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Exhibit 4-I
PAYMENT AND GUARANTEE AGREEMENT
THIS PAYMENT AND GUARANTEE AGREEMENT ("Guarantee Agreement"), dated as of ,
1998, is executed and delivered by Pennsylvania Electric Company, a
Pennsylvania corporation (the "Guarantor"), for the benefit of the Holder (as
defined below) from time to time of the Preferred Securities (as defined below)
of Penelec Capital II, L.P., a Delaware limited partnership (the "Issuer").
WHEREAS, the Issuer is issuing on the date hereof $ aggregate stated liquidation
preference of preferred limited partner interests of a series designated the %
Cumulative Preferred Securities, Series A (the "Preferred Securities"), and the
Guarantor desires to enter into this Guarantee Agreement for the benefit of the
Holder, as provided herein;
WHEREAS, the Issuer will use (i) the proceeds from the issuance and sale of the
Preferred Securities to the Holder and (ii) the capital contributions relating
to the issuance of the Issuer's general partner interests (the "Common
Securities") to Penelec Preferred Capital II, Inc., a Delaware corporation and a
wholly-owned subsidiary of the Guarantor (the "General Partner"), to purchase
Subordinated Debentures (as defined below) issued by the Guarantor under the
Indenture (as defined below); and
WHEREAS, the Guarantor desires irrevocably and unconditionally to agree to
the extent set forth herein to pay to the Holder the Guarantee Payments (as
defined below) and to make certain other payments on the terms and conditions
set forth herein.
NOW, THEREFORE, in consideration of the premises and other consideration,
receipt of which is hereby acknowledged, the Guarantor, intending to be legally
bound hereby, agrees as follows:
ARTICLE I
As used in this Guarantee Agreement, the terms set forth below shall,
unless the context otherwise requires, have the following meanings. Capitalized
terms used but not otherwise defined herein shall have the meanings assigned to
such terms in the Issuer's Amended and Restated Limited Partnership Agreement
dated as of , 1998 (as amended from time to time, the "Limited Partnership
Agreement").
"Guarantee Payments" shall mean the following payments, without
duplication, to the extent not paid by the Issuer: (i) any accumulated and
unpaid distributions on the Preferred Securities to the extent that the Issuer
has funds on hand legally available therefor, (ii) the Redemption Price (as
defined below) payable with respect to any Preferred Securities called for
redemption by the
Issuer to the extent that the Issuer has funds on hand legally available
therefor, and (iii) upon a liquidation of the Issuer, other than in connection
with a distribution of Subordinated Debentures following a dissolution of the
Issuer resulting from a Special Event (as defined in the Limited Partnership
Agreement) (a "Distribution Event"), the lesser of (a) the Liquidation
Distribution (as defined below) and (b) the amount of assets of the Issuer
legally available for distribution to the Holder in liquidation of the Issuer.
"Holder" shall mean Penelec Capital Trust, a Delaware business trust
("Penelec Capital Trust"), or any other holder or holders from time to time of
any Preferred Securities of the Issuer, provided, however, that in determining
whether the Holders of the requisite percentage of Preferred Securities have
given any request, notice, consent or waiver hereunder, "Holder" shall not
include the Guarantor or the Guarantor's parent, GPU, Inc., or any entity owned
more than 50% by the Guarantor or GPU, Inc., either directly or indirectly.
"Indenture" shall mean the Indenture dated as of , 1998 between the
Guarantor and United States Trust Company of New York, as Trustee, pursuant to
which the Guarantor has issued and/or will issue its Subordinated Debentures (as
defined below).
"Liquidation Distribution" shall mean the aggregate of the stated
liquidation preference of $ per Preferred Security, plus all accumulated and
unpaid distributions to the date of payment.
"Redemption Price" shall mean the aggregate of $ per Preferred Security,
plus all accumulated and unpaid distributions to the date fixed for redemption.
"Special Representative" shall mean any representative of the Holder
appointed pursuant to Section 13.02(d) of the Limited Partnership Agreement.
"Subordinated Debentures" shall mean the Guarantor's % Subordinated
Debentures, Series A, due , issued under and pursuant to the
Indenture.
