-----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, P6i2xlMqENUv8bUXLz3wqgWirbpuMeNNKhZU6//QZLMkVvIksEGSYD9SXjn/O+sG KZ/0pBd7KrW8dYfW+puzvA== 0000928385-98-000839.txt : 19980430 0000928385-98-000839.hdr.sgml : 19980430 ACCESSION NUMBER: 0000928385-98-000839 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 19980428 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: 333-51241 FILM NUMBER: 98603198 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 APRIL 28, 1998 REGISTRATION NO. 333- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------- FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 -------------- POTOMAC ELECTRIC POWER DISTRICT OF COLUMBIA AND 53-0127880 COMPANY VIRGINIA NOT APPLICABLE POTOMAC ELECTRIC POWER DELAWARE (I.R.S. EMPLOYER COMPANY TRUST I (STATE OR OTHER IDENTIFICATION NO.) (EXACT NAME OF ISSUER AS JURISDICTION OF SPECIFIED IN ITS CHARTER) INCORPORATION OR ORGANIZATION) -------------- 1900 PENNSYLVANIA AVENUE, N.W. WASHINGTON, D.C. 20068 (202) 872-2000 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF PRINCIPAL EXECUTIVE OFFICES) -------------- ELLEN SHERIFF ROGERS ASSOCIATE GENERAL COUNSEL, SECRETARY AND ASSISTANT TREASURER POTOMAC ELECTRIC POWER COMPANY 1900 PENNSYLVANIA AVENUE, N.W. WASHINGTON, D.C. 20068 (202) 872-3526 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) -------------- COPIES TO: D. MICHAEL LEFEVER, ESQ. VINCENT J. PISANO, ESQ. COVINGTON & BURLING SKADDEN, ARPS, SLATE, 1201 PENNSYLVANIA AVENUE, N.W. MEAGHER & FLOM LLP WASHINGTON, D.C. 20004 919 THIRD AVENUE (202) 662-6000 NEW YORK, NY 10022 (212) 735-3000 -------------- 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 to be offered pursuant to dividend or interest reinvestment plans, please check the following box. [_] If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, please check the following box. [X] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier registration statement for the same offering. [_] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [X] CALCULATION OF REGISTRATION FEE - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
PROPOSED PROPOSED AMOUNT MAXIMUM MAXIMUM AMOUNT OF TITLE OF SECURITIES TO BE OFFERING PRICE AGGREGATE REGISTRATION TO BE REGISTERED REGISTERED (1) PER UNIT OFFERING PRICE FEE - ----------------------------------------------------------------------------------- Preferred Securities of Potomac Electric Power Company Trust I........ (1) (2) (1) N/A - ----------------------------------------------------------------------------------- Guarantee by PEPCO of the above-referenced Preferred Securities... (3) (3) (3) N/A - ----------------------------------------------------------------------------------- Junior Subordinated Debentures of PEPCO.... (1) (2) (1) N/A - ----------------------------------------------------------------------------------- Total................. $125,000,000 N/A $125,000,000 $36,875
- ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- (1) Subject to the following sentence, there is being registered hereunder an indeterminate number of Preferred Securities of Potomac Electric Power Company Trust I (the "Trust") and an indeterminate principal amount of Junior Subordinated Debentures of Potomac Electric Power Company ("PEPCO") . In no event will the aggregate initial offering price of the Preferred Securities exceed $125,000,000, exclusive of accrued distributions, if any. A like amount of Junior Subordinated Debentures will be issued and sold by PEPCO to the Trust. The Junior Subordinated Debentures may later be distributed for no additional consideration to the holders of the Preferred Securities upon a dissolution of the Trust and the distribution of the assets thereof. The proposed maximum aggregate offering price has been estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933. (2) The proposed maximum offering price per unit will be determined from time to time in connection with the issuance of the securities registered hereunder. (3) Consists of the rights of holders of the Preferred Securities under the Guarantee and certain back-up undertakings, comprised of the obligations of PEPCO under the Declaration of Trust as issuer of the Junior Subordinated Debentures to provide certain indemnities in respect of, and pay and be responsible for certain costs, expenses, debts and liabilities of, the Trust (other than with respect to the Preferred Securities) and such obligations of PEPCO as set forth in the Declaration of Trust and the Indenture, in each case as amended from time to time and as further described in the Registration Statement. The Guarantee, when taken together with PEPCO's obligations under the Junior Subordinated Debentures, the Indenture and the Declaration of Trust, will provide a full and unconditional guarantee on a subordinated basis by PEPCO of payments due on the Preferred Securities. No separate consideration will be received for any Guarantee or such back-up obligations. -------------- THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A + +REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE + +SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY + +OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT + +BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR + +THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE + +SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE + +UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF + +ANY SUCH STATE. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION PRELIMINARY PROSPECTUS DATED APRIL 28, 1998 PROSPECTUS POTOMAC ELECTRIC POWER COMPANY TRUST I PREFERRED SECURITIES FULLY AND UNCONDITIONALLY GUARANTEED BY POTOMAC ELECTRIC POWER COMPANY Potomac Electric Power Company Trust I (the "Trust"), a statutory business trust formed under the laws of the State of Delaware by Potomac Electric Power Company, a District of Columbia and Virginia corporation ("PEPCO" or the "Company"), is offering preferred securities representing undivided beneficial interests in the assets of the Trust ("Preferred Securities"). The payment of periodic cash distributions ("distributions") with respect to Preferred Securities out of moneys held by the Trust, and payments on liquidation, redemption or otherwise with respect to such Preferred Securities, will be guaranteed by PEPCO to the extent described herein (the "Preferred Securities Guarantee"). See "Description of the Preferred Securities Guarantee." PEPCO's obligations under the Preferred Securities Guarantee will be subordinate and junior in right of payment to all other liabilities of PEPCO and will rank pari passu with the most senior preferred or preference stock, if any, issued from time to time by PEPCO. The Trust will invest the proceeds from the offering of Preferred Securities and Common Securities (as defined herein) in subordinated debt securities ("Junior Subordinated Debentures") issued by PEPCO. The Junior Subordinated Debentures purchased by the Trust may be subsequently distributed pro rata to holders of Preferred Securities and Common Securities in connection with the dissolution of the Trust upon the occurrence of certain events as described in an accompanying Prospectus Supplement (the "Prospectus Supplement"). The Preferred Securities, the Preferred Securities Guarantee and the Junior Subordinated Debentures are sometimes collectively referred to hereafter as the "Offered Securities." The form in which the Offered Securities are to be issued, their specific designation, aggregate principal amount or liquidation value or aggregate initial offering price, maturity, if any, rate and times of payment of interest or dividends, if any, redemption, conversion, and sinking fund terms, if any, voting or other rights, if any, exercise price and detachability, if any, and other specific terms will be set forth in the Prospectus Supplement, together with the terms of offering of such Offered Securities. Any such Prospectus Supplement will also contain information, as applicable, about certain material United States federal income tax considerations relating to the particular Offered Securities offered thereby. PEPCO and/or the Trust may sell the Offered Securities directly, through agents designated from time to time, or through underwriters or dealers. See "Plan of Distribution." If any agents of PEPCO and/or the Trust or any underwriters or dealers are involved in the sale of the Offered Securities, the names of such agents, underwriters or dealers and any applicable commissions and discounts will be set forth in any related Prospectus Supplement. This Prospectus may not be used to consummate sales of securities unless accompanied by a Prospectus Supplement. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ----------- The date of this Prospectus is , 1998 AVAILABLE INFORMATION This Prospectus constitutes a part of a combined Registration Statement on Form S-3 (together with all amendments and exhibits thereto, the "Registration Statement") filed by PEPCO and the Trust with the Securities and Exchange Commission (the "Commission") under the Securities Act of 1933, as amended (the "Securities Act"), with respect to the Offered Securities. This Prospectus does not contain all of the information set forth in such Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the Commission, although it does include a summary of the material terms of the Indenture and the Declaration (each as defined herein). Reference is made to such Registration Statement and to the exhibits thereto for further information with respect to the Company, the Trust and the Offered Securities. Any statements contained herein concerning the provisions of any document filed as an exhibit to the Registration Statement or otherwise filed with the Commission or incorporated by reference herein are not necessarily complete, and, in each instance, reference is made to the copy of such document so filed for a more complete description of the matter involved. Each such statement is qualified in its entirety by such reference. PEPCO is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files reports, proxy statements and other information with the Commission. Proxy statements, reports and other information concerning PEPCO can be inspected and copied at the Commission's office at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and the Commission's Regional Offices in New York (Suite 1300, Seven World Trade Center, New York, New York 10048) and Chicago (Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661), and copies of such material can be obtained from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates, or by accessing the Commission's World Wide Web site at http://www.sec.gov. The common stock, $1.00 par value, of PEPCO (the "Common Stock") and other securities of PEPCO are listed on the New York Stock Exchange ("NYSE"). Reports, proxy material and other information concerning PEPCO also may be inspected at the offices of the NYSE, 20 Broad Street, New York, New York 10005. No separate financial statements of the Trust have been included herein. PEPCO does not consider that such financial statements would be material to holders of the Preferred Securities because (i) all of the voting securities of the Trust will be owned, directly or indirectly, by PEPCO, a reporting company under the Exchange Act, (ii) the Trust has no independent operations but exists for the sole purpose of issuing securities representing undivided beneficial interests in the assets of the Trust and investing the proceeds thereof in Junior Subordinated Debentures issued by PEPCO, and (iii) PEPCO's obligations described herein and in any accompanying Prospectus Supplement to provide certain indemnities in respect of, and be responsible for, certain costs, expenses, debts and liabilities of the Trust under the Indenture and any supplemental indenture thereto and pursuant to the Declaration, the Preferred Securities Guarantee issued with respect to Preferred Securities, the Junior Subordinated Debentures purchased by the Trust and the Indenture, taken together, constitute a full and unconditional guarantee of payments due on the Preferred Securities. See "Description of the Junior Subordinated Debentures" and "Description of the Preferred Securities Guarantee." The Trust is not currently subject to the informational requirements of the Exchange Act. The Trust will become subject to such requirements upon the effectiveness of the Registration Statement, although it intends to seek and expects to receive an exemption therefrom. 