PRICEWATERHOUSECOOPERS LLP Washington, D.C. October 26, 1998 EX-23 9 CONSENT LETTER Exhibit 23.3 October 26, 1998 We hereby consent to the reference to this Firm under the heading "Legal Opinions" in the Prospectus constituting part of the Registration Statement on Form S-3 of Potomac Electric Power Company, as filed the date hereof, relating to $270,000,000 of Debt Securities. /s/ Covington & Burling COVINGTON & BURLING EX-24 10 POWER OF ATTORNEY Exhibit 24 POWER OF ATTORNEY ----------------- KNOW ALL MEN BY THESE PRESENTS, that the undersigned directors and officers of POTOMAC ELECTRIC POWER COMPANY (the "Company") hereby constitute and appoint John M.Derrick, Jr., Dennis R. Wraase, William T. Torgerson, Anthony J. Kamerick, Ellen Sheriff Rogers, Peyton G. Middleton, Jr. and Karen G. Almquist and each of them, their true and lawful attorneys and agents with full power and authority, in their names and on their behalf, to do any and all acts and things and to execute any and all instruments which said attorneys and agents, or any of them, may deem necessary or advisable to enable Potomac Electric Power Company to comply with the Securities Exchange Act of 1933, as amended (the "Act"), the Securities Exchange Act of 1934, as amended, and the rules, regulations and requirements of the Securities and Exchange Commission thereunder, and to comply with the securities laws of any state of the United States or any other jurisdiction, in connection with a Registration Statement on Form S-3 to be filed under the Act for the public offering and sale of up to $270,000,000 in debt securities, and any Registration Statement for the public offering and sale of up to an additional 20% thereof filed in accordance with Rule 462(b) under the Act, including specifically, but without limiting the generality of the foregoing, power and authority to sign the names of the undersigned directors and officers, in the respective capacities indicated below, to said Registration Statements and to any instruments or documents filed as a part of or in connection with said Registration Statements or amendment thereto; and each of the undersigned hereby ratifies and confirms all that said attorneys and agents, or any of them, shall do or cause to be done by virtue hereof. IN WITNESS WHEREOF, each of the undersigned has subscribed, or caused to be subscribed, these presents this 22nd day of April, 1998. Signature --------- /S/ JOHN M. DERRICK, JR. Principal Executive Officer: JOHN M. DERRICK, JR. President, Chief Executive Officer and Director Principal Financial Officer and /S/ DENNIS R. WRAASE Principal Accounting Officer: DENNIS R. WRAASE Senior Vice President, Chief Financial Officer and Director /S/ ROGER R. BLUNT, SR. Director _________________________ ROGER R. BLUNT, SR. /S/ EDMUND B. CRONIN, JR. Director _________________________ EDMUND B. CRONIN, JR. /S/ RICHARD E. MARRIOTT Director _________________________ RICHARD E. MARRIOTT /S/ DAVID O. MAXWELL Director _________________________ DAVID O. MAXWELL /S/ FLORETTA D. MCKENZIE Director _________________________ FLORETTA D. McKENZIE /S/ ANN D. MCLAUGHLIN Director _________________________ ANN D. McLAUGHLIN /S/ EDWARD F. MITCHELL Director _________________________ EDWARD F. MITCHELL /S/ PETER F. O'MALLEY Director _________________________ PETER F. O'MALLEY Director _________________________ LOUIS A. SIMPSON /S/ A. THOMAS YOUNG Director _________________________ A. THOMAS YOUNG EX-25 11 FORM OF T-1 FIRST MORTGAGE BONDS ================================================================= FORM T-1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(b)(2) |__| ____________________ THE BANK OF NEW YORK (Exact name of trustee as specified in its charter) New York 13-5160382 (State of incorporation (I.R.S. employer if not a U.S. national bank) identification no.) One Wall Street, New York, N.Y. 10286 (Address of principal executive offices) (Zip code) ________________________ POTOMAC ELECTRIC POWER COMPANY (Exact name of obligor as specified in its charter) District of Columbia and Virginia 53-0127880 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) 1900 Pennsylvania Avenue, N.W. Washington, D.C. 20068 (Address of principal executive offices) (Zip code) ______________________ First Mortgage Bonds (Title of the indenture securities) ================================================================= 1. General information. Furnish the following information as to the Trustee: (a) Name and address of each examining or supervising authority to which it is subject. - ----------------------------------------------------------------- Name Address - ----------------------------------------------------------------- Superintendent of Banks of the State 2 Rector Street, New York, of New York N.Y. 10006, and Albany, N.Y. 12203 Federal Reserve Bank of New York 33 Liberty Plaza, New York, N.Y. 10045 Federal Deposit Insurance Corporation Washington, D.C. 20429 New York Clearing House Association New York, New York 10005 (b) Whether it is authorized to exercise corporate trust powers. Yes. 2. Affiliations with Obligor. If the obligor is an affiliate of the trustee, describe each such affiliation. None. 16. List of Exhibits. Exhibits identified in parentheses below, on file with the Commission, are incorporated herein by reference as an exhibit hereto, pursuant to Rule 7a-29 under the Trust Indenture Act of 1939 (the "Act") and 17 C.F.R. 229.10(d). 1. A copy of the Organization Certificate of The Bank of New York (formerly Irving Trust Company) as now in effect, which contains the authority to commence business and a grant of powers to exercise corporate trust powers. (Exhibit 1 to Amendment No. 1 to Form T-1 filed with Registration Statement No. 33-6215, Exhibits 1a and 1b to Form T-1 filed with Registration Statement No. 33-21672 and Exhibit 1 to Form T-1 filed with Registration Statement No. 33-29637.) 4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form T-1 filed with Registration Statement No. 33-31019.) 6. The consent of the Trustee required by Section 321(b) of the Act. (Exhibit 6 to Form T-1 filed with Registration Statement No. 33-44051.) 7. A copy of the latest report of condition of the Trustee published pursuant to law or to the requirements of its supervising or examining authority. 2 SIGNATURE Pursuant to the requirements of the Act, the Trustee, The Bank of New York, a corporation organized and existing under the laws of the State of New York, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in The City of New York, and State of New York, on the ____ day of _______, 199_. THE BANK OF NEW YORK By: Name: ROBERT A. MASSIMILLO Title: ASSISTANT VICE PRESIDENT 3 Exhibit 7 Consolidated Report of Condition of THE BANK OF NEW YORK of 48 Wall Street, New York, N.Y. 10286 And Foreign and Domestic Subsidiaries, a member of the Federal Reserve System, at the close of business March 31, 1998, published in accordance with a call made by the Federal Reserve Bank of this District pursuant to the provisions of the Federal Reserve Act. Dollar Amounts ASSETS in Thousands Cash and balances due from depos- itory institutions: Noninterest-bearing balances and currency and coin ................. $ 6,397,993 Interest-bearing balances .......... 1,138,362 Securities: Held-to-maturity securities ........ 1,062,074 Available-for-sale securities ...... 4,167,240 Federal funds sold and Securities pur- chased under agreements to resell... 391,650 Loans and lease financing receivables: Loans and leases, net of unearned income ........................... 36,538,242 LESS: Allowance for loan and lease losses ..................... 631,725 LESS: Allocated transfer risk reserve........................... 0 Loans and leases, net of unearned income, allowance, and reserve.... 35,906,517 Assets held in trading accounts ...... 2,145,149 Premises and fixed assets (including capitalized leases) ................ 663,928 Other real estate owned .............. 10,895 Investments in unconsolidated subsidiaries and associated companies .......................... 237,991 Customers' liability to this bank on acceptances outstanding ............ 992,747 Intangible assets .................... 1,072,517 Other assets ......................... 1,643,173 ----------- Total assets ......................... $55,830,236 =========== LIABILITIES Deposits: In domestic offices ................ $24,849,054 Noninterest-bearing ................ 10,011,422 Interest-bearing ................... 14,837,632 In foreign offices, Edge and Agreement subsidiaries, and IBFs ... 15,319,002 Noninterest-bearing ................ 707,820 Interest-bearing ................... 14,611,182 Federal funds purchased and Securities sold under agreements to repurchase. 1,906,066 Demand notes issued to the U.S. Treasury ........................... 215,985 Trading liabilities .................. 