"Trust Securities" shall mean beneficial interests in Penelec Capital
Trust, each representing a Preferred Security.
ARTICLE II
SECTION 2.01. The Guarantor hereby irrevocably and unconditionally agrees
to pay in full to the Holder the Guarantee Payments, as and when due (except to
the extent paid by the Issuer), to the fullest extent permitted by law,
regardless of any defense, right of set-off or counterclaim which the Guarantor
may have or assert against the Issuer, the General Partner, Penelec Capital
Trust or any trustee of Penelec Capital Trust. The Guarantor's obligation to
make a Guarantee Payment may be satisfied
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by direct payment by the Guarantor to the Holder or by payment of such amounts
by the Issuer to the Holder. Notwithstanding anything to the contrary herein,
the Guarantor retains all of its rights under Section 4.01(c) of the Indenture
to extend the interest payment period thereunder and the Guarantor shall not be
obligated hereunder to pay during an Extension Period (as defined in the
Indenture) any distributions on the Preferred Securities which are not paid by
the Issuer during such Extension Period.
SECTION 2.02. The Guarantor hereby waives notice of acceptance of this
Guarantee Agreement and of any liability to which it applies or may apply,
presentment, demand for payment, protest, notice of nonpayment, notice of
dishonor, notice of redemption and all other notices and demands.
SECTION 2.03. Except as otherwise set forth herein, the obligations,
covenants, agreements and duties of the Guarantor under this Guarantee Agreement
shall to the fullest extent permitted by law in no way be affected or impaired
by reason of the happening from time to time of any of the following:
(a) the release or waiver, by operation of law or otherwise,
of the performance or observance by the Issuer of any express or
implied agreement, covenant, term or condition relating to the
Preferred Securities to be performed or observed by the Issuer;
(b) the extension of time for the payment by the Issuer of all
or any portion of the distributions, Redemption Price, Liquidation
Distribution or any other sums payable under the terms of the
Preferred Securities or the extension of time for the performance of
any other obligation under, arising out of, or in connection with,
the Preferred Securities;
(c) any failure, omission, delay or lack of diligence on the
part of the Holder or the Special Representative to enforce, assert
or exercise any right, privilege, power or remedy conferred on the
Holder or the Special Representative pursuant to the terms of the
Preferred Securities, or any action on the part of the Issuer
granting indulgence or extension of any kind;
(d) the voluntary or involuntary liquidation, dissolution,
receivership, insolvency, bankruptcy, assignment for the benefit of
creditors, reorganization, arrangement, composition or readjustment
of debt of, or other similar proceedings affecting, the Issuer or
any of the assets of the Issuer;
(e) any invalidity of, or defect or deficiency in, any of
the Preferred Securities; or
(f) the settlement or compromise of any obligation guaranteed
hereby or hereby incurred.
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The Holder shall have no obligation to give notice to, or obtain consent of, the
Guarantor with respect to the occurrence of any of the foregoing.
SECTION 2.04. This is a guarantee of payment and not of collection. The
General Partner or the Special Representative may enforce this Guarantee
Agreement directly against the Guarantor, and the Guarantor will waive any right
or remedy to require that any action be brought against the Issuer or any other
person or entity before proceeding against the Guarantor. Subject to Section
2.05, all waivers hereunder shall be without prejudice to the Holder's right at
the Holder's option to proceed against the Issuer, whether by separate action or
by joinder. The Guarantor agrees that this Guarantee Agreement shall not be
discharged except by payment of the Guarantee Payments in full (to the extent
not paid by the Issuer) and by complete performance of all obligations of the
Guarantor contained in this Guarantee Agreement.
SECTION 2.05. The Guarantor will be subrogated to all rights of the Holder
against the Issuer in respect of any amounts paid to the Holder by the Guarantor
under this Guarantee Agreement and shall have the right to waive payment by the
Issuer of any amount of distributions in respect of which payment has been made
to the Holder by the Guarantor pursuant to Section 2.01; provided, however, that
the Guarantor shall not (except to the extent required by mandatory provisions
of law) exercise any rights which it may acquire by way of subrogation or any
indemnity, reimbursement or other agreement, in all cases as a result of a
payment under this Guarantee Agreement, if, at the time of any such payment, any
amounts remain due and unpaid under this Guarantee Agreement. If any amount
shall be paid to the Guarantor in violation of the preceding sentence, the
Guarantor agrees to pay over such amount to the Holder.
