<PAGE> 1
As filed with the Securities and Exchange Commission on __________, 1995
Registration No. __________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------
FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
CENTERIOR FUNDING CORPORATION
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
Delaware 9999 510368903
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
<TABLE>
<S> <C>
Nancy Descano, Secretary
Suite 350, 1013 Centre Road Suite 350, 1013 Centre Road
Wilmington, Delaware 19805 Wilmington, Delaware 19805
(302) 998-0592 (302) 998-0592
(Address of principal executive offices) (Name and address of agent for service)
</TABLE>
_______________________
Copy to:
<TABLE>
<S> <C> <C> <C>
CATHY M. KAPLAN, ESQ. GORDON S. KAISER, JR., ESQ. KEVIN P. MURPHY, ESQ. KEVIN J. HOCHBERG, ESQ.
Brown & Wood Squire, Sanders & Dempsey Centerior Energy Corporation Sidley & Austin
One World Trade Center, 57th Flo4900 Society Center, 127 Public Square 6200 Oak Tree Boulevard One First National Plaza
New York, New York 10048 Cleveland, Ohio 44114-1304 Independence, Ohio 44131 Chicago, Illinois 60603
(212) 839-5531 (216) 479-8500 (216) 447-3100 (312) 853-2085
</TABLE>
Approximate date of commencement of proposed sale to the public: As
soon as practicable after this Registration Statement becomes effective.
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, please check the following box. [ ]
<TABLE>
--------------------------
CALCULATION OF REGISTRATION FEE
<CAPTION>
=============================================================================================
Proposed
maximum
Title of each class Proposed maximum aggregate Amount of
of securities to be Amount to be offering price offering registration
registered registered per unit(1) price(1) fee
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A $1,000,000 100% $1,000,000 $344.83
Receivables-Backed
Certificates,
Series 1995-1
---------------------------------------------------------------------------------------------
Class B $1,000,000 100% $1,000,000 $344.83
Receivables-Backed
Participation
Certificates,
Series 1995-1
=============================================================================================
<FN>
(1) Estimated solely for purposes of calculating the
registration fee.
--------------------------
</TABLE>
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
================================================================================
<PAGE> 2
<TABLE>
CENTERIOR FUNDING CORPORATION
CROSS-REFERENCE SHEET FURNISHED
PURSUANT TO ITEM 501(b) OF REGULATION S-K
<CAPTION>
Form S-1 Item Number and Heading Heading in Prospectus
-------------------------------- ---------------------
<S> <C> <C>
1. Forepart of the Registration Statement and Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of Inside Front Page of Prospectus
Prospectus
3. Summary Information, Risk Factors and Prospectus Summary; Risk Factors;
Ratio of Earnings to Fixed Charges Originators/Initial Servicers; Legal Aspects of
the Receivables; Certain Tax Considerations
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price *
6. Dilution *
7. Selling Security Holders *
8. Plan of Distribution Outside Front Cover Page of Prospectus;
Underwriting
9. Description of Securities to be Registered Outside Front Cover Page of Prospectus;
Prospectus Summary; Originators/Initial
Servicers; Description of the Series 1995-1
Certificates; Description of the Receivables
Purchase Agreement
10. Interests of Named Experts and Counsel Legal Matters
11. Information with Respect to the Registrant Prospectus Summary; Risk Factors; Maturity
Considerations; The Transferor; The Receivables;
Description of the Series 1995-1 Certificates;
Description of the Pooling Agreement; Description
of the Receivables Purchase Agreement; Certain
Legal Aspects of the Receivables.
12. Disclosure of Commission Position on *
Indemnification for Securities Act Liabilities
<FN>
___________________________________
* Answer negative or item inapplicable
</TABLE>
<PAGE> 3
Prospectus
Dated ___________, 1995
================================================================================
$[000,000,000]
CENTERIOR ENERGY RECEIVABLES MASTER TRUST
$_____________ _____% Class A
Receivables-Backed Investor Certificates, Series 1995-1
$_____________ _____% Class B
Receivables-Backed Investor Certificates, Series 1995-1
_______________
The $_______________ _____% Class A Receivables-Backed Investor Certificates,
Series 1995-1 (the "CLASS A CERTIFICATES") and the $______________ _____% Class
B Receivables-Backed Investor Certificates, Series 1995-1 (the "CLASS B
CERTIFICATES" and together with the Class A Certificates, the "SERIES 1995-1
CERTIFICATES") offered hereby represent undivided interests in certain assets
of the Centerior Trade Receivables Master Trust (the "TRUST") created pursuant
to a Pooling and Servicing Agreement among Centerior Funding Corporation, as
Transferor (the "TRANSFEROR"), The Cleveland Electric Illuminating Company
("CEI") and The Toledo Edison Company ("TE") as Servicers (each an "ORIGINATOR"
under the Receivables Purchase Agreement described herein and a "SERVICER"
under the Pooling and Servicing Agreement), and _________________, as Trustee
(the "POOLING AGREEMENT"). The Trust Assets include receivables transferred to
the Trust under the Pooling Agreement (the "RECEIVABLES"), funds collected or
to be collected in respect of such Receivables, any Enhancement (as defined on
page 4 below) issued with respect to any Series and monies on deposit in
certain accounts of the Trust (the "TRUST ASSETS"). Subject to certain
conditions, the Transferor may offer other series of certificates, which may
have terms significantly different from the terms of the Series 1995-1
Certificates offered hereby. Certain Trust Assets will be allocated to holders
of Series 1995-1 Certificates, including the right to receive a varying
percentage of each month's collections with respect to the Receivables at the
times and in the manner described herein. The Transferor will own the
remaining interest in the Trust not represented by the Series 1995-1
Certificates and the other certificates issued by the Trust from time to time.
Interest with respect to each class of Series 1995-1 Certificates will accrue
from the date of issuance at the applicable interest rate and will be payable
semiannually on _________________ 15 and ___________________ 15 of each year,
commencing on ______________________ 15, 1996 (or, if any such day is not a
Business Day, the next succeeding Business Day). The Class A Certificates will
bear interest at _____% per annum, and the Class B Certificates will bear
interest at _____% per annum. See "Description of the Series 1995-1
Certificates-Interest."
Principal payments with respect to the Class A Certificates are scheduled to
commence on _______________, 2000 and continue on the fifteenth day of each
month thereafter until such principal has been paid in full (or, if any such
day is not a Business Day, the next succeeding Business Day). Principal
payments with respect to the Class B Certificates will be payable on the
fifteenth day of each month commencing with the Distribution Date (as defined
on page 105 below) on which the principal amount of the Class A Certificates
has been paid in full. Principal with respect to the Series 1995-1
Certificates may be paid earlier or later than such dates under certain limited
circumstances described herein. See "Description of the Series 1995-1
Certificates--Principal."
Prospective investors should consider the factors set forth under "Risk
Factors" on page 20 hereof.
____________________
THE SERIES 1995-1 CERTIFICATES WILL REPRESENT INTERESTS IN THE TRUST ONLY AND
WILL NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF THE TRANSFEROR, THE SERVICERS
OR ANY OF THEIR RESPECTIVE AFFILIATES. NEITHER THE SERIES 1995-1 CERTIFICATES
NOR THE UNDERLYING RECEIVABLES OR ANY COLLECTIONS THEREON ARE INSURED OR
GUARANTEED BY ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY.
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.
<TABLE>
<CAPTION>
==============================================================================================================
Price to Underwriting Proceeds to the
Public(1) Discount and Transferor(2)
Commissions
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Class A Certificate. . . . __.__________% 0.000000% __.________%
- --------------------------------------------------------------------------------------------------------------
Per Class B Certificate. . . . __.__________% 0.000000% __.________%
- --------------------------------------------------------------------------------------------------------------
Total. . . . . . . . . . . . . . . $____________ $____________ $____________
==============================================================================================================
<FN>
[(1) Plus accrued interest, if any, calculated from _____________, 1995.]
(2) Before deduction of expenses, estimated to be $___________.
</TABLE>
Citicorp Securities, Inc.
Chemical Securities Inc.
CS First Boston, Inc.
================================================================================
<PAGE> 4
The Series 1995-1 Certificates are offered subject to prior sale and subject to
the Underwriters' right to reject any order in whole or in part. It is
expected that the Series 1995-1 Certificates will be delivered in book-entry
form on or about ____________________, 1995, through the Same Day Funds
Settlement System of The Depository Trust Company.
The Series 1995-1 Certificates initially will be represented by certificates
which will be registered in the name of Cede & Co., the nominee of The
Depository Trust Company. The Investors will be represented by book entries on
the records of The Depository Trust Company and participating members thereof.
Definitive Certificates will be available to Investors only under the limited
circumstances described under "Description of the Pooling Agreement--Definitive
Certificates" in this Prospectus.
There currently is no secondary market for the Series 1995-1 Certificates, and
there is no assurance that one will develop or, if one does develop, that it
will continue until the Series 1995-1 Certificates are paid in full.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY EFFECT TRANSACTIONS
WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SERIES 1995-1 CERTIFICATES
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
____________________
AVAILABLE INFORMATION
Centerior Funding Corporation, as Transferor, on behalf of the Trust, has filed
a Registration Statement under the Securities Act of 1933, as amended (the
"SECURITIES ACT"), with the Securities and Exchange Commission (the
"COMMISSION") with respect to the Series 1995-1 Certificates offered pursuant
to this Prospectus. For further information, reference is made to the
Registration Statement and amendments thereof and exhibits thereto, which are
available for inspection without charge at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549-1004, as well as the Regional Offices of the Commission at 7 World Trade
Center, 13th Floor, New York, New York 10048, and Northwestern Atrium Center,
500 West Madison Street, 14th Floor, Chicago, Illinois 60661-2511. Copies of
the Registration Statement and amendments thereof and the exhibits thereto may
be obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates.
REPORTS TO INVESTORS
Unless and until Definitive Certificates are issued, monthly reports, which
contain unaudited information concerning the Trust and are prepared by the
Servicers or the Paying Agent, will be sent on behalf of the Trust to Cede &
Co. ("CEDE"), as nominee of The Depository Trust Company ("DTC") and registered
holder of each Series of Investor Certificates, pursuant to the Pooling
Agreement and the related Series Supplement. See "Description of the Series
1995-1 Certificates--Reports" and "Description of the Pooling
Agreement--Book-Entry Registration" and "--Evidence as to Compliance." Such
reports will not constitute financial statements prepared in accordance with
generally accepted accounting principles. Copies of the monthly reports may be
obtained free of charge upon request from the Trustee. The Pooling Agreement
and the Series Supplements do not require the sending of, and the Transferor
does not intend to send, any of its financial reports to the Investors. The
Servicers will file with the Commission such periodic reports with respect to
the Trust as are required under the Securities Exchange Act of 1934, as amended
(the "EXCHANGE ACT") and the rules and regulations of the Commission
thereunder.
2
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by
reference to the detailed information appearing elsewhere in this Prospectus.
Reference is made to the Glossary for the location herein of the definitions of
certain capitalized terms used herein.
Securities Offered . . . . . . . . $______________ _____% Class A
Receivables-Backed Investor
Certificates, Series 1995-1 (the
"CLASS A CERTIFICATES"), and
$______________ _____% Class B
Receivables-Backed Investor
Certificates, Series 1995-1 (the
"CLASS B CERTIFICATES"; the Class
A Certificates and the Class B
Certificates are referred to
collectively as the "SERIES 1995-1
CERTIFICATES" and together with
the certificates of other series,
which may be issued from time to
time, the "INVESTOR CERTIFICATES"
with each holder of a Series
1995-1 Certificate being a "SERIES
1995-1 INVESTOR" and each holder
of an Investor Certificate being
an "INVESTOR"). See "Description
of the Series 1995-1
Certificates."
Issuer . . . . . . . . . . . . . Centerior Energy Receivables Master
Trust (the "TRUST"), a New York
trust. The Trust, as a master
trust, from time to time may issue
series of Investor Certificates
(each, a "SERIES") pursuant to the
Pooling and Servicing Agreement
dated as of _____________, 1995
(the "POOLING AGREEMENT"). The
assets of the Trust are expected
to change over the life of the
Trust as new Receivables (see
heading "The Receivables" below)
are generated and as existing
Receivables are collected,
charged-off as uncollectible or
otherwise adjusted from time to
time. See "The Trust" and
"Description of the Series 1995-1
Certificates--New Issuances; Other
Modifications."
Transferor . . . . . . . . . . . . Centerior Funding Corporation (the
"TRANSFEROR"), a Delaware
corporation, is the transferor of
the Receivables and originator of
the Trust. The Transferor is a
wholly-owned subsidiary of The
Cleveland Electric Illuminating
Company ("CEI"), an Ohio
corporation. The Transferor will
not be permitted to engage in any
activities except acquiring
Receivables from the Originators,
transferring Receivables and
certain related assets to the
Trust and certain activities
incidental thereto. See "The
Transferor."
3
<PAGE> 6
Trustee . . . . . . . . . . . . . . _______________, a ______________
[banking] corporation (the
"TRUSTEE"). See "The Trustee."
Originators . . . . . . . . . . . . CEI and The Toledo Edison Company
("TE"), an Ohio corporation, are
the originators of the Receivables
(each an "Originator," and
together the "ORIGINATORS"). CEI
and TE are both wholly owned
subsidiaries of Centerior Energy
Corporation, a public utility
holding company. See
"Originators/Initial Servicers."
Servicers . . . . . . . . . . . . . CEI and TE each will be responsible
for servicing and making
collections on all Receivables
sold by it to the Trust . CEI
will initially be designated as
Master Servicer. See
"Originators/Initial Servicers."
Trust Assets . . . . . . . . . . . The Transferor will purchase from the
Originators from time to time
until the termination of the
Revolving Period (see "Revolving
Period" heading below) pursuant to
a Receivables Purchase Agreement
(see "Receivables Purchase
Agreement" heading below), all
Receivables that exist as of
______________, 1995 (the "CUT-OFF
DATE") and arising from time to
time thereafter. Each of the
Originators will remain liable for
all representations, warranties,
covenants and other obligations
arising under the Receivables
Purchase Agreement provided that
no Originator will be required to
guarantee payment of the
Receivables or otherwise provide
credit recourse for the inability
of an Obligor to pay any
Receivable.
The Transferor will transfer to the
Trust from time to time until the
termination of the Revolving
Period all of the Receivables so
purchased by the Transferor. The
"TRUST ASSETS" will include the
Receivables so transferred to the
Trust (collectively the
"RECEIVABLES"), funds collected or
to be collected in respect of such
Receivables, any Enhancement
issued with respect to any Series
(the drawing on or payment of such
Enhancement not being available to
Investors of any other Series) and
monies on deposit in certain
accounts of the Trust.
"ENHANCEMENT" shall mean, with
respect to any Series, any letter
of credit, surety bond, cash
collateral account, spread
account, guaranteed rate
agreement, tax protection
agreement, interest rate hedge
agreement or other similar
arrangement for the benefit of the
Investors of such Series. The
subordination of any series or
class or of the
4
<PAGE> 7
Deferred Payment Right (defined
below) to any series or class shall
not be deemed to be an Enhancement.
The Receivables . . . . . . . . . . The "Receivables" will consist of all
of the Originators' United States
dollar-denominated accounts
receivable or portions thereof,
generated from the sales of
electricity by the Originators in
the normal course of their
respective business to their
respective customers ("OBLIGORS"),
together with all related customer
account charges and including any
such amounts recognized on the
Originators' books and records as
"unbilled revenues"; provided,
however, that "Receivables" will
not include (i) accounts
receivable owing to an Originator
from any of its or Centerior
Energy Corporation's consolidated
affiliates, (ii) accounts
receivable arising from wholesale
electricity sales to other
utilities or parties in the
business of providing electric
power or (iii) accounts receivable
owing to an Originator from a
foreign Obligor. The aggregate
unpaid principal balance of the
Receivables as of
_____________________, 1995 was
approximately $_________________.
See "The Receivables" and
"Description of the Receivables
Purchase Agreement--Sale of
Receivables."
Series 1995-1
Investor Certificates . . . . . . The Class A Certificates will be
issued in the aggregate initial
principal amount of $___________,
and the Class B Certificates will
be issued in the aggregate initial
principal amount of $__________,
in each case in minimum
denominations of $1,000 and in
integral multiples thereof. The
Series 1995-1 Certificates will
only be available in book-entry
form except in certain limited
circumstances as described herein
under "Description of the Pooling
Agreement--Definitive
Certificates." A portion of the
Trust Assets will be allocated
among the interests of the
Investors and the interest of the
Transferor, as described below.
The Class A and Class B
Certificates will, except as
otherwise provided herein, remain
fixed at the aggregate initial
principal amount thereof.
The Investor Certificates collectively
represent a fractional undivided
beneficial interest in the Trust
(the "AGGREGATE INVESTORS'
INTEREST"; see heading Investors'
5
<PAGE> 8
Interest below) and the right to
receive funds from the Trust
Assets, to the extent of such
interest, as repayment of the
aggregate outstanding principal
amount of the Investor Certificates
(the "AGGREGATE INVESTED AMOUNT")
and payment of interest thereon at
the certificate rates applicable
thereto. The Aggregate Investors'
Interest will be greater than the
Aggregate Invested Amount as a
percentage of the total Receivables
transferred to the Trust and the
Investors will, at the conclusion
of the Amortization Period (as
defined below) and from their
share of Collections, remit to the
Transferor, as additional
consideration for the acquisition
of the Aggregate Investors'
Interest, any excess of the
Collections allocable to their
interest over the amounts necessary
to repay the Aggregate Invested
Amount, interest thereon and any
other amounts owed to Investors
under the Pooling Agreement or the
Supplement. Each Series represents
a ratable interest in the Aggregate
Investors' Interest (with respect
to each Series, the "INVESTORS'
INTEREST") , determined based on
the outstanding principal amount
of such Series (the "INVESTED
AMOUNT" for such Series) compared
to the Aggregate Invested Amount.
The Investor Certificates represent
an interest in the Trust and do not
represent interests in, or
obligations of the Originators, the
Transferor, the Servicers or any
Affiliate of any of them. The
portion of the Trust Assets
allocated to the Investor
Certificates will be determined on
a daily basis as described under
the heading "Investors' Interest"
below. Neither the Investor
Certificates nor the Receivables
are insured or guaranteed by any
governmental agency or
instrumentality. See "Description
of the Series 1995-1
Certificates."
Receivables Purchase
Agreement . . . . . . . . . . . . The Transferor, as purchaser, has
entered into a Receivables
Purchase Agreement dated as of
___________ __, 1995 (the
"RECEIVABLES PURCHASE AGREEMENT"),
with the Originators, each as
seller. Pursuant to the
Receivables Purchase Agreement,
each Originator will sell to the
Transferor all of its right, title
and interest in and to all
Receivables existing on the
Cut-Off Date (excluding a certain
amount of Receivables that will be
contributed by CEI to the capital
of the Transferor) and will agree
to sell all of its right, title
and interest in and
6
<PAGE> 9
to all future Receivables created
from time to time thereafter
during the Revolving Period. The
Transferor in turn will transfer
those Receivables to the Trust
pursuant to the Pooling Agreement.
The Transferor will also assign to
the Trust certain Receivables
contributed to it by the
Originators and its rights under
the Receivables Purchase
Agreement. See "Description of
the Receivables Purchase
Agreement."
Transferor Interest . . . . . . . . The Transferor's interest in the Trust
Assets (the "TRANSFEROR INTEREST")
will consist of an undivided
fractional interest in the Trust
Assets not allocable to the
Aggregate Investors' Interest,
which fractional interest will be
evidenced by a certificate (the
"TRANSFEROR REVOLVING
CERTIFICATE," the principal amount
of such certificate, as adjusted
from time to time being the
"TRANSFEROR REVOLVING AMOUNT")
that will rank PARI PASSU with the
Investors' Interest. The
Transferor will also have the
right to receive, from the
Investors' Interest, as deferred
payment from the Investors in
consideration of their acquisition
of the Investors' Interest (the
"DEFERRED PAYMENT RIGHT"), the
excess of the Aggregate Investors'
Interest over the amounts
necessary to reduce the Investor
Certificates to zero and pay all
interest thereon. The Deferred
Payment Right will not be
evidenced by any certificate and
will be payable solely from
Collections allocated to the
Investors' Interest after the
payment in full of the Investor
Certificates. Notwithstanding the
foregoing, the Transferor will
apply all amounts received as the
Deferred Payment Right to any
unpaid amounts due on the
Transferor Revolving Certificate
until the Transferor Revolving
Certificate is paid in full. The
portion of the Trust Assets
allocated to the Deferred Payment
Right at any time will be equal to
(a) the product of the "Floating
Allocation Percentage" (as defined
below) times the aggregate unpaid
balance of the Receivables minus
(b) the Aggregate Invested Amount.
See "Description of the Pooling
Agreement -- Transferor Interest."
Investors'
Interest . . . . . . . . . . . . . The fraction that determines the
Aggregate Investors' Interest (the
"FLOATING ALLOCATION PERCENTAGE")
has, as the
7
<PAGE> 10
numerator, the sum of (a) the Net
Invested Amount plus (b) the
Carrying Cost Reserve and, as the
denominator, the Net Receivables
Balance (defined below) minus the
Required Reserves (see heading
below). The "NET RECEIVABLES
BALANCE" shall equal (i) the
aggregate unpaid balance of
Eligible Receivables (defined
below) (calculated net of all
unapplied collection and security
deposits and net of all credit
balances owed to Obligors under the
Budget/Balanced Billing Plan)
minus (ii) the Excess Concentration
Balances (as defined on page 107
below) for all Obligors. Such
fraction adjusts daily during the
Revolving Period to reflect changes
in the Base Amount (resulting from
the acquisition by the Trust of new
Receivables, receipt of Collections
and defaults and dilutions) and
changes in the Carrying Cost
Reserve. Upon commencement of the
Amortization Period, the Floating
Allocation Percentage will be fixed
to equal the Floating Allocation
Percentage as of the first day of
such Amortization Period and will
not fluctuate thereafter. See
"Description of the Series 1995-1
Certificates -- General."
Subordination of Class B
Certificates . . . . . . . . . . The Class B Certificates will be
subordinated to the Class A
Certificates (and may be
subordinated to certain other
certificates issued in the future)
to the extent described herein.
During the Amortization Period,
Collections allocated to the
Aggregate Investors' Interest will
be allocated first to the Class A
Certificates and to Investor
Certificates in any other Classes
ranking equal in priority to the
Class A Certificates (each a
"SENIOR CLASS") until the
outstanding principal amount of
the Class A Certificates and of
any such other Senior Classes has
been reduced to zero, then to the
Class B Certificates and to
certificates in any other Classes
ranking equal in priority to the
Class B Certificates (each a
"SUBORDINATED CLASS"). In
addition, the Class B Certificates
will not be entitled to payment of
interest at any time that an
interest shortfall is owing on the
Class A Certificates or any other
Senior Class of Investor
Certificates. See "Description
of the Series 1995-1
Certificates---Subordination."
Required Reserves; Carrying
Cost Reserve . . . . . . . . . . Each of the Class A Certificates and
the Class B Certificates will be
entitled to the benefits of
Required Reserves and the Carrying
Cost Reserve. The "REQUIRED
8
<PAGE> 11
RESERVES" with respect to any Class
of Investor Certificates shall be
an amount equal to the "APPLICABLE
RESERVE RATIO" for such Class times
the Net Receivables Balance (the
Required Reserves for all Series of
Investor Certificates being the
"AGGREGATE REQUIRED RESERVES"). The
Applicable Reserve Ratio for any
Class or Series means, at any time,
an amount calculated in the most
recent Determination Date
Certificate to be the greater of
(a) the Minimum Required Reserve
Ratio for such Class or Series and
(b) the sum of the Loss Reserve
Ratio and the Dilution Reserve
Ratio for such Class or Series.
The MINIMUM REQUIRED RESERVE RATIO"
for the Class A Certificates will
be a percentage equal to the higher
of (i) 7.5% and (ii) the sum of (a)
six times the concentration limit
for Obligors which are either
non-rated or have ratings which are
less than investment grade and (b)
the product of the Average Dilution
Ratio for the most recently ended
Collection Period times the
Dilution Horizon Ratio for such
Collection Period, and the MINIMUM
REQUIRED RESERVE RATIO" for the
Class B Certificates will be a
percentage equal to the higher of
(i) 6.25% and (ii) the sum of (a)
four times the concentration limit
for Obligors which are either
non-rated or have ratings which are
less than investment grade and (b)
the product of the Average Dilution
Ratio for the most recently ended
Collection Period times the
Dilution Horizon Ratio for such
Collection Period. The Aggregate
Required Reserves shall be
calculated without duplication and
credit shall be given for the
outstanding amount of all
Subordinated Classes towards the
Required Reserves of any Senior
Class. Accordingly, the Required
Reserves for the Series 1995-1
Certificates will be equal to the
sum of (i) the Required Reserves
for the Class B Certificates (the
CLASS B REQUIRED RESERVES") and
(ii) the amount, if any, by which
the Required Reserves for the Class
A Certificates (the "CLASS A
REQUIRED RESERVES") exceeds the sum
of (a) the Invested Amount of the
Class B Certificates and (b) the
Class B Required Reserves. The
CARRYING COST RESERVE" shall be the
amount, calculated for all Series
and Classes as described herein,
held for payment of interest on the
Investor Certificates of any Series
and for payment of certain fees,
costs and expenses which are
entitled to priority of payment
over the Invested Amounts of any
Series during
9
<PAGE> 12
the Amortization period. See
"Description of the Series 1995-1
Certificates -- Carrying Cost
Account" and "-- Required
Reserves."
Issuance of Additional Series;
Other Modifications . . . . . . . The Pooling Agreement provides that,
pursuant to any one or more
supplements thereto (each, a
"SUPPLEMENT"), the Transferor may
cause the Trust to issue one or
more new Series of Investor
Certificates (each, a "Series,"
and the issuance of any such new
Series, a NEW ISSUANCE"), which
will cause a reduction in the
Transferor Interest represented by
the Transferor Revolving
Certificate (except to the extent
that proceeds of such new issuance
are placed in a Trust Account as
part of a defeasance arrangement).
The Pooling Agreement also provides
that the Transferor may specify,
with respect to any Series, the
Principal Terms of such Series.
The Transferor may offer any Series
to the public or other investors
under a prospectus or other
disclosure document in transactions
either registered under the
Securities Act, or to investors in
an offering exempt from
registration thereunder, in either
case directly or through one or
more underwriters or placement
agents. The proceeds of a New
Issuance may be used to pay the
outstanding principal balance of
another Series of Investor
Certificates to the holders
thereof.
Under the Pooling Agreement, a New
Issuance may only occur upon the
fulfillment of certain conditions,
including, without limitation, the
delivery to the Trustee of the
following: (a) a Supplement
specifying the Principal Terms of
such Series, (b) an opinion of
counsel to the effect that, for
federal income and state income
tax purposes, (i) such issuance
will not adversely affect the
characterization of the Investor
Certificates of any outstanding
Series or class as debt of the
Transferor and (ii) such new
Series will be characterized as
debt of the Transferor and (c) a
letter from each of the Rating
Agencies confirming that the
issuance of the new Series will
not result in the reduction or
withdrawal of their ratings of any
Series or Class of Investor
Certificates then outstanding (the
"RATING AGENCY CONDITION").
In the event of a New Issuance, the
Class B Certificates may be
subordinated to one or more new
Series (or classes
10
<PAGE> 13
within such Series). The Class A
Certificates, however, will never
be subordinated to any other Series
and, except to the extent specified
in the applicable Series
Supplement, no other Series will be
subordinated to any other Series.
If a Series has more than one Class
of Investor Certificates, the
related Supplement may specify that
one Class will be subordinated to
another Class within such Series or
in other Series in the manner and
to the extent provided therein.
Such new Series may include without
limitation one or more Series of
Investor Certificates designated
as "VARIABLE FUNDING
CERTIFICATES". In accordance with
the terms of the Supplements
governing such Investor
Certificates, the Invested Amount
of the Variable Funding
Certificates may be increased
and/or reduced from time to time
prior to commencement of an
Amortization Period. See
"Description of the Series 1995-1
Certificates --- New Issuances;
Other Modifications."
Certificate Rate . . . . . . . . . Each of the Class A Certificates and
the Class B Certificates will bear
interest from its date of issuance
at the applicable "CERTIFICATE
RATE," equal to __% per annum in
the case of the Class A
Certificates and __% per annum in
the case of the Class B
Certificates. Interest will
accrue on the Invested Amount of
the Series 1995-1 Certificates
(not reduced by the amount of Cure
Funds held in the Reserve Account
at such time) from the date of
issuance at their respective
Certificate Rates (calculated on
the basis of a 360-day year of
twelve 30-day months) and will be
payable (i) semiannually during
the Revolving Period on _________
15 and _________ 15 of each year,
commencing on __________ 15, 1996,
and (ii) monthly during the
Amortization Period on the
fifteenth day of each month,
commencing (A) in the event that
the Amortization Period occurs
upon the Scheduled Amortization
Date, on __________ 2000 and (B)
in the event that the Amortization
Period occurs as a result of an
Early Amortization Event, on the
first such day which is at least
30 days after the commencement of
the Amortization Period; provided,
however, that if any such day is
not a Business Day, interest will
be
11
<PAGE> 14
payable on the next succeeding
Business Day (each day on which
interest is payable is a
"DISTRIBUTION DATE"). Interest
for any Distribution Date due but
not paid on such Distribution Date
will be due on the next succeeding
Distribution Date together with
additional interest on such amount
at the applicable Class A Rate or
Class B Rate, to the extent such
rates are permitted by law. The
Class B Certificates will be
subordinate in right of
distribution of interest to the
Class A Certificates.
Revolving Period . . . . . . . . . The "REVOLVING PERIOD" for the Series
1995-1 Certificates will commence
on the Closing Date and will
terminate on the close of business
on the earliest to occur of (i)
_______________, 2000 [the date
which is three (3) months prior to
the Expected Final Payment Date]
(the "SCHEDULED AMORTIZATION
COMMENCEMENT DATE") and (ii) any
Early Amortization Event (as
defined below). So long as the
Revolving Period continues, except
during any Set-Aside Period (see
"Set-Aside Period" heading below),
all Collections and other funds
received in the Concentration
Account will generally be invested
in newly originated Receivables,
and no amount of any such
Collections will be distributed to
any Series 1995-1 Investor. Early
Amortization Events will include
the events listed in "Description
of the Series 1995-1
Certificates--Series 1995-1 Early
Amortization Events." On each
Business Day during the Revolving
Period, all Collections and other
funds received in the Concentration
Account will be allocated and
applied in the following order of
priority:
(a) to be deposited in a
sub-account of the Concentration
Account (the "CARRYING COST
ACCOUNT") maintained in the name
of the Trustee for the payment of
Carrying Costs until the amount on
deposit therein equals the
Carrying Cost Amount;
(b) if a Set-Aside Period exists,
to be set aside in a sub-account
of the Concentration Account (the
"RESERVE ACCOUNT") until the Net
Invested Amount is less than or
equal to the Base Amount;
(c) if the Base Amount is greater
than or equal to the Net Invested
Amount, if requested by the Master
Servicer and permitted by any
Supplement or if otherwise
12
<PAGE> 15
required by any Supplement, to be
used to reduce the Invested Amount
of any Investor Certificates or to
deposit in any Defeasance Account;
(d) to be used to pay any other
obligations of the Transferor owed
to any Investors, any Servicer or
the Trustee, or to pay into any
Defeasance Account or any other
sub-account of the Concentration
Account to the extent requested by
the Master Servicer or required by
any Supplement;
(e) to make payments to the
Transferor on such Business Day in
respect of the Transferor Interest
in an amount equal to the balance
of funds on deposit in the
Concentration Account pursuant to
clauses (a) through (d) above.
If, on any day prior to the
Amortization Date, funds on
deposit in the Concentration
Account and available for
allocation under any of clause (c)
and (d) above are less than the
amount of the obligations
described in such clauses, then
the available Collections will be
allocated by the Servicers to the
holders of such obligations pro
rata according to the respective
amounts of such obligations held
by them (as weighted in accordance
with any adjustment factors used
in determining their respective
Ratable Principal Amounts). All
other obligations in lower
priority categories will remain
unsatisfied until the obligations
in the preceding category have
been satisfied.
Funds allocated to the Carrying Cost
Amount will be applied in the
following order of priority:
(1) to the Investors in payment of
accrued and unpaid interest then
due and payable on the Aggregate
Invested Amount at the applicable
Certificate Rates;
(2) to any Servicer which is not
an Originator or an Affiliate of an
Originator in payment of the
Servicing Fee;
(3) to the Trustee in payment of
the Trustee's Fee and the Trustee's
expenses, not in excess of
$________ during any calendar
month;
13
<PAGE> 16
(4) to the Investors in payment
of any other fees, costs and/or
expenses then due and payable
which are owed to the Investors
under the Pooling Agreement or the
Supplements related thereto; and
(5) to any Servicer which is an
Originator or an Affiliate of an
Originator in payment of the
Servicing Fee.
To the extent that funds allocated to
the Carrying Cost Amount are
insufficient to pay in full the
amounts described in clause (1) or
clause (4) above then the amounts
described in such clause (1) or
(4), as applicable, shall be
distributed ratably to each
Senior Class based on the
respective amounts owed to the
Investors of such Senior Classes
before being distributed to
Investors in any Subordinated
Class. See "Description of the
Series 1995-1 Certificates --
Interest"; "-- Distributions to
Investors"; and "-- Carrying Cost
Account."
Set-Aside Period . . . . . . . . . On each Business Day during the
Revolving Period, the Transferor
will compute whether the Net
Receivables Balance (defined
below) minus the Aggregate
Required Reserves minus the
Carrying Cost Reserve (such
amount, the "BASE AMOUNT") is
equal to or greater than the
Aggregate Invested Amount
(computed as if reduced by (i) the
amount of Cure Funds held in the
Reserve Account and (ii) any other
amounts held in any Defeasance
Account to reduce the Invested
Amount of any particular series)
(such recomputed amount, the "NET
INVESTED AMOUNT"). A "SET-ASIDE
PERIOD" (defined below) will
commence on any Business Day on
which the Base Amount is less than
the Net Invested Amount, and will
continue until such insufficiency
no longer exists; provided that,
if such Set-Aside Period continues
for more than five consecutive
Business Days, then an
Amortization Period shall commence
for all Series on such fifth
Business Day.