2 INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following document filed with the Commission by PEPCO is incorporated by reference in this Prospectus: Annual Report on Form 10-K for the year ended December 31, 1997. All documents filed with the Commission by PEPCO pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to the termination of the offering of the Offered Securities shall be deemed to be incorporated by reference in this Prospectus and to be a part hereof from the date of filing of such documents. Any statement contained in this Prospectus or in a document incorporated or deemed to be incorporated by reference herein or in any Prospectus Supplement shall be deemed to be modified or superseded for purposes of this Prospectus or any Prospectus Supplement to the extent that a statement contained herein or therein (or in any subsequently filed document that also is or is deemed to be incorporated by reference herein or therein) modifies or supersedes such statement. Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus or any Prospectus Supplement. The Company hereby undertakes to furnish, without charge, to each person, including any beneficial owner, to whom a copy of this Prospectus has been delivered, on the written or oral request of any such person, a copy of any or all of the documents referred to above which have been or may be incorporated by reference in this Prospectus, other than exhibits to such documents. Requests for such documents should be directed to Ellen Sheriff Rogers, Associate General Counsel, Secretary and Assistant Treasurer, Potomac Electric Power Company, 1900 Pennsylvania Avenue, N.W., Washington, D.C. 20068, (202) 872-3526. POTOMAC ELECTRIC POWER COMPANY Potomac Electric Power Company, a District of Columbia and Virginia corporation, is engaged in the generation, transmission, distribution and sale of electric energy in the Washington, D.C. metropolitan area, including the District of Columbia and major portions of Montgomery and Prince George's Counties in Maryland. It also supplies, at wholesale, electric energy to the Southern Maryland Electric Cooperative, Inc., which distributes electricity in Calvert, Charles, Prince George's and St. Mary's Counties in southern Maryland. PEPCO's wholly owned nonutility subsidiary, Potomac Capital Investment Corporation ("PCI"), was organized in late 1983 to provide a vehicle to conduct PEPCO's ongoing nonutility business and investment programs. PCI's principal investments consist of equipment leases and marketable securities, primarily preferred stock with mandatory redemption features, and real estate. PCI is also involved with activities which provide telecommunication and energy services. The mailing address of PEPCO's executive offices is 1900 Pennsylvania Avenue, N.W., Washington, D.C. 20068, and its telephone number is (202) 872-2000. 3 THE TRUST The Trust is a statutory business trust formed under Delaware law pursuant to (i) a declaration of trust executed by PEPCO, as sponsor for the Trust (the "Sponsor"), and the Trustees (as defined herein) of the Trust, as amended and restated from time to time (the "Declaration"), and (ii) the filing of a certificate of trust with the Delaware Secretary of State. The Trust exists for the exclusive purposes of (i) issuing the Preferred Securities and common securities representing undivided beneficial interests in the assets of the Trust (the "Common Securities" and, together with the Preferred Securities, the "Trust Securities"), (ii) investing the gross proceeds from the sale of the Trust Securities in Junior Subordinated Debentures, and (iii) engaging in only those other activities necessary or incidental thereto. All of the Common Securities will be directly or indirectly owned by PEPCO. The Common Securities will rank pari passu, and payments will be made thereon pro rata, with the Preferred Securities, except that upon an event of default under the Declaration with respect thereto, the rights of the holders of the Common Securities to payment in respect of distributions and to payments upon liquidation, redemption and otherwise will be subordinated to the rights of the holders of the Preferred Securities. PEPCO will, directly or indirectly, acquire Common Securities in an aggregate liquidation amount equal to at least 3 percent of the total capital of the Trust. The Trust has a term of approximately 50 years, but may terminate earlier as provided in the Declaration. The Trust's business and affairs will be conducted by the trustees (the "Trustees") appointed by PEPCO, as the direct or indirect holder of all the Common Securities. The holder of the Common Securities will be entitled to appoint, remove or replace any of, or increase or reduce the number of, the Trustees. The duties and obligations of the Trustees shall be governed by the Declaration. One or more of the Trustees will be persons who are employees or officers of PEPCO (the "Regular Trustees"). One Trustee will be a financial institution which will be unaffiliated with PEPCO and which shall act as institutional trustee under the Declaration and as indenture trustee for purposes of the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"), pursuant to the terms set forth in a Prospectus Supplement (the "Institutional Trustee"). In addition, unless the Institutional Trustee maintains a principal place of business in the State of Delaware, and otherwise meets the requirements of applicable law, one Trustee will have its principal place of business or reside in the State of Delaware (the "Delaware Trustee"). PEPCO will pay all fees and expenses related to the Trust and the offering of Trust Securities. DESCRIPTION OF THE JUNIOR SUBORDINATED DEBENTURES The Junior Subordinated Debentures will be issued under an indenture, as it may be supplemented from time to time (the "Indenture"), between the Company and The Bank of New York, as trustee (the "Debt Trustee"). The form of the Indenture has been filed as an exhibit to the Registration Statement of which this Prospectus is a part. The terms of the Junior Subordinated Debentures will include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act. While the following summary of the material terms does not purport to be complete and is subject in all respects to the provisions of, and is qualified in its entirety by reference to, the Indenture and the Trust Indenture Act, all material terms of the Junior Subordinated Debentures are set forth herein and in any Prospectus Supplement relating to the particular Junior Subordinated Debentures being offered thereby. GENERAL The Junior Subordinated Debentures will be unsecured obligations of the Company. The Indenture does not limit the aggregate principal amount of Junior Subordinated Debentures which may be issued thereunder and provides that the Junior Subordinated Debentures may be issued from time to time in one or more series. The Junior Subordinated Debentures may be distributed pro rata to the holders of the Trust Securities in connection with the dissolution of the Trust upon the occurrence of certain events described in the Prospectus Supplement. 4 Reference is made to the Prospectus Supplement relating to the particular Junior Subordinated Debentures being offered thereby for the following terms: (1) the designation of such Junior Subordinated Debentures; (2) the aggregate principal amount of such Junior Subordinated Debentures; (3) the percentage of their principal amount at which such Junior Subordinated Debentures will be issued; (4) the date or dates on which such Junior Subordinated Debentures will mature and the right, if any, to shorten or extend such date or dates; (5) the rate or rates, if any, per annum, at which such Junior Subordinated Debentures will bear interest, or the method of determination of such rate or rates; (6) the date or dates from which such interest shall accrue, the interest payment dates on which such interest will be payable or the manner of determination of such interest payment dates and the record dates for the determination of holders to whom interest is payable on any such interest payment dates; (7) the right, if any, to extend the interest payment periods and the duration of such extension; (8) provisions, if any, for a sinking purchase or other analogous fund; (9) the period or periods, if any, within which, the price or prices of which, and the terms and conditions upon which such Junior Subordinated Debentures may be redeemed, in whole or in part, at the option of PEPCO or the holder; (10) the form of such Junior Subordinated Debentures; and (11) any other specific terms of the Junior Subordinated Debentures. The covenants contained in the Indenture would not necessarily afford protection to holders of the Junior Subordinated Debentures in the event of a decline in credit quality resulting from takeovers, recapitalizations or similar restructurings. FORM, EXCHANGE, REGISTRATION, TRANSFER AND PAYMENT Unless otherwise specified in the Prospectus Supplement, the Junior Subordinated Debentures will be issued in fully registered form without coupons and in denominations of $1,000 and multiples of $1,000. No service charge will be made for any transfer or exchange of the Junior Subordinated Debentures, but the Company or the Debt Trustee may require payment of a sum sufficient to cover any tax or other government charge payable in connection therewith. Unless otherwise provided in the Prospectus Supplement, principal and premium, if any, or interest, if any, will be payable and the Junior Subordinated Debentures may be surrendered for payment or transferred at the offices of the Debt Trustee as paying and authenticating agent, provided that payment of interest on Junior Subordinated Debentures that are not held by the Trust may be made at the option of PEPCO by check mailed to the address of the person entitled thereto as it appears in the security register. BOOK-ENTRY JUNIOR SUBORDINATED DEBENTURES The Junior Subordinated Debentures of a series may be issued, in whole or in part, in the form of one or more instruments that will be deposited with, or on behalf of, a depositary (the "Global Depositary"), or its nominee, identified in the Prospectus Supplement relating to such series (a "Global Security"). In such a case, one or more Global Securities will be issued in a denomination or aggregate denomination equal to the portion of the aggregate principal amount of outstanding Junior Subordinated Debentures of the series to be represented by such Global Security or Securities. Unless and until it is exchanged in whole or in part for Junior Subordinated Debentures in definitive registered form, a Global Security may not be registered for transfer or exchange, except as a whole by the Global Depositary to a nominee for such Global Depositary and except in the circumstances described in the Prospectus Supplement. The specific terms of the depositary arrangement with respect to any portion of the Junior Subordinated Debentures to be represented by a Global Security and a description of the Global Depositary will be provided in the Prospectus Supplement. SUBORDINATION The Junior Subordinated Debentures will be subordinated and junior in right of payment to certain other indebtedness of PEPCO to the extent set forth in the Prospectus Supplement. 