<PAGE> 1
As filed with the Securities and Exchange Commission on April 10, 1996
Registration No. 33-63315
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 2 TO
FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
CENTERIOR ENERGY RECEIVABLES MASTER TRUST
(Issuer with respect to the Certificates)
CENTERIOR FUNDING CORPORATION
(Originator of the Trust described herein)
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<CAPTION>
Delaware 9999 510368903
<S> <C> <C>
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer Incorporation or
Organization) Classification Code Number) Identification Number)
</TABLE>
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)
_______________________
Copy to:
<TABLE>
<CAPTION>
Cathy M. Kaplan, Esq. Gordon S. Kaiser, Jr., Esq. Kevin P. Murphy, Esq. Kevin J. Hochberg, Esq.
<S> <C> <C> <C>
Brown & Wood Squire, Sanders & Dempsey Centerior Energy Corporation Sidley & Austin
One World Trade Center, 57th Floor 4900 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. [ ]
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of
the earlier effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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===================================================================================================
Proposed
maximum
Title of each class of Proposed maximum aggregate Amount of
securities to be Amount to be offering price offering registration
registered registered per unit(1) price(1) fee
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
1996-1 Receivables-
Backed Certificates 100% (2)
===================================================================================================
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee.
(2) $689.66 of which was previously paid with the Registration Statement filed
on October 10, 1995.
_______________________
<PAGE> 2
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> 3
CENTERIOR FUNDING CORPORATION
CROSS-REFERENCE SHEET FURNISHED
PURSUANT TO ITEM 501(b) OF REGULATION S-K
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<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 1996-1
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 1996-1 Certificates;
Description of the Pooling Agreement generally;
Description of the Receivables Purchase
Agreement; Certain Legal Aspects of the
Receivables.
12. Disclosure of Commission Position on *
Indemnification for Securities Act Liabilities
</TABLE>
___________________________________
* Answer negative or item inapplicable
<PAGE> 4
PROSPECTUS
DATED ___________, 1996
================================================================================
$[000,000,000]
CENTERIOR ENERGY RECEIVABLES MASTER TRUST
$_____________ _____% Series 1996-1
Receivables-Backed Investor Certificates
_______________
The $_______________ _____% Series 1996-1 Receivables-Backed Investor
Certificates ("SERIES 1996-1 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 Citibank, N.A., 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 1996-1 Certificates offered hereby. Certain Trust Assets
will be allocated to holders of Series 1996-1 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
1996-1 Certificates and the other certificates issued by the Trust from time to
time.
Interest with respect to the Series 1996-1 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 Series 1996-1 Certificates
will bear interest at _____% per annum. See "Description of the Series 1996-1
Certificates-Interest."
Principal payments with respect to the Series 1996-1 Certificates are scheduled
to commence on _______________, 2001 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
with respect to the Series 1996-1 Certificates may be paid earlier or later
than such dates under certain limited circumstances described herein. See
"Description of the Series 1996-1 Certificates -- Principal."
Employee Benefit Plans and other investors subject to ERISA may be prohibited
from acquiring or holding Series 1996-1 Certificates under certain
circumstances. See "ERISA Considerations."
Prospective investors should consider the factors set forth under "Risk
Factors" beginning on page 19 hereof.
____________________
THE SERIES 1996-1 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 1996-1 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.
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======================================================================================================
Price to Underwriting Proceeds to the
Public(1) Discount and Transferor(2)
Commissions
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Certificate. . . . . . . . . . __.__________% 0.000000% __.________%
- ------------------------------------------------------------------------------------------------------
Total. . . . . . . . . . . . . . . $____________ $____________ $____________
======================================================================================================
</TABLE>
[(1) Plus accrued interest, if any, calculated from _____________, 1996.]
(2) Before deduction of expenses, estimated to be $___________.
Citicorp Securities, Inc.
Chase Securities Inc.
CS First Boston, Inc.
================================================================================
<PAGE> 5
The Series 1996-1 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 1996-1 Certificates will be delivered in book-entry
form on or about ____________________, 1996, through the Same Day Funds
Settlement System of The Depository Trust Company.
The Series 1996-1 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 1996-1 Certificates, and
there is no assurance that one will develop or, if one does develop, that it
will continue until the Series 1996-1 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 1996-1 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 1996-1 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
1996-1 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> 6
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 . . . . . . . . $______________ _____% Series 1996-1
Receivables-Backed Investor
Certificates (the "SERIES 1996-1
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
1996-1 Certificate being a "SERIES
1996-1 INVESTOR" and each holder
of an Investor Certificate being
an "INVESTOR"). See "Description
of the Series 1996-1
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 _____________, 1996
(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 1996-1
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> 7
Trustee . . . . . . . . . . . . . Citibank, N.A., A National Banking
Association (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 ("CENTERIOR
ENERGY"). 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
______________, 1996 (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
4
<PAGE> 8
arrangement for the benefit of the
Investors of such Series. The
subordination of any series or
class or of the 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 businesses 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'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 an
Obligor that is not located within
the United States. The aggregate
unpaid principal balance of the
Receivables as of
_____________________, 1996 was
approximately $_________________.
See "The Receivables" and
"Description of the Receivables
Purchase Agreement -- Sale of
Receivables."
Series 1996-1
Investor Certificates . . . . . . The Series 1996-1 Certificates will be
issued in the aggregate initial
principal amount of $___________,
in minimum denominations of
$250,000 and in integral multiples
of $1,000 in excess thereof. The
Series 1996-1 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 Series 1996-1 Certificates
will, except as otherwise provided
herein, remain fixed at the
aggregate initial principal amount
thereof.
5
<PAGE> 9
The Investor Certificates collectively
represent a fractional undivided
beneficial interest in the Trust
(the "AGGREGATE INVESTORS'
INTEREST"; see heading Investors'
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 1996-1
Certificates."
Receivables Purchase
Agreement . . . . . . . . . . . . The Transferor, as purchaser, has
entered into a Receivables
Purchase Agreement dated as of
___________ __, 1996 (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
6
<PAGE> 10
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
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 Revolving Certificate
may not be pledged or transferred
without a Tax Opinion (as defined
below). 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 subordinate in right of
distribution to all Series of the
Investor Certificates.
Notwithstanding the foregoing, the
Transferor will agree pursuant to
the Receivables Purchase Agreement
to 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."
7
<PAGE> 11
Investors'
Interest . . . . . . . . . . . . The fraction that determines the
Aggregate 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 (defined below) minus the
Aggregate Required Reserves (see
heading below). The "NET
RECEIVABLES BALANCE" shall equal
(i) the aggregate unpaid balance
of Eligible Receivables (defined
below) (calculated net of the sum
of (A) all unapplied collection
and security deposits, (B) all
credit balances owed to Obligors
under the Budget/Balanced Billing
Payment Plan, (C) the cumulative
amounts of rate increases that are
subject to rescission and (D) a
reserve to account for Collections
that pass through the Servicers'
processing departments before they
are deposited into the Trust
Accounts) minus (ii) the Excess
Concentration Balances (defined
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, unapplied
security deposits, credit balances
under a Budget/Balanced Billing
Payment Plan, cumulative amounts
of rate increases that are subject
to rescission, 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 1996-1
Certificates -- General."
Subordination of Certain Future
Series of Certificates . . . . . . During the Amortization Period,
Collections allocated to the
Aggregate Investors' Interest will
be allocated first to the Series
1996-1 Certificates and to
Investor Certificates in
any other Classes ranking equal
in priority to the Series 1996-1
Certificates (each a "SENIOR
CLASS") until
8
<PAGE> 12
the outstanding principal amount of the
Series 1996-1 Certificates and of any
such other Senior Classes has been
reduced to zero, then to any other
Classes, which are subordinated to the
Senior Classes of Investor
Certificates (each a "SUBORDINATED
CLASS").
Required Reserves; Carrying
Cost Reserve . . . . . . . . . . The Series 1996-1 Certificates will be
entitled to the benefits of
Required Reserves and the
Carrying Cost Reserve. The
"REQUIRED RESERVES" with respect
to any Class or Series of Investor
Certificates shall be an amount
equal to the "APPLICABLE RESERVE
RATIO" for such Class or Series
times the Net Receivables Balance
(the Required Reserves for all
Series of Investor Certificates
being the "AGGREGATE REQUIRED
RESERVES"). The Applicable Reserve
Ratio for the Series 1996-1
Certificates means, at any time,
a percentage calculated in the
most recent Determination Date
Certificate to be the greater of
(a) the Minimum Required Reserve
Ratio and (b) the sum of the Loss
Reserve Ratio and the Dilution
Reserve Ratio. The "MINIMUM
REQUIRED RESERVE RATIO" 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.
9
<PAGE> 13
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 the Amortization period. See
"Description of the Series 1996-1
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 the Series 1996-1 Certificates
at maturity and to pay or prepay
the outstanding principal balance
of any other Series of Investor
Certificates to the holders
thereof. The Series 1996-1
supplement provides that the
Transferor does not have the right
to cause the Series 1996-1
Certificates to be prepaid, in
full or in part, at any time prior
to the Expected Final Payment
Date.
10
<PAGE> 14
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").
The Series 1996-1 Certificates 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 1996-1
Certificates -- New Issuances;
Other Modifications."
Certificate Rate . . . . . . . . . Each Series 1996-1 Certificate will
bear interest from its date of
issuance at a "CERTIFICATE RATE,"
equal to __% per annum. Interest
will accrue on the Invested Amount
of the Series 1996-1 Certificates
11
<PAGE> 15
(not reduced by the amount of Cure
Funds held in the Reserve Account
at such time) from the date of
issuance at the Series 1996-1
Certificate Rate (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 [January 15,] 2001 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 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
Series 1996-1 Certificate
Rate, to the extent such rate
is permitted by law.
Revolving Period . . . . . . . . . The "REVOLVING PERIOD" for the Series
1996-1 Certificates will commence
on the closing date and will
terminate on the close of business
on the earlier to occur of (I)
[February 15,] 2001 (the
"SCHEDULED AMORTIZATION DATE") and
(ii) the date of 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 1996-1 Investor. Early
Amortization Events will include
the events listed in "Description
of the Series 1996-1 Certificates
-- Series 1996-1 Early
Amortization Events." On each
Business Day during the Revolving
Period, all Collections and other
funds
12
<PAGE> 16
received in the Trust Accounts
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 (other than the Series
1996-1 Supplement) or if otherwise
required by any Supplement, funds
on deposit in the Reserve Account
are to be used to reduce the
Invested Amount of any Investor
Certificates other than the Series
1996-1 Certificates or to deposit
in any Defeasance Account;
(d) If requested by the Master
Servicer and permitted by any
Supplement other than the Series
1996-1 Supplement or if required
by any Supplement other than the
Series 1996-1 Supplement, funds on
deposit in the Concentration
Account are to be used to deposit
in any Defeasance Account or to
reduce the Invested Amount of any
Investor Certificates other than
the Series 1996-1 Certificates;
(e) To the extent required by the
Pooling Agreement or any
Supplement, funds on deposit in
the Concentration Account to be
used to pay any other obligations
of the Transferor owed to any
Investor or the Trustee which are
not payable from funds in the
Carrying Cost Account;
13
<PAGE> 17
(f) 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 making
all payments pursuant to clauses
(a) through (e) 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), (d) and (e) 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 and
after giving effect to any
subordination terms applicable to
any Class or Series). 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 Trustee in payment of the
Trustee's Fee;
(2) to any Servicer which is not an
Originator or an Affiliate of an
Originator in payment of the
Servicing Fee;
(3) to the Investors in payment of
accrued and unpaid interest then
due and payable on the Aggregate
Invested Amount at the applicable
Certificate Rates;
(4) to the payment of any other fees,
costs and/or expenses then due and
payable which are included in the
calculation of the Carrying Cost
Amount; and
14
<PAGE> 18
(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 clauses (1)
through (5) above then the amounts
described in such clauses (1)
through (5), as applicable, shall
be distributed ratably to those
Persons owed according to the
amounts of obligations held by
such Persons with amounts owed to
Investors being distributed to
Investors of Senior Classes before
being distributed to Investors in
any Subordinated Class. See
"Description of the Series 1996-1
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 as of the end of
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
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
15
<PAGE> 19
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 or other
Investor Certificates, the terms
of which permit or require
repayment at such time 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 1996-1 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 1996-1
Certificates will be distributed to
the Series 1996-1 Investors on [May
15,] 2001 (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 1996-1
Certificates will be distributed to
Investors on each Distribution Date,
commencing with the Distribution Date
which is at least thirty (30) days
from and after the commencement of the
Amortization Period.
16
<PAGE> 20
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 distributed and/or deposited in
one or more Defeasance Accounts to
be applied in the following order
of priority: (a) to pay Carrying
Costs; (b) to reduce the
Invested Amount of all Investor
Certificates until such Invested
Amounts have been reduced to zero;
(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 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.
On each Business Day during the
Amortization Period, the
Transferor Interest in funds
received in the Concentration
Account shall, after the payment
of fees, costs and expenses (other
than interest on the Investor
Certificates and the Servicing
Fee) 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 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 1996-1
Certificates -- Principal" and
"-- Distribution to Investors."
Servicing . . . . . . . . . . . . . The Servicers will service and
administer the Receivables in
exchange for a monthly servicing
fee (the "SERVICING FEE"). If a
Servicer Default occurs and is
continuing, the Trustee shall, at
the direction of Investors holding
at least
17
<PAGE> 21
66 2/3% of the Aggregate Invested
Amount, 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 1996-1
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, (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
"TRANSFEROR COLLECTION ACCOUNT"),
and (iii) assign to the Transferor
all of their rights with respect
to any deposit accounts into
which third-party collection
agents are directed to deposit
Collections received by them (each
such account, a "SERVICER
COLLECTION ACCOUNT" and, together
with the Transferor Collection
Accounts, the "COLLECTION
ACCOUNTS"). Each Servicer and
each Originator will receive all
Collections not deposited directly
into the Collection Accounts by
the Obligors or third-party agents
and will, on each Business Day,
deposit all such other Collections
into a Transferor Collection
Account. The Servicer Collection
Accounts and the Transferor
Collection Accounts will be used
solely for receiving Collections
18
<PAGE> 22
and other funds belonging to
the Transferor, will not
contain any other funds of the
Originators and will be held in
the name of the Trustee.
On each Business Day, each bank with
which a Tranferor 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").
Each bank with which a Servicer
Collection Account is held will be
instructed from time to time by
the applicable Servicer to send
all Collections received to the
Transferor Collection Account, but
in no event shall any Servicer
permit the aggregate amount of
Collections on deposit at any such
bank at any one time to exceed
$100,000. 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."
Rating of Series
1996-1 Certificates . . . . . . . . It is a condition to the issuance of
the Series 1996-1 Certificates
that the Series 1996-1
Certificates be rated not lower
than "AAA" by Standard & Poor's
Ratings Services, a division of
The McGraw-Hill Companies, Inc.
19
<PAGE> 23
("S&P"), and Aaa by Moody's
Investors Service, Inc.
("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 Series 1996-1
Certificates if such an
acquisition or holding is exempted
from the "prohibited transaction"
provisions of ERISA. 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.
20
<PAGE> 24
RISK FACTORS
SECONDARY MARKET TRADING
There is currently no market in the Series 1996-1 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 1996-1 Investors
with liquidity of investment or that it will continue for the life of the
Series 1996-1 Certificates. The Underwriters currently intend to make a market
in the Investor Certificates but are 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.
Major structural changes are taking place in the electric utility
industry which are expected to place downward pressure on prices and to
increase competition for customers' business. The changes are coming from both
federal and state authorities. Many of the changes began when the Energy Policy
Act of 1992 permitted competition in the electric utility industry through
broader access to a utility's transmission system. In March 1995, the FERC
issued proposed rules relating to open access transmission services by public
utilities, recovery of stranded investment and other related matters. The open
access transmission rules require utilities to deliver power from other
utilities or generation sources to their wholesale customers. In May 1995, the
Originators filed open access transmission tariffs with FERC which used the
proposed rules as a guideline. These tariffs are currently pending.
Several groups in Ohio are studying the possible application of retail
wheeling. Retail wheeling occurs when a customer obtains power from a utility
company other than its local utility. The PUCO is sponsoring informal
discussions among a group of business, utility and consumer interests to
explore ways of promoting competitive options without unduly harming the
interests of utility company share owners or customers. A retail wheeling bill
has been introduced in the Ohio House of Representatives. The current
retail wheeling efforts in Ohio are exploratory and the Originators cannot
predict when and to what extent retail wheeling will be implemented in Ohio.
The term "stranded investment" generally refers to fixed costs
approved for recovery under traditional regulatory methods that would become
unrecoverable, or "stranded", as a result of wider competition. Although
competitive pressures are increasing, the traditional regulatory framework
remains in place and is expected to continue for the foreseeable future. The
Originators cannot predict when and to what extent competition will be allowed.
They believe that pure competition (unrestricted retail wheeling for all
customer classifications) is at least several years away and that any
transition to pure competition will be in phases. The FERC and the PUCO have
acknowledged the need to provide at least partial recovery of standed investment
as greater competition is permitted and, therefore, the Originators believe
that there will be a mechanism developed for the recovery of standed
investment. However, due to the uncertainty involved, there is a risk that some
of their assets may not be fully recovered.
The ability to recover potentially stranded investment in a deregulated
environment could significantly reduce the risk of losing customers through
retail wheeling. One frequently discussed method of stranded investment
recovery is to permit the local electricity provider to assess a fee associated
with the loss of sales to a non-local provider. Under this method, when a
non-local electricity provider sells electricity to a customer of another
utility, the non-local provider would have to pay the local provider the fee.
This fee would compensate the local provider for the loss of the investment it
made in expectation of serving that particular customer. In addition, the fee
would narrow the price differential between the non-local and local providers,
thus making it less likely that customers will buy from non-local sources. If
current law is changed to allow retail wheeling without an appropriate mechanism
for recovering stranded investment, the level of the Receivables generated could
be reduced significantly.
In 1995, the largest customer of the Originators represented 2.5% of
the Originators' total revenue. Although the loss of the Originators' largest
customer due to competition would adversely affect the Originators' ability to
generate new Receivables, it would not, by itself, result in the early
commencement of the Amortization Period. However, the above-described
competition could result in reductions of the level of new Receivables. Such
Reductions could lead to the early commencement of the
21
<PAGE> 25
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 on its financial
condition 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.
The Originators are subject to the provisions of Statement of
Financial Accounting Standards 71 ("SFAS 71") and have complied with its
provisions. SFAS 71 provides, among other things, for the deferral of certain
incurred costs that are probable of future recovery in rates. They 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 charge prices which allow them to recover operating costs, earn a fair
return on invested capital and recover the amortization of regulatory assets
and (2) a significant change in the manner in which rates are set by the PUCO
from cost-based regulation to some other form of regulation. Regulatory assets
represent probable future revenues to the Originators associated with certain
incurred costs, which they will recover from customers through the rate-making
process.
Effective January 1, 1996, the Originators adopted SFAS 121 which
imposes stricter criteria for carrying regulatory assets than SFAS 71 by
requiring that such assets be probable of recovery at each balance sheet date.
The criteria under SFAS 121 for plant assets require such assets to be written
down only if the book value exceeds the projected net future cash flow.
In April 1995, the Originators filed requests with the PUCO for price
increases aggregating $119,000,000 annually to be effective in 1996. The price
increases are necessary to recover cost increases and amortization of certain
costs deferred since 1992 pursuant to the Rate Stabilization Program, which is
discussed below. If their requests are approved, the Originators intend to
freeze prices until at least 2002 with the expectation that increased sales and
cost control measures will preclude the need for further price increases. If
circumstances make it impossible to earn a fair return for Centerior Energy's
share owners over time, the Originators would ask for a further increase, but
only after taking all appropriate actions to make such a request unnecessary.
As discussed below, the Originators could be required to record a
substantial write-off depending upon the outcome of the pending rate cases.
Although a substantial write-off would have a material adverse effect on the
financial condition of the Originators, a write-off without any rate decrease
would not have an immediate adverse impact on the level of the Receivables
generated. However, the reduction in assets resulting from a write-off would
reduce the Originators' revenue requirements from what they otherwise would be
which could lead to rate reductions in future rate proceedings. Any reduction
in rates below current levels would have an adverse impact on the amount of the
Receivables generated.
22
<PAGE> 26
In November 1995, the PUCO staff (the "Staff") issued its report
addressing the Originators' rate cases. The Staff recommended that the PUCO
grant the full $119,000,000 price increase requested. However, the Staff also
recommended that the price increase be conditioned upon the Originators'
commitment "to a significant revaluation of their asset bases over some finite
period of time."
In December 1995, the PUCO ordered an investigation into the financial
condition, rates and practices of the Originators to identify outcomes and
remedies other than those routinely applied during the rate case process.
In late January 1996, the Staff proposed an incremental reduction
(currently, $1.25 billion) beyond the normal level in nuclear plant and
regulatory assets within five years. The Staff proposed that the Originators
have flexibility to determine how to achieve this incremental asset
revaluation, but no additional price increases to recover the accelerated asset
revaluation were proposed. Any incremental revaluation of assets would be for
regulatory purposes and would cause prices and revenues after the five-year
period to be lower than they otherwise would be in conjunction with any rate
case following such revaluation. The Staff's asset revaluation proposal
represents a substantial change in the form of rate-making traditionally
followed by the PUCO and is inconsistent with the Ohio statutes that define the
rate-making process. The PUCO is not bound by the recommendations of the
Staff. On April 4, 1996, the PUCO announced that a decision on the
Originators' rate cases would be handed down on April 11, 1996.
The Originators believe that the proposed rate increases will not
materially change their competitive positions. The Originators will continue
to have higher rates than their municipal competitors; however, the proposed
increases of 4.9% for CEI and 4.7% for TE will not significantly change the
rate disparity. The Originators believe that any adverse impact of the rate
increases, such as the loss of customers or a reduction in electricity usage,
will not materially affect the Originators' ability to generate receivables. A
denial by the PUCO of the Originators' requested rate increases would have a
material adverse effect on the Originators' financial conditions and results of
operations.
The Originators continually assess the effects of competition and the
changing industry and regulatory environment on operations, their ability to
recover regulatory assets and their ability to continue application of SFAS 71.
If, as a result of the pending rate case or other events, the Originators
determine that they no longer meet the criteria for SFAS 71, they would be
required to record a before-tax charge to write off the regulatory assets
(which totaled $1,356,000,000 for CEI and $950,000,000 for TE at December 31,
1995) and evaluate whether property, plant and equipment should be written
down. In the more likely event that only a portion of operations (such as
nuclear operations) no longer meets the criteria of SFAS 71, a write-off would
be limited to regulatory assets, if any, that are not reflected in the
Originators' cost-based prices established for the remaining regulated
operations. 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 to a portion of their operations would
also result in a write-down of property, plant and equipment pursuant to SFAS
121.
The Originators believe application of SFAS 121 in that event will not
result in a write-off of regulatory assets unless the PUCO denies recovery of
such assets or if the Originators conclude, as a result of the outcome of their
pending rate case or some other event, that recovery is not probable for some
or all of the regulatory assets. Furthermore, a write-down under SFAS 121 of
property, plant and equipment is not expected.
The Rate Stabilization Program that the PUCO approved in October 1992
("RATE STABILIZATION PROGRAM") allowed the Originators to defer and
subsequently amortize and recover certain costs not currently recovered in
rates and to accelerate amortization of certain benefits during the 1992
through 1995 period. Recovery of the deferrals will begin with the effective
date of the PUCO's orders in the pending rate case. The regulatory assets
recorded included the deferral of post-in-service interest carrying charges,
depreciation expense and property taxes on assets placed in service after
February 29, 1988, the deferral of incremental expenses resulting from the
adoption of SFAS 106, and the deferral by TE of the operating expenses
equivalent to an accumulated excess rent reserve for Beaver Valley Unit 2
(which resulted from the April 1992 refinancing of secured lease obligation
bonds issued by a special purpose corporation). The cost deferrals recorded in
1995, 1994 and 1993 pursuant to these provisions were $113,000,000,
$112,000,000 and $191,000,000, respectively. The regulatory accounting
measures also provided for the accelerated amortization of certain unrestricted
excess deferred tax and unrestricted investment tax credit balances and an
excess interim spent fuel storage accrual balance for Davis-Besse. The total
annual amount of such accelerated benefits was $46,000,000 in 1995, 1994 and
1993.
23
<PAGE> 27
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. Both the CEI and TE service
areas are tied to the steel and automotive industries. Furthermore, primary
steel production and fabrication in both areas rely heavily on the automotive
industry. Therefore, adverse economic conditions affecting the automotive
industry would most likely have a material adverse effect on the principal
industries in the two service areas and on the generation of Receivables.
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. For further discussion of the Originators' customers, see
"Originators/Initial Servicers - Competition."
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 PAYMENTS
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 payments 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 payments, 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 1996-1 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
24
<PAGE> 28
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."
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 be or result in 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 will not
have an impact on the timing or amount of payments received by a Series 1996-1
Investor. See "Description of the Series 1996-1 Certificates -- New Issuances;
Other Modifications."
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<PAGE> 29
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. If a decline in the amount of
new Receivables exceeds the amount of new Obligor payments, and such decline
causes the Net Invested Amount to exceed the Base Amount for five consecutive
Business Days, an Early Amortization Event would occur. A decline in the
amount of new Receivables could also cause an Early Amortization Event if, as a
result of such decline, Cure Funds on deposit in the Reserve Account exceeded
certain percentages of the Aggregate Invested Amount. See "Description of the
Series 1996-1 Certificates -- Early Amortization Events."
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 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
26
<PAGE> 30
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
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 "Description of the Pooling Agreement -- 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
27
<PAGE> 31
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.
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 1996-1 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 1996-1 Certificates that the
Series 1996-1 Certificates be rated not lower than "AAA" by S&P and "Aaa" 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
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<PAGE> 32
circumstances so warrant. Nor can there be any assurance that another rating
agency will not rate the Series 1996-1 Certificates at a rating lower than
the equivalent of the ratings obtained in connection with their issuance.
LIMITED AMOUNTS OF SUBORDINATION
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, the 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 Series 1996-1 Certificates from shortfalls
or delays in collections on the Receivables, then the Series 1996-1 Investors
will bear directly the credit, dilution and other risks associated with their
undivided interests in the Trust.
BOOK-ENTRY REGISTRATION
The Series 1996-1 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 1996-1 Supplement provide that
the Series 1996-1 Investors will not receive payments of principal until [May
15,] 2001 (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
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<PAGE> 33
Defeasance Account for the Series 1996-1 Certificates will be distributed to
the Series 1996-1 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 1996-1 Certificates will be distributed on
the Expected Final Payment Date and, to the extent that the Invested Amount of
the Series 1996-1 Certificates has not been reduced to zero on such date, on
each Distribution Date thereafter.
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 payments will occur. The repayment of the Invested Amount of the
Series 1996-1 Certificates is primarily dependent on the amount of outstanding
and newly generated Receivables, the rate and timing of Obligor payments and
the issuance by the Trust of additional Series. As a result, no assurance can
be given that the Invested Amount of the Series 1996-1 Certificates will be
repaid to the Series 1996-1 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 1996-1 Certificates -- Early
Amortization Events" herein. On each Distribution Date during the Amortization
Period until the outstanding principal amount of the Series 1996-1 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 1996-1 Certificates -- Early Amortization
Events" herein.
There can be no assurance that Collections of Receivables, and thus
the rate at which Series 1996-1 Investors could expect to receive payments of
principal on their Series 1996-1 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 1996-1
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 shall promptly give written notice to the Trustee,
who shall within three Business Days forward
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<PAGE> 34
such notice to the Investors and each Servicer. If the event of bankruptcy
relates to the Transferor, the Trustee will sell all Receivables then in the
Trust unless, within 90 days of the date of the notice provided by the Trustee
in the preceding sentence, the Majority Investors instruct 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 1996-1 Certificates, the Series 1996-1 Investors will suffer a loss.
See "Description of the Series 1996-1 Certificates -- Subordination."
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 749,000 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 291,000 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
The Originators' largest customer is a steel manufacturer which
has two major steel producing facilities served by CEI. Sales to these
facilities accounted for 3.6% of the 1995 total electric operating revenues of
CEI. The largest customer served by TE is a major automobile manufacturer.
Sales to this customer accounted for 4.3% of the 1995 total electric operating
revenues of TE.
In 1995, the Originators' industrial kilowatt-hour sales increased by
0.8%, but sales grew 2.2% excluding reductions at two low-margin steel
producers (representing 5% of industrial revenues). Residential and commercial
sales increased 3.5% and 2.8%, respectively, primarily because of the hot
summer weather, although there was about 1% nonweather-related growth in
commercial sales. Weather accounted for approximately $38,000,000 of the
$61,000,000 increase in 1995 base rate (nonfuel) revenues.
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<PAGE> 35
For 1995, the Originators' operating revenues were 32% residential,
30% commercial, 31% industrial and 7% 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 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, commercial, and
industrial/other tenant classes for each of the last three years. 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.
REVENUE BREAKDOWN BY EACH ORIGINATOR1
(AS A % OF TOTAL)
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
CEI 70.17% 69.84% 69.94%
TE 29.83% 30.16% 30.06%
------ ------ ------
Total 100.00% 100.00% 100.00%
</TABLE>
(1) Based on Revenues for Residential, Commercial, and Industrial/Other tenant
classes.
The table below sets forth the aggregate number of customers of both
Originators at the end each of the last three years. There can be no
assurance that the
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<PAGE> 36
number of customers in the future will be similar to the historical numbers of
customers set forth below.
NUMBER OF CUSTOMERS BY TENANT CLASS
<TABLE>
<CAPTION>
December 31,
Tenant Class 1995 1994 1993
- ------------ ---- ---- ----
(Customers) (Customers) (Customers)
<S> <C> <C> <C> <C> <C> <C>
Residential 929,732 89.43% 925,344 89.47% 924,227 89.48%
Commercial 98,767 9.50% 97,530 9.43% 96,491 9.34%
Industrial 8,495 0.82% 8,832 0.85% 9,613 0.93%
Other 2,561 0.25% 2,534 0.25% 2,606 0.25%
Total 1,039,555 100.00% 1,034,240 100.00% 1,032,937 100.00%
</TABLE>
The table below sets forth the aggregate billed 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.
BILLED REVENUES BY TENANT CLASS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended December 31,
Tenant Class 1995 1994 1993
- ------------ ---- ---- ----
(Customers) (Customers) (Customers)
<S> <C> <C> <C> <C> <C> <C>
Residential $ 796,561 33.11% $ 758,329 32.61% $ 768,064 33.04%
Commercial 746,627 31.04% 722,373 31.06% 716,286 30.82%
Industrial 776,975 32.30% 758,262 32.60% 753,789 32.43%
Other 85,435 3.55% 86,838 3.73% 86,130 3.71%
---------- ------ ---------- ------ ---------- ------
Total $2,405,598 100.00% $2,325,802 100.00% $2,324,269 100.00%
</TABLE>
The table below sets forth the aggregate billed revenues generated from
the top ten customers of the Originators for the calendar year 1995. In some
cases, the customer has multiple accounts. 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.