During the Set-Aside Period, the
Transferor shall, after making any
necessary allocations to the
Carrying Cost Amount, deposit all
remaining Collections and other
funds received in the
Concentration Account into the
14
<PAGE> 17
Reserve Account on the day
collected (all such funds so
deposited from time to time by the
Transferor being "CURE FUNDS")
until the amount so deposited
equals the amount by which the
Aggregate Invested Amount exceeds
the Base Amount. The Servicers
are to establish and maintain the
Reserve Account which shall be
accessible only by the Trustee for
the benefit of the Trust. To the
extent that funds are on deposit
in the Reserve Account and the
Base Amount is greater than or
equal to the Net Invested Amount,
funds up to the amount of such
excess may be released from the
Reserve Account (i) to reduce the
Invested Amount of any Variable
Funding Certificates and/or (ii)
to be used by the Transferor to
purchase new Receivables or pay
other obligations of the
Transferor in connection with the
Pooling Agreement; provided,
that, after making such withdrawal
and application of funds, the Base
Amount will continue to be greater
than or equal to the Net Invested
Amount. See "Description of the
Series 1995-1 Certificates --
Set-Aside Period; Reserve Account."
Amortization
Period Upon (i) the occurrence and during the
continuation of an Early
Amortization Event or (ii) the
scheduled termination of the
Revolving Period (the period
following either such event being
the "AMORTIZATION PERIOD"),
respectively, the Collections and
any other Funds allocated to the
Aggregate Investors' Interest
(after payments of Carrying Costs)
will be accumulated in one or more
Defeasance Accounts to be
distributed to Investors in
reduction of the Invested Amount
for each Series. If the
Amortization Period commences as a
result of the scheduled termination
of the Revolving Period, funds
accumulated in the Defeasance
Account for the Series 1995-1
Certificates will be distributed to
the Series 1995-1 Investors on
______, 2000 [the fifth anniversary
of the Closing Date] (the "EXPECTED
FINAL PAYMENT DATE") and, to the
extent that the Invested Amount of
such Series has not been reduced to
zero on such date, on each
Distribution Date thereafter. If
the Amortization Period commences
as a result of an Early
Amortization Event, funds
accumulated in the Defeasance
Account for the Series 1995-1
Certificates will be distributed to
Investors on each Distribution
Date, commencing with the
Distribution Date which is at least
thirty (30) days
15
<PAGE> 18
from and after the commencement of
the Amortization Period.
On each Business Day during the
Amortization Period, the portion
of the Collections and other funds
received in the Concentration
Account on such date that is
allocable to the Aggregate
Investors' Interest (i.e., the
Floating Allocation Percentage of
Collections) will be set aside for
the benefit of Investors and will
be applied in the following order
of priority: (a) to pay Carrying
Costs; (b) to be deposited in one
or more Defeasance Accounts to
reduce the Invested Amount of all
Investor Certificates until such
Invested Amounts have been reduced
to zero; and (c) to the payment of
unpaid fees and expenses of
Trustee or a Servicer.
During the Amortization Period, amounts
on deposit in the Defeasance
Account shall be distributed,
first, to pay Carrying Costs not
paid from the Carrying Cost
Account or other sources, then to
reduce the Invested Amounts of any
Investor Certificates constituting
a Senior Class ratably based on
the Ratable Principal Amount of
such Investor Certificates until
such Invested Amounts have been
reduced to zero and thereafter, to
reduce the Invested Amounts of any
Investor Certificates constituting
a Subordinated Class ratably based
on the Ratable Principal Amount of
such Investor Certificates until
their Invested Amounts have been
reduced to zero.
During the Amortization Period, (i) the
Transferor Interest in funds
received in the Concentration
Account shall, on each Business
Day, continue to be remitted to
the Transferor in consideration of
the Transferor Revolving
Certificate. After the Aggregate
Invested Amount has been reduced
to zero, the Transferor Revolving
Certificate shall also be reduced
to zero and all remaining amounts
otherwise allocable to the
Investors shall be distributed to
the Transferor in consideration of
the Deferred Payment Right. See
"Description of the Series 1995-1
Certificates -- Principal" and "--
Distribution to Investors."
Servicing . . . . . . . . . . . . . The Servicers will service and
administer the Receivables in
exchange for a monthly servicing
fee (the "SERVICING
16
<PAGE> 19
FEE"). If a Servicer Default
occurs and is continuing, the
Trustee shall, at the direction of
Investors holding at least 66 2/3%
of the outstanding Investor
Certificates, remove both
Originators as Servicers. In the
event of any such removal, either
the Trustee or an eligible
third-party shall be appointed as
successor Servicer. If either
Originator or an Affiliate thereof
acts as Servicer, the Servicing Fee
will equal 1% per annum (computed
on the basis of a 360-day year of
twelve 30-day months) times the
aggregate outstanding Receivables
as of the beginning of the
immediately preceding calendar
month (each, a "COLLECTION
PERIOD"). The Servicing Fee for
any Servicer other than the
Originators or an Affiliate thereof
may be a greater amount but shall
not exceed the lesser of (x)
110% of the aggregate reasonable
costs and expenses incurred by such
Servicer during such Collection
Period and (y) 2% per annum times
the beginning monthly balance of
Receivables as described above. So
long as separate Servicers are
utilized for the Receivables
originated by CEI and TE,
respectively, the Servicing Fee
shall be allocated between them
based on the respective dollar
amounts of Receivables sold to the
Transferor by each of CEI and TE
during the relevant calendar month.
The Servicing Fee shall be payable
solely from Collections. See
"Description of the Series 1995-1
Certificates--Servicing
Compensation and Payment of
Expenses."
Collection Procedures . . . . . . . On or prior to the Closing Date, the
Originators will (i) assign to the
Transferor all of their rights in
respect of any designated post
office boxes or lockboxes to which
any payments in respect of
Receivables ("COLLECTIONS") will
be sent and deposited, and (ii)
assign to the Transferor all of
their rights with respect to any
related deposit accounts that will
be utilized for receiving the
Collections (each such account, a
"SERVICER COLLECTION ACCOUNT").
Each Servicer and each Originator
will receive all Collections not
deposited directly into the
Servicer Collection Accounts by
the Obligors and will, on each
Business Day, deposit all such
other Collections into a
segregated bank account held in
the name of the Transferor (each a
"TRANSFEROR COLLECTION ACCOUNT"
and, together with the Servicer
Collection Account, the
"COLLECTION ACCOUNTS"). The
Servicer Collection Accounts and
the Transferor Collection Accounts
will be
17
<PAGE> 20
used solely for receiving
Collections and other funds
belonging to the Transferor and
will not contain any other funds
of the Originators.
On each Business Day, each bank
with which a Collection Account is
maintained will be instructed to
wire all Collections received to an
account established by, and
maintained under the control of,
the Trustee for the benefit of the
Trust (the "CONCENTRATION
ACCOUNT"). Unless such authority
is otherwise revoked by the Trustee
after a Servicer Default, the
Concentration Account will be
accessible by the Servicers for the
purposes of (i) paying to the
Trustee the Collections and other
funds allocated to the Investors'
Interest and to the payment of
interest, costs, fees and expenses
owed to the Investors, (ii) paying
to the Transferor any Collections
or other funds allocated to the
Transferor Interest (including
amounts being reinvested by the
Trust in newly originated
Receivables during the Revolving
Period) and (iii) during the
Revolving Period, paying directly
to the Originators any amounts owed
by the Transferor under the
Receivables Purchase Agreement for
the purchase of newly originated
Receivables.
On a daily basis until the termination
of the Trust, a portion of the
funds received in the
Concentration Account will be
allocated to the Carrying Cost
Account until the amount on
deposit therein is equal to the
sum of (a) accrued but unpaid (i)
interest on the Aggregate Invested
Amount, (ii) Servicing Fee, and
(iii) any other fees and expenses
which are entitled to priority of
payment over principal in the
allocation of funds in the
Concentration Account (such
interest, fees and expenses,
collectively, the "CARRYING
COSTS") and (b) the amount of
Carrying Costs which are estimated
to accrue on or before the 15th
day of the succeeding calendar
month. After allocation to the
Carrying Cost Account, the
remaining amount of funds
allocable to the Investors'
Interest will be allocated as
described above under the headings
"Revolving Period," "Set-Aside
Period" and "Amortization Period."
18
<PAGE> 21
Rating of Series
1995-1 Certificates . . . . . . . . It is a condition to the issuance of
the Series 1995-1 Certificates
that the Class A Certificates be
rated not lower than "AAA" by
Standard & Poor's Ratings
Services, a division of The
McGraw-Hill Companies, Inc.
("S&P"), and Aaa by Moody's
Investors Service, Inc.
("MOODY'S"), and that the Class B
Certificates be rated not lower
than "A" by S&P and A2 by Moody's
(S&P and Moody's are referred to
together as the "RATING
AGENCIES").
ERISA Considerations . . . . . . . Employee benefit plans and other
Investors subject to the fiduciary
responsibility provisions of the
Employee Retirement Income
Security Act of 1974, as amended
("ERISA"), or the provisions of
Section 4975 of the Code may
acquire or hold Class A
Certificates if such an
acquisition or holding is exempted
from the "prohibited transaction"
provisions of ERISA. Such plans
and other Investors, however, may
not acquire or hold any Class B
Certificates. See "ERISA
Considerations."
Tax Status . . . . . . . . . . . . In the opinion of Squire, Sanders &
Dempsey, special tax counsel for
the Transferor and the Trust, the
Investor Certificates will be
characterized as debt of the
Transferor for federal income tax
purposes and, as long as the
Investor Certificates are so
characterized, they will be
characterized as debt of the
Transferor for Ohio income tax
purposes. Each Investor, by the
acceptance of an Investor
Certificate, will agree to treat
such Investor Certificates as
indebtedness of the Transferor for
federal, state and local income
tax purposes. See "Certain Tax
Considerations" for additional
information concerning the
application of Federal and Ohio
tax laws.
19
<PAGE> 22
RISK FACTORS
SECONDARY MARKET TRADING
There is currently no market in the Series 1995-1 Certificates, and
there can be no assurance that a secondary market will develop or, if a
secondary market does develop, that it will provide the Series 1995-1 Investors
with liquidity of investment or that it will continue for the life of the
Series 1995-1 Certificates. The Underwriter currently intends to make a market
in the Investor Certificates but is not obligated to do so and may discontinue
market-making at any time without notice.
COMPETITIVE CONDITIONS
Currently, the Originators' most pressing competitive threat comes
from municipal electric systems in their respective service areas. The
Originators' rates are generally higher than those of municipal systems due
largely to the municipal systems' exemption from taxation, the lower cost
financing available to them, the continued availability to them of lower cost
power through short-term power purchases and their access to cheaper
governmental power. The Originators are seeking to address the tax disparity
through the legislative process. The Originators also face the threat that
municipalities in their service areas could establish new systems and continue
expanding existing systems.
The Energy Policy Act of 1992 will continue to increase competition in
the electric utility industry by allowing broader access to a utility's
transmission system. Such broader access should not significantly increase the
competitive threat to the Originators since they have been required to wheel
electricity to municipal systems in their service areas since 1977 under
operating licenses for their nuclear generating units. Furthermore,
legislative developments could eventually require utilities to deliver power
from other utilities or generation sources to their retail customers. To
combat this threat, the Originators are offering incentives such as
energy-efficiency improvements and reductions in demand charges for increased
electricity usage to their industrial and commercial customers in return for
long-term commitments from these customers.
The above-described competition could result in reductions of the
level of new Receivables. Such reductions could lead to the early commencement
of the Amortization Period or have an adverse impact on the ability of CEI and
TE to generate Receivables to be sold to the Transferor. See
"Originators/Initial Servicers--Competition."
REGULATION
The electric utility industry is regulated by federal, state and local
authorities. The failure of either Originator to conduct and maintain its
operations in substantial compliance with certain regulations, now existing or
hereafter enacted, could have a material adverse effect
20
<PAGE> 23
on its financial conditions and results of operations. See "Originators/Initial
Servicers--Regulation."
RATE MATTERS
The Originators are subject to the jurisdiction of The Public
Utilities Commission of Ohio (the "PUCO") with respect to rates, service,
accounting, issuance of securities and other matters. Under Ohio law,
municipalities may regulate rates charged by a utility, subject to appeal to
the PUCO if not acceptable to the utility. If municipally fixed rates are
accepted by the utility, such rates are binding on both parties for the
specified term and cannot be changed by the PUCO.
Under a Rate Stabilization Program approved by the PUCO in October
1992 ("Rate Stabilization Program"), the Originators agreed to freeze base
rates until 1996 and limit rate increases through 1998. In exchange, the
Originators are permitted to defer through 1995 and subsequently recover
certain costs not currently recovered in rates and to accelerate the
amortization of certain benefits. Amortization and recovery of the deferrals
are expected to begin in 1996 with future rate recognition and will continue
over the average life of the related assets, or between 17 and 30 years. The
continued use of these regulatory accounting measures will be dependent upon
the Originators' continuing assessment and conclusion that there will be
probable recovery of such deferrals in future rates. The Originators decided
that, once the deferral of expenses and acceleration of benefits under the Rate
Stabilization Program are completed in1995, they should no longer plan to use
these measures to the extent they have in the past.
Rate-regulated utilities are subject to Statement of Financial
Accounting Standards 71 ("SFAS 71") which governs accounting for the effects of
certain types of rate regulation. Pursuant to SFAS 71, certain incurred costs
are deferred for recovery in future rates. The Originators continually
monitor changes in market and regulatory conditions and consider the effects of
such changes in assessing the continuing applicability of SFAS 71. Criteria
that could give rise to discontinuation of the application of SFAS 71 include
(1) increasing competition which significantly restricts the Originators'
ability to establish rates to recover operating costs, return requirements and
the amortization of regulatory assets and (2) a significant change in the
manner in which rates are set by the PUCO from cost-based regulations to some
other form of regulations. In the event the Originators determine that they
no longer meet the criteria for following SFAS 71, the Originators would be
required to record a before-tax charge to write off their regulatory assets,
which totaled $1,277,000,000 for CEI and $913,000,000 for TE at December 31,
1994. In addition, the Originators would be required to evaluate whether the
changes in the competitive and regulatory environment which led to
discontinuing the application of SFAS 71 would also result in an impairment of
the net book value of the Originators' property, plant and equipment.
21
<PAGE> 24
The Originators' analysis leading to certain year-end 1993 financial
actions and its strategic plan also included an evaluation of its regulatory
accounting measures. The remaining recovery periods for all remaining
regulatory assets are between 17 and 34 years. The Originators believe their
rates will provide for recovery of these assets over the relevant periods and
SFAS 71 continues to apply. In addition, the Originators have decided that,
once the deferral of expenses and acceleration of benefits under the Rate
Stabilization Program are completed, they should no longer plan to use these
measures to the extent they have in the past.
On April 17, 1995, the Originators each filed a request with the PUCO
for a rate increase to be effective in 1996. CEI's requested increase is
$82,800,000 in annual revenues and TE's requested increase is $34,800,000. The
requested rates would result in an average increase of 4.9% and 4.7% in the
existing rates of CEI and TE, respectively. CEI and TE plan to freeze rates
until at least 2002 if their rate requests are approved, although they are not
precluded from requesting additional rate increases. This plan is premised on
the Originators obtaining full recovery of all costs including an acceptable
rate of return on equity in order to continue to apply SFAS 71 for financial
reporting purposes. The Originators plan to avoid the need for further rate
increases through additional cost reductions, an enhanced marketing program and
other efforts. The Originators will periodically assess their continued
compliance with SFAS 71 criteria and the appropriateness of continuing to
record additional deferrals pursuant to the Rate Stabilization Program. They
will modify their intended course of action as necessary to maintain
compliance.
The rate increases are necessary to recover capital investment and
increases in costs incurred since the Originators' last rate cases, which were
decided in January 1989, and to recover certain costs deferred since 1992. The
amounts of the requested rate increases are lower than the authorized limits
set forth in the Rate Stabilization Program. The Originators expect that the
PUCO will reach a decision on the rate request in January of 1996. A denial by
the PUCO of the Originators' requested rate increases could have an adverse
effect on the Originators' financial conditions and results of operations.
ECONOMIC FACTORS
Economic factors, including the occurrence of a recession, may have an
adverse impact upon the generation of Receivables and on the performance of
those Receivables. In particular, negative economic developments could have an
adverse impact on the timing and amounts of payments made by Obligors in
respect of Receivables and could have an adverse effect on the Originators'
financial conditions and results of operations.
22
<PAGE> 25
CUSTOMERS
Historically, sales to the ten largest customers of CEI and TE have
accounted for a material portion of the Originators' respective total operating
revenues. Although neither CEI nor TE has any reason to believe that it will
lose the business of any of these largest customers, a loss of any of the
largest accounts of either CEI or TE (or a material portion of any thereof)
would have an adverse effect upon the rate of generation of Receivables, which
could be material.
The credit risks arising from any customer concentrations are intended
to be reduced by the exclusion of Receivables owed by any one category of
Obligor from the Net Eligible Receivables to the extent that such Receivables
exceed specified percentages of the Eligible Receivables. There can be no
assurance, however, that such exclusions will insulate the Investors entirely
from adverse effects associated with default by, or a bankruptcy of, a single
large customer. See "The Receivables -- Customers."
DEPENDENCY ON OBLIGOR REPAYMENTS
The Receivables may be paid at any time and, although the demand for
electric service is relatively stable at basic levels, there is no assurance of
the level of the new Receivables that will be generated, the amount of the
Receivables that will be added to the Trust or the pattern of repayments that
will occur. The actual rate of distributions of principal with respect to a
Series during the Amortization Period will depend on, among other factors, the
rate of Obligor repayments, the timing of the receipt of repayments and the
rate of default by Obligors. As a result, no assurance can be given that the
Invested Amount of the Series 1995-1 Certificates will be paid in full on the
Expected Final Payment Date. Obligor monthly payment rates are dependent upon
a variety of factors including seasonal usages and payment habits of Obligors
and general economic conditions. No assurance can be given as to the Obligor
payment rates which will actually occur in any future period. See "--
Competitive Conditions," "-- Rate Matters," and "Maturity Considerations."
SEASONALITY AND CYCLICALITY
Kilowatt-hour sales by the Originators have historically followed a
seasonal pattern marked by increased customer usage in the summer for air
conditioning and in the winter for heating. Historically, CEI has experienced
its heaviest demand for electric service during the summer months because of a
significant air conditioning load on its system and a relatively low amount of
electric heating load in the winter. TE, although having a significant
electric heating load, has experienced in recent years its heaviest demand for
electric service during the summer months because of heavy air conditioning
usage. For both Originators, the rates for electric service in the summer
months are higher than the rates for electric service in the winter months.
The rate request currently being considered by the PUCO, however, includes a
proposal to eliminate those differences in rates. See "--Rate Matters."
23
<PAGE> 26
ISSUANCE OF ADDITIONAL SERIES
The Trust, as a master trust, may issue from time to time additional
Series of Investor Certificates. While the terms of any Series will be
specified in a Supplement, the provisions of a Supplement, and therefore, the
terms of any additional Series, will not be subject to the prior review or
consent of the Investors of any previously issued Series. Such terms may
include methods of determining applicable investor percentages and allocating
Collections, provisions creating different or additional security or other
Enhancements (if the Supplement so permits) to such Series, and any other
amendment or supplement to the Pooling Agreement which is made applicable only
to such Series.
The obligation of the Trustee to issue any new Series is subject to
the following conditions, among others: (a) each Rating Agency shall have
notified the Transferor, the Servicers, the Trustee and any Enhancement
Provider in writing that such issuance will not result in a reduction or
withdrawal of the rating of any outstanding Series or Class (the "Rating Agency
Condition"), and (b) the Transferor shall have delivered to the Trustee and any
Enhancement Provider (i) a certificate of an authorized officer to the effect
that the Transferor reasonably believes that such issuance will not at the time
of its occurrence or at a future date, cause the occurrence of an Early
Amortization Event; (ii) a Supplement specifying the Principal Terms of such
Series; and (iii) an opinion of counsel to the effect that, for federal income
and state income tax purposes such issuance will not adversely affect the
characterization of the Investor Certificates of any outstanding Series or
Class as debt of the Transferor and will be characterized as debt of the
Transferor. There can no assurance that the terms of any other Series,
including any Series issued from time to time hereafter, will not have an
impact on the timing or amount of payments received by a Series 1995-1
Investor. See "Description of the Series 1995-1 Certificates--New Issuances;
Other Modifications."
GENERATION OF ADDITIONAL RECEIVABLES
The continuation of the Revolving Period of a Series will be dependent
on the continued generation of new Receivables for the Trust. A decline in the
amount of Receivables for any reason (including seasonal reductions in demand
for electricity, an economic downturn affecting commercial or industrial
obligors or other factors) could result in the occurrence of an Early
Amortization Event with respect to a Series and the commencement of the
Amortization Period with respect to such Series.
ABILITY OF SERVICER TO CHANGE PAYMENT TERMS
Provided that no Early Amortization Event or Servicer Default has
occurred and is continuing, each Servicer will be permitted, in accordance with
the credit and collection policy applicable to such Receivable (as amended or
supplemented from time to time, the "CREDIT AND COLLECTION POLICY"), to extend
the maturity, adjust the outstanding unpaid balance, or otherwise modify the
terms of any Defaulted Receivable or amend, modify or waive the terms of any
Defaulted Receivable or amend, modify or waive any payment term or condition of
any invoice related thereto, all as it may determine to be appropriate to
maximize the collection
24
<PAGE> 27
thereof. In servicing the Receivables, each Servicer will be required to
exercise reasonable care and diligence and to comply with the Credit and
Collection Policy. Each Servicer also may be obligated to rescind or cancel any
Receivable to the extent ordered by a court of competent jurisdiction or other
governmental authority. The Transferor has agreed not to permit the Originators
to make any material change to the Credit and Collection Policy which would both
impair the collectibility of any Receivable and also have a material adverse
effect on the Investors. Except as specified above, there are no restrictions
on the ability of either Servicer to change the terms of the Contracts or the
Receivables. While neither Servicer has any current intention of taking actions
that would change the payment or other terms of the Contracts or the
Receivables, there can be no assurances that changes in the marketplace or
prudent business practice might not result in a determination to do so. See
"Description of the Pooling Agreement -- Collection and Other Servicing
Procedures" and "Description of the Receivables Purchase Agreement -- Certain
Originator Covenants."
CERTAIN LEGAL ASPECTS -- TRANSFER OF RECEIVABLES
While the Originators will sell Receivables to the Transferor, a court
could treat such a transaction as an assignment of collateral as security for
the benefit of the Investors of the outstanding Series. The Originators will
warrant in the Receivables Purchase Agreement that the transfer of Receivables
by them to the Transferor is a sale of such Receivables to the Transferor. The
Originators will take certain actions under applicable state law to perfect the
Transferor's ownership interest in the Receivables transferred to the
Transferor by the Originators. Nevertheless, a tax or government lien or other
nonconsensual lien on property of the Originators arising before Receivables
come into existence may have priority over the Trust's interest in such
Receivables.
In a 1993 case decided by the Court of Appeals for the Tenth Circuit,
Octagon Gas System, Inc. v. Rimmer, the court concluded that accounts
receivable sold by a debtor prior to a filing for bankruptcy remained property
of the debtor's bankruptcy estate. If the conclusions in that case were
applied in an Originator bankruptcy, the Receivables could be subject to claims
of certain creditors and could be subject to the potential delays and
reductions in payments to the Transferor and Investors. In addition, if an
Originator were to become a debtor in a bankruptcy case and a creditor or
trustee-in-bankruptcy of such debtor or such debtor itself were to request a
bankruptcy court to order that such Originator be substantively consolidated
with the Transferor, delays in and reductions in the amount of distributions on
the Investor Certificates could occur.
The Transferor has warranted in the Pooling Agreement that the
transfer of the Receivables by it to the Trust is either a sale of the
Receivables to the Trust or a grant of a first priority perfected "security
interest" (as defined in the Uniform Commercial Code (the "UCC")) in such
property to the Trust. The Transferor has taken and will take all actions that
are required under applicable state law to perfect the Trust's interest in the
Receivables. Nevertheless, a tax or statutory lien on property of the
Originators or the Transferor arising before a Receivable is transferred to the
Trust may have priority over the Trust's interest in such Receivable. If the
Transferor were to become a debtor in a bankruptcy case and a bankruptcy
25
<PAGE> 28
trustee or a creditor of the Transferor were to take the position that the
transfer of the Receivables from the Transferor to the Trust should be
recharacterized as a pledge of such Receivables, then delays in distributions
on the Investor Certificates or (should the bankruptcy court rule in favor of
any such trustee or creditor) reductions in such distributions could result.
In addition, application of federal and state bankruptcy and debtor
relief laws could affect the interests of the Investors if such laws result in
any Receivables being charged off as uncollectible or result in delays in
payments due on such Receivables. See "Certain Legal Aspects of the
Receivables--Certain Matters Relating to Bankruptcy."
RIGHTS OF INVESTORS -- CONTROL
Subject to certain exceptions, the Investors may take certain actions,
or direct certain actions to be taken, under the Pooling Agreement or the
related Supplement including the right to disapprove of the sale of the
Receivables upon the occurrence of an Early Amortization Event as described
under "Description of the Investor Certificates -- Early Amortization Events"
and the right to advise the Trustee that the continuation of a book-entry
system through DTC (or any successor thereto) after the occurrence of a
Servicer Default is no longer in the best interests of the Investors as
described under "The Pooling Agreement Generally -- Definitive Certificates."
Similarly, under certain circumstances, the consent or approval of the holders
of a specified percentage of the Aggregate Invested Amount will be required to
direct certain actions, including requiring the appointment of one or more
successor Servicers following a Servicer Default, amending the Pooling
Agreement under certain circumstances and directing a reassignment of the
entire portfolio of accounts. Further, in certain cases (including with
respect to certain amendments described under "Description of the Pooling
Agreement -- Amendments"), when determining whether the required percentage of
Investors of a Series has given its approval or consent, all the Investors of
such Series will be treated as a single class (whether or not such Series
includes more than one Class). Accordingly, one or more Classes of Investors
may have the power to determine whether any such action is taken without regard
to the position or interests of other Classes of Investors relating to such
action.
In each circumstance where the consent of Investors representing more
than a specified percentage of the Aggregate Invested Amount is required to
approve any action, the Class A Investors and the Class B Investors will vote
together as a single Series. Consequently, for so long as the Class A
Certificates remain outstanding (and the Class A Invested Amount remains
26
<PAGE> 29
larger than the Class B Invested Amount), the Class A Investors, whose
interests may materially diverge from the interests of the Class B Investors,
may be in a position to control the outcome of any such vote.
LEGAL MATTERS
On the Closing Date, the Originators will make certain other
representations and warranties relating to the validity and enforceability of
the Receivables. The obligation of an Originator to repurchase Ineligible
Receivables shall constitute the sole remedy available to any person respecting
any breach of such representations and warranties. See "Description of the
Pooling Agreement -- Representations and Warranties" and "-- Servicer
Covenants," "Description of the Series 1995-1 Certificates -- Early
Amortization Events" and "Certain Legal Aspects of the Receivables --
Bankruptcy."
LIMITED NATURE OF RATING
It is a condition to the issuance of the Series 1995-1 Certificates
that the Class A Certificates be rated not lower than "AAA" by S&P and "Aaa" by
Moody's and that the Class B Certificates be rated not lower than "A" by S&P
and A2 by Moody's. Any rating assigned to the Investor Certificates of a
Series or a Class by either Rating Agency will reflect such Rating Agency's
assessment of the likelihood that Investors of such Series or Class will
receive the payments of interest and principal required to be made under the
Pooling Agreement and will be based primarily on the value of the Receivables
in the Trust and the availability of any Enhancement with respect to such
Series or Class. However, any such rating will not address the likelihood that
the principal of, or interest on, any Investor Certificate of such Class or
Series will be paid on a scheduled date. In addition, any such rating will not
address the possibility of the occurrence of an Early Amortization Event with
respect to such Class or Series or the possibility of the imposition of United
States withholding tax with respect to non-U.S. Investors. The rating will not
be a recommendation to purchase, hold or sell Investor Certificates of such
Series or Class, and such rating will not comment as to the marketability of
such Investor Certificates, any market price or suitability for a particular
Investor. There is no assurance that any rating will remain for any given
period of time or that any rating will not be lowered or withdrawn entirely by
a Rating Agency if in such Rating Agency's judgment circumstances so warrant.
Nor can there be any assurance that another rating agency will not rate the
Class A or Class B Certificates at a rating lower than the equivalent of the
ratings obtained in connection with their issuance.
LIMITED AMOUNTS OF SUBORDINATION
The Class B Certificates are subordinated in right of payment of
principal to the Class A Certificates. Although the probability of payment of
amounts due with respect to the Investor Certificates is intended to be
enhanced by the subordination of the Deferred Payment Right to the repayment of
the Investor Certificates as described herein and, in the case of the Class A
Certificates, by the subordination of the Class B Certificates to the Class A
Certificates as described herein, the
27
<PAGE> 30
amount of such enhancement is limited and may decline during the Amortization
Period. If the subordination of the Deferred Payment Right is insufficient to
protect the Class B Certificates from shortfalls or delays in collections on
the Receivables, then the Class B Investors will bear directly the credit,
dilution and other risks associated with their undivided interests in the
Trust. If the subordination of the Deferred Payment Right and the Class B
Certificates is insufficient to protect the Class A Certificates from
shortfalls or delays in collections on the Receivables, then the Class A
Investors will bear directly the credit, dilution and other risks associated
with their undivided interests in the Trust. Investor Certificates in Series
issued in the future may share with the Class A Certificates in the benefits of
the subordination of the Class B Certificates.
BOOK-ENTRY REGISTRATION
The Series 1995-1 Certificates will initially be represented by one or
more Investor Certificates registered in the name of Cede, the nominee for DTC,
and will not be registered in the names of the Investors or their nominees.
Consequently, unless and until Definitive Certificates are issued, Investors
will not be recognized by the Trustee as "Investors" (as such term is used in
the Pooling Agreement). Hence, until such time, Investors will only be able to
exercise the rights of Investors indirectly through DTC and its participating
organizations. See "Description of the Pooling Agreement--Book-Entry
Registration" and "--Definitive Certificates."
MATURITY CONSIDERATIONS
The Pooling Agreement and the Series 1995-1 Supplement provide that
the Series 1995-1 Investors will not receive payments of principal until
____________, 2000 [the fifth anniversary of the Closing Date](the "EXPECTED
FINAL PAYMENT DATE"), or earlier in the event of the early commencement of an
Amortization Period following the occurrence of an Early Amortization Event.
An Early Amortization Event could occur, thereby causing the
Amortization Period to commence, if the rate at which new Receivables are
generated declines significantly or, if for any other reason the Trust Assets
decline significantly. In such case, funds accumulated in the Defeasance
Account for the Series 1995-1 Certificates will be distributed to the Series
1995-1 Investors monthly on the fifteenth day of each month, commencing with
the first such date which is at least 30 days from and after the commencement
of the Amortization Period.
If no Early Amortization Event occurs, funds accumulated in the
Defeasance Account for the Series 1995-1 Certificates will be distributed on
the Expected Final Payment Date and, to the extent that the Invested Amount of
the Series 1995-1 Certificates has not been reduced to zero on such date, on
each Distribution Date thereafter.
28
<PAGE> 31
The Receivables may be paid at any time, and there is no assurance
that there will be new Receivables created or that any particular pattern of
Obligor repayments will occur. The repayment of the Invested Amount of the
Series 1995-1 Certificates is primarily dependent on the amount of outstanding
and newly generated Receivables, the rate and timing of Obligor repayments and
the issuance by the Trust of additional Series. As a result, no assurance can
be given that the Invested Amount of the Series 1995-1 Certificates will be
repaid to the Series 1995-1 Investors on the Expected Final Payment Date or any
other date.
The amount of outstanding and newly generated Receivables, as well as
delinquencies, charge-offs and dilution, will vary from month to month due to
seasonal variations, legal factors and general economic conditions. See "Risk
Factors" and "Description of the Series 1995-1 Certificates--Early Amortization
Events" herein. On each Distribution Date during the Amortization Period until
the outstanding principal amount of the Series 1995-1 Certificates is paid in
full, Investors will be entitled to receive the amount of collections allocated
to the Investors' Interest during the preceding month. See "Description of the
Series 1995-1 Certificates--Early Amortization Events" herein.
There can be no assurance that collections of Receivables, and thus
the rate at which Series 1995-1 Investors could expect to receive payments of
principal on their Series 1995-1 Certificates during the Amortization Period
will be similar to the historical experience set forth in the "Portfolio
Turnover History" table under the heading "Receivables" herein. In addition,
the Trust, as a master trust, may issue additional Series from time to time,
and there can be no assurance that the terms of any such Series would not have
an impact on the timing or amount of payments received by Investors. Further,
if an Early Amortization Event occurs, the average life and maturity of the
Investor Certificates could be significantly reduced.
For the reasons set forth above, there can be no assurance that the
actual number of months elapsed from the date of issuance of the Series 1995-1
Investor Certificates to the first Distribution Date will equal the expected
number of months.
If an event of bankruptcy relating to the Transferor or either
Originator occurs, the Transferor will immediately cease to transfer
Receivables to the Trust, and if the event of bankruptcy relates to the
Transferor, the Trustee will sell all Receivables then in the Trust unless the
Majority in Interest of each Series instructs the Trustee not to sell the
Receivables. However, in a bankruptcy proceeding, the Trustee may not be
permitted to suspend transfers of Receivables to the Trust, and the
instructions to sell the Receivables may not be given effect. See "Certain
Legal Aspects of the Receivables--Certain Matters Relating to Bankruptcy." The
proceeds from the sale of the Receivables will be treated as Collections on the
Receivables and allocated accordingly among Investors and the Transferor. If
the portion of such proceeds allocable to pay principal in respect of the
Investor Certificates is insufficient to pay the entire Invested Amount of the
Series 1995-1 Certificates, the Series 1995-1 Investors will suffer a loss.
See "Description of the Series 1995-1 Certificates -- Subordination."
29
<PAGE> 32
THE RECEIVABLES
GENERAL
The Receivables will consist of substantially all of the domestic
trade receivables originated by the Originators. The Receivables will
represent bona fide, enforceable obligations of customers that either are
evidenced by an invoice (a "BILLED RECEIVABLE") or represent the customers'
usage of electricity and related charges that will be billed during the next
billing cycle (the "UNBILLED RECEIVABLES"). CEI furnishes electric services to
an area of approximately 1,700 square miles in northeastern Ohio, including the
City of Cleveland. CEI serves approximately 747,000 customers, and nearly all
of its operating revenues are derived from the sale of electric energy.