5 CERTAIN COVENANTS OF PEPCO If (i) there shall have occurred any event that would constitute an Indenture Event of Default (as defined herein) or (ii) PEPCO shall be in default with respect to its payment of any obligations under the related Preferred Securities Guarantee or Common Securities Guarantee (as defined herein), or (iii) PEPCO shall have given notice of its election to defer payments of interest on such Junior Subordinated Debentures by extending the interest payment period as provided in the Supplemental Indenture and such period, or any extension thereof, shall be continuing, then (a) PEPCO shall not declare or pay any dividend on, make any distributions with respect to, or redeem, purchase, acquire or make a liquidation payment with respect to, any of its capital stock (other than (y) purchases or acquisitions of shares of Common Stock in connection with the satisfaction by PEPCO of its obligations under any employee benefit plans or any other contractual obligation of PEPCO (other than a contractual obligation ranking pari passu with or junior to the Junior Subordinated Debentures) or (z) the purchase of fractional interests in shares of PEPCO capital stock pursuant to the conversion or exchange provisions of such PEPCO capital stock or the security being converted or exchanged), (b) PEPCO shall not make any payment of interest, principal or premium, if any, on or repay, repurchase or redeem any debt securities issued by PEPCO which rank pari passu with or junior to such Junior Subordinated Debentures and (c) PEPCO shall not make any guarantee payments with respect to the foregoing (other than pursuant to the Preferred Securities Guarantee). For so long as the Trust Securities remain outstanding, PEPCO will covenant (i) directly or indirectly to maintain 100 percent ownership of the Common Securities; provided, however, that any permitted successor of PEPCO under the Indenture may succeed to PEPCO's ownership of such Common Securities, (ii) to use its reasonable efforts to cause the Trust (a) to remain a statutory business trust, except in connection with the distribution of Junior Subordinated Debentures to the holders of Trust Securities in liquidation of the Trust, the redemption of all of the Trust Securities, or certain mergers, consolidations or amalgamations, each as permitted by the Declaration, and (b) otherwise to continue not to be treated as an association taxable as a corporation or a partnership for United States federal income tax purposes and (iii) to use its reasonable efforts to cause each holder of Trust Securities to be treated as owning an undivided beneficial interest in the Junior Subordinated Debentures. LIMITATION ON MERGERS AND SALES OF ASSETS PEPCO shall not consolidate with, or merge into, any corporation or convey or transfer its properties and assets substantially as an entirety to any person or entity unless (a) the successor shall be a corporation organized under the laws of any domestic jurisdiction and shall expressly assume the obligations of PEPCO under the Indenture and (b) after giving effect thereto, no default shall have occurred and be continuing under the Indenture. EVENTS OF DEFAULT, WAIVER AND NOTICE The Indenture provides that any one or more of the following described events which has occurred and is continuing constitutes an event of default with respect to each series of Junior Subordinated Debentures (an "Indenture Event of Default"): (a) default for 30 days in payment of any interest on the Junior Subordinated Debentures of that series, when due; provided, however, that a valid extension of the interest payment period by the Company shall not constitute a default in the payment of interest for this purpose; or (b) default in payment of principal of, or premium, if any, on, the Junior Subordinated Debentures of that series when due either at maturity, upon redemption, by declaration or otherwise; provided, however, that a valid extension of the maturity of such Junior Subordinated Debentures shall not constitute a default for this purpose; or (c) default by the Company in the performance of any other of the covenants or agreements in the Indenture which shall not have been remedied for a period of 90 days after notice to PEPCO; or (d) certain events of bankruptcy, insolvency or reorganization of PEPCO; or 6 (e) after Junior Subordinated Debentures are issued to the Trust in connection with the issuance of Trust Securities by the Trust, the voluntary or involuntary dissolution, winding-up or termination of the Trust, except in connection with the distribution of Junior Subordinated Debentures to the holders of Trust Securities in liquidation of the Trust, the redemption of all of the Trust Securities, or certain mergers, consolidations or amalgamations, each as permitted by the Declaration. The Indenture provides that, if an Indenture Event of Default on any series of Junior Subordinated Debentures shall have occurred and be continuing, either the Debt Trustee or the holders of not less than 25 percent in aggregate principal amount of the Junior Subordinated Debentures of such series then outstanding may declare the principal of all such Junior Subordinated Debentures of such series to be due and payable immediately. The holders of a majority in aggregate outstanding principal amount of such series of Junior Subordinated Debentures may annul such declaration and waive the default if the default (other than the non-payment of the principal of such series of Junior Subordinated Debentures which has become due solely by such acceleration) has been cured and a sum sufficient to pay all matured installments of interest and principal due otherwise than by acceleration has been deposited with the Debt Trustee. The holders of a majority in principal amount of the Junior Subordinated Debentures of any or all series affected and then outstanding shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Debt Trustee under the Indenture, provided that the holders of the Junior Subordinated Debentures shall have offered to the Debt Trustee reasonable indemnity against expenses and liabilities. Notwithstanding the foregoing, the right of any holder of Junior Subordinated Debentures to receive payment of the principal of and interest on such Junior Subordinated Debentures on or after the due dates therefor, as the same may be extended in accordance with the terms of such Junior Subordinated Debentures, or to institute suit for the enforcement of any such payment provisions, shall not be impaired or affected without the consent of such holder. The Indenture requires the annual filing by PEPCO with the Debt Trustee of a certificate as to the absence of defaults under the Indenture. The Indenture provides that the Debt Trustee may withhold notice to the holders of a series of Junior Subordinated Debentures of an Indenture Event of Default (except a default in payment of principal of, or of interest or premium on, the Junior Subordinated Debentures) if the Debt Trustee in good faith determines that the withholding of such notice is in the interest of the holders. MODIFICATION OF THE INDENTURE The Indenture contains provisions permitting the Company and the Debt Trustee, with the consent of the holders of not less than a majority in principal amount of the Junior Subordinated Debentures of all series affected by such modification at the time outstanding, and the holders of a majority in aggregate liquidation amount of the related Preferred Securities, to modify the Indenture or any supplemental indenture or the rights of the holders of the Junior Subordinated Debentures; provided that no such modification shall, without the consent of the holders of each Junior Subordinated Debenture (and each Preferred Security, if applicable) affected thereby, (i) extend the fixed maturity of any Junior Subordinated Debenture, or reduce the principal amount thereof or any premium thereon, or reduce any amount payable on redemption thereof, or reduce the rate or extend the time of payment of interest thereon, or make the principal of, or interest or premium on, the Junior Subordinated Debentures payable in any coin or currency other than that provided in the Junior Subordinated Debentures, or impair or affect the right of any holder of Junior Subordinated Debentures to institute suit for the payment thereof or the right of repayment, if any, at the option of the holder, (ii) reduce the aforesaid percentage of Junior Subordinated Debentures the consent of the holders of which is required for any such modification or (iii) otherwise materially adversely affect the interest of the holders of any series of Junior Subordinated Debentures. DEFEASANCE AND DISCHARGE The Indenture provides that PEPCO, at PEPCO's option, will be discharged from any and all obligations in respect of the Junior Subordinated Debentures of a series (except for certain obligations to register the transfer 7 or exchange of Junior Subordinated Debentures, replace destroyed, lost, stolen or mutilated Junior Subordinated Debentures, maintain paying agencies and hold moneys for payment in trust) if PEPCO deposits, in trust with the Debt Trustee or a defeasance agent, money or U.S. government obligations which through the payment of interest thereon and principal thereof in accordance with their terms will provide money, in an amount sufficient to pay all the principal (including any mandatory sinking fund payments) of, and interest and premium, if any, on, the Junior Subordinated Debentures of such series on the dates such payments are due in accordance with the terms of such Junior Subordinated Debentures. To exercise any such option, PEPCO is required to deliver to the Debt Trustee and the defeasance agent, if any, an opinion of counsel to the effect that (i) the deposit and related defeasance would not cause the holders of the Junior Subordinated Debentures of such series to recognize income, gain or loss for U.S. federal income tax purposes, accompanied by a private letter ruling to that effect received by PEPCO from the United States Internal Revenue Service or a revenue ruling pertaining to a comparable form of transaction to that effect published by the United States Internal Revenue Service, and (ii) if listed on any national securities exchange, such Junior Subordinated Debentures would not be delisted from such exchange as a result of the exercise of such option. GOVERNING LAW The Indenture and the Junior Subordinated Debentures will be governed by, and construed in accordance with, the internal laws of the State of New York. THE DEBT TRUSTEE PEPCO and its affiliates maintain certain accounts and other banking relationships with the Debt Trustee and its affiliates in the ordinary course of business. The Debt Trustee also serves as the Preferred Guarantee Trustee and as trustee under other indentures of PEPCO. DESCRIPTION OF THE PREFERRED SECURITIES The Trust may issue only one series of Preferred Securities. The Preferred Securities will have the terms described in the Prospectus Supplement. The Declaration will be qualified as an indenture under the Trust Indenture Act. The Preferred Securities will have such terms, including distributions, redemption, voting, liquidation rights and such other preferred, deferred or other special rights or such restrictions as shall be set forth in the Declaration or made part of the Declaration by the Trust Indenture Act and which will mirror the terms of the Junior Subordinated Debentures held by the Trust and described in the Prospectus Supplement. Reference is made to the Prospectus Supplement for specific terms, including (i) the distinctive designation of such Preferred Securities; (ii) the number of Preferred Securities issuable by the Trust; (iii) the distribution rate (or method of determining such rate) and the date or dates upon which such distributions shall be payable; (iv) whether distributions shall be cumulative, and, in the case of Preferred Securities having such cumulative distribution rights, the date or dates or method of determining the date or dates from which distributions shall be cumulative; (v) the amount or amounts which shall be paid out of the assets of the Trust to the holders of Preferred Securities upon voluntary or involuntary dissolution, winding-up or termination of the Trust; (vi) the obligation, if any, of the Trust to purchase or redeem Preferred Securities and the price or prices at which, the period or periods within which, and the terms and conditions upon which, Preferred Securities shall be purchased or redeemed, in whole or in part, pursuant to such obligation; (vii) the voting rights, if any, of holders of Preferred Securities in addition to those required by law, including the number of votes per Preferred Security and any requirement for the approval by the holders of Preferred Securities as a condition to specified action or amendments to the Declaration; (viii) the terms and conditions, if any, upon which the Junior Subordinated Debentures owned by the Trust may be distributed to holders of Preferred Securities; (ix) if applicable, any securities exchange upon which the Preferred Securities shall be listed; and (x) any other relevant rights, preferences, privileges, limitations or restrictions of Preferred Securities not inconsistent with the Declaration or 8 with applicable law. All Preferred Securities offered hereby will be guaranteed by PEPCO to the extent set forth below under "Description of the Preferred Securities Guarantee." Certain United States federal income tax considerations applicable to any offering of Preferred Securities will be described in the Prospectus Supplement. In connection with the issuance of Preferred Securities, the Trust will issue one series of Common Securities. The Declaration authorizes the Regular Trustees of the Trust to issue on behalf of the Trust one series of Common Securities having such terms including distributions, redemption, voting, liquidation rights or such restrictions as shall be set forth therein. Except for voting rights, the terms of the Common Securities will be substantially identical to the terms of the Preferred Securities and the Common Securities will rank pari passu, and payments will be made thereon pro rata, with the Preferred Securities, except that, upon an event of default