33
<PAGE> 37
TOP TEN CUSTOMERS
FOR CEI AND TE COMBINED
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Customer 1995 Billed Revenues % of Total Billed Revenues
-------- -------------------- --------------------------
<S> <C> <C>
1. $ 65,437 2.72%
2. 47,076 1.95%
3. 43,892 1.82%
4. 20,253 0.84%
5. 18,453 0.77%
6. 18,197 0.76%
7. 15,172 0.63%
8. 13,722 0.57%
9. 12,420 0.52%
10. 9,089 0.38%
------- -------
Total $263,711 10.96%
</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.
MONTHLY RECEIVABLES BALANCE AS A PERCENTAGE
OF THE YEARLY AVERAGE RECEIVABLES BALANCE
FOR CEI AND TE COMBINED
<TABLE>
<CAPTION>
Month 1995 1994 1993
- ----- ---- ---- ----
<S> <C> <C> <C>
January 95.23% 108.50% 103.03%
February 94.27% 106.19% 100.71%
March 89.36% 97.30% 92.75%
April 89.34% 94.93% 88.18%
May 85.19% 88.81% 91.43%
June 98.65% 101.09% 96.32%
July 115.27% 116.85% 114.13%
August 124.46% 109.37% 117.10%
September 111.53% 100.96% 106.49%
October 93.26% 90.32% 97.30%
November 95.22% 89.86% 94.07%
December 108.22% 95.83% 98.49%
</TABLE>
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.
34
<PAGE> 38
PORTFOLIO TURNOVER HISTORY
FOR CEI AND TE COMBINED
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Average Monthly
Receivables Receivables Days Sales Payment
Generated(1) Outstanding(2) Turnover(3) Outstanding(4) Rate(5)
------------ -------------- ----------- -------------- ---------
<S> <C> <C> <C> <C> <C>
Year ended December 31,
- -----------------------
1995 $2,412,598 $249,032 9.688 37.16 80.73%
1994 $2,322,202 $239,722 9.687 37.16 80.73%
1993 $2,331,469 $240,952 9.676 37.21 80.63%
<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
less PIP.
(3) Defined as the Receivables Generated divided by the Average Receivables
Outstanding.
(4) Defined as 360 days divided by Turnover.
(5) Defined as 30 days divided by Days Sales Outstanding.
</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.
DILUTION EXPERIENCE FOR THE PORTFOLIO
FOR CEI AND TE COMBINED
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended December 31
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Average Receivables Outstanding(1) $249,032 $239,722 $240,952
Average Monthly Dilution(2) $598 $896 $1,407
Average Monthly Dilution as a Percentage
of Average Receivables Outstanding 0.24% 0.37% 0.58%
<FN>
(1) Defined as (i) the sum of aggregate Receivables outstanding at the end of
each month of the stated period less PIP 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>
35
<PAGE> 39
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.
PORTFOLIO DILUTION RATIO EXPERIENCE
FOR CEI AND TE COMBINED
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Receivables Total Dilution
Month Generated Dilution Ratio(1)
- ----- --------- -------- ---------
<S> <C> <C> <C>
December 1995 $197,808 $485 0.263%
November 1995 184,670 419 0.236%
October 1995 177,572 461 0.237%
September 1995 194,761 1,204 0.453%
August 1995 265,979 166 0.068%
July 1995 245,560 396 0.174%
June 1995 228,092 628 0.346%
May 1995 181,626 412 0.237%
April 1995 174,190 989 0.529%
March 1995 186,848 1,075 0.597%
February 1995 180,038 499 0.255%
January 1995 195,454 440 0.233%
December 1994 188,454 684 0.380%
November 1994 179,794 520 0.287%
October 1994 181,051 548 0.280%
September 1994 195,753 1,067 0.493%
August 1994 216,379 1,593 0.690%
July 1994 231,033 779 0.353%
June 1994 220,488 617 0.343%
May 1994 179,714 2,264 1.348%
April 1994 167,942 344 0.185%
March 1994 186,067 634 0.359%
February 1994 176,739 1,198 0.603%
January 1994 198,788 498 0.264%
December 1993 188,732 1,837 1.032%
November 1993 178,032 775 0.431%
October 1993 179,978 1,333 0.698%
September 1993 190,895 6,915 2.881%
August 1993 239,989 983 0.415%
July 1993 237,005 630 0.303%
<FN>
(1) Defined as (i) Total Dilution divided by (ii) Receivables generated 1
month prior.
</TABLE>
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").
36
<PAGE> 40
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 in any way that is more favorable to the customers of the Originators.
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. For
purposes of computing the Net Eligible Receivables balance, the actual amount
owed by each customer, not the amount payable under the Budget/Balanced Billing
Payment Plan, will be used.
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 the Deferred Arrangement Payment Plan.
The table below sets forth a breakdown of the Billed Receivables by
customer payment plan at December 31, 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.
37
<PAGE> 41
RECEIVABLES PORTFOLIO BREAKDOWN BY TYPE OF PAYMENT PLAN
FOR CEI AND TE COMBINED
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Type of Payment Plan December 31, 1995
-------------------- -----------------
<S> <C>
(%)(1)
Regular Billing 94.68%
Budget/Balanced Billing 4.96%
Deferred Arrangement 0.36%
------
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. These payment plans consist of PIP and the
"One-Third of Total Bill Payment Plan," which is a type of Deferred Arrangement
Payment Plan. Under the One-Third of Total Bill Payment Plan, the delinquent
customer pays one-third of his/her total bill. PIP and the One-Third of Total
Bill Payment Plan are only required to be offered during the period from
November 1 through April 15 of each year.
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 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. A similar rate per KWh will be used to
calculate the daily dollar amount of Unbilled Receivables transferred to the
Trust on any given day during the next monthly period.
HISTORICAL RECEIVABLES POOL BALANCE
On December 31, 1995, the aggregate balance of Billed Receivables of
the Originators amounted to approximately $189 million. After (i) including
Unbilled Receivables, (ii) deducting Receivables from PIP customers, Receivables
from ineligible Obligors, and Deferred Arrangement Payment Plan receivable
balances, and (iii) adjusting for credit or debit balances under the
Budget/Balanced Billing Payment Plan, the adjusted
38
<PAGE> 42
receivables pool balance amounted to approximately $269 million. From the
period January 1993 through December 31, 1995, the net receivables pool balance
ranged from a low of $212 million in May 1995 to a high of $309 million in
August 1995. 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.
HISTORICAL NET RECEIVABLES POOL BALANCE
FOR CEI AND TE COMBINED
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Month 1993 1994 1995
<S> <C> <C> <C>
January $248,247 $260,110 $237,153
February 242,654 254,551 234,775
March 223,492 233,248 222,536
April 212,460 227,564 222,475
May 220,306 212,895 212,156
June 232,081 242,341 245,663
July 275,008 280,124 287,062
August 282,148 262,181 309,947
September 256,594 242,016 277,738
October 234,454 216,510 232,249
November 226,669 215,403 237,125
December 237,309 229,716 269,507
</TABLE>
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.
39
<PAGE> 43
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 Transferor Collection Account for the remittance of payments on
the Receivables to the Originators. The Originators will cause all other
Collections to be segregated from their other funds and, in the case of
Collections remitted directly to the Originators by the applicable Obligors,
deposited by them into designated Transferor Collection Accounts on a daily
basis. Each bank with which a Transferor Collection Account is maintained will
then wire the funds to the Concentration Account on a daily basis. Payments
may also be remitted to third-party collection agents who will be instructed to
deposit such payments into a Servicer Collection Account. Each bank with which
a Servicer Collection Acount is held will, from time to time, send the funds to
the Transferor Collection Account as instructed by the applicable Servicer, but
in no event shall any Servicer permit the aggregate amount of Collections on
deposit at any such bank at one time to exceed $100,000. See "Description of
the Series 1996-1 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. A late payment charge of 1.5% per month on the balance that has not been
paid by the customer by the next billing date is added. As permitted by the
PUCO, the Originators assess a late payment charge against residential
customers only when there is more than one late payment in a 12-month period.
PIP customers are not assessed any late payment charges.
When a Receivable becomes delinquent, the Originator mails a reminder
notice along with the next month's bill. If the balance remains unpaid at the
time the following month's bill is prepared, the Originators usually commence a
collection action and mail a disconnection notice with such bill.
40
<PAGE> 44
If the customer has not paid the bill that includes the disconnection
notice by that bill's due date, the Originator initiates telephone contact or
hand delivers a notice inquiring about the payment and notifying the customer
that payment must be made to prevent a disconnection of service. Customers on
an extended payment plan and PIP customers who do not make their scheduled
payments receive a disconnection notice with the first bill after the missed
payment and must pay the defaulted amount to avoid follow-up collection action.
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) after they are expected to be received. 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.
LOSS EXPERIENCE FOR THE PORTFOLIO
FOR CEI AND TE COMBINED
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Average Receivables Outstanding(1) $249,032 $239,722 $240,952
Average Monthly Net Write-Offs(2) $405 $426 $530
Average Monthly Net Write-Offs as a Percentage
of Average Receivables Outstanding 0.16% 0.18% 0.22%
<FN>
(1) Defined as (i) the sum of aggregate Receivables outstanding at the end of
each month of the stated period less PIP 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.
</TABLE>
41
<PAGE> 45
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.
AGING EXPERIENCE FOR THE PORTFOLIO
FOR CEI AND TE COMBINED
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
December 31,
1995 1994 1994
---- ---- ----
<S> <C> <C> <C>
Unbilled Revenues $100,344 $ 93,344 $ 96,944
0-29 days past invoice date 140,578 113,271 114,688
30-59 days past invoice date 16,563 15,173 14,244
60-89 days past invoice date 4,964 4,218 4,712
90+ past invoice date 7,058 3,710 6,721
-------- -------- --------
Total $269,507 $229,716 $237,309
</TABLE>
<TABLE>
<CAPTION>
December 31,
1995 1994 1994
---- ---- ----
<S> <C> <C> <C>
Unbilled Revenues 37.23% 40.63% 40.85%
0-29 days past invoice date 52.16% 49.31% 48.33%
30-59 days past invoice date 6.15% 6.60% 6.00%
60-89 days past invoice date 1.84% 1.84% 1.99%
90+ past invoice date 2.62% 1.62% 2.83%
------ ------ ------
Total 100.00% 100.00% 100.00%
</TABLE>
USE OF PROCEEDS
The net proceeds from the sale of the Series 1996-1 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.
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).
42
<PAGE> 46
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 directors). No assurance can be given, however, that a
consolidation will not occur. See "Certain Legal Aspects of the Receivables --
Certain Matters Relating to Bankruptcy."
ORIGINATORS/INITIAL SERVICERS
GENERAL
Each of CEI and TE are wholly-owned subsidiaries of 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 749,000 customers and derives approximately 77% of its total
electric retail revenue from customers outside the City of Cleveland.
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, 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. Of 16
municipally owned electric distribution systems located within TE's service
territory, three are supplied by other electric systems. TE provides a portion
of the power purchased by the other 13 municipalities at wholesale rates through
a contract with American Municipal Power-Ohio, Inc. ("AMP-Ohio"), a non-profit
wholesale power provider, which contract expires in 2009. Rates under this
agreement are permitted to increase annually to compensate for increased costs
of operation. Less than 3% of TE's total electric operating revenues in 1995
were derived from sales under the AMP-Ohio contract. Of six rural electric
cooperatives located within TE's service territory, five are supplied with power
transmitted in some cases over TE's facilities, by Buckeye Power, Inc. (an
affiliate of a number of Ohio rural electric cooperatives) and the sixth is
supplied by TE. TE serves approximately 291,000 customers and derives
approximately 54% 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.
43
<PAGE> 47
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) instructions to 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
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 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 FERC has deferred
action on the merger application until the merits of the Originators' proposed
open access transmission tariffs are addressed in hearings. 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. As previously discussed, the Originators' most pressing
competition comes from municipal electric systems in their respective service
areas. See "Risk Factors - Competitive Conditions."
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 60% of the City's geographical area (expected
to increase to 100% by the end of 1999) and to approximately 31% (about 68,000)
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 1995, CEI provided a negligible amount of CPP's energy
requirements. 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
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constructing new transmission and distribution facilities extending into
eastern portions of 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, $7,000,000 in 1994 and $8,000,000 in 1995. Their progress has slowed
significantly during 1995 because of the discovery of a large number of safety
violations in the CPP system resulting in substantial cost overruns. 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 1996 through 2000 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 parts of its service area.
Approximately 91% 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 largest
commercial customers, Medical Center Co. ("Medco"), signed a five-year contract
with CPP for electric service to be provided by another utility beginning in
September 1996. The loss of this customer to CPP would reduce CEI's net income
by about $6,000,000 based on 1995 sales. CEI filed complaints against Medco
and the utility which will provide the electricty to Medco with both the PUCO
and the FERC. The PUCO dismissed the complaint and CEI has appealed the
PUCO's decision to the Ohio Supreme Court. In both CEI's appeal to the Ohio
Supreme Court and petition to the FERC, it is CEI's position that the purchase
of power from CPP by this customer is in reality a direct purchase from another
utility in violation of Ohio's certified territory statute. CEI will continue
to pursue all legal and regulatory remedies to this situation.
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)
investigate 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 1988. In October 1995, the
Toledo City Council responded to a petition drive by appropriating funds to
complete the Electrical Franchise Committee's study on whether to create a
municipal electric utility in the City of Toledo. This study is expected to be
completed in 1996.
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
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Ohio Supreme Court. TE currently serves approximately 390 customers within the
City of Clyde.
On October 17, 1995, Chase Brass & Copper Co., Inc. ("CHASE BRASS")
terminated its service with TE and began to receive its electric service from a
consortium of four municipal electric systems and AMP-Ohio. Service
is being provided over a transmission line owned by AMP-Ohio. Although the
Ohio Constitution allows municipal electric systems to sell and deliver limited
amounts of power outside their municipal boundaries, TE has filed two lawsuits
in Williams County (Ohio) Common Pleas Court against the four municipalities
and AMP-Ohio contending, in part, that this arrangement violates the legal
limits of such sales and that AMP-Ohio's system design for this transaction
raises certain safety issues. North Western Electric Cooperative, whose
certified territory is crossed by AMP-Ohio's transmission line, has also filed
suit to challenge this transaction. Chase Brass provided annual net income of
about $1,600,000 in 1994. TE will continue to pursue all legal and regulatory
remedies to this situation.
In addition, Chase Brass and other surrounding businesses and
residences in Jefferson Township continue to seek incorporation as a
municipality to be named the Village of Holiday City. If the incorporation is
permitted, the municipality would be able to bargain with other utilities for
electric power. The other businesses in the proposed municipality terminated
their service with TE earlier and are receiving electric service from the
Village of Montpelier, one of the consortium now supplying Chase Brass.
However, 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
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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. See "Risk Factors - Rate Matters."
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 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
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Certificates, and making payments on such Investor Certificates and related
activities. See "Description of the Series 1996-1 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 ______________________, 1996 (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.
DESCRIPTION OF THE
SERIES 1996-1 CERTIFICATES
GENERAL
The Series 1996-1 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 Citibank, N.A., 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 1996-1 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
1996-1 Certificates and is qualified in its entirety by reference to the
Pooling Agreement and the Supplement therefor.
The Series 1996-1 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 1996-1 Certificates. The Series
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1996-1 Certificates will represent a ratable interest in the Aggregate
Investors' Interest (the "Series 1996-1 Investors' Interest") determined based
on the Invested Amount of the Series 1996-1 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 1996-1 Certificates at the Series 1996-1 Certificate Rate,
equal to ___% per annum and, except as otherwise provided herein, will be
distributed to the Series 1996-1 Investors on each Distribution Date. Interest
due with respect to the Series 1996-1 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. Interest with respect to the Series 1996-1 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 Series 1996-1
Certificate Rate to the extent permitted by law.
PRINCIPAL
The Series 1996-1 Certificates will have a Revolving Period which
begins on the Closing Date and ends on the close of business on the earlier of
(a) [February 15,] 2001 (the "Scheduled Amortization 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 1996-1 Investors will not receive any principal payments.
Instead, on each Business Day, all Collections and other funds received in
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the Concentration Account allocable to the Series 1996-1 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 or (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 1996-1 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 Series 1996-1 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 any 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 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) a
fraction, the numerator of which is the Ratable Principal Amount of the Series
1996-1 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 (such fraction, expressed as
a percentage, the "PRINCIPAL ALLOCATION PERCENTAGE").
It is expected that the final principal payment with respect to the
Series 1996-1 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
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of principal will be made to the Series 1996-1 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 Certificates of any
Subordinated Class will be subordinate in right of distribution to all Senior
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. 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 the Series 1996-1
Certificates, 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 1996-1 INVESTORS
On each Distribution Date, the Trustee, acting upon instructions from a
Servicer, will make the following distributions to the Series 1996-1 Investors
in the following order of priority from amounts available for allocation
thereto as described in "Daily Allocation of Collections":
(i) to the Series 1996-1 Investors, the sum of (a) interest
accrued on the Series 1996-1 Certificates during the
immediately preceding Interest Period and (b) the aggregate
amount of shortfalls in distributions of interest to the
Series 1996-1 Investors as provided in clause (i)(a) for all
prior Distribution Dates, together with interest thereon at
the applicable Series 1996-1 Certificate Rate in effect for
each Interest Period during which such shortfall was
outstanding; and
(ii) to the Series 1996-1 Certificate Investors, in reduction of
the outstanding principal amount of the Series 1996-1
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 1996-1 Investors or the
outstanding principal amount of the Series 1996-1
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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 Series 1996-1 Certificates, until the outstanding principal
amount of the Series 1996-1 Certificates has been reduced to
zero.
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 not be used to prepay, in full or
in part, the outstanding principal balance of the Series 1996-1 Certificates,
but they may be used to pay the outstanding principal balance of the Series
1996-1 Certificates at maturity and to prepay the outstanding principal balance
of any other 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
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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 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 canceled by Trustee; (k) if the related
Supplement allocates to any Investor Certificate a Ratable Principal Amount
greater than its Invested Amount, the Servicers will have delivered to the
Trustee a Certificate that such allocation will not dilute the benefit of the
Required Reserves to which any pre-existing Certificates were entitled, and (l)
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
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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, (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 "TRANSFEROR COLLECTION
ACCOUNT"), and (iii) assign to the Transferor all of their rights with respect
to any 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 or
third-party agents, and will, on each Business Day, deposit all such other
Collections into a Transferor Collection Account. 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, do not contain other
funds of the Originators and will be held in the name of the Trustee. On each
Business Day the Servicers will either apply the Collections received to the
related Receivables balance on the Servicers' records or subtract the unapplied
Collections from the Net Receivables Balance.
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
Citibank, N.A.
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
Transfer Date); (b) demand deposits, time deposits or certificates of deposit
(having original maturities no later than the next Transfer 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 Transfer Date) having, at the time
of the
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Trust's investment or contractual commitment to invest therein, the highest
short-term rating from S&P and Moody's; (d) investments in money market funds,
which may be 12b-1 funds, as contemplated under the rules promulgated by the
Securities and Exchange Commission under the Investment Company Act, having a
rating of AAA-m OR AAAM-G from S&P and Aaa from Moody's (including funds for
which the Trustee or any of its Affiliates acts as an investment advisor or
manager); (e) notes or bankers' acceptances (having original maturities no
later than the next Transfer 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 Transferor Collection
Account is maintained will be instructed to wire all Collections received to
the Concentration Account. Each bank with which a Servicer Collection Account
is held will, from time to time, be instructed by the applicable Servicer to
send all Collections received to the Transferor Collection Account, but in no
event shall any Servicer permit the aggregate amount of Collections on deposit
at any such bank at any one time to exceed $100,000. 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, 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 1996-1 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 and (iii) all Carrying Costs that will be due
and owing on or before the 15th day of the next two calendar months or, if
Collections no
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longer pass through the initial Servicers' processing departments prior to
being deposited into the Trust Accounts, on or before the 15th day of the next
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
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 1996-1 Certificates will equal the Applicable Reserve
Ratio for the Series 1996-1 Certificates. The "APPLICABLE RESERVE RATIO"
for the Series 1996-1 Certificates means, at any time, a percentage calculated
by the Master Servicer in the most recent Determination Date Certificate to be
the greater of (a) the Minimum Required Reserve Ratio and (b) the sum of the
Loss Reserve Ratio and the Dilution Reserve Ratio (together, the "Required
Reserve Ratios") as calculated in such Determination Date Certificate. The
"Minimum Required Reserve Ratio" 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. The Applicable 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
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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, as a result of such deposit, the aggregate
amount of Cure Funds then on deposit in the Reserve Account would exceed either
30% of the Aggregate Invested Amount for 5 consecutive Business Days or 35% of
the Aggregate Invested Amount at such time, unless the Transferor has obtained
the prior written consent of the Majority Investors. 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 1996-1 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.
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
(other than the Series 1996-1 Supplement), or if otherwise required by any
Supplement, funds on deposit in the Reserve Account will be used to reduce the
Invested Amount of any Investor Certificate other than the Series 1996-1
Certificates or to deposit in any Defeasance Account;
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FOURTH, to the extent requested by the Master Servicer and if permitted
by the Supplement relating to any Investor Certificates other than the Series
1996-1 Certificates, or to the extent otherwise required under the Supplement
relating to any Investor Certificates other than the Series 1996-1
Certificates, funds on deposit in the Concentration Account will be used to
reduce the Invested Amount of any Investor Certificates other than the Series
1996-1 Certificates or to deposit in any Defeasance Account;
FIFTH, funds on deposit in the Concentration Account to be deposited to
the Trustee's own account, any Defeasance Account or any other Series Account
for the payment of any fees, costs, expenses or other obligations owed to the
Trustee and/or the Investors which are not payable from funds in the Carrying
Cost Account;
SIXTH, any remaining funds on deposit in the Concentration Account to
be deposited into the Transferor's Account, or upon the Transferor's
instruction directly to the Originators, for the purchase of new Receivables,
the payment of ordinary costs and expenses of the Transferor and the payments
of any other amounts specified or permitted under the Receivables Purchase
Agreement or the Pooling Agreement.
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.
Funds on deposit in the Carrying Cost Account will be distributed in
the following order of priority: FIRST, to the Trustee for payment of the
Trustee's Fee; SECOND, to the payment of the Servicing Fee to the extent owed
to a Servicer which is not an Affiliate of the Originators or of Centerior
Energy; THIRD, to the payment of accrued and unpaid interest on all Investor
Certificates constituting a Senior Class; FOURTH; to the payment of accrued and
unpaid interest on all Investor Certificates constituting a Subordinated Class;
FIFTH, to the payment of any other costs, fees, expenses or other obligations
included in the calculation of the Carrying Cost Amount and SIXTH, to the
payment of the Servicing Fee to the extent owed to CEI, TE or any Affiliate of
either of them. If, on any day prior to the Amortization Date, the funds
available for distribution from the Carrying Cost Account under clauses FIRST
through SIXTH above are less than the amount of costs, fees, expenses or
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other obligations to be paid pursuant to any such clause, then, such available
funds will be allocated by the Master Servicer PRO RATA for distribution
according to the respective amounts of the obligations held by such Persons.
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:
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 be used to pay unpaid fees, costs, expenses or other
obligations to the Trustee or a Servicer.
Amounts applied pursuant to clause SECOND above 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, after the
payment of fees, costs and expenses (other than interest on the Investor
Certificates and the Servicing Fee), 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.
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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
1996-1 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, but not be
limited to, the following events:
(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;
(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
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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 full force and effect or the Transferor
shall cease to continue purchasing Receivables thereunder;
(e) the occurrence of certain events of bankruptcy,
insolvency or receivership relating to the Transferor, either
Originator or the Trust (an "INSOLVENCY EVENT");
(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;
(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;
(k) the aggregate amount of the Cure Funds then on deposit
in the Reserve Account at any time shall, without the consent of the
Majority Investors, exceed either 30% of the Aggregate Invested Amount
for 5 consecutive Business Days or 35% of the Aggregate Invested Amount
at any time;
(l) the Applicable Reserve Ratio for the Series 1996-1
Certificates, as calculated by the Master Servicer in the relevant
Determination Date Certificates, exceeds 30% for any three consecutive
Collection Periods; and
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(m) either the Pension Benefit Guaranty Corporation or the
Internal Revenue Service files notice of a lien against either
Originator or the Transferor (unless such lien does not purport to
cover the Receivables) and such notice remains in effect for more than
15 Business Days unless adequately bonded within such period.
Any event described in clause (e), (f), (i) or (m) or an event described in
clause (j) which continues for 5 consecutive Business Days, shall constitute an
Early Amortization Event automatically without any notice of any kind
whatsoever. Any other event described in clauses (a) through (l) above shall
constitute an Early Amortization Event if the Majority Investors, 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 90 days from the date such notice is given the Majority Investors
instruct the Trustee not to dispose of or liquidate the Receivables and to
reconstitute the Trust and the Pooling Agreement. Notwithstanding the
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
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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 and (as long as the Servicer is an Originator or an Affiliate
thereof) only after all other allocations and payments to be made for the
benefit of the Investors have been made, and there is no other recourse against
Transferor for the payment of the Servicing Fee.
Each Servicer will pay from the Servicing Fee 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
Trust and 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. To the extent such expenses are
not paid from the Servicing Fee, they shall be paid by the Transferor but only
after all other allocations and payments to Investors have been made, and there
will be no other recourse against Transferor for the payment of such expenses.
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 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.
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On each Determination Date, the Master Servicer will, with respect to
each Series of Investor Certificates, deliver to the Trustee, the Transferor,
the Rating Agencies and to each clearing agency (or, in the case of the initial
clearing agency, Cede & Co. as its nominee), 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 and
the Reserve Ratios, changes in the applicable Certificate Rates, any payments
to be made to Investors on the relevant Distribution Date, and describing 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 beginning with February
15, 1997, 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.
DESCRIPTION OF THE POOLING AGREEMENT GENERALLY
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, together with the summary
under the caption "Description of the Series 1996-1 Certificates," describes
all of the material terms of the Pooling Agreement and is qualified in its
entirety by reference to the Pooling Agreement.
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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 Series 1996-1 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 1996-1 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 Citibank, N.A., 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 to Indirect
Participants or Investors. It is anticipated that the only "Investor" (as such
term is used in the Pooling Agreement and the Series 1996-1 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
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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
1996-1 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 1996-1 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 1996-1 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 51% or more of the aggregate unpaid
principal amount of the Investor Certificates of such Series advise the Trustee
and DTC through 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
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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. Such
offices will initially be at 111 Wall Street, New York, New York 10043. 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 prohibits the Transferor from transferring or pledging
the Transferor Revolving Certificate unless it delivers a Tax Opinion to the
Trustee and each Rating Agency with respect to such transfer or pledge. 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) December 31, 2004
and (ii) the day following the date on which the Investors and the Trustee will
have been paid all amounts required to be paid to them pursuant to the Pooling
Agreement, the amount allocated to the Transferor Revolving Certificate has
been reduced to zero 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.
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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 and free and
clear of any adverse claim or interest of any other Person; (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 no such Receivable has been satisfied, subordinated,
rescinded or otherwise modified; (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; and
(e) no Early Amortization Event and no condition that would, with notice and/or
the passage of time constitute an Early Amortization Event has occurred and is
continuing.
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;
(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;
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(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 in any material
respect any provision of applicable law or any provisions of
Transferor's 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 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;
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(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;
(g) maintain at least two independent directors; and
(h) on each Business Day that Transferor or any Affiliate thereof
receives any Collections, the Transferor agrees to hold, or cause such
Affiliate to hold, all such Collections in trust and, in the case of
Collections remitted directly to the Transferor or any such Affiliate by the
applicable Obligor, to deposit, or cause such Affiliate to deposit, such
Collections, in kind and in the form received, to the appropriate Transferor
Collection Account as soon as practicable, but in no event later than the next
succeeding Business Day.
During the term of the Trust, the Transferor shall not, among other things:
(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;
PROVIDED, however, that the Transferor may pledge or transfer the Transferor
Revolving Certificate if the Transferor delivers a Tax Opinion to the
transferee (unless such opinion is waived by such transferee) to the effect
that the transferee's interest in the Transferor Revolving Certificate will be
characterized as debt of the Transferor;
(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
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(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.
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) to the extent of the Investors' Interest;
(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) OF 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
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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
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 only 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. the Transferor shall be required to indemnify for amounts described
in clauses (f), (h), (i) and (j) in the preceding paragraph only if the
Transferor has received payment from the originators under the equivalent
indemnification provisions of the Receivables Purchase Agreement.
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, (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
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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 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
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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 they give the
Rating Agencies notice of any subcontracting of the servicing activities and
PROVIDED FURTHER that no such delegation shall relieve either such Servicer
from any liability for non-performance of its servicing duties under the
Pooling Agreement.
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 or Subservicer
(unless the Trustee is a Servicer or Subservicer), 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; and
(f) there are no proceedings or, to the best knowledge of such
Servicer, investigations pending or threatened against it before any
governmental authority (i)
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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.
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 in all material respects, (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, (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, and (h) on each Business Day that such Servicer or any
Affiliate thereof receives any Collections, it will hold, or cause such
Affiliate to hold, all such Collections in trust and, in the case of
Collections remitted directly to such Servicer or any Affiliate thereof by the
applicable Obigor, to deposit, or cause such Affiliate to deposit, such
Collections to the approprate Transferor Collection Account as soon as
practicable, but in no event later than the next succeeding Business Day.
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.
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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 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 either
knowledge by Servicer or 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
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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 April 30 of each
calendar year, beginning with April 30, 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, 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 51% or more 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
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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.
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
Citibank, N.A. is the initial Trustee under the Pooling Agreement. The
Corporate Trust Department of Citibank, N.A. is located at 120 Wall Street,
13th Floor, New York, New York 10043. 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.
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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.
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.
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CREDIT ADJUSTMENT. There will be no adjustments to the purchase price of the
Receivables after the Transferor purchases such Receivables from the
Originators.
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 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 Net Receivables Balance as of such date
minus (b) the Net Invested Amount minus (c) an amount equal to the greater of
(i) the product of the amount described in clause (a) above times the Loss
Reserve Ratio (utilizing an Applicable Stress Factor of 1.35) in effect on such
day and (ii) 4.5%.