Principal industries served by CEI include those producing steel and other
primary metals, automotive and other transportation equipment, chemicals,
electrical and non-electrical machinery, fabricated metal products, and rubber
and plastic products. TE furnishes electric service to an area of
approximately 2,500 square miles in northwestern Ohio, including the City of
Toledo. TE serves approximately 288,000 customers, and nearly all of its
operating revenues are derived from the sale of electric energy. Principal
industries served by TE include metal casting, forming and fabricating,
petroleum refining, automotive equipment and assembly, food processing, and
glass.
CUSTOMERS
On June 30, 1995, CEI had 747,144 open accounts and TE had 287,682
open accounts. The Originators' largest customer is a steel manufacturer which
has two major steel producing facilities served by CEI. Sales to these
facilities accounted for 3.7% of the 1994 total electric operating revenues of
CEI. The largest customer served by TE is a major automobile manufacturer.
Sales to this customer accounted for 4.4% of the 1994 total electric operating
revenues of TE.
The Originators experienced strong retail kilowatt-hour sales growth
in the industrial and commercial categories in 1994; the sales growth for the
residential category was lessened by weather conditions, particularly during
the summer. However, a revenue decrease resulted primarily from milder weather
conditions in 1994 and 39% lower wholesale sales. Weather reduced base rate
revenues approximately $15 million from the 1993 amount. Although total sales
decreased by 1.9%, industrial sales increased 3.3% on the strength of increased
sales to large automotive manufacturers and the broad-based, smaller industrial
customer group. This growth substantiated an economic resurgence in the
service areas, particularly in Northwestern Ohio.
For 1994, the Originators' operating revenues were 31% residential,
30% commercial, 31% industrial and 8% other. The average prices per
kilowatt-hour for residential, commercial and industrial customers were $.11,
$.10 and $.06, respectively. There can be no assurance that current Obligors
will continue as Obligors or that
30
<PAGE> 33
the usage levels of Obligors in the future will be similar to that in existence
as of the date of this Prospectus.
The characteristics set forth herein may change as of any other date
due to seasonality and variation with respect to rates. The following tables
set forth certain information about the Receivables of CEI and TE. Due to
seasonality and variation with respect to the rates at which Receivables are
created, paid or otherwise reduced, the characteristics set forth herein may
vary significantly as of any other date of determination. There is also no
assurance that the performance depicted in the tables herein will be indicative
of the future performance of the Receivables.
The table below sets forth the percentage of total revenues generated
by receivables of each Originator for residential (non-PIP), commercial, and
industrial/other tenant classes for each of the last two years and for the six
months ended June 30, 1995. Although the information relating to revenues is
generally representative of the receivables balances, there can be no assurance
that the amount of revenues of each Originator for any given period corresponds
to the actual amount of receivables generated during the relevant period or the
amount of receivables as of any given date during that period. The capitalized
terms used in the footnotes to the following tables that are not defined in the
Glossary have the respective meanings set forth in such footnotes to the
tables.
<TABLE>
REVENUE BREAKDOWN BY EACH ORIGINATOR1
(AS A % OF TOTAL)
<CAPTION>
Six Months Ended Year Ended December 31,
June 30, 1995 1994 1993
------------- ---- ----
<S> <C> <C> <C>
CEI 69.74% 69.63% 70.07%
TE 30.26% 30.37% 29.93%
Total 100.00% 100.00% 100.00%
<FN>
(1) Based on Revenues for Residential (non-PIP), Commercial, and
Industrial/Other tenant classes.
</TABLE>
The table below sets forth the aggregate number of customers of both
Originators at the end each of the last three years and at June 30, 1995.
There can be no assurance that the number of customers in the future will be
similar to the historical numbers of customers set forth below.
31
<PAGE> 34
<TABLE>
NUMBER OF CUSTOMERS BY TENANT CLASS
<CAPTION>
June 30, December 31,
Tenant Class 1995 1994 1993 1992
- ------------ ---- ---- ---- ----
(Customers) (Customers) (Customers) (Customers)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Residential 925,616 89.45% 925,344 89.47% 924,227 89.48% 925,099 89.41%
Commercial 98,086 9.48% 97,530 9.43% 96,491 9.34% 96,813 9.36%
Industrial 8,551 0.83% 8,832 0.85% 9,613 0.93% 9,855 0 .95%
Other 2,573 0.25% 2,534 0.25% 2,606 0.25% 2,886 0 .28%
Total 1,034,826 100.00% 1,034,240 100.00% 1,032,937 100.00% 1,034,653 100.00%
</TABLE>
The table below sets forth the aggregate electric operating revenues
by tenant class for both Originators for the periods indicated. There can be
no assurance that the amount of revenues in the future will be similar to the
historical revenues set forth below.
<TABLE>
REVENUES BY TENANT CLASS
(DOLLARS IN THOUSANDS)
<CAPTION>
Six Months Ended
June 30, Year Ended December 31,
TENANT CLASS 1995 1994 1993 1992
- ------------ ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
yResidential $364,021 31.95% $758,329 32.61% $768,064 33.05% $732,095 31.96%
Commercial 347,850 30.53% 722,375 31.06% 716,286 30.82% 705,965 30.82%
Industrial 384,615 33.76% 758,262 32.60% 753,789 32.43% 765,954 33.44%
Other 42,762 3.75% 86,838 3.73% 86,130 3.71% 86,467 3.78%
Total $1,139,248 100.00% $2,325,804 100.00% $2,324,269 100.00% $2,290,481 100.00%
</TABLE>
The table below sets forth the aggregate revenues generated from the
top ten customers of the Originators for the calendar year 1994. There can be
no assurance that the identity or amount of the revenues from the top ten
customers in the future will be similar to the historical identities and
amounts set forth below.
<TABLE>
TOP TEN CUSTOMERS
FOR CEI AND TE COMBINED
(DOLLARS IN THOUSANDS)
<CAPTION>
CUSTOMER 1994 REVENUES % OF TOTAL REVENUES
-------- ------------- -------------------
<S> <C> <C>
1. $61,214 2.53%
2. 47,055 1.95%
3. 43,375 1.79%
4. 22,524 0.93%
5. 18,937 0.78%
6. 17,474 0.72%
7. 17,163 0.71%
8. 14,613 0.60%
9. 13,542 0.56%
</TABLE>
32
<PAGE> 35
<TABLE>
<S> <C> <C>
10. 11,551 0.48%
------- ------
Total $267,448 11.05%
</TABLE>
The Originators' receivables balances reflect a seasonal pattern of
increased customer usage in the summer due to air conditioning and in the
winter due to heating. Historically, the Originators have experienced their
heaviest demand for electric service during the summer months. The table below
shows the seasonality reflected as each month's net receivables balance divided
by the average net receivables balance for the corresponding calendar year.
There can be no assurance that the percentages for any month in the future will
be similar to the historical percentage set forth below.
<TABLE>
MONTHLY RECEIVABLES BALANCE AS A PERCENTAGE
OF THE YEARLY AVERAGE RECEIVABLES BALANCE
FOR CEI AND TE COMBINED
<CAPTION>
Month 1995 1994 1993 1992
- ----- ---- ---- ---- ----
<S> <C> <C> <C> <C>
January 106.59% 108.58% 102.25%
February 96.95% 102.35% 92.41%
March 102.23% 96.38% 93.43%
April 92.39% 92.31% 87.71%
May 92.61% 86.17% 88.81%
June 109.22% 105.06% 101.51%
July 113.71% 114.10%
August 112.75% 119.50%
September 101.42% 107.16% 104.12%
October 93.00% 97.77% 98.46%
November 91.23% 95.90% 94.63%
December 97.04% 100.13% 102.79%
</TABLE>
33
<PAGE> 36
PORTFOLIO TURNOVER AND CREDIT EXPERIENCE
Days Sales Outstanding. The table below sets forth receivables
generated, average receivables outstanding, turnover, days sales outstanding
and the monthly payment rate for the portfolio of receivables owned by the
Originators for each of the periods shown. There can be no assurance, however,
that receivables generated, average receivables outstanding, turnover, days
sales outstanding and the monthly payment rate with respect to the Receivables
in the future will be similar to the historical figures set forth below with
respect to such portfolio.
<TABLE>
PORTFOLIO TURNOVER HISTORY
FOR CEI AND TE COMBINED
(DOLLARS IN THOUSANDS)
<CAPTION>
Average Monthly
Receivables Receivables Days Sales Payment
Generated(1) Outstanding(2) Turnover(3) Outstanding(4) Rate(5)
------------ -------------- ----------- -------------- ---------
<S> <C> <C> <C> <C> <C>
Six months ended June 30,
1995 $2,292,584(7) $196,062 11.7 30.8 97.44%
Year ended December 31,
1994 $2,332,364 $207,418 11.2 32.0 93.71%
1993 $2,321,725 $209,278 11.1 32.5 92.45%
1992(6) $2,249,360(7) $208,560 10.8 33.4 89.88%
<FN>
(1) Total billed sales plus the net change in the Unbilled Receivables balance at the start of the period and
the end of the period.
(2) Defined as the sum of aggregate receivables at the end of each month divided by the number of months in the period.
(3) Defined as the Receivables Generated divided by the Average Receivables Outstanding. Figures for six months ended
March 31, 1995 are based on annualized receivables generated for the period.
(4) Defined as 360 days divided by Turnover.
(5) Defined as 30 days divided by Days Sales Outstanding.
(6) September 1992 to December 1992.
(7) Annualized.
</TABLE>
Portfolio Dilution Experience. The table below displays dilution
experience for the portfolio of receivables owned by the Originators for each
of the periods shown. Dilution refers to reductions in receivables balances
due to adjustments principally because of erroneous billing, disputes with
customers, refunds of customer security deposits and applications of credit
balances under the Budget/Balanced Billing Payment Plan. Actual dilution
experience for the Receivables may be different in the future from that shown
with respect to such portfolio in the following table.
34
<PAGE> 37
<TABLE>
DILUTION EXPERIENCE FOR THE PORTFOLIO
FOR CEI AND TE COMBINED
(DOLLARS IN THOUSANDS)
<CAPTION>
Six Months Ended Year Ended December 31,
June 30, 1995 1994 1993
------------- ---- ----
<S> <C> <C> <C>
Average Receivables Outstanding(1) $196,062 $207,418 $209,278
Average Monthly Dilution(2) $646 $892 $925
Average Monthly Dilution as a Percentage
of Average Receivables Outstanding 0.33% 0.43% 0.44%
<FN>
(1) Defined as (i) the sum of aggregate Receivables outstanding at the end of each month of the stated period
divided by (ii) the respective number of months in the period.
(2) Defined as (i) the sum of dilution for each month of the stated period divided by (ii) the respective number
of months in each period.
</TABLE>
Portfolio Dilution Ratio Experience. The table below sets forth the
dilution ratio experience for the portfolio of receivables owned by the
Originators for each of the months listed.
<TABLE>
PORTFOLIO DILUTION RATIO EXPERIENCE
FOR CEI AND TE COMBINED
(DOLLARS IN THOUSANDS)
<CAPTION>
Receivables Total Dilution
Month Generated Dilution Ratio(1)
- ----- --------- -------- ---------
<S> <C> <C> <C>
June 95 $205,107 $568 0.309%
May 95 183,641 336 0.191%
April 95 176,204 1,000 0.530%
March 95 188,848 1,059 0.557%
February 95 190,038 487 0.249%
January 95 195,454 428 0.231%
December 94 185,454 674 0.306%
November 94 220,379 511 0.232%
October 94 220,379 541 0.255%
September 94 211,753 1,054 0.478%
August 94 220,379 1,603 0.700%
July 94 229,033 774 0.375%
June 94 206,488 610 0.345%
May 94 176,714 2,260 1.277%
April 94 176,942 351 0.187%
March 94 188,067 631 0.331%
February 94 190,739 1,194 0.599%
January 94 199,388 497 0.277%
December 93 179,732 1,834 1.054%
November 93 174,032 773 0.455%
October 93 169,978 1,332 0.569%
September 93 233,895 1,147 0.512%
August 93 223,989 982 0.431%
July 93 228,055
<FN>
(1) Defined as (i) Total Dilution divided by (ii) Receivables generated 1 month prior.
</TABLE>
35
<PAGE> 38
BILLING FOR ENERGY CONSUMPTION
Customers are billed on a monthly cycle basis for their energy
consumption based on rate schedules or contracts authorized by the PUCO. A
fuel factor is added to the base rates for electric service. This factor is
designed to recover from customers the costs of fuel and most purchased power.
That factor is reviewed and adjusted semiannually in a PUCO proceeding. This
billing procedure is expected to continue after the Closing Date.
DESCRIPTION OF THE TYPES OF BILLED RECEIVABLES BASED ON CUSTOMER PAYMENT PLANS
There are three primary types of payment plans associated with Pool
Receivables, namely: (i) the regular billing payment plan (the "REGULAR
BILLING PAYMENT PLAN"), (ii) the budget or balanced billing payment plan (the
"BUDGET/BALANCED BILLING PAYMENT PLAN"), and (iii) the deferred billing
arrangement payment plan (the "DEFERRED ARRANGEMENT PAYMENT PLAN").
Receivables generated under the Percentage of Income Payment Plan ("PIP"), a
fourth type of payment plan offered by the Originators, will be included as
Receivables but will not be Eligible Receivables and will not be included in
the calculations used to determine the Required Reserves. The Originators do
not presently intend to change any of the terms and conditions of these payment
plans.
Regular Billing Payment Plan. Under the Regular Billing Payment Plan,
the customer is billed based on his usage of electricity during the most
recent billing period (at the tariff rate for the applicable tenant class).
The customer is required to pay the full amount of the bill by the due date,
which will be fifteen days from the date the bill was created. The billed
amount may also include any outstanding balance unpaid as of the billing cut
off date and any related late payment charges.
Budget/Balanced Billing Payment Plan. This plan provides the customer
with a level monthly payment as an alternative to highs and lows in the
customer's usage of electricity. For a customer to be eligible for this type
of payment plan, such customer's account must be in "current" status.
Under the Budget/Balanced Billing Payment Plan, the customer is
required to pay an equal dollar amount every month. The difference between (i)
the amount that is owed based on the customer's usage of electricity and (ii)
the monthly amount that the customer is required to pay is booked either as an
additional debit balance to the customer's account (if the amount owed based on
usage is greater than the billed amount) or as a credit balance (if the amount
owed is less than the billed amount). At the end of the eleventh month
(referred to as the "catch-up month"), the cumulative debit or credit balance
in the customer's account is applied to the customer's next monthly bill. By
the end of every twelve months, the customer's account is updated. The Net
Eligible Receivables balance will be computed net of credit balances associated
with the Budget/Balanced Billing payment plan.
36
<PAGE> 39
Deferred Arrangement Payment Plan. This plan provides a customer with
a delinquent balance a way of avoiding disconnection of service. The customer
requests an arrangement which results in the payment of the delinquent balance
over a period of between three to six months. Under the Deferred Arrangement
Payment Plan, the customer pays, in addition to the current bill, the required
monthly installment amount of the customer's delinquent balance. The Net
Eligible Receivables balance will exclude the restructured delinquent balance
of all Deferred Arrangement Payment Plans.
The table below sets forth a breakdown of the Billed Receivables by
customer payment plan at June 30, 1995. There can be no assurance that the
breakdown by type of payment plan in the future will be similar to the
historical numbers set forth below.
<TABLE>
RECEIVABLES PORTFOLIO BREAKDOWN BY TYPE OF PAYMENT PLAN
FOR CEI AND TE COMBINED
(DOLLARS IN THOUSANDS)
<CAPTION>
Type of Payment Plan June 30, 1995
-------------------- -------------
(%)(1)
<S> <C>
Regular Billing 94.49%
Budget/Balanced Billing 1.04%
Deferred Arrangement 4.47%
Total 100.00%
<FN>
(1) As a % of Billed Receivables under the Regular, Budget/Balance, and Deferred Arrangement Billing Plans.
</TABLE>
Each year during the period from November 1 through April 15, the
PUCO requires that the Originators provide to delinquent residential customers,
a means to avoid disconnection. This payment plan is referred to as the
"One-Third of Total Bill Payment Plan". Under this plan, the delinquent
customer pays, during the period from November 1 through April 15, one-third of
its total bill.
Description of Unbilled Revenues
Unbilled revenues represent the estimated billing values of completed
service provided by the Originators from the last meter reading until the end
of each Originator's accounting period.
Unbilled revenues are recorded on the Originators' respective income
statements as the change in the unbilled revenue receivable from the previous
month's end to the current month's end. The change in unbilled revenues is
calculated by taking the total retail output in KWh for the entire calendar
month (which includes power generated and power purchased) and subtracting from
it the sum of (i) total billed KWh retail sales for the month, (ii) the
Originators' total power usage for the month, and (iii) total line losses. The
result is the net change in unbilled KWh. A separate calculation is performed
which subtracts from the total billed revenues to retail customers the billed
revenues due to large industrial customers
37
<PAGE> 40
whose meters are read at the end of the month. The result yields a revenue
subtotal. Similarly, the billed KWh related to those same industrial customers
is subtracted from the total billed KWh to retail customers. The results yield
a KWh subtotal. The revenue subtotal is divided by the KWh subtotal and the
results yield a rate per KWh. This rate is then multiplied by the net unbilled
KWh to yield net unbilled revenue. It is this net unbilled revenue which is
recorded in each Originator's monthly income statement.
HISTORICAL RECEIVABLES POOL BALANCE
On June 30, 1995, the aggregate balance of Billed Receivables of the
Originators amounted to approximately $186 million. After (i) including
Unbilled Receivables and (ii) deducting Receivables from ineligible Obligors,
Deferred Arrangement Payment Plan receivable balances, and credit balances
under the Budget/Balanced Payment Plan, the adjusted receivables pool balance
amounted to approximately $214 million. From the period September 1992 through
June 30, 1995, the net receivables pool balance ranged from a low of $181
million in April 1995 to a high of $250 million in August 1993. The table
below shows the combined Net Receivables Pool Balances of the Originators for
the months and years listed. There can be no assurance that the Net
Receivables Balance in the future will be similar to the historical numbers set
forth below.
<TABLE>
HISTORICAL NET RECEIVABLES POOL BALANCE
FOR CEI AND TE COMBINED
(DOLLARS IN THOUSANDS)
<CAPTION>
Month 1992 1993 1994 1995
<S> <C> <C> <C> <C>
January $213,987 $225,224 $208,984
February 193,385 212,287 190,077
March 195,536 199,907 200,444
April 183,549 191,461 181,149
May 184,463 178,742 181,575
June 212,430 217,907 214,146
July 238,790 235,852
August 250,080 233,863
September $217,155 224,270 210,370
October 205,350 204,607 192,890
November 197,355 200,704 189,231
December 214,381 209,540 201,287
</TABLE>
38
<PAGE> 41
CREDIT POLICY AND PROCEDURES
In general, the credit policies and procedures of the Originators are
not expected to change from those in place prior to the Closing Date.
Moreover, the Pooling Agreement and the Receivables Purchase Agreement each
restrict the ability of the Servicers to effect changes in the Credit and
Collection Policy. See "Risk Factors -- Ability of a Servicer to Change
Payment Terms"; "Description of the Pooling Agreement - - Collection and Other
Servicing Procedures"; and "Description of the Receivables Purchase Agreement
- -- Certain Originator Covenants."
CEI's Credit Department, located in Cleveland, Ohio, is responsible
for credit approval, monitoring and collection of receivables for CEI. TE's
Credit Department, located in Toledo, Ohio, is responsible for credit approval,
monitoring and collection of receivables for TE. Credit policy requires that
each new customer be appropriately reviewed to justify credit extension. Each
customer is assigned to one of two credit managers who have responsibility over
credit functions and will set up, administer or develop credit policies and
procedures that comply with Ohio law.
Credit Monitoring and Credit Limits. Credit managers monitor
customer accounts on a computerized credit system as well as through management
reports which periodically provide information with respect to overdue
accounts and the expiration of credit guidelines. Accounts that are over their
credit limit are handled on a case-by-case basis, depending on the size of the
overage, past payment history and the nature of the Originator's relationship
with the customer. Additionally, each credit manager periodically analyzes
customer payment patterns to identify any payment deterioration trends for
specific accounts that may then be subject to reduced credit limits.
Credit File Maintenance and Review. Credit files are established,
maintained and updated for each customer every month. Depending upon credit
quality, some credit files are reviewed, analyzed and updated more frequently.
Payment Terms. Standard payment terms for the Originators'
receivables are currently 15 days after the date the bill is generated for
residential, commercial and industrial accounts.
COLLECTION AND CASH MANAGEMENT
The Originators' residential, commercial, and industrial customers
submit their payments through a variety of channels: mail, lockbox bank
accounts, wire transfers, depository agents, collection centers and field
collectors. All funds are deposited into general accounts in the name of
CEI/TE the day they are received and/or processed.
Under the proposed transactions, each mail payment will be directed to
the appropriate Servicer Collection Account for the remittance of payments on
the Receivables to the Originators. The Originators will cause all other
39
<PAGE> 42
Collections to be segregated from their other funds and deposited by them into
designated Transferor Collection Accounts on a daily basis. Each bank with
which a Collection Account is maintained will then wire the funds to the
Concentration Account on a daily basis. See "Description of the Series 1995-1
Certificates -- Collection Accounts" and the "Concentration Account."
A report that identifies all daily deposits into the Concentration
Account will be used to verify that all transfers are received and recorded for
the proper amount. Servicer staff will take the necessary steps to ensure that
all post-office box and lockbox receipts are applied to a customer's account.
Delinquencies and Collection Policies. A Receivable is considered
past due and delinquent after it remains unpaid for one day beyond the due
date. The collection process begins after a short grace period following the
due date. Daily collection activities as they relate to these delinquent
accounts are handled by collections correspondents. Typically, a collection
correspondent contacts each delinquent account to discuss an overdue invoice.
Payment promises are tracked on a computer to allow immediate follow-up in the
event that a payment is not received within a reasonable period of time
(typically less than five days). The collection correspondent continues to
contact each delinquent account at least once every fourteen days. If an
account requires further action, credit managers become involved.
Charge-Off Policies. All accounts are charged off 100 days after the
final bill date. The final bill is defined as the bill presented to the
customer on the date service is ended or terminated. In most cases, since the
date of disconnection is the 82nd day from the bill's mailing date, the account
is charged off on the 182nd day from the unpaid bill's original mailing date.
Charge-offs, however, may be made sooner depending on certain circumstances,
which include notice of customer bankruptcy or other extenuating circumstances.
Additionally, if the CEI/TE manager of credit services determines that a
payment arrangement is achievable, he may postpone the timing of the account
charge-off based on the results.
LOSS AND AGING EXPERIENCE
Loss Experience. The following table sets forth the loss experience
with respect to payments by Obligors for each of the periods shown. Although
substantially all of the Originators' receivables will be transferred to the
Trust, there can be no assurance that the loss experience for the Receivables
in the future will be similar to the historical experience set forth below with
respect to such portfolio.
40
<PAGE> 43
<TABLE>
LOSS EXPERIENCE FOR THE PORTFOLIO
FOR CEI AND TE COMBINED
(DOLLARS IN THOUSANDS)
<CAPTION>
Six Months Year Ended December 31,
Ended June 30, 1995 1994 1993 1992(3)
-------------------- ---- ---- -------
<S> <C> <C> <C> <C>
Average Receivables Outstanding(1) $196,062 $207,418 $209,272 $211,848
Average Monthly Net Write-Offs(2) $624 $673 $768 $894
Average Monthly Net Write-Offs as a Percentage
of Average Receivables Outstanding 0.32% 0.32% 0.37% 0.42%
<FN>
(1) Defined as (i) the sum of aggregate Receivables outstanding at the end of each month of the stated period
divided by (ii) the respective number of months in each period.
(2) Defined as (i) the sum of the write-offs for each month of the stated period divided by (ii) the respective
number of months for each period.
(3) September 1992-December 1992.
</TABLE>
Aging Experience. The following table sets forth aging experience for
the portfolio of receivables owned by the Originators at each of the dates
shown. Although substantially all of the Originators' receivables will be
transferred to the Trust, there can be no assurance that the aging experience
for the Receivables in the future will be similar to the historical experience
set forth below with respect to such portfolio. The Originators measure
portfolio aging experience as the number of days a receivable is outstanding
after the due date.
<TABLE>
AGING EXPERIENCE FOR THE PORTFOLIO
FOR CEI AND TE COMBINED
(DOLLARS IN THOUSANDS)
<CAPTION>
December 31,
June 30, 1995 1994 1993 1992
------------- ---- ---- ----
<S> <C> <C> <C> <C>
Unbilled Revenues $100,344 $93,344 $97,844 $89,844
0-29 days past invoice date 89,395 84,841 86,018 97,621
30-59 days past invoice date 12,701 15,173 14,244 15,758
60-89 days past invoice date 4,046 4,218 4,712 5,132
90+ past invoice date 7,660 3,710 6,721 6,026
------- ------- ------- -------
Total $214,146 $201,286 $209,539 $214,381
</TABLE>
41
<PAGE> 44
<TABLE>
<CAPTION>
December 31,
June 30, 1995 1994 1993 1992
------------- ---- ---- ----
<S> <C> <C> <C> <C>
Unbilled Revenues 46.86% 46.37% 46.69% 41.91%
0-29 days past invoice date 41.74% 42.15% 41.05% 45.54%
30-59 days past invoice date 5.93% 7.54% 6.80% 7.35%
60-89 days past invoice date 1.89% 2.10% 2.25% 2.39%
90+ past invoice date 3.58% 1.84% 3.21% 2.81%
------- ------- ------- -------
Total 100.00% 100.00% 100.00% 100.00%
</TABLE>
USE OF PROCEEDS
The net proceeds from the sale of the Series 1995-1 Certificates will
be paid to the Transferor, and the Transferor will use such proceeds to
purchase the Receivables from the Originators. The Originators will use the
proceeds from such purchases for general corporate purposes.
42
<PAGE> 45
THE TRANSFEROR
The Transferor, a wholly owned subsidiary of CEI, was incorporated in
the State of Delaware on August 30, 1995. The Transferor was organized for the
limited purpose of purchasing, holding, owning and transferring Receivables of
the Originators and any activities incidental to and necessary, convenient or
advisable for the accomplishment of such purposes, and has no (and is not
expected to acquire any) material assets other than such Receivables. The
Transferor's executive offices are located at Suite 350, 1013 Centre Road,
Wilmington, Delaware 19805 (telephone number (302) 998-0592).
The Transferor has taken steps in structuring the transactions
contemplated hereby that are intended to ensure that a voluntary or involuntary
petition for relief by CEI and/or TE, under Title 11 of the United States Code
(the "BANKRUPTCY CODE") or similar applicable state laws, will not result in
consolidation of the assets and liabilities of the Transferor with those of the
bankrupt Originator. Such steps included the creation of the Transferor as a
separate, limited-purpose corporation pursuant to a certificate of
incorporation that contains certain limitations (including limitations on the
corporate purposes and on the Transferor's ability to commence a voluntary case
or proceeding under the Bankruptcy Code or similar applicable state laws
without the unanimous affirmative vote of all of its directors, including its
independent director). No assurance can be given, however, that a
consolidation will not occur. See "Certain Legal Aspects of the
Receivables--Certain Matters Relating to Bankruptcy."
43
<PAGE> 46
ORIGINATORS/INITIAL SERVICERS
GENERAL
Each of CEI and TE are wholly owned subsidiaries of Centerior Energy
Corporation ("Centerior Energy"), a public utility holding company incorporated
under the laws of the State of Ohio for the purpose of enabling CEI and Toledo
Edison to affiliate in April 1986. Nearly all of the consolidated operating
revenues of the Originators are derived from the sale of electric energy.
CEI, which was incorporated under the laws of the State of Ohio in
1892, is a public utility engaged in the generation, purchase, transmission,
distribution and sale of electric energy in an area of approximately 1,700
square miles in northeastern Ohio, including the City of Cleveland. CEI also
provides electric energy at wholesale to other electric utility companies and
to two municipal electric systems in its service area. CEI serves
approximately 747,000 customers and derives approximately 77% of its total
electric retail revenue from customers outside the City of Cleveland.
Principal industries served by CEI including those producing steel and other
primary metals, automotive and other transportation equipment, chemicals,
electrical and non-electrical machinery, fabricated metal products, and rubber
and plastic products.
TE, which was incorporated under the laws of the State of Ohio in 1901,
is a public utility engaged in the generation, purchase, transmission,
distribution and sale of electric energy in an area of approximately 2,500
square miles in northwestern Ohio, including the City of Toledo. TE also
provides electric energy at wholesale to other electric utility companies and to
13 municipally owned distribution systems and one rural electric cooperative
distribution system in its service area. TE serves approximately 288,000
customers and derives approximately 57% of its total electric retail revenue
from customers outside of the City of Toledo. Principal industries served by
TE include metal casting, forming and fabricating, petroleum refining,
automotive equipment and assembly, food processing and glass.
Each of CEI and TE will act as Servicers and, initially, CEI will act as
master servicer ("Master Servicer"), performing the following functions for the
benefit of the Investors until a successor Servicer is appointed: (a)
preparation and delivery of the Daily Reports and Determination Date
Certificates; (b) instruction of the Trustee with respect to investment of
funds in the Trust Accounts; and (c) performance of any other functions
delegated to it in the Pooling Agreement. Each Servicer will be permitted to
engage sub-servicers to perform certain of their functions.
MERGER OF TE INTO CEI
44
<PAGE> 47
In March 1994, Centerior Energy announced plans to merge TE into CEI.
Since CEI and TE affiliated in 1986, efforts have been made to consolidate
operations and administration as much as possible to achieve maximum cost
savings. The merger of the two companies, which is expected to be effective in
late 1995, will complete this consolidation process. Necessary approvals have
been obtained from the preferred stock share owners of CEI and TE and from all
applicable regulatory authorities other than the FERC, which is still
considering the application. The surviving company will operate under the name
of Centerior Electric Company; however, the origination, billing, servicing and
collection of the Receivables is not expected to change in any significant
respect as a result of the merger.
COMPETITION
General. Currently, the Originators' most pressing competition comes
from municipal electric systems in their respective service areas. The
Originators' rates are generally higher than those of municipal systems due
largely to the municipal systems' exemption from taxation, the lower cost
financing available to them, the continued availability to them of lower-cost
power through short-term power purchases and their access to cheaper
governmental power. The Originators are seeking to address the tax disparity
through the legislative process. In 1994, the Ohio Governor's Tax Commission
recommended the replacement of the gross receipts and personal property taxes
currently levied only on investor-owned utilities and collected through rates
with a different tax collected from customers of all electric utilities,
including municipal systems. Investor-owned utilities would reduce rates upon
repeal of the existing taxes. The Originators are now working to submit this
proposal to the Ohio legislature.
CEI. The largest municipal system in CEI's service area, Cleveland
Public Power ("CPP"), is operated by the City of Cleveland in competition with
CEI. CPP is primarily an electric distribution system which currently supplies
electric power in approximately 50% of the City's geographical area (expected
to increase to 100% by the end of 1999) and to approximately 30% (about 66,000)
of the electric consumers in the City -- equal to about 9% of all customers
served by CEI. CEI makes power available to CPP on a wholesale basis, subject
to FERC regulation. In 1994, CEI provided about 1% of CPP's energy
requirements. The balance of CPP's power is purchased from other sources and
wheeled over CEI's transmission system.
CPP's kilowatt-hour sales and revenues are equal to about 5% of CEI's
kilowatt-hour sales and revenues. Much of the area served by CPP overlaps
CEI's service area. CPP is constructing new transmission and distribution
facilities extending into eastern portions of
45
<PAGE> 48
Cleveland and plans to expand to western portions of Cleveland, both of which
are now served exclusively by CEI. CPP's expansion has resulted in a reduction
in CEI's annual net income by about $4,000,000 in 1993 and an additional
$3,000,000 in 1994. CEI estimates that its net income will continue to be
reduced by an additional $4,000,000 to $5,000,000 each year in the 1995-1999
period because of CPP's expansion.
Despite CPP's expansion efforts, CEI has been successful in retaining
most of the large industrial and commercial customers in the expansion areas by
providing economic incentives in exchange for sole-supplier contracts. CEI has
similar contracts with customers in other areas. Approximately 90% of CEI's
industrial revenues under contract will not be up for renewal until 1997 or
later. As these contracts expire, CEI expects to renegotiate them and retain
the customers. In addition, an increasing number of CPP customers are
converting back to CEI's service. However, competition for such customers will
continue. In March 1995, one of CEI's large commercial customers, comprising
medical and educational institutions, signed a five-year contract for electric
service with CPP beginning in September 1996 when that customer's contract with
CEI terminates. The loss of this customer to CPP would reduce CEI's net income
by about $5,000,000 based on 1994 sales. On May 3, 1995, CEI filed a complaint
with the PUCO against this customer and American Electric Power Company ("AEP")
alleging, among other things, that the purchase of power from CPP by this
customer is in reality a direct purchase from AEP, and, thus, a sham
transaction in violation of Ohio's certified territory statute. On August 10,
1995, the PUCO dismissed the complaint on jurisdictional grounds. CEI
requested a rehearing on the matter which was denied by the PUCO on October 5,
1995. CEI intends to appeal the PUCO's decision to the Ohio Supreme Court.
TE. In October, 1989, the City of Toledo established an Electric
Franchise Review Committee to (i) study TE's franchise agreement with the City
to determine whether alternate energy sources may be utilized and (ii) study
the feasibility of establishing a municipal electric system within the City of
Toledo. In November, 1993, the City approved a non-exclusive franchise with
TE which runs through the end of 1998. The Electric Franchise Review Committee
has been inactive for over one year; however, on October 4, 1995, the Toledo
City Council directed the Electric Franchise Review Committee to continue its
study on whether to form a municipal system.
On January 3, 1995, the City of Clyde, which operates its own municipal
electric system, passed ordinances to force TE to remove most of its equipment
from within the City's borders and to prevent any residential and commercial
customers within the City from obtaining service from TE. The City
subsequently asked the PUCO to authorize the removal of TE's equipment under
the Miller Act. The Miller Act is an Ohio statute which provides that a
municipality cannot force a utility to vacate a city without demonstrating that
such action is in the public interest and obtaining the approval of the PUCO.