under the Declaration, the rights of the holders of the Common Securities to payment in respect of distributions and payments upon liquidation, redemption and otherwise will be subordinated to the rights of the holders of the Preferred Securities. Except in certain limited circumstances, the Common Securities will also carry the right to vote to appoint, remove or replace any of the Trustees of the Trust. All of the Common Securities of the Trust will be owned directly or indirectly by PEPCO. DESCRIPTION OF THE PREFERRED SECURITIES GUARANTEE PEPCO will execute and deliver the Preferred Securities Guarantee for the benefit of the holders from time to time of Preferred Securities. The Preferred Securities Guarantee will be qualified as an indenture under the Trust Indenture Act. The Bank of New York will act as indenture trustee under the Preferred Securities Guarantee for purposes of the Trust Indenture Act (the "Preferred Guarantee Trustee"). The terms of the Preferred Securities Guarantee will be those set forth in the Preferred Securities Guarantee and those made part of such Preferred Securities Guarantee by the Trust Indenture Act. While the following summary of the material terms of the Preferred Securities Guarantee does not purport to be complete and is subject in all respects to the provisions of, and is qualified in its entirety by reference to, the form of Preferred Securities Guarantee, which is filed as an exhibit to the Registration Statement of which this Prospectus forms a part, and the Trust Indenture Act, all material terms of the Preferred Securities Guarantee are set forth herein and in the Prospectus Supplement relating to the particular Preferred Securities being offered thereby. The Preferred Securities Guarantee will be held by the Preferred Guarantee Trustee for the benefit of the holders of the Preferred Securities. GENERAL Pursuant to the Preferred Securities Guarantee, PEPCO will agree, to the extent set forth therein, to pay in full, to the holders of the Preferred Securities, the Guarantee Payments (as defined herein), as and when due, regardless of any defense, right of set-off or counterclaim which the Trust may have or assert. The following payments with respect to Preferred Securities to the extent not paid by the Trust (the "Guarantee Payments"), will be covered by the Preferred Securities Guarantee (without duplication): (i) any accrued and unpaid distributions which are required to be paid on such Preferred Securities, to the extent the Trust shall have funds available therefor; (ii) the redemption price, including all accrued and unpaid distributions to the date of payment (the "Redemption Price"), to the extent the Trust has funds available therefor, with respect to any Preferred Securities called for redemption by the Trust; and (iii) upon a voluntary or involuntary dissolution, winding-up or termination of the Trust (other than in connection with the distribution of Junior Subordinated Debentures to the holders of Preferred Securities or the redemption of all of the Preferred Securities), the lesser of (a) the aggregate of the liquidation amount and all accrued and unpaid distributions on such Preferred Securities to the date of payment, to the extent the Trust has funds available therefor, and (b) the amount of assets of the Trust remaining available for distribution to holders of such Preferred Securities in liquidation of the Trust. The redemption price and liquidation amount will be fixed at the time the Preferred Securities are issued. PEPCO's obligation to make a Guarantee Payment may be satisfied by direct payment of the required amounts by PEPCO to the holders of Preferred Securities or by causing the Trust to pay such amounts to such holders. 9 The Preferred Securities Guarantee will not apply to any Guarantee Payment, except to the extent the Trust shall have funds available therefor. If PEPCO does not make interest payments on the Junior Subordinated Debentures purchased by the Trust, the Trust will not pay distributions on the Preferred Securities issued by the Trust and will not have funds available therefor. The Preferred Securities Guarantee, when taken together with PEPCO's obligations under the Junior Subordinated Debentures, the Indenture, and the Declaration, including its obligations to pay costs, expenses, debts and liabilities of the Trust (other than with respect to the Trust Securities), will provide a full and unconditional guarantee on a subordinated basis by PEPCO of payments due on the Preferred Securities. PEPCO has also agreed separately to guarantee irrevocably and unconditionally the obligations of the Trust with respect to the Common Securities (the "Common Securities Guarantee") to the same extent as the Preferred Securities Guarantee, except that upon an event of default under the Declaration, holders of Preferred Securities shall have priority over holders of Common Securities with respect to distributions and payments on liquidation, redemption or otherwise. CERTAIN COVENANTS OF PEPCO In the Preferred Securities Guarantee, PEPCO will covenant that, so long as any Preferred Securities issued remain outstanding, if there shall have occurred any event that would constitute an event of default under the Preferred Securities Guarantee or the Declaration, or if PEPCO has exercised its option to defer interest payments on the Junior Subordinated Debentures by extending the interest payment period and such period or extension thereof shall be continuing, then (a) PEPCO shall not declare or pay any dividend on, make any distributions with respect to, or redeem, purchase, acquire or make a liquidation payment with respect to, any of its capital stock (other than (i) purchases or acquisitions of shares of Common Stock in connection with the satisfaction by PEPCO of its obligations under any employee benefit plans or any other contractual obligation of PEPCO (other than a contractual obligation ranking pari passu with or junior to the Junior Subordinated Debentures) or (ii) the purchase of fractional interests in shares of PEPCO capital stock pursuant to the conversion or exchange provisions of such PEPCO capital stock or the security being converted or exchanged), (b) PEPCO shall not make any payment of interest, principal or premium, if any, on or repay, repurchase or redeem any debt securities issued by PEPCO which rank pari passu with or junior to such Junior Subordinated Debentures and (c) PEPCO shall not make any guarantee payments with respect to the foregoing (other than pursuant to such Preferred Securities Guarantee). MODIFICATION OF THE PREFERRED SECURITIES GUARANTEE; ASSIGNMENT Except with respect to any changes which do not adversely affect the rights of holders of Preferred Securities (in which case no consent will be required), the Preferred Securities Guarantee may be amended only with the prior approval of the holders of at least a majority in liquidation amount of the outstanding Preferred Securities. The manner of obtaining any such approval of holders of such Preferred Securities will be as set forth in an accompanying Prospectus Supplement. All guarantees and agreements contained in the Preferred Securities Guarantee shall bind the successors, assigns, receivers, trustees and representatives of PEPCO and shall inure to the benefit of the holders of the Preferred Securities then outstanding. Except in connection with any merger or consolidation of PEPCO with or into another entity or any sale, transfer or lease of PEPCO's assets to another entity, each as permitted by the Indenture, PEPCO may not assign its rights or delegate its obligations under such Preferred Securities Guarantee without the prior approval of the holders of at least a majority in liquidation amount of the outstanding Preferred Securities. TERMINATION The Preferred Securities Guarantee will terminate as to the Preferred Securities (a) upon full payment of the Redemption Price of all Preferred Securities, (b) upon distribution of the Junior Subordinated Debentures held by the Trust to the holders of the Trust Securities or (c) upon full payment of the amounts payable in accordance with the Declaration upon liquidation of the Trust. Notwithstanding the foregoing, the Preferred Securities 10 Guarantee will continue to be effective or will be reinstated, as the case may be, if at any time any holder of Preferred Securities issued by the Trust must restore payment of any sums paid under such Preferred Securities or such Preferred Securities Guarantee. EVENTS OF DEFAULT An event of default under a Preferred Securities Guarantee will occur upon the failure of the Company to perform any of its payment or other obligations thereunder. The holders of a majority in liquidation amount of the Preferred Securities have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Preferred Guarantee Trustee in respect of the Preferred Securities Guarantee or to direct the exercise of any trust or power conferred upon the Preferred Guarantee Trustee under the Preferred Securities Guarantee. Any holder of Preferred Securities may institute a legal proceeding directly against PEPCO to enforce the Preferred Guarantee Trustee's rights and the obligations of PEPCO under the Preferred Securities Guarantee, without first instituting a legal proceeding against the Trust, the Preferred Guarantee Trustee or any other person or entity. STATUS OF THE PREFERRED SECURITIES GUARANTEE The Preferred Securities Guarantee will constitute an unsecured obligation of PEPCO and will rank (i) subordinate and junior in right of payment to all other liabilities of PEPCO, except those made pari passu or subordinate by their terms, (ii) pari passu with the most senior preferred or preference stock now or hereafter issued by PEPCO and with any guarantee now or hereafter entered into by PEPCO in respect of any preferred or preference stock of any affiliate of PEPCO, and (iii) senior to the Common Stock. The terms of the Preferred Securities provide that each holder of Preferred Securities by acceptance thereof agrees to the subordination provisions and other terms of the Preferred Securities Guarantee relating thereto. The Preferred Securities Guarantee will constitute a guarantee of payment and not of collection (that is, the guaranteed party may institute a legal proceeding directly against PEPCO to enforce its rights under the Preferred Securities Guarantee without instituting a legal proceeding against any other person or entity). INFORMATION CONCERNING THE PREFERRED GUARANTEE TRUSTEE The Preferred Guarantee Trustee, prior to the occurrence of a default with respect to the Preferred Securities Guarantee and after the curing of any such defaults that may have occurred, undertakes to perform only such duties as are specifically set forth in such Preferred Securities Guarantee. After such a default has occurred (of which a responsible officer of the Preferred Guarantee Trustee has actual knowledge) and is continuing, the Preferred Guarantee Trustee is required to exercise the rights and powers vested in it by the Preferred Securities Guarantee using the same degree of care and skill as a prudent person would exercise or use under the circumstances in the conduct of his own affairs. Subject to such provisions, the Preferred Guarantee Trustee is under no obligation to exercise any of the powers vested in it by the Preferred Securities Guarantee at the request of any holder of Preferred Securities, unless offered reasonable indemnity against the costs, expenses and liabilities that might be incurred thereby. PEPCO and its affiliates maintain certain accounts and other banking relationships with the Preferred Guarantee Trustee and its affiliates in the ordinary course of business. The Preferred Guarantee Trustee also serves as the Debt Trustee and as trustee under other indentures of PEPCO. GOVERNING LAW The Preferred Securities Guarantee will be governed by and construed in accordance with the internal laws of the State of New York. 11 PLAN OF DISTRIBUTION PEPCO and the Trust may sell the Offered Securities in any of, or any combination of, the following ways: (i) directly to purchasers, (ii) through agents and (iii) through underwriters or dealers. Offers to purchase Offered Securities may be solicited directly by PEPCO and/or the Trust, as the case may be, or by agents designated by PEPCO and/or the Trust, as the case may be, from time to time. Any such agent, who may be deemed to be an underwriter as that term is defined in the Securities Act, involved in the offer or sale of the Offered Securities in respect of which this Prospectus is delivered will be named, and any commissions payable by PEPCO to such agent will be set forth, in the Prospectus Supplement. Unless