1,591,288 Other borrowed money: With remaining maturity of one year or less .......................... 1,991,119 With remaining maturity of more than one year through three years...... 0 With remaining maturity of more than three years ...................... 25,574 Bank's liability on acceptances exe- cuted and outstanding .............. 998,145 Subordinated notes and debentures .... 1,314,000 Other liabilities .................... 2,421,281 ---------- Total liabilities .................... 50,631,514 ---------- EQUITY CAPITAL Common stock ......................... 1,135,284 Surplus .............................. 731,319 Undivided profits and capital reserves ........................... 3,328,050 Net unrealized holding gains (losses) on available-for-sale securities ......................... 40,198 Cumulative foreign currency transla- tion adjustments ................... ( 36,129) ------------ Total equity capital ................. 5,198,722 ------------ Total liabilities and equity capital ............................ $55,830,236 =========== I, Robert E. Keilman, Senior Vice President and Comptroller of the above-named bank do hereby declare that this Report of Condition has been prepared in conformance with the instructions issued by the Board of Governors of the Federal Reserve System and is true to the best of my knowledge and belief. Robert E. Keilman We, the undersigned directors, attest to the correctness of this Report of Condition and declare that it has been examined by us and to the best of our knowledge and belief has been prepared in conformance with the instructions issued by the Board of Governors of the Federal Reserve System and is true and correct. ) Thomas A. Renyi ) Alan R. Griffith ) Directors J. Carter Bacot ) ) 2 EX-25 12 FORM OF T-1 FIRST MORTGAGE BONDS ================================================================= FORM T-1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(b)(2) |__| ____________________ THE BANK OF NEW YORK (Exact name of trustee as specified in its charter) New York 13-5160382 (State of incorporation (I.R.S. employer if not a U.S. national bank) identification no.) One Wall Street, New York, N.Y. 10286 (Address of principal executive offices) (Zip code) ________________________ POTOMAC ELECTRIC POWER COMPANY (Exact name of obligor as specified in its charter) District of Columbia and Virginia 53-0127880 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) 1900 Pennsylvania Avenue, N.W. Washington, D.C. 20068 (Address of principal executive offices) (Zip code) ______________________ Senior Notes (Title of the indenture securities) ================================================================= 1. General information. Furnish the following information as to the Trustee: (a) Name and address of each examining or supervising authority to which it is subject. - ----------------------------------------------------------------- Name Address - ----------------------------------------------------------------- Superintendent of Banks of the State 2 Rector Street, New York, of New York N.Y. 10006, and Albany, N.Y. 12203 Federal Reserve Bank of New York 33 Liberty Plaza, New York, N.Y. 10045 Federal Deposit Insurance Corporation Washington, D.C. 20429 New York Clearing House Association New York, New York 10005 (b) Whether it is authorized to exercise corporate trust powers. Yes. 2. Affiliations with Obligor. If the obligor is an affiliate of the trustee, describe each such affiliation. None. 16. List of Exhibits. Exhibits identified in parentheses below, on file with the Commission, are incorporated herein by reference as an exhibit hereto, pursuant to Rule 7a-29 under the Trust Indenture Act of 1939 (the "Act") and 17 C.F.R. 229.10(d). 1. A copy of the Organization Certificate of The Bank of New York (formerly Irving Trust Company) as now in effect, which contains the authority to commence business and a grant of powers to exercise corporate trust powers. (Exhibit 1 to Amendment No. 1 to Form T-1 filed with Registration Statement No. 33-6215, Exhibits 1a and 1b to Form T-1 filed with Registration Statement No. 33-21672 and Exhibit 1 to Form T-1 filed with Registration Statement No. 33-29637.) 4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form T-1 filed with Registration Statement No. 33-31019.) 6. The consent of the Trustee required by Section 321(b) of the Act. (Exhibit 6 to Form T-1 filed with Registration Statement No. 33-44051.) 