TE has challenged the City of Clyde's Miller Act proceeding before the PUCO.
TE also filed an action in the Court of Appeals for Sandusky County, Ohio to
challenge the City's ordinance prohibiting new customers from using TE's
service. On June 23, 1995, the Court denied that action. TE has appealed this
decision to the Ohio Supreme Court. TE currently serves approximately 400
customers within the City of Clyde.
46
<PAGE> 49
Like CEI, TE has been successful in retaining most of its large
industrial and commercial customers by providing economic incentives in
exchange for sole-supplier contracts. More than 80% of TE's industrial
revenues under contract will not be up for renewal until 1997 or later. As
these contracts expire, TE expects to renegotiate them and retain the
customers. There can be no assurance, however, that retention of these
customers will in fact be achieved.
REGULATION
General. Federal regulatory bodies with significant authority over the
activities of the Originators include: (a) the FERC, which has jurisdiction
over, among other things, the transmission and sale of power at wholesale in
interstate commerce, interconnections among utilities and accounting matters;
and (b) the Nuclear Regulatory Commission, which exercises broad powers over
the construction and operation of nuclear reactors, including issues of health
and safety, antitrust and the environment.
State regulatory bodies with significant authority over the activities
of the Originators include: (x) the PUCO, which regulates, among other things,
rates, service, accounting and issuance of securities; (y) the Ohio Power
Siting Board, which exercises jurisdiction, except to the extent pre-empted by
federal law, over the location of electric generating units with a capacity of
50,000 kilowatts or more and transmission lines with a rating of at least 125kV
and certain environmental matters related thereto; and (z) the Pennsylvania
Public Utility Commission, which oversees certain of the Originators' activities
with respect to their generating facilities in Pennsylvania. In Ohio,
municipalities are permitted to regulate rates (subject to appeal to the PUCO
if not acceptable to the utility) and have jurisdiction over certain zoning and
planning matters.
Federal Energy Regulatory Matters. On March 29, 1995, the FERC issued
proposed rules relating to open access transmission services by public
utilities, recovery of stranded costs and other related matters. The open
access proposed rules would require all utilities subject to FERC jurisdiction
to offer non-discriminatory open access transmission service tariffs to
wholesale buyers and sellers of electric power. The proposed rules would
require transmission owners to offer wholesale transmission customers services
which are comparable to the services the owners provide for the transmission of
their own power. In the proposed rules on stranded costs, the FERC indicates
that utilities are entitled to full recovery of legitimate, prudent and
verifiable stranded costs at both the state and federal level. On May 25,
1995, the Originators filed with the FERC a non-discriminatory open access
transmission tariff which was drafted using the proposed rules as a guideline.
The impact of the requirement to provide transmission services is not
expected to have a material effect on the Originators' financial positions or
on their ability to service the Receivables because the Originators have
provided transmission services to wholesale customers within their respective
service territories since the late 1970s.
47
<PAGE> 50
Environmental Matters. The Originators are also subject to federal and
state environmental regulation, primarily with respect to air quality, water
quality and waste disposal matters. Federal environmental laws affecting the
Originators include the Clean Air Act, the Clean Water Act, the Resource
Conservation and Recovery Act and the Comprehensive Environmental Response,
Compensation and Liability Act. The requirements of these statutes and related
state and local laws are subject to change due to the promulgation of new or
revised laws and regulations and the results of judicial or agency proceedings.
Compliance with such laws may require the Originators to modify, supplement,
abandon or replace existing facilities and may delay or impede construction or
operation of facilities, potentially at substantial costs. The Originators
believe that the impact of such costs would eventually be reflected in their
respective rate schedules. The Originators believe that they are currently in
compliance in all material respects with all applicable environmental laws and
regulations
48
<PAGE> 51
or, to the extent that one or both of the Originators may dispute the
applicability or interpretation of a particular environmental law or
regulation, the affected Originator has either filed an appeal or applied for
permits, revisions to requirements, variances or extensions of deadlines.
THE TRUST
The Trust, as a master trust, may issue Series of Investor Certificates
from time to time. The Trust will exist only for the transactions described
herein, including the receipt of the Trust Assets and holding such Trust Assets
and proceeds therefrom, the issuance of the Investor Certificates, and making
payments on such Investor Certificates and related activities. See
"Description of the Series 1995-1 Certificates--New Issuances; Other
Modifications." As a consequence, the Trust does not and is not expected to
have any source of capital resources other than the Trust Assets. The Trust
will be administered in accordance with the laws of the State of New York.
The Trust Assets with respect to any Series will consist of an
ownership interest in (a) a portfolio of Receivables generated from time to
time by the Originators and purchased by the Transferor pursuant to the
Receivables Purchase Agreement, all collateral security with respect thereto,
all collections and amounts received with respect thereto and all proceeds
thereof, (b) all the Transferor's rights under the Receivables Purchase
Agreement, (c) all monies on deposit in certain accounts of the Trust and (d)
all funds collected or to be collected from any Enhancement issued with
respect to such Series (the drawing on or payment of any Enhancement for the
benefit of such Series or Class of Investor Certificates as set forth in the
related Supplement will not be available to the Investors of any other Series
or Class). The Transferor will acquire from the Originators all Receivables
existing on ______________________, 1995 (the "CUT-OFF DATE") and the right to
acquire substantially all Receivables thereafter generated by the Originators
and will transfer its interest in all such Receivables to the Trust. The Trust
Assets are expected to change over the life of the Trust as new Receivables
become subject to the Trust and as existing Receivables are collected,
charged-off as uncollectible or otherwise adjusted.
49
<PAGE> 52
DESCRIPTION OF THE
SERIES 1995-1 CERTIFICATES
GENERAL
The Series 1995-1 Certificates will be issued pursuant to the Pooling
Agreement and a Supplement thereto relating to such Investor Certificates,
among the Transferor, as transferor of the Receivables, CEI and TE, each as a
Servicer, and _____________________________, as Trustee, each substantially in
the forms filed as exhibits to the Registration Statement of which this
Prospectus is a part. Pursuant to the Pooling Agreement, the Transferor may
enter into Supplements with the Trustee from time to time in order to issue
additional Series. See "Description of the Series 1995-1 Certificates--New
Issuances; Other Modifications." The Trustee will provide a copy of the
Pooling Agreement (without exhibits or schedules), including any Supplements,
to Investors upon written request. The following summary describes certain
terms of the Series 1995-1 Certificates and is qualified in its entirety by
reference to the Pooling Agreement and the Supplement therefor.
The Series 1995-1 Certificates will evidence undivided beneficial
interests in the Trust Assets, representing the right to receive from such
Trust Assets funds up to (but not in excess of) the amounts required to make
payments of interest on such Investor Certificates and the payment of the
Invested Amount of the Series 1995-1 Certificates. The Series 1995-1
Certificates will represent a ratable interest in the Aggregate Investors'
Interest (the "Series 1995-1 Investors' Interest") determined based on the
Invested Amount of the Series 1995-1 Certificates compared to the Aggregate
Invested Amount. The fraction that determines the Investors' Interest (the
"Floating Allocation Percentage") has, as the numerator, the sum of (a) the Net
Invested Amount plus (b) the Carrying Cost Reserve and, as the denominator, the
Net Receivables Balance minus the Required Reserves. Such fraction adjusts
daily during the Revolving Period to reflect changes in the Base Amount
(resulting from the acquisition by the Trust of new Receivables, receipt of
Collections and defaults and dilutions) and changes in the Carrying Cost
Reserve. Upon commencement of the Amortization Period, the Floating Allocation
Percentage will be fixed to equal the Floating Allocation Percentage as of the
first day of such Amortization Period and will not fluctuate thereafter.
INTEREST
Interest will accrue on the unpaid Invested Amount (after giving effect
to distributions of principal, if any, on the preceding Distribution Date but
not reduced by the amount of Cure Funds held in the Reserve Account at such
time) of the Series 1995-1 Certificates at the
50
<PAGE> 53
respective rates per annum, equal to __% in the case of the Class A
Certificates and __% in the case of the Class B Certificates and, except as
otherwise provided herein, will be distributed to the Investors of each such
Class on each Distribution Date. Interest due with respect to the Investor
Certificates on any Distribution Date will accrue from and including the
preceding applicable Distribution Date or, in the case of the first
Distribution Date, from and including the Closing Date, to but excluding such
Distribution Date (each such period, an "INTEREST PERIOD"), and will be
calculated on the basis of a 360-day year of twelve 30-day months. To the
extent Collections allocated to the payment of interest on the Series 1995-1
Certificates are not sufficient to pay to each of the Class A Certificates and
Class B Certificates the full amount of interest accrued thereon and
distributable on any Distribution Date, such Collections will be allocated
first to the Class A Certificates until all accrued and unpaid interest thereon
is paid in full, and then to the payment of accrued and unpaid interest on the
Class B Certificates. Interest with respect to the Series 1995-1 Certificates
due but not paid on any Distribution Date will be due on the next succeeding
Distribution Date with additional interest on such amount at the applicable
Certificate Rate to the extent permitted by law.
PRINCIPAL
The Investor Certificates of each Series will have a Revolving Period
(which begins on the Closing Date and ends on the close of business on the
earliest of (a) _______________, 2000 (the "SCHEDULED AMORTIZATION COMMENCEMENT
DATE") or (b) the date of occurrence of any Early Amortization Event.
Collections will be allocated to the following: the Carrying Cost Amount, the
Invested Amount, the Defeasance Account, and the Transferor Interest. During
the Revolving Period, the portion of the Collections not allocated to the
Carrying Cost Amount will be used by Transferor to purchase new Receivables.
Therefore, during the Revolving Period, Series 1995-1 Investors will not
receive any principal payments. Instead, on each Business Day, all Collections
and other funds received in the Concentration Account allocable to the Series
1995-1 Investors' Interest and not allocable to the Carrying Cost Amount will
generally be (a) invested by the Transferor in newly originated Receivables as
long as no Set-Aside Period has commenced and is continuing and (b) deposited
by the Transferor in the Reserve Account during any Set-Aside Period.
During the Amortization Period, none of the Collections will be used by
Transferor to purchase new Receivables. After Collections are distributed for
the payment of Carrying Costs, the Series 1995-1 Investors will receive
principal payments monthly on each Distribution Date in amounts equal to the
Principal Distribution Amount (as defined below). Such payments shall be made
(a) first, to reduce the Invested Amount of Class A Certificates and any other
Investor Certificates constituting a Senior Class ratably based on the
respective Ratable Principal Amounts of such Investor Certificates until such
Invested Amounts have been reduced to zero and (b) thereafter, to reduce the
Invested Amount of Class B Certificates and any other Investor Certificates
constituting a Subordinate Class ratably based on the Ratable Principal Amounts
of such Investor Certificates until such Invested Amounts have been reduced to
zero. During the Amortization Period, the Transferor will have no right to
receive any portion of the Collections in respect of the Deferred Payment Right
until all of the principal and interest
51
<PAGE> 54
due on the Investor Certificates are paid in full. The Transferor will,
however, be entitled to receive Collections allocated to the Transferor
Revolving Certificate.
The "PRINCIPAL DISTRIBUTION AMOUNT" with respect to any Distribution
Date occurring after the Interest Period in which the Amortization Period
commences will equal the product of (a) the Floating Allocation Percentage of
Collections in the Concentration Account remaining after application thereof as
provided in CLAUSE FIRST of the priority of allocations described below under
"--Daily Allocations of Collections--During Amortization Period" and (b)(i)
with respect to the Class A Certificates, a fraction, the numerator of which is
the Ratable Principal Amount of the Class A Certificates as of the Amortization
Date and the denominator of which is the sum of the Ratable Principal Amounts
of all outstanding Senior Classes of Investor Certificates as of the
Amortization Date and (ii) with respect to the Class B Certificates, a
fraction, the numerator of which is the Ratable Principal Amount of the Class B
Certificates as of the Amortization Date and the denominator of which is the
sum of the Ratable Principal Amounts of all outstanding Series of Investor
Certificates as of the Amortization Date (each such fraction, expressed as a
percentage, the "PRINCIPAL ALLOCATION PERCENTAGE"). Notwithstanding the
foregoing, however, the Principal Distribution Amount with respect to the Class
B Certificates shall be paid to the Class A Investors until the Invested Amount
of the Class A Certificates has been paid in full.
It is expected that the final principal payment with respect to the
Series 1995-1 Certificates will be made on the Expected Final Payment Date, but
the principal of such Investor Certificates may be paid earlier or later,
depending on the actual payment rate on the Receivables and other
considerations, as described under "Maturity Considerations."
In the event of a sale of the Receivables and an early termination of
the Trust due to an Insolvency Event with respect to the Transferor, (as
described under "--Early Amortization Events" or "Description of the Pooling
Agreement--Termination of the Trust"), distribution of principal will be made
to the Series 1995-1 Investors only upon surrender of their Investor
Certificates.
SUBORDINATION
The Deferred Payment Right will be subordinate in right of distribution
to all Series of Investor Certificates and the Transferor Revolving
Certificate. The Transferor Revolving Certificate will be PARI PASSU in right
of distribution to all Series of Investor Certificates. The Class B
Certificates and any other Subordinated Class will be subordinate in right of
distribution to all other Classes.
The Deferred Payment Right will not receive distributions during the
Revolving Period and will only receive distributions during the Amortization
Period after the Investor Certificates have been paid in full. Each of the
Classes of the 1995-1 Series of Investor Certificates and the Transferor
Revolving Certificate will be entitled to periodic distributions during the
Revolving Period and the Amortization Period, but only to the extent that all
distributions due and payable as of such date to senior
52
<PAGE> 55
Classes, if any, have been made. Distributions in respect of Investor
Certificates of the same Class or Investor Certificates of different Classes
equal in priority will be made pro rata.
DISTRIBUTIONS TO SERIES 1995-1 INVESTORS
On each Distribution Date, the Trustee, acting upon instructions from a
Servicer, will make the following distributions to the Series 1995-1 Investors
in the following order of priority from amounts available for allocation
thereto as described in "Daily Allocation of Collections":
(i) to the Class A Investors, the sum of (a) interest accrued on
the Class A Certificates during the immediately preceding
Interest Period and (b) the aggregate amount of shortfalls in
distributions of interest to the Class A Investors as provided
in clause (i)(a) for all prior Distribution Dates, together
with interest thereon at the applicable Class A Rate in effect
for each Interest Period during which such shortfall was
outstanding;
(ii) to the Class B Investors, the sum of (a) interest accrued on
the Class B Certificates during the immediately preceding
Interest Period and (b) the aggregate amount of shortfalls in
distributions of interest to the Class B Investors as provided
in clause (ii)(a) for all prior Distribution Dates, together
with interest thereon at the applicable Class B Rate in effect
for each Interest Period during which such shortfall was
outstanding;
(iii) to the Class A Investors, in reduction of the outstanding
principal amount of the Class A Certificates, (a) on the
Expected Final Payment Date, an amount equal to the lesser of
the funds on deposit in the Defeasance Account for the Series
1995-1 Investors or the outstanding principal amount of the
Class A Certificates and (b) on each Distribution Date
occurring after the Expected Final Payment Date and, if the
Amortization Period commences as a result of an Early
Amortization Event, on each Distribution Date after the
Amortization Date (starting with the Distribution Date at least
30 days after the Amortization Period commences), an amount
equal to the lesser of (x) the Principal Distribution Amount
for such Distribution Date and (y) the outstanding principal
amount of the Class A Certificates, until the outstanding
principal amount of the Class A Certificates has been reduced
to zero; and
(iv) to the Class B Investors, in reduction of the outstanding
principal amount of the Class B Certificates, (a) on the
Expected Final Payment Date, an amount equal to the funds on
deposit in the Defeasance Account for the Series 1995-1
Investors, if any, after application of such funds in
accordance with clause (iii) above and (b) on each
Distribution Date occurring after the Expected Final Payment
Date and, if the Amortization Period commences as a result of
an Early Amortization Event, on each Distribution Date after
the Amortization Date (starting with the Distribution Date at
least 30 days after the Amortization Period commences), an
amount equal to the lesser of (x) the Principal Distribution
53
<PAGE> 56
Amount for such Distribution Date, and (y) the outstanding
principal amount of the Class B Certificates.
NEW ISSUANCES; OTHER MODIFICATIONS
The Pooling Agreement provides that, pursuant to any one or more
Supplements, the Transferor may direct the Trustee to issue from time to time
new Series subject to the conditions described below (each such issuance or
sale, a "NEW ISSUANCE"). Each New Issuance will have the effect of decreasing
the principal amount of the Transferor Revolving Certificate to the extent of
the Invested Amount of such new Series. Under the Pooling Agreement, the
Transferor may designate, with respect to any newly issued Series, the
Principal Terms of such new Series. The terms of each Series Supplement may,
subject to certain conditions described below, modify or amend the terms of the
Pooling Agreement solely as applied to such new Series. None of the
Transferor, the Originators, the Trustee or the Trust is required or intends to
obtain the consent of any Investor to issue any additional Series. The
proceeds of the issuance of a new Series may be used to pay the outstanding
principal balance of another Series. Any such Series may be issued in fully
registered or book-entry form in minimum denominations determined by the
Transferor.
Each Series may have the benefits of Enhancements issued by Enhancement
Providers different from the Enhancement Providers with respect to any other
Series. Under the Pooling Agreement, the Trustee will hold any such
Enhancement only on behalf of the Series to which such Enhancement relates.
With respect to each such Enhancement, the Transferor may deliver a different
form of Enhancement Agreement (if any). There is no limit to the number of New
Issuances that the Transferor may cause under the Pooling Agreement. The Trust
will terminate only as provided in the Pooling Agreement. There can be no
assurance that the terms of any Series might not have an impact on the timing
and amount of payments received by an Investor.
A New Issuance may only occur upon the satisfaction of certain
conditions provided in the Pooling Agreement. The obligation of the Trustee to
issue the Investor Certificates of such new Series, and to execute and deliver
the related Supplement is subject to the satisfaction of the following
conditions: (a) the Transferor will have given the Trustee and each Servicer,
Rating Agency (if any rated Investor Certificates are outstanding) and
Enhancement Provider written notice of such New Issuance and the date upon
which the New Issuance is to occur; (b) the Transferor will have delivered to
the Trustee the related Supplement, in form satisfactory to the Trustee; (c)
the Transferor will have delivered to the Trustee any related Enhancement
Agreement; (d) the Rating Agency Condition will have been satisfied with
respect to such issuance; (e) the Transferor will have delivered to the Trustee
and each Enhancement Provider an opinion of counsel (a "TAX OPINION") that (x)
following the New Issuance, the Trust will not be subject to federal income
tax, (y) the new Investor Certificates will be properly characterized as debt
of Transferor (or as a partnership interest) and (z) the New Issuance will not
adversely affect the characterization of the Investor Certificates of any
outstanding Series or Class as debt; (f) the Transferor will have delivered to
the Trustee and any Enhancement Provider, an opinion of counsel that (i) the
certificates issued in the New Issuance have been, or need not be, registered
under the Securities Act and will not require that any of the Investor
Certificates not
54
<PAGE> 57
registered under the Securities Act be so registered; (ii) the New Issuance
will not result in the Trust becoming subject to registration as an investment
company under the Investment Company Act of 1940, as amended from time to time
(the "INVESTMENT COMPANY ACT"), and (iii) the New Issuance will not require the
Pooling Agreement or the Supplement relating to the New Issuance to be
qualified under the Trust Indenture Act of 1939, as amended; (g) the Transferor
will have delivered to the Trustee a certificate to the effect that no Early
Amortization Event has occurred and is continuing; (h) the Transferor will have
delivered to the Trustee a certificate to the effect that each of the
conditions set forth in the Pooling Agreement for the New Issuance of Investor
Certificates and the execution and delivery of the related Supplement has been
satisfied; (i) the New Issuance will not cause the Floating Allocation
Percentage to exceed 100%; (j) if the New Issuance is in exchange for any
outstanding Investor Certificates, that Transferor has delivered to the Trustee
the Investor Certificates to be cancelled by Trustee; and (k) any other
conditions specified in any Supplement. Upon satisfaction of the above
conditions, the Trustee will execute the Supplement and, with respect to a New
Issuance of a Series, issue to the Transferor the Investor Certificates of such
new Series for execution and redelivery to the Trustee for authentication.
One or more Series of Variable Funding Certificates may be issued by
the Trust from time to time. The Transferor may, in accordance with the terms
of the Supplement pursuant to which such Variable Funding Certificates are
issued, periodically request the holder of each such Variable Funding
Certificate to provide funds to the Trustee in order to increase the then
outstanding principal amount of such Variable Funding Certificate, subject to
the Stated Amount and certain requirements regarding the sufficiency of the
level of Net Eligible Receivables in the Trust. The principal balance of
Variable Funding Certificates may be reduced and distributions in reduction
thereof made prior to commencement of the Amortization Period.
COLLECTION ACCOUNTS
On or prior to the Closing Date, the Originators will (i) assign to the
Transferor all of their rights in respect of any designated post-office boxes
or lockboxes of the Originators to which any payments in respect of Receivables
("COLLECTIONS") will be sent and deposited, and (ii) assign to the Transferor
all of their rights with respect to any related deposit accounts that will be
utilized for receiving the Collections (each such account, a "SERVICER
COLLECTION ACCOUNT"). Each Servicer and each Originator will, consistent with
their current practices, continue to receive all Collections not deposited
directly into the Servicer Collection Accounts by the Obligors, and will, on
each Business Day, deposit all such other Collections into a segregated bank
account held in the name of the Transferor (the "TRANSFEROR COLLECTION ACCOUNT"
and, together with the Servicer Collection Account, the "COLLECTION ACCOUNTS").
The Originators will modify their current collection practices to ensure that
the Servicer Collection Accounts and Transferor Collection Accounts are
utilized solely for receiving Collections and other funds belonging to the
Transferor and do not contain other funds of the Originators.
55
<PAGE> 58
CONCENTRATION ACCOUNT
The Trustee will establish and maintain for the benefit of the
Investors, in the name of the Trustee and on behalf of the Trust, a segregated
trust account bearing a designation clearly indicating that the funds
deposited therein are held for the benefit of the Investors (the "CONCENTRATION
ACCOUNT"). The Concentration Account will be initially maintained with
___________________.
Funds in the Concentration Account generally will be invested in
eligible investments ("ELIGIBLE INVESTMENTS") consisting of book-entry
securities entered on the books of the registrar of such security and held in
the name or on behalf of the Trustee or negotiable instruments or securities
represented by instruments in bearer or registered form (registered in the name
of the Trustee or its nominee) which evidence: (a) direct obligations of, or
obligations fully guaranteed as to timely payment by, the United States of
America or any agency (having original maturities no later than the next
Distribution Date); (b) demand deposits, time deposits or certificates of
deposit (having original maturities no later than the next Distribution Date)
of depository institutions or trust companies incorporated under the laws of
the United States of America or any state thereof (or domestic branches of
foreign banks), subject to supervision and examination by Federal or state
banking or depository institution authorities, and having, at the time of the
Trust's investment or contractual commitment to invest therein, the highest
short-term unsecured debt rating from S&P and Moody's; (c) commercial paper
(having original maturities no later than the next Distribution Date) having,
at the time of the Trust's investment or contractual commitment to invest
therein, the highest short-term rating from S&P and Moody's; (d) investments in
no load money market funds having a rating from each rating agency rating such
fund in its highest investment category; (e) notes or bankers' acceptances
(having original maturities no later than the next Distribution Date) issued by
any depository institution or trust company described in clause (b) above; or
(f) repurchase agreements entered into with a securities firm which is a
primary dealer on the Federal Reserve reporting dealer list or a financial
institution having the highest short-term debt or certificate of deposit rating
(as the case may be) available from S&P or Moody's, provided that such
repurchase agreements are secured by a perfected first priority security
interest in an obligation of the type described in clause (a) above, and
provided further that (y) the market value of the obligation with respect to
which such firm or institution has a repurchase obligation, determined as of
the date on which such obligation is originally purchased, shall equal or
exceed 102% of the repurchase price to be paid by such firm or institution and
(z) the trustee or a custodian acting on its behalf shall have possession of
the instruments or documents evidencing such obligations.
DEPOSITS IN CONCENTRATION ACCOUNT
On each Business Day, each bank with which a Collection Account is
maintained will be instructed to wire all Collections received to the
Concentration Account. Unless such authority is otherwise revoked by the
Trustee from and after a Servicer Default, the Concentration Account will be
accessible by the Master Servicer for the purposes of (i) paying to the Trustee
the Collections and other funds allocated to the Investors' Interest and to the
payment of interest,
56
<PAGE> 59
costs, fees and expenses owed to the Investors, (ii) paying to the Transferor
any Collections or other funds allocated to the Transferor Interest (including
amounts being reinvested by the Trust in newly originated Receivables during
the Revolving Period) and (iii) during the Revolving Period, paying directly to
the Originators any amounts owed by the Transferor under the Receivables
Purchase Agreement for the purchase of newly originated Receivables. See
"Description of the Series 1995-1 Certificates -- Daily Allocations of
Collections."
CARRYING COST ACCOUNT
On a daily basis until the termination of the Trust, a portion of the
funds in the Concentration Account will be allocated prior to commencement of
the Amortization Period to an administrative sub-account of the Concentration
Account (the "CARRYING COST ACCOUNT") until such portion (the "CARRYING COST
AMOUNT") is equal to the sum of (i) accrued but unpaid interest on the
outstanding Aggregate Invested Amount at the applicable Certificate Rates, (ii)
accrued and unpaid Servicing Fee, (iii) any other fees estimated to accrue on
or before the 15th day of the succeeding calendar month which are entitled to
priority of payment over principal in the allocation of Collections and (iv)
all Carrying Costs that will be due and owing on or before the 15th day of the
succeeding calendar month (such interest and fees collectively, the "CARRYING
COSTS"). Funds will be withdrawn from the Carrying Cost Account on each
Distribution Date prior to the commencement of the Amortization Period to pay
the applicable other Carrying Costs and any other fees and expenses. On the
first day of the Amortization Period, the Carrying Cost Account will be closed
and thereafter funds that had been allocated thereto will be distributed in the
same manner as other funds in the Concentration Account.
REQUIRED RESERVES
Prior to the commencement of the Amortization Period, the Required
Reserves for the Series 1995-1 Certificates will equal the sum of the
Applicable Reserve Ratio for the Class B Certificates times the Net Receivables
Balance (the "CLASS B REQUIRED RESERVES") and the amount, if any, by which the
Applicable Reserve Ratio for the Class A Certificates times the Net Receivables
Balance (the "CLASS A REQUIRED RESERVES") exceeds the sum of (a) the Class B
Required Reserves and (b) the outstanding principal amount of the Class B
Certificates. The "APPLICABLE RESERVE RATIO" for any Class or Series means, at
any time, an amount calculated in the most recent Determination Date
Certificate to be the greater of (a) the Minimum Required Reserve Ratio for
such Class or Series and (b) the sum of the Loss Reserve Ratio and the Dilution
Reserve Ratio for such Class or Series (together, the "Required Reserve
Ratios") as calculated in such Determination Date Certificate. The "Minimum
Required Reserve Ratio" for the Class A Certificates will be a percentage equal
to the higher of (i) 7.5% and (ii) the sum of (a) six times the concentration
limit for Obligors which are either not rated by either of the Rating Agencies,
by Duff & Phelps Credit Rating Co. or by Fitch Investors Service, L.P. or have
ratings which are less than investment grade and (b) the product of the Average
Dilution Ratio for the most recently ended Collection Period times the Dilution
Horizon Ratio for such Collection Period, and the "Minimum Required Reserve
Ratio" for the Class B Certificates will be a
57
<PAGE> 60
percentage equal to the higher of (i) 6.25% and (ii) the sum of (a) four times
the concentration limit for Obligors which are either not rated by either of
the Rating Agencies, by Duff & Phelps Credit Rating Co. or by Fitch Investors
Service, L.P. or have ratings which are less than investment grade and (b) the
product of the Average Dilution Ratio for the most recently ended Collection
Period times the Dilution Horizon Ratio for such Collection Period. Each
Minimum Required Reserve Ratio may be increased on a monthly basis due to
increases in the Dilution Reserve Ratio and the Loss Reserve Ratio (as
calculated on the most recent Determination Date Certificate) or due to
increases in the Average Dilution Ratio as calculated for the most recent
twelve-month period. Additional Required Reserves may be required for any
other Series.
SET-ASIDE PERIOD; RESERVE ACCOUNT
On each Business Day during the Revolving Period, the Transferor will
compute whether the Net Receivables Balance minus the Aggregate Required
Reserves minus the Carrying Cost Reserve (such amount, the "BASE AMOUNT") is
equal to or greater than the Aggregate Invested Amount (computed as if reduced
by the amount of Cure Funds held in the Reserve Account for each such Series
and the amount of funds held in any Defeasance Account to reduce the Invested
Amount of any Series) (such recomputed amount, the "NET INVESTED AMOUNT"). A
"SET-ASIDE PERIOD" will commence on any Business Day on which the Base amount
is less than the Net Invested Amount and will continue until such
insufficiency no longer exists; provided that, if such Set-Aside Period
continues for five consecutive Business Days, then an Amortization Period shall
commence for all Series on such fifth Business Day.
During the Set-Aside Period, the Transferor shall, after making any
necessary allocations to the Carrying Cost Amount, deposit all remaining
Collections to the Reserve Account (all such funds so deposited from time to
time by the Transferor being "CURE FUNDS") until the amount so deposited equals
the amount by which the Aggregate Invested Amount exceeds the Base Amount.
Notwithstanding the foregoing, the Transferor may not deposit any Cure Funds to
the Reserve Account at any time if such amount, together with the aggregate
amount of Cure Funds previously deposited by the Transferor and held in the
Reserve Account at such time, would exceed 35% of the Aggregate Invested Amount
at such time, unless the Transferor has obtained the prior written consent of
the Investors holding Certificates evidencing 51% or more of the Aggregate
Investors' Interest. If Transferor does not obtain such consent as required,
the Amortization Period will commence. The Reserve Account shall be
established and maintained by, and be under the control of, and accessible only
by the Servicers and by the Trustee for the benefit of the Trust. Amounts on
deposit in the Reserve Account may be released to the Transferor as described
under "Description of the Series 1995-1 Certificates -- Principal"; provided,
however, that no amounts shall be released unless, after giving effect to such
release, the Net Invested Amount would continue to be less than or equal to the
Base Amount.
58
<PAGE> 61
DAILY ALLOCATION OF COLLECTIONS
Prior to Amortization Period. On each Business Day prior to the
Amortization Date, the Servicers will allocate all collected funds then on
deposit in the Concentration Account (other than funds mistakenly deposited
therein) to the following items, in the following order of priority:
FIRST, to the Carrying Cost Account maintained in the name of the
Trustee for the payment of Carrying Costs until the amount on deposit therein
equals the Carrying Cost Amount;
SECOND, if a Set-Aside Period exists, to be set aside in the Reserve
Account until the Net Invested Amount is less than or equal to the Base Amount;
THIRD, if the Base Amount is greater than or equal to the Net Invested
Amount, if requested by the Master Servicer and permitted by any Supplement or
if otherwise required by any Supplement, to be used to reduce the Invested
Amount of any Investor Certificate or to deposit in any Defeasance Account;
FOURTH, to be used to pay any other obligations of the Transferor owed
to the Investors, any Servicer or the Trustee, or, if permitted by any
Supplement, to pay into any Defeasance Account or any other sub-account of the
Concentration Account to the extent requested by the Master Servicer or
required by any Supplement;
FIFTH, to make payments to the Transferor on such Business Day in
respect of the Transferor Interest in an amount equal to the balance of funds
on deposit in the Concentration Account after application of such funds
pursuant to clauses FIRST through FOURTH above.
If, on any day prior to the Amortization Date, funds on deposit in the
Concentration Account and available for allocation under any of clauses THIRD
and FOURTH above are less than the amount of the obligations described in such
clauses, then the available Collections will be allocated by the Servicers to
the holders of such obligations pro rata according to the respective amounts of
such obligations held by them (as weighted in accordance with any adjustment
factors used in determining their respective Ratable Principal Amounts). All
other obligations in lower priority categories will remain unsatisfied until
the obligations in the preceding category have been satisfied.
During Amortization Period. On the first day of the Amortization
Period, the Floating Allocation Percentage will become fixed, each of the
Concentration Account sub-accounts will be closed and all amounts on deposit
therein together with all Collections deposited in the Concentration Account
(other than funds mistakenly deposited therein) which are allocable to the
Investors (i.e., the Floating Allocation Percentage of Collections) will be
held in trust by the Trustee and applied on each Distribution Date during the
Amortization Period, in the following order of priority:
59
<PAGE> 62
FIRST, to pay accrued Carrying Costs;
SECOND, to be deposited in a Defeasance Account or otherwise
distributed to reduce the Invested Amount of the Certificates;
THIRD, to pay other obligations which are owed to the Investors and are
expressly subordinated to the reductions of Invested Amounts under the relevant
Supplements, ratably in accordance with the respective amounts of such
obligations;
FOURTH, to be used to pay any other obligations of Transferor owed to
the Originators, any Servicer, the Trustee or to pay any other party in
connection with the Pooling Agreement.
Amounts deposited in the Defeasance Accounts shall be distributed,
first, to reduce the Invested Amount of any Investor Certificates constituting
a Senior Class ratably based on the respective Ratable Principal Amounts of
such Investor Certificates until their Invested Amounts have been reduced to
zero and thereafter, to reduce the Invested Amounts of any Investor
Certificates constituting a Subordinated Class ratably based on the respective
Ratable Principal Amounts of such Investor Certificates until either (i) their
Invested Amounts have been reduced to zero or (ii) that date which is at least
one year and one day after the commencement of the Amortization Period and on
which the outstanding balances of all Trust Receivables have been collected
and/or written off.
During the Amortization Period, the Transferor Interest in funds
received in the Concentration Account shall, on each Business Day, continue to
be remitted to the Transferor in consideration of the Transferor Revolving
Certificate. After the Aggregate Invested Amount, together with all interest
thereon and other amounts owed to Investors, have been paid in full, all
remaining amounts otherwise allocable to the Investors' Interest shall be
distributed to the Transferor in consideration of the Deferred Payment Right.
Notwithstanding the foregoing, to the extent set forth in any
Supplement, Collections identified as having been received in respect of
Receivables that are not Eligible Receivables or that are otherwise not
included in the calculation of the Net Receivables Balance may be distributed
first to the Investors of any Series that elected to give value to the
Transferor for such Receivables before those Collections are distributed to the
Investors of any other Series.