SECTION 2.06. The Guarantor acknowledges that its obligations hereunder
are independent of the obligations of the Issuer with respect to the Preferred
Securities and that the Guarantor shall be liable as principal and sole debtor
hereunder to make Guarantee Payments pursuant to the terms of this Guarantee
Agreement notwithstanding the occurrence of any event referred to in subsections
(a) through (f), inclusive, of Section 2.03 hereof.
SECTION 2.07. The Guarantor expressly acknowledges that (i) this Guarantee
Agreement will be deposited with the General Partner to be held for the benefit
of the Holder; (ii) in the event of the appointment of a Special Representative,
the Special Representative may enforce this Guarantee Agreement on behalf of the
Holder and take possession of this Guarantee Agreement for such purpose; (iii)
if no Special Representative has been appointed, the General Partner has the
right to enforce this Guarantee Agreement on behalf of the Holder; (iv) the
holders of Trust Securities, together with the holders of the Preferred
Securities other than Penelec Capital Trust, representing not less than 10% of
the aggregate stated liquidation preference of the Preferred Securities then
outstanding, have the right to direct the time, method and place of
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conducting any proceeding for any remedy available in respect of this Guarantee
Agreement, including the giving of directions to the General Partner or the
Special Representative, as the case may be; and (v) if the General Partner or
Special Representative fails to enforce this Guarantee Agreement as above
provided, any holder of Trust Securities, and any holder of Preferred Securities
other than Penelec Capital Trust, may institute a legal proceeding directly
against the Guarantor to enforce its rights under this Guarantee Agreement,
without first instituting a legal proceeding against the Issuer or any other
person or entity.
Any such Special Representative may enforce the Issuer's rights
against the Guarantor under the Indenture, including, after failure to pay
interest for 60 consecutive months, the payment of interest on the Subordinated
Debentures, enforce the obligations of the Guarantor under this Guarantee
Agreement and enforce the Guarantor's obligations under the Indenture and the
Subordinated Debentures directly against the Guarantor; the Guarantor, upon
request of a Special Representative, agrees to execute and deliver such
documents as may be necessary, appropriate or convenient for such Special
Representative with respect to such enforcement.
ARTICLE III
SECTION 3.01. So long as any of the Preferred Securities remain
outstanding, neither the Guarantor nor any majority-owned subsidiary of the
Guarantor shall declare or pay any dividend on, or redeem, purchase, acquire or
make a liquidation payment with respect to, any of its capital stock (other than
dividends to the Guarantor by a wholly-owned subsidiary of the Guarantor) if at
such time the Guarantor shall be in default with respect to its payment or other
obligations hereunder or there shall have occurred any event that, with the
giving of notice or the lapse of time or both, would constitute an Event of
Default under the Indenture. The Guarantor shall take all actions necessary to
ensure the compliance of its subsidiaries with this Section 3.01.
SECTION 3.02. The Guarantor covenants, so long as any Preferred Securities
remain outstanding: (i) to maintain direct or indirect 100% ownership of the
Common Securities; (ii) to cause at least 3% of the total value of the Issuer
and at least 3% of all interests in the capital, income, gain, loss, deduction
and credit of the Issuer to be represented by Common Securities; (iii) not to
cause the Issuer to be voluntarily dissolved, wound-up or terminated, except
upon the entry of a decree of judicial dissolution or in connection with a
Distribution Event or certain mergers, consolidations or other transactions
permitted by the Limited Partnership Agreement; (iv) except as otherwise
provided in the Limited Partnership Agreement, to cause the General Partner to
remain the general partner of the Issuer and timely perform all of its duties as
general partner of the Issuer (including the duty to pay distributions on the
Preferred Securities out of funds on hand legally available therefor) in all
material respects, provided that any permitted successor of the Guarantor under
the Indenture may
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directly or indirectly succeed to the duties as general partner of the Issuer;
and (v) to use its reasonable efforts to cause the Issuer to remain an entity
that will be treated as a partnership or a grantor trust for United States
federal income tax purposes.