7. A copy of the latest report of condition of the Trustee published pursuant to law or to the requirements of its supervising or examining authority. 2 SIGNATURE Pursuant to the requirements of the Act, the Trustee, The Bank of New York, a corporation organized and existing under the laws of the State of New York, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in The City of New York, and State of New York, on the ____ day of _______, 199_. THE BANK OF NEW YORK By: Name: ROBERT A. MASSIMILLO Title: ASSISTANT VICE PRESIDENT 3 Exhibit 7 Consolidated Report of Condition of THE BANK OF NEW YORK of 48 Wall Street, New York, N.Y. 10286 And Foreign and Domestic Subsidiaries, a member of the Federal Reserve System, at the close of business March 31, 1998, published in accordance with a call made by the Federal Reserve Bank of this District pursuant to the provisions of the Federal Reserve Act. Dollar Amounts ASSETS in Thousands Cash and balances due from depos- itory institutions: Noninterest-bearing balances and currency and coin ................. $ 6,397,993 Interest-bearing balances .......... 1,138,362 Securities: Held-to-maturity securities ........ 1,062,074 Available-for-sale securities ...... 4,167,240 Federal funds sold and Securities pur- chased under agreements to resell... 391,650 Loans and lease financing receivables: Loans and leases, net of unearned income ........................... 36,538,242 LESS: Allowance for loan and lease losses ..................... 631,725 LESS: Allocated transfer risk reserve........................... 0 Loans and leases, net of unearned income, allowance, and reserve.... 35,906,517 Assets held in trading accounts ...... 2,145,149 Premises and fixed assets (including capitalized leases) ................ 663,928 Other real estate owned .............. 10,895 Investments in unconsolidated subsidiaries and associated companies .......................... 237,991 Customers' liability to this bank on acceptances outstanding ............ 992,747 Intangible assets .................... 1,072,517 Other assets ......................... 1,643,173 ----------- Total assets ......................... $55,830,236 =========== LIABILITIES Deposits: In domestic offices ................ $24,849,054 Noninterest-bearing ................ 10,011,422 Interest-bearing ................... 14,837,632 In foreign offices, Edge and Agreement subsidiaries, and IBFs ... 15,319,002 Noninterest-bearing ................ 707,820 Interest-bearing ................... 14,611,182 Federal funds purchased and Securities sold under agreements to repurchase. 1,906,066 Demand notes issued to the U.S. Treasury ........................... 215,985 Trading liabilities .................. 1,591,288 Other borrowed money: With remaining maturity of one year or less .......................... 1,991,119 With remaining maturity of more than one year through three years...... 0 With remaining maturity of more than three years ...................... 25,574 Bank's liability on acceptances exe- cuted and outstanding .............. 998,145 Subordinated notes and debentures .... 1,314,000 Other liabilities .................... 2,421,281 ---------- Total liabilities .................... 50,631,514 ---------- EQUITY CAPITAL Common stock ......................... 1,135,284 Surplus .............................. 731,319 Undivided profits and capital reserves ........................... 3,328,050 Net unrealized holding gains (losses) on available-for-sale securities ......................... 40,198 Cumulative foreign currency transla- tion adjustments ................... ( 36,129) ------------ Total equity capital ................. 5,198,722 ------------ Total liabilities and equity capital ............................ $55,830,236 =========== I, Robert E. Keilman, Senior Vice President and Comptroller of the above-named bank do hereby declare that this Report of Condition has been prepared in conformance with the instructions issued by the Board of Governors of the Federal Reserve System and is true to the best of my knowledge and belief. Robert E. Keilman We, the undersigned directors, attest to the correctness of this Report of Condition and declare that it has been examined by us and to the best of our knowledge and belief has been prepared in conformance with the instructions issued by the Board of Governors of the Federal Reserve System and is true and correct. ) Thomas A. Renyi ) Alan R. Griffith ) Directors J. Carter Bacot ) ) 2 -----END PRIVACY-ENHANCED MESSAGE-----