otherwise indicated in the Prospectus Supplement, any such agent will be acting on a best efforts basis for the period of its appointment (ordinarily five business days or less). Agents, dealers and underwriters may be customers of, engage in transactions with, or perform services for PEPCO in the ordinary course of business. If an underwriter or underwriters are utilized in the sale, PEPCO will execute an underwriting agreement with such underwriters at the time of sale to them and the names of the underwriters and the terms of the transaction will be set forth in the Prospectus Supplement, which will be used by the underwriters to make releases of the Offered Securities in respect of which this Prospectus is delivered to the public. If a dealer is utilized in the sale of the Offered Securities in respect of which this Prospectus is delivered, PEPCO and/or the Trust, as the case may be, will sell such Offered Securities to the dealer, as principal. The dealer may then resell such Offered Securities to the public at varying prices to be determined by such dealer at the time of resale. The name of the dealer and the terms of the transaction will be set forth in the Prospectus Supplement. Agents, underwriters, and dealers may be entitled under the relevant agreements to indemnification by PEPCO and/or the Trust, as the case may be, against certain liabilities, including liabilities under the Securities Act. Underwriters, agents or their controlling persons may engage in transactions with and perform services for PEPCO in the ordinary course of business. LEGAL MATTERS Certain matters of Delaware law relating to the validity of the Preferred Securities will be passed upon on behalf of the Trust by Skadden, Arps, Slate, Meagher & Flom LLP, Wilmington, Delaware, special Delaware counsel to the Trust. The validity of the Junior Subordinated Debentures and the Preferred Securities Guarantee and certain legal matters relating thereto will be passed upon for the Company by Covington & Burling, Washington, D.C.. Certain legal matters will be passed upon for the Underwriters by Skadden, Arps, Slate, Meagher & Flom LLP, New York, New York. EXPERTS The consolidated financial statements incorporated in this Prospectus by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1997 have been so incorporated in reliance on the report of Price Waterhouse LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. 12 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. Estimated expenses relating to the Offered Securities (assuming an aggregate issuance of $125,000,000) are as follows: Registration fee................................................... $ 36,875 Rating Agency fees................................................. 44,250 Printing........................................................... 90,000 Trustee's fees and expenses........................................ 20,000 Fee of independent accountants..................................... 22,500 Fees of counsel.................................................... 100,000 Expenses incidental to qualification under Blue Sky Laws........... 10,000 Miscellaneous...................................................... 26,375 -------- Total............................................................ $350,000 ========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Under Section 29-304(1b) of the District of Columbia Business Corporation Act, a corporation may indemnify against expenses any directors or officers made party to a proceeding by reason of his service as such, except in relation to matters as to which any such director or officer shall be adjudged to be liable for negligence or misconduct in the performance of duty. Such indemnification is not exclusive of any other rights to which those indemnified may be entitled under any by-law, agreement, vote of shareholders or otherwise. Under Section 13.1-697 of the Virginia Stock Corporation Act ("VSCA"), a Virginia corporation may indemnify a director who was, is or is threatened to be made a party to any proceeding if the director acted in good faith and (i) he believed, in the case of conduct in his official capacity with the corporation, that his conduct was in the best interests of the corporation or, in the case of other conduct, that his conduct was at least not opposed to the best interests of the corporation, or (ii) in the case of a criminal proceeding, he had no reasonable cause to believe his conduct was unlawful. A corporation may not indemnify a director in connection with (i) a proceeding by or in the right of the corporation in which the director was found liable to the corporation or (ii) any other proceeding charging improper personal benefit to him, whether or not involving action in his official capacity, in which he was adjudged liable on the basis that personal benefit was improperly received. Indemnification permitted under this section of the VSCA in connection with a proceeding by or in the right of the corporation is limited to reasonable expenses incurred in connection with the proceeding. Under Section 13.1-698, unless limited by its Articles of Incorporation, a corporation must indemnify against reasonable expenses a director who entirely prevails in the defense of any proceeding to which he was a party because he is or was a director of the corporation. Under Section 13.1-700.1, a court of appropriate jurisdiction, upon the application of a director, may order a corporation to advance or reimburse expenses or provide indemnification if the court determines that the director is so entitled. With respect to a proceeding by or in the right of the corporation, a court may order indemnification of the director to the extent of his reasonable expenses even though he was adjudged liable to the corporation. Under Section 13.1-699, a corporation may advance reasonable expenses to a director made a party to a proceeding under certain circumstances, including the furnishing by the director of (i) a written statement of his good faith belief that he has met the standard of conduct necessary to obtain indemnification and (ii) a written undertaking to repay the advance if it is ultimately determined that he did not meet that standard. Under Section II-1 13.1-702, a corporation may indemnify an officer, employee or agent of a corporation to the same extent as a director. Under Section 13.1-704, a corporation may provide indemnification in addition to that provided by statute if authorized by its Articles of Incorporation, a bylaw made by the shareholders, or any resolution adopted by the shareholders, except indemnification against willful misconduct or a knowing violation of the criminal law. The By-Laws of the Company provide that the Company shall indemnify each director or officer and each former director and officer of the Company against expenses actually and reasonably incurred in connection with the defense of any action, suit or proceeding by reason of his or her being or having been such director or officer, including liabilities incurred under the Securities Act of 1933, as amended, except in relation to matters as to which such director or officer shall be finally adjudged in such action, suit or proceeding to have knowingly violated the criminal law or to be liable for willful misconduct in the performance of his or her duty to the Company; and that such indemnification shall be in addition to, and not exclusive of, any other rights to which those indemnified may be entitled under any by-law, agreement, vote of stockholders, or otherwise. In the Underwriting Agreement, the underwriters and agents will agree to indemnify the Company, its directors, officers and controlling persons against certain civil liabilities that may arise under the Securities Act of 1933 in connection with this offering. The Company also has policies of insurance which insure officers and directors against certain liabilities and expenses incurred by them in such capacities. ITEM 16. EXHIBITS. 1 --Form of Underwriting Agreement (1) 4.1 --Certificate of Trust of Potomac Electric Power Company Trust I 4.2 --Declaration of Trust of Potomac Electric Power Company Trust I 4.3 --Form of Amended and Restated Declaration of Trust to be used in connection with the issuance of the Preferred Securities (1) 4.4 --Indenture between PEPCO and The Bank of New York, as Trustee (1) 4.5 --Form of Supplemental Indenture to be used in connection with the issuance of the Junior Subordinated Debentures (1) 4.6 --Form of Preferred Security (included in Exhibit 4.3) 4.7 --Form of Junior Subordinated Debenture (included in Exhibit 4.5) 4.8 --Form of Preferred Securities Guarantee (1) 5.1 --Opinion of Covington & Burling (1) 5.2 --Opinion of Skadden, Arps, Slate, Meagher & Flom LLP (1) 8 --Tax Opinion of Covington & Burling (1) 12 --Computation of Ratio of Earnings to Fixed Charges (1) 23.1 --Consent of Price Waterhouse LLP 23.2 --Consent of Covington & Burling (included in Exhibit 5.1) 23.3 --Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in Exhibit 5.2) 24 --Powers of Attorney for PEPCO 25.1 --Form T-1 Statement of Eligibility and Qualification under the Trust Indenture Act of 1939, of The Bank of New York (Delaware), as Institutional Trustee (1) 25.2 --Form T-1 Statement of Eligibility and Qualification under the Trust Indenture Act of 1939, of The Bank of New York, as Debt Trustee (1) 25.3 --Form T-1 Statement of Eligibility and Qualification under the Trust Indenture Act of 1939, of The Bank of New York, as Preferred Guarantee Trustee (1)
- -------- (1) To be filed by amendment. ITEM 17. UNDERTAKINGS. The undersigned Registrants hereby undertake: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement: II-2 (i) To include any prospectus required in section 10(a)(3) of the Securities Act of 1933 (the "1933 Act"); (ii) To reflect in the prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement; provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed with or furnished to the Commission by the Company pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in this Registration Statement; (2) That, for the purpose of determining any liability under the 1933 Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof; and (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (b) The undersigned Registrants hereby undertake that for purposes of determining any liability under the 1933 Act, each filing of the Company's annual report pursuant to section 13(a) or 15(d) of the Securities Exchange Act of 1934 that is incorporated by reference in this Registration Statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (c) Insofar as indemnification for liabilities arising under the 1933 Act may be permitted to directors, officers and controlling persons of the Registrants pursuant to the provisions described under Item 15 above, or otherwise, the Registrants have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the 1933 Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrants of expenses incurred or paid by a director, officer or controlling person of the Registrants in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrants will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the 1933 Act and will be governed by the final adjudication of such issue. (d) The undersigned Registrants hereby undertake that: (1) For purposes of determining any liability under the 1933 Act, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrants pursuant to Rule 424(b)(1) or (4) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. (2) For the purpose of determining any liability under the 1933 Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-3 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all requirements for filing on Form S-3 and has duly caused this Form S-3 Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Washington, the District of Columbia, on April 28, 1998. Potomac Electric Power Company By: /s/ A.J. Kamerick ----------------------------------- ANTHONY J. KAMERICK VICE PRESIDENT AND TREASURER Pursuant to the requirements of the Securities Act of 1933, this Form S-3 Registration Statement has been signed by the following persons in the capacities indicated on April 28, 1998. SIGNATURE TITLE DATE * President, Chief Executive April 28, 1998 - ------------------------------- Officer and Director JOHN M. DERRICK, JR. (principal executive officer) * Senior Vice President, Chief April 28, 1998 - ------------------------------- Financial Officer and DENNIS R. WRAASE Director (principal financial officer and principal accounting officer) * Director April 28, 1998 - ------------------------------- ROGER R. BLUNT, SR. * Director April 28, 1998 - ------------------------------- EDMUND B. CRONIN, JR. * Director April 28, 1998 - ------------------------------- RICHARD E. MARRIOTT * Director April 28, 1998 - ------------------------------- DAVID O. MAXWELL * Director April 28, 1998 - ------------------------------- FLORETTA D. MCKENZIE II-4