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; and SECOND 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
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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;
(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 or other Person 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;
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(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 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 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; not conduct its
business in the name of Transferor and will cause
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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;
provide for its own operating expenses and liabilities from its own funds or
those of Affiliates other than Transferor; preserve its own corporate
existence and not amend its articles of incorporation or code of regulations
until such Originator files 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; not, except as
permitted by the Receivables Purchase Agreement, merge with or into or
consolidate with or into any other Person; not hold itself out, or permit
itself to be held out, as having agreed to pay, or as generally being liable
for, the debts of Transferor, except that the organizational expenses of
Transferor may be paid by Originators; 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; 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; 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 applicable law
except where failure to so comply would not 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 directly from an
Obligor into a Transferor Collection Account within one Business Day following
the date on which those Collections are entered into the accounting records of
the applicable Originator; 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.
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AMENDMENTS
The Receivables Purchase Agreement may be amended from time to time by
written agreement of the Originators and the Transferor. The Originators and
Transferor may make material amendments to the Receivables Purchase Agreement
only if they comply with the Rating Agency Condition. 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 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").
FINAL PAYMENT OF PRINCIPAL
In any event, the last payment of principal and interest on the
Investor Certificates of any Series will be due and payable not later than the
Final Scheduled Payment Date. If, on or before the Final Scheduled Payment
Date, the Master Servicer determines that the Aggregate Invested Amount (after
giving effect to all changes therein on such date) will exceed zero, the Master
Servicer will solicit bids for the sale of interests in the Trust Assets at an
asking price of 110% of the Aggregate Invested Amount on the Final Scheduled
Payment Date (after giving effect to all distributions required to be made on
the Final Scheduled Payment Date). The Transferor will be entitled to
participate in and to receive notice of each bid submitted in connection with
such bidding process. Upon the expiration of such period, the Master Servicer
will determine (a) which bid is the highest cash purchase offer (the "HIGHEST
BID") and (b) the amount (the "AVAILABLE FINAL DISTRIBUTION AMOUNT") which
otherwise would be available in the Trust Accounts for distribution to the
Series 1996-1 Certificateholders. The Master Servicer will sell such interests
in the Trust Assets on the Final Scheduled Payment Date to the bidder with the
Highest Bid and will deposit the proceeds of such sale in the Concentration
Account for allocation (together with the Available Final Distribution Amount)
to the Series 1996-1 Certificateholders.
If the proceeds of such sale, together with the Available Final
Distribution Amount, are less than the Aggregate Invested Amount plus accrued
and unpaid interest on the Series 1996-1 Certificates, the Series 1996-1
Certificateholders will incur a loss.
OPTIONAL TERMINATION
On any Distribution Date occurring on or after the Amortization Date
when the Aggregate Invested Amount is reduced to 10% or less of the Aggregate
Invested Amount,
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the Transferor will have the option to repurchase the undivided interests in
the Trust Assets represented by the Series 1996-1 Certificates without any
payment of any prepayment premium. The purchase price will be equal to the
unpaid Aggregate Invested amount of the Series 1996-1 Certificates plus accrued
and unpaid interest on such unpaid principal amount plus any other amounts that
are owed to Investors through the day preceding such Distribution Date at the
Certificate Rate applicable to each Class. On the applicable Distribution
Date, such purchase price, together with all funds on deposit in the Defeasance
Account and the Concentration Account, will be distributed to the Series 1996-1
Certificateholders as a final payment of their Certificates. Following any
such repurchase, the Certificateholders of such Series will have no further
rights with respect to the Receivables.
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
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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 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.
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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, 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;
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(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;
(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, (iii) they are for lost profits or for
consequential, special or punitive damages, (iv) 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, (v) they result from any action or omission of a Servicer
unless such Servicer is a Originator or an Affiliate of an Originator or (vi)
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.
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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 the Transferor to perfect its
and the Trustee's respective interests in the Receivables, and the Servicers
will be required to file continuation statements, if necessary, to continue the
perfection of such interests.
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
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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.
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 directors.
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 the
Majority Investors 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 51% or more of the Invested Amount
for each Series consent to such sale. This procedure, however, could be delayed
as described above.
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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 1996-1 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.
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
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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.
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.
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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.
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.
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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
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), 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
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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
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.
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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.
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
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"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 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
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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 "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
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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. Potential Investors should, however,
determine what impact, if any, the exemptive relief granted by the Prohibited
Transaction Exemption 95-60, 60 Fed. Reg. 35925 (July 12, 1995) will have on
their acquisition of Investor Certificates.
The Series 1996-1 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, unless the acquisition or holding of such Series
1996-1 Certificates is exempted from the "prohibited transaction" provisions of
ERISA. Any purported transfer of a Series 1996-1 Certificate to a benefit plan
investor in violation of the foregoing restriction shall be void and of no
effect. Each benefit plan investor that acquires any Series 1996-1
Certificates will be deemed to have represented and warranted to the Trust that
such Investor's acquisition or holding of the Series 1996-1 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 _______________, 1996 (the "Underwriting Agreement"), among the
Transferor, the Servicers, and Citicorp Securities, Inc., CS First Boston, Inc.
and Chase 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 1996-1 Certificates set
forth opposite their names below.
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<PAGE> 103
<TABLE>
<CAPTION>
Principal
Amount of
Series 1996-1
Underwriter Certificates
----------- ------------
<S> <C>
Citicorp Securities, Inc. _____
CS First Boston, Inc. _____
Chase 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.
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 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.
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<PAGE> 104
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 5 of the Prospectus.
"AGGREGATE INVESTORS' INTEREST" is defined on page 5 of the Prospectus.
"AGGREGATE REQUIRED RESERVES" is defined on page 8 of the Prospectus.
"ALLOCATED INELIGIBLE PERCENTAGE" means, as calculated by the Master Servicer
in each Daily Report for the Immediately Preceding Business Day, a fraction
(expressed as a percentage) equal to the following:
AIP = PDU + AIR
--- ---
ATR ABR
where:
AIP = The Allocated Ineligible Percentage;
PDU = That portion of total revenues for the
immediately preceding 30 day period (the
"PIP Dollar Usage") which is allocated to PIP
Receivables, as such portion was calculated
in the most recent Daily Report (such
calculation to be made no less frequently
than twice per month at approximately equal
intervals);
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<PAGE> 105
ATR = The aggregate dollar amount of total revenues
for the immediately preceding 30 day
period, as calculated in the most recent
Daily Report (such calculation to be made no
less frequently than twice per month at
approximately equal intervals);
AIR = The Aggregate Outstanding Balance of Billed
Receivables the Obligors of which are not
Eligible Obligors, as calculated in such
Daily Report; and
ABR = The Aggregate Outstanding Balance of total
Billed Receivables, as calculated in such
Daily Report.
"AMORTIZATION DATE" is defined on page 57 of the Prospectus.
"AMORTIZATION PERIOD" is defined on page 14 of the Prospectus.
"APPLICABLE STRESS FACTOR" is defined on page 107 of the Prospectus.
"ASSIGNEE ORIGINATOR" is defined on page 82 of the Prospectus.
"ASSIGNOR ORIGINATOR" is defined on page 82 of the Prospectus.
"AVERAGE DILUTION RATIO" is, for any Collection Period, the average of the
Dilution Ratios for such Collection Period and for the immediately preceding
eleven consecutive Collection Periods.
"BANKRUPTCY CODE" is defined on page 42 of the Prospectus.
"BASE AMOUNT" is defined on page 13 of the Prospectus.
"BENEFIT PLANS" is defined on page 92 of the Prospectus.
"BILLED RECEIVABLE" is defined on page 30 of the Prospectus.
"BUDGET/BALANCED BILLING PAYMENT PLAN" is defined on page 35 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 43 of the Prospectus.
"CEI" is The Cleveland Electric Illuminating Company.
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<PAGE> 106
"CARRYING COST ACCOUNT" is defined on page 12 of the Prospectus.
"CARRYING COST AMOUNT" is defined on page 54 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
Determination Date Certificate (such total being
herein called the "Accrued Carrying Costs")
AIA = the Aggregate Invested Amount as of such date
WFR = the sum of (a) the weighted average of the Certificate
Rates then in effect plus (b) the Servicing Fee rate
(computed at the fixed rate for a successor servicer)
TD = Turnover Days
CCA = the aggregate balance of funds in the Carrying Cost
Account 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 10 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
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<PAGE> 107
the Ratable Principal Amount of that Class; and (b) a denominator which equals
the sum of such Ratable Principal Amount and the Ratable Principal Amount of
each other Class of equal priority with such Class.
"CLOSING DATE" means, with respect to any Series, the Closing Date specified in
the related Supplement.
"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 16 of the Prospectus.
"COLLECTIONS" is defined on page 16 of the Prospectus.
"COMMISSION" means the Securities and Exchange Commission.
"CONCENTRATION ACCOUNT" is defined on page 17 of the Prospectus.
"CONSOLIDATED AFFILIATE" means, (i) as to any Obligor included in the
twenty-six Obligors with the largest outstanding balance of Billed Receivables
as of the end of the most recent Collection Period, any other person whose
financial statements should, under generally accepted accounting principles, be
consolidated with the financial statements of such Obligor; (ii) as to any
Obligor, any other Person recognized in the Servicers' accounting records as a
Person whose financial statements should, under generally accepted accounting
principles, be consolidated with the financial statements of such Obligor; and
(iii) as to each of Centerior Energy, the Originators and the Transferor, any
other Person whose financial statements should, under generally accepted
accounting principles, be consolidated with the financial statements of
Centerior Energy, such Originator or the Transferor, as applicable.
"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
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<PAGE> 108
Person shall be obligated to pay from time to time for electric service
and the other charges related thereto.
"CREDIT AND COLLECTION POLICY" is defined on page 25 of the Prospectus.
"CURE FUNDS" is defined on page 14 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 60 of the Prospectus.
"DEFAULTED RECEIVABLE" means any Receivable: (a) as to which any payment, or
part thereof, has 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
Concentration Account or a separate trust account created by the Trustee at the
direction of the Transferor.
"DEFERRED ARRANGEMENT PAYMENT PLAN" is defined on page 35 of the Prospectus.
"DEFERRED PAYMENT RIGHT" is defined on page 7 of the Prospectus.
"DEFINITIVE CERTIFICATES" is defined on page 63 of the Prospectus.
"DELINQUENT RECEIVABLE" means a Receivable which is not a Defaulted Receivable
and the outstanding balance of which has 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 60 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
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<PAGE> 109
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 by the Master Servicer 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 Net Receivables Balance as
determined on the last Business Day of the most recently ended Collection
Period.
"DILUTION RATIO" means, as calculated by the Master Servicer 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 by the Master Servicer in each
Determination Date Certificate for the most recently ended Collection Period
for the Series 1996-1 Certificates, the percentage equivalent of a fraction
equal to the product of:
(a) the sum of
(i) the product of (A) the Applicable Stress
Factor for such Series and (B) the Average
Dilution Ratio for such Collection Period,
and
(ii) the Dilution Volatility Factor, times
(b) the Dilution Horizon Ratio then in effect.
"DILUTION VOLATILITY FACTOR" means, as calculated by the Master Servicer in
each Determination Date Certificate for the Series 1996-1 Certificates for the
most recently ended Collection Period, a percentage equal to the product of (i)
the amount by which (A) the highest Dilution
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<PAGE> 110
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 calendar month, commencing
(A) in the event that the Amortization Period commences on the Scheduled
Amortization Date, on [May 15, 2001] and (B) in the event 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.
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 57 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 long-term unsecured debt rating of at least
A3 or better 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-2 by S&P.
"ELIGIBLE INVESTMENTS" is defined on page 52 of the Prospectus.
"ELIGIBLE OBLIGOR" means each Obligor that satisfies the following criteria:
(a) it is not an Affiliate of either Originator; (b) it is a United States
resident; (c) as of the end of the most recent Collection Period, it was not
the subject of any voluntary or involuntary bankruptcy proceedings; (d) as of
the end of the most recent Collection Period, no more than 35% of all
Receivables of such Obligor and its Consolidated Affiliates were (for reasons
other than disputes) aged more than 89 days past their respective invoice
dates; (e) as of the end of the most recent Collection Period, none of the past
due Receivables of such Obligor had been evidenced by promissory notes; and (f)
it is not a Governmental Authority.
"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 31 days of the original
billing
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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 Originators; (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 is not a Deferred Arrangement Payment Plan Receivable; and (q) which is
not subject to any enforceable provision prohibiting the transfer or assignment
by the applicable Originator of such payment obligation. Notwithstanding the
foregoing, for purposes of calculating the Net Receivables Balance, the
aggregate outstanding balance of Unbilled Receivables which do not constitute
Eligible Receivables shall be deemed to be the Allocated Ineligible Percentage
of the Unbilled Receivables, as calculated in the Daily Report.
"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.
"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
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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.
"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 92 of the Prospectus.
"FINAL SCHEDULED PAYMENT DATE" means the Distribution Date which occurs twelve
months after the Amortization Date.
"FLOATING ALLOCATION PERCENTAGE" is defined on page 7 of the Prospectus.
"GOVERNMENTAL AUTHORITY" means any country or nation, any political
subdivision, state or municipality of such country or nation, and any entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government of any country or nation or political
subdivision thereof.
"IRS" means the Internal Revenue Service.
"INDEMNIFIED AMOUNT" is defined on page 83 of the Prospectus.
"INDEMNIFIED PARTY" is defined on page 83 of the Prospectus.
"INDIRECT PARTICIPANTS" is defined on page 62 of the Prospectus.
"INELIGIBLE RECEIVABLE" is defined on page 81 of the Prospectus.
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"INSOLVENCY EVENT" is defined on page 58 of the Prospectus.
"Interest Period" means, unless otherwise specified in the Supplement relating
to any Series, with respect to any Distribution Date for such 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 51 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 by the Master Servicer in each
Determination Date Certificate 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 Net Receivables Balance 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 by the Master Servicer as follows:
LRR = [MAX(GLR)] x ASF x LHR
where:
LRR = Loss Reserve Ratio
MAX(GLR) = highest three-month rolling average GLR
amount during the twelve most recent
Collection Periods
GLR = Gross Loss Ratio calculated by the
Master Servicer as (i) the sum of (a)
gross write-offs during the most recent
Collection Period plus (b) the CDPP
(defined below) for such Collection
Period, divided by (ii) new billed Pool
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Receivables generated during the 6
Collection Periods 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 Series 1996-1 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 Invested Amount of such
outstanding Series.
"MAJORITY INVESTORS" means Investors holding Certificates evidencing 51% or
more of the Aggregate Investors' Interest; PROVIDED that if at any time the
Aggregate Invested Amount for all Subordinated Classes is greater than the
Aggregate Invested Amount for all Senior Classes, then "Majority Investors" at
such time shall mean Investors holding Certificates evidencing both (i) 51% or
more of the Aggregate Investors' Interest and (ii) 51% or more of the Aggregate
Invested Amount for all Senior Classes.
"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.
"MINIMUM REQUIRED RESERVE RATIO" is defined on page 8 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
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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 7 of the Prospectus.
"NEW ISSUANCE" is defined on page 10 of the Prospectus.
"OID" and "OID REGULATIONS" are defined on page 88 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 76 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 62 of the Prospectus.
"PAYING AGENT" means any paying agent appointed pursuant to the Pooling
Agreement.
"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" is defined on page 35 of the Prospectus.
"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.
"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.
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"PRINCIPAL ALLOCATION PERCENTAGE" is defined on page 49 of the Prospectus.
"PRINCIPAL DISTRIBUTION AMOUNT" is defined on page 48 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, if any, 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; (j) the Scheduled Amortization Commencement Date and (k) if such Series
is designated as a Series of Variable Funding Certificates, the termination
date for such Series.
"PURCHASE PRICE" is defined on page 75 of the Prospectus.
"PURCHASE TERMINATION DATE" is defined on page 80 of the Prospectus.
"PURCHASED ASSETS" is defined on page 75 of the Prospectus.
"RATABLE PRINCIPAL AMOUNT" means, as to any Series of Investor Certificates or
the Transferor Revolving Certificate, the outstanding Invested 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 Invested 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 Invested
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 Invested 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 Ratings Services or Moody's Investors
Service, Inc.
"RATING AGENCY CONDITION" is defined on page 10 of the Prospectus.
"RECEIVABLES" is defined on the front cover page of the Prospectus.
113
<PAGE> 117
"RECEIVABLES PURCHASE AGREEMENT" is defined on page 6 of the Prospectus.
"RECORD DATE" is defined on page 60 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 35 of the Prospectus.
"REQUIRED RESERVES" is defined on page 8 of the Prospectus.
"RESERVE ACCOUNT" is defined on page 11 of the Prospectus.
"REVOLVING PERIOD" is defined on page 11 of the Prospectus.
"S&P" means Standard & Poor's Ratings Services, a division of The Mcgraw-Hill
Companies, Inc., or its successor.
"SCHEDULED AMORTIZATION DATE" is defined on page 11 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 1996-1 CERTIFICATES" is defined on page 3 of the Prospectus.
"SERIES 1996-1 CERTIFICATE RATE" is the Certificate Rate of the Series 1996-1
Certificates.
"SERIES 1996-1 INITIAL INVESTED AMOUNT" means the initial principal amount of
the Series 1996-1 Certificates.
"SERIES 1996-1 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.
"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 72 of the Prospectus.
"SERVICING FEE" is defined on page 16 of the Prospectus.
114
<PAGE> 118
"SERVICE TRANSFER" is defined on page 72 of the Prospectus.
"SET-ASIDE PERIOD" is defined on page 54 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 9 of the Prospectus.
"TE" means The Toledo Edison Company.
"TAX COUNSEL" means Squire, Sanders & Dempsey.
"TAX OPINION" is defined on page 51 of the Prospectus.
"TERMINATION NOTICE" is defined on page 72 of the Prospectus.
"TRANSFER AGENT AND REGISTRAR" means any transfer agent and registrar appointed
pursuant to the Pooling Agreement.
"TRANSFER DATE" means the Business Day immediately preceding the 15th day of
each calendar month, or, if the last day of an Interest Period is other than
the 15th day of a calendar month, the Business Day immediately preceding such
last day of such Interest Period.
"TRANSFEROR" initially means Centerior Funding Corporation, a Delaware special
purpose corporation.
"TRANSFEROR COLLECTION ACCOUNT" is defined on page 16 of the Prospectus.
"TRANSFEROR INTERCOMPANY NOTE" is defined on page 76 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.
"TRANSFEROR REVOLVING INITIAL AMOUNT" means $________________, being the
initial principal amount of the Transferor Revolving Certificate on ___________
___, 1996.
"TRUST" means Centerior Energy Trade Receivables Master Trust.
115
<PAGE> 119
"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 Citibank, N.A., a national banking association, or its
successor in interest, or any successor Trustee under the Pooling Agreement.
"TURNOVER DAYS" means, as of each Determination Date until (but not including),
the next Determination Date, the average number of days outstanding for
Receivables during the prior Collection Period as calculated by the Master
Servicer in each Determination Date Certificate in accordance with the
following formula:
TD = AOBX+ AOBY X ED
---------- --------
2 BR
TD = Turnover Days;
AOBX = the aggregate outstanding balance of all Receivables
as of the beginning of such Collection Period;
AOBY = the aggregate outstanding balance of all Receivables
as of the end of such Collection Period;
ED = the number of days elapsed in the prior Collection
Period; and
BR = the aggregate amount of new Billed Receivables
generated during such Collection Period.
"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 95 of the Prospectus.
"UNDERWRITING AGREEMENT" is defined on page 95 of the Prospectus.
"VARIABLE FUNDING CERTIFICATES" is defined on page 11 of the Prospectus.
116
<PAGE> 120
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and, if given of
made, such information or representations must not be relied upon. This
Prospectus does not constitute and 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
accordingly.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
PROSPECTUS
<S> <C>
Available Information ................................................. 2
Reports to Investors .................................................. 2
Prospectus Summary .................................................... 3
Risk Factors .......................................................... 19
Maturity Considerations ............................................... 28
The Receivables ....................................................... 30
Use of Proceeds ....................................................... 41
The Transferor ........................................................ 42
Originators/Initial Servicers ......................................... 42
The Trust ............................................................. 46
Description of the Series 1996-1
Certificates ........................................................ 47
Description of the Pooling Agreement
Generally ........................................................... 61
Description of the Receivables Purchase
Agreemwent .......................................................... 75
Certain Legal Aspects of the
Receivables ......................................................... 84
Certain Tax Considerations ............................................ 86
ERISA Considerations .................................................. 92
Underwriting .......................................................... 95
Legal Matters ......................................................... 95
Glossary .............................................................. 97
</TABLE>
---------------------
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> 121
=================================
---------------------------------
Centerior Energy Receivables
Master Trust
$___________ ___%
Series 1996-1 Receivables-Backed
Certificates
Centerior Funding Corporation
Transferor
The Cleveland Electric
Illuminating Company
and
The Toledo Edison Company
Servicers
_____________________
PROSPECTUS
_____________________
Citicorp Securities, Inc.
Chase Securities Inc.
CS First Boston, Inc.
Dated_______, 1996
---------------------------------
<PAGE> 122
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:
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....................................... $ *
__________________________
* To be provided by amendment.
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> 123
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> 124
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 1 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
Exhibit
Number Description of Exhibit
- ------ ----------------------
* 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.
4.1 Pooling and Servicing Agreement, dated as of _________________
1996, among the Registrant, the Servicers and the Trustee.
4.2 Series 1996-1 Supplement, dated as of ______________, 1996, to
Pooling and Servicing Agreement.
* 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 _________________,
1996, between the Originators and the Registrant.
* 10.2 Lockbox Agreement, dated as of __________ __, 1996,
between the Registrant and ____________________.
II-3
<PAGE> 125
* 10.3 Lockbox Agreement, dated as of __________ __, 1996, between the
Registrant and ____________________.
* 23.1 Consent of Squire, Sanders & Dempsey (included in opinion filed
as Exhibit 5).
* 23.2 Consent of SS&D (included in opinion filed as Exhibit 8.1).
24 Powers of Attorney.
_________________________
[*To be filed by amendment.]
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> 126
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Amendment No. 2 to Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Independence, State of Ohio, on the 9th day of April, 1996.
CENTERIOR FUNDING CORPORATION
(REGISTRANT)
By David M. Blank*
------------------------------------------
Name: David M. Blank
Title: President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 2 to Registration Statement has been signed by the following
persons in the capacities and on the date indicated:
Signature Title Date
--------- ----- ----
David M. Blank*
- ------------------------ President and Director April 9, 1996
David M. Blank (Principal Executive Officer)
Barbara A. Frastaci*
- ------------------------ Treasurer and Director April 9, 1996
Barbara A. Frastaci (Principal Financial Officer
and Principal Accounting
Officer)
Kevin P. Burns*
- ------------------------ Director April 9, 1996
Kevin P. Burns
Terrence G. Linnert*
- ------------------------ Director April 9, 1996
Terrence G. Linnert
Andrew L. Stidd*
- ------------------------ Director April 9, 1996
Andrew L. Stidd
*By: /s/ Kevin P. Murphy, Attorney-in-Fact
--------------------
Kevin P. Murphy
II-5
<PAGE> 127
EXHIBIT INDEX
-------------
Exhibit Number Description Page
[*] 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.
4.1 Pooling and Servicing Agreement, dated as of
____________________, 1996, among the
Registrant, the Servicers and the Trustee.
4.2 Series 1996-1 Supplement, dated as of ______________, 1996, to
Pooling and Servicing Agreement.
[*] 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
___________________, 1996, among the
Originators and the Registrant.
[*]10.2 Lockbox Agreement, dated as of _____________, 1996,
between the Registrant and ___________________.
[*]10.3 Lockbox Agreement, dated as of _____________, 1996,
between the Registrant and ___________________.
[*]23.1 Consent of Squire, Sanders & Dempsey (included in
opinion filed as Exhibit 5).
[*]23.2 Consent of SS&D (included in opinion filed as Exhibit
8.1).
24 Powers of Attorney.
___________________________
[*To be filed by amendment.]
<PAGE> 1
EXHIBIT 3.1
RESTATED
CERTIFICATE OF INCORPORATION
OF
CENTERIOR FUNDING CORPORATION
The undersigned, in order to amend and restate the Certificate of
Incorporation, as amended, of Centerior Funding Corporation (the "Corporation")
which was originally filed with the Secretary of State of Delaware on August
30, 1995 and amended on October 4, 1995, do hereby certify that the following
Restated Certificate of Incorporation of the Corporation was duly adopted by
the directors and the stockholders of the Corporation in accordance with the
provisions of Sections 242 and 245 of the General Corporation Law of the State
of Delaware:
FIRST. The name of the Corporation is Centerior Funding Corporation.
SECOND. The address of the Corporation's registered office in the
State of Delaware is 1013 Centre Road, City of Wilmington, County of New
Castle, State of Delaware. The name of its registered agent at such address is
Corporation Service Company.
THIRD. The purposes for which the Corporation is formed are (i) to
engage in acquiring, owning, holding, transferring, assigning, pledging and
otherwise dealing with such assets as may, from time to time, constitute all or
part of the trust estate (the "Trust") established from time to time pursuant
to the trust agreement entered into between the Corporation and an entity
serving as eligible lender trustee, providing for, among other things, the
issuance of securities representing beneficial ownership interests in, or
secured by, one or more pools of receivables and related assets, (ii) to
acquire, own, hold, transfer, assign, pledge and otherwise deal with trust
certificates and other securities issued by the Trust, and (iii) to engage in
any activity and to exercise any powers permitted to corporations under the
laws of the State of Delaware that are incident to the foregoing and necessary
or convenient to accomplish the foregoing; provided, however, that the
Corporation shall not have the power to issue debt obligations or incur, assume
or guarantee any additional debt. The Corporation shall not engage in any
business or activity other than in connection with or relating to the
activities described above.
FOURTH. The total number of shares of stock which the Corporation
shall have authority to issue is 3,000 shares of Common Stock with a par value
of One Cent ($.01) per share.
FIFTH. (a) The affairs of the Corporation shall be managed by a
Board of Directors consisting of five members. At least two directors of the
Corporation (the "Outside Directors") shall not be a director, officer or
employee of, or direct or indirect beneficial owner of any securities of, or
members of the immediate family of any such director, officer, employee or
beneficial owner of the Corporation's parent, The Cleveland Electric
Illuminating Company ("CEI"), or any affiliate of CEI. For purposes of the
foregoing, an "affiliate" is an
<PAGE> 2
entity controlling, controlled by or under common control with another entity.
Should any Outside Director resign, die, become disabled or incapacitated, or
be prevented from acting, the affairs of the Corporation shall and may be
managed by the remaining directors, who shall promptly replace the
aforementioned Outside Director with a person meeting the requirements set
forth above. Should any Outside Director resign, die, become disabled or
incapacitated, or be prevented from acting, the remaining directors shall take
no action to acquiesce, petition, or otherwise invoke or cause the Corporation
to invoke the process of any governmental authority for the purpose of
commencing or sustaining a case against the Corporation under any Federal or
state bankruptcy, insolvency or similar law or appointing a receiver,
liquidator, assignee, trustee, custodian, sequestrator or similar official,
before replacing the aforementioned Outside Director with a person meeting the
requirements set forth above.
(b) The Corporation shall maintain a principal office
through which its business shall be conducted.
(c) The Corporation shall maintain corporate records and
books of account and shall not commingle its corporate records and books of
account with the corporate records and books of account of CEI.
(d) The Board of Directors of the Corporation shall hold
appropriate meetings to authorize all of its corporate actions. Regular
meetings of the Board of Directors shall be held not less frequently than three
times per annum.
(e) The funds and other assets of the Corporation shall
not be commingled with those of any other corporation.
(f) The Corporation shall pay its own expenses and shall
not hold itself out as being liable for the debts of any other party.
(g) The Corporation shall not form, or cause to be
formed, any subsidiaries.
(h) The Corporation shall act solely in its corporate
name and through its duly authorized officers or agents in the conduct of its
business, shall prepare financial statements separate from those of CEI, and
shall conduct its business so as not to mislead others as to the identity of
the entity with which they are concerned. The Corporation shall hold itself
out to creditors, the public and all others as a corporate entity separate from
CEI.
(i) Meetings of the stockholders of the Corporation shall
be held not less frequently than one time per annum.
(j) The Corporation shall operate in such a manner that
it would not be substantively consolidated in the trust estate of any other
entity.
<PAGE> 3
SIXTH. Notwithstanding any other provision of this Restated
Certificate of Incorporation and any provision of law that otherwise so
empowers the Corporation, the Corporation shall not do any of the following:
(i) dissolve or liquidate, in whole or in part;
(ii) merge or consolidate with any other corporation
other than a corporation wholly owned, directly or
indirectly, by any entity owning 100% of the stock
of the Corporation and having a certificate of
incorporation containing provisions identical to the
provisions of Articles THIRD and FIFTH and this
Article SIXTH;
(iii) without the approval of the Outside Directors,
institute proceedings to be adjudicated a bankrupt
or insolvent, or consent to the institution of
bankruptcy or insolvency proceedings against it, or
file a petition or answer or consent seeking
reorganization or relief under the Federal
Bankruptcy laws, or consent to the filing of any
such petition or to the appointment of a receiver,
liquidator, assignee, trustee, conservator,
sequestrator (or other similar official) of the
Corporation or of any substantial part of the
Corporation's property, or make an assignment for
the benefit of creditors, or admit in writing its
inability to pay its debts generally as they become
due, or take corporate action in furtherance of any
such action; or
(iv) amend this Restated Certificate of Incorporation to
alter, in any manner that would have a material
adverse effect on the creditors of the Corporation,
or to delete Articles THIRD, FIFTH or this Article
SIXTH without, in each case, a letter from Moody's
Investors Service, Inc. and Standard & Poor's
Ratings Services, or their respective successors,
confirming that such amendment will not result in
the reduction or withdrawal of their ratings of any
series or class of debt securities of the
Corporation then outstanding;
PROVIDED, HOWEVER, that the actions of the Corporation shall not be so
restricted or prohibited if, at the time the action is taken, there are no
outstanding trust certificates or other securities issued by the Trust.
SEVENTH. The Corporation is to have perpetual existence.
EIGHTH. Election of directors need not be by written ballot unless
the by-laws of the Corporation shall so provide.
NINTH. The Board of Directors of the Corporation is expressly
authorized to adopt, amend or repeal the by-laws of the Corporation.
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<PAGE> 4
TENTH. No director of the Corporation shall be personally liable to
the Corporation 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 Corporation 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.