EARLY AMORTIZATION EVENTS
As described above, the Revolving Period with respect to the Series
1995-1 Certificates will terminate prior to the Scheduled Amortization
Commencement Date if an Early Amortization Event occurs and, as a result, the
"AMORTIZATION DATE" is deemed to have occurred (in which case an Amortization
Period will commence). An "EARLY AMORTIZATION EVENT" will include the
following events:
60
<PAGE> 63
(a) non-payment of interest on the Investor Certificates
on any Distribution Date or non-payment of any other amount owed by the
Transferor or by either Originator under the Pooling Agreement or the
Receivables Purchase Agreement or any agreement delivered in connection
therewith, any of which non-payments remains uncured (i) in the case of
interest, for 5 Business Days and (ii) in the case of all payments not
included in clause (i) above, for 7 Business Days;
(b) (i) any representation, warranty or certification made
by the Transferor, an Originator or a Servicer under or in connection
with the Pooling Agreement, or the Receivables Purchase Agreement, or
in any certificate or information delivered pursuant to or in
connection with either of the foregoing, shall prove to have been
incorrect in any material respect when made and which continues to be
incorrect in any material respect for a period of 30 days (or, with
respect to any representation, warranty or certification made by the
Transferor in the Pooling Agreement in respect of authorizations,
consents, licenses, orders or approvals, registrations or declarations
required to be obtained from any governmental authority, shall prove to
have been incorrect in any material respect when made and which
continue to be incorrect in any material respect for a period for 5
days, or, with respect to certain representations and warranties made
by the Transferor in the Pooling Agreement in respect of the Pooling
Agreement and the Trust Assets, such longer period as may be agreed to
by the Trustee and the Majority in Interest of any Series that is
materially and adversely affected by such incorrectness) after the date
on which notice of such failure, requiring the same to be remedied,
shall have been given to the Transferor by the Trustee or to the
Transferor and the Trustee by an Investor and (ii) as a result of such
incorrectness the interests of the Investors of any Series are
materially and adversely affected; or
(c) failure of the Transferor, either Originator or any
Servicer to perform or observe in any material respect, any term,
covenant or agreement under the Pooling Agreement, the Receivables
Purchase Agreement or any agreement delivered in connection therewith,
which failure has a material adverse effect on the interests of the
Investors of any Series and which continues unremedied for a period of
30 days after the date on which written notice of such failure,
requiring the same to be remedied, shall have been given to the
Transferor, each Originator or Servicer, as applicable, by the Trustee
or any Enhancement Provider, or to the Transferor, each Originator or
Servicer, as applicable, and the Trustee by the Majority Investors or
by a Majority in Interest of any Series;
(d) a default shall have occurred and be continuing under
the Receivables Purchase Agreement, or the Receivables Purchase
Agreement shall cease to be in effect;
(e) the occurrence of certain events of bankruptcy,
insolvency or receivership relating to the Transferor, either
Originator or the Trust (an "INSOLVENCY EVENT");
61
<PAGE> 64
(f) the Transferor or the Trust has been finally
determined by the Securities and Exchange Commission or other
governmental authority to be an investment company within the meaning
of the Investment Company Act;
(g) the Trust shall have received a final determination
that it will be treated as an association taxable as a corporation or
as a "publicly traded partnership" taxable as a corporation for federal
income tax purposes;
(h) a Servicer Default shall have occurred and been
continuing, which Servicer Default has a material adverse effect on
Investors;
(i) the Net Invested Amount shall exceed the Base Amount
for 5 consecutive Business Days; and
(j) (i) the purchase of any Receivable under the
Receivables Purchase Agreement ceases to create a valid sale, transfer
and assignment to the Transferor; (ii) any transfer of a Receivable
under the Pooling Agreement ceases to create either a valid transfer
and assignment to the Trust or a valid and perfected first priority
security interest; or (iii) the Investor Certificates cease to evidence
the beneficial interest in the Trust.
Any event described in clause (e), (f) or (i) shall constitute an Early
Amortization Event automatically without any notice of any kind whatsoever.
Any other event described in clauses (a) through (j) above shall constitute an
Early Amortization Event if the holders of 66 2/3 of the Aggregate Invested
Amount, by written notice delivered to the Transferor, each Servicer and the
Trustee, have declared an Early Amortization Event to have occurred. Any delay
in or failure of performance referred to under clause (a) above for a period of
up to 10 Business Days or referred to under clause (b), (c) or (d) for a period
of up to 30 Business Days, in each case after the applicable grace period, will
not constitute an Early Amortization Event unless such delay or failure is
continuing at the expiration of such additional 10 to 30 Business Days, as
applicable, if such delay or failure could not be prevented by the exercise of
reasonable diligence by the Transferor, the Originators or the Servicers as
applicable. and such delay or failure was caused by an act of God or the public
enemy, acts of war, public disorder, rebellion or sabotage, epidemics,
landslides, lightning, fire, hurricanes, earthquakes, floods, union strikes,
work stoppages, computer system failure or other similar occurrences.
In addition to the consequences of an Early Amortization Event
discussed above, if an Insolvency Event occurs with respect to the Transferor,
the Transferor must immediately stop transferring Receivables to the Trust and
give written notice of the Insolvency Event to the Trustee. The Trustee, then,
must give notice to the Investors and each Servicer of the Insolvency Event.
The Trustee shall sell, dispose of or otherwise liquidate the Receivables in a
commercially reasonable manner and on commercially reasonable terms unless
within 60 days from the date such notice is given the holders of Investor
Certificates evidencing more than 50% of the Aggregate Invested Amount instruct
the Trustee not to dispose of or liquidate the Receivables and to reconstitute
the Trust and the Pooling Agreement. Notwithstanding the
62
<PAGE> 65
termination of the Trust or the Pooling Agreement, the proceeds from any such
sale, disposition or liquidation of the Receivables will be treated as
Collections and deposited in the Concentration Account and allocated as
described in the Pooling Agreement, and the respective Supplements.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The Servicers will be responsible for servicing and administering the
Receivables in exchange for a monthly servicing fee (the "SERVICING FEE"),
payable in arrears on each Distribution Date in respect of any Interest Period
(or portion thereof) occurring prior to the termination of the Trust. So long
as any Originator or an Affiliate thereof acts as Servicer, the Servicing Fee
will be an amount equal to 1% per annum of the aggregate outstanding
Receivables as of the beginning of the immediately preceding calendar month.
The Servicing Fee for any Servicer other than an Originator or an Affiliate
thereof may be a greater amount but may not exceed the lesser of (x) 110% of
the aggregate reasonable costs and expenses incurred by such Servicer during
such Collection Period in connection with the performance of its servicing
obligations and (y) 2% per annum of the beginning monthly balance of the
Receivables. The Servicing Fee will be payable solely from Collections.
Each Servicer will pay from its own funds, without reimbursement, all
expenses incurred in connection with servicing the Receivables, including
expenses related to enforcement of the Receivables, payment of fees, costs and
expenses of the Trustee, the Paying Agent, the Collection Banks, the
Concentration Account Banks, the Transfer Agent and Registrar and all other
fees and expenses that are not expressly stated in the Pooling Agreement or any
Supplement as payable by the Trust or the Transferor, other than federal,
state, local and foreign income and franchise taxes, if any, or any interest or
penalties with respect thereto, of the Trust. So long as separate Servicers
are utilized for the Receivables originated by CEI and TE respectively, the
Servicing Fee will be allocated between them based on the respective dollar
amounts of Receivables sold to the Transferor by each of CEI and TE during the
relevant calendar month.
RECORD DATE
The "RECORD DATE", with respect to any Distribution Date, shall be the
last day of the month preceding such Distribution Date. Payments on the
Investor Certificates will be made as described herein to the Investors in
whose names the Investor Certificates of the Series were registered (expected
to be Cede, as nominee of DTC) at the close of business on the applicable
Record Date. However, the final principal payment on the Investor Certificates
will be made only upon presentation and surrender of the Investor Certificates.
Distributions will be made to DTC by check. See "Description of the Pooling
Agreement--Book-Entry Registration."
REPORTS
On each Business Day, the Master Servicer will prepare and deliver to
the Trustee and the Transferor: (i) prior to the Amortization Date, a report
setting forth, among other things, the daily Receivables and Collections
activity, the amount of Net Eligible Receivables, the Net
63
<PAGE> 66
Receivables Balance, the Base Amount and the Invested Amount of the Variable
Funding Certificate, the Floating Allocation Percentages, the funds available
for allocation in the various accounts and the aggregate purchase price of the
Receivables as adjusted and (ii) on and after the Amortization Date, a report
setting forth, among other things, the daily Receivables activity, the daily
cash allocations, the amount in the various accounts and the cash flow summary
(each such report being herein called a "DAILY REPORT"). The Transferor shall
deliver a copy of such Daily Report to each Originator on each Business Day.
On each Determination Date, the Master Servicer will, with respect to
each Series of Investor Certificates, deliver to the Trustee and the Transferor
a statement (a "DETERMINATION DATE CERTIFICATE") prepared by the Master
Servicer setting forth certain information with respect to the Trust and the
Investor Certificates of such Series (unless otherwise indicated), including,
among other things: (i) prior to the Amortization Date, a report setting forth
the monthly Receivables collection activity, the number of turnover days, the
amount of Investor Certificates, the Reserve Ratios and any Early Amortization
Events, and (ii) on or after the Amortization Date, a report setting forth the
monthly Receivables activity and the amount of Investor Certificates.
On or before February 15 of each calendar year, the Master Servicer, on
behalf of the Trustee, will furnish (or cause to be furnished) to each person
who at any time during the preceding calendar year was an Investor of record a
statement containing the information required to be provided by an issuer of
indebtedness under the Code for such preceding calendar year or the applicable
portion thereof during which such person was an Investor, together with such
other customary information as is necessary to enable the Investors to prepare
their tax returns. See "Certain Tax Considerations."
LIST OF INVESTORS
Upon written request of any Investor or group of Investors of record of
any Series holding Investor Certificates evidencing not less than 10% of the
aggregate unpaid principal amount of the Investor Certificates of such Series,
the Trustee will afford such Investors access during normal business hours to
the current list of Investors of such Series for purposes of communicating with
other Investors with respect to their rights under the Pooling Agreement, any
Supplement or the Investor Certificates.
The Pooling Agreement does not provide for any annual or other
meetings of Investors of any Series.
64
<PAGE> 67
DESCRIPTION OF THE POOLING AGREEMENT
The Receivables sold to the Transferor will be transferred to the Trust
pursuant to the Pooling Agreement. The Pooling Agreement also describes the
collection and servicing of the Receivables, the allocation of Collections and
the allocations and payments to be made to the Investors. A form of the
Pooling Agreement is filed as an exhibit to the Registration Statement of which
this Prospectus is a part. The following summary describes certain terms of
the Pooling Agreement and is qualified in its entirety by reference to the
Pooling Agreement.
BOOK-ENTRY REGISTRATION
Investors may hold their Investor Certificates either through DTC if
they are participants in such system or indirectly through organizations which
are participants in such system. Cede, as nominee for DTC, will be the
registered holder of the global Class A and Class B Certificates. No Investor
will be entitled to receive a certificate representing such person's interest
in the Investor Certificates. Unless and until Definitive Certificates are
issued under the limited circumstances described below, all references herein
to actions by Series 1995-1 Investors will refer to actions taken by DTC upon
instructions from its Participants (as defined below), and all references
herein to distributions, notices, reports and statements to Investors will
refer to distributions, notices, reports and statements to Cede, as the
registered holder of the Investor Certificates, for distribution to Investors
in accordance with DTC procedures. Transfers between DTC participants will
occur in the ordinary way in accordance with DTC rules.
DTC has advised the Transferor that DTC is a limited-purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the UCC
and a "clearing agency" registered pursuant to the provisions of Section 17A of
the Exchange Act. DTC was created to hold securities for its participating
organizations ("PARTICIPANTS") and facilitate the clearance and settlement of
securities transactions between Participants through electronic book-entry
changes in accounts of its Participants, thereby eliminating the need for
physical movement of certificates. Participants include underwriters,
securities brokers and dealers, banks, trust companies and clearing
corporations and may include certain other organizations. Indirect access to
the DTC system also is available to others such as banks, brokers, dealers and
trust companies that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly ("INDIRECT PARTICIPANTS").
Investors that are not Participants or Indirect Participants but desire
to purchase, sell or otherwise transfer ownership of, or other interests in,
Investor Certificates may do so only through Participants and Indirect
Participants. In addition, Investors will receive all distributions of
principal of and interest on the Investor Certificates from the Paying Agent,
initially ____________________, or the Trustee through DTC and its
Participants. Under a book-entry format, Investors will receive payments after
the related Distribution Date because, while payments are required to be
forwarded to Cede, as nominee for DTC, on each such date, DTC will forward such
payments to its Participants which thereafter will be required to forward them
65
<PAGE> 68
to Indirect Participants or Investors. It is anticipated that the only
"Investor" (as such term is used in the Pooling Agreement and the Series 1995-1
Supplement) will be Cede, as nominee of DTC, and that Investors will not be
recognized by the Trustee as "Investors" under the Pooling Agreement.
Investors will only be permitted to exercise the rights of Investors under the
Pooling Agreement and any Supplement indirectly through DTC and its
Participants which in turn will exercise their rights through DTC.
Under the rules, regulations and procedures creating and affecting DTC
and its operations, DTC is required to make book-entry transfers among
Participants on whose behalf it acts with respect to the Investor Certificates
and is required to receive and transmit distributions of principal of and
interest on the Investor Certificates. Participants and Indirect Participants
with which Investors have accounts with respect to the Investor Certificates
similarly are required to make book-entry transfers and receive and transmit
such payments on behalf of their respective Investors.
Because DTC can only act on behalf of Participants, which in turn act
on behalf of Indirect Participants and certain banks, the ability of Investors
to pledge Investor Certificates to persons or entities that do not participate
in the DTC system, or otherwise take actions in respect of such Investor
Certificates, may be limited due to the lack of a physical certificate for such
Investor Certificates.
DTC has advised the Transferor and the Trustee that it will take any
action permitted to be taken by an Investor under the Pooling Agreement or the
Series 1995-1 Supplement only at the direction of one or more Participants, to
whose account with DTC the Investor Certificates are credited. Additionally,
DTC has advised the Transferor and the Trustee that it will take such actions
with respect to specified percentages of the Series 1995-1 Invested Amount only
at the direction of and on behalf of Participants whose holdings include
undivided interests that satisfy such specified percentages. DTC may take
conflicting actions with respect to other undivided interests to the extent
that such actions are taken on behalf of Participants whose holdings include
such undivided interests.
Although DTC has agreed to the foregoing procedures in order to
facilitate transfers of Investors among participants of DTC, DTC is under no
obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time.
DEFINITIVE CERTIFICATES
The Series 1995-1 Certificates will be issued in fully registered,
certificated form to Investors or their respective nominees ("DEFINITIVE
CERTIFICATES"), rather than to DTC or its nominee, only if (i) the Transferor
advises the Trustee in writing that DTC is no longer willing or able to
discharge properly its responsibilities as Depository with respect to such
Series, and the Transferor is unable to locate a qualified successor, (ii) the
Transferor, at its option, elects to terminate the book-entry system with
respect to such Series or (iii) after the occurrence of a Servicer Default,
Investors of such Series evidencing more than 50% of the aggregate unpaid
principal amount of the Investor Certificates of such Series advise the Trustee
and DTC through
66
<PAGE> 69
Participants in writing that the continuation of a book-entry system through
DTC (or a successor thereto) is no longer in the best interests of the
Investors.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, DTC is required to notify all Participants of the
availability through the Trustee of Definitive Certificates. Upon surrender by
DTC of the global Investor Certificates, accompanied by instructions for
re-registration, the Trustee will issue Investor Certificates in the form of
Definitive Certificates, and thereafter the Trustee will recognize the holders
of such Definitive Certificates as "Investors" of the Investor Certificates
under the Pooling Agreement and any Supplement.
If Definitive Certificates are issued, distribution of principal and
interest on the Definitive Certificates will be made by the Paying Agent or the
Trustee directly to the Investors in whose names the Definitive Certificates
were registered on the related Record Date in accordance with the procedures
set forth herein and in the Pooling Agreement and any Supplement.
Distributions will be made by check mailed to the address of each holder as it
appears on the register maintained by the Trustee, except that the final
payment on any Definitive Certificate will be made only upon presentation and
surrender of such Definitive Certificate on the date for such final payment at
such office or agency as is specified in the notice of final distribution to
Investors. The Trustee will provide such notice to Investors not less than 15
Business Days prior to such final distribution.
Definitive Certificates will be transferable and exchangeable at the
offices of the Transfer Agent and Registrar, which will initially be the
Trustee. No service charge will be imposed for any registration of transfer or
exchange, but the Transfer Agent and Registrar may require payment of a sum
sufficient to cover any tax or other governmental charge imposed in connection
therewith.
TRANSFEROR INTEREST
The Pooling Agreement does not prohibit the Transferor from
transferring or pledging the Transferor Revolving Certificate. The Pooling
Agreement provides that the Transferor will not consolidate with or merge into
any other corporation or convey or transfer all or substantially all of its
assets to any person (except as contemplated under the Pooling Agreement). In
addition, the Transferor may not acquire or be acquired by any person, except
in connection with a consolidation, merger or transfer of stock of either
Originator that is permitted by the Receivables Purchase Agreement.
TERMINATION OF THE TRUST
The Trust will terminate upon the earlier to occur of (i)
_______________, 2000 and (ii) the day following the date on which the
Investors and the Trustee will have been paid all
67
<PAGE> 70
amounts required to be paid to them pursuant to the Pooling Agreement and the
Trustee has disposed of all property held as part of the Trust. Upon
termination of the Trust, all right, title and interest in the Receivables and
other funds of the Trust (other than amounts in the accounts maintained by the
Trust for the final payment of principal and interest to Investors) will be
conveyed and transferred to the Transferor.
REPRESENTATIONS AND WARRANTIES OF TRANSFEROR
As of the Closing Date, the Transferor will make representations and
warranties to the Trust, to the effect that, among other things, as of the
Closing Date and, in the case of (a) and (c) below, as of each day during the
Revolving Period, (a) each Receivable and all other Trust Assets have been
conveyed to the Trust free and clear of any lien except as created or permitted
by the Pooling Agreement or the Receivables Purchase Agreement; (b) all
authorizations, consents, orders or approvals of or registrations or
declarations with any governmental authority required to be obtained, effected
or given by the Transferor in connection with the conveyance of each Receivable
and all other Trust Assets to the Trust have been duly obtained, effected or
given and are in full force and effect, except where the failure to obtain or
to make any such authorization, consent, order, approval, notice or filing,
individually or in the aggregate, is not likely to have a material adverse
effect on (i) the ability of the Transferor to perform its obligations under
any transaction document or (ii) the Transferor's financial condition or
operations or the Trust Assets; (c) each Receivable classified as an "Eligible
Receivable" by such Originator in any document or report delivered under the
Receivables Purchase Agreement will satisfy the requirements of eligibility
contained in the definition of Eligible Receivable as of the time of such
document or report; and (d) each Daily Report, Determination Date Certificate
and financial statement furnished by Transferor to the Trust is true and
correct in all material respects, as of the date it was prepared.
The Transferor will also make representations and warranties to the
Trust to the effect, among other things, that as of the Closing Date and, in
the case of (d) and (f) below, as of each day during the Revolving Period:
(a) it is a corporation without subsidiaries, duly organized,
validly existing and in good standing under the laws of the State of
Delaware and has full corporate power and authority to own its
properties and conduct its business as presently owned and conducted,
and to execute, deliver and perform its obligations under the Pooling
Agreement;
(b) the execution, delivery and performance of the Pooling
Agreement, the Receivables Purchase Agreement and each Supplement by
the Transferor and the consummation by the Transferor of the
transactions provided for or contemplated in such agreements and
certificates have been duly authorized by the Transferor by all
necessary corporate action on the part of the Transferor;
68
<PAGE> 71
(c) each of the Pooling Agreement, the Receivables Purchase
Agreement and each Supplement constitutes a valid, binding and
enforceable agreement of the Transferor, subject to certain bankruptcy
and equity exceptions;
(d) the Pooling Agreement constitutes either a valid sale,
transfer and assignment to the Trust of all right, title and interest
of the Transferor in the Receivables and all other Trust Assets and the
proceeds thereof or the grant of a first priority perfected security
interest in such property to the Trust;
(e) the transactions contemplated by the Receivables Purchase
Agreement and the Pooling Agreement do not violate any provision of
applicable law or any provisions of Transferors existing agreements in
any manner which is likely to have a material adverse effect on the
Transferor's ability to perform its obligations under the Pooling
Agreement; and
(f) the Receivables Purchase Agreement creates a valid sale,
transfer and assignment to the Transferor of all of the right, title
and interest of Originators in and to the Receivables and all other
related assets and the proceeds thereof.
Pursuant to the Receivables Purchase Agreement, the Originators will
make representations and warranties to the Transferor as of the Closing Date
(i) to substantially the same effect as the Transferor's representations and
warranties described in clauses (a), (b), (c) and (e) of the preceding
paragraph, except that such representations and warranties relate solely to the
Originators and the Receivables Purchase Agreement and (ii) to the effect that
the Receivables Purchase Agreement constitutes a valid sale, transfer and
assignment to the Transferor of all right, title and interest of the
Originators in the Receivables and all other related assets and the proceeds
thereof, which sale, transfer and assignment will be perfected and of first
priority under the UCC. See "Description of the Receivables Purchase
Agreement--Representations and Warranties."
TRANSFEROR'S COVENANTS
During the term of the Pooling Agreement, the Transferor shall, among
other things:
(a) comply with laws where failure to so comply would have
a material adverse effect on the Trust Assets or the ability of the
Transferor to perform in any material respects its obligations under
the Pooling Agreement or under the Receivables Purchase Agreement;
(b) pay promptly when due all taxes, assessments and
governmental charges or levies imposed upon it or any Trust Asset, or
in respect of its income or profits therefrom, and any and all claims
of any kind, except that no such amount need be paid if (i) such
non-payment could not subject any indemnified party to civil or
criminal penalty or liability or involve any risk of the sale,
forfeiture or loss of any of the property, rights or interest covered
hereunder or under the Receivables Purchase
69
<PAGE> 72
Agreement, (ii) the charge or levy is being contested in good faith and
by proper proceedings and (iii) the obligation to pay such amount is
adequately reserved against in accordance with and to the extent
required by generally accepted accounting principles;
(c) preserve its corporate existence;
(d) maintain books and records;
(e) perform and comply with the Receivables Purchase
Agreement and its obligations under contracts and invoices giving rise
to Receivables;
(f) maintain its existence separate and apart from each
Originator and any Affiliate thereof; and
(g) maintain at least one independent director.
During the term of the Pooling Agreement, the Transferor shall not:
(u) sell, assign or otherwise dispose of, or create or
suffer to exist any adverse claim upon, any Receivable or the
Transferor Interest, or any other property, except as expressly
contemplated under the Pooling Agreement;
(v) incur or assume any debt and engage in no other
business except as contemplated by the Receivables Purchase Agreement
and the Pooling Agreement;
(w) change its name or state of incorporation except as
permitted by the Pooling Agreement;
(x) following its formation, issue or permit to be
transferred to any person other than Centerior Energy or a wholly-owned
subsidiary thereof any of its capital stock (except incidentally in
connection with a merger of CEI or TE permitted under the Receivables
Purchase Agreement);
(y) make or suffer to exist any loans or advanced to any
Affiliate or other person except for purchases or Receivables and
permitted cash equivalents to be determined; or
(z) cancel or terminate the Receivables Purchase Agreement
or amend or waive any of its terms to the extent that such
cancellation, termination, amendment or waiver would adversely affect
the interests of the Trustee or the Investors unless the Rating Agency
Condition has been satisfied with respect thereto.
70
<PAGE> 73
INDEMNIFICATION
The Pooling Agreement provides that each Servicer will, subject to
certain limitations as further described below, indemnify the Trust, the
Trustee and each Investor from and against any loss, liability, expense or
damage suffered or sustained arising out of such Servicer's performance of, or
failure to perform, any of its obligations under the Pooling Agreement or a
Supplement.
Under the Pooling Agreement, the Transferor has agreed to be liable to
the Trustee, the Trust or any Investor for all liabilities of the Trust. The
Transferor has agreed to pay, indemnify and hold harmless each Investor against
and from any such claims, losses and liabilities (except to the extent that
they arise from any action by such Investor), arising out of or relating to,
among other things, the following:
(a) reliance on representations or warranties of the
Transferor under or in connection with the Pooling Agreement or the
Receivables Purchase Agreement that were false when made;
(b) failure of the Transferor to comply with the Pooling
Agreement or the Receivables Purchase Agreement; or to comply with any
law, rule or regulation with respect to any of the Receivables or
related assets;
(c) failure to vest and maintain vested in the Transferor
a first priority perfected ownership interest as against the
Originators and the failure to vest and remain vested in the Trustee a
first priority perfected ownership or security interest in the
Receivables free and clear of any adverse claim (other than an adverse
claim created in favor of the Transferor pursuant to the Receivables
Purchase Agreement or in favor of the Trustee pursuant to the Pooling
Agreement);
(d) failure or delay in filing UCC financing and similar
statements;
(e) any dispute, claim, offset, or defense (other than
discharge in bankruptcy of the Obligor) or any Obligor to the payment
of any Receivable;
(f) any products liability claim, personal injury or
property damage suit or any other similar claim or action arising out
of or in connection with the goods or services that are the subject of
any Receivable or the related assets;
(g) any investigation, litigation or proceeding related to
the Pooling Agreement or the Receivables Purchase Agreement or the
Trust or the use of proceeds of transfers of Receivables or
reinvestments of proceeds thereof or the ownership of Trust Assets or
in respect of any Receivable or invoice, other than any litigation or
proceeding between the Transferor or any Affiliate thereof, on the one
hand, and the Trustee or any Investor or any Affiliate thereof, on the
other hand, in which the Transferor or an
71
<PAGE> 74
Affiliate thereof prevails in a final non-appealable judgment by a
court of competent jurisdiction;
(h) failure by the Transferor to be duly qualified to do
business or be in good standing in any jurisdiction where such
qualification or good standing is necessary for the enforcement of
Receivables;
(i) any failure of the Transferor or either Originator to
remit any collections to the Trustee as required under the Pooling
Agreement or the commingling of Collections with other funds; and
(j) any tax (other than certain excluded taxes as
described below) imposed by reason of ownership of the Receivables.
In addition, the Originators, as Servicers, will indemnify the
Transferor against all liabilities, costs and expenses arising out of or
relating to their actions as Servicers, and such indemnities will be assigned
to the Trustee for the benefit of the Investors. Indemnification payments by
the Transferor shall be paid from Collections (including payments received by
the Transferor on account of the Originators' indemnification payments) to the
extent that funds are available in accordance with the allocation of payment
provisions in the Pooling Agreement. There will be no recourse to the
Transferor for all or any part of such indemnification payments if such funds
are at any time insufficient to make all or part of any such indemnification
payments.
Notwithstanding the foregoing, neither the Transferor's nor the
Servicers' obligation to indemnify will include (a) amounts to the extent
resulting from willful misconduct, bad faith, gross negligence, the reckless
disregard by such indemnified party of any of his, her or its obligations and
duties or breach of fiduciary duty on the part of such indemnified party, (b)
recourse for uncollectible Receivables, (c) indemnification for lost profits or
for consequential, special or punitive damages or (d) any income or franchise
taxes (or any interest or penalties with respect thereto) or other taxes on or
measured by the gross or net income or receipts of such indemnified party or
(except as otherwise provided in any Supplement) any withholding taxes, in each
case to the extent such indemnified amounts are incurred by such indemnified
party arising out of or as a result of the Pooling Agreement or the interest
conveyed hereunder in Trust Assets or in respect of any Receivable or any
Contract or the Receivables Purchase Agreement.
As a limit on the indemnities described in the preceding paragraphs,
and except for certain indemnification provided to the Trustee, the Pooling
Agreement provides that none of the Transferor, the Servicers or any of their
directors, officers, employees or agents, in their capacities as such, will be
under any other liability to the Trust, the Trustee, the Investors of any
Series, or any other person for any action taken or not taken pursuant to the
Pooling Agreement or for any obligation or covenant under the Pooling
Agreement. None of the Transferor, the Servicers or any of their directors,
officers, employees or agents, however, will be protected against any liability
which would otherwise be imposed by reason of willful
72
<PAGE> 75
misconduct or bad faith of any such person in the performance of their duties
or by reason of reckless disregard of their obligations and duties under the
Pooling Agreement.
In addition, the Pooling Agreement provides that the Servicers are not
under any obligation to appear in, prosecute or defend any legal action which
is not incidental to their duties as Servicers in accordance with the Pooling
Agreement or a Supplement and which, in their reasonable judgment, may involve
them in any material expense or liability. Either Servicer may, in its sole
discretion, undertake any such legal action which it may deem necessary or
desirable for the benefit of holders of Investor Certificates of any Series
with respect to the Pooling Agreement or a Supplement and the rights and duties
of the parties thereto and the interest of Investor thereunder.
COLLECTION AND OTHER SERVICING PROCEDURES
Pursuant to the Pooling Agreement, each Servicer will be responsible
for servicing, administering and collecting the Receivables sold by it in
accordance with applicable laws, rules and regulations, with reasonable care
and diligence and in accordance with the Credit and Collection Policy.
Each Servicer is required to comply with and perform its servicing
obligations with respect to the Receivables in accordance with the Contracts
relating to the Receivables and the Credit and Collection Policy, except
insofar as any failure to comply or perform would not materially and adversely
affect the Investors. Subject to compliance with all requirements of law, the
Transferor or the Servicers, as applicable, may change the terms and provisions
of the Credit and Collection Policy only if (i) with respect to a material
change the Credit and Collection Policy, the Rating Agency Condition is
satisfied with respect thereto and (ii) with respect to a material change of
collection procedures, no material adverse effect on any Series would result.
In addition, provided no Servicer Default will have occurred and be continuing,
the Servicers may, in accordance with the Credit and Collection Policy, extend
the maturity or adjust the outstanding balance of any Defaulted Receivable or
otherwise modify the terms of any Receivable or amend, modify or waive any
terms or conditions of any Contract related thereto, all as it may determine to
be appropriate to maximize collection thereof.
Servicing activities to be performed by the Servicers include
collecting and recording payments, communicating with Obligors, investigating
payment delinquencies, providing billing and tax records to Obligors and
maintaining internal records with respect to each Obligor. Managerial and
custodial services performed by the Servicers on behalf of the Trust include
maintaining the agreements, documents and files relating to the Receivables as
custodian for the Trust and providing related data processing and reporting
services for Investors of any Series and on behalf of the Trustee.
Each Servicer may delegate any of its servicing activities to any third
party (including their respective Affiliates) provided that no such delegation
shall relieve either such Servicer from any liability for non-performance of
its servicing duties under the Pooling Agreement.
73
<PAGE> 76
It is not required or anticipated that the Trustee will make any
initial or periodic general examination of any documents or records related to
the Trust Assets for the purpose of establishing the presence or absence of
defects or for any other purpose. In addition, the Trustee will not have any
liability with respect to acts or omissions of the Servicers (unless the
Trustee is a Servicer), including acts or omissions in connection with the
servicing, management or administration of the Receivables, calculations made
by the Servicers and deposits or withdrawals from any bank accounts or Trust
Accounts.
SERVICER REPRESENTATIONS AND WARRANTIES
On the Closing Date, each Servicer, and in the case of the appointment
of one or more successor servicers on the date of the appointment of such
successors, each such successor, will make representations and warranties that,
among other things:
(a) confirm the corporate status and authority of such
Servicer;
(b) confirm that such Servicer or any of its subsidiaries
acting as subservicers is qualified in each jurisdiction necessary for
the servicing of the Receivables except where failure to so qualify
would not have a material adverse effect on its ability to perform its
servicing obligations;
(c) the Pooling Agreement and the Supplement are valid,
binding and enforceable against such Servicer;
(d) the execution and delivery of the Pooling Agreement
and the Receivables Purchase Agreement do not violate in any material
respects applicable law or any material term of such Servicer's
existing material agreements in any manner which is likely to have a
material adverse effect on the Transferor's financial condition or
operations, or on the Trust Assets or on the Servicer's ability to
perform its obligations under the Pooling Agreement and the Supplement;
(e) no government or regulatory approvals are required
that have not been obtained;
(f) there are no proceedings or, to the best knowledge of
such Servicer, investigations pending or threatened against it before
any governmental authority (i) asserting the illegality, invalidity or
unenforceability or seeking any determination or ruling that would
affect the legality, binding effect, validity or enforceability, of the
Pooling Agreement and the applicable Supplement, or (ii) seeking to
prevent the consummation of any of the transactions contemplated by the
Pooling Agreement and the applicable Supplement, or (iii) seeking any
determination or ruling that is likely to have a material adverse
effect on the performance by such Servicer of its obligations under the
Pooling Agreement and the applicable Supplement; and
74
<PAGE> 77
(g) on each Business Day that such Servicer or any
Affiliate thereof receives any Collections, such Servicer agrees to
hold, or cause such Affiliate to hold, all such Collections in trust
and to deposit, or cause such Affiliate to deposit, such Collections to
the appropriate Collection Account as soon as practicable, but in no
event later than the next succeeding Business Day.
SERVICER COVENANTS
In the Pooling Agreement, each Servicer will covenant as to each
Receivable that: (a) it will maintain in effect all qualifications required
under applicable law in order to service properly the Receivables and will
comply in all material respects with all other requirements of law in
connection with servicing the Receivables, in each case to the extent the
failure to do so would have a substantial likelihood of having a material
adverse effect on the Investors, (b) it will comply with the terms and
provisions of the Receivables Purchase Agreement applicable to it, (c) it will
comply with applicable material requirements of law in connection with
servicing the Receivables, (d) it will not extend, terminate, amend or
otherwise modify or waive any term or condition of any Receivable other than
pursuant to its Credit and Collection Policy or the terms of the Pooling
Agreement, (e) it will maintain the Servicer Collection Accounts, in accordance
with the terms of the Pooling Agreement, (f) it will hold in trust and deposit
into the appropriate Collection Account all Collections received by it no later
than one Business Day after it receives them, and (g) it will comply in all
material respects with its Credit and Collection Policy except where
noncompliance would not adversely affect the Investors in any material respect
and will not change such Credit and Collection Policy in any manner which would
both impair the collectibility of any Receivable and have a material adverse
effect on the Investors.