SIGNATURE TITLE DATE --------- ----- ---- * Director April 28, 1998 - ------------------------------- ANN D. MCLAUGHLIN * Director April 28, 1998 - ------------------------------- EDWARD F. MITCHELL * Director April 28, 1998 - ------------------------------- PETER F. O'MALLEY Director April 28, 1998 - ------------------------------- LOUIS A. SIMPSON * Director April 28, 1998 - ------------------------------- A. THOMAS YOUNG *By: /s/ Ellen Sheriff Rogers ------------------------ (ELLEN SHERIFF ROGERS, ATTORNEY-IN-FACT)
II-5 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Trust has duly caused this Form S-3 Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Washington, the District of Columbia, on April 28, 1998. Potomac Electric Power Company Trust I By: /s/ Anthony J. Kamerick Trustee II-6 EX-4.1 2 EXHIBIT 4.1 EXHIBIT 4.1 CERTIFICATE OF TRUST OF POTOMAC ELECTRIC POWER COMPANY TRUST I This Certificate of Trust of Potomac Electric Power Company Trust I dated April 24, 1998, is hereby duly executed and filed by the undersigned, as trustees of Potomac Electric Power Company Trust I, for the purpose of forming a business trust under the Delaware Business Trust Act, 12 Del. Code Section 3801 et. seq. The undersigned hereby certify as follows: 1. Name. The name of the business trust formed hereby (the "Trust") is ---- "Potomac Electric Power Company Trust I." 2. Delaware Trustee. The name and business address of the trustee of the ---------------- Trust which has its principal place of business in the State of Delaware, as required by 12 Del. Code Sec. 3807 (a), is The Bank of New York (Delaware), White Clay Center, Route 273, Newark, Delaware 19711. 3. Effective Date. This Certificate of Trust shall be effective as of -------------- the date of its filing. IN WITNESS WHEREOF, the undersigned, being the trustees of the Trust at the time of filing of this Certificate of Trust, have executed this Certificate of Trust as of the date first above written. /s/ Dennis R. Wraase ---------------------------------- Name: Dennis R. Wraase Title: Trustee /s/ Anthony J. Kamerick ---------------------------------- Name: Anthony J. Kamerick Title: Trustee /s/ Ellen Sheriff Rogers ---------------------------------- Name: Ellen Sheriff Rogers Title: Trustee The Bank of New York (Delaware), as Trustee By:/s/ Mary Jane Morrissey ------------------------------- Name: Mary Jane Morrissey Title: Authorized Signatory 18 EX-4.2 3 EXHIBIT 4.2 Exhibit 4.2 DECLARATION OF TRUST OF POTOMAC ELECTRIC POWER COMPANY TRUST I Dated as of April 24, 1998 TABLE OF CONTENTS
ARTICLE I DEFINITIONS Page SECTION 1.1 Definitions 1 ARTICLE II ORGANIZATION SECTION 2.1 Name 3 SECTION 2.2 Office 3 SECTION 2.3 Purpose 3 SECTION 2.4 Authority 4 SECTION 2.5 Title to Property of the Trust 4 SECTION 2.6 Powers of the Trustees 4 SECTION 2.7 Filing of Certificate of Trust 5 SECTION 2.8 Duration of Trust 5 SECTION 2.9 Responsibilities of the Sponsor 5 SECTION 2.10 Declaration Binding on Securities Holders 6 ARTICLE III TRUSTEES SECTION 3.1 Trustees 6 SECTION 3.2 Regular Trustees 7 SECTION 3.3 Delaware Trustee 7 SECTION 3.4 Institutional Trustee 7 SECTION 3.5 Not Responsible for Recitals or Sufficiency of Declaration. 7 ARTICLE IV LIMITATION OF LIABILITY OF HOLDERS OF SECURITIES, TRUSTEES OR OTHERS SECTION 4.1 Exculpation 8 SECTION 4.2 Fiduciary Duty 8 SECTION 4.3 Indemnification 9 SECTION 4.4 Outside Businesses 13 ARTICLE V AMENDMENTS, TERMINATION, MISCELLANEOUS SECTION 5.1 Amendments 13 SECTION 5.2 Termination of Trust 14 SECTION 5.3 Governing Law 14 SECTION 5.4 Headings 14 SECTION 5.5 Successors and Assigns 14 SECTION 5.6 Partial Enforceability 14 SECTION 5.7 Counterparts 15
i DECLARATION OF TRUST OF POTOMAC ELECTRIC POWER COMPANY TRUST I April 24, 1998 DECLARATION OF TRUST ("Declaration") dated and effective as of April 24, 1998 by the Trustees (as defined herein), the Sponsor (as defined herein), and by the holders, from time to time, of undivided beneficial interests in the Trust to be issued pursuant to this Declaration; WHEREAS, the Trustees and the Sponsor desire to establish a trust (the "Trust") pursuant to the Delaware Business Trust Act for the purpose of issuing and selling the Preferred Securities (as defined herein) and investing the proceeds thereof in certain Debentures of the Debenture Issuer (as both terms are defined herein); and NOW, THEREFORE, it being the intention of the parties hereto that the Trust constitute a business trust under the Business Trust Act and that this Declaration constitute the governing instrument of such business trust, the Trustees declare that all assets contributed to the Trust will be held in trust for the exclusive benefit of the holders, from time to time, of the securities representing undivided beneficial interests in the assets of the Trust issued hereunder, subject to the provisions of this Declaration. ARTICLE I DEFINITIONS SECTION 1.1 Definitions. Unless the context otherwise requires: (a) capitalized terms used in this Declaration but not defined in the preamble above have the respective meanings assigned to them in this Section 1.1; (b) a term defined anywhere in this Declaration has the same meaning throughout; (c) all references to "the Declaration" or "this Declaration" are to this Declaration of Trust as modified, supplemented or amended from time to time; (d) all references in this Declaration to Articles and Sections are to Articles and Sections of this Declaration unless otherwise specified; and 1 (e) a reference to the singular includes the plural and vice versa. "Affiliate" has the same meaning as given to that term in Rule 405 of the Securities Act or any successor rule thereunder. "Business Trust Act" means Chapter 38 of Title 12 of the Delaware Code, 12 Del. Code Section 3801 et seq., as it may be amended from time to time, or any successor legislation. "Commission" means the United States Securities and Exchange Commission. "Common Security" means a security representing an undivided beneficial interest in the assets of the Trust with such terms as may be set out in any amendment to this Declaration. "Company Indemnified Person" means (a) any Regular Trustee; (b) any Affiliate of any Regular Trustee; (c) any officers, directors, shareholders, members, partners, employees, representatives or agents of any Regular Trustee; or (d) any employee or agent of the Trust or its Affiliates. "Covered Person" means (a) any officer, director, shareholder, partner, member, representative, employee or agent of (i) the Trust or (ii) the Trust's Affiliates and (b) any holder of Securities. "Debenture Issuer" means the Parent in its capacity as the issuer of the Debentures under the Indenture. "Debentures" means the series of Debentures to be issued by the Debenture Issuer and acquired by the Trust. "Debenture Trustee" means The Bank of New York, as trustee under the Indenture until a successor is appointed thereunder, and thereafter means such successor trustee. "Delaware Trustee" has the meaning set forth in Section 3.1. "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time or any successor legislation. "Fiduciary Indemnified Person" has the meaning set forth in Section 4.3(b). "Indemnified Person" means a Company Indemnified Person or a Fiduciary Indemnified Person. "Indenture" means the indenture to be entered into between the Debenture Issuer and the Debenture Trustee and any indenture supplemental thereto pursuant to which the Debentures are to be issued. 2 "Institutional Trustee" has the meaning set forth in Section 3.4. "Parent" means Potomac Electric Power Company, a District of Columbia and Virginia corporation, or any successor entity. "Person" means a legal person, including any individual, corporation, estate, partnership, joint venture, association, joint stock company, limited liability company, trust, unincorporated association, or government or any agency or political subdivision thereof, or any other entity of whatever nature. "Preferred Security" means a security representing an undivided beneficial interest in the assets of the Trust with such terms as may be set out in any amendment to this Declaration. "Regular Trustee" means any Trustee other than the Delaware Trustee and the Institutional Trustee. "Securities" means the Common Securities and the Preferred Securities. "Securities Act" means the Securities Act of 1933, as amended from time to time, or any successor legislation. "Sponsor" means the Parent in its capacity as sponsor of the Trust. "Trustee" or "Trustees" means each Person who has signed this Declaration as a trustee, so long as such Person shall continue in office in accordance with the terms hereof, and all other Persons who may from time to time be duly appointed, qualified and serving as Trustees in accordance with the provisions hereof, and references herein to a Trustee or the Trustees shall refer to such Person or Persons solely in their capacity as trustees hereunder. ARTICLE II ORGANIZATION SECTION 2.1 Name. The Trust created by this Declaration is named "Potomac Electric Power Company Trust I." The activities of the Trust may be conducted under the name of the Trust or any other lawful name deemed advisable by the Regular Trustees. SECTION 2.2 Office. The address of the principal office of the Trust is c/o Potomac Electric Power Company, 1900 Pennsylvania Avenue, N.W., Washington, D.C. 20068. At any time, the Regular Trustees may designate another principal office. 3 SECTION 2.3 Purpose. The exclusive purposes and functions of the Trust are to issue and sell the Securities and use the proceeds from such sale to acquire the Debentures and to engage in only those other activities necessary or incidental thereto. The Trust shall not borrow money, issue debt or reinvest proceeds derived from investments, pledge any of its assets, or otherwise undertake (or permit to be undertaken) any activity that would cause the Trust not to be classified for United States federal income tax purposes as a grantor trust. SECTION 2.4 Authority. Subject to the limitations provided in this Declaration, the Regular Trustees shall have exclusive and complete authority to carry out the purposes of the Trust. An action taken by the Regular Trustees in accordance with their powers shall constitute the act of and serve to bind the Trust. In dealing with the Regular Trustees acting on behalf of the Trust, no person shall be required to inquire into the authority of the Regular Trustees to bind the Trust. Persons dealing with the Trust are entitled to rely conclusively on the power and authority of the Regular Trustees as set forth in this Declaration. SECTION 2.5 Title to Property of the Trust. Legal title to all assets of the Trust shall be vested in the Trust. SECTION 2.6 Powers of the Trustees. The Regular Trustees shall have the exclusive power and authority to cause the Trust to engage in the following activities: (a) to issue the Preferred Securities and the Common Securities in accordance with this Declaration, provided, however, that the Trust may issue no more than one series of Preferred Securities and no more than one series of Common Securities, and, provided further, that there shall be no interests in the Trust other than the Securities and the issuance of the Securities shall be limited to the simultaneous issuance of both Preferred Securities and Common Securities; (b) in connection with the issue and sale of the Preferred Securities, at the direction of the Sponsor, to: (i) execute and file with the Commission under the Securities Act one or more registration statements on Form S-3 prepared by the Sponsor, including any and all amendments thereto in relation to the Preferred Securities; (ii) execute and file any documents prepared by the Sponsor, or 4 take any acts as determined by the Sponsor to be necessary in order to qualify or register all or part of the Preferred Securities in any State in which the Sponsor has determined to qualify or register such Preferred Securities for sale; (iii)execute and file an application, prepared by the Sponsor, to the New York Stock Exchange or any other national stock exchange or the Nasdaq Stock Market's National Market for listing or quotation upon notice of issuance of any Preferred Securities; (iv) execute and file with the Commission a registration statement on Form 8-A, including any amendments thereto, prepared by the Sponsor relating to the registration of the Preferred Securities under Section 12(b) or Section 12(g) of the Exchange Act; and (v) execute and enter into an underwriting agreement and pricing agreement providing for the sale of the Preferred Securities. (c) to employ or otherwise engage employees and agents (who may be designated as officers with titles) and managers, contractors, advisors, and consultants and provide for reasonable compensation for such services; (d) to incur expenses which are necessary or incidental to carry out any of the purposes of this Declaration; and (e) to execute all documents or instruments, perform all duties and powers, and do all things for and on behalf of the Trust in all matters necessary or incidental to the foregoing. 