ELEVENTH. The Corporation shall, to the fullest extent permitted by
the General Corporation Law of the State of Delaware, as it may be amended and
supplemented from time to time, indemnify any and all persons whom it shall
have power to indemnify under such law against any expenses, liabilities or
other matters referred to in or covered by that section; provided, however,
that the Corporation shall indemnify any such person only if such proceeding
was authorized by the Board of Directors. The indemnification provided for
herein shall not be deemed exclusive of any other rights to which those seeking
indemnification may be entitled under any by-law, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in
their official capacities and as to action in another capacity while holding
such office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
TWELFTH. Subject to the restrictions in Article SIXTH, the
Corporation reserves the right to amend, alter, change or repeal any provision
contained in this Restated Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
IN WITNESS WHEREOF, The Corporation has caused this Restated
Certificate of Incorporation to be signed by David M. Blank, its President, and
to be attested by Kevin P. Murphy, its Assistant Secretary, this 9th day of
April, 1996.
CENTERIOR FUNDING
CORPORATION
By: /s/ David M. Blank
--------------------------
Name: David M. Blank
Title: President
Attest: /s/ Kevin P. Murphy
----------------------
Name: Kevin P. Murphy
Title: Assistant Secretary
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<PAGE> 5
STATE OF OHIO )
) SS:
COUNTY OF CUYAHOGA )
On the 9th day of April, 1996, before me personally came David M. Blank
to me known, who, being by me duly sworn, did depose and say that he is the
President of Centerior Funding Corporation, the corporation described in and
which executed the foregoing Restated Certificate of Incorporation; and that
he signed his name thereto by authority of the Board of Directors of said
Corporation.
/s/ Sondra Y. Clarke
--------------------------------------
Notary Public
My commission expires Nov. 25, 1998
----------------
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<PAGE> 1
EXHIBIT 3.2
BY-LAWS
OF
CENTERIOR FUNDING CORPORATION
ARTICLE I
STOCKHOLDERS
SECTION 1. PLACE OF MEETINGS. All meetings of stockholders shall be held at
the principal office of the corporation or at such other place as may be named
in the notice.
SECTION 2. ANNUAL MEETING. The annual meeting of stockholders for the
election of directors and the transaction of such other business as may
properly come before the meeting shall be held on such date and at such hour
and place as the directors or an officer designated by the directors may
determine. If the annual meeting is not held on the date designated therefor,
the directors shall cause the meeting to be held as soon thereafter as
convenient.
SECTION 3. SPECIAL MEETINGS. Special meetings of the stockholders may be
called at any time by the President, the Chairman of the Board, if any, or the
Board of Directors, or by the Secretary or any other officer upon the written
request of one or more stockholders holding of record at least a majority of
the outstanding shares of stock of the corporation entitled to vote at such
meeting. Such written request shall state the purpose or purposes of the
proposed meeting. Business transacted at any special meeting of stockholders
shall be limited to matters relating to the purpose or purposes stated in the
notice of meeting.
SECTION 4. NOTICE OF MEETINGS. Except where some other notice is required
by law, written notice of each meeting of stockholders, stating the place, date
and hour thereof and the purposes for which the meeting is called, shall be
given by or under the direction of the Secretary, not less than ten nor more
than sixty days before the date fixed for such meeting, to each stockholder
entitled to vote at such meeting of record at the close of business on the day
fixed by the Board of Directors as a record date for the determination of the
stockholders entitled to vote at such meeting or, if no such date has been
fixed, of record at the close of business on the day before the day on which
notice is given. Notice shall be given personally to each stockholder or left
at his or her residence or usual place of business or mailed postage prepaid
and addressed to the stockholder at his or her address as it appears upon the
records of the corporation. In case of the death, absence, incapacity or
refusal of the Secretary, such notice may be given by a person designated
either by the Secretary or by the person or persons calling the meeting or by
the Board of Directors. A waiver of such notice in writing, signed by the
person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent to such notice. Attendance of a
person at a meeting of stockholders shall constitute a waiver of notice of such
meeting, except when the stockholder attends a meeting for the express purpose
of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special
meeting of the stockholders need be specified in any written waiver of notice.
Except as required by statute, notice of any adjourned meeting of the
stockholders shall not be required.
<PAGE> 2
SECTION 5. VOTING LIST. The officer who has charge of the stock ledger of
the corporation shall prepare and make, at least ten days before every meeting
of stockholders, a complete list of the stockholders, arranged in alphabetical
order, and showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or if not so
specified, at the place where the meeting is to be held. The list shall also
be produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present. The stock
ledger shall be the only evidence as to who are the stockholders entitled to
examine the stock ledger, the list required by this section or the books of the
corporation, or to vote at any meeting of stockholders.
SECTION 6. QUORUM OF STOCKHOLDERS. At any meeting of the stockholders, the
holders of a majority in interest of all stock issued and outstanding and
entitled to vote upon a question to be considered at the meeting, present in
person or represented by proxy, shall constitute a quorum for the consideration
of such question, but a smaller group may adjourn any meeting from time to
time. When a quorum is present at any meeting, a majority of the stock
represented thereat and entitled to vote shall, except where a larger vote is
required by law, by the certificate of incorporation, or by these by-laws,
decide any question brought before such meeting. Any election by stockholders
shall be determined by a plurality of the vote cast by the stockholders
entitled to vote at the election.
SECTION 7. PROXIES AND VOTING. Unless otherwise provided in the certificate
of incorporation, each stockholder shall at every meeting of the stockholders
be entitled to one vote in person or by proxy for each share of the capital
stock held of record by such stockholder, but no proxy shall be voted or acted
upon after three years from its date, unless said proxy provides for a longer
period. Persons holding stock in a fiduciary capacity shall be entitled to
vote the shares so held, and persons whose stock is pledged shall be entitled
to vote, unless in the transfer by the pledgor on the books of the corporation
the pledgee shall have been expressly empowered to vote thereon, in which case
only the pledgee or the pledgee's proxy may represent said stock and vote
thereon. Shares of the capital stock of the corporation belonging to the
corporation or to another corporation, a majority of whose shares entitled to
vote in the election of directors is owned by the corporation, shall neither be
entitled to vote nor be counted for quorum purposes.
SECTION 8. CONDUCT OF MEETING. Meetings of the stockholders shall be
presided over by one of the following officers in the order of seniority and if
present and acting: the Chairman of the Board, if any, the Vice-Chairman of
the Board, if any, the President, a Vice-President, or, if none of the
foregoing is in office and present and acting, a chairman to be chosen by the
stockholders. The Secretary of the corporation, if present, or an Assistant
Secretary, shall act as secretary of every meeting, but if neither the
Secretary nor an Assistant Secretary is present the chairman of the meeting
shall appoint a secretary of the meeting.
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<PAGE> 3
SECTION 9. ACTION WITHOUT MEETING. Any action required or permitted to be
taken at any annual or special meeting of stockholders of the corporation may
be taken without a meeting, without prior notice and without a vote, if a
consent in writing, setting forth the action so taken, is signed by the holders
or by proxy for the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote on such action were
present and voted. Prompt notice of the taking of corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
ARTICLE II
DIRECTORS
SECTION 1. GENERAL POWERS. The business and affairs of the corporation
shall be managed by or under the direction of a Board of Directors, who may
exercise all of the powers of the corporation which are not by law required to
be exercised by the stockholders. In the event of a vacancy in the Board of
Directors, the remaining directors, except as otherwise provided by law, may
exercise the powers of the full Board until the vacancy is filled.
SECTION 2. NUMBER; ELECTION; TENURE AND QUALIFICATION. The initial Board of
Directors shall consist of three (3) persons and shall be elected by the
incorporator. Thereafter, the number of directors which shall constitute the
whole Board shall be fixed by resolution of the Board of Directors, but in no
event shall be less than one. Each director shall be elected by the
stockholders at the annual meeting and all directors shall hold office until
the next annual meeting and until their successors are elected and qualified,
or until their earlier death, resignation or removal. The number of directors
may be increased or decreased by action of the Board of Directors. Directors
need not be stockholders of the corporation.
SECTION 3. ENLARGEMENT OF THE BOARD. The number of the Board of Directors
may be increased at any time, such increase to be effective immediately, by
vote of a majority of the directors then in office.
SECTION 4. VACANCIES. Unless and until filled by the stockholders, any
vacancy in the Board of Directors, however occurring, including a vacancy
resulting from an enlargement of the Board and an unfilled vacancy resulting
from the removal of any director for cause or without cause, may be filled by
vote of a majority of the directors then in office although less than a quorum,
or by the sole remaining director. A director elected to fill a vacancy shall
hold office until the next annual meeting of stockholders and until his or her
successor is elected and qualified or until his or her earlier death,
resignation, or removal. When one or more directors shall resign from the
Board, effective at a future date, a majority of the directors then in office,
including those who have so resigned, shall have the power to fill such vacancy
or vacancies, the vote thereon to take effect when such resignation or
resignations shall become effective. If at any time there are no directors in
office, then an election of directors may be held in accordance with the
General Corporation Law of the State of Delaware.
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<PAGE> 4
SECTION 5. RESIGNATION. Any director may resign at any time upon written
notice to the corporation. Such resignation shall take effect at the time
specified therein, or if no time is specified, at the time of its receipt by
the President or Secretary.
SECTION 6. REMOVAL. Except as may otherwise be provided by the General
Corporation Law, any director or the entire Board of Directors may be removed,
with or without cause, at an annual meeting or at a special meeting called for
that purpose, by the holders of a majority of the shares then entitled to vote
at an election of directors. The vacancy or vacancies thus created may be
filled by the stockholders at the meeting held for the purpose of removal or,
if not so filled, by the directors in the manner provided in Section 4 of this
Article II.
SECTION 7. COMMITTEES. The Board of Directors may, by resolution or
resolutions passed by a majority of the whole Board of Directors, designate one
or more committees, each committee to consist of one or more directors of the
corporation. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee. In the absence or disqualification of
any member of such committee or committees, the member or members thereof
present at any meeting and not disqualified from voting, whether or not such
member or members constitute a quorum, may unanimously appoint another member
of the Board of Directors to act at the meeting in the place of such absent or
disqualified member. A majority of all the members of any such committee may
fix its rules of procedure, determine its action and fix the time and place,
whether within or without the State of Delaware, of its meetings and specify
what notice thereof, if any, shall be given, unless the Board of Directors
shall otherwise by resolution provide. The Board of Directors shall have the
power to change the members of any such committee at any time, to fill
vacancies therein and to discharge any such committee, either with or without
cause, at any time.
Any such committee, unless otherwise provided in the resolution of the Board
of Directors, or in these by-laws, shall have and may exercise all the powers
and authority of the Board of Directors in the management of the business and
affairs of the corporation, and may authorize the seal of the corporation to be
affixed to all papers which may require it; but no such committee shall have
the power or authority denied it by Section 141 of the General Corporation Law
of the State of Delaware.
Each committee shall keep regular minutes of its meetings and make such
reports as the Board of Directors may from time to time request.
SECTION 8. MEETINGS OF THE BOARD OF DIRECTORS. Regular meetings of the Board
of Directors may be held without call or formal notice at such places either
within or without the State of Delaware and at such times as the Board may by
vote from time to time determine. A regular meeting of the Board of Directors
may be held without call or formal notice immediately after and at the same
place as the annual meeting of the stockholders, or any special meeting of the
stockholders at which a Board of Directors is elected.
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<PAGE> 5
Special meetings of the Board of Directors may be held at any place either
within or without the State of Delaware at any time when called by the Chairman
of the Board of Directors, the President, Treasurer, Secretary, or two or more
directors. Reasonable notice of the time and place of a special meeting shall
be given to each director unless such notice is waived by attendance or by
written waiver in the manner provided in these by-laws for waiver of notice by
stockholders. Notice may be given by, or by a person designated by, the
Secretary, the person or persons calling the meeting, or the Board of
Directors. No notice of any adjourned meeting of the Board of Directors shall
be required. In any case it shall be deemed sufficient notice to a director to
send notice by mail at least seventy-two hours, or by telegram at least
forty-eight hours, before the meeting, addressed to such director at his or her
usual or last known business or home address.
Directors or members of any committee designated by the directors may
participate in a meeting of the Board of Directors or such committee by means
of conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other, and participation
by such means shall constitute presence in person at such meeting.
SECTION 9. QUORUM AND VOTING. A majority of the total number of directors
shall constitute a quorum, except that when a vacancy or vacancies exist in the
Board, a majority of the directors then in office (but not less than one-third
of the total number of the directors) shall constitute a quorum. A majority of
the directors present, whether or not a quorum is present, may adjourn any
meeting from time to time. The vote of a majority of the directors present at
any meeting at which a quorum is present shall be the act of the Board of
Directors, except where a different vote is required or permitted by law, by
the certificate of incorporation, or by these by-laws.
SECTION 10. COMPENSATION. The Board of Directors may fix fees for their
services and for their membership on committees, and expenses of attendance may
be allowed for attendance at each meeting. Nothing herein contained shall be
construed to preclude any director from serving the corporation in any other
capacity as an officer, agent or otherwise, and receiving compensation
therefor.
SECTION 11. ACTION WITHOUT MEETING. Any action required or permitted to be
taken at any meeting of the Board of Directors, or of any committee thereof,
may be taken without a meeting, and without notice, if a written consent
thereto is signed by all members of the Board of Directors, or of such
committee, as the case may be, and such written consent is filed with the
minutes of proceedings of the Board of Directors or such committee.
ARTICLE III
OFFICERS
SECTION 1. TITLES. The officers of the corporation shall consist of a
President, a Secretary, a Treasurer, and such other officers with such other
titles as the Board of Directors
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<PAGE> 6
shall determine, including without limitation a Chairman of the Board, a
Vice-Chairman of the Board, and one or more Vice-Presidents, Assistant
Treasurers, or Assistant Secretaries.
SECTION 2. ELECTION AND TERM OF OFFICE. The officers of the corporation
shall be elected annually by the Board of Directors at its first meeting
following the annual meeting of the stockholders. Each officer shall hold
office until his or her successor is elected and qualified, unless a different
term is specified in the vote electing such officer, or until his or her
earlier death, resignation or removal.
SECTION 3. QUALIFICATION. Unless otherwise provided by resolution of the
Board of Directors, no officer, other than the Chairman or Vice-Chairman of the
Board, need be a director. No officer need be a stockholder. Any number of
offices may be held by the same person, as the directors shall determine.
SECTION 4. REMOVAL. Any officer may be removed, with or without cause, at
any time, by resolution adopted by the Board of Directors.
SECTION 5. RESIGNATION. Any officer may resign by delivering a written
resignation to the corporation at its principal office or to the President or
Secretary. Such resignation shall be effective upon receipt or at such later
time as may be specified therein.
SECTION 6. VACANCIES. The Board of Directors may at any time fill any
vacancy occurring in any office for the unexpired portion of the term and may
leave unfilled for such period as it may determine any office other than those
of President, Treasurer and Secretary.
SECTION 7. POWERS AND DUTIES. The officers of the corporation shall have
such powers and perform such duties as are specified herein and as may be
conferred upon or assigned to them by the Board of Directors, and shall have
such additional powers and duties as are incident to their office except to the
extent that resolutions of the Board of Directors are inconsistent therewith.
SECTION 8. PRESIDENT AND VICE-PRESIDENTS. The President shall be the chief
executive officer of the corporation, shall preside at all meetings of the
stockholders and the Board of Directors unless a Chairman or Vice-Chairman of
the Board is elected by the Board, empowered to preside, and present at such
meeting, shall have general and active management of the business of the
corporation and general supervision of its officers, agents and employees, and
shall see that all orders and resolutions of the Board of Directors are carried
into effect.
In the absence of the President or in the event of his or her inability or
refusal to act, the Vice-President if any (or in the event there be more than
one Vice-President, the Vice-Presidents in the order designated by the
directors, or in the absence of any designation, then in the order of their
election) shall perform the duties of the President, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
President. The Board of Directors may assign to any Vice-President the title
of Executive Vice-President, Senior Vice-President or any other title selected
by the Board of Directors.
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SECTION 9. SECRETARY AND ASSISTANT SECRETARIES. The Secretary shall attend
all meetings of the Board of Directors and of the stockholders and record all
the proceedings of such meetings in a book to be kept for that purpose, shall
give, or cause to be given, notice of all meetings of the stockholders and
special meetings of the Board of Directors, shall maintain a stock ledger and
prepare lists of stockholders and their addresses as required and shall have
custody of the corporate seal which the Secretary or any Assistant Secretary
shall have authority to affix to any instrument requiring it and attest by any
of their signatures. The Board of Directors may give general authority to any
other officer to affix and attest the seal of the corporation.
The Assistant Secretary if any (or if there be more than one, the Assistant
Secretaries in the order determined by the Board of Directors of if there be no
such determination, then in the order of their election) shall, in the absence
of the Secretary or in the event of the Secretary's inability or refusal to
act, perform the duties and exercise the powers of the Secretary.
SECTION 10. TREASURER AND ASSISTANT TREASURERS. The Treasurer shall have
the custody of the corporate funds and securities, shall keep full and accurate
accounts of receipts and disbursements in books belonging to the corporation
and shall deposit all moneys and other valuable effects in the name and to the
credit of the corporation in such depositories as may be designated by the
Board of Directors. The Treasurer shall disburse the funds of the corporation
as may be ordered by the Board of Directors or the President, taking proper
vouchers for such disbursements, and shall render to the President and the
Board of Directors, at its regular meetings, or whenever they may require it,
an account of all transactions and of the financial condition of the
corporation.
The Assistant Treasurer if any (or if there be more than one, the Assistant
Treasurers in the order determined by the Board of Directors or if there be no
such determination, then in the order of their election) shall, in the absence
of the Treasurer or in the event of his or her inability or refusal to act,
perform the duties and exercise the powers of the Treasurer.
SECTION 11. BONDED OFFICERS. The Board of Directors may require any officer
to give the corporation a bond in such sum and with such surety or sureties as
shall be satisfactory to the Board of Directors upon such terms and conditions
as the Board of Directors may specify, including without limitation a bond for
the faithful performance of the duties of such officer and for the restoration
to the corporation of all property in his or her possession or control
belonging to the corporation.
SECTION 12. SALARIES. Officers of the corporation shall be entitled to such
salaries, compensation or reimbursement as shall be fixed or allowed from time
to time by the Board of Directors.
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ARTICLE IV
STOCK
SECTION 1. CERTIFICATES OF STOCK. One or more certificates of stock, signed
by the Chairman or Vice-Chairman of the Board of Directors or by the President
or Vice-President and by the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary, shall be issued to each stockholder
certifying, in the aggregate, the number of shares owned by the stockholder in
the corporation. Any or all signatures on any such certificate may be
facsimiles. In case any officer, transfer agent or registrar who shall have
signed or whose facsimile signature shall have been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the corporation with the same effect
as if he or she were such officer, transfer agent or registrar at the date of
issue.
Each certificate for shares of stock which are subject to any restriction on
transfer pursuant to the certificate of incorporation, the by-laws, applicable
securities laws, or any agreement among any number of shareholders or among
such holders and the corporation shall have conspicuously noted on the face or
back of the certificate either the full text of the restriction or a statement
of the existence of such restriction.
SECTION 2. TRANSFERS OF SHARES OF STOCK. Subject to the restrictions, if
any, stated or noted on the stock certificates, shares of stock may be
transferred on the books of the corporation by the surrender to the corporation
or its transfer agent of the certificate representing such shares properly
endorsed or accompanied by a written assignment or power of attorney properly
executed, and with such proof of authority or the authenticity of signature as
the corporation or its transfer agent may reasonably require. The corporation
shall be entitled to treat the record holder of stock as shown on its books as
the owner of such stock for all purposes, including the payment of dividends
and the right to vote with respect to that stock, regardless of any transfer,
pledge or other disposition of that stock, until the shares have been
transferred on the books of the corporation in accordance with the requirements
of these by-laws.
SECTION 3. LOST CERTIFICATES. A new certificate of stock may be issued in
the place of any certificate theretofore issued by the corporation and alleged
to have been lost, stolen, destroyed, or mutilated, upon such terms in
conformity with law as the Board of Directors shall prescribe. The directors
may, in their discretion, require the owner of the lost, stolen, destroyed or
mutilated certificate, or the owner's legal representatives, to give the
corporation a bond, in such sum as they may direct, to indemnify the
corporation against any claim that may be made against it on account of the
alleged loss, theft, destruction or mutilation of any such certificate, or the
issuance of any such new certificate.
SECTION 4. RECORD DATE. The Board of Directors may fix in advance a record
date for the determination of the stockholders entitled to notice of or to vote
at any meeting of stockholders or to express consent to corporate action in
writing without a meeting, or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of stock,
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<PAGE> 9
or for the purpose of any other lawful action. Such record date shall not be
more than 60 nor less than 10 days before the date of such meeting, nor more
than 60 days prior to any other action to which such record date relates.
If no record date is fixed, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is given,
or, if notice is waived, at the close of business on the day next preceding the
day on which the meeting is held. Unless otherwise fixed by the Board of
Directors, the record date for determining stockholders entitled to express
consent to corporate action in writing without a meeting, when no prior action
by the Board of Directors is necessary, shall be the day on which the first
written consent is expressed. The record date for determining stockholders for
any other purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating to such purpose.
A determination of stockholders of record entitled to notice of or to vote at
a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for
the adjourned meeting.
SECTION 5. FRACTIONAL SHARE INTERESTS. The corporation may, but shall not
be required to, issue fractions of a share. If the corporation does not issue
fractions of a share, it shall (1) arrange for the disposition of fractional
interests by those entitled thereto, (2) pay in cash the fair value of
fractions of a share as of the time when those entitled to receive such
fractions are determined, or (3) issue scrip or warrants in registered or
bearer form which shall entitle the holder to receive a certificate for a full
share upon the surrender of such scrip or warrants aggregating a full share. A
certificate for a fractional share shall, but scrip or warrants shall not
unless otherwise provided therein, entitle the holder to exercise voting
rights, to receive dividends thereon, and to participate in any of the assets
of the corporation in the event of liquidation. The Board of Directors may
cause scrip or warrants to be issued subject to the conditions that they shall
become void if not exchanged for certificates representing full shares before a
specified date, or subject to the conditions that the shares for which scrip or
warrants are exchangeable may be sold by the corporation and the proceeds
thereof distributed to the holders of scrip or warrants, or subject to any
other conditions which the Board of Directors may impose.
SECTION 6. DIVIDENDS. Subject to the provisions of the certificate of
incorporation, the Board of Directors may, out of funds legally available
therefor, at any regular or special meeting, declare dividends upon the common
stock of the corporation as and when they deem expedient.
ARTICLE V
INDEMNIFICATION AND INSURANCE
SECTION 1. INDEMNIFICATION. The corporation shall, to the full extent
permitted by the General Corporation Law of the State of Delaware, as amended
from time to time, and
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the certificate of incorporation, indemnify each person whom it may indemnify
pursuant thereto.
SECTION 2. INSURANCE. The corporation shall have power 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 such person's status as such, whether or not the
corporation would have the power to indemnify such person against such
liability under the provisions of the General Corporation Law of the State of
Delaware.
ARTICLE VI
GENERAL PROVISIONS
SECTION 1. FISCAL YEAR. Except as otherwise designated from time to time by
the Board of Directors, the fiscal year of the corporation shall begin on the
first day of January and end on the last day of December.
SECTION 2. CERTIFICATE OF INCORPORATION. All references in these by-laws to
the certificate of incorporation shall be deemed to refer to the certificate of
incorporation of the corporation, as in effect from time to time.
SECTION 3. EXECUTION OF INSTRUMENTS. The Chairman and Vice-Chairman of the
Board of Directors, if any, the President, any Vice-President, and the
Treasurer shall have power to execute and deliver on behalf and in the name of
the corporation any instrument requiring the signature of an officer of the
corporation, including deeds, contracts, mortgages, bonds, notes, debentures,
checks, drafts, and other orders for the payment of money. In addition, the
Board of Directors may expressly delegate such powers to any other officer or
agent of the corporation.
SECTION 4. VOTING OF SECURITIES. Except as the directors may otherwise
designate, the President or Treasurer may waive notice of, and act as, or
appoint any person or persons to act as, proxy or attorney-in-fact for this
corporation (with or without power of substitution) at any meeting of
stockholders or shareholders of any other corporation or organization the
securities of which may be held by this corporation.
SECTION 5. EVIDENCE OF AUTHORITY. A certificate by the Secretary, or an
Assistant Secretary, or a temporary secretary, as to any action taken by the
stockholders, directors, a committee or any officer or representative of the
corporation shall, as to all persons who rely on the certificate in good faith,
be conclusive evidence of that action.
SECTION 6. TRANSACTIONS WITH INTERESTED PARTIES. No contract or transaction
between the corporation and one or more of the directors or officers, or
between the corporation and any other corporation, partnership, association, or
other organization in which one or more
10
<PAGE> 11
of the directors or officers are directors or officers, or have a financial
interest, shall be void or voidable solely for that reason, or solely because
the director or officer is present at or participates in the meeting of the
Board of Directors or a committee of the Board of Directors which authorizes
the contract or transaction or solely because the vote of any such director is
counted for such purpose, if:
(1) The material facts as to the relationship or interest and as to the
contract or transaction are disclosed or are known to the Board of Directors or
the committee, and the Board or committee in good faith authorizes the contract
or transaction by the affirmative votes of a majority of the disinterested
directors, even though the disinterested directors be less than a quorum; or
(2) The material facts as to the relationship or interest and as to the
contract or transaction are disclosed or are known to the stockholders entitled
to vote thereon, and the contract or transaction is specifically approved in
good faith by vote of the stockholders; or
(3) The contract or transaction is fair as to the corporation as of the
time it is authorized, approved or ratified by the Board of Directors, a
committee of the Board of Directors, or the stockholders.
Common or interested directors may be counted in determining the presence of
a quorum at a meeting of the Board of Directors or of a committee which
authorizes the contract or transaction.
SECTION 7. BOOKS AND RECORDS. The books and records of the corporation
shall be kept at such places within or without the State of Delaware as the
Board of Directors may from time to time determine.
ARTICLE VII
AMENDMENTS
SECTION 1. BY THE BOARD OF DIRECTORS. These by-laws may be altered, amended
or repealed or new by-laws may be adopted by the affirmative vote of a majority
of the directors present at any regular or special meeting of the Board of
Directors at which a quorum is present.
SECTION 2. BY THE STOCKHOLDERS. These by-laws may be altered, amended or
repealed or new by-laws may be adopted by the affirmative vote of the holders
of a majority of the shares of the capital stock of the corporation issued and
outstanding and entitled to vote at any regular meeting of stockholders, or at
any special meeting of stockholders provided notice of such alteration,
amendment, repeal or adoption of new by-laws shall have been stated in the
notice of such special meeting.
11
<PAGE> 1
EXHIBIT 4.1
================================================================================
CENTERIOR FUNDING CORPORATION, Transferor
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
and
THE TOLEDO EDISON COMPANY,
each as a Servicer
and
CITIBANK, N.A., as Trustee
CENTERIOR ENERGY RECEIVABLES MASTER TRUST
POOLING AND SERVICING AGREEMENT
Dated as of ___________, 1996
================================================================================
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
<S> <C>
SECTION 1.01. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
<CAPTION>
ARTICLE II
TRANSFER OF RECEIVABLES
<S> <C>
SECTION 2.01. Transfer of Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 2.02. Acceptance by Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 2.03. Representations and Warranties of the Transferor Relating to the Transferor . . . . . . . . . . . . 27
SECTION 2.04. Representations and Warranties of the Transferor Relating to this Agreement and the Trust Assets. . 32
SECTION 2.05. Affirmative Covenants of the Transferor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 2.06. Negative Covenants of the Transferor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
<CAPTION>
ARTICLE III
ADMINISTRATION AND SERVICING OF RECEIVABLES
<S> <C>
SECTION 3.01. Acceptance of Appointment and Other Matters Relating to the Servicers . . . . . . . . . . . . . . . 42
SECTION 3.02. Servicing Compensation; Servicers' Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 3.03. Representations and Warranties of the Servicers . . . . . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 3.04. Covenants of the Servicers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
SECTION 3.05. Reports and Records for the Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
SECTION 3.06. Annual Certificate of Servicers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
SECTION 3.07. Annual Servicing Report of Independent Public Accountants . . . . . . . . . . . . . . . . . . . . . 53
SECTION 3.08. Annual Investors' Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
SECTION 3.09. Tax and Usury Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
SECTION 3.10. Notice to Originators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
SECTION 3.11. Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
</TABLE>
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<PAGE> 3
<TABLE>
<CAPTION>
ARTICLE IV
RIGHTS OF CERTIFICATEHOLDERS AND
ALLOCATION AND APPLICATION OF COLLECTIONS
<S> <C>
SECTION 4.01. Rights of Certificateholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
SECTION 4.02. Establishment of Collection Accounts, Concentration Account and Other Trust Accounts . . . . . . . 56
SECTION 4.03. Daily Calculations and Allocation of Collections . . . . . . . . . . . . . . . . . . . . . . . . . 59
<CAPTION>
ARTICLE V
<S> <C>
DISTRIBUTIONS AND REPORTS TO INVESTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
<CAPTION>
ARTICLE VI
THE CERTIFICATES
<S> <C>
SECTION 6.01. The Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
SECTION 6.02. Authentication of Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
SECTION 6.03. Registration of Transfer and Exchange of Certificates . . . . . . . . . . . . . . . . . . . . . . . 66
SECTION 6.04. Mutilated, Destroyed, Lost or Stolen Certificates . . . . . . . . . . . . . . . . . . . . . . . . . 68
SECTION 6.05. Persons Deemed Owners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
SECTION 6.06. Appointment of Paying Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
SECTION 6.07. Access to List of Certificateholders' Names and Addresses . . . . . . . . . . . . . . . . . . . . . 69
SECTION 6.08. Authenticating Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
SECTION 6.09. New Issuances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
SECTION 6.10. Changes in Variable Funding Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
SECTION 6.11. Book-Entry Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
SECTION 6.12. Notices to Clearing Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
SECTION 6.13. Definitive Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
SECTION 6.14. Temporary Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
SECTION 6.15. CUSIP Number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
SECTION 6.16. Letter of Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
<CAPTION>
ARTICLE VII
OTHER MATTERS RELATING TO THE TRANSFEROR
<S> <C>
SECTION 7.01. Obligations not Assignable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
SECTION 7.02. Limitations on Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
SECTION 7.03. Indemnification of the Trustee, the Trust and the Investors . . . . . . . . . . . . . . . . . . . . 77
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<CAPTION>
ARTICLE VIII
OTHER MATTERS RELATING TO THE SERVICERS
<S> <C>
SECTION 8.01. Liability of the Servicers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
SECTION 8.02. Merger or Consolidation of, or Assumption of the Obligations of, the Servicers . . . . . . . . . . 80
SECTION 8.03. Limitations on Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
SECTION 8.04. Servicer Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
SECTION 8.05. The Servicers Not to Resign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
SECTION 8.06. Examination of Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
<CAPTION>
ARTICLE IX
EARLY AMORTIZATION EVENTS
<S> <C>
SECTION 9.01. Early Amortization Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
SECTION 9.02. Additional Rights Upon the Occurrence of any Early Amortization Event . . . . . . . . . . . . . . . 86
<CAPTION>
ARTICLE X
SERVICER DEFAULTS
<S> <C>
SECTION 10.01. Servicer Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
SECTION 10.02. Trustee to Act; Appointment of Successor Servicer . . . . . . . . . . . . . . . . . . . . . . . . . 91
SECTION 10.03. Notification to Certificateholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
<CAPTION>
ARTICLE XI
THE TRUSTEE
<S> <C>
SECTION 11.01. Duties of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
SECTION 11.02. Certain Matters Affecting the Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
SECTION 11.03. Trustee Not Liable for Recitals in Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . 96
SECTION 11.04. Trustee May Own Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
SECTION 11.05. Compensation; Trustee's Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
SECTION 11.06. Eligibility Requirements for Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
SECTION 11.07. Resignation or Removal of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
SECTION 11.08. Successor Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
SECTION 11.09. Merger or Consolidation of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
SECTION 11.10. Appointment of Co-Trustee or Separate Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
SECTION 11.11. Tax Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
</TABLE>
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<PAGE> 5
<TABLE>
<CAPTION>
ARTICLE XI (CONTINUED)
THE TRUSTEE
<S> <C>
SECTION 11.12. Trustee May Enforce Claims Without Possession of Certificates . . . . . . . . . . . . . . . . . . . 101
SECTION 11.13. Suits for Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
SECTION 11.14. Rights of Certificateholders to Direct Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . 102
SECTION 11.15. Representations and Warranties of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
SECTION 11.16. Maintenance of Office or Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
<CAPTION>
ARTICLE XII
TERMINATION
<S> <C>
SECTION 12.01. Termination of Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
SECTION 12.02. Final Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
SECTION 12.03. Transferor's Termination Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
SECTION 12.04. Optional Repurchase of Trust Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
<CAPTION>
ARTICLE XIII
MISCELLANEOUS PROVISIONS
<S> <C>
SECTION 13.01. Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106
SECTION 13.02. Protection of Right, Title and Interest to Trust. . . . . . . . . . . . . . . . . . . . . . . . . . 108
SECTION 13.03. Limitation on Rights of Certificateholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
SECTION 13.04. Governing Law; Jurisdiction; Consent to Service of Process . . . . . . . . . . . . . . . . . . . . 110
SECTION 13.05. Notices; Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
SECTION 13.06. Rule 144A Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
SECTION 13.07. Severability of Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
SECTION 13.08. Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
SECTION 13.09. Certificates Nonassessable and Fully Paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
SECTION 13.10. Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
SECTION 13.11. Nonpetition Covenant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
SECTION 13.12. No Waiver; Cumulative Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
SECTION 13.13. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
SECTION 13.14. Third-Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
SECTION 13.15. Actions by Investors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
SECTION 13.16. Merger and Integration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
SECTION 13.17. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
SECTION 13.18. Construction of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
</TABLE>
-iv-
<PAGE> 6
EXHIBITS
--------
Exhibit A Form of Transferor Revolving Certificate
Exhibit B Form of Daily Report
Exhibit C Form of Determination Date Certificate
Exhibit D Form of Annual Certificate of Servicer
Exhibit E Form of Collection Account Letter
SCHEDULES
---------
Schedule I List of Collection Accounts
Schedule II Credit and Collection Policy
Schedule III Locations of Receivables Records
-v-
<PAGE> 7
POOLING AND SERVICING AGREEMENT, dated as of ________, 1996
among CENTERIOR FUNDING CORPORATION ("CFC"), a Delaware corporation, as
Transferor (the "TRANSFEROR"), THE CLEVELAND ELECTRIC ILLUMINATING COMPANY, an
Ohio corporation ("CEI") and THE TOLEDO EDISON COMPANY, an Ohio corporation
("TE"), each as Servicer (collectively, the "SERVICERS" and individually, a
"SERVICER"), and CITIBANK, N.A., a national banking association, as Trustee
(the "TRUSTEE").