SECTION 3.03. So long as any of the Preferred Securities remain
outstanding, the Guarantor agrees to maintain its corporate existence; provided
that nothing herein shall preclude any transaction involving the Guarantor
pursuant to Section 5.01 of the Indenture.
SECTION 3.04. So long as any of the Preferred Securities remain
outstanding, the Guarantor agrees to maintain its corporate existence; provided
that, the Guarantor may consolidate with or merge with or into, or sell, convey,
transfer or lease all or substantially all of its assets (either in one
transaction or a series of transactions) to, any person, corporation,
partnership, limited liability company, joint venture association, joint stock
company, trust or unincorporated association if such entity formed by or
surviving such consolidation or merger or to which such sale, conveyance,
transfer or lease shall have been made, if other than the Guarantor, (i) is
organized and existing under the laws of the United States or any state thereof
or the District of Columbia, and (ii) shall expressly assume all the obligations
of the Guarantor under this Guarantee Agreement.
SECTION 3.05. This Guarantee Agreement will constitute an unsecured
obligation of the Guarantor and will rank subordinate and junior in right of
payment to all general liabilities of the Guarantor, except trade accounts
payable arising in the ordinary course of business.
ARTICLE IV
This Guarantee Agreement shall terminate and be of no further force and
effect upon full payment of the Redemption Price of all Preferred Securities or
upon full payment of the amounts payable to the Holder upon liquidation of the
Issuer or upon the occurrence of a Distribution Event; provided, however, that
this Guarantee Agreement shall continue to be effective or shall be reinstated,
as the case may be, if at any time any Holder must restore payments of any sums
paid under the Preferred Securities or under this Guarantee Agreement for any
reason whatsoever.
ARTICLE V
SECTION 5.01. All guarantees and agreements contained in this Guarantee
Agreement shall bind the successors, assigns, receivers, trustees and
representatives of the Guarantor and shall inure to the benefit of the Holder.
The Guarantor may not assign its obligations hereunder without the prior
approval of the Holders of not less than [a majority] of the aggregate stated
liquidation preference of all Preferred Securities then outstanding; provided
that nothing herein shall preclude any transaction involving the Guarantor
pursuant to Section 5.01 of the Indenture. No such
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permitted transaction shall be deemed an assignment of the Guarantor's
obligations hereunder for purposes hereof.
SECTION 5.02. This Guarantee Agreement may only be amended by a written
instrument executed by the Guarantor; provided that, so long as any of the
Preferred Securities remain outstanding, any such amendment that materially
adversely affects the Holder, any termination of this Guarantee Agreement or any
waiver of compliance with any covenant hereunder shall be effected only with the
prior approval of the holders of Trust Securities, together with the holders of
Preferred Securities other than Penelec Capital Trust, representing not less
than [a majority] of the aggregate stated liquidation preference of all
Preferred Securities then outstanding.
SECTION 5.03. All notices, requests or other communications required or
permitted to be given hereunder to the Guarantor shall be deemed given if in
writing and delivered personally or by recognized overnight courier or express
mail service or by facsimile transmission (confirmed in writing) or by
registered or certified mail (return receipt requested), addressed to the
Guarantor at the following address (or at such other address as shall be
specified by notice to the Holder):
Pennsylvania Electric Company
c/o GPU Service, Inc.
310 Madison Avenue
Morristown, NJ 07962-1957
Facsimile No.: (973) 644-4224
Attention: Treasurer
All notices, requests or other communications required or permitted to be
given hereunder to the Holder shall be deemed given if in writing and delivered
by the Guarantor in the same manner as notices sent by the Issuer to the Holder.
SECTION 5.04. This Guarantee Agreement is solely for the benefit of the
Holder and is not separately transferable from the Preferred Securities.
SECTION 5.05. THIS GUARANTEE AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
AND INTERPRETED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF NEW YORK
WITHOUT GIVING EFFECT TO CONFLICT OF LAW PRINCIPLES.
THIS GUARANTEE AGREEMENT is executed as of the day and year first above
written.
PENNSYLVANIA ELECTRIC COMPANY
By:
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Name: T.G. Howson
Title: Vice President