5 SECTION 2.7 Filing of Certificate of Trust. On or after the date of execution of this Declaration, the Trustees shall cause the filing of the Certificate of Trust for the Trust in the form attached hereto as Exhibit A with the Secretary of State of the State of Delaware. SECTION 2.8 Duration of Trust. The Trust, absent termination pursuant to the provisions of Section 5.2, shall have existence for fifty (50) years from the date hereof. SECTION 2.9 Responsibilities of the Sponsor. In connection with the issue and sale of the Preferred Securities, the Sponsor shall have the exclusive right and responsibility to engage in the following activities: (a) to prepare for filing by the Trust with the Commission under the Securities Act one or more registration statements on Form S-3 in relation to the Preferred Securities, including any amendments thereto; (b) to determine the States in which to take appropriate action to qualify or register for sale all or part of the Preferred Securities and to do any and all such acts, other than actions which must be taken by the Trust, and advise the Trust of actions it must take, and prepare for execution and filing any documents to be executed and filed by the Trust, as the Sponsor deems necessary or advisable in order to comply with the applicable laws of any such States; (c) to prepare for filing by the Trust an application to the New York Stock Exchange or any other national stock exchange or the Nasdaq National Market for listing or quotation upon notice of issuance of any Preferred Securities; (d) to prepare for filing by the Trust with the Commission a registration statement on Form 8-A relating to the registration of the class of Preferred Securities under Section 12(b) or Section 12(g) of the Exchange Act, including any amendments thereto; and (e) to negotiate the terms of an underwriting agreement and pricing agreement providing for the sale of the Preferred Securities. SECTION 2.10 Declaration Binding on Securities Holders. Every Person by virtue of having become a holder of a Security or any interest therein 6 in accordance with the terms of this Declaration, shall be deemed to have expressly assented and agreed to the terms of, and shall be bound by, this Declaration. ARTICLE III TRUSTEES SECTION 3.1 Trustees. The number of Trustees initially shall be four (4), and thereafter the number of Trustees shall be such number as shall be fixed from time to time by a written instrument signed by the Sponsor. The Sponsor is entitled to appoint or remove without cause any Trustee at any time; provided, however, that the number of Trustees shall in no event be less than two (2); provided further that one Trustee, in the case of a natural person, shall be a person who is a resident of the State of Delaware or if not a natural person, shall be entity that has its principal place of business in the State of Delaware (the "Delaware Trustee"); provided further that there shall be at least one trustee who is an employee or officer of, or is affiliated with, the Parent (a "Regular Trustee"). SECTION 3.2 Regular Trustees. The initial Regular Trustees shall be Dennis R. Wraase, Anthony J. Kamerick and Ellen Sheriff Rogers. (a) Except as expressly set forth in this Declaration, any power of the Regular Trustees may be exercised by, or with the consent of, any one such Regular Trustee; (b) unless otherwise determined by the Regular Trustees, and except as otherwise required by the Business Trust Act, any Regular Trustee is authorized to execute on behalf of the Trust any documents which the Regular Trustees have the power and authority to cause the Trust to execute pursuant to Section 2.6; and (c) a Regular Trustee may, by power of attorney consistent with applicable law, delegate to any other natural person over the age of 21 his or her power for the purposes of signing any documents which the Regular Trustees have power and authority to cause the Trust to execute pursuant to Section 2.6. SECTION 3.3 Delaware Trustee. The initial Delaware Trustee shall be The Bank of New York (Delaware). 7 Notwithstanding any other provision of this Declaration, the Delaware Trustee shall not be entitled to exercise any of the powers, nor shall the Delaware Trustee have any of the duties and responsibilities, of the Regular Trustees described in this Declaration. The Delaware Trustee shall be a Trustee for the sole and limited purpose of fulfilling the requirements of Section 3807 of the Business Trust Act. Notwithstanding anything herein to the contrary, the Delaware Trustee shall not be liable for the acts or omissions to act of the Trust or of the Regular Trustees, except such acts as the Delaware Trustee is expressly obligated or authorized to undertake under this Declaration or the Business Trust Act and except for the gross negligence or willful misconduct of the Delaware Trustee. SECTION 3.4 Institutional Trustee. Prior to the issuance of the Preferred Securities and Common Securities, the Sponsor shall appoint another trustee (the "Institutional Trustee") meeting the requirements of an eligible trustee of the Trust Indenture Act of 1939, as amended, by the execution of an amendment to this Declaration executed by the Regular Trustees, the Sponsor, the Institutional Trustee and the Delaware Trustee. SECTION 3.5 Not Responsible for Recitals or Sufficiency of Declaration. The recitals contained in this Declaration shall be taken as the statements of the Sponsor, and the Trustees do not assume any responsibility for their correctness. The Trustees make no representations as to the value or condition of the property of the Trust or any part thereof. The Trustees make no representations as to the validity or sufficiency of this Declaration. ARTICLE IV LIMITATION OF LIABILITY OF HOLDERS OF SECURITIES, TRUSTEES OR OTHERS SECTION 4.1 Exculpation. (a) No Indemnified Person shall be liable, responsible or accountable in damages or otherwise to the Trust or any Covered Person for any loss, damage or claim incurred by reason of any act or omission performed or omitted by such Indemnified Person in good faith on behalf of the Trust and in a manner such Indemnified Person reasonably believed to be within the scope of the authority conferred on such Indemnified Person by this Declaration or by law, except that an Indemnified Person shall be liable for any such loss, damage or claim incurred by reason of such Indemnified Person's negligence or willful misconduct with respect to such acts or omissions; and 8 (b) An Indemnified Person shall be fully protected in relying in good faith upon the records of the Trust and upon such information, opinions, reports or statements presented to the Trust by any Person as to matters the Indemnified Person reasonably believes are within such other Person's professional or expert competence and who has been selected with reasonable care by or on behalf of the Trust, including information, opinions, reports or statements as to the value and amount of the assets, liabilities, profits, losses, or any other facts pertinent to the existence and amount of assets from which distributions to holders of Securities might properly be paid. SECTION 4.2 Fiduciary Duty. (a) To the extent that, at law or in equity, an Indemnified Person has duties (including fiduciary duties) and liabilities relating thereto to the Trust or to any Covered Person, an Indemnified Person acting under this Declaration shall not be liable to the Trust or to any Covered Person for its good faith reliance on the provisions of this Declaration. The provisions of this Declaration, to the extent that they restrict the duties and liabilities of an Indemnified Person otherwise existing at law or in equity, are agreed by the parties hereto to replace such other duties and liabilities of such Indemnified Person; (b) Unless otherwise expressly provided herein: (i) whenever a conflict of interest exists or arises between Covered Persons; or (ii) whenever this Declaration or any other agreement contemplated herein or therein provides that an Indemnified Person shall act in a manner that is, or provides terms that are, fair and reasonable to the Trust or any holder of Securities, the Indemnified Person shall resolve such conflict of interest, take such action or provide such terms, considering in each case the relative interest of each party (including its own interest) to such conflict, agreement, transaction or situation and the benefits and burdens relating to such interests, any customary or accepted industry practices, and any applicable generally accepted accounting practices or principles. In the absence of bad faith by the Indemnified Person, the resolution, action or term so made, taken or provided by the Indemnified Person shall not constitute a breach of this Declaration or any other agreement contemplated herein or of any duty or obligation of the Indemnified Person at law or in equity or otherwise; and 9 (c) Whenever in this Declaration an Indemnified Person is permitted or required to make a decision: (i) in its "discretion" or under a grant of similar authority, the Indemnified Person shall be entitled to consider such interests and factors as it desires, including its own interests, and shall have no duty or obligation to give any consideration to any interest of or factors affecting the Trust or any other Person; or (ii) in its "good faith" or under another express standard, the Indemnified Person shall act under such express standard and shall not be subject to any other or different standard imposed by this Declaration or by applicable law. SECTION 4.3 Indemnification. (a) (i) The Debenture Issuer shall indemnify, to the full extent permitted by law, any Company Indemnified Person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Trust) by reason of the fact that he is or was a Company Indemnified Person against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Trust, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the Company Indemnified Person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Trust, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. (ii) The Debenture Issuer shall indemnify, to the full extent permitted by law, any Company Indemnified Person who was or is a party or is threatened to be made a party to any 10 threatened, pending or completed action or suit by or in the right of the Trust to procure a judgment in its favor by reason of the fact that he is or was a Company Indemnified Person against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Trust and except that no such indemnification shall be made in respect of any claim, issue or matter as to which such Company Indemnified Person shall have been adjudged to be liable to the Trust unless and only to the extent that the Court of Chancery of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which such Court of Chancery or such other court shall deem proper. (iii) To the extent that a Company Indemnified Person shall be successful on the merits or otherwise (including dismissal of an action without prejudice or the settlement of an action without admission of liability) in defense of any action, suit or proceeding referred to in paragraphs (i) and (ii) of this Section 4.3(a), or in defense of any claim, issue or matter therein, he shall be indemnified, to the full extent permitted by law, against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. (iv) Any indemnification under paragraphs (i) and (ii) of this Section 4.3(a) (unless ordered by a court) shall be made by the Debenture Issuer only as authorized in the specific case upon a determination that indemnification of the Company Indemnified Person is proper in the circumstances because he has met the applicable standard of conduct set forth in paragraphs (i) and (ii). Such determination shall be made (1) by the Regular Trustees by a majority vote of a quorum consisting of such Regular Trustees who were not parties to such action, suit or proceeding, (2) if such a quorum is not obtainable, or, even if obtainable, if a quorum of disinterested Regular Trustees so directs, by