In consideration of the mutual agreements herein contained,
each party agrees as follows for the benefit of the other parties and the
Certificateholders to the extent provided herein:
ARTICLE I
DEFINITIONS
SECTION 1.01. DEFINITIONS. Whenever used in this Agreement,
the following words and phrases shall have the following meanings, and the
definitions of such terms are applicable to the singular as well as the plural
forms of such terms and to the masculine as well as to the feminine and neuter
genders of such terms.
"ACT" shall mean the Securities Act of 1933, as amended from
time to time.
"ADDITIONAL EARLY AMORTIZATION EVENT" shall mean, with respect
to any Series, any Additional Early Amortization Events specified in the
related Supplement.
"AFFILIATE" shall mean, 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.
"AGREEMENT" shall mean this Pooling and Servicing Agreement,
as the same may from time to time be amended, modified
<PAGE> 8
or otherwise supplemented, including, with respect to any Series or Class, the
related Supplement.
"AGGREGATE INVESTED AMOUNT" shall mean the aggregate of the
Invested Amounts for all Series.
"AGGREGATE INVESTORS' INTEREST" shall mean the aggregate of
the Investors' Interests for each Series as defined in Section 4.01(a).
"ALLOCATED INELIGIBLE PERCENTAGE" shall mean, as calculated by
the Master Servicer in each Daily Report for the immediately preceding Business
Day, a fraction (expressed as a percentage) equal to the following:
AIP = PDU + AIR
------- -----
ATR ABR
where:
AIP = the Allocated Ineligible Percentage;
PDU = that portion of total revenues for the
immediately preceding 30-day period (the "PIP
Dollar Usage") which is allocated to PIP
Receivables, as such portion was calculated
in the most recent Daily Report (such
calculation to be made no less frequently
than twice per month at approximately equal
intervals);
ATR = the aggregate dollar amount of total revenues
for the immediately preceding 30-day
period, as calculated in the most recent
Daily Report (such calculation to be made
no less frequently than twice per month
at approximately equal intervals);
AIR = the aggregate Outstanding Balance of Billed
Receivables the Obligors of which are not
Eligible Obligors, as calculated in such
Daily Report; and
ABR = the aggregate Outstanding Balance of total
Billed Receivables, as calculated in such
Daily Report.
"AMORTIZATION DATE" shall mean, with respect to any Series the
earlier of (x) the Scheduled Amortization Date for such related Series and (y)
the date on which an Early Amortization Event is deemed to have occurred, in
each case unless otherwise specified in the applicable Supplement. The
-2-
<PAGE> 9
Amortization Date for any Series shall cause an Amortization Date for all
Series to occur.
"AMORTIZATION PERIOD" shall mean, with respect to all Series,
the period beginning on the Amortization Date for any Series, and ending upon
the payment in full to the Investors of all such Series of the Aggregate
Invested Amount with respect to such Series, all accrued and unpaid interest
thereon and all other amounts owed to the Investors hereunder and under the
applicable Supplement.
"BASE AMOUNT" shall mean the Net Receivables Balance MINUS the
sum of (i) the Carrying Cost Reserve and (ii) the aggregate of the Required
Reserves for all outstanding Series.
"BILLED RECEIVABLE" shall mean a Receivable which represents a
bona fide enforceable obligation for the provision of electricity to an Obligor
that is evidenced by an invoice of the applicable Originator.
"BOOK-ENTRY CERTIFICATES" shall mean any Certificates issued
in Book-Entry Form unless and until Definitive Certificates are issued to the
Holders thereof in accordance with SECTION 6.13 and the applicable Supplement.
"BOOK-ENTRY FORM" shall mean with respect to any Investor
Certificates or Series of Investor Certificates, that such Certificates or
Series are not certificated and the ownership and transfers thereof shall be
made through the book entries by a Clearing Agency as described in SECTION 6.11
and the applicable Supplement.
"BUDGET/BALANCED BILLING PAYMENT PLAN" shall mean the budget
or balanced billing payment plan provided by the Originators to certain
Obligors.
"BUSINESS DAY" shall mean 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 Corporate Trust Office is located are authorized or obligated by
law, executive order or governmental decree to be closed.
"CARRYING COST ACCOUNT" shall have the meaning specified in
SECTION 4.02(a).
"CARRYING COST AMOUNT" shall mean, as of any date of
determination, the sum of (i) all accrued but unpaid Carrying Costs due as of
such date, (ii) all fees, costs and expenses owed to the Trustee and/or the
Investors as of such date and (iii) all Carrying Costs that will, or are
estimated to, be due and owing
-3-
<PAGE> 10
on or before the next two Distribution Dates for any Collection Period;
PROVIDED, however, that if the Servicers subcontract or otherwise modify their
collection procedures so that Collections no longer pass through the initial
Servicers' processing departments prior to being deposited into the Trust
Accounts, then the amount described in this clause (iii) shall be limited to
the Carrying Costs that will, or are estimated to, be due and owing on or
before the next Distribution Date for any Collection Period.
"CARRYING COST RESERVE" shall mean the aggregate of the
"Carrying Cost Reserves" set forth in each Supplement.
"CARRYING COSTS" shall mean, for any Collection Period, (a)
all Yield payable on the Investor Certificates of any Series, (b) the Servicing
Fee for such period, (c) the Trustee's Fee for such Period and (d) any other
fees, costs and expenses which are entitled under SECTION 4.03 to priority of
payment over the Invested Amounts of any Series during the Amortization Period.
"CENTERIOR" shall mean Centerior Energy Corporation, an Ohio
corporation.
"CERTIFICATE" shall mean any one of the Investor Certificates
or the Transferor Revolving Certificate.
"CERTIFICATE RATE" shall mean, with respect to any Series or
Class, the certificate rate specified therefor in the related Supplement.
"CERTIFICATE REGISTER" shall have the meaning specified in
SECTION 6.03(a).
"CERTIFICATEHOLDERS" shall mean all Holders of all the
Certificates.
"CLAIM" shall mean a "claim" as defined in Section 101(5) of
the United States Bankruptcy Code.
"CLASS" shall mean, with respect to any Series divided into
classes, any one of the classes of Investor Certificates of that Series.
"CLASS ALLOCATION PERCENTAGE" shall mean, with respect to any
Class, the percentage equivalent of a fraction, the numerator of which is the
Ratable Principal Amount for such Class and the denominator of which is the sum
of such Ratable Principal Amount and the Ratable Principal Amounts for all
other Investor Certificates of equal priority with such Class at such time.
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"CLEARING AGENCY" shall mean an organization registered as a
"clearing agency" pursuant to Section 17A of the Securities Exchange Act of
1934, as amended.
"CLEARING AGENCY PARTICIPANT" shall mean a broker, dealer,
bank, other financial institution or other Person for whom from time to time a
Clearing Agency effects book-entry transfers and pledges of securities
deposited with the Clearing Agency.
"CLOSING DATE" shall mean, with respect to any Series, the
Closing Date specified in the related Supplement.
"COLLECTION ACCOUNT" shall have the meaning specified in
SECTION 4.02(b).
"COLLECTION ACCOUNT BANK" shall have the meaning specified in
SECTION 4.02(b).
"COLLECTION ACCOUNT LETTER" shall have the meaning specified
in SECTION 4.02(b).
"COLLECTION PERIOD" shall mean, with respect to any
Distribution Date, the calendar month (or, in the case of the calendar month in
which any Closing Date occurs, the portion of such calendar month following the
Closing Date) immediately preceding the calendar month in which such
Distribution Date occurs.
"COLLECTIONS" shall mean (a) all payments by or on behalf of
the Obligors deposited to any Collection Account or Concentration Account, or
received by a Servicer, in respect of Transferor Receivables, in the form of
cash, checks, wire transfers, electronic transfers or any other form of cash
payment, and (b) all interest and other investment earnings (net of losses and
investment expenses) on Collections (including without limitation funds on
deposit in the Reserve Account) as a result of the investment thereof pursuant
to SECTION 4.02.
"CONCENTRATION ACCOUNT" shall have the meaning specified in
SECTION 4.02(a).
"CONCENTRATION ACCOUNT BANK" shall initially be the Trustee,
and shall have the meaning specified in SECTION 4.02(a).
"CONFIDENTIAL INFORMATION" shall mean, in relation to any
Person, any written information delivered or made available by or on behalf of
Centerior, any Affiliates or subsidiaries thereof (including the Originators)
or the Transferor to such Person in connection with or pursuant to this
Agreement or the transactions contemplated hereby which is proprietary in
nature,
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other than information (i) which was publicly known, or otherwise known to such
Person, at the time of disclosure (except pursuant to disclosure in connection
with this Agreement or otherwise previously provided by Centerior or an
Originator on a confidential basis), (ii) which subsequently becomes publicly
known through no act or omission by such Person, or (iii) which otherwise
becomes known to such Person other than through disclosure by Centerior, any
Originator or the Transferor.
"CONSOLIDATED AFFILIATE" shall mean, (i) as to any Obligor
included in the twenty-six Obligors with the largest Outstanding Balance of
Billed Receivables as of the end of the most recent Collection Period, any
other Person whose financial statements should, under generally accepted
accounting principles, be consolidated with the financial statements of such
Obligor; (ii) as to any Obligor, any other Person recognized in the Servicers'
accounting records as a Person whose financial statements should, under
generally accepted accounting principles, be consolidated with the financial
statements of such Obligor; and (iii) as to each of Centerior, the Originators
and the Transferor, any other Person whose financial statements should, under
generally accepted accounting principles, be consolidated with the financial
statements of Centerior, such Originator or the Transferor, as applicable.
"CONTRACT" shall mean 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 each case pursuant to or under which such Obligor shall be
obligated to pay from time to time for electric service and the other charges
related thereto.
"CORPORATE TRUST OFFICE" shall have the meaning specified in
SECTION 11.16.
"CREDIT AND COLLECTION POLICY" shall mean those credit and
collection policies and practices of the Originators described in their
respective credit policy manuals in effect on the date hereof relating to
Receivables, as the same may be amended or modified from time to time in
compliance with SECTION 3.04(j).
"CURE FUNDS" shall have the meaning specified in the
definition of the term "Set-Aside Period" contained in this SECTION 1.01.
"DAILY REPORT" shall have the meaning specified in SECTION
3.05(a).
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"DEFAULTED RECEIVABLE" shall mean a Receivable: (i) as to
which the Obligor thereof has taken any action, or suffered any event to occur,
of the type constituting an Insolvency Event, (ii) as to which any payment, or
part thereof, has remained unpaid by the Obligor thereof for 90 days or more
from the original invoice date for such payment, or (iii) which, consistent
with the applicable Credit and Collection Policy, would be written off as
uncollectible.
"DEFEASANCE ACCOUNT" shall have the meaning specified in
SECTION 4.02(a).
"DEFERRED ARRANGEMENT PAYMENT PLAN" shall mean the deferred
billing arrangement plan provided by the Originators to certain Obligors with
past-due balances on the Receivables.
"DEFERRED ARRANGEMENT PAYMENT PLAN RECEIVABLES" shall mean all
Receivables representing the restructured delinquent balance of any previously
Delinquent or Defaulted Receivable as provided for under the Deferred
Arrangement Payment Plan.
"DEFERRED PAYMENT RIGHT" shall have the meaning specified in
SECTION 4.01(c).
"DEFINITIVE CERTIFICATES" shall have the meaning specified in
SECTION 6.11.
"DELINQUENT RECEIVABLE" shall mean a Receivable which is not a
Defaulted Receivable and the Outstanding Balance of which has remained unpaid
for 60 days or more after its original invoice date.
"DETERMINATION DATE" shall mean, with respect to any
Distribution Date, the second Business Day preceding such Distribution Date.
"DETERMINATION DATE CERTIFICATE" shall have the meaning
specified in SECTION 3.05(b).
"DILUTED RECEIVABLE" shall mean, 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).
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"DISTRIBUTION DATE" shall mean, with respect to any Collection
Period, the fifteenth day of the calendar month immediately following the end
of such Collection Period, or, if such day is not a Business Day, the next
succeeding Business Day, or, with respect to any Series, such other day as may
be set forth in the applicable Supplement.
"EARLY AMORTIZATION EVENT" shall have the meaning specified in
SECTION 9.01 and with respect to any Series shall also mean any Additional
Early Amortization Event specified in the related Supplement.
"ELIGIBLE INSTITUTION" shall mean 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 long-term
unsecured debt rating of at least A3 or better 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-2 by
S&P.
"ELIGIBLE INVESTMENTS" shall mean 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 Transfer
Date for any Series);
(b) demand deposits, time deposits or certificates of
deposit (having original maturities no later than the next Transfer
Date for any Series) 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 Transfer Date for any Series) having, at the time of the
Trust's investment or contractual commitment
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to invest therein, the highest short-term rating from S&P and Moody's;
(d) investments in money market funds (which may be 12b-1
funds, as contemplated under the rules promulgated by the Securities
and Exchange Commission under the Investment Company Act of 1940)
having a rating of AAA-m or AAAM-G from S&P and Aaa from Moody's
(including funds for which the Trustee or any of its Affiliates acts
as an investment adviser or manager);
(e) notes or bankers' acceptances (having original
maturities no later than the next Transfer Date for any Series) issued
by any depository institution or trust company referred to 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.
"ELIGIBLE OBLIGOR" shall mean an Obligor:
(i) which is not an Affiliate of Centerior or of either
Originator;
(ii) which is a United States resident;
(iii) which, as of the end of the most recent Collection
Period, was not the subject of any voluntary or involuntary bankruptcy
proceedings;
(iv) with respect to which, as of the end of the most
recent Collection Period, no more than 35% of all Receivables of such
Obligor and its Consolidated Affiliates were (for reasons other than
disputes) aged more than 89 days past their respective invoice dates;
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(v) with respect to which, as of the end of the most
recent Collection Period, none of the past due Receivables of such
Obligor had been evidenced by promissory notes; and
(vi) which is not a Governmental Authority.
"ELIGIBLE RECEIVABLE" shall mean each Transferor Receivable or
portion thereof:
(i) the Obligor of which is an Eligible Obligor;
(ii) as to which, at the time of the Transfer of such
Receivable to the Trust, the Transferor or the Trust will have good
and marketable title thereto free and clear from Liens except as
created hereunder, and which has been the subject of either a valid
transfer and assignment from the Transferor to the Trust of all the
Transferor's right, title and interest therein (and in the proceeds
thereof), or the grant of a first priority perfected "security
interest" (within the meaning of the UCC of the jurisdiction the law
of which governs the perfection of the interest in such Receivable
created hereunder) therein (and in the proceeds thereof);
(iii) which is not a Defaulted Receivable or a Delinquent
Receivable;
(iv) which is (or, in the case of an Unbilled Receivable,
will be) required to be paid in full within 31 days from the original
billing date;
(v) which is (or, in the case of an Unbilled Receivable,
will be) denominated and payable only in United States dollars in the
United States;
(vi) which arose in the ordinary course of business of an
Originator from a sale of electricity or electric power by or on
behalf of such Originator;
(vii) which will at all times be the bona fide, legal and
assignable payment obligation of the Obligor of such Receivable,
enforceable against such Obligor in accordance with its terms except
as such enforceability may be limited by applicable bankruptcy,
reorganization, insolvency, moratorium or other laws affecting
creditors' rights generally, and except as such enforceability may be
limited by general principles of equity (whether considered in a suit
at law or in equity);
(viii) which was created in compliance with, and which, at
the time of the Transfer of such Receivable to the Trust,
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does not contravene in any material respect any applicable
Requirements of Law;
(ix) which complies in all material respects with all
material requirements of the applicable Credit and Collection Policy
including, without limitation, payment terms that conform to the
provisions of such Credit and Collection Policy;
(x) 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; and
(xi) 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;
(xii) 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;
(xiii) which is an "account" (within the meaning of Section
9-106 of the UCC of the jurisdiction the law of which governs the
perfection of the interest in such Receivable created hereunder);
(xiv) 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,
offset, defense or other factor described in the definition of Diluted
Receivable;
(xv) which is not subject to any enforceable provision
prohibiting the transfer or assignment by the applicable Originator of
such payment obligation;
(xvi) which is not a PIP Receivable; and
(xvii) which is not a Deferred Arrangement Payment Plan
Receivable.
Notwithstanding the foregoing, for purposes of calculating the
Net Receivables Balance, the aggregate Outstanding Balance of Unbilled
Receivables which do not
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constitute Eligible Receivables shall be deemed to be the Allocated Ineligible
Percentage of the total Unbilled Receivables, as calculated in the applicable
Daily Report.
"ELIGIBLE SERVICER" shall mean each Originator, the Trustee or
an entity which, at the time of its appointment as Servicer, (a) is servicing a
portfolio of trade receivables, (b) is legally qualified and has the capacity
to service the Receivables and (c) has demonstrated the ability to
professionally and competently service a portfolio of similar trade receivables
with high standards of skill and care.
"ENHANCEMENT" shall mean the rights and benefits provided to
the Investors of any Series or Class pursuant to any letter of credit, surety
bond, cash collateral account, spread account, guaranteed rate agreement,
maturity liquidity facility, tax protection agreement, interest rate swap
agreement or other similar arrangement. The subordination of any Series or
Class to any other Series or Class or of the Deferred Payment Right to any
Series or Class shall not be deemed to be an Enhancement.
"ENHANCEMENT AGREEMENT" shall mean any agreement, instrument
or document governing the terms of any Enhancement of any Series or pursuant to
which any Enhancement of any Series is issued or outstanding.
"ENHANCEMENT PROVIDER" shall mean the Person providing any
Enhancement.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended from time to time.
"ERISA AFFILIATE" shall mean, as to any Person, any
partnership, trade or business (whether or not incorporated) which, together
with such Person, is treated as a single employer within the meaning of Section
414(b), (c), (m) or (o) of the Internal Revenue Code.
"EXCESS CONCENTRATION BALANCES" shall mean, with respect to
any Obligor, the amount of otherwise Eligible Receivables due from such Obligor
and (without duplication) its Consolidated Affiliates which, expressed as a
percentage of the
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amount of all Eligible Receivables, exceeds the percentage set forth below for
the applicable category of Obligors:
Minimum Rating
--------------
S&P Moody's Percentage
--- ------- ----------
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 Baa1 4.0%
A-3 or BBB- P-3 or Baa3 3.0%
Not rated/other Not rated/other 1.5%
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.
"EXPECTED FINAL PAYMENT DATE" with respect to any Series shall
have the meaning specified in the related Supplement.
"FDIC" shall mean the Federal Deposit Insurance Corporation or
any successor.
"FINAL SCHEDULED PAYMENT DATE" shall mean that Distribution
Date which occurs twelve months after the Amortization Date.
"FLOATING ALLOCATION PERCENTAGE" with respect to all
outstanding Series, shall mean the percentage equivalent of a fraction, (a) the
numerator of which equals the sum of (i) the Net Invested Amount PLUS (ii) the
Carrying Cost Reserve and (b) the denominator of which equals the sum of (i)
the Net Receivables Balance MINUS (ii) the aggregate of the Required Reserves
for all Series computed without duplication as provided in the applicable
Supplements.
"GLOBAL CERTIFICATE" shall mean an Investor Certificate
evidencing all or any part of a Series to be issued in Book-Entry Form, which
Global Certificate shall be issued to the Clearing Agency for such Series or
its nominee in accordance with SECTION 6.11 and the applicable Supplement
pursuant to which such Certificate is issued.
"GOVERNMENTAL AUTHORITY" shall mean any country or nation, any
political subdivision, state or municipality of such country or nation, and any
entity exercising executive,
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<PAGE> 20
legislative, judicial, regulatory or administrative functions of or pertaining
to government of any country or nation or political subdivision thereof.
"HOLDER" shall mean, with respect to any Certificate, the
Person in whose name such Certificate is registered in the Certificate
Register.
"INDEMNIFIED AMOUNTS" shall have the meaning specified in
SECTION 7.03.
"INDEMNIFIED PARTY" shall have the meaning specified in
SECTION 7.03.
"INDEPENDENT PUBLIC ACCOUNTANTS" shall mean any of (a) Arthur
Andersen LLP, (b) Deloitte & Touche, (c) Coopers & Lybrand, (d) Ernst & Young,
(e) KPMG Peat Marwick and (f) Price Waterhouse LLP or any of their successors
so long as such successor is one of the six largest national accounting firms,
provided, that such firm is independent with respect to the Servicers within
the meaning of the Act.
"INITIAL INVESTED AMOUNT" shall mean, with respect to any
Series or Class and for any date, an amount equal to the initial invested
amount or amounts specified in the related Supplement.
"INSOLVENCY EVENT" shall mean, with respect to a specified
Person, (a) the filing of a decree or order for relief by a court having
jurisdiction in the premises in respect of such Person or any substantial part
of its property in an involuntary case under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, or the appointing
of a receiver, liquidator, assignee, custodian, trustee, sequestrator or
similar official for such Person or for any substantial part of its property,
or the ordering of the winding-up or liquidation of such Person's business,
and, other than in a case in which such proceeding was instituted by an
Affiliate of such Person, such decree or order shall remain unstayed and in
effect for a period of 60 consecutive days; or (b) the commencement by such
Person of a voluntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, or the consent by such Person to the
entry of an order for relief in an involuntary case under any such law, or the
consent by such Person to the appointment of or taking possession by a
receiver, liquidator, assignee, custodian, trustee, sequestrator or similar
official for such Person or for any substantial part of its property, or the
making by such Person of any general assignment for the benefit of creditors.
"INTEREST PERIOD" shall mean, unless otherwise specified in
the Supplement relating to any Series, with respect to any
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Distribution Date for such 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.
"INTERNAL REVENUE CODE" shall mean the Internal Revenue Code
of 1986, as amended from time to time.
"INVESTED AMOUNT" shall mean, with respect to any Series or
Class and for any date, an amount equal to the invested amount or amounts
determined as provided in the related Supplement.
"INVESTMENT COMPANY ACT" shall mean the Investment Company Act
of 1940, as amended from time to time.
"INVESTOR CERTIFICATE" shall mean any one of the certificates
executed by the Transferor and authenticated by or on behalf of the Trustee, in
substantially the form attached to the related Supplement, other than the
Transferor Revolving Certificate.
"INVESTOR" shall mean the Person in whose name an Investor
Certificate is registered in the Certificate Register.
"INVESTORS' INTEREST" shall have the meaning specified in
SECTION 4.01(a).
"LETTER OF REPRESENTATIONS" shall mean any applicable
agreement among the Transferor, the Trustee and the applicable Clearing Agency
with respect to such Clearing Agency's rights and obligations with respect to
any Book-Entry Certificates, as the same may be amended, supplemented, restated
or otherwise modified from time to time.
"LIEN" shall mean any mortgage, deed of trust, pledge,
hypothecation, assignment, encumbrance, lien (statutory or other and including
a Lien created by the PBGC), preference, participation interest, priority or
other security agreement or preferential arrangement of any kind or nature
whatsoever resulting in an encumbrance against real or personal property of a
Person, including, without limitation, any conditional sale or other title
retention agreement, any financing lease having substantially the same economic
effect as any of the foregoing and the filing of any financing statement under
the UCC or comparable law of any jurisdiction to evidence any of the foregoing.
"MAJORITY IN INTEREST" shall mean with respect to each Series
the Holders of Certificates evidencing 51% or more of the Invested Amount of
such outstanding Series.
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"MAJORITY INVESTORS" shall mean Investors holding Certificates
evidencing 51% or more of the Aggregate Investors' Interest; PROVIDED that if
at any time the aggregate Invested Amount for all Subordinated Classes is
greater than the aggregate Invested Amount for all Senior Classes, then
"Majority Investors" at such time shall mean Investors holding Certificates
evidencing both (i) 51% or more of the Aggregate Investors' Interest and (ii)
51% or more of the aggregate Invested Amount for all Senior Classes.
"MASTER SERVICER" shall mean 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.
"MOODY'S" shall mean Moody's Investors Service, Inc. or its
successor.
"MULTIEMPLOYER PLAN" shall mean a "multiemployer plan" as
defined in Section 4001(a)(3) of ERISA to which either Originator or an ERISA
Affiliate of either of them is making, is obligated to make or has within the
last six years made or been obligated to make contributions on behalf of
participants who are or were employed by any such entity.
"NET INVESTED AMOUNT" shall mean 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 Certificates.
"NET RECEIVABLES BALANCE" shall mean at any time the excess of
(a) the aggregate Outstanding Balances of Eligible Receivables over (b) the
Excess Concentration Balances at such time. For purposes of calculating the
Net Receivables Balance, the aggregate Outstanding Balances of Eligible
Receivables shall be calculated as if reduced by the aggregate amount of (i)
Collections received and security deposits held that have not been applied to
any corresponding Receivables on the records of the Servicers and (ii) all
credit balances in favor of Obligors which are outstanding under the
Originators' Budget/Balanced Billing Payment Plan; (iii) the cumulative dollar
portion of Receivables which portion, under applicable law, may be rescinded or
revoked by any Governmental Authority in connection with any contingent
approval for any rate increase; and (iv) unless the Servicers have
subcontracted or otherwise modified their collection procedures so that
Collections (including instruments representing Collections) no longer pass
through the initial Servicers' processing departments prior to
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<PAGE> 23
being deposited into the Trust Accounts, a dollar amount equal to .25% of the
amount otherwise calculated above.
"NOTICES" shall have the meaning specified in SECTION
13.05(A).
"OBLIGOR" shall mean each Person who is obligated to pay for
goods or services provided by an Originator which gave rise to a Transferor
Receivable, including any guarantor of such Person's obligations.
"OFFICER'S CERTIFICATE" shall mean, unless otherwise specified
in this Agreement, a certificate signed by the President, any Vice President,
the Chief Financial Officer, the Treasurer or Controller, the Assistant
Treasurer or the Secretary or Assistant Secretary of the Transferor, or of a
Servicer, or of any Successor Servicer, as the case may be, and delivered to
the Trustee.
"OPINION OF COUNSEL" shall mean a written opinion, in form and
substance reasonably satisfactory to the Trustee and from counsel reasonably
satisfactory to the Trustee, which counsel, except where this Agreement
otherwise provides, may be counsel for, or an employee of, either the Person
providing such opinion or an Affiliate of such Person.
"ORIGINATORS" shall mean each of CEI and TE, together with
their permitted successors and assigns under the Receivables Purchase
Agreement.
"OUTSTANDING BALANCE" of any Receivable at any time shall mean
the then outstanding principal balance thereof.
"PAYING AGENT" shall mean any paying agent appointed pursuant
to SECTION 6.06.
"PBGC" shall mean the Pension Benefit Guaranty Corporation, or
any other Governmental Authority succeeding to the functions thereof.
"PERMITTED LIENS" shall mean (i) Liens for taxes, assessments
or charges of any Governmental Authority or Liens of landlords, carriers,
warehousemen, mechanics and materialmen imposed by law and created in the
ordinary course of business, which, in either such case, are for amounts not
yet due or for amounts which are being contested in good faith by appropriate
proceedings and with respect to which adequate reserves or other appropriate
provisions are being maintained in accordance with generally accepted
accounting principles and (ii) any Liens of a collecting bank arising by
operation of law under Section 4-210 of the UCC.