CERTAIN MATTERS REGARDING THE SERVICER
No Servicer may resign from its obligations and duties under the
Pooling Agreement, except upon determination that (i) such duties are no longer
permissible under applicable law and (ii) there is no reasonable action which
such Servicer could take to make the performance of its duties thereunder
permissible under applicable law. No such resignation will become effective
until the Trustee or a successor to such Servicer which qualifies as an
Eligible Servicer has assumed such Servicer's responsibilities and obligations
under the Pooling Agreement.
SERVICER DEFAULT
In the event any Servicer Default (as defined below) has occurred is
continuing, the Trustee will, at the direction of the holders of 66-2/3% of the
Aggregate Invested Amount, by written notice to the defaulting Servicer (a
"TERMINATION NOTICE"), terminate all of the rights and obligations of such
Servicer, as servicer under the Pooling Agreement.
The Trustee will, after giving a Termination Notice, appoint a
successor Servicer (a "SERVICE TRANSFER"). If no successor Servicer has been
appointed by the Trustee and accepted such appointment by the earlier of 60
days after the date of the Termination Notice or the time
75
<PAGE> 78
the defaulting Servicer ceases to act as Servicer, all rights, authority, power
and obligations of such Servicer under the Pooling Agreement will pass to and be
vested in the Trustee.
"SERVICER DEFAULT" refers to any of the following events:
(a) failure by a Servicer to make any payment, transfer or
deposit, or to give instructions or to give notice to the Trustee to
make such payment, transfer or deposit, on the date such Servicer is
required to do so under the Pooling Agreement, any Supplement, which
failure continues unremedied (A) in the case of payments of interest,
for 5 Business Days and (B) in the case of all other payments, for 7
Business Days after the date on which such payment is required to be
made;
(b) failure on the part of a Servicer duly to observe or
perform in any material respect any other covenants or agreements of
such Servicer set forth in the Pooling Agreement or any Supplement
which has a material adverse effect on the Investors of any Series and
which continues unremedied for a period of 30 days (or with respect to
any covenant relating to collection accounts, deposits or reporting and
filing of UCC continuation statements, continues unremedied for 5
Business Days) after written notice;
(c) failure by Servicer to provide any notice or certificate
required by the transaction documents within 5 Business Days;
(d) any representation, warranty or certification made by a
Servicer in the Pooling Agreement, any Supplement or in any certificate
delivered pursuant to the Pooling Agreement or any Supplement proves to
have been incorrect in any material respect when made, which has a
material adverse effect on the Investors of any Series and which
material adverse effect continues for a period of 30 days after written
notice; or
(e) the occurrence of certain events of bankruptcy, insolvency
or receivership with respect to a Servicer.
Notwithstanding the foregoing, a delay in or failure of performance
referred to under clause (a) above for a period of 10 Business Days or referred
to under clause (c) for a period of 30 Business Days, in each case after the
applicable grace period, will not constitute a Servicer Default if such delay
or failure is continuing at the expiration of such additional 10 or 30 Business
Days, as applicable, if such delay or failure could not be prevented by the
exercise of reasonable diligence by the defaulting Servicer and such delay or
failure was caused by an act of God or other similar occurrence.
EVIDENCE AS TO COMPLIANCE
The Pooling Agreement provides that on or before March 31 of each
calendar year, beginning with March 31, 1997, the Servicers will cause Arthur
Andersen LLP or another firm of nationally recognized independent public
accountants (which may also render other services to the Servicers, the
Originators, or the Transferor) to furnish a report to the Trustee,
76
<PAGE> 79
the Servicers, each Rating Agency and each Enhancement Provider. That report
is to set forth the results of such accountants' performance of certain
procedures with respect to the Determination Date Certificates and Daily
Reports delivered to the Trustee pursuant to the Pooling Agreement during the
prior calendar year.
The Pooling Agreement provides that each such report will state that
the accountants have compared the amounts contained in the Determination Date
Certificates delivered to the Trustee during the period covered by such report
with the records (including computer records) from which such amounts were
derived and that, on the basis of such comparison, such accountants are of the
opinion that the amounts are in agreement with such documents and records,
except for such exceptions as will be set forth in such report. Copies of such
statements, certificates and reports furnished to the Trustee may be obtained
by the investors by a written request delivered to the Trustee.
AMENDMENTS
The Pooling Agreement and any Supplement may be amended from time to
time by agreement of the Trustee, the Servicers and the Transferor without the
consent of the Investors: (i) to cure ambiguity or correct inconsistencies,
(ii) to evidence the succession of an entity otherwise permitted under the
Pooling Agreement or the Receivables Purchase Agreement, (iii) to add
provisions that are not inconsistent with the Pooling Agreement or the
Supplement, or (iv) to make changes to maintain the ratings of the Investor
Certificates; provided that such action does not adversely affect in any
material respect the interests of any Investor. For any such amendment to the
Pooling Agreement or any Supplement to be effective, a copy of such amendment
must be sent to the Rating Agencies and the Rating Agency Condition must be met
with respect to such amendment.
The Pooling Agreement, or any Supplement may also be amended from time
to time by the Transferor, the Servicers and the Trustee with the consent of
the holders of Investor Certificates evidencing more than 50% of the Aggregate
Invested Amount of the Investor Certificates of each adversely affected Series,
provided that no such amendment may (a) reduce the amount of or delay the
timing of any distributions to be made to Investors or deposits of amounts to
be distributed or the amount available under any Enhancement without the
consent of each Investor affected; (b) change the definition or the manner of
calculating the interest of any Investor without the consent of each affected
Investor; (c) reduce the percentage required to consent to any such amendment
without the consent of each Investor; or (d) cause any adverse tax effect on an
Investor without the consent of each affected Investor. For any such amendment
to be effective, a copy thereof must be sent to the Rating Agencies and either
the Rating Agency Condition has been satisfied with respect to such amendment
or Investors holding at least 66-2/3% of the Invested Amount of any Series
whose rating would be adversely affected have consented in writing to such
amendment. In the circumstances where the consent of Investors holding
Investor Certificates representing more than a specified percentage of the
Invested Amount is required to approve any action, the Class A Investors and
the Class B Investors will vote together as a single Series. Consequently, for
so long as the Class A Certificates remain outstanding (and the Class A
Invested Amount remains larger than the Class B Invested
77
<PAGE> 80
Amount), the holders of those Investor Certificates, whose interests may
diverge from the holders of the Class B Certificates materially, may be in a
position to control the outcome of any such vote. Promptly following the
execution of any such amendment (but not any amendment described in the
preceding paragraph), the Trustee will furnish written notice of the substance
of such amendment to each Investor and each Enhancement Provider.
Notwithstanding the foregoing, no amendment may be made to the Pooling
Agreement or any Supplement which would adversely affect in any material
respect the interests of any Enhancement Provider without the consent of the
Enhancement Provider.
THE TRUSTEE
[____________________] is the initial Trustee under the Pooling
Agreement. The Corporate Trust Department of [________________________] is
located at [________________________]. The Servicers and their respective
Affiliates (other than the Transferor) may from time to time enter into normal
banking and trustee relationships with the Trustee and its Affiliates. The
Transferor, the Servicers and any of their respective Affiliates may hold
Investor Certificates of any Series in their own names. In addition, for
purposes of meeting the legal requirements of certain local jurisdictions, the
Trustee will have the power to appoint a co-trustee or separate trustee of all
or any part of the Trust. In the event of such appointment, all rights, powers,
duties and obligations will be conferred or imposed upon the Trustee and such
separate trustee or co-trustee jointly or, in any jurisdiction in which the
Trustee will be incompetent or unqualified to perform certain acts, singly upon
such separate trustee or co-trustee, who will exercise and perform such rights,
powers, duties and obligations solely at the direction of the Trustee.
The Trustee may resign at any time, in which event the Transferor will
be obligated to appoint a successor Trustee. The Transferor may also remove
the Trustee if the Trustee ceases to be eligible to continue as such under the
Pooling Agreement or if the Trustee becomes bankrupt or insolvent. In such
circumstances, the Master Servicer will be obligated to appoint a successor
Trustee. Any resignation or removal of the Trustee and appointment of a
successor Trustee will not become effective until acceptance of the appointment
by the successor Trustee.
DESCRIPTION OF THE RECEIVABLES PURCHASE AGREEMENT
The Receivables transferred to the Trust by the Transferor will be
purchased by the Transferor from the Originators pursuant to the Receivables
Purchase Agreement entered into between the Transferor, as purchaser, and the
Originators, as sellers. A form of the Receivables Purchase Agreement is filed
as an exhibit to the Registration Statement of which this Prospectus is a part.
The following summary describes certain terms of the Receivables Purchase
Agreement and is qualified in its entirety by reference to the Receivables
Purchase Agreement.
78
<PAGE> 81
SALE OF RECEIVABLES
Pursuant to the Receivables Purchase Agreement, the Originators will
sell to the Transferor all their right, title and interest in and to the
Receivables existing on the Cut-Off Date (excluding certain Receivables that
were contributed by CEI to the capital of the Transferor) and thereafter
created, all related security with respect thereto, all amounts received with
respect thereto and all proceeds of the foregoing (collectively, the "PURCHASED
ASSETS"). Those receivables arising out of sales to customers outside the
United States, wholesale electricity sales, intercompany sales and certain
miscellaneous corporate receivables will not be transferred to the Trust.
On the Closing Date, each Originator will sell all of its Billed
Receivables and Unbilled Receivables to the Transferor. On each date
thereafter, each Originator will sell all of the newly generated Unbilled
Receivables, which have not already been sold to the Transferor.
The purchase price ("PURCHASE PRICE") for Billed Receivables and
Unbilled Receivables conveyed to the Transferor on the Closing Date under the
Receivables Purchase Agreement will be a dollar amount equal to [___%] of the
aggregate invoiced or otherwise recorded and unpaid balance of all Receivables
existing as of the Cut-Off Date. The Purchase Price for Unbilled Receivables
transferred under the Receivables Purchase Agreement on any date thereafter
will be a dollar amount equal to the product of (a) the aggregate recorded
balance of Unbilled Receivables that have not previously been transferred to
the Transferor and (b) the above-stated percentage until recalculated and
thereafter a percentage discount calculated monthly to account for loss
experience with respect to the Receivables and the costs associated with
Collections.
Credit Adjustment. The Purchase Price will be adjusted on a weekly
basis (the "CREDIT ADJUSTMENT") with respect to any Receivable purchased from a
Originator (a) that the applicable Servicer reduces by any refund, chargeback
or adjustment, (b) as to which the Obligor thereunder has asserted a
counterclaim or defense relating to the Receivable itself and either (i) the
applicable Servicer has agreed that such counterclaim or defense is valid or
(ii) a final, nonappealable judgment or decree has been entered in favor of
such Obligor in respect of such counterclaim or defense by a court or arbitral
body having jurisdiction thereof, or (c) that the applicable Servicer has
determined that such Receivable was created as a result of a fraudulent or
mistaken charge. The amount of the Credit Adjustment will be shown on the
Daily Report for the day on which the Credit Adjustment is made. The Purchase
Price paid by the Transferor to each Originator on the date of such Daily
Report will be reduced by the amount of the Credit Adjustment set forth on the
Daily Report for such date. Any excess of the amount to be subtracted from the
Purchase Price that is not credited to that date's purchase of Receivables will
be subtracted from the next date's purchase until such excess has been reduced
to zero or such earlier date as the applicable Originator makes a cash payment
to the Transferor in the amount of such excess.
Originator Loans; Transferor Intercompany Notes. If, on any day, the
amount of cash available to pay for all purchases of Receivables to be made on
such day is less than the
79
<PAGE> 82
Purchase Price owing therefor, then the Transferor may, by notice to the
applicable Originator, elect to pay such remaining part of the Purchase Price
by borrowing a revolving loan (each, an "ORIGINATOR LOAN") under a promissory
note issued in favor of such Originator (each, a "TRANSFEROR INTERCOMPANY
NOTE"), and each Originator will be deemed to have advanced an Originator Loan
in the amount so specified by the Transferor; PROVIDED, HOWEVER, that the
Transferor may not make any such election if, as a result thereof, the
aggregate unpaid principal amount of all of the Originator Loans would exceed
the sum of (a) the aggregate unpaid balance of Eligible Receivables as of such
date minus (b) the Net Invested Amount minus (b) the product of the Loss
Reserve Ratio (utilizing an Applicable Stress Factor of 1.35) in effect on such
day and the amount described in clause (a).
Originator Loans will be payable solely from funds that are not
required to be set aside for the payments of the Investor Certificates or any
other obligations of the Transferor arising under the Pooling Agreement. The
Originator Loans advanced by each Originator will be evidenced by, and payable
in accordance with the terms and provisions of, the Transferor Intercompany
Notes.
On each Business Day, to the extent that the Transferor receives either
Collections or proceeds from any New Issuances of certificates or increases in
the amount of any Variable Funding Certificates, which, in any case, it is not
required to hold in trust for, or remit to, the Servicer or the Trustee
pursuant to the Pooling Agreement, the Transferor will remit such funds to the
Originators (net of any funds needed to pay existing expenses which are then
accrued and unpaid) in the following order of priority and application: first
to pay the Purchase Price owed to the Originators; second to pay any Credit
Adjustment; and third to pay amounts owed by the Transferor to the Originators
under the Transferor Intercompany Notes.
REPRESENTATIONS AND WARRANTIES
Each Originator will represent and warrant to the Transferor, among
other things, that as of any day on which the Receivables and related assets
are sold:
(a) it is a corporation duly organized and validly existing in
good standing under the laws of the State of Ohio and has the corporate
power and authority and legal right to own its property and conduct its
business as such properties are presently owned and as such business is
presently conducted and to execute, deliver and perform its obligations
under the Receivables Purchase Agreement and each other document or
instrument to be delivered by it thereunder;
(b) it is duly qualified to do business and is in good
standing as a foreign corporation (or is exempt from such requirement)
and has obtained all necessary licenses and approvals in all
jurisdictions in which the failure so to qualify is likely to have a
material adverse effect on such Originator's ability to perform its
obligations under the Receivables Purchase Agreement;
80
<PAGE> 83
(c) the execution, delivery and performance of, and the
consummation of the transactions contemplated by the Receivables
Purchase Agreement and the other transaction documents signed by the
Originators have been authorized by all necessary corporate action of
such Originator and such documents have been executed and delivered on
the Originators' behalf, and the Originators are not party to any
existing agreements or subject to any applicable laws which would have
a material adverse effect on the Transferor's financial condition or
operations, or on the Trust Assets or the transactions contemplated
herein;
(d) there is no pending or, to the Originators' knowledge,
threatened proceeding before any governmental authority which would
have a material adverse effect on the Originators' operations or on its
Receivables or the transactions described in this Prospectus;
(e) all authorizations, consents, licenses, orders and
approvals of, or other action by, any governmental authority that are
required to be obtained by the Originators in connection with the due
execution, delivery and performance by such Originator of the
Receivables Purchase Agreement, or any other transaction document to
which they are a party and the consummation of the transactions
contemplated by the Receivables Purchase Agreement, have been obtained
or made and are in full force and effect, except where the failure to
obtain or to make any such authorization, consent, order, approval,
notice or filing, individually or in the aggregate for all such
failures, would not be likely to have a material adverse effect on such
Originator's ability to perform its obligations under the Receivables
Purchase Agreement;
(f) each certificate, information, exhibit, record or report
furnished by either Originator is true and correct in all material
respects, as of the date it was prepared, when taken as a whole;
(g) the Receivables Purchase Agreement constitutes, and all
documents executed in connection therewith constitute, the legal, valid
and binding obligations of each Originator enforceable against each
Originator in accordance with its terms, subject to certain bankruptcy
and equity exceptions;
(h) the Receivables Purchase Agreement constitutes a valid
sale, transfer and assignment by the Originators to the Transferor of
all right, title and interest of the Originators in the Receivables and
the related assets;
(i) each Receivable classified as an "Eligible Receivable" by
such Originator in any document or report delivered under the
Receivables Purchase Agreement will satisfy the requirements of
eligibility contained in the definition of Eligible Receivable as of
the time of such document or report; and
(j) whenever the Transferor makes a purchase under the
Receivables Purchase Agreement, it will be the legal and beneficial
owner of each transferred asset, free and
81
<PAGE> 84
clear of any adverse claim except as created or permitted by the
Receivables Purchase Agreement.
The Receivables Purchase Agreement also provides that the sale and
purchase of the Receivables and the related assets is without recourse to
either of the Originators except that each Originator will be liable to the
Transferor for all representations, warranties and covenants made by such
Originator pursuant to the terms of the Receivables Purchase Agreement, all of
which obligations are limited so as not to constitute recourse to the
Originators for the credit risk of the Obligors. In addition, the Receivables
Purchase Agreement provides that neither the Transferor, the Servicers nor the
Trustee will have any obligation or liability to any Obligor or other customer
or client of either Originator (including any obligation to perform any of the
obligations of either Originator under any Receivable, related Contracts or any
other related purchase orders or other agreements). See "--Indemnification"
below.
CERTAIN ORIGINATOR COVENANTS
Each Originator has covenanted, among other things, that:
(a) it will (i) keep and maintain all documents, books,
records and other information relating to the Receivables and will take
all actions reasonably within its control to perform such Obligor's
obligations under the Contracts and the Credit and Collection Policy
except where the failure to do so would not be likely to have a
material adverse effect on the rights of Transferor; and (ii) not
change the terms and provisions of the Contracts or the Credit and
Collection Policy in any respect unless (A) such change would not, in
the reasonable belief of such Originator, materially impair the
collectibility of any Receivable, (B) such change is not be made with
the intent to materially benefit either Originator over Transferor or
to materially adversely affect Transferor, unless otherwise permitted
by an agreement between such Originator and an unrelated third party or
by the terms of the Contracts; and (C) such change is permitted under
the Pooling Agreement;
(b) it will (i) not permit its assets to be commingled with
those of Transferor and such Originator shall maintain separate
corporate records and books of account from those of Transferor; (ii)
not conduct its business in the name of Transferor and will cause
Transferor to conduct its business solely in its own name so as not to
mislead others as to the identity of the entity with which those others
are concerned; (iii) provide for its own operating expenses and
liabilities from its own funds or those of Affiliates other than
Transferor; (iv) preserve its own corporate existence and not amend its
articles of incorporation or code of regulations until such Originator
has filed all amendments to the UCC financing statements related to the
Receivables required to maintain the perfection and protect the
interests of Transferor created under the Receivables Purchase
Agreement against all creditors of and purchasers from such Originator;
(v) not, except as permitted by the Receivables Purchase Agreement,
merge with or into or consolidate with or into any other Person; (vi)
not hold itself out, or permit itself to be held out, as having agreed
82
<PAGE> 85
to pay, or as generally being liable for, the debts of Transferor,
except that the organizational expenses of Transferor may be paid by
Originators; (vii) cause Transferor not to hold itself out, or permit
itself to be held out, as having agreed to pay, or as being liable for,
the debts of such Originator; (viii) maintain an arm's length
relationship with Transferor with respect to any transactions between
such Originator, on the one hand, and Transferor, on the other; (ix)
take all actions required to be taken by it to cause Transferor to
comply with the provisions of the Pooling Agreement relating to
Transferor's maintenance of a separate existence.
(c) it will comply with all material provisions of material
law except where failure to so comply would not be likely to have a
material adverse effect on such Originator's ability to perform its
obligations under the Receivables Purchase Agreement;
(d) it will not sell, pledge, assign or otherwise dispose of,
or create or suffer to exist any adverse claim upon, any Receivables
originated by it except as contemplated under or permitted by the
Pooling Agreement;
(e) it will not amend its certificate of incorporation, or
(except for a merger of one Originator with and into another
Originator) merge with or into or consolidate with or into, any other
person without in either case having made all necessary amendments to
the UCC filings relating to the Receivables and, in the case of any
merger or consolidation with another person, unless the surviving
entity (if other than an Originator) has expressly assumed such
Originator's obligations under the Receivables Purchase Agreement and
Rating Agency Condition has been satisfied with respect to such merger
or consolidation;
(f) it will deposit any Collections it receives into a
Transferor Collection Account within one Business Day after it receives
and processes them; and
(g) prior to one year and one day after the Invested Amounts
are all paid in full, it will not institute any bankruptcy,
reorganization or insolvency proceedings against an Originator.
AMENDMENTS
The Receivables Purchase Agreement may be amended from time to time by
written agreement of the Originators and the Transferor. The Transferor has
covenanted not to consent to any such amendment that would adversely affect in
any material respect the interests of the Investors or any Enhancement
Provider.
TERMINATION
The Receivables Purchase Agreement provides that prior to the
Amortization Date, the Originators may not terminate their agreement to sell
Receivables to the Transferor. The Receivables Purchase Agreement also
provides that the agreement of the Originators to sell
83
<PAGE> 86
Receivables under the Receivables Purchase Agreement and the agreement of the
Transferor to purchase Receivables from the Originators, will terminate
automatically on the day on which a bankruptcy proceeding is filed by or
against such Originator (the "PURCHASE TERMINATION DATE").
MANDATORY REPURCHASE
The Receivables Purchase Agreement provides that the sole remedy
available to the Transferor, the Trustee, any Investor, any Servicer, any
Enhancement Provider or any other person in the event that any representation
and warranty made by an Originator in connection with Receivables sold under
the Receivables Purchase Agreement shall not have been true and correct in all
material respects as of the date of such sale shall be the repurchase by such
Originator of each Receivable to which such breach relates (an "INELIGIBLE
RECEIVABLE"). The terms and provisions of such repurchase vary under the
Receivables Purchase Agreement depending upon the representation and warranty
breached.
With respect to a breach of an Originator's representation and warranty
regarding (a) the ownership of a Receivable sold by it to the Transferor, (b)
the necessity of obtaining further consents, licenses, approvals,
authorizations or the like from any Governmental Authority in connection with
the transfer of a Receivable or (c) the compliance of each Receivable
classified by such Originator in a document prepared under the Receivables
Purchase Agreement as an "Eligible Receivable" with the requirements of
eligibility set forth in the definition of Eligible Receivable then in effect,
the Receivables Purchase Agreement provides that within 90 days (or with the
prior written consent of Transferor, such longer period specified in such
consent) of the earlier to occur of the discovery of such breach by such
Originator, or receipt by such Originator of written notice of such breach
given by Transferor, such Originator shall repurchase from the Transferor and
the Transferor shall convey to such Originator, without recourse,
representation, or warranty, all of the Transferor's right, title, and interest
in and to each Ineligible Receivable to which such breach relates; provided,
however, that no such repurchase shall be required to be made with respect to
such Ineligible Receivable if, at the time of such repurchase, either (x) the
representations and warranties referred to in this sentence shall then be true
and correct in all material respects with respect to such Ineligible Receivable
as if such Ineligible Receivable had been conveyed to the Transferor on such
day, (y) such Ineligible Receivable has been collected in full, or (z) the
aggregate amount of Ineligible Receivables outstanding at any time and with
respect to which such representations and warranties continue to be incorrect
in any material respect does not in the sole reasonable judgment of an officer
of Transferor have a material adverse effect on the interest of the Trust in
the Receivables as whole, including the ability of the Servicer in its sole
reasonable judgment to collect the Receivables.
With respect to a breach of an Originator's representation and warranty
regarding the conveyance of the Receivables to the Transferor free and clear of
certain Liens and in compliance with applicable law, the Receivables Purchase
Agreement provides that such Originator shall repurchase from the Transferor
and the Transferor shall convey to such Originator, without recourse,
representation, or warranty, all of the Transferor's right, title, and interest
in all of the Ineligible Receivables affected by such breach as soon as
practicable after
84
<PAGE> 87
the earlier to occur of the discovery of such breach by such Originator or the
receipt by such Originator of written notice of such breach given by the
Transferor.
With respect to a breach of an Originator's representation and warranty
regarding the binding effect of the Sale Documents on such Originator or the
validity of the sale of Receivables to the Transferor, the Receivables Purchase
Agreement provides that the Transferor may give such Originator written notice
directing such Originator to repurchase all of the Receivables transferred by
such Originator thereunder within 60 days after such notice (or within such
longer period as may be specified in such notice); whereupon, such Originator
will repurchase and the Transferor shall convey to such Originator, without
recourse, representation, or warranty, all of the Transferor's right, title,
and interest in all of the Receivables transferred by such Originator, on the
first Distribution Date occurring after such applicable period; PROVIDED,
HOWEVER, that no such repurchase by an Originator shall be required to be made
if, at the time of such repurchase, the representations and warranties
described in this sentence shall then be true and correct in all material
respects.
The Receivables to be repurchased by the Originators shall be
reconveyed monthly by the Transferor. The Repurchase Price for the Receivables
shall be an amount equal to the aggregate unpaid balance of Ineligible
Receivables on the date of repurchase times the Purchase Price Percentage
therefor and less any Collections received by the Servicer with respect to such
Repurchased Receivables. Payment of the Repurchase Price may be made, at the
option of the repurchasing Originator: (i) in immediately available funds;
(ii) as a credit to the Purchase Price that would be payable by the Transferor
to the repurchasing Originator on such Distribution Date or on any future
Distribution Date until the Repurchase Price has been paid in full; or (iii)
any combination of the foregoing.
On or prior to the date that an Originator is required to repurchase
Receivables under the Receivables Purchase Agreement, the Transferor is
required to execute and deliver to the repurchasing Originator a reconveyance
pursuant to which the Transferor conveys to such Originator all of the
Transferor's right, title, and interest in the Receivables to be repurchased by
such Originator. The Transferor shall (and shall cause the Trustee to) execute
such other documents or instruments of conveyance or take such other actions as
the repurchasing Originator may reasonably require to effect any repurchase of
Receivables pursuant to the Receivables Purchase Agreement.
The Originators may elect (between themselves, and without the
necessity of any consent or approval of any other Person) that any repurchase
of Receivable required or permitted to be effected by an Originator (the
"ASSIGNOR ORIGINATOR") under the Receivables Purchase Agreement may be effected
by the other Originator (the "ASSIGNEE ORIGINATOR"), with such election to be
made by an Originators' delivery to the Transferor of notice, not more than
five (5) Business Days prior to the date of such repurchase of such election,
which notice shall identify the Receivables subject to such election. Upon
delivery of such notice, all rights, liabilities and obligations of the
Assignor Originator in respect of such repurchase shall be automatically
assigned to the Assignee Originator, the Assignor Originator shall have no
further rights,
85
<PAGE> 88
liabilities or obligations in respect of such repurchase, and such repurchase
shall thereupon be consummated by and in the name of the Assignee Originator.
Nothing in the Receivables Purchase Agreement is intended to assign or
impose on the Transferor, any Servicer, or the Trustee, any obligations or
liability to any Obligor under any Receivable nor to any other customer or
client of either Originator (including any obligation to perform any of the
obligations of either Originator under any Receivable, any related Contracts or
any other related purchase orders or agreements). All such obligations and
liabilities shall remain with the respective Originator thereof.
INDEMNIFICATION
The Receivables Purchase Agreement provides that each Originator will
indemnify the Transferor, each of its successors, permitted transferees and
assigns and all officers, directors, shareholders, employees and agents of any
of the foregoing (each individually, an "INDEMNIFIED PARTY"), from and against
any and all claims, losses, liabilities, reasonable costs and expenses awarded
against or incurred by any of them (all of the foregoing, collectively
"INDEMNIFIED AMOUNTS") including, among others:
(a) the failure by such Originator to comply with certain
provisions of the Receivables Purchase Agreement, or the failure by
such Originator to comply with any applicable Requirements of Law with
respect to any Receivable or the related Contract or invoice;
(b) any dispute, claim, offset or defense of any Obligor to
the payment of any Receivable asserted against such Originator to the
extent that such dispute, claim, offset or defense does not relate
specifically to the amount or the validity of the Receivable;
(c) any investigation, litigation or proceeding related to
the Receivables Purchase Agreement or such Originator or the use of
proceeds by such Originator or reinvestments of proceeds thereof, other
than any litigation or proceeding between such Originator or any
Affiliate thereof, on the one hand, and the Transferor or any Affiliate
thereof, on the other hand, in which such Originator or an Affiliate
thereof prevails in a final non-appealable judgment by a court of
competent jurisdiction;
(d) any product liability claim, personal injury or property
damage suit, environmental liability claim or any other claim or action
by a party other than the Transferor or any obligor, whether sounding
in tort, contract or any other legal theory, arising out of or in
connection with the goods or services that are the subject of any
Receivable or the related assets with respect thereto or collections
thereof;
(e) any failure by such Originator to be duly qualified to do
business or be in good standing in any jurisdiction in which such
qualification or good standing is necessary for the enforcement of any
Receivable;
86
<PAGE> 89
(f) the failure of such Originator to remit Collections as
required under the Receivables Purchase Agreement or the commingling of
Collections of Receivables at any time with other funds prior to
distribution under the applicable Supplement; or
(g) any tax or governmental fee or charge (other than
franchise taxes and taxes on or measured by the net income of the
Transferor or any of its assignees), all interest and penalties thereon
or with respect thereto, which may arise by reason of the purchase or
ownership of the Receivables or any related asset connected with any
such Receivables.
Notwithstanding the foregoing, in no event will any Indemnified Party
be indemnified for Indemnified Amounts to the extent: (i) they result from
willful misconduct, bad faith, gross negligence, the reckless disregard by such
Indemnified Party of any of his, her or its obligations and duties or breach of
fiduciary duty on the part of such Indemnified Party, (ii) they include losses
in respect of Receivables and reimbursement therefor would constitute recourse
for uncollectible Receivables, (c) they are for lost profits or for
consequential, special or punitive damages, (d) they are or result from any
income or franchise taxes (or any interest or penalties with respect thereto)
or other taxes on or measured by the gross or net income or receipts of such
Indemnified Party, (e) they result from any action or omission of a Servicer
unless such Servicer is a Originator or an Affiliate of an Originator or (f)
they include any claims, losses, liabilities, reasonable costs and expenses
relating to a Receivable as to which there has been a repurchase obligation
pursuant to the Receivables Purchase Agreement.
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
TRANSFER OF THE RECEIVABLES
Each Originator will sell the Receivables to the Transferor and the
Transferor in turn will transfer the Receivables to the Trust. The Transferor
will represent and warrant that the transactions described in the Pooling
Agreement are either a sale to the Trust of all right, title and interest of
the Transferor in the Receivables and the proceeds thereof or a grant of a
security interest to the Trust in and to the Receivables and the proceeds
thereof.
Each of the Originators and the Transferor will represent that the
Receivables are "accounts" or "general intangibles" for purposes of the UCC as
in effect in each jurisdiction the laws of which govern the perfection of the
Transferor's and the Trust's interests therein. Both the sale of accounts and
the transfer of accounts as security for an obligation are treated under the
UCC as creating a security interest therein and are subject to its provisions,
and the filing of an appropriate financing statement or statements is required
to perfect the interest of the Trust in the Receivables. No later than the
Closing Date, financing statements covering the Receivables will be filed under
the UCC as in effect in Ohio and New York by both the Transferor and the
Trustee to perfect their respective interests in the Receivables, and the
Servicers will be required to file continuation statements, if necessary, to
continue the perfection of such interests.
87
<PAGE> 90
There are certain limited circumstances under the UCC and applicable
Federal law in which prior or subsequent transferees of Receivables coming into
existence after the date of the Pooling Agreement could have an interest in
such Receivables with priority over the Trust's interest. A tax or other
government lien on property of either Originator arising prior to the time a
Receivable comes into existence may also have priority over the interest of the
Trust in such Receivable. Under the Receivables Purchase Agreement, each
Originator will warrant to the Transferor, and under the Pooling Agreement, the
Transferor will warrant to the Trust, that it has transferred the Receivables
free and clear of the lien of any third party.
CERTAIN MATTERS RELATING TO BANKRUPTCY
Each Originator will warrant to the Transferor in the Receivables
Purchase Agreement that the sale of the Receivables by it to the Transferor is
a valid sale of the Receivables to the Transferor. In addition, each
Originator and the Transferor will agree to treat the transactions described in
the Receivables Purchase Agreement as a sale of the Receivables to the
Transferor, and the Originators will take all actions that are required under
Ohio and New York law to perfect the Transferor's ownership interest in the
Receivables. Notwithstanding the foregoing, if either Originator were to
become a debtor in a bankruptcy case and a creditor or trustee-in-bankruptcy of
such debtor or such debtor itself were to take the position that the sale of
Receivables from such debtor to the Transferor should be recharacterized as a
pledge of such Receivables to secure a borrowing from such debtor, then delays
in payments of Collections of Receivables to the Transferor (and therefore to
the Trust and to Investors) could occur or (should the court rule in favor of
any such trustee, debtor in possession or creditor) reductions in the amount of
such payments could result.
In a 1993 case decided by the U.S. Court of Appeals for the Tenth
Circuit, Octagon Gas System, Inc. v. Rimmer, the court determined that
"accounts," as defined under the Uniform Commercial Code, and which would
likely include the Receivables, may properly be included in the bankruptcy
estate of a transferor regardless of whether the transfer of such receivables
is treated as a sale or a secured loan. The Octagon case has been criticized
by many commentators as an incorrect reading of the law. The circumstances
under which the Octagon ruling would apply are not fully known and the extent
to which the Octagon decision will be followed in other courts or outside of
the Tenth Circuit is not certain. If the conclusions in the Octagon case were
applied in a bankruptcy of an Originator, the Receivables would be part of its
bankruptcy estate, would be subject to claims of certain creditors and would be
subject to the potential delays and reductions in payments to the Transferor
and Investors described in the preceding paragraph even if the transfer is
treated as a sale.
In addition, if an Originator were to become a debtor in a bankruptcy
case and a creditor or trustee-in-bankruptcy of such debtor or such debtor
itself were to request a court to order that such Originator should be
substantively consolidated with the Transferor, delays in payments on the
Investor Certificates could result. Should the bankruptcy court rule in favor
of any such creditor, trustee-in-bankruptcy or such debtor, reductions in such
payments could result.
88
<PAGE> 91
The Transferor will warrant to the Trust that the transfer of the
Receivables to the Trust is either a sale of the Receivables or a grant of a
first priority security interest in the Receivables to the Trust. The
Transferor will take all actions that are required under Ohio and New York law
to perfect the Trust's first priority security interest in the Receivables, and
the Transferor will warrant to the Trust that the Trust has a first priority
perfected security interest therein and in the Receivables Purchase Agreement.