independent legal counsel in a written opinion, or (3) by the holder of the Common Security. (v) Expenses (including attorneys' fees) incurred by a Company 11 Indemnified Person in defending a civil, criminal, administrative or investigative action, suit or proceeding referred to in paragraphs (i) and (ii) of this Section 4.3(a) shall be paid by the Debenture Issuer in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such Company Indemnified Person to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Debenture Issuer as authorized in this Section 4.3(a). Notwithstanding the foregoing, no advance shall be made by the Debenture Issuer if a determination is reasonably and promptly made (i) by the Regular Trustees by a majority vote of a quorum of disinterested Regular Trustees, (ii) if such a quorum is not obtainable, or, even if obtainable, if a quorum of disinterested Regular Trustees so directs, by independent legal counsel in a written opinion or (iii) the holder of the Common Security that, based upon the facts known to the Regular Trustees, counsel or the holder of the Common Security at the time such determination is made, such Company Indemnified Person acted in bad faith or in a manner that such person did not believe to be in or not opposed to the best interests of the Trust, or, with respect to any criminal proceeding, that such Company Indemnified Person believed or had reasonable cause to believe his conduct was unlawful. In no event shall any advance be made in instances where the Regular Trustees, independent legal counsel or holder of the Common Security reasonably determine that such person deliberately breached his duty to the Trust or its Common or Preferred Security Holders. (vi) The indemnification and advancement of expenses provided by, or granted pursuant to, the other paragraphs of this Section 4.3(a) shall not be deemed exclusive of any other rights to which those seeking indemnification and advancement of expenses may be entitled under any agreement, vote of stockholders or disinterested directors of the Debenture Issuer or holders of the Preferred Security or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office. All rights to indemnification under this Section 4.3(a) shall be deemed to be provided by a contract between the Debenture Issuer and each Company Indemnified Person who serves in such capacity at any time while this Section 4.3(a) is in effect. Any repeal or modification of this Section 4.3(a) shall not affect any rights or obligations then existing. 12 (vii) The Debenture Issuer or the Trust may purchase and maintain insurance on behalf of any person who is or was a Company Indemnified Person against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Debenture Issuer would have the power to indemnify him against such liability under the provisions of this Section 4.3(a). (viii)For purposes of this Section 4.3(a), references to "the Trust" shall include, in addition to the resulting or surviving entity, any constituent entity (including any constituent of a constituent) absorbed in a consolidation or merger, so that any person who is or was a director, trustee, officer or employee of such constituent entity, or is or was serving at the request of such constituent entity as a director, trustee, officer, employee or agent of another entity, shall stand in the same position under the provisions of this Section 4.3(a) with respect to the resulting or surviving entity as he would have with respect to such constituent entity if its separate existence had continued. (ix) The indemnification and advancement of expenses provided by, or granted pursuant to, this Section 4.3(a) shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a Company Indemnified Person and shall inure to the benefit of the heirs, executors and administrators of such a person. (b) The Debenture Issuer agrees to indemnify (i) the Delaware Trustee, (ii) any Affiliate of the Delaware Trustee, and (iii) any officers, directors, shareholders, members, partners, employees, representatives, nominees, custodians or agents of the Delaware Trustee (each of the Persons in (i) through (iii) being referred to as a "Fiduciary Indemnified Person") for, and to hold each Fiduciary Indemnified Person harmless against, any loss, liability or expense incurred without negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of the trust or trusts hereunder, including the costs and expenses (including reasonable legal fees and expenses) of defending itself against, or investigating, any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. The obligation to indemnify as set forth in this Section 4.3(b) shall survive the termination of this Declaration. 13 SECTION 4.4 Outside Businesses. Any Covered Person, the Sponsor and the Delaware Trustee may engage in or possess an interest in other business ventures of any nature or description, independently or with others, similar or dissimilar to the business of the Trust, and the Trust and the holders of Securities shall have no rights by virtue of this Declaration in and to such independent ventures or the income or profits derived therefrom and the pursuit of any such venture, even if competitive with the business of the Trust, shall not be deemed wrongful or improper. No Covered Person, the Sponsor or the Delaware Trustee shall be obligated to present any particular investment or other opportunity to the Trust even if such opportunity is of a character that, if presented to the Trust, could be taken by the Trust, and any Covered Person, the Sponsor and the Delaware Trustee shall have the right to take for its own account (individually or as a partner or fiduciary) or to recommend to others any such particular investment or other opportunity. Any Covered Person and the Delaware Trustee may engage or be interested in any financial or other transaction with the Sponsor or any Affiliate of the Sponsor, or may act as depositary for, trustee or agent for or may act on any committee or body of holders of, securities or other obligations of the Sponsor or its Affiliates. ARTICLE V AMENDMENTS, TERMINATION, MISCELLANEOUS SECTION 5.1 Amendments. At any time before the issue of any Securities, this Declaration may be amended by, and only by, a written instrument executed by all of the Regular Trustees and the Sponsor. SECTION 5.2 Termination of Trust. (a) The Trust shall terminate and be of no further force or effect: (i) upon the bankruptcy of the Sponsor; (ii) upon the filing of a certificate of dissolution or its equivalent with respect to the Sponsor or the revocation of the Sponsor's charter or of the Trust's certificate of trust; (iii)upon the entry of a decree of judicial dissolution of the Sponsor or the Trust; (iv) before the issue of any Securities, with the consent of all of the Regular Trustees and the Sponsor; and (b) As soon as is practicable after the occurrence of an event referred to in Section 5.2(a), the Trustees shall file a certificate of cancellation with the Secretary of State of the State of Delaware. 14 SECTION 5.3 Governing Law. This Declaration and the rights of the parties hereunder shall be governed by and interpreted in accordance with the laws of the State of Delaware and all rights and remedies shall be governed by such laws without regard to principles of conflict of laws. SECTION 5.4 Headings. Headings contained in this Declaration are inserted for convenience of reference only and do not affect the interpretation of this Declaration or any provision hereof. SECTION 5.5 Successors and Assigns. Whenever in this Declaration any of the parties hereto is named or referred to, the successors and assigns of such party shall be deemed to be included, and all covenants and agreements in this Declaration by the Sponsor and the Trustees shall bind and inure to the benefit of their respective successors and assigns, whether so expressed. SECTION 5.6 Partial Enforceability. If any provision of this Declaration, or the application of such provision to any Person or circumstance, shall be held invalid, the remainder of this Declaration, or the application of such provision to persons or circumstances other than those to which it is held invalid, shall not be affected thereby. SECTION 5.7 Counterparts. This Declaration may contain more than one counterpart of the signature page and this Declaration may be executed by the affixing of the signature of each of the Trustees to one of such counterpart signature pages. All of such counterpart signature pages shall be read as though one, and they shall have the same force and effect as though all of the signers had signed a single signature page. IN WITNESS WHEREOF, the undersigned has caused these presents to be executed as of the day and year first above written. /s/ Dennis R. Wraase ---------------------------- Name: Dennis R. Wraase Title: Trustee /s/ Anthony J. Kamerick --------------------------- Name: Anthony J. Kamerick Title: Trustee /s/ Ellen Sheriff Rogers ---------------------------- Name: Ellen Sheriff Rogers Title: Trustee 15 The Bank of New York (Delaware), as Trustee By:/s/ Mary Jane Morrissey ------------------------ Name: Mary Jane Morrissey Title: Authorized Signatory Potomac Electric Power Company, as Sponsor By:/s/ Dennis R. Wraase ------------------------ Name: Dennis R. Wraase Title: Senior Vice President and Chief Financial Officer 16 EXHIBIT A CERTIFICATE OF TRUST OF POTOMAC ELECTRIC POWER COMPANY TRUST I This Certificate of Trust of Potomac Electric Power Company Trust I dated April 24, 1998, is hereby duly executed and filed by the undersigned, as trustees of Potomac Electric Power Company Trust I, for the purpose of forming a business trust under the Delaware Business Trust Act, 12 Del. Code Section 3801 et. seq. The undersigned hereby certify as follows: 1. Name. The name of the business trust formed hereby (the "Trust") is ---- "Potomac Electric Power Company Trust I." 2. Delaware Trustee. The name and business address of the trustee of the ---------------- Trust which has its principal place of business in the State of Delaware, as required by 12 Del. Code Sec. 3807 (a), is The Bank of New York (Delaware), White Clay Center, Route 273, Newark, Delaware 19711. 3. Effective Date. This Certificate of Trust shall be effective as of -------------- the date of its filing. IN WITNESS WHEREOF, the undersigned, being the trustees of the Trust at the time of filing of this Certificate of Trust, have executed this Certificate of Trust as of the date first above written. ____________________________________ Name: Dennis R. Wraase Title: Trustee ____________________________________ Name: Anthony J. Kamerick Title: Trustee ____________________________________ Name: Ellen Sheriff Rogers Title: Trustee The Bank of New York (Delaware), as Trustee By:__________________________________ Name: Title: 17 EX-23.1 4 EXHIBIT 23.1 Exhibit 23.1 Consent of Independent Accountants ---------------------------------- We hereby consent to the incorporation by reference in the Prospectus constituting part of this combined 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 Consolidated Financial Statement Schedule, which appears on page 49 of such Annual Report on Form 10-K. We also consent to the reference to us under the heading "Experts" in such Prospectus. /s/ Price Waterhouse LLP Washington, D.C. April 27, 1998 EX-24 5 EXHIBIT 24 Exhibit 24 POTOMAC ELECTRIC POWER COMAPNY 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 $130,000,000 in Tax Deductible Trust Preferred 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 of 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 28th day of April, 1998. Signature --------- /s/ JOHN M. DERRICK, JR. Principal Executive Officer: JOHN M. DERRICK, JR. President, Chief Executive Officer and Director /s/ DENNIS R. WRAASE Principal Financial Officer and Principal Accounting Officer: DENNIS R. WRAASE Senior Vice President, Chief Financial Officer and Director Director /s/ ROGER R. BLUNT, SR. ------------------------- ROGER R. BLUNT, SR. Director /s/ EDMUND B. CRONIN, JR. -------------------------- EDMUND B. CRONIN, JR. Director /s/ RICHARD E. MARRIOTT -------------------------- RICHARD E. MARRIOTT Director /s/ DAVID O. MAXWELL -------------------------- DAVID O. MAXWELL Director /s/ FLORETTA D. McKENZIE -------------------------- FLORETTA D. McKENZIE Director /s/ ANN D. McLAUGHLIN -------------------------- ANN D. McLAUGHLIN Director /s/ EDWARD F. MITCHELL -------------------------- EDWARD F. MITCHELL Director /s/ PETER F. O'MALLEY -------------------------- PETER F. O'MALLEY Director -------------------------- LOUIS A. SIMPSON Director /s/ A. THOMAS YOUNG -------------------------- A. THOMAS YOUNG -----END PRIVACY-ENHANCED MESSAGE-----