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"PERSON" shall mean 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" shall mean any Receivable owed by an Obligor
which fulfills the conditions for inclusion in an Originator's "Percentage of
Income Payment" program for low income Obligors.
"PLAN" shall mean any plan, program, arrangement, agreement,
practice or contract that provides or is intended to provide benefits or
compensation to or on behalf of one or more employees or former employees of
either Originator or an ERISA Affiliate of either of them, whether formal or
informal, whether or not written, including, but not limited to, any employee
benefit plan as defined in Section 3(3) of ERISA, any employee pension benefit
plan and any retiree welfare plan.
"POOL RECEIVABLES" shall mean, 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.
"PREPAYMENT PREMIUM" with respect to any Series, shall have
the meaning specified in the related Supplement, if applicable.
"PRINCIPAL TERMS" shall mean, 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, if any,
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; (j) the Scheduled Amortization Date and (k) if
such Series is designated as a Series of Variable Funding Certificates, the
Termination Date for such Series.
"PUCO" shall mean the Public Utilities Commission of Ohio.
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"PURCHASE PRICE" shall have the meaning specified in the
Receivables Purchase Agreement.
"QUALIFIED SALE AGENT" shall mean (i) a nationally recognized
investment bank, (ii) a nationally recognized commercial bank or (iii) any
other reputable institution whose regular business includes the sale of
receivables portfolios.
"RATABLE PRINCIPAL AMOUNT" shall mean, as to any Series of
Investor Certificates or the Transferor Revolving Certificate, the outstanding
Invested 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
Invested 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 Invested Amount.
"RATING AGENCY" shall mean each nationally recognized rating
agency which, at the request of the Transferor, has rated any Series or Class
of Certificates, as set forth in the related Supplement.
"RATING AGENCY CONDITION" shall mean, with respect to any
action, that each Rating Agency, upon the written request of the Transferor,
the Servicers or the Trustee, shall have notified such parties in writing that
such action in and of itself will not result in a reduction or withdrawal of
the rating of any outstanding Series or Class with respect to which it is a
Rating Agency.
"RECEIVABLE" shall mean an account receivable shown on the
records of either Originator as of the initial Series Cut-Off Date, and from
time to time thereafter, arising from the sale of electricity by an Originator
in the ordinary course of its business and shall include, without limitation,
all monies due or to become due and all Collections and other amounts received
from time to time with respect to such account receivable and all proceeds
(including, without limitation, "proceeds" as defined in the UCC of the
jurisdiction the law of which governs the perfection of the interest on the
Receivables transferred hereunder) thereof; PROVIDED, HOWEVER, that the term
"Receivable" shall not include any accounts receivable (i) that are due from
any Consolidated Affiliates of Centerior or of either Originator; (ii) arising
from wholesale electricity sales to other utilities or parties in the business
of providing electric power; or (iii) that are due from any Obligors located
outside the United States.
"RECEIVABLES PURCHASE AGREEMENT" shall mean the agreement
between the Originators and the Transferor, dated as of the date hereof,
governing the terms and conditions upon which the
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Transferor shall have acquired the Receivables transferred to the Trust on the
initial Closing Date and all Receivables to be transferred to the Trust from
time to time thereafter, as the same may from time to time be amended, modified
or otherwise supplemented.
"RECORD DATE" shall mean, with respect to any Distribution
Date, the last day of the preceding calendar month.
"RELATED SECURITY" shall mean, with respect to any Receivable:
(i) all of the Transferor's rights under the related Contracts;
(ii) all guarantees, indemnities, warranties, chattel paper,
insurance policies and proceeds and security agreements and
other agreements or arrangements of whatever character from
time to time supporting or securing payment of such Receivable
whether pursuant to the Contract related to such Receivable or
otherwise; and
(iii) all of the Transferor's right, title and interest to and
rights under the Receivables Purchase Agreement; and
(iv) all proceeds of the foregoing.
"REPORTABLE EVENT" shall mean any of the reportable events set
forth in Section 4043(b) of ERISA and the regulations issued from time to time
thereunder (other than a reportable event not subject to the provisions for
30-day notice to the PBGC under such regulations).
"REQUIRED RESERVES" shall mean, with respect to any Series,
the amount set forth in the related Supplement.
"REQUIREMENTS OF LAW" shall mean any law, treaty, rule or
regulation, final determination of an arbitrator or Governmental Authority, or
order of any judicial authority, and, when used with respect to any Person, the
certificate of incorporation and by-laws or other organizational or governing
documents of such Person.
"RESERVE ACCOUNT" shall have the meaning specified in SECTION
4.02.
"RESPONSIBLE OFFICER" shall mean, (i) when used with respect
to the Trustee, any officer within the corporate trust department of the
Trustee including any vice president, assistant vice president, senior trust
officer, trust officer or any other officer of the Trustee who customarily
performs functions similar to those performed by the persons who at the time
shall be such
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officers, respectively, or to whom any corporate trust matter is referred
because of such officer's knowledge of and familiarity with the particular
subject and (ii) when used with respect to the Transferor or a Servicer, any of
the President, Chief Executive Officer, Vice President, Secretary, Assistant
Secretary, Treasurer, Assistant Treasurer or Chief Financial Officer of such
Person.
"REVOLVING PERIOD" shall mean the period from the initial
Closing Date until the Amortization Date.
"S&P" shall mean Standard & Poor's Ratings Services, a
division of The McGraw-Hill Companies, Inc., or its successor.
"SCHEDULED AMORTIZATION DATE" shall mean, with respect to any
Series, the date set forth in the related Supplement.
"SENIOR CLASS" shall mean any Class of Investor Certificates
which is designated as a "Senior Class" in the applicable Supplement.
"SERIES" shall mean any series of Investor Certificates.
"SERIES ACCOUNT" shall mean any deposit, trust, escrow,
reserve or similar account maintained for the benefit of the Investors of any
Series or Class, as specified in any Supplement and including, with respect to
any Series or Class, any Defeasance Accounts maintained for the benefit of the
applicable Investors.
"SERIES CUT-OFF DATE" shall mean, with respect to any Series,
the date specified as such in the related Supplement.
"SERVICE TRANSFER" shall have the meaning specified in
SECTION 10.01.
"SERVICER" shall mean, at any time, each Person which is
authorized to act as Servicer under SECTION 3.01 to administer, collect and
service the Receivables, including any Successor Servicer appointed pursuant to
SECTION 10.01 and, so long as more than one Servicer is so authorized,
"SERVICERS" shall mean all such Servicers. All references to any Servicer
shall mean and include the applicable Servicer when performing any servicing
functions delegated, for reasons of administrative convenience, to the Master
Servicer.
"SERVICER COLLECTION ACCOUNT" shall have the meaning
specified in SECTION 4.02(B).
"SERVICER DEFAULT" shall have the meaning specified in SECTION
10.01.
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"SERVICING FEE" shall have the meaning specified in SECTION
3.02(A).
"SERVICING OFFICER" shall mean any officer, employee or other
agent of a Servicer who in any case is involved in, or responsible for, the
administration and servicing of the Receivables and whose name appears on a
list of servicing officers furnished to the Trustee by such Servicer, as such
list may from time to time be amended.
"SET-ASIDE PERIOD" shall mean the period beginning on any
Business Day on which the Base Amount is less than the Net Invested Amount if
the Transferor shall begin depositing Collections or funds to the Reserve
Account on the day collected (all such funds so deposited from time to time by
the Transferor being "CURE FUNDS"), and continuing until the earlier of (a) the
date on which the Net Invested Amount is less than or equal to the Base Amount
and (b) the fifth consecutive Business Day on which the Base Amount is less
than the Net Invested 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 Majority Investors.
"STATED AMOUNT" shall mean, 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" shall mean any Class of Investor
Certificates which is designated as a Subordinated Class in the applicable
Supplement.
"SUCCESSOR SERVICER" shall have the meaning specified in
SECTION 10.02(A).
"SUPPLEMENT" shall mean, with respect to any Series, a
supplement to this Agreement, executed and delivered in connection with the
original issuance of the Investor Certificates of such Series pursuant to
Article VI, and all amendments, modifications or supplements to this Agreement.
"TAX OPINION" shall mean, with respect to any action, an
Opinion of Counsel who is not an employee of Centerior or any Affiliate thereof
to the effect that, for federal and Ohio (and any other State where substantial
servicing activities in respect of Receivables are conducted by the Transferor
or the Servicers if there is a substantial change from present servicing
activities)
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<PAGE> 29
state income and franchise tax purposes, (a) such action will not adversely
affect the characterization of the Investor Certificates of any outstanding
Series or Class as debt, (b) following such action the Trust should not be
subject to federal income tax, and (c) in the case of the original issuance of
Certificates and any New Issuance, the Investor Certificates being issued
thereby should properly be characterized as debt of the Transferor (or as a
partnership interest).
"TERMINATION DATE" shall mean, with respect to any Series of
Variable Funding Certificates, the termination date specified in the related
Supplement.
"TERMINATION NOTICE" shall have the meaning specified in
SECTION 10.01.
"TRANSFER" shall have the meanings specified in SECTION 2.01,
it being understood that the date of Transfer of any Receivable or other Trust
Asset shall be the date on which such Receivable or other Trust Asset shall be
created or otherwise arise and, in the case of such Receivable, be acquired by
the Transferor under the Receivables Purchase Agreement.
"TRANSFER AGENT AND REGISTRAR" shall have the meaning
specified in SECTION 6.03.
"TRANSFER DATE" for any Series shall mean the Business Day
immediately preceding a Distribution Date for such Series, or, if the last day
of an Interest Period for such Series is other than a Distribution Date, the
Business Day immediately preceding such last day of such Interest Period.
"TRANSFEROR" shall mean Centerior Funding Corporation, a
Delaware special purpose corporation.
"TRANSFEROR COLLECTION ACCOUNT" shall have the meaning
specified in SECTION 4.02(b).
"TRANSFEROR COLLECTIONS" shall mean, with respect to any date,
that portion of the Collections deposited to the Concentration Account equal to
the product of (i) the Transferor Percentage on such date times (ii) the
aggregate amount of such Collections.
"TRANSFEROR INTEREST" shall have the meaning specified in
SECTION 4.01(a).
"TRANSFEROR PERCENTAGE" shall mean at any time 100% minus the
Floating Allocation Percentage at such time.
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"TRANSFEROR RECEIVABLE" shall mean a Receivable acquired by
the Transferor pursuant to the Receivables Purchase Agreement.
"TRANSFEROR REVOLVING CERTIFICATE" shall mean the certificate
executed by the Transferor and authenticated by or on behalf of the Trustee, in
substantially the form of EXHIBIT A hereto.
"TRANSFEROR'S ACCOUNT" shall mean the special account under
the dominion and control of the Transferor, for deposits by the Servicers of
funds allocable to the Transferor, maintained at such bank as the Transferor
may designate for such purpose from time to time.
"TRUST" shall mean the Centerior Energy Receivables Master
Trust created by this Agreement.
"TRUST ACCOUNTS" shall mean the Concentration Account, the
Reserve Account, the Carrying Cost Account, each Defeasance Account and any
other Series Account established pursuant to the terms of any Supplement.
"TRUST ASSETS" shall have the meaning specified in SECTION
2.01.
"TRUSTEE" shall mean Citibank, N.A., a national banking
association, in its capacity as trustee on behalf of the Trust, or its
successor in interest, or any successor trustee appointed as herein provided.
"TRUSTEE'S FEE" shall have the meaning specified in SECTION
11.05.
"TURNOVER DAYS" shall mean, as of each Determination Date
until (but not including), the next Determination Date, the average number of
days outstanding for Receivables during the prior Collection Period as
calculated by the Master Servicer in each Determination Date Certificate in
accordance with the following formula:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
TD = AOB to the X power + AOB to the Y power times ED
--------------------------------------- ----
2 BR
TD = Turnover Days;
AOB to the x power = The aggregate Outstanding Balance of all
Receivables as of the beginning of such
Collection Period;
</TABLE>
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<PAGE> 31
<TABLE>
<CAPTION>
<S> <C> <C>
AOB to the y power = The aggregate Outstanding Balance of all
Receivables as of the end of such Collection
Period;
ED = The number of days elapsed in
the prior Collection Period; and
BR = The aggregate amount of new Billed Receivables generated
during such Collection Period.
</TABLE>
"UCC" shall mean the Uniform Commercial Code, as amended from
time to time, as in effect in any applicable or specified jurisdiction.
"UNBILLED RECEIVABLE" shall mean a Receivable which represents
a bona fide enforceable obligation for the provision of electricity to an
Obligor but which has not yet been evidenced by an invoice and which is
accounted for on the applicable Originator's books and records as "unbilled
revenue" in accordance with its current financial accounting practices.
"UNDIVIDED FRACTIONAL INTEREST" with respect to each Series
shall have the meaning specified in the related Supplement.
"VARIABLE FUNDING CERTIFICATE" shall mean any Investor
Certificates of any Series the principal amount of which may be increased
and/or reduced from time to time and which is designated as a "Variable Funding
Certificate" in the Supplement pursuant to which such Series is issued.
"YIELD" shall mean, with respect to the Investor Certificates
of any Series or Class, the Yield payable on account of such Certificates as
specified in the related Supplement.
SECTION 1.02. OTHER DEFINITIONAL PROVISIONS. (a) All
terms defined in this Agreement shall have the defined meanings when used in
any certificate or other document made or delivered pursuant hereto unless
otherwise defined therein.
(b) As used herein and in any certificate or other
document made or delivered pursuant hereto or thereto, accounting terms not
defined in this Agreement, and accounting terms partly defined in this
Agreement to the extent not completely defined, shall have the respective
meanings given to them under generally accepted accounting principles or
regulatory accounting principles, as applicable and in effect from time to
time. To the extent that the definitions of accounting terms herein are
inconsistent with the meanings of such terms under generally accepted
accounting principles or regulatory accounting principles, the definitions
contained herein shall control.
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<PAGE> 32
(c) The words "hereof", "herein" and "hereunder" and
words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this Agreement; and
Section, Schedule and Exhibit references contained in this Agreement are
references to Sections, Schedules and Exhibits in or to this Agreement unless
otherwise specified; and the term "including" shall mean "including without
limitation".
ARTICLE II
TRANSFER OF RECEIVABLES
SECTION 2.01. TRANSFER OF RECEIVABLES. (a) By execution of
this Agreement, the Transferor does hereby transfer, assign, set-over and
otherwise convey without recourse, except as expressly provided herein (the
making of such transfer, assignment, set-over and conveyance being a
"TRANSFER", and so to transfer, assign, set-over and otherwise convey being to
"TRANSFER") to the Trust, for the benefit of the Certificateholders:
all of the Transferor's right, title and interest in, to and
under all Transferor Receivables existing at the close of business on the
initial Series Cut-Off Date and thereafter created from time to time, and
conveyed to the Transferor under the Receivables Purchase Agreement from time
to time, until the termination of the Revolving Period of the last outstanding
Series, all Related Security therefor and all monies due or to become due and
all Collections and other amounts received from time to time with respect to
such Transferor Receivables and all proceeds (including, without limitation,
"proceeds" as defined in the UCC of the jurisdiction the law of which governs
the perfection of the interest in the Transferor Receivables transferred
hereunder) thereof.
Such property described in the preceding sentence, together with all monies
from time to time on deposit in, and all Eligible Investments and other
securities, instruments and other investments purchased from funds on deposit
in, the Collection Accounts, the Concentration Account, the Reserve Account and
any Series Account, and any Enhancements shall constitute the assets of the
Trust (collectively the "TRUST ASSETS").
The foregoing Transfer does not constitute and is not intended
to result in an assumption by the Trust, the Trustee or any Certificateholder
of any obligation of any Servicer, any Originator, the Transferor or any other
Person in connection with the Receivables or under the Receivables Purchase
Agreement or under any agreement or instrument relating thereto, including,
without limitation, any obligation to any Obligor. The foregoing Transfer to
the Trust shall be made to the Trustee, on behalf of
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<PAGE> 33
the Trust, and each reference in this Agreement to such Transfer shall be
construed accordingly.
The Transferor agrees to record and file from time to time, at
its own expense, financing statements and other documents (and amendments
thereto, assignments thereof and continuation statements, when applicable) with
respect to the Receivables and the other Trust Assets now existing and
hereafter created meeting the requirements of applicable law in such manner and
in such jurisdictions as are necessary to perfect, and maintain perfection of,
the Transfers of the Receivables and the other Trust Assets to the Trust, and
to deliver a file-stamped copy of such a financing statement or other document
or other evidence of such filing to the Trustee on or prior to the initial
Closing Date. The Trustee shall be under no obligation whatsoever to file such
financing statements, documents, amendments, assignments or continuation
statements, or to make any other filing under the UCC in connection with such
Transfer. In the event that any of the Receivables and other Trust Assets
become evidenced by an instrument, the Transferor agrees to (or to cause the
Originators or the Servicers to) deliver to the Trustee the original of such
instrument as required by SECTION 3.04(g) hereof.
Each of CEI, TE and the Transferor further agrees herein, at
its own expense, on or prior to the initial Closing Date to indicate in its
computer records that the Receivables have been sold, in the case of CEI and
TE, to the Transferor in accordance with the Receivables Purchase Agreement and
conveyed, in the case of CEI, TE and the Transferor, to the Trust in accordance
with this Agreement for the benefit of the Certificateholders.
(b) The Trustee hereby agrees not to disclose to any Person
any information delivered to the Trustee from time to time with respect to the
Receivables or any Obligor except (i) to a Successor Servicer or as required by
a Requirement of Law applicable to the Trustee, (ii) as required in the
performance of the Trustee's duties hereunder, (iii) as required in enforcing
the rights of the Certificateholders hereunder or (iv) as provided in any
Supplement. The Trustee agrees to protect and maintain the security and
confidentiality of such information in accordance with reasonable and customary
industry standards and, in connection therewith, will allow the Transferor to
inspect the Trustee's security and confidentiality arrangements from time to
time during normal business hours. The Trustee shall use its best efforts to
provide the Transferor written notice at least five Business Days prior to any
disclosure pursuant to this SECTION 2.01 and in any event will provide written
notice whenever disclosure is made.
SECTION 2.02. ACCEPTANCE BY TRUSTEE. (a) The Trustee hereby
acknowledges its acceptance on behalf of the Trust of all right, title and
interest in and to the Trust Assets, now existing
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and hereafter created and transferred to the Trust pursuant to SECTION 2.01 and
the Trustee declares that it shall, subject to the terms set forth herein,
maintain such right, title and interest, upon the trust herein set forth, for
the benefit of all Certificateholders.
(b) The Trustee shall have no power to create, assume or
incur indebtedness or other liabilities in the name of the Trust other than as
contemplated in this Agreement.
SECTION 2.03. REPRESENTATIONS AND WARRANTIES OF THE
TRANSFEROR RELATING TO THE TRANSFEROR. The Transferor hereby represents and
warrants to the Trust as of the date hereof and, by accepting on the date of
the initial Transfer of Receivables the proceeds of such Transfer, as of such
date and with respect to any Series, as of the date of any Supplement and the
related Closing Date, unless otherwise stated in such Supplement, that:
(a) ORGANIZATION AND GOOD STANDING. The Transferor is a
corporation 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 or conducted, to
execute, deliver and perform its obligations under this Agreement and the
Receivables Purchase Agreement, and to execute and deliver to the Trustee
pursuant hereto the Certificates.
(b) DUE QUALIFICATION. The Transferor is duly qualified to
do business and is in good standing as a corporation or foreign corporation, as
applicable, and has obtained all necessary licenses and approvals, in each
jurisdiction in which failure to so qualify or to obtain such licenses and
approvals would have a material adverse effect on the Transferor's ability to
perform its obligations hereunder, under the applicable Supplement or under the
Receivables Purchase Agreement.
(c) DUE AUTHORIZATION. The execution, delivery and
performance of this Agreement and the applicable Supplement and the Receivables
Purchase Agreement by the Transferor, and the execution and delivery by the
Transferor to the Trustee of the Certificates and the consummation by the
Transferor of the transactions provided for in this Agreement and the
applicable Supplement and the Receivables Purchase Agreement, have been duly
authorized by all necessary corporate action on the part of the Transferor and
this Agreement and the other documents and agreements executed in connection
herewith have been duly executed and delivered on behalf of the Transferor.
(d) ENFORCEABILITY. Each of this Agreement, the applicable
Supplement and the Receivables Purchase Agreement constitutes a legal, valid
and binding obligation of the Transferor
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<PAGE> 35
enforceable against the Transferor in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, reorganization,
insolvency, moratorium or other similar laws affecting creditors' rights
generally, now or hereafter in effect, and except as such enforceability may be
limited by general principles of equity (whether considered in a suit at law or
in equity). The Receivables Purchase Agreement is in full force and effect,
and is not subject to any specific dispute, offset, counterclaim or defense.
(e) NO CONFLICT. The Transferor's execution and delivery of
this Agreement, the applicable Supplement, the Receivables Purchase Agreement
and the Certificates, performance of the transactions contemplated by this
Agreement and the applicable Supplement and the Receivables Purchase Agreement,
and fulfillment of the terms hereof and thereof applicable to the Transferor,
do not conflict with or violate in any material respect any Requirements of Law
applicable to the Transferor or conflict with, result in any breach of any of
the terms and provisions of, or constitute (with or without notice or lapse of
time or both) a default under, any indenture, contract, agreement, mortgage,
deed of trust or other instrument to which the Transferor is a party or by
which it or its properties are bound.
(f) NO PROCEEDINGS. There are no proceedings or
investigations pending or, to the best knowledge of the Transferor, threatened
against the Transferor before any Governmental Authority which asserts the
invalidity of this Agreement or the Receivables Purchase Agreement or which
otherwise is likely to have a material adverse effect on the Transferor's
financial condition or operations or on the Trust Assets or the transactions
contemplated herein, under each Supplement and under the Receivables Purchase
Agreement.
(g) CONSENTS. No authorization, consent, license, order or
approval of, registration or declaration with any Governmental Authority or
other Person is required to be obtained, effected or given by the Transferor in
connection with the execution and delivery of this Agreement, the applicable
Supplement, the Receivables Purchase Agreement and the Certificates by the
Transferor or its performance of its obligations under this Agreement, the
applicable Supplement and the Receivables Purchase Agreement or the
transactions contemplated hereby and thereby except for (i) regulatory
approvals by PUCO, all of which have been obtained and are in full force and
effect; (ii) the filings of the financing statements or other documents
required to have been filed on or prior to the initial Closing Date pursuant to
SECTION 2.01, all of which were so filed and are in full force and effect, and
(iii) the filing of any amendments, assignments or continuation statements
which may become applicable pursuant to SECTION 2.01; and (iv) other consents
and approvals the failure of which to
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<PAGE> 36
obtain is not likely to have a material adverse effect on the Transferor's
financial condition or operations or the Trust Assets or the Transferor's
ability to perform its obligations under this Agreement.
(h) LIENS ON PROPERTIES. Except as created hereby, there are
no Liens (except for Permitted Liens) of any nature whatsoever on any
Transferor Receivable. The Transferor is not a party to any contract,
agreement, lease or instrument (other than this Agreement) the performance of
which, either unconditionally or upon the happening of an event, will result in
or require the creation of any Lien on any Transferor Receivable, or otherwise
result in a violation of this Agreement.
(i) CONTRACTUAL OBLIGATIONS. (i) The Transferor is not a
party to any indenture, loan or credit agreement or any lease or other
agreement or instrument, or subject to any Requirements of Law, that would have
a material adverse effect on the ability of the Transferor to carry out its
obligations under this Agreement, the applicable Supplement or the Receivables
Purchase Agreement, and (ii) neither the Transferor nor, to the best of the
knowledge of the Transferor, any other party is in default in any respect under
or with respect to the Receivables Purchase Agreement or any other material
contract, agreement, lease or other instrument to which the Transferor is a
party.
(j) INVESTMENT COMPANY. The Transferor is not an "investment
company" within the meaning of the Investment Company Act.
(k) LOCATIONS. The chief place of business and chief
executive office of the Transferor are located at the address of the Transferor
referred to in SECTION 13.05, and the locations of the offices where the
Transferor keeps the originals of its books, records and documents regarding
the Receivables and the other Trust Assets are listed on Schedule III hereto
(or at such other locations, notified to the Trustee in accordance with SECTION
2.05(d), in jurisdictions with respect to which all applicable action required
by the last two paragraphs of SECTION 2.01(A) has been taken and completed).
(l) TRADENAMES. The legal name of the Transferor is as set
forth on the signature page of this Agreement and the Transferor has no
tradenames, fictitious names, assumed names or "doing business as" names.
(m) SUBSIDIARIES. The Transferor has no subsidiaries.
(n) INFORMATION. (i) Each certificate, information,
exhibit, financial statement, document, book or record or report furnished by
the Transferor to the Trustee or the Servicers in
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<PAGE> 37
connection with this Agreement and (ii) any information contained in any
written documents regarding the Transferor provided by the Transferor to
Investors is accurate in all material respects as of its date, when considered
as a whole with other such documents, and no such document contains any
material misstatement of fact or omits to state a material fact or any fact
necessary to make the statements contained therein not materially misleading.
(o) SOLVENCY. As of the date hereof and after giving effect
to the transactions contemplated by this Agreement, the fair saleable value of
the Transferor's assets exceeds its liabilities and the Transferor is currently
repaying all of its indebtedness as such indebtedness becomes due; and, after
giving effect to the transactions contemplated by this Agreement, the
Transferor will have adequate capital to conduct its business as presently
conducted and as contemplated by this Agreement. The Transferor is not
entering into the transactions contemplated hereunder and under the Receivables
Purchase Agreement with the intent of hindering, delaying or defrauding
creditors and no Transfer hereunder constitutes a fraudulent transfer or
fraudulent conveyance under the United States Bankruptcy Code or similar state
law.
(p) COMPLIANCE. The Transferor has complied in all material
respects with all Requirements of Law with respect to it, its business and
properties and all Receivables transferred to the Trust hereunder and the
Contracts related thereto.
(q) TAXES. The Transferor has filed all material tax returns
(federal, state and local) which it reasonably believes are required to be
filed by it and has paid or made adequate provision for the payment of all
taxes, assessments and other governmental charges due from the Transferor or is
contesting any such tax, assessment or other governmental charge in good faith
through appropriate proceedings. The Transferor knows of no basis for any
material additional tax assessment for any fiscal year for which adequate
reserves have not been established.
(r) USE OF PROCEEDS. No proceeds of the issuance of any
Certificate will be used by the Transferor to acquire any security in a
transaction that is subject to Sections 13 and 14 of the Securities Exchange
Act of 1934, as amended, or to purchase or carry any margin security in
violation of any applicable law or regulation.
(s) COLLECTION ACCOUNTS. The Collection Account Banks are
the only institutions holding Collection Accounts for the receipts of payments
in respect of Receivables (subject to such changes as may be made from time to
time in accordance with SECTION 4.02(b)).
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(t) EARLY AMORTIZATION EVENT. As of the Closing Date for any
Series, no Early Amortization Event, and no condition that with the giving of
notice and/or the passage of time would constitute an Early Amortization Event,
has occurred and is continuing.
(u) ERISA. No Plan maintained by the Transferor or any of
its ERISA Affiliates has any accumulated funding deficiency (within the meaning
of Section 302 of ERISA or Section 412 of the Internal Revenue Code), whether
or not waived. The Transferor and each ERISA Affiliate of the Transferor has
timely made all contributions required to be made by it to any Plan and
Multiemployer Plan to which contributions are or have been required to be made
since ________, 199_ by the Transferor or such ERISA Affiliate, and no
Reportable Event has occurred and is continuing or could reasonably be expected
to occur with respect to any such Plan, in any case, that could reasonably be
expected to result directly or indirectly, in any Lien being imposed on the
property of the Transferor or the payment of any material amount to avoid such
Lien.
The representations and warranties set forth in this SECTION
2.03 shall survive the Transfer of the Receivables to the Trust and the
issuance of the Certificates, and shall cease and be of no effect upon
repayment in full of the Invested Amount of the last outstanding Series and all
other obligations of the Transferor hereunder. Upon discovery by the
Transferor, any Servicer or the Trustee of a material breach of any of the
foregoing representations and warranties, the party discovering such breach
shall give prompt written notice to the other parties hereto and to any
Enhancement Providers. The Trustee's obligations in respect of any such breach
are limited as provided in SECTION 11.02(g).
SECTION 2.04. REPRESENTATIONS AND WARRANTIES OF THE
TRANSFEROR RELATING TO THIS AGREEMENT AND THE TRUST ASSETS. The Transferor
hereby represents and warrants to the Trust as of the date hereof and, by
accepting on the date of the initial Transfer of Receivables the proceeds of
such Transfer, as of such date and, in the case of the representations and
warranties contained in SECTIONS 2.04(a), (b), (c), (d), (e) and (f) below, by
accepting on each date during the Revolving Period for any Series the proceeds
of each Transfer of Receivables, as of such date, that:
(a) VALID TRANSFER. The Receivables Purchase Agreement
creates a valid sale, transfer and assignment to the Transferor of, and the
Transferor is the legal and beneficial owner of, all right, title and interest
of the Originators in and to the Receivables now existing and hereafter created
during the Revolving Period and the proceeds thereof. This Agreement
constitutes either (i) a valid transfer and assignment to the Trust of all
right, title and interest of the Transferor in and to the Receivables now
existing
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and hereafter created and purchased by the Transferor pursuant to the
Receivables Purchase Agreement, and in and to all other Trust Assets and the
proceeds thereof or (ii) a valid grant to the Trust of a first priority
perfected "security interest" (as defined in the UCC of the jurisdiction the
law of which governs the perfection of the interest in the Receivables and
other Trust Assets created hereunder) in all right, title and interest of the
Transferor in and to the Receivables now existing and hereafter created and
purchased by the Transferor pursuant to the Receivables Purchase Agreement, and
in and to all other Trust Assets and the proceeds thereof. Such transfer and
assignment and/or grant of security is enforceable against the Transferor
(except as such enforceability may be limited by applicable bankruptcy,
reorganization, insolvency, moratorium or other similar laws affecting
creditors' rights generally, now or hereafter in effect, and except as such
enforceability may be limited by general principles of equity, whether
considered in a suit of law or in equity). Upon the filing of the financing
statements and, in the case of the Receivables hereafter created and the
proceeds thereof, upon the creation thereof and payment therefor, the Trust
shall have an ownership or first priority perfected security interest in those
Trust Assets in which a security interest may be perfected by filing and the
proceeds thereof. The Transferor has caused each Servicer to clearly and
unambiguously mark its computer records and its microfiche storage files, if
any, regarding such Receivables as the property of the Trust and shall cause
each such Servicer to maintain such records in a manner such that the Trust's
perfected interest of first priority in the Receivables shall not be adversely
affected in any material respect.