Nevertheless, a tax or government lien on property of an Originator or the
Transferor arising prior to the time a Receivable is conveyed to the Trust may
have priority over the interest of the Trust in such Receivable. The
Transferor's certificate of incorporation provides that it will not file a
voluntary petition for relief under the Bankruptcy Code without the unanimous
affirmative vote of all of its directors, including the independent director.
Pursuant to the Pooling Agreement, the Servicers, the Trustee, the Transferor
and the Originators will covenant that they will not, with respect to the
Trust, acquiesce, petition or otherwise invoke or cause the Trust to invoke any
bankruptcy, reorganization or other proceedings under any Federal or state
bankruptcy or similar law for at least one year and a day after all of the
Investor Certificates have been paid in full. In addition, certain other steps
will be taken to avoid the Transferor's becoming a debtor in a bankruptcy case.
Notwithstanding such steps, if the Transferor were to become a debtor in a
bankruptcy case, and a bankruptcy trustee for the Transferor or a creditor of
the Transferor were to take the position that the transfer of the Receivables
from the Transferor to the Trust should be recharacterized as a pledge of such
Receivables, then delays in payments on the Investor Certificates or (should
the court rule in favor of any such trustee or creditor) reductions in the
amount of such payments could result.
If the Transferor, either Originator or the Servicers were to become a
debtor in a bankruptcy case causing an Early Amortization Event to occur, then,
pursuant to the Pooling Agreement, additional Receivables would not be
transferred to the Trust and the Trustee would sell the Receivables unless
Investors holding Investor Certificates evidencing more than 50% of the
aggregate unpaid principal amount of each outstanding Series disapprove the
sale of the Receivables. The proceeds from such a sale of the Receivables
would then be treated by the Trustee as Collections on the Receivables.
Notwithstanding the above, if the amount available to the Trust for
distribution after the sale would be less than the Aggregate Principal Amount
plus interest due thereon, then the Trustee shall not proceed with the sale
unless holders of 50% of the Invested Amount for all Series consent to such
sale. This procedure, however, could be delayed as described above. Upon the
occurrence of certain events of bankruptcy, insolvency or receivership, if no
Early Amortization Event other than the commencement of such bankruptcy or
similar event exists, the trustee-in-bankruptcy may have the power to continue
to require the Transferor to transfer new Receivables to the Trust and to
prevent the early sale, liquidation or disposition of the Receivables and the
commencement of any Amortization Period. See "Description of the Series 1995-1
Certificates--Early Amortization Events."
The occurrence of certain events of bankruptcy, insolvency or
receivership with respect to a Servicer will result in a Servicer Default,
which Servicer Default, in turn, may result in the termination of the Revolving
Period. If no Servicer Default other than the commencement of such bankruptcy
or similar event exists, a trustee-in-bankruptcy of such Servicer may have the
power to prevent the Trustee or the Investors from appointing a successor
Servicer.
89
<PAGE> 92
CERTAIN TAX CONSIDERATIONS
GENERAL
Set forth below is a discussion of the Federal income and Ohio income
and franchise tax consequences to holders of Investor Certificates of each
Series or Class that are intended to be characterized as debt; additional or
different tax considerations will be disclosed in the applicable Prospectus
Supplement for other Series or Classes. This discussion does not deal with all
aspects of Federal income or Ohio income and franchise taxation that may be
relevant to holders of the Investor Certificates in light of their personal
investment circumstances, nor to certain types of holders subject to special
treatment under the Federal income or Ohio income and franchise tax laws (for
example, banks, life insurance companies and tax-exempt organizations).
Prospective investors should consult their own tax advisors with regard to the
Federal income tax consequences of holding and disposing of Investor
Certificates, as well as the tax consequences arising under the laws of Ohio or
any other state, foreign country or other jurisdiction.
FEDERAL INCOME TAX CONSEQUENCES
This discussion is based upon present provisions of the Internal
Revenue Code of 1986, as amended (the "CODE"), the regulations promulgated
thereunder, and judicial or ruling authority, all of which are subject to
change, which change may be retroactive. No ruling on any of the issues
discussed below will be sought from the Internal Revenue Service (the "IRS").
TREATMENT OF THE INVESTOR CERTIFICATES AS INDEBTEDNESS
The Transferor and the Investors will express in the Pooling Agreement
the intent that for Federal, state and local income and franchise tax purposes,
the Investor Certificates will be indebtedness of the Transferor secured by the
Receivables. The Transferor, by entering into the Pooling Agreement will
agree, and each Investor, by the acceptance of an Investor Certificate, will
agree to treat the Investor Certificates as indebtedness of the Transferor for
Federal, state and local income and franchise tax purposes. However, the
Transferor will treat the arrangement, for certain non-tax purposes, as a
transfer of an ownership interest in the Receivables and not as creating a debt
obligation of the Transferor.
A basic premise of Federal income tax law is that the economic
substance of a transaction generally determines the tax consequences. The form
of a transaction, while a relevant factor, is not conclusive evidence of its
economic substance. In appropriate circumstances, the courts have allowed
taxpayers, as well as the IRS, to treat a transaction in accordance with its
economic substance, as determined under Federal income tax law, even though the
participants in the transaction have characterized it differently for non-tax
purposes. In this case, for Federal income tax purposes, both the stated
intent of the parties and the substance of the transaction is that the Investor
Certificates will be indebtedness of the Transferor secured by the Receivables.
90
<PAGE> 93
The determination of whether a transaction is a purchase of an interest
in property or instead a loan secured by the transferred property has been made
by the IRS and the courts on the basis of numerous factors designed to
determine whether the transferor has relinquished (and the transferee has
obtained) substantial incidents of ownership in the property. Among those
factors, the primary factors examined are whether the transferee has the
opportunity to gain if the property increases in value, and has the risk of
loss if the property decreases in value. Based upon its analysis of such
factors, Squire, Sanders & Dempsey, special tax counsel to the Transferor and
the Trust ("TAX COUNSEL"), is of the opinion that, the Investor Certificates
will properly be characterized for Federal income tax purposes as indebtedness
secured by the Receivables.
TREATMENT OF THE TRUST
In the opinion of Tax Counsel, the Trust will be viewed for Federal
income tax purposes as a security arrangement for debt issued directly by the
Transferor and other holders of equity interests in the Trust. Therefore, the
Trust will be disregarded for Federal income tax purposes and not be subject to
Federal income tax.
FEDERAL INCOME TAX CONSEQUENCES -- UNITED STATES INVESTORS
Interest Income to Investors. Except as otherwise expressly indicated,
the following discussion assumes that the Investors Certificates will be
treated as debt obligations for federal income tax purposes. The discussion
further assumes that the Investor Certificates will be issued in registered
form, have all payments denominated in U.S. dollars and have a term that
exceeds one year. Moreover, the discussion assumes that the interest formula
for the Investor Certificates will meet the requirements for "qualified stated
interest" under Treasury regulations (the "OID REGULATIONS") relating to
original issue discount ("OID"), and that any OID on the Investor Certificates
(i.e., any excess of the stated redemption price at maturity over the issue
price) will constitute a de minimis amount (i.e., less than 1/4% of the stated
redemption price at maturity multiplied by the number of full years until
maturity), all within the meaning of the OID regulations.
It is anticipated that the Investor Certificates will be issued at par
value (or at a de minimis discount from par value) and that stated interest on
the Investor Certificates generally will constitute "qualified stated
interest". Accordingly, interest thereon will be taxable as ordinary income
for Federal income tax purposes when received or accrued by Certificateholders
in accordance with their respective methods of tax accounting, and no OID will
arise with respect to the Investor Certificates.
A Certificateholder who purchases an Investor Certificate at a discount
subsequent to its original issue may be subject to the "market discount" rules
of the Code. These rules provide, in part, for the treatment of gain
attributable to accrued market discount as ordinary income upon the receipt of
partial principal payments or on the sale or other disposition of the Investor
Certificate, and for the deferral of interest deductions with respect to debt
incurred to acquire or carry the market discount for the Investor Certificate.
91
<PAGE> 94
If an Investor Certificate is purchased by a Certificateholder at a
premium, such premium will be amortized as an offset to interest income (with a
corresponding reduction in the Certificateholder's basis) under a constant
yield method over the term of the Investor Certificate in accordance with the
provisions of Section 171 of the Code.
Information Reporting and Backup Withholding. The Paying Agent will be
required to report annually to the IRS and to each Investor of record the
amount of interest paid on Investor Certificates (and the amount of interest
withheld for Federal income taxes, if any) for each calendar year, except as to
exempt Investors (generally, Investors that are corporations, tax-exempt
organizations, qualified pension and profit-sharing trusts, individual
retirement accounts, or nonresident aliens who provide certification as to
their status as nonresidents). As long as the only "Investor" of record is
Cede, as nominee for DTC, Investors and the IRS will receive tax and other
information only from Participants and Indirect Participants rather than the
Paying Agent. Accordingly, each nonexempt Investor will be required to
provide, under penalties of perjury, a certificate or IRS Form W-9 containing
the Investor's name, address, correct Federal taxpayer identification number
and a statement that such Investor is not subject to backup withholding. If a
nonexempt Investor fails to provide the required certification, the Paying
Agent (or the Participants or Indirect Participants) will be required to
withhold (or cause to be withheld) 31% of the interest (and principal)
otherwise payable to the Investor, and remit the withheld amount to the IRS as
a credit against the Investor's Federal income tax liability.
Possible Classification of the Investor Certificates as Interests in a
Partnership or Association. Although, as described above, it is the opinion of
Tax Counsel that the Investor Certificates properly will be characterized as
debt for Federal income tax purposes, such opinion is not binding on the IRS
and thus no assurance can be given that such a characterization will prevail.
If the IRS were to contend successfully that some or all of the Investor
Certificates were not debt obligations for Federal income tax purposes, the
Trust or the arrangement among the Transferor (and any other holders of equity
interests in the Trust) and the Investors might be classified as a partnership
for Federal income tax purposes, as an association taxable as a corporation, or
as a "publicly traded partnership" taxable as a corporation.
If the Investor Certificates were treated as interests in a partnership
other than a "publicly traded partnership," the income reportable by Investors
as partners in such a partnership could differ from the income reportable by
Investors as holders of debt. However, except as provided below, it is not
expected that such differences would be material. A cash basis Investor
treated as a partner might be required to report income when it accrues to the
partnership rather than when it is received by the Investor. Moreover, an
individual Investor's share of expenses of the partnership would be
miscellaneous itemized deductions that might not be deductible in whole or in
part, with the result that the Investor might be taxed on a greater amount of
income than the stated interest on the Investor Certificates.
If, alternatively, some or all of the Investor Certificates were
treated as equity interests in an association taxable as a corporation or in a
"publicly traded partnership" taxable as a corporation, the resulting entity
would be subject to Federal income taxes at corporate tax rates on its taxable
income generated by ownership of the Receivables. Moreover, distributions by
92
<PAGE> 95
the entity on such Investor Certificates probably would not be deductible in
computing the entity's taxable income and distributions to such Investors
probably would be treated as dividend income to such holders. Such an
entity-level tax could result in reduced distributions to all Investors, and
the holders of Investor Certificates could also be liable for a share of such a
tax.
Since the Transferor will treat the Investor Certificates as
indebtedness for Federal income tax purposes, the Paying Agent (and
Participants and Indirect Participants) will not comply with the tax reporting
requirements that would apply under those alternative characterizations of the
Investor Certificates.
FEDERAL INCOME TAX CONSEQUENCES -- NON-UNITED STATES INVESTORS
Except as otherwise expressly indicated, the following discussion
assumes that the Investors Certificates will be treated as debt obligations for
federal income tax purposes.
(a) Interest paid to a nonresident alien or foreign
corporation or partnership will be exempt from U.S. withholding taxes
(including backup withholding taxes), provided the Investor complies
with applicable identification requirements (and does not actually or
constructively own 10% or more of the voting stock of the Transferor or
its affiliates (including Centerior Energy Corporation), is not a
controlled foreign corporation with respect to the Transferor or its
affiliates, and does not bear certain relationships to holders of
equity interests, if any, in the Trust other than the Transferor).
Applicable identification requirements will be satisfied if there is
delivered to a securities clearing organization (or bank or other
financial institution that holds Investor Certificates on behalf of the
customer in the ordinary course of its trade or business) (i) IRS Form
W-8 signed under penalties of perjury by the beneficial owner of the
Investor Certificates stating that the Investor is not a U.S. person
and providing such Investor's name and address, (ii) IRS Form 1001
signed by the beneficial owner of the Investor Certificates or such
owner's agent claiming an exemption from withholding under an
applicable tax treaty, or (iii) IRS Form 4224 signed by the beneficial
owner of the Investor Certificates or such owner's agent claiming
exemption from withholding of tax on income connected with the conduct
of a trade or business in the United States; provided that in any such
case (x) the applicable form is delivered pursuant to applicable
procedures and is properly transmitted to the United States entity
otherwise required to withhold tax and (y) none of the entities
receiving the form has actual knowledge that the holder is a U.S.
person or that any certification on the form is false;
(b) an Investor who is a nonresident alien or foreign
corporation generally will not be subject to United States Federal
income tax on gain realized on the sale, exchange or redemption of such
Investor Certificate, provided that (i) such gain is not effectively
connected to a trade or business carried on by the holder in the United
States, (ii) in the case of an Investor that is an individual, such
Investor is not present in the United States for 183 days or more
during the taxable year in which such sale, exchange or redemption
93
<PAGE> 96
occurs and certain other conditions are met, and (iii) in the case of
gain representing accrued interest, the conditions described in clause
(a) are satisfied; and
(c) an Investor Certificate held by an individual who at
the time of death is a nonresident alien will not be subject to United
States Federal estate tax as a result of such individual's death if,
immediately before his death, (i) the individual did not actually or
constructively own 10% or more of the voting stock of the Transferor or
its affiliates, and does not bear certain relationships to holders of
equity interests, if any, in the Trust, other than the Transferor and
(ii) the holding of such Investor Certificate was not effectively
connected with the conduct by the decedent of a trade or business in
the United States.
If the IRS were to contend successfully that some or all of the
Investor Certificates are equity interests in a partnership (not taxable as a
corporation), an Investor that is a nonresident alien or foreign corporation
might be required to file a U.S. individual or corporate income tax return and
pay tax on its share of partnership income at regular U.S. rates, including in
the case of a corporation the branch profits tax, and would be subject to
withholding tax on its share of partnership income. If some or all of the
Investor Certificates are recharacterized as equity interests in an association
taxable as a corporation or a "publicly traded partnership" taxable as a
corporation, to the extent distributions on such Investor Certificates were
treated as dividends, a nonresident alien individual or foreign corporation
would generally be taxed on the gross amount of such dividends (and subject to
withholding) at the rate of 30% unless such rate were reduced by an applicable
treaty.
STATE AND LOCAL TAX CONSEQUENCES
The state and local tax consequences of an investment in the Investor
Certificates will depend in part upon the tax laws of the jurisdictions where
the Investors reside or are doing business. Certain Ohio tax implications of
an investment in the Investor Certificates are described below. The tax
consequences arising to the Investors under the laws of other jurisdictions are
not discussed in this summary. Potential Investors should consult their own
tax advisers as to the state and local tax consequences of an investment in the
Investor Certificates in their particular circumstances.
The discussion of Ohio tax consequences set forth below is based upon
present provisions of the Ohio statutes and the regulations promulgated
thereunder, and applicable judicial or ruling authority, all of which are
subject to change, which change may be retroactive.
In general, the treatment of the Investor Certificates for Federal
income tax purposes should apply for Ohio tax purposes. Thus, if the Investor
Certificates are treated as indebtedness for Federal income tax purposes, the
Investor Certificates should be treated as indebtedness for Ohio income tax
purposes. In such case, Investors not otherwise subject to Ohio tax would not
become subject to such tax solely because of their ownership of the Investor
Certificates. The Trust would not be taxable in Ohio.
94
<PAGE> 97
If some or all of the Investor Certificates are treated as equity
interests in a partnership (other than a "publicly traded partnership") for
Federal income tax purposes, the Investor Certificates should be treated as
partnership interests for Ohio corporate franchise tax purposes. In such case,
Ohio could view the partnership as doing business in Ohio. In this
circumstance, the partnership would not be an entity subject to income taxation
in Ohio. Rather each item of income, gain, loss, deduction and credit
generated through the ownership of the Receivables by the partnership would be
passed through to the partners of the partnership (including holders of
Investor Certificates that are treated as equity interests in the partnership),
who would be responsible for any income tax imposed at the partner level.
Nonresident individual partners who receive allocations of the partnership's
Ohio taxable income would be subject to tax in Ohio on that income. Corporate
partners generally would be required to take into account income from their
partnership interests for purposes of calculating the amount of their income
apportioned to Ohio. However, corporate limited partners not otherwise subject
to Ohio corporate franchise tax should not become subject to such tax by
reason of mere ownership of the Investor Certificates.
If the Investor Certificates are instead treated for Federal income tax
purposes as equity interests in an entity classified as an association taxable
as a corporation or in a "publicly traded partnership" taxable as a
corporation, the entity would be subject to the Ohio corporate franchise tax on
its taxable income generated by ownership of the Receivables. The Investors
probably would be taxed on distributions by the entity on such Investor
Certificates in the same manner as they are taxed on regular corporate
dividends and other distributions. The entity-level taxes could result in
reduced distributions to all Investors. If corporate treatment were to apply,
an Investor not otherwise subject to tax in Ohio should not become subject to
Ohio tax on distributions from the entity as a result of its mere ownership of
the Investor Certificates.
ERISA CONSIDERATIONS
Section 406 of the Employee Retirement Income Security Act of 1974, as
amended, ("ERISA") prohibits employee benefit plans described in Section 401 of
ERISA from engaging in certain transactions with persons who are "parties in
interest" unless a statutory or administrative exemption applies to the
transaction. Section 4975 of the Code prohibits plans described in Section
4975(e)(1) of the Code from engaging in transactions with persons who are
"disqualified persons" unless a statutory or administrative exemption applies.
Plans described in Section 401 of ERISA and Section 4975(e)(1) of the Code
(collectively, "BENEFIT PLANS") may be subject to excise taxes, civil fines and
other liabilities for violating the "prohibited transaction" rules of Section
406 of ERISA and Section 4975 of the Code. For example, a prohibited
transaction could arise, unless an exemption were available, if an Investor
Certificate was viewed as debt of the Transferor and the Transferor was a
"party in interest" or a "disqualified person" with respect to a Benefit Plan
that acquired the Investor Certificate.
Moreover, additional prohibited transactions could arise if the Trust
Assets were deemed to constitute assets of any Benefit Plan that owned Investor
Certificates. Under Section 2510.3-101 of the United States Department of
Labor ("DOL") regulations (the "FINAL REGULATION"), a
95
<PAGE> 98
Benefit Plan's assets may include an interest in the underlying assets of
corporations, partnerships, trusts and certain other entities for certain
purposes, including the prohibited transaction provisions of ERISA and the
Code, if the Benefit Plan (or other entities whose assets include assets of a
Benefit Plan) acquires "an equity interest" in such entity. Accordingly, if a
Benefit Plan purchases Investor Certificates, the Trust could be deemed to hold
assets of the Benefit Plan unless one of the exceptions under the Final
Regulation is applicable to the Trust.
The Final Regulation only applies to the investment by a Benefit Plan
in an "equity interest" of an entity. Assuming that an Investor Certificate is
an equity interest for purposes of the Final Regulation, the Final Regulation
contains several exceptions that may apply to the purchase of Investor
Certificates by Benefit Plans. Under one exception the issuer of a security
will not be deemed to hold assets of a Benefit Plan that purchases the security
so long as the security qualifies as a "publicly-offered security" for purposes
of the Final Regulation. A publicly-offered security is a security that is (i)
freely transferable, (ii) part of a class of securities that is owned by 100 or
more investors independent of the issuer and of one another and (iii) either is
(A) part of a class of securities registered under Section 12(b) or 12(g) of
the Exchange Act or (B) sold to the Benefit Plan as part of an offering of
securities to the public pursuant to an effective registration statement under
the Act and the class of securities of which such security is a part is
registered under the Exchange Act within 120 days (or such later time as may be
allowed by the Commission) after the end of the fiscal year of the issuer
during which the offering of such securities to the public occurred. For
purposes of this exception, a class of securities will not fail to be
widely-held solely because subsequent to the initial offering the number of
independent investors falls below 100 as a result of events beyond the control
of the issuer.
The Investor Certificates of each Class and Series must be separately
tested under, and may each meet, the criteria of publicly offered securities as
described above. There are no restrictions imposed on the transfer of the
Investor Certificates, and the Investor Certificates will be sold as part of an
offering pursuant to an effective registration statement under the Securities
Act and then will be timely registered under the Exchange Act. Based on
information provided by an underwriter, agent or dealer involved in the
distribution of the Investor Certificates, the Transferor will notify the
Trustee as to whether or not the Investor Certificates of a Class or Series
will be held by at least 100 separately named persons at the conclusion of the
offering thereof. The Transferor will not, however, determine whether the 100
independent investors requirement of the exception for publicly offered
securities is satisfied as to either a specific Class or Series. Prospective
purchasers may obtain a copy of the notification described in the same
preceding sentence from the Trustee at its Corporate Trust Department.
Under another exception, the Trust Assets will not be deemed to
constitute assets of any Benefit Plan that owns Investor Certificates if equity
participation by "benefit plan investors" is not "significant". For this
exception, such participation is not "significant" if immediately after the
most recent acquisition of any equity interest in the entity, whether or not
from an issuer or underwriter, less than twenty-five percent (25%) of the value
of every Class or Series of Investor Certificates is held by "benefit plan
investors" (defined as Benefit Plans and plans not subject to ERISA (for
example, governmental plans)). Another exception involves an
96
<PAGE> 99
"operating company" classification within the meaning of the Final Regulation.
Since the Trust will not be an "operating company," this exception will not be
available to Benefit Plans that purchase Investor Certificates.
If the Investor Certificates of a Class or Series fail to meet the
requirements of the publicly-offered securities exception, and equity
participation by "benefit plan investors" is "significant" and the Trust Assets
are deemed to include assets of benefit plan investors, transactions involving
the Trust and "parties in interest" or "disqualified persons" with respect to
such plans might be prohibited under Section 406 of ERISA and Section 4975 of
the Code unless an exemption is applicable. In addition, persons providing
services with respect to the assets of the Trust could become "parties in
interest" with respect to the benefit plan investors and could, in certain
cases, be subject to the prohibited transaction and other fiduciary
responsibility rules of ERISA. Thus, for example, if a participant in any
Benefit Plan holding Investor Certificates is an Obligor of one of the
Receivables, under a DOL interpretation the purchase of such Investor
Certificates by such Benefit Plan could constitute a prohibited transaction.
There are three class exemptions issued by the DOL that could apply in
such event: DOL Prohibited Transaction Exemption 84-14 (Class Exemption for
Plan Asset Transactions Determined by Independent Qualified Professional Asset
Managers), 91-38 (Class Exemption for Certain Transactions Involving Bank
Collective Investment funds) and 90-1 (Class Exemption for Certain Transactions
Involving Insurance Company Pooled Separate Accounts). However, there is no
assurance that these exemptions, even if all of the conditions specified
therein are satisfied, will apply to all transactions involving the Trust
Assets.
As discussed above, while Tax Counsel has given its opinion that the
Investor Certificates will properly be treated as debt for Federal income tax
purposes, if any Class or Series of Investor Certificates is treated as equity
interests in a partnership in which any other Class or Series of Investor
Certificates are debt, all or part of a tax-exempt investor's share of income
from the Investor Certificates that are treated as equity probably would be
treated as unrelated debt-financed income under the Code and taxable to the
tax-exempt investor.
In light of the foregoing, fiduciaries of Benefit Plans considering the
purchase of Investor Certificates should consult their own counsel as to
whether the acquisition of such Investor Certificates would be a prohibited
transaction, whether Trust Assets which are represented by such Investor
Certificates would be considered assets of the Benefit Plan, the consequences
that would apply if the Trust Assets were considered assets of the Benefit
Plan, the applicability of exemptive relief from the prohibited transaction
rules and the applicability of the tax on unrelated business income and
unrelated debt-financed income. In addition, based on the reasoning of the
United States Supreme Court's recent decision in John Hancock Mut. Life Ins.
Co. v. Harris Trust and Sav. Bank, 114 S. Ct. 517 (1993), under certain
circumstances assets in the general account of an insurance company may be
deemed to be plan assets for certain purposes, and under such reasoning a
purchase of Investor Certificates with assets of an insurance company's general
account may subject the insurance company to the fiduciary rules of ERISA with
respect to its assets and may cause the prohibited transaction rules to apply.
97
<PAGE> 100
The Class B Certificates may not be issued, assigned or transferred to
or otherwise held by any Person which is a "benefit plan investor" as defined
in Section 2510.3-101 (f)(2) of the Labor Regulations promulgated under ERISA.
In addition, the Class A Certificates may not be issued, assigned or
transferred to or otherwise held by any such "benefit plan investor" unless the
acquisition or holding of such Class A Certificates is exempted from the
"prohibited transaction" provisions of ERISA. Any purported transfer of a
Series 1995-1 Certificate to a benefit plan investor in violation of the
foregoing restrictions shall be void and of no effect. Each benefit plan
investor that acquires any Class A Certificates will be deemed to have
represented and warranted to the Trust that such Investor's acquisition or
holding of the Class A Certificates does not constitute a nonexempt "prohibited
transaction" under the applicable provisions of ERISA and the Code.
UNDERWRITING
Subject to the terms and conditions set forth in an Underwriting
Agreement dated _______________, 1995 (the "UNDERWRITING AGREEMENT"), among the
Transferor, the Servicers, and Citicorp Securities, Inc., CS First Boston, Inc.
and Chemical Securities Inc. (the "UNDERWRITERS"), the Transferor will agree to
sell to the Underwriters, and the Underwriters will agree to purchase from the
Transferor the respective principal amounts of Series 1995-1 Certificates set
forth opposite their names below.
<TABLE>
<CAPTION>
Principal Principal
Amount of Amount of
Class A Class B
Underwriter Certificates Certificates
----------- ------------ ------------
<S> <C> <C> <C>
Citicorp Securities, Inc. _____ _____
CS First Boston, Inc. _____ _____
Chemical Securities Inc. _____ _____
Totals _____ _____
</TABLE>
In the Underwriting Agreement, the Underwriters will agree, subject to
the terms and conditions set forth therein, to purchase all the Investor
Certificates offered hereby if any Investor Certificates are purchased. In the
event of default by an Underwriter, the Underwriting Agreement provides that,
in certain circumstances, the Underwriting Agreement may be terminated. The
Transferor will be advised by the Underwriters that the Underwriters propose
initially to offer the Investor Certificates to the public at the public
offering price set forth on the cover page of this Prospectus, and to certain
dealers at such price less a concession not in excess of .___% of the principal
amount of the Investor Certificates. The Underwriters may allow, and such
dealers may reallow, a discount not in excess of .___% of such principal amount
to certain other dealers. After the initial public offering, the public
offering price, concession and discount may be changed.
98
<PAGE> 101
The Underwriting Agreement will provide that the Transferor and
Servicers will indemnify the Underwriters against certain liabilities,
including liabilities under applicable securities laws, or contribute to
payments the Underwriter may be required to make in respect thereof.
One or more of the Underwriters has a lending relationship with
Centerior Energy Corporation or its subsidiaries.
LEGAL MATTERS
Certain legal matters relating to the Investor Certificates will be
passed upon for the Transferor and the Trust by Squire, Sanders & Dempsey,
Cleveland, Ohio, and the Underwriters by Brown & Wood. Certain Ohio and
Federal income tax matters will be passed upon by Squire, Sanders & Dempsey.
Squire, Sanders & Dempsey has in the past provided legal services to the
Originators and their Affiliates.
99
<PAGE> 102
GLOSSARY
As used herein, the following terms shall include in the singular number the
plural and in the plural number the singular:
"AFFILIATE" means, with respect to any specified Person, any other Person
controlling, controlled by or under common control with such specified Person
and, without limiting the generality of the foregoing, shall be presumed to
include (A) any Person which beneficially owns or holds 10% or more of any
class of voting securities of such designated Person or 10% or more of the
equity interest in such designated Person and (B) any Person of which such
designated Person beneficially owns or holds 10% or more of any class of voting
securities or in which such designated Person beneficially owns or holds 10% or
more of the equity interest. For the purposes of this definition, "control"
when used with respect to any specified Person shall mean the power to direct
the management and policies of such specified Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and controlled" have meanings correlative to the
foregoing.
"AGGREGATE INVESTED AMOUNT" is defined on page 6 of the Prospectus.
"AGGREGATE REQUIRED RESERVES" is defined on page 9 of the Prospectus.
"AGGREGATE INVESTORS' INTEREST" is defined on page 5 of the Prospectus.
"AMORTIZATION DATE" is defined on page 60 of the Prospectus.
"AMORTIZATION PERIOD" is defined on page 15 of the Prospectus.
"APPLICABLE RESERVE RATIO" is defined on page 9 of the Prospectus.
"APPLICABLE STRESS FACTOR" is defined on page 109 of the Prospectus.
"ASSIGNEE ORIGINATOR" is defined on page 85 of the Prospectus.
"ASSIGNOR ORIGINATOR" is defined on page 85 of the Prospectus.
100
<PAGE> 103
"AVERAGE DILUTION RATIO" is, for any Interest Period, the average of the
Dilution Ratios for such Interest Period and for the immediately preceding
eleven consecutive Interest Periods.
"BANKRUPTCY CODE" is defined on page 43 of the Prospectus.
"BASE AMOUNT" is defined on page 14 of the Prospectus.
"BENEFIT PLANS" is defined on page 95 of the Prospectus.
"BILLED RECEIVABLE" is defined on page 30 of the Prospectus.
"BUDGET/BALANCED BILLING PAYMENT PLAN" is defined on page 36 of the Prospectus.
"BUSINESS DAY" means any day other than a Saturday or Sunday or any other day
on which national banking associations or state banking institutions in New
York, New York, Cleveland, Ohio, Toledo, Ohio, or the city in which the
principal corporate offices of the Trust are located are authorized or
obligated by law, executive order or governmental decree to be closed.
"CPP" is defined on page 45 of the Prospectus.
"CEI" is The Cleveland Electric Illuminating Company.
"CARRYING COST ACCOUNT" is defined on page 12 of the Prospectus.
"CARRYING COST AMOUNT" is defined on page 57 of the Prospectus.
"CARRYING COST RESERVE" is calculated, on each Business Day, as follows:
CCR = ACC - CCA + AIA X WFR X (2 X TD)
--------------------
360
where:
CCR = the Carrying Cost Reserve
ACC = accrued and unpaid Carrying Costs plus the amount of
Carrying Costs (exclusive of interest on the Investor
Certificates) that will, or are estimated to, have
accrued by the 15th day of the succeeding calendar
month, in each case as set forth in the then-effective
Settlement Statement (such total being herein called
the "ACCRUED CARRYING COSTS")
AIA = the Aggregate Invested Amount as of such date
101
<PAGE> 104
WFR = the sum of (a) the weighted average of the Certificate
Rates then in effect PLUS (b) the Servicing Fee rate
(computed at the applicable rate for a successor
servicer)
TD = the average days outstanding for the Receivables as
calculated by the Servicer ("TURNOVER DAYS")
CCA = the aggregate balance of funds allocated to the
Carrying Cost Amount as of such date
"CARRYING COSTS" is defined on page 18 of the Prospectus.
"CEDE" means Cede & Co., the nominee of The Depository Trust Company.
"CERTIFICATEHOLDER" means any person in whose name any Certificate is
registered in the certificate register.
"CERTIFICATE RATE" is defined on page 11 of the Prospectus.
"CLASS" means any Class of a Series of Investor Certificates identified in the
applicable Series Supplement.
"CLASS ALLOCATION PERCENTAGE" means, with respect to any Class on any
Distribution Date after the Scheduled Amortization Commencement Date, a
fraction with (a) a numerator which equals the Invested Amount of that Class;
and (b) a denominator which equals the sum of such Invested Amount and the
Invested Amount of each other Class of equal priority with such Class.
"CLASS A CERTIFICATES" is defined on the front cover page of the Prospectus.
"CLASS A RATE" is the Certificate Rate of the 1995-1 Series Class A
Certificates.
"CLASS A REQUIRED RESERVES" is defined on page 9 of the Prospectus.
"CLASS B CERTIFICATES" is defined on the front cover page of the Prospectus.
"CLASS B RATE" is the Certificate Rate of the Series 1995-1 Class B
Certificates.
"CLASS B REQUIRED RESERVES" is defined on page 9 of the Prospectus.
"CLOSING DATE" means, with respect to any Series, the Closing Date specified in
the related Supplement.
102
<PAGE> 105
"CODE" means the Internal Revenue Code of 1986, as amended.
"COLLECTION ACCOUNT" is defined on page 17 of the Prospectus.
"COLLECTION PERIOD" is defined on page 17 of the Prospectus.
"COLLECTIONS" is defined on page 17 of the Prospectus.
"COMMISSION" means the Securities and Exchange Commission.
"CONCENTRATION ACCOUNT" is defined on page 18 of the Prospectus.
"CONTRACT" means an agreement between an Originator and an Obligor, whether in
the form of a written contract, tariff or invoice or an unwritten agreement
deemed to have arisen after such Obligor has accepted electric service, in such
case pursuant to or under which such person shall be obligated to pay from time
to time for electric service and the other charges related thereto.
"CREDIT ADJUSTMENT" is defined on page 79 of the Prospectus.
"CREDIT AND COLLECTION POLICY" is defined on page 24 of the Prospectus.
"CURE FUNDS" is defined on page 15 of the Prospectus.
"CUT-OFF DATE" is defined on page 4 of the Prospectus.
"DOL" means the United States Department of Labor.
"DTC" means The Depository Trust Company.
"DAILY REPORT" is defined on page 64 of the Prospectus.
"DEFAULTED RECEIVABLE" means any Receivable: (a) as to which as of the last
Business Day of the most recent Collection Period any payment, or part thereof,
remained unpaid for 90 days or more after its original invoice date; (b) as to
which the Obligor thereof has taken any action, or suffered any event to occur,
of the type constituting an Insolvency Event; or (c) which, consistent with the
Credit and Collection Policy, has been or should be written off as
uncollectible.
"DEFEASANCE ACCOUNT" means an administrative sub-account of the Servicer
Collection Account or a separate trust account created by the Trustee at the
direction of the Transferor.
"DEFERRED ARRANGEMENT PAYMENT PLAN" is defined on page 36 of the Prospectus.
"DEFERRED PAYMENT RIGHT" is defined on page 7 of the Prospectus.
103
<PAGE> 106
"DEFINITIVE CERTIFICATES" is defined on page 66 of the Prospectus.
"DELINQUENT RECEIVABLE" means a Receivable which is not a Defaulted Receivable
and the outstanding balance of which, as of any Business Day, remained unpaid
for 60 days or more after its original invoice date.
"DETERMINATION DATE" means, with respect to any Distribution Date, the second
Business Day preceding such Distribution Date.
"DETERMINATION DATE CERTIFICATE" is defined on page 64 of the Prospectus.
"DILUTED RECEIVABLE" means that portion of any Eligible Receivable which is
either (a) reduced or canceled as a result of (i) any failure by an Originator
to deliver any electric power or provide any services or otherwise to perform
under the underlying Contract or invoice, (ii) any change in the terms of, or
cancellation of, a Contract or invoice or any other adjustment by an Originator
which reduces the amount payable by the Obligor on the related Receivable or
(iii) any setoff in respect of any claim by an Obligor on the related
Receivable or (b) subject to any specific dispute, offset, counterclaim or
defense whatsoever asserted (except the discharge in bankruptcy of the Obligor
thereof).
"DILUTION" means, with respect to any Receivable, any reduction in the
Outstanding Balance thereof on account of such Receivables or any portion
thereof becoming a Diluted Receivable; provided that for purposes of
calculating the Dilution Ratio, Dilution shall not include any refunds or set
offs of any security deposits or credit balances which were subtracted from the
Outstanding Balances of Eligible Receivables included in the calculation of the
Net Receivable Balance.
"DILUTION HORIZON RATIO" means, as calculated in each Determination Date
Certificate for the most recently ended Collection Period, a fraction, (i) the
numerator of which equals (A) the aggregate amounts of all new billed Pool
Receivables generated during the most recently ended Collection Period and (B)
the aggregate Outstanding Balances of Unbilled Receivables as determined on the
last Business Day of the most recently ended Collection Period and (ii) the
denominator of which equals the aggregate Outstanding Balances of Net Eligible
Receivables as determined on the last Business Day of the most recently ended
Collection Period.
"DILUTION RATIO" means, as calculated in each Determination Date Certificate
for the most recently ended Collection Period, the percentage equivalent of a
fraction having (a) a numerator equal to the aggregate amount of Dilution on
the Pool Receivables during such Collection Period, and (b) a denominator equal
to the aggregate amounts of new billed Pool Receivables generated during the
Collection Period immediately preceding the most recently ended Collection
Period.
"DILUTION RESERVE RATIO" means, as calculated in each Determination Date
Certificate for the most recently ended Collection Period for each Class of
Investor Certificates, the percentage equivalent of a fraction equal to the
product of:
104
<PAGE> 107
(a) the sum of
(i) the product of (A) the Applicable Stress Factor
for such Class and (B) the Average Dilution Ratio for such
Collection Period, and
(ii) the Dilution Volatility Factor, times
(b) the Dilution Horizon Ration then in effect.
"DILUTION VOLATILITY FACTOR" means, as calculated in each Determination Date
Certificate for each class of Investor Certificates for the most recently ended
Collection Period, a percentage equal to the product of (i) the amount by which
(A) the highest Dilution Ratio for any Collection Period ending during the most
recently ended twelve-month period exceeds (B) the Average Dilution Ratio for
the most recent Collection Period and (ii) a fraction equal to (A) the highest
Dilution Ratio for any Collection Period ending during such twelve-month period
divided by (B) the Average Dilution Ratio for the most recent Collection
Period.
"DISTRIBUTION DATE" means (i) during the Revolving Period, __________ 15 and
__________ 15 of each year, commencing on __________ 15, 1996 and (ii) during
the Amortization Period, the fifteenth day of each month, commencing (A) in the
event that such Amortization Period occurs upon the Scheduled Amortization
Date, on __________ 2000 and (B) in the event such Amortization Period occurs
as a result of an Early Amortization Event, on the first such day which is at
least 30 days after the commencement of the Amortization Period. If any date
described above is not a Business Day, the applicable Distribution Date shall
be the first Business Day following such date.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended.
"EARLY AMORTIZATION EVENT" is defined on page 60 of the Prospectus.
"ELIGIBLE INSTITUTION" means a depository institution organized under the laws
of the United States of America or any one of the states thereof, including the
District of Columbia (or any domestic branch of a foreign bank), which at all
times (i) is a member of the FDIC, (ii) has a combined capital and surplus of
at least $50,000,000, (iii) has (A) a long-term unsecured debt rating of at
least A3 or better by Moody's or (B) a certificate of deposit rating or
short-term unsecured debt rating of P-1 by Moody's and (iv) has (A) a long-term
unsecured debt rating of at least A+ or better by S&P or (B) a certificate of
deposit rating or short-term unsecured debt rating of A-1 by S&P.
"ELIGIBLE INVESTMENTS" is defined on page 56 of the Prospectus.
"ELIGIBLE OBLIGOR" means each Obligor that satisfies the following criteria:
(a) it is not an Affiliate of either Seller; (b) as of the end of the most
recent Interest Period, it was not the subject of any voluntary or involuntary
bankruptcy proceedings; (c) as of the end of the most recent Collection Period,
no more than ___% of all Receivables of such Obligor and its
105
<PAGE> 108
Affiliates were (for reasons other than disputes) aged more than 89 days past
their respective invoice dates; and (d) as of the end of the most recent
Interest Period, none of the past due Receivables of such Obligor had been
evidenced by promissory notes.
"ELIGIBLE RECEIVABLE" means, at any time, a Receivable, or portion thereof,
satisfying the following (and other customary) criteria: (a) the obligor of
which is an "Eligible Obligor" (b) which is free from liens and has not been
sold or pledged to any other person; (c) which is not a Defaulted Receivable or
a Delinquent Receivable; (d) which is (or in the case of an Unbilled
Receivable, will be) required to be paid in full within 30 days of the original
billing date; (e) which is (or in the case of an Unbilled Receivable, will be)
denominated and payable in the United States in United States dollars; (f)
which arose in the ordinary course of business of an Originator from the sale
of electricity or electric power by or on behalf of such Originator; (g) which
represents a bona fide enforceable obligation resulting from a sale of
electricity by the Sellers; (h) which does not contravene in any material
respect applicable laws, rulings and regulations; (i) which complies in all
material respects with all material requirements of the Credit and Collection
Policy; (j) which has not been extended, rewritten or otherwise modified from
the original terms thereof except in conformity with the Credit and Collection
Policy of the applicable Originator; (k) with respect to which all material
consents, licenses, approvals or authorizations of, or registrations or
declarations with, any governmental authority required to be obtained, effected
or given in connection with the creation of such Receivable have been duly
obtained, effected or given and are in full force and effect; (l) which is an
account receivable representing all or part of the sales price of merchandise or
services within the meaning of Section 3(c)(5) of the Investment Company Act,
the Obligor of which is primarily liable with respect thereto; (m) which is an
"account" within the meaning of Section 9-106 of the UCC; (n) which is not a
Diluted Receivable; PROVIDED that any otherwise Eligible Receivable which is a
Diluted Receivable in part will be an Eligible Receivable to the extent not
subject to any reduction, cancellation, rebate, refund, dispute, counterclaim,
refund of security deposit, offset or other factor described in the definition
of Diluted Receivable; (o) which is not a PIP Receivable, (p) which does not
represent the restructured delinquent balance of any previously Delinquent or
Defaulted Receivable; and (q) which is not subject to any enforceable provision
prohibiting the transfer or assignment by the applicable Originator of such
payment obligation.
"ELIGIBLE SERVICER" means (a) CEI, (b) TE, (c) the Trustee or (d) an entity
which, at the time of its appointment as Servicer, (i) is servicing a portfolio
of trade receivables, (ii) is legally qualified and has the capacity to service
the Receivables, and (iii) has demonstrated the ability to service
professionally and competently a portfolio of trade receivables similar to the
Receivables in accordance with high standards of skill and care.
"ENHANCEMENT" is defined on page 4 of the Prospectus.
"ENHANCEMENT AGREEMENT" means any agreement, instrument or document governing
the terms of any Enhancement or any Series or pursuant to which any Enhancement
of any Series is issued or outstanding.
106
<PAGE> 109
"ENHANCEMENT PROVIDER" means any Person providing any Enhancement.
"EXCESS CONCENTRATION BALANCE" means, on any day and with respect to an
Obligor, the amount of otherwise Eligible Receivables due from such Obligor and
(without duplication) its consolidated Affiliates which, expressed as a
percentage of the amount of all Eligible Receivables, exceeds the percentage
set forth below for the applicable category of Obligors:
<TABLE>
<CAPTION>
MINIMUM RATING
- ------------------------------------------------------------------
S&P MOODY'S PERCENTAGE
- -------------------------- ---------------------------------- ---------------------------
<S> <C> <C>
A-1+ or AA- P-1 or Aa3 7.0%
A- 1 or A+ P-1 or A2 5.5%
A-2 or BBB+ P-2 or Baal 4.0%
A-3 or BBB- P-3 or Baa3 3.0%
Not rated/other Not rated/other 1.5%
</TABLE>
The percentage applicable to any Obligor will be the lowest percentage
associated with an Obligor's short-term or actual or implied long-term senior
debt rating that is in effect for such Obligor or such Obligor's corporate
parent.
"EXCHANGE ACT" is the Securities Exchange Act of 1934, as amended.
"EXPECTED FINAL PAYMENT DATE" is defined on page 15 of the Prospectus.
"FERC" means Federal Energy Regulatory Commission.
"FINAL REGULATION" is defined on page 95 of the Prospectus.
"FLOATING ALLOCATION PERCENTAGE" is defined on page 7 of the Prospectus.
"IRS" means the Internal Revenue Service.
"INDEMNIFIED AMOUNT" is defined on page 86 of the Prospectus.
"INDEMNIFIED PARTY" is defined on page 86 of the Prospectus.
"INDIRECT PARTICIPANTS" is defined on page 65 of the Prospectus.
"INELIGIBLE RECEIVABLE" is defined on page 84 of the Prospectus.
"INSOLVENCY EVENT" is defined on page 61 of the Prospectus.
"INTEREST PERIOD" means, unless otherwise specified in the Supplement relating
to any Series, with respect to any Distribution Date for such
107
<PAGE> 110
Series (i) in the case of the initial such Distribution Date, the period from
and including the Closing Date for such Series to but excluding such initial
Distribution Date and (ii) in the case of any other Distribution Date, the
period from and including the preceding Distribution Date to but excluding such
Distribution Date.
"INVESTED AMOUNT" is defined on page 6 of the Prospectus.
"INVESTMENT COMPANY ACT" is defined on page 55 of the Prospectus.
"INVESTOR" is defined on page 3 of the Prospectus.
"INVESTOR CERTIFICATE" is defined on page 3 of the Prospectus.
"INVESTORS' INTEREST" is defined on page 6 of the Prospectus.
"LOSS HORIZON RATIO" means, as calculated in each Determination Date Certficate
for the most recently ended Collection Period, a fraction, (i) the numerator of
which equals the sum of (A) the aggregate amounts of new billed Pool
Receivables generated during the most recently ended Collection Period and the
immediately preceding Collection Period and (B) the aggregate Outstanding
Balances of Unbilled Receivables as determined on the last Business Day of the
most recently ended Collection Period and (ii) the denominator of which equals
the aggregate Outstanding Balances of Net Eligible Receivables as determined on
the last Business Day of the most recently ended Collection Period.
"LOSS RESERVE RATIO," from any Distribution Date to the next Distribution Date,
shall be calculated as follows:
LRR = [MAX(GLR + CDPP)] x ASF x LHR
where:
LRR = Loss Reserve Ratio
MAX(GLR + CDPP) = highest three-month rolling average GLR
+ CDPP amount during the twelve most
108
<PAGE> 111
recent
Collection
Periods
GLR = GROSS LOSS RATIO
calculated as (i)
gross write-offs during
the most recent
Collection Period
divided by (ii) new
billed Pool Receivables
generated during the
Collection Period 6
months prior to the
most recently ended
Collection Period
CDPP = CHANGE IN RESTRUCTURED DEFERRED PAYMENT
PLAN being calculated as (i) the
aggregate unpaid balance (the
"Restructured Deferred Payment Account
Balance") of all Receivables
representing the delinquent balance of
previously due Receivables which have
been restructured as part of the
Deferred Arrangement Payment Plan at
the end of the most recently ended
Collection Period minus (ii) the
average Restructured Deferred Payment
Account Balance during the twelve most
recent Collection Periods; provided, if
the difference between (i) and (ii)
above is less than zero, then the CDPP
will be zero
ASF = the stress factor (the "Applicable
Stress Factor") shall equal 2.0 in the
case of the Class A Certificates and
1.7 in the case of the Class B
Certificates
LHR = the "Loss Horizon Ratio" then in effect
"MAJORITY IN INTEREST" means, with respect to each Series, the Investors
holding Certificates evidencing 51% or more of the Investors' Interest.
"MAJORITY INVESTORS" means Investors holding Certificates evidencing 51% or
more of the Aggregate Investors' Interest.
"MASTER SERVICER" means the Servicer which is then authorized to prepare and
deliver the Daily Reports and Determination Date Certificates, to instruct the
Trustee with respect to the investment of funds in the Trust Accounts and to
perform any other functions herein which have been delegated to the Master
Servicer, and shall initially be CEI.
109
<PAGE> 112
"MINIMUM REQUIRED RESERVE RATIO" is defined on page 9 of the Prospectus.
"MOODY'S" means Moody's Investors Service, Inc.
"NET ELIGIBLE RECEIVABLES" means, at any time (a) the aggregate unpaid balance
of all Eligible Receivables in the Trust, minus (b) the then aggregate amount
of all Excess Concentration Balances with respect to all Obligors minus (c) the
aggregate amount of all Collections not applied to any corresponding
Receivables.
"NET INVESTED AMOUNT" means, at any time, the Aggregate Invested Amount minus
the amount of Cure Funds on deposit in the Reserve Account as of such time
minus the amount of funds on deposit in any Defeasance Account to be
distributed to Investors in reduction of the Invested Amount of their Investor
Certificates.
"NET RECEIVABLES BALANCE" is defined on page 8 of the Prospectus.
"NEW ISSUANCE" is defined on page 10 of the Prospectus.
"OID" and "OID REGULATIONS" are defined on page 91 of the Prospectus.
"OBLIGOR" is defined on page 5 of the Prospectus.
"ORIGINATORS" means each of CEI and TE, together with their permitted
successors and assigns under the Receivables Purchase Agreement.
"ORIGINATOR LOAN" is defined on page 80 of the Prospectus.
"ORIGINATOR NONCOMPLYING RECEIVABLE" means a Receivable that does not, as of
the date of purchase by the Transferor, meet the criteria set forth in the
definition of "Eligible Receivables".
"PUCO" means Public Utilities Commission of Ohio.
"PARTICIPANTS" is defined on page 65 of the Prospectus.
"PAYING AGENT" means any paying agent appointed pursuant to the Pooling
Agreement.
"PIP" is defined on page 36 of the Prospectus.
"PERSON" means any individual, corporation, partnership, joint venture,
association, limited liability company, joint-stock company, trust,
unincorporated organization, governmental authority or any other entity of
similar nature.
"PIP RECEIVABLE" means any Receivable owed by an Obligor which fulfills the
conditions for inclusion accounted for in an Originator's "Percentage of Income
Payment" program for low income Obligors.
110
<PAGE> 113
"POOL RECEIVABLES" means, with respect to Receivables generated during, or
outstanding during, any Collection Period, all such Receivables except for
Receivables which, as of the beginning of such Collection Period, constituted
PIP Receivables.
"POOLING AGREEMENT" is defined on the front cover page of the Prospectus.
"PRINCIPAL ALLOCATION PERCENTAGE" is defined on page 52 of the Prospectus.
"PRINCIPAL DISTRIBUTION AMOUNT" is defined on page 52 of the Prospectus.
"PRINCIPAL TERMS" means, with respect to any Series: (a) the name or
designation; (b) the initial Invested Amount or maximum principal amount (or
method for calculating such amount); (c) the certificate rate (or method for
the determination thereof); (d) the payment date or dates and the date or dates
from which interest shall accrue; (e) the method for allocating collections to
Investors; (f) the designation of any Series accounts and the terms governing
the operation of any such Series accounts; (g) the issuer and terms of any form
of Enhancement with respect thereto; (h) the terms on which the Investor
Certificates of such Series may be exchanged for Investor Certificates of
another Series, repurchased or redeemed by the Transferor or remarketed to
other investors; (i) the number of Classes of Investor Certificates of such
Series and, if more than one Class, the rights and priorities of each such
Class and (j) the Scheduled Amortization Commencement Date and (if such Series
is designated as a Series of Variable Funding Certificates) the termination
date for such Series.
"PURCHASE PRICE" is defined on page 79 of the Prospectus.
"PURCHASE TERMINATION DATE" is defined on page 84 of the Prospectus.
"PURCHASED ASSETS" is defined on page 79 of the Prospectus.
"RATABLE PRINCIPAL AMOUNT" means, as to any Series of Investor Certificates or
the Transferor Revolving Certificate, the outstanding principal amount thereof,
except that: (a) if so provided in the Supplement pursuant to which a Series
of Investor Certificates is issued, the Ratable Principal Amount of that Series
may be greater or less than its outstanding principal amount; and (b) if so
provided in any Supplement, the Ratable Principal Amount of the Transferor
Revolving Certificate may be greater or less than its outstanding principal
amount. In addition to the general requirement that the Rating Agency
Condition be satisfied in connection with the issuance of any new Series, the
Pooling Agreement requires, as a condition to the execution by the Trustee of
any Series Supplement that allocates to any Investor Certificate a Ratable
Principal Amount in excess of its outstanding principal amount, that the
Trustee receive from the Servicers an officer's certificate stating that such
allocation will not dilute the benefit of the required dilution and loss
reserves to which any pre-existing Series is entitled prior to the
effectiveness of such Supplement.
"RATING AGENCY" means Standard & Poor's Rating Group or Moody's Investors
Service, Inc.
111
<PAGE> 114
"RATING AGENCY CONDITION" is defined on page 10 of the Prospectus.
"RECEIVABLES" is defined on the front cover page of the Prospectus.
"RECEIVABLES PURCHASE AGREEMENT" is defined on page 6 of the Prospectus.
"RECORD DATE" is defined on page 63 of the Prospectus.
"RECOVERIES" means cash received by the Trust in respect of any charged-off
Receivable transferred to the Trust.
"REGULAR BILLING PAYMENT PLAN" is defined on page 36 of the Prospectus.
"REQUIRED RESERVES" is defined on page 8 of the Prospectus.
"RESERVE ACCOUNT" is defined on page 12 of the Prospectus.
"REVOLVING PERIOD" is defined on page 12 of the Prospectus.
"S&P" means Standard & Poor's Ratings Group.
"SCHEDULED AMORTIZATION COMMENCEMENT DATE" is defined on page 12 of the
Prospectus.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SENIOR CLASS" is defined on page 8 of the Prospectus.
"SERIES" is defined on page 3 of the Prospectus.
"SERIES 1995-1 CERTIFICATES" is defined on the front cover page of the
Prospectus.
"SERIES 1995-1 INITIAL INVESTED AMOUNT" means the initial principal amount of
the Series 1995-1 Certificates.
"SERIES 1995-1 INVESTOR" is defined on page 3 of the Prospectus.
"SERVICER" means each of CEI and TE, and any permitted successor in interest
under the Pooling Agreement. All references to any Servicer mean and include
the applicable Servicer when performing any servicing functions delegated, for
reasons of administrative convenience, to the Master Servicer.
112
<PAGE> 115
"SERVICER COLLECTION ACCOUNT" is defined on page 17 of the Prospectus.
"SERVICER COLLECTION BANK" means any bank at which a Servicer Collection
Account is located.
"SERVICER DEFAULT" is defined on page 76 of the Prospectus.
"SERVICING FEE" is defined on page 16 of the Prospectus.
"SERVICE TRANSFER" is defined on page 75 of the Prospectus.
"SET-ASIDE PERIOD" is defined on page 14 of the Prospectus.
"STATED AMOUNT" means, with respect to any Variable Funding Certificate, the
maximum principal amount that may be required to be funded by the holder of
such Variable Funding Certificate pursuant to the applicable Supplement.
"SUBORDINATED CLASS" is defined on page 8 of the Prospectus.
"SUPPLEMENT" is defined on page 10 of the Prospectus.
"TE" means The Toledo Edison Company.
"TAX COUNSEL" means Squire, Sanders & Dempsey.
"TAX OPINION" is defined on page 54 of the Prospectus.
"TERMINATION NOTICE" is defined on page 75 of the Prospectus.
"TRANSFER AGENT AND REGISTRAR" means any transfer agent and registrar appointed
pursuant to the Pooling Agreement.
"TRANSFEROR" initially means Centerior Funding Corporation, a Delaware special
purpose corporation.
"TRANSFEROR COLLECTION ACCOUNT" is defined on page 17 of the Prospectus.
"TRANSFEROR INTERCOMPANY NOTE" is defined on page 80 of the Prospectus.
"TRANSFEROR INTEREST" is defined on page 7 of the Prospectus.
"TRANSFEROR REVOLVING AMOUNT" is defined on page 7 of the Prospectus.
"TRANSFEROR REVOLVING CERTIFICATE" is defined on page 7 of the Prospectus.
113
<PAGE> 116
"TRANSFEROR REVOLVING INITIAL AMOUNT" means $________________, being the
initial principal amount of the Transferor Revolving Certificate on ___________
___, 1995.
"TRUST" means Centerior Energy Trade Receivables Master Trust.
"TRUST ACCOUNTS" means the accounts described in the Pooling Agreement and any
accounts required to be established pursuant to any Series Supplement, that are
designated as Trust Accounts in that Series Supplement.
"TRUST ASSETS" is described on the front cover page of the Prospectus.
"TRUSTEE" means ________________, a ____________ [banking corporation], or its
successor in interest, or any successor Trustee under the Pooling Agreement.
"UCC" means the Uniform Commercial Code, as enacted in Ohio or New York as the
case may be.
"UNBILLED RECEIVABLE" is described on page 30 of the Prospectus.
"UNDERWRITER" is defined on page 98 of the Prospectus.
"UNDERWRITING AGREEMENT" is defined on page 98 of the Prospectus.
"VARIABLE FUNDING CERTIFICATES" is defined on page 11 of the Prospectus.
114
<PAGE> 117
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and, if given or
made, such information or representations must not be relied upon. This
Prospectus does not constitute an offer to sell or a solicitation of an offer
to buy any securities other than the securities offered hereby nor an offer of
such securities to any person in any state or other jurisdiction in which such
offer would be unlawful. The delivery of this Prospectus at any time does not
imply that information herein is correct as of any time subsequent to their
respective dates; however, if any material change occurs while this Prospectus
is required by law to be delivered, this Prospectus will be amended or
supplemental accordingly.
______________________
TABLE OF CONTENTS
PAGE
PROSPECTUS ----
Available Information . . . . . . . . . . . . . . . . . . . . . 2
Reports to Investors . . . . . . . . . . . . . . . . . . . . . 2
Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . 3
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . 20
Maturity Considerations . . . . . . . . . . . . . . . . . . . . 28
The Receivables . . . . . . . . . . . . . . . . . . . . . . . . 30
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . 42
The Transferor . . . . . . . . . . . . . . . . . . . . . . . . 43
Originators/Initial Servicers . . . . . . . . . . . . . . . . . 44
The Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Description of the Series 1995-1
Certificates . . . . . . . . . . . . . . . . . . . . . . . . 50
Description of the Pooling Agreement . . . . . . . . . . . . . 65
Description of the Receivables Purchase
Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 78
Certain Legal Aspects of the
Receivables . . . . . . . . . . . . . . . . . . . . . . . . 87
Certain Tax Considerations . . . . . . . . . . . . . . . . . . 90
ERISA Considerations . . . . . . . .. . . . . . . . . . . . . 95
Underwriting . . . . . . . . . . . . . . . . . . . . . . . . . 98
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . 99
Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
_____________________
UNTIL ___________________, 1996 (90 DAYS AFTER THE DATE OF THIS
PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE INVESTOR CERTIFICATES,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER
A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE> 118
======================================================
Centerior Energy Receivables
Master Trust
$_______________ _____%
Class A Receivables-Backed
Investor Certificates, Series 1995-1
$_______________ _____%
Class B Receivables-Backed
Investor Certificates, Series 1995-1
Centerior Funding Corporation
Transferor
The Cleveland Electric
Illuminating Company
and
The Toledo Edison Company
Servicers
_______________________
PROSPECTUS
_______________________
Citicorp Securities, Inc.
Chemical Securities Inc.
CS First Boston, Inc.
Dated __________, 1995
__________________________________________________
==================================================
<PAGE> 119
PART II
[INFORMATION NOT REQUIRED IN PROSPECTUS]
Item 13. Other Expenses of Issuance and Distribution.
The expenses expected to be incurred in connection with the issuance
and distribution of the securities being registered, other than underwriting
compensation, are set forth below. All such expenses, except for the SEC
registration and filing fees, are estimated:
<TABLE>
<S> <C>
SEC Registration Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 689.66
Legal Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . $ *
Accounting Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . $ *
Trustee's Fees and Expenses
(including counsel Fees) . . . . . . . . . . . . . . . . . . . . . . . . $ *
Blue Sky Qualification Fees
and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ *
Printing and Engraving Fees . . . . . . . . . . . . . . . . . . . . . . . $ *
Rating Agency Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ *
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ *
-------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
<FN>
__________________________
* To be provided by amendment.
</TABLE>
Item 14. Indemnification of Directors and Officers.
(1) Section 145 of Delaware General Corporation Law. Section 145
of the Delaware General Corporation Law ("DGCL") provides that a corporation
may indemnify any 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 corporation) by reason of the fact that he is or was
a director, officer, employee, or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise 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 corporation, 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 plea of nolo contendere or its equivalent, shall not, in and
of itself, create a presumption that the 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 corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
Section 145 of the DGCL also provides that a corporation may indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending, or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against
II-1
<PAGE> 120
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 corporation and except that no indemnification shall
be made in respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable to the corporation 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 adjudication 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 the Court of Chancery of Delaware or such other court shall deem proper.
To the extent that a director, officer, employee or agent of the
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to above, or in defense of any claim,
issue, or matter therein, such person shall be indemnified against expenses
(including attorney's fees) actually and reasonably incurred by such person in
connection therewith.
Any such indemnification (unless ordered by a court) shall be made by
the corporation only as authorized in the specific case upon a determination
that indemnification of the director, officer, employee or agent is proper in
circumstances because such person has met the applicable standard of conduct
set forth above. Such determination shall be made (i) by the board of
directors by a majority vote of a quorum consisting of directors who were not
parties to such action, suit or proceeding; or (ii) if such a quorum is not
obtainable, or, even if obtainable a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion; or (iii) by the
stockholders.
Section 145 of the DGCL permits a Delaware business corporation to
purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation, or is or was serving
at the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, or other enterprise
against any liability asserted against such person and incurred by such person
in any such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify such person against such
liability.
(2) Charter Provisions on Indemnity. Article TENTH of the
Certificate of Incorporation of the Registrant, as the same may be amended from
time to time (the "CHARTER"), sets forth the extent to which the Registrant's
directors and officers may be indemnified by the Registrant against liabilities
which they may incur while serving in such capacity. Article TENTH generally
provides that the Registrant shall indemnify the directors, officers and
employees of the Registrant who are or were a party to any action, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that he is or was a director, officer or employee of the Registrant
or of another corporation, partnership, joint venture, trust or other
enterprise, including any employee benefit plan of the Registrant, or by reason
of any action alleged to have been taken or omitted in such capacity, to the
fullest extent authorized by the DGCL, against all expense, liability and loss
(including penalties, fines, judgments, attorneys' fees, amounts paid or to be
paid in settlement and excise taxes imposed on fiduciaries with respect to (i)
employee benefit plans, (ii) charitable organizations or (iii) similar matters)
reasonably incurred or suffered by such person in connection therewith;
PROVIDED, HOWEVER, that the Registrant shall indemnify any such person only if
such proceeding was authorized by the Board of Directors. Subject to the
procedures for indemnification of directors and officers set forth in the
Charter, the indemnification of the Registrant's directors, officers and
employees provided for therein is in all other aspects substantially similar to
that provided for in Section 145 of the DGCL. Any such indemnification shall
continue as to a person who has ceased to be a director, officer or employee of
the Registrant and shall inure to the benefit of the heirs, executors, and
administrators of such person.
II-2
<PAGE> 121
The Certification of Incorporation of the Registrant provides that no
Director of the Registrant shall be personally liable to the Registrant or its
stockholders for monetary damages for breach of fiduciary duty as a Director;
provided, however, that this limitation of liability of a Director shall not
apply with respect to (i) any breach of the Director's duty of loyalty to the
Registrant or its stockholder, (ii) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) any
liability rising under Section 174 of the DGCL or (iv) for any transaction from
which the Director derives an improper personal benefit. The Bylaws of the
Registrant provide for the indemnification of directors, officers and employees
to the same extent as permitted by the DGCL.
(3) Indemnification Agreements.
CEI has in effect insurance policies covering all of the Registrant's
directors and officers in certain instances where by law they may not be
indemnified by CEI or the Registrant.
The Underwriting Agreement filed as Exhibit [__] hereto, contains
certain provisions relating to the indemnification of the Registrant's
directors, officers and controlling persons.
The above discussion of the Charter of the Registrant and of Section
145 of the Delaware Code is not intended to be exhaustive and is qualified in
its entirety by such Charter and the Delaware Code.
Item 15. Recent Sales of Unregistered Securities.
None.
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
NUMBER DESCRIPTION OF EXHIBIT
- ------ ----------------------
<S> <C>
* 1 Form of Underwriting Agreement
* 3.1 Certificate of Incorporation of the Registrant, as currently in effect.
* 3.2 By-Laws of the Registrant, as currently in effect.
* 4 Pooling and Servicing Agreement, dated as of ____________________, 1995,
among the Registrant, the Servicers and the Trustee.
* 5 Form of Opinion of SS&D with respect to the legality of the Investor Certificates.
* 8.1 Form of Opinion of SS&D with respect to certain Federal income tax matters and certain Ohio tax matters.
*10.1 Receivables Purchase Agreement, dated as of ____________________, 1995, between the Originators and the Registrant.
* 10.2 Lockbox Agreement, dated as of __________ __, 1995, between the Registrant and ____________________.
</TABLE>
II-3
<PAGE> 122
<TABLE>
<S> <C>
* 10.3 Lockbox Agreement, dated as of __________ __, 1995, between the Registrant and ____________________.
* 23.1 Consent of Squire, Sanders & Dempsey (included in opinion filed as Exhibit 8.1).
* 23.2 Consent of SS&D (included in opinion filed as Exhibit 8.2).
24 Powers of Attorney.
<FN>
- -------------------------
[*To be filed by amendment.]
</TABLE>
Item 17. Undertakings.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act of 1933, 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 registrant pursuant to Rule 424(b)(1) or (4),
or 497(h) 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
Securities Act of 1933, 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.
(3) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions or otherwise,
the Registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(4) The undersigned registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreements,
certificates in such denominations and registered in such names as required by
the underwriter to permit prompt delivery to each purchaser.
II-4
<PAGE> 123
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Lakewood, State of Ohio, on the ___the day of October, 1995.
CENTERIOR FUNDING CORPORATION
(REGISTRANT)
By
______________________________
Name: David M. Blank
Title: President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ David M. Blank
- ------------------------- _
DAVID M. BLANK President and Director |
(Principal Executive Officer) |
/s/ Barbara A. Frastaci |
- ------------------------- |
BARBARA A. FRASTACI Treasurer |
(Principal Financial Officer |
and Principal Accounting | October __, 1995
Officer) >
/s/ Terrence G. Linnert |
- ------------------------- |
TERRENCE G. LINNERT Director |
|
/s/ Andrew L. Stidd |
- ------------------------ |
ANDREW L. STIDD Director _|
</TABLE>
II-5
<PAGE> 124
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints David M. Blank, Barbara A. Frastaci,
Terrence G. Linnert, Kevin P. Murphy, Janis T. Percio, Gordon S. Kaiser, Jr. and
Dynda A. Thomas as his true and lawful attorney-in-fact and agent, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any or all amendments (including
post-effective amendments) to this Registration Statement, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power of authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
foregoing, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed on October __, 1995, by the following
persons in the capacities indicated.
<TABLE>
<S> <C>
- --------------------------------------------------- ----------------------------------------------
Name: David M. Blank Name: Terrence G. Linnert
------------------------------------------ -------------------------------------
Title: President and Director Title: Director
----------------------------------------- ------------------------------------
(principal executive officer)
- --------------------------------------------------- ----------------------------------------------
Name: Barbara A. Frastaci Name: Andrew L. Stidd
------------------------------------------ -------------------------------------
Title: Treasurer Title: Director
----------------------------------------- ------------------------------------
(principal financial officer
and principal accounting officer)
</TABLE>
<PAGE> 125
<TABLE>
EXHIBIT INDEX
-------------
<CAPTION>
Exhibit Number Description Page
- -------------- ----------- ----
<S> <C>
[*]1 Form of Underwriting Agreement.
[*]3.1 Certificate of Incorporation of the Registrant, as currently in
effect.
[*]3.2 By-Laws of the Registrant, as currently in effect.
[*]4 Pooling and Servicing Agreement, dated as of
____________________, 1995, among the Registrant, the Servicers
and the Trustee.
[*]5 Form of Opinion of SS&D with respect to the legality of the
Investor Certificates.
[*]8.1 Form of Opinion of SS&D with respect to certain Federal income
tax matters and certain Ohio tax matters.
[*]10.1 Receivables Purchase Agreement, dated as of ____________________,
1995, among the Originators and the Registrant.
[*]10.2 Lockbox Agreement, dated as of _____________, 1995, between the
Registrant and ___________________.
[*]10.3 Lockbox Agreement, dated as of _____________, 1995, between the
Registrant and ___________________.
[*]23.1 Consent of Squire, Sanders & Dempsey (included in opinion filed
as Exhibit 8.1).
[*]23.2 Consent of SS&D (included in opinion filed as Exhibit 8.2).
24 Powers of Attorney.
<FN>
___________________________
[*To be filed by amendment.]
</TABLE>