(b) NO CLAIM OR INTEREST. Except as otherwise provided in
this Agreement and the applicable Supplement, neither the Transferor nor any
Person claiming through or under the Transferor has any claim to or interest in
the Concentration Account or any Series Account.
(c) OUTSTANDING BALANCE; BASE AMOUNT. As of each Closing
Date, the Net Invested Amount (after giving effect to the issuance of all
Certificates on such date) is less than or equal to the Base Amount.
(d) LIENS. Each Transferor Receivable and all other Trust
Assets have been Transferred to the Trust free and clear of any Lien except as
created hereby or by the Receivables Purchase Agreement and free and clear of
any adverse claim or interest of any other Person (other than disputes with
Obligors on account of factors described in the definition of Diluted
Receivable or discharge in bankruptcy of the related Obligor).
(e) ELIGIBILITY. Each Receivable classified as an "Eligible
Receivable" by the Transferor in any Daily Report or
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Determination Date Certificate delivered hereunder satisfies, as of the dates
referred to in such Daily Report orDetermination Date Certificate, as
applicable, the requirements of eligibility contained in the definition of
Eligible Receivable, and no such Receivable nor any related Contract has been
satisfied, subordinated or rescinded nor, except as otherwise permitted
hereunder, been compromised, adjusted, extended or otherwise modified.
(f) INVESTMENT COMPANY ACT. Each Transfer of Transferor
Receivables to the Trust hereunder constitutes a purchase or other acquisition
of notes, drafts, acceptances, open accounts receivable or other obligations
representing part or all of the sales price of merchandise or services within
the meaning of Section 3(c)(5) of the Investment Company Act.
The representations and warranties set forth in this SECTION
2.04 shall survive the Transfer of the Transferor Receivables to the Trust and
the issuance of the Certificates, and shall cease and be of no effect upon
repayment in full of the Invested Amount of the last outstanding Series and all
other obligations of the Transferor hereunder. Upon discovery by the
Transferor, any Servicer or the Trustee of a material breach of any of the
foregoing representations and warranties, the party discovering such breach
shall give prompt written notice to the other parties hereto and to any
Enhancement Provider. The Trustee's obligations in respect of any such breach
are limited as provided in SECTION 11.02(g).
SECTION 2.05. AFFIRMATIVE COVENANTS OF THE TRANSFEROR. The
Transferor hereby covenants that, until the termination of the Trust:
(a) COMPLIANCE WITH LAW. The Transferor will comply in all
material respects with all Requirements of Law applicable to the Transferor,
its business and properties and the Trust Assets, 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 hereunder or
under the Receivable Purchase Agreement.
(b) PRESERVATION OF CORPORATE EXISTENCE. The Transferor will
preserve and maintain its corporate existence, rights, franchises and
privileges in the jurisdiction of its formation, and qualify and remain
qualified in good standing as a foreign corporation in each jurisdiction where
the failure to maintain such qualification would materially and adversely
affect (i) the interests of the Trustee or of the Investors hereunder or in the
Trust Assets, (ii) the collectibility of the Receivables or (iii) the ability
of the Transferor to perform its obligations hereunder
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or under the Receivables Purchase Agreement in any material respect.
(c) KEEPING OF RECORDS AND BOOKS OF ACCOUNT. The Transferor
will (i) keep proper books of record and account, which shall be maintained or
caused to be maintained by the Transferor and shall be separate and apart from
those of any Affiliate of the Transferor, in which full and correct entries
shall be made of all financial transactions and the assets and business of the
Transferor in accordance with generally accepted accounting principles
consistently applied, and (ii) maintain and implement administrative and
operating procedures (including without limitation, an ability to recreate
records evidencing the Receivables in the event of the destruction of the
originals thereof) and keep and maintain all documents, books, records and
other information reasonably necessary or advisable for the collection of all
Receivables (including, without limitation, records adequate to permit the
daily identification of each new Receivable and all Collections of and
adjustments to each existing Receivable).
The Transferor shall provide to the Trustee access to the
documentation regarding the Receivables in such cases where the Trustee is
required in connection with the enforcement of the rights of Certificateholders
or by applicable statutes or regulations to review such documentation, such
access being afforded without charge but only (i) upon reasonable written
request, (ii) during normal business hours, (iii) subject to the Transferor's
normal security and confidentiality procedures and (iv) at reasonably
accessible offices in the continental United States designated by the
Transferor.
(d) LOCATION OF RECORDS. The Transferor will keep its chief
place of business and chief executive office, and the office where it keeps the
books, records and documents regarding the Trust Assets, at the addresses of
the Transferor referred to in SECTION 13.05 and on Schedule III hereto or, upon
30 days' prior written notice to the Trustee, at any other location within the
United States with respect to which all applicable action required by the last
two paragraphs of SECTION 2.01(a) shall have been taken and completed.
(e) MAINTENANCE OF SEPARATE DIRECTORS. The Transferor will
maintain at least two independent directors each of whom is not an officer,
director or employee of (i) Centerior, (ii) any Originator or (iii) any
Affiliate, nor a parent, child, spouse or sibling of any such Person; provided,
however, that if any such independent director dies or resigns the Transferor
shall have 10 Business Days, to replace that Person with another independent
director.
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(f) PAYMENT OF TAXES, ETC. The Transferor will 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 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.
(g) REPORTING REQUIREMENTS. The Transferor will:
(i) within one Business Day after a Responsible Officer
becomes aware of the occurrence of any Early Amortization Event, any
Set-Aside Period and each event which, with the giving of notice or
lapse of time or both, would constitute an Early Amortization Event,
notify the Trustee and each Rating Agency of such occurrence;
(ii) as soon as possible and in any event (A) within
three Business Days after a Responsible Officer becomes aware of the
occurrence of each Early Amortization Event, any Set-Aside Period, and
each event which, with the giving of notice or lapse of time or both,
would constitute an Early Amortization Event, furnish to the Trustee
and each Rating Agency the statement of the chief administrative and
credit officer or other Responsible Officer of the Transferor setting
forth details of such Early Amortization Event, Set-Aside Period or
event and the action which the Transferor has taken and proposes to
take with respect thereto, and (B) within three Business Days after
the occurrence thereof, notify the Trustee of any other event,
development or information which is reasonably likely to materially
and adversely affect the ability of the Transferor to perform its
obligations under this Agreement or the Receivable Purchase Agreement;
(iii) as soon as practicable and in any event within 60
days after the end of each of the first three quarters of each fiscal
year of the Transferor, furnish to the Trustee a balance sheet of the
Transferor as of the end of such quarter, and the related revenue and
expense statements for the period commencing at the end of the
previous fiscal year and ending with the end of such quarter, all of
the foregoing to be certified by a Responsible Officer of the
Transferor and prepared in accordance with generally accepted
accounting principles;
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(iv) as soon as practicable and in any event within 120
days after the end of each fiscal year of the Transferor, furnish to
the Trustee and each Rating Agency a balance sheet of the Transferor
as of the end of such fiscal year, and the related revenue and expense
statements for such fiscal year, all of the foregoing to be certified
by a Responsible Officer of the Transferor and prepared in accordance
with generally accepted accounting principles;
(v) promptly, from time to time, furnish to the
Trustee such other information, documents, records or reports
respecting the Receivables, the other Trust Assets or the condition or
operations, financial or otherwise, of the Transferor as the Trustee
may from time to time reasonably request.
(h) RECEIVABLES PURCHASE AGREEMENT. The Transferor will at
its expense timely perform and comply in all material respects with all
provisions, covenants and other promises required to be observed by it under
the Receivables Purchase Agreement, maintain the Receivables Purchase Agreement
in full force and effect, enforce its rights under the Receivables Purchase
Agreement substantially in accordance with its terms and comply with its
obligations under Contracts and invoices giving rise to Receivables.
(i) UCC OPINION. On or before September 30 of each calendar
year, beginning with September 30, 1997, the Transferor shall deliver to the
Trustee and each Rating Agency an Opinion of Counsel to the effect that no
financing statements or continuation statements, other than those currently
filed, are necessary to be filed by the Transferor or the Servicers in order to
fully preserve and protect the perfected security or ownership interest of the
Trustee, Transferor or any of the Certificateholders hereunder in and to the
Receivables or describing such filings as may be necessary.
(j) RATING MAINTENANCE. For so long as the Investor
Certificates of any Series are outstanding, the Transferor shall use all
reasonable efforts to cause each Rating Agency to maintain its rating of the
Investor Certificates of each such Series; PROVIDED, HOWEVER, that such efforts
shall not require the Transferor to adversely affect its economic position.
(k) ERISA. The Transferor shall promptly give the Trustee
and each Rating Agency notice of the following events, as soon as possible and
in any event within 30 days after the Transferor or any of its ERISA Affiliates
knows or has reason to know thereof: (i) the occurrence or expected occurrence
of any Reportable Event with respect to any Plan to which the Transferor or any
of its ERISA Affiliates contributed, or any withdrawal from,
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or the termination, reorganization or insolvency of any Multiemployer Plan to
which the Transferor or any of its ERISA Affiliates contributes or to which
contributions have been required to be made by the Transferor or such ERISA
Affiliate or (ii) the institution of proceedings or the taking of any other
action by the PBGC or the Transferor or any of its ERISA Affiliates or any such
Multiemployer Plan with respect to the withdrawal from, or the termination,
reorganization or insolvency of, any such Plan or Multiemployer Plan. The
Transferor shall give the Trustee and each Rating Agency notice, as soon as
possible and in any event within 10 days after the Transferor or any of its
ERISA Affiliates knows or has reason to know thereof, of any filing of any Lien
by the PBGC against the assets of either Originator, the Transferor or any of
their ERISA Affiliates.
(l) COLLECTIONS. On each Business Day that the Transferor or
any Affiliate thereof receives any Collections, the Transferor agrees to hold,
or cause such Affiliate to hold, all such Collections in trust and, in the case
of Collections remitted directly to the Transferor or any Affiliate by the
applicable Obligor, to deposit, or cause such Affiliate to deposit, such
Collections, in kind and in the form received, to the appropriate Collection
Account as soon as practicable, but in no event later than the next succeeding
Business Day.
SECTION 2.06. NEGATIVE COVENANTS OF THE TRANSFEROR. The
Transferor hereby further covenants that, until the termination of the Trust:
(a) NO SALES, LIENS, ETC.. Except for the Transfer hereunder
and the security interest granted pursuant to SECTION 2.01(b), the Transferor
will not sell, pledge, assign or transfer any Transferor Receivable or any
interest therein or any other Trust Asset to any other Person, or grant,
create, incur, assume or suffer to exist any Lien on, any Trust Asset or any
other property or asset of the Transferor (other than the Transferor Revolving
Certificate and funds deposited to the Transferor's Account pursuant to the
applicable Supplement or the Transferor Revolving Certificate), whether now
existing or hereafter created, or any interest therein, and the Transferor
shall defend the right, title and interest of the Trust in and to the Trust
Assets, whether now existing or hereafter created, against all claims of third
parties claiming through or under the Transferor. The Transferor shall not
pledge or transfer the Transferor Revolving Certificate unless it has delivered
to the Trustee and each Rating Agency a Tax Opinion with respect to such
transfer or pledge and except as permitted under SECTION 2.06(k) In connection
with any such pledge or transfer of the Transferor Revolving Certificate, the
Transferor shall, unless the transferee otherwise consents, deliver to such
transferee an opinion that the transferee's interest in the Transferor
Revolving Certificate will be properly characterized as debt of the Transferor.
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(b) ACTIVITIES OF THE TRANSFEROR. The Transferor will not
engage in, enter into or be a party to any business, activity or transaction of
any kind other than the businesses, activities and transactions contemplated
and authorized by this Agreement or the Receivables Purchase Agreement or any
document related hereto or thereto or incidental to its ability to carry out
its obligations under such agreements.
(c) INDEBTEDNESS. Except as provided herein or in the
Receivables Purchase Agreement, the Transferor will not create, incur or assume
any indebtedness (other than operating expenses incurred in the performance of
or incidental to its obligations under this Agreement) or sell or transfer any
receivables to a trust or other Person which issues securities in respect of
any such receivables.
(d) GUARANTEES. Except as provided for herein, the
Transferor will not become or remain liable, directly or contingently, in
connection with any indebtedness or other liability of any other Person,
whether by guarantee, endorsement (other than endorsements of negotiable
instruments for deposit or collection in the ordinary course of business),
agreement to purchase or repurchase, agreement to supply or advance funds, or
otherwise.
(e) INVESTMENTS. The Transferor will not make or suffer to
exist any loans or advances to, or extend any credit to, or make any
investments (by way of transfer of property, contributions to capital, purchase
of stock or securities or evidences of indebtedness, acquisition of the
business or assets, or otherwise) in, any Affiliate or any other Person except
for purchases of Receivables pursuant to the terms of the Receivables Purchase
Agreement, investments in Eligible Investments in accordance with the terms of
this Agreement, and the holding of the Transferor Revolving Certificate.
(f) EXTENSION OR AMENDMENT OF RECEIVABLES. Except as
permitted in SECTION 3.01(c), the Transferor will not extend, amend or
otherwise modify (or consent or fail to object to any such extension, amendment
or modification by an Originator), the terms of any Receivable, or amend,
modify or waive (or consent or fail to object to any such amendment,
modification or waiver by an Originator) any payment term or condition of any
invoice related thereto (other than as provided in the Credit and Collection
Policy) if the effect of such amendment, modification or waiver would impair
the collectibility or delay the payment of any then existing Receivable beyond
60 days from the date of the invoice. The Transferor will not rescind or
cancel, or permit the rescission or cancellation of, any Receivable except as
ordered by a court of competent jurisdiction or other Governmental Authority.
Notwithstanding the foregoing provisions of this SECTION 2.06(f), each of the
Transferor and the Servicers may extend, amend, modify,
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cancel or rescind (and the Transferor need not object to any such action by the
Servicer) any Diluted Receivable in connection with a valid dispute; provided,
however, that such amendment, modification, cancellation or rescission shall
not have a material adverse effect on the interests of the Certificateholders.
(g) CHANGE IN CORPORATE NAME. The Transferor will not (i)
make any change to its corporate name or principal place of business or use any
tradenames, fictitious names, assumed names or "doing business as" names
unless, prior to the effective date of any such name change, change in
principal place of business, or use, the Transferor delivers an Opinion of
Counsel, together with such financing statements (Forms UCC-1 and UCC-3)
executed by the Transferor which reflect such name change or use, together with
such other documents and instruments that the Trustee may reasonably request in
connection therewith or (ii) change its jurisdiction of formation unless the
Trustee shall have received from the Transferor (A) written notice of such
change at least 30 days prior to the effective date thereof, and (B) prior to
the effective date thereof, an Opinion of Counsel, as to such formation and the
Transferor's valid existence and good standing and as to the matters referred
to in the first sentence of SECTION 2.04(a).
(h) RECEIVABLES PURCHASE AGREEMENT. The Transferor will not
(i) cancel or terminate the Receivables Purchase Agreement or consent to or
accept any cancellation or termination thereof, (ii) amend or otherwise modify
any term or condition of the Receivables Purchase Agreement or give any
consent, waiver or approval thereunder, (iii) waive any default under or breach
of the Receivables Purchase Agreement or (iv) take any other action under the
Receivables Purchase Agreement not required by the terms thereof, to the extent
that, in each of clauses (ii) through (iv) above, such amendment, modification,
consent, waiver, approval or other action would adversely affect in any
material respect the rights or interests of the Transferor thereunder or of the
Trustee or the Investors hereunder or thereunder, unless the Rating Agency
Condition shall have been satisfied with respect thereto, and the Transferor
will not undertake any actions described in clause (ii) or (iii) above without
giving prompt written notice thereof to the Rating Agencies.
(i) ORGANIZATION. The Transferor will not amend its
certificate of incorporation or bylaws in any manner which would modify the
limitations on the Transferor's business set forth therein, or modify the
requirements that the Transferor maintain at least two independent directors or
alter the duties, powers, rights and responsibilities of such directors or
otherwise alter the provisions contained therein requiring the Transferor to
maintain its existence as a corporation separate and apart from its Affiliates,
except for such changes not adverse to the Investors
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with respect to which the Transferor has provided an Opinion of Counsel, which
counsel is not an employee of Centerior or any of its Affiliates, relating to
the continued separated existence of the Transferor, and will not otherwise
amend its certificate of incorporation or bylaws in any manner which would be
materially adverse to the Investors.
(j) MAINTENANCE OF SEPARATE EXISTENCE. The Transferor will
not (i) fail to do all things necessary to maintain its existence as a
corporation separate and apart from Centerior, each Originator and any other
Affiliate of the Originators or of the Transferor including, without
limitation, conducting business correspondence in its own name, holding regular
meetings of, or obtaining regular written consents from, its shareholders and
Board of Directors and maintaining appropriate books and records; (ii) suffer
any limitation on the authority of its own directors and officers to conduct
its business and affairs in accordance with their independent business
judgment, or authorize or suffer any Person other than its own directors and
officers to act on its behalf with respect to matters (other than matters
customarily delegated to others under powers of attorney) for which a
corporation's own directors and officers would customarily be responsible;
(iii) fail to (A) maintain, or cause to be maintained by an agent of the
Transferor under the Transferor's control, physical possession of all its books
and records, (B) maintain capitalization adequate for the conduct of its
business, (C) account for and manage its liabilities separately from those of
any other Person, including, without limitation, payment of all payroll and
other administrative expenses and taxes from its own assets, (D) segregate and
identify separately all of its assets from those of any other Person, and (E)
maintain offices through which its business is conducted separate from those of
its Affiliates (provided that, to the extent that the Transferor and any of its
Affiliates have offices in the same location, there shall be a fair and
appropriate allocation of overhead costs and expenses among them, and each such
entity shall bear its fair share of such expenses); or (iv) fail to take any
actions required on its part or fail to cause any Affiliates to take any action
required on their part to prevent the commingling of its funds with those of
any of its Affiliates, or use its funds for other than the Transferor's uses.
(k) OWNERSHIP; MERGER. The Transferor will not (i) sell any
shares of any class of its capital stock to any Person (other than the
Originators, Centerior or any wholly-owned Subsidiary of Centerior), or enter
into any transaction of merger or consolidation, or convey or otherwise dispose
of all or substantially all of its assets (except as contemplated herein)
PROVIDED, that the Transferor shall not be prohibited from transferring or
pledging the Transferor Revolving Certificate in connection with (x) any
issuance of any Series or (y) any other transaction
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involving the Transferor which is not otherwise prohibited under this Agreement
and with respect to which the Transferor has given prior written notice to the
Rating Agencies and has delivered both a Tax Opinion and an Opinion of Counsel,
which counsel is not an employee of Centerior or any of its Affiliates,
relating to the continued separate corporate existence of the Transferor, or
(ii) terminate, liquidate or dissolve itself (or suffer any termination,
liquidation or dissolution), or (iii) acquire or be acquired by any Person,
(except indirectly in connection with a consolidation, merger or transfer of
stock of either Originator to the extent such consolidation or merger is
permitted under the Receivables Purchase Agreement), in connection with which
the Trustee shall have received an Opinion of Counsel, which counsel is not an
employee of Centerior or any of its Affiliates, relating to the continued
separate corporate existence of the Transferor.
ARTICLE III
ADMINISTRATION AND SERVICING OF RECEIVABLES
SECTION 3.01. ACCEPTANCE OF APPOINTMENT AND OTHER MATTERS
RELATING TO THE SERVICERS. (a) Each of CEI and TE agrees to act as a Servicer
and CEI as Servicer agrees to perform the duties of Master Servicer for the
benefit of the Certificateholders under this Agreement until appointment of a
Successor Servicer under ARTICLE X, and each Certificateholder by its
acceptance of its Certificates consents to each of CEI and TE so acting as
Servicers. Each Servicer hereby disclaims all right, title and interest in and
to the Transferor Receivables and the proceeds thereof, except for the payment
of its fees and expenses hereunder.
(b) Each Servicer shall (subject to ARTICLE X) enforce
the Transferor's respective rights and interests in, to and under the
Transferor Receivables and the Trust Assets on behalf of the Trust; PROVIDED
that, so long as CEI and TE remain separate corporate entities, and except as
otherwise provided herein with respect to CEI's duties as Master Servicer CEI's
duties as Servicer hereunder shall extend only to those Transferor Receivables
originated by it and any Trust Assets related thereto and TE's duties as
Servicer shall extend only to those Transferor Receivables originated by it and
any Trust Assets related thereto. Subject to the foregoing proviso, the
Servicers, on behalf of the Trustee, shall service, administer and collect the
Transferor Receivables and, in connection therewith, each Servicer shall take
or cause to be taken all such actions as may be necessary or advisable to
attempt to collect each Transferor Receivable from time to time, all in
accordance with applicable laws, rules and regulations, with reasonable care
and diligence, and in accordance with the Credit and Collection Policy
applicable to such Transferor Receivable, except where such failure to conform
or comply would
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not be likely to materially adversely affect the rights of the Investors.
(c) Provided no Servicer Default shall have occurred and
be continuing, each Servicer may, in accordance with the applicable Credit and
Collection Policy, extend the maturity, adjust the Outstanding Balance, 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, or
otherwise modify any past-due Receivable in accordance with the Deferred
Arrangement Payment Plan, all as it may determine to be appropriate to maximize
Collections thereof.
(d) Each Servicer shall have full power and authority,
acting alone or through any party properly designated by it hereunder, to do
any and all things in connection with such servicing and administration which
it may deem necessary or desirable. Without limiting the generality of the
foregoing and subject to SECTION 10.01, (i) the Master Servicer or its designee
is hereby authorized and empowered to instruct the Trustee to make withdrawals
and payments from the Trust Accounts, subject to the limitations set forth in
SECTION 4.02 and as otherwise set forth in this Agreement and to instruct the
Trustee to take any action required or permitted under any Enhancement
Agreement and (ii) each Servicer or its designee is hereby authorized and
empowered (x) to make any filings, reports, notices, applications and
registrations with, and to seek any consents or authorizations from, the
Securities and Exchange Commission and any state securities authority on behalf
of the Trust as may be necessary or advisable to comply with any Federal or
state securities laws or reporting requirements, and (y) to subcontract with or
delegate to any other Person (at such Servicer's expense) for servicing,
administering or collecting the Receivables, PROVIDED that the Servicers shall
give each Rating Agency notice of any such subcontracting and such other Person
shall not become a Servicer hereunder and the subcontracting or delegating
Servicer shall remain liable for the performance of its duties and obligations
as a Servicer pursuant to the terms hereof. Each subservicing agreement will
be upon such terms and conditions as are not inconsistent with this Agreement
and the standard of care set forth herein. All compensation payable to a
subservicer under any subservicing agreement shall be payable by the applicable
Servicer from the Servicing Fee received by it or otherwise from its own funds,
and none of the Trust, the Trustee or the Certificateholders shall have any
obligations, duties or liabilities of any kind whatsoever under any such
subservicing agreements. Upon the written request of either Servicer and
receipt of an Officer's Certificate setting forth the facts underlying such
request, the Trustee shall execute any documents furnished by such Servicer
which are necessary or appropriate to enable such Servicer to carry out its
servicing and administrative duties hereunder and acceptable in form and
substance to the
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Trustee and shall furnish such Servicer with any documents then in the
Trustee's possession which are necessary or appropriate to enable such Servicer
to carry out its servicing and administrative duties hereunder.
(e) The relationship of each Servicer (including any
Successor Servicer) to the Trustee under this Agreement is intended by the
parties to be that of an independent contractor to or with the Trust and shall
not be construed to be that of a joint venturer, partner, or agent, such that
the acts of the Servicers are in any way vicariously attributable to the
Trustee in its individual capacity prior to such time as the Trustee may serve
as Servicer pursuant to the provisions of ARTICLE X.
SECTION 3.02. SERVICING COMPENSATION; SERVICERS' EXPENSES.
(a) COMPENSATION. As full compensation for its servicing
activities hereunder, each Servicer shall be entitled to receive a monthly
servicing fee (the "SERVICING FEE") for each Collection Period (or portion
thereof) from the initial Closing Date until the termination of the
Amortization Period, payable in arrears on the Distribution Date with respect
to such Collection Period (or portion), in an amount equal to a per annum fee
of 1% (calculated on the basis of a 360-day year of twelve 30-day months) TIMES
the aggregate outstanding Receivables being serviced by such Servicer as of the
beginning of such Collection Period; the Servicing Fee for any Servicer other
than the Originators or an Affiliate thereof may be a greater amount but not
exceeding the lesser of (x) a per annum fee of 2% times the beginning monthly
balance of Receivables as described above and (y) 110% of the aggregate
reasonable costs and expenses incurred by such Servicer during such calendar
month. The Servicing Fee shall be payable only from Collections. For any
periods during which there are separate Servicers acting with respect to the
Receivables originated by separate Originators, the Servicing Fee shall be
allocated between such Servicers based on the respective dollar amounts of
Receivables that each Originator has sold to the Transferor during the relevant
Collection Period.
(b) EXPENSES. The Servicers' expenses include: first,
the Trustee's Fee (to the extent not paid from the Carrying Cost Account,
Collections or other funds on deposit in the Trust Accounts or the Transferor's
Account) and second, all documented expenses and liabilities (other than any
liability of the Trustee with respect to any amount payable solely out of
Collections or any personal liability of the Trust to repay the Certificates)
of the Trust not expressly stated herein to be for the account of the
Certificateholders, including without limitation expenses related to
enforcement of the Receivables and the other amounts due to the Trustee
pursuant to SECTION 11.05, the reasonable fees and
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disbursements of independent accountants, counsel and other fees and documented
expenses including but not limited to the costs of filing UCC continuation
statements; provided that, in no event shall any Servicer be liable for any
federal, state or local income, franchise or other tax, or any interest or
penalties with respect thereto, assessed on the Trust, the Trustee or the
Certificateholders except as expressly provided herein. Such expenses shall be
payable, FIRST, from the Servicing Fee, and, SECOND, to the extent not paid
from the Servicing Fee, by the Transferor for its own account (subject to the
limitations set forth below). In addition, to the extent not paid from the
Servicing Fee, the Transferor shall pay for its own account, and, if the
Transferor fails to do so, the Servicers will pay, all fees and expenses
incurred by or on behalf of the Servicers in connection with their servicing
activities hereunder (including without limitation expenses related to
enforcement of the Receivables, the costs of a Service Transfer and expenses
otherwise relating to a Servicer Default), and the Servicers will not be
entitled to any fee or other payment from, or claim on, any of the Trust Assets
(other than the Servicing Fee and reimbursement from the Transferor). The
Transferor's and Servicers' covenant to pay the expenses and disbursements
provided for in this SECTION 3.02(b) shall survive the termination of this
Agreement. Any payments from the Transferor under this SECTION 3.02(b) shall
be made solely from funds available to make such payments after all other
allocations and/or payments to be made for the benefit of the Investors
pursuant to SECTION 4.03(b) or 4.03(C), as applicable, shall have been made,
and there shall be no other recourse to, and no Person shall have any Claim
against, the Transferor for the payment of all or any part of any such
obligations under this SECTION 3.02(b).
SECTION 3.03. REPRESENTATIONS AND WARRANTIES OF THE
SERVICERS. Each of CEI and TE, as an initial Servicer, hereby makes, and each
successor Servicer by acceptance of its appointment hereunder shall make, the
following representations and warranties, in the case of the initial Servicers,
as of the date hereof and as of the date of the initial Transfer of Receivables
and with respect to any Series as of the date of any Supplement and the related
Closing Date or, in the case of any Successor Servicer, the date of such
appointment and, with respect to any Series issued after such date, as of the
date of the related Supplement and the related Closing Date, in each case
unless otherwise stated in such Supplement:
(a) ORGANIZATION AND GOOD STANDING. Such Servicer is a
corporation or national banking association duly organized, validly existing
and in good standing under the applicable laws of its jurisdiction of
organization or incorporation and has, in all material respects, full corporate
power and authority to own its properties and conduct its business including
its receivables servicing business as such properties are presently owned and
as
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such business is presently conducted and as is proposed to be conducted under
this Agreement and the Receivables Purchase Agreement, and to execute, deliver
and perform its obligations under this Agreement and the applicable Supplement.
(b) DUE QUALIFICATION. Such Servicer is duly qualified
to do business and is in good standing as a foreign corporation (or is exempt
from such requirements), and has obtained all necessary licenses and approvals,
in each jurisdiction in which the servicing of the Receivables in accordance
with the terms of this Agreement and any Supplement requires such
qualification, except where failure to so qualify or to obtain such licenses or
approvals would not have a material adverse effect on its ability to perform
its obligations as Servicer under this Agreement and the applicable Supplement.
(c) DUE AUTHORIZATION. Such Servicer's execution,
delivery and performance of this Agreement and the applicable Supplement and
the other agreements and instruments executed or to be executed by such
Servicer as contemplated hereby have been duly authorized by all necessary
corporate action on the part of such Servicer.
(d) ENFORCEABILITY. Each of this Agreement and the
applicable Supplement constitutes a legal, valid and binding obligation of such
Servicer enforceable against it in accordance with its terms except as such
enforceability may be limited by applicable bankruptcy, reorganization,
insolvency, moratorium or other similar laws now and hereafter in effect
affecting creditors' rights generally, and except as such enforceability may be
limited by general principles of equity (whether considered in a suit at law or
in equity).
(e) NO CONFLICT. Such Servicer's execution and delivery
of this Agreement, performance of the transactions contemplated by this
Agreement and the applicable Supplement, and fulfillment of the terms hereof
and thereof applicable to such Servicer, do not conflict with or violate in any
material respects any material Requirements of Law applicable to such Servicer,
or conflict with, result in any breach of any of the material terms and
provisions of, or constitute (with or without notice or lapse of time or both)
a default under, any material indenture, contract, agreement, mortgage, deed of
trust or other instrument to which such Servicer is a party or by which it or
its properties are bound in any manner which is likely to have a material
adverse effect on the Transferor's financial condition or operations or the
Trust Assets or such Servicer's ability to perform its obligations hereunder,
under the Receivables Purchase Agreement and each applicable Supplement.
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(f) NO PROCEEDINGS. 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 this Agreement and
the applicable Supplement, or (ii) seeking to prevent the consummation of any
of the transactions contemplated by this Agreement and the applicable
Supplement, or (iii) seeking any determination or ruling that is likely to have
a material and adverse effect on the performance by such Servicer of its
obligations under this Agreement and the applicable Supplement.
(g) CONSENTS. No authorization, consent, license, order or
approval of or registration or declaration with any Governmental Authority is
required to be obtained, effected or given by such Servicer in connection with
the execution and delivery of this Agreement and the applicable Supplement by
such Servicer or the performance of its obligations hereunder and thereunder
except where the failure to obtain such authorization, consent, license, order
or approval is not likely to have a material adverse effect on the performance
by such Servicer of its obligations under the Agreement and the applicable
supplement.
(h) COLLECTION ACCOUNTS. The names, addresses and ABA
numbers of all the Collection Account Banks, together with the account numbers
of the Collection Accounts and the name of a contact person at such Collection
Account Bank, are specified in Schedule I hereto as of the initial Closing
Date. Also specified in Schedule I hereto are the name, address and ABA
numbers of the Concentration Account Bank, together with the account number and
the name of a contact person for the Concentration Account as of the initial
Closing Date.
(i) PAYMENT INSTRUCTIONS. The Transferor has instructed (or
has caused the Servicers to instruct) all Obligors to make all payments (either
directly or indirectly through one or more banks, agents, or third-parties) on
the Receivables (i) to a Servicer Collection Account, (ii) to a Transferor
Collection Account or (iii) to the appropriate offices of the Servicers where
the receiving employees have been instructed not to deposit such payments into
any account except for a Transferor Collection Account.
(j) DAILY REPORTS AND DETERMINATION DATE CERTIFICATES. Each
Daily Report and Determination Date Certificate delivered by such Servicer
pursuant to this Agreement (and any information delivered by such Servicer to
the Master Servicer for purposes of preparing such documents) shall be true and
correct in all material respects as of the date such report or certificate is
delivered.
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(k) SERVICER DEFAULT. No Servicer Default with respect to
such Servicer has occurred or is continuing.
The representations and warranties set forth in this SECTION
3.03 shall survive the Transfer of the Receivables to the Trust and the
issuance of the Certificates, and shall cease and be of no effect upon
repayment in full of the Invested Amount of the last outstanding Series and all
other obligations of the Transferor hereunder. Upon a discovery by the
Transferor, any Servicer or the Trustee of a material breach of any of the
foregoing representations and warranties, the party discovering such breach
shall give prompt written notice to the other parties. The Trustee's
obligations in respect of any such breach are limited as provided in SECTION
11.02(g).
SECTION 3.04. COVENANTS OF THE SERVICERS. Each Servicer
hereby covenants that, until the termination of the Amortization Period:
(a) CHANGE IN ACCOUNTS. Such Servicer will not (i) terminate
and substitute any Concentration Account (or make any change in its
instructions to Collection Account Banks regarding payments to be made to the
Concentration Account) except as required pursuant to SECTION 4.02 or any
Series Account except as required pursuant to the applicable Supplement or (ii)
add or terminate any institution as a Collection Account Bank from those listed
in SCHEDULE I hereto, except as otherwise permitted pursuant to SECTION 4.02 or
unless the Trustee shall have received written notice of such addition,
termination or change and executed copies of Collection Account Notices to each
new Collection Account Bank.
(b) COLLECTIONS. 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, in the case
of Collections remitted directly to such Servicer or any Affiliate by the
applicable Obligor, to deposit, or cause such Affiliate to deposit, such
Collections, in kind and in the form received, to the appropriate Collection
Account as soon as practicable, but in no event later than the next succeeding
Business Day.
(c) COMPLIANCE WITH CONTRACTS AND REQUIREMENTS OF LAW. Such
Servicer will duly satisfy in all material respects all obligations on its part
to be fulfilled under or in connection with each Receivable and the related
Contracts, will maintain in effect all qualifications required under
Requirements of Law in order to service each Receivable and will comply in all
material respects with all other Requirements of Law in connection with
servicing each Receivable, in each case except where the failure to perform
such obligations or maintain such qualifications would not be substantially
likely to have a material adverse effect on any Investors.
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(d) EXTENSION OR AMENDMENT OF RECEIVABLES. Except as
permitted by SECTION 3.01(c), such Servicer will not extend, amend or otherwise
modify (or consent or fail to object to any such extension, amendment or
modification by an Originator or the Transferor) the terms of any then existing
Receivable, or amend, modify or waive (or consent or fail to object to any such
amendment, modification or waiver by an Originator or the Transferor) any
payment term or condition of any invoice related thereto if the effect of any
such amendment, modification or waiver would impair the collectibility or delay
the payment of any Receivable beyond 60 days from date of invoice. Such
Servicer will not rescind or cancel, or permit the rescission or cancellation
of, any Receivable except as ordered by a court of competent jurisdiction or
other Governmental Authority. Notwithstanding the foregoing provisions of this
SECTION 3.04(d), each Servicer and each Originator may extend, amend, modify,
cancel or rescind (and no Servicer need object to any such action by an
Originator) any Diluted Receivable in connection with a valid dispute;
provided, however, that such amendment, modification, cancellation or
rescission shall not have a material adverse effect on the interests of the
Certificateholders.
(e) PROTECTION OF CERTIFICATEHOLDERS' RIGHTS. Except as
authorized by this Agreement and the applicable Supplement, such Servicer will
take no action which would impair the rights of Certificateholders in any
Receivable or Trust Asset.
(f) DEPOSITS TO CONCENTRATION ACCOUNT, ANY SERIES ACCOUNT OR
ANY COLLECTION ACCOUNT. Such Servicer will not deposit or otherwise credit, or
cause to be so deposited or credited, or consent or fail to object to any such
deposit or credit, to the Concentration Account, any Collection Account or any
Series Account cash or cash proceeds other than Collections, Cure Funds or
other funds constituting Trust Assets.
(g) RECEIVABLES NOT TO BE EVIDENCED BY PROMISSORY NOTES.
Such Servicer will take no action to cause any Receivable to be evidenced by
any "instrument" (as defined in the UCC of the jurisdiction whose law governs
the perfection of the interest in such Receivable created hereunder), except in
connection with its enforcement, in which event the Transferor shall deliver
such instrument to the Trustee as soon as reasonably practicable but in no
event more than three Business Days after execution thereof.
(h) REPORTING REQUIREMENTS. Such Servicer will (or will
cause the other Servicer to) furnish to the Trustee and (in the case of clauses
(i), (ii)(A) and (iv) below) to each Rating Agency:
(i) within one Business Day after a Responsible
Officer becomes aware of the occurrence of a Servicer Default,
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any Early Amortization Event, the commencement of a Set-Aside Period
and each event which, with the giving of notice or lapse of time or
both, would constitute an Early Amortization Event, notification of
such occurrence;
(ii) as soon as possible and in any event (A)
within three Business Days after a Responsible Officer becomes aware
of the occurrence of a Servicer Default, any Early Amortization Event,
any Set-Aside Period, and each event which with the giving of notice
of lapse of time or both, would constitute a Servicer Default or an
Early Amortization Event, the statement of the chief financial officer
or chief accounting officer or other Responsible Officer setting forth
details of such Servicer Default or Early Amortization Event or
Set-Aside Period or other event and the action which such Servicer has
taken and proposes to take with respect thereto, and (B) within three
Business Days after the occurrence thereof, notice of any other event,
development or information which is likely to materially and adversely
affect the ability of such Servicer to perform its obligations under
this Agreement;
(iii) as soon as practicable and in any event within 60
days after the end of each of the first three quarters of each fiscal
year of such Servicer, copies of a balance sheet of the Servicer as of
the end of such quarter, and the related revenue and expense
statements and statements of cash flows each for the period commencing
at the end of the previous fiscal year and ending with the end of such
quarter, all of the foregoing to be certified by a Responsible Officer
of the Servicer and prepared in accordance with generally accepted
accounting principles; PROVIDED, that, so long as such Servicer (or
its parent corporation) is subject to the information reporting
requirements of the Securities Exchange Act of 1934, delivery of such
Servicer's (or such parent corporation's) 10-Q as filed with the
Securities and Exchange Commission shall satisfy the requirements of
this clause (iii);
(iv) as soon as practicable and in any event within 120
days after the end of each fiscal year of each Servicer, a balance
sheet of the Servicer as of the end of such fiscal year, and the
related revenue and expense statements and statements of cash flows
for such fiscal year, all of the foregoing to be certified by a
Responsible Officer of the Servicer and prepared in accordance with
generally accepted accounting principles; PROVIDED, that, so long as
such Servicer (or its parent corporation) is subject to the
information reporting requirements of the Securities Exchange Act of
1934, delivery of such Servicer's (or such parent corporation's) 10-K
as filed with the Securities and Exchange
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Commission shall satisfy the requirements of this clause (iv);
(v) promptly, from time to time, such other
information, documents, records or reports within its possession
respecting the Receivables, the other Trust Assets or the condition or
operations, financial or otherwise, of the Servicers as the Trustee
may from time to time reasonably request.
Each Servicer shall provide to the Trustee access to the
documentation regarding the Receivables serviced by it in such cases where the
Trustee is required in connection with the enforcement of the rights of
Certificateholders or by applicable statutes or regulations to review such
documentation, such access being afforded without charge but only (i) upon
reasonable request, (ii) during normal business hours, (iii) subject to such
Servicer's normal security and confidentiality procedures and (iv) at
reasonably accessible offices in the continental United States designated by
such Servicer.
(i) FILING OF CONTINUATION STATEMENTS. Each Servicer shall
prepare and file such continuation statements and any other documents
reasonably requested by the Trustee or the Transferor or which may otherwise be
required by law to fully preserve and protect the interest of the Trustee,
Transferor or any of the Certificateholders hereunder in and to the
Receivables. The Trustee shall be under no obligation whatsoever to file (or
to request the filing of) such continuation statements or other documents.
(j) COMPLIANCE WITH AND CHANGE IN CREDIT AND COLLECTION
POLICY. Each Servicer shall comply with and perform its servicing obligations
with respect to the Receivables in accordance with the applicable Credit and
Collection Policy, except insofar as any failure to so comply or perform would
not adversely affect the Certificateholders in any material respect. Subject
to compliance with all Requirements of Law, the Transferor or the Servicers, as
applicable, will not change the terms and provisions of the 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. The
Transferor and/or the Servicers on its behalf shall give each Rating Agency
prior written notice of any changes in the Credit and Collection Policy.
(k) CHANGE IN CORPORATE NAME. Such Servicer will not (i) (if
such Servicer is also an Originator) make any change to its corporate name or
principal place of business or use any tradenames, fictitious names, assumed
names or "doing business as" names for such company's business operations
unless, within 30 days after the effective date of any such name change, change
in principal place of business, or use, such Servicer delivers to the
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Trustee such financing statements (Forms UCC-1 and UCC-3) executed by it which
the Trustee may reasonably request to reflect such name change, change in place
of business or use, together with such other documents and instruments that the
Trustee may reasonably request in connection therewith or (ii) change its
jurisdiction of incorporation unless the Trustee shall have received from such
Servicer (A) written notice of such change within 30 days after the effective
date thereof, and (B) on or prior to such 30th day after the effective date, an
Opinion of Counsel, as to such incorporation and such Servicer's valid
existence and good standing and as to the matters referred to in the first
sentence of SECTION 2.04(a); PROVIDED that no such Opinion of Counsel need be
given in connection with a merger of TE with and into CEI or CEI with and into
TE so long as CEI or TE, as applicable, is the surviving corporation.
(l) RECEIVABLES PURCHASE AGREEMENT. Such Servicer will at
its expense timely perform and comply in all material respects with all
provisions, covenants and other promises required to be observed by it under
the Receivables Purchase Agreement, maintain the Receivables Purchase Agreement
in full force and effect, enforce its rights under the Receivables Purchase
Agreement in accordance with its terms, and make to any party to the
Receivables Purchase Agreement, upon the Trustee's request, such reasonable
demands and requests for information and reports or for action as such Servicer
is entitled to make thereunder.
(m) APPLICATION OF RECEIVABLES. With respect to each
Business Day, such Servicer shall either (i) apply all Collections received in
the Collection Accounts on such day to the related Receivables balances on the
records of such Servicer prior to the preparation of the Daily Report on the
immediately following Business Day or (ii) subtract such unapplied Collections
from the Net Receivables Balance (as contemplated by the definition thereof) to
be reported in such Daily Report.
SECTION 3.05. REPORTS AND RECORDS FOR THE TRUSTEE. (a)
DAILY RECORDS. On each Business Day, the Master Servicer shall provide by
telecopy to the Trustee, the Transferor and the Paying Agent, and upon request
to any Enhancement Provider, a report (the "DAILY REPORT") substantially in the
form of EXHIBIT B hereto (as the same may be supplemented in accordance with
the terms of any Supplement) or in such similar form as may be reasonably
acceptable to the Trustee, the Paying Agent, the Transferor and the Master
Servicer. Such Daily Report shall set forth, among other things, (i) the
Collections in respect of the Receivables processed by the Servicers on the
immediately preceding Business Day, (ii) the amount of Eligible Receivables as
of the close of business on the immediately preceding Business Day, (iii) the
Net Receivables Balance, Base Amount and Floating Allocation Percentage at the
close of business on the immediately preceding Business Day and
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(iv) if the Transferor or the Master Servicer has requested the Invested Amount
of any Variable Funding Certificate to be increased on the day of delivery of
such report, the Net Invested Amount and Floating Allocation Percentage after
giving effect to any such increases.
(b) DETERMINATION DATE CERTIFICATE. On or before each
Determination Date with respect to each outstanding Series, the Master Servicer
shall deliver by telecopy to the Trustee, the Transferor and the Paying Agent,
with a copy delivered by telecopy or mail to each Rating Agency and to each
Clearing Agency (or, in the case of the initial Clearing Agency, Cede & Co. as
its nominee), a certificate (the "DETERMINATION DATE CERTIFICATE")
substantially in the form of EXHIBIT C hereto (as the same may be supplemented
in accordance with the terms of any Supplement) or in such similar form as may
be reasonably acceptable to the Trustee, the Paying Agent, the Transferor and
the Master Servicer. Such Determination Date Certificate shall set forth,
among other things, any changes in the applicable Certificate Rate for the
upcoming Interest Period, any payments to be made to Investors on the related
Distribution Date, such other matters as may be required by any Supplement and
(at all times prior to the Amortization Date) calculations of the Required
Reserves for each Series.
SECTION 3.06. ANNUAL CERTIFICATE OF SERVICERS. On or before
April 30 of each calendar year, beginning with April 30, 1997, the Servicers
shall deliver to the Trustee, each Rating Agency and each Enhancement Provider
an Officer's Certificate, executed by a Responsible Officer of each Servicer,
substantially in the form of EXHIBIT D hereto. A copy of each such certificate
will be sent to each Investor by the Trustee.
SECTION 3.07 ANNUAL SERVICING REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS. (a) On or before April 30 of each calendar year, beginning with
April 30, 1997, the Servicers shall cause a firm of Independent Public
Accountants (who may also render other services to the Servicers or the
Transferor) to furnish a report (addressed to the Trustee) to the Trustee, the
Servicers, each Rating Agency and each Enhancement Provider substantially to
the effect that (i) such accountants have examined certain documents and
records relating to the servicing of Receivables under this Agreement, compared
the information contained in the Determination Date Certificates delivered
pursuant to SECTION 3.05(b) during the period covered by such report with such
documents and records and that, on the basis of such examination, and
describing what exceptions, if any, they detected between such documents and
records and such Determination Date Certificates and (ii) such accountants have
compared the mathematical calculations of certain amounts set forth in the
Determination Date Certificates delivered pursuant to SECTION 3.05(b) during
the period covered by such report with the Servicers' computer reports which
were the source
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of such amounts and describing what exceptions, if any, they detected between
the calculations set forth in such certificates and contained in the Servicers'
computer reports which were the source of such calculations.
(b) As soon as practicable and in any event within 120 days
after the close of each of its fiscal years commencing with the 1995 fiscal
year, the Transferor shall deliver to the Trustee and each Rating Agency the
annual audited consolidated financial statements of Centerior (including
balance sheets as of the end of such period, related revenue and expense
statements, and a statement of cash flows) certified by Independent Public
Accountants and prepared in accordance with generally accepted accounting
principles. Delivery of a copy of Centerior's 10-K as filed with the
Securities and Exchange Commission shall satisfy the requirements of this
SECTION 3.07(b).
SECTION 3.08. ANNUAL INVESTORS' STATEMENT. On or before
February 15 of each calendar year, beginning with February 15, 1997, the Master
Servicer (so long as it as an Affiliate of Centerior and, following any Service
Transfer, the Transferor) shall provide to the Paying Agent and the Paying
Agent shall forward or cause to be forwarded to any Person who at any time
during the preceding calendar year was an Investor, a statement prepared by the
Master Servicer containing any information which is required to be provided
under the Internal Revenue Code by an issuer of indebtedness to the holders
thereof and such other customary information in the possession of the
Transferor or the Master Servicer as is necessary to enable the Investors to
prepare their federal income tax returns. Such obligation of the Master
Servicer shall be deemed to have been satisfied to the extent that
substantially comparable information shall be provided by the Paying Agent
pursuant to any requirements of the Internal Revenue Code as from time to time
in effect.
SECTION 3.09. TAX AND USURY TREATMENT. The Transferor has
entered into this Agreement, and the Investor Certificates have been (or will
be) issued to and acquired by the Investors, and the Transferor Revolving
Certificate has been (or will be) issued to the Transferor, with the intention
that, for federal, state, foreign and local income and franchise tax and usury
law purposes, the Investor Certificates and the Transferor Revolving
Certificate will be indebtedness of the Transferor secured by the Receivables.
The Transferor, by entering into this Agreement, and each Certificateholder, by
the acceptance of its Certificate, agree to treat the Certificates for purposes
of federal, state and local income and franchise taxes and for any other tax
imposed on or measured by income and usury law purposes as indebtedness of the
Transferor. In accordance with the foregoing, the Transferor agrees that it
will report its income for such federal, state, foreign and local income or
franchise taxes, or for purposes of any
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other taxes on or measured by income, on the basis that it is the owner of the
Receivables. Furthermore the Trustee hereby agrees to treat the Trust as a
security device only, and shall not file tax returns or obtain an employer
identification number on behalf of the Trust (except as may be required as a
result of changes in law).
SECTION 3.10. NOTICE TO ORIGINATORS. In the event that an
Originator is no longer acting as Servicer, any Successor Servicer shall
deliver or make available to such Originator and the Transferor each
certificate and report required to be delivered thereafter pursuant to SECTIONS
3.05(b), 3.06 and 3.07.
SECTION 3.11. ADJUSTMENTS. If either Servicer makes a
mistake with respect to the amount of any Collection and deposits or pays an
amount that is less than or more than the actual amount of such Collection,
such Servicer shall, promptly upon discovery thereof, appropriately adjust the
amount subsequently deposited into the Concentration Account or paid to reflect
such mistake and send written notice thereof to the Trustee. Any Receivable in
respect of which a dishonored check is received shall be deemed not to have
been paid.
ARTICLE IV
RIGHTS OF CERTIFICATEHOLDERS AND
ALLOCATION AND APPLICATION OF COLLECTIONS
SECTION 4.01. RIGHTS OF CERTIFICATEHOLDERS. (a) The
Investor Certificates shall represent fractional undivided beneficial interests
in the Trust (with respect to each Series, the "INVESTORS' INTEREST"), which
shall consist of the right to receive, to the extent necessary to make the
required payments with respect to the Investor Certificates of such Series at
the times and in the amounts specified in the related Supplement, the portion
of Collections allocable to Investors of such Series pursuant to this Agreement
and the related Supplement from funds on deposit in the Concentration Account
and the Reserve Account allocable to Investors of such Series and funds on
deposit in any related Series Account and funds available pursuant to any
related Enhancement (collectively with respect to all Series, the "AGGREGATE
INVESTORS' INTEREST"), it being understood that the Investor Certificates of
any Series or Class shall not represent any interest in any Series Account or
Enhancement for the benefit of any other Series or Class. The Transferor
Revolving Certificate shall represent the fractional undivided beneficial
interest (such interest, the "TRANSFEROR INTEREST") in the remainder of the
Trust Assets not allocated pursuant to this Agreement or any Supplement to the
Aggregate Investors' Interest and shall evidence the right of the Transferor to
receive the Transferor Percentage of Collections with
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respect to the Receivables and other amounts at the times and in the amounts
specified in this Agreement or in any Supplement until the amounts allocated to
the Transferor Revolving Certificate shall have been paid in full. The
Transferor Interest shall not include any interest in the Concentration
Account, the Reserve Account, any Series Account or any Enhancement, except as
specifically provided in this Agreement or any Supplement.
(b) The Floating Allocation Percentage, which is the
percentage that determines the portion of the Aggregate Investors' Interest
allocable to such Series, and the Transferor Percentage, which is the
percentage that determines the Transferor Interest, shall be initially computed
by the Master Servicer as of the opening of business of the Master Servicer on
the initial Closing Date. Thereafter until the commencement of the
Amortization Period, the Floating Allocation Percentage for each Series and the
Transferor Percentage, and through the recomputations thereof the Investors'
Interest for each Series and the Transferor Interest, shall be automatically
recomputed by the Master Servicer as of the close of business of the Master
Servicer on each Business Day. Each of the Investors' Interests, the Floating
Allocation Percentage, the Transferor Interest and the Transferor Percentage
(i) shall remain constant from the time as of which any such computation or
recomputation is made until the times as of which the next such recomputation,
if any, shall be made and (ii) as computed as of the close of business of the
Master Servicer on the Business Day immediately preceding the commencement of
the Amortization Period, shall remain constant at all times during the
Amortization Period.
(c) The purchase price (the "ASSET TRANSFER PRICE") to be
paid to the Transferor for the Aggregate Investors' Interest at any point in
time on or prior to the Amortization Date shall equal the Floating Allocation
Percentage TIMES the aggregate Outstanding Balance of the Receivables included
in the Trust Assets at such time; PROVIDED that the Investors shall have no
obligation to make any payments in excess of their initial Invested Amounts
except (i) to the extent specified in the related Supplement and (ii) to the
extent such excess payments are, pursuant to the Transferor's "Deferred Payment
Right" (as defined below), paid solely out of the Aggregate Investors' Interest
in the Receivables after the Aggregate Invested Amount has been reduced to zero
and all other required payments with respect to the Investor Certificates, as
provided in the applicable Supplements, shall have been paid. To the extent
that the Asset Transfer Price exceeds the Aggregate Invested Amount, the
Transferor shall be entitled to receive such excess as deferred payment (the
"DEFERRED PAYMENT RIGHT") from the Investors in consideration of their
acquisition of the Investors' Interest. It is expressly understood and agreed
that the Deferred Payment Right shall be payable solely from the Aggregate
Investors' Interest in the Trust Assets and that none of the Investors, the
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Trustee nor any Enhancement Provider shall have any personal liability
therefor. The Deferred Payment Right shall be initially computed by the Master
Servicer as of the opening of business of the Master Servicer on the initial
Closing Date and shall thereafter be automatically recomputed by the Master
Servicer on each Business Day concurrently with the recomputation of the
Investors' Interests under SECTION 4.01(b).
SECTION 4.02. ESTABLISHMENT OF COLLECTION ACCOUNTS,
CONCENTRATION ACCOUNT AND OTHER TRUST ACCOUNTS. (a) On or prior to the
initial Closing Date, the Master Servicer, for the benefit of the
Certificateholders, shall establish and maintain or cause to be established and
maintained with the Trustee, in the name of the Trustee on behalf of the Trust,
the Concentration Account, the Reserve Account and the Carrying Cost Account
described below in this SECTION 4.02 accessible by the Trustee and, subject to
the limitations set forth in this SECTION 4.02, the Master Servicer, each such
account bearing a designation clearly indicating that the funds deposited
therein are held for the benefit of the Certificateholders. Any other Trust
Accounts established from time to time shall be similarly established and
maintained with the Trustee or any Eligible Institution and shall also bear a
designation clearly indicating that the funds deposited therein are held for
the benefit of the Certificateholders. The Trustee shall possess all right,
title and interest in and to all funds from time to time on deposit in the
Concentration Account, the Reserve Account and all other Trust Accounts and in
all proceeds thereof. Each Trust Account shall be under the sole dominion and
control of the Trustee for the benefit of the Certificateholders. Except as
expressly provided in this Agreement, each Servicer agrees that it shall have
no right of setoff or banker's lien against, and no right to otherwise deduct
from, any funds held in the Trust Accounts for any amount owed to it by the
Trustee, the Trust or any Certificateholder. Each Servicer shall (i) from time
to time, instruct each Collection Account Bank at which a Servicer Collection
Account is kept to transfer all Collections on deposit in such account to a
Transferor Collection Account and (ii) on each Business Day, deposit, or cause
to be deposited, all other Collections (including all available funds on
deposit in the Transferor Collection Accounts) into a segregated Trust Account
(such Trust Account, the "CONCENTRATION ACCOUNT" and the institution holding
such account being the "CONCENTRATION ACCOUNT BANK"). No Servicer shall make,
or cause to be made, any withdrawal of any funds on deposit in a Servicer
Collection Account except for a transfer of such funds to a Transferor
Collection Account. In no event shall any Servicer permit the aggregate amount
of Collections on deposit at any Collection Account Bank at which a Servicer
Collection Account is kept to exceed [$100,000] at any one time. In addition,
on or prior to the initial Closing Date, the Concentration Account Bank shall
set up (i) an administrative sub-account of the Concentration Account or a
separate Trust Account (such account, the "RESERVE ACCOUNT") into which funds
on deposit in the Concentration Account may be withdrawn from time to time as
described in this ARTICLE IV; (ii) an administrative sub-account of the
Concentration Account or a separate Trust Account (such account, the "CARRYING
COST ACCOUNT" into which funds shall be set aside for the payment of Carrying
Costs as described in SECTION 4.03 and (iii) to the extent required by any
Supplement for any Series, an administrative sub-account of the Concentration
Account or a separate Trust Account meeting the requirements described above
for the benefit of the Investors of
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such Series (each, a "DEFEASANCE ACCOUNT") into which funds from the other
Trust Accounts may be deposited as described in the related Supplement.
Notwithstanding the foregoing, if and to the extent that funds that are not
Collections or other Trust Assets are deposited into the Concentration Account,
the Master Servicer may direct the Trustee to withdraw such funds from the
Trust Accounts to be returned to the appropriate Person to whom such funds
belong.
If, at any time, the institution holding any of the Trust
Accounts ceases to be an Eligible Institution, the Servicers, upon actual
knowledge thereof, for the benefit of the Certificateholders, shall within 30
Business Days (i) establish new Trust Accounts meeting the conditions
specified above with an Eligible Institution, (ii) transfer any cash and/or any
investments held therein or with respect thereto to such new Trust Accounts and
(iii) in the case of any new Concentration Account, deliver to all Collection
Account Banks new Collection Account Notices (with copies thereof to the
Trustee) referring to such new Concentration Account, and from the date such
new Concentration Account is established, it shall be the "Concentration
Account." Pursuant to the authority granted to the Servicers in SECTION 3.01,
the Master Servicer shall have the power to instruct the Trustee to make
withdrawals and payments from the Concentration Account and the Reserve Account
for the purposes of carrying out the Servicers' or the Trustee's duties
specified in this Agreement.
Funds on deposit in any Trust Accounts on any date and which
are not released to the Transferor, including funds required pursuant to the
applicable Supplement to be deposited to the Transferor's Account on such date,
shall at the direction of the Master Servicer be invested by the Trustee or the
Eligible Institution maintaining such accounts in Eligible Investments as
instructed by the Master Servicer in writing (which may be a standing
instruction). All such Eligible Investments shall be held by the Trustee.
Such funds shall be invested in Eligible Investments that will mature so that
such funds will be available in amounts sufficient for the Master Servicer to
make each distribution required under the applicable Supplement on the
Distribution Date with respect to such Collection Period or the last day of an
Interest Period if such day is other than a Distribution Date. On each
Distribution Date, all interest and other investment earnings (net of losses
and investment expenses) received on funds on deposit in the Concentration
Account, to the extent such investment income is not needed to pay the
Investors on such Distribution Date, shall be paid to the Transferor, except as
otherwise specified in any Supplement. The Trustee is hereby authorized,
unless otherwise directed by the Master Servicer, to effect transactions in
Eligible Investments through a capital markets affiliate of the Trustee or its
own investment department.
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(b) On or prior to the initial Closing Date, the Servicers,
for the benefit of the Certificateholders, shall establish and maintain or
cause to be established and maintained in the name of the Trustee, on behalf of
the Trust, with a depositary 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 (each, a "COLLECTION BANK")
segregated accounts accessible by the Trustee and the Servicers, subject to the
limitations set forth in this SECTION 4.02 (each such account, a "COLLECTION
ACCOUNT") to which Collections, subject to all Requirements of Law, are to be
remitted. Those Collection Accounts to which Collections are to be remitted
directly by Obligors by mail and into which Collections are deposited directly
by the Servicers are referred to as "TRANSFEROR COLLECTION ACCOUNTS"). Those
Collection Accounts into which Collections are deposited by third party
collection agents are referred to as "SERVICER COLLECTION ACCOUNTS." Each
Servicer Collection Account shall be maintained with a Collection Account Bank
which is a member of the FDIC and each Transferor or Collection Account shall be
maintained with an Eligible Institution. The Collection Accounts shall be
under the sole dominion and control of the Trustee for the benefit of the
Certificateholders; PROVIDED, HOWEVER, that each Collection Account shall be
accessible by the applicable Servicer for the purpose of transferring
Collections to the Concentration Account in the manner set forth in SECTION
4.02(a). The name, location and account number of each current Collection
Account is set forth on Schedule I attached hereto. Each Collection Account
shall be maintained with documentation and instructions in form and substance
satisfactory to the Trustee. Such documentation shall provide, among other
things, that available amounts shall be promptly transferred to the
Concentration Account or, in the case of a Servicer Collection Account, to a
Transferor Collection Account, when required by the terms of this Agreement.
Neither CEI nor TE nor the Transferor shall (i) change any Collection Account,
or establish any additional Collection Account without, in any such case,
causing any replacement Collection Account Bank to execute and deliver a
Collection Account Letter as contemplated by SECTION 4.02(c) below prior to the
establishment of such additional or alternative Collection Account or (ii)
without the prior written consent of the Trustee, change such instructions or
documentation at any time so long as the Trustee has any interest in the
Receivables. Each Originator will deposit any Collections received by it
directly from an Obligor into a Transferor Collection Account within one
Business Day following the Business Day on which such Originator has knowledge
of receipt thereof.
(c) Each of CEI, TE and the Transferor hereby agrees and
acknowledges that (i) such Person has executed and delivered to the Trustee a
letter and executed acknowledgment thereto substantially in the form of EXHIBIT
E hereto, addressed to each banking institution with which such Person
maintains a Collection Account (each, a "COLLECTION ACCOUNT LETTER") and (ii)
each such Person shall execute and deliver a substantially similar Collection
Account Letter prior to the establishment of any additional or alternative
Collection Account. Each of CEI, TE and the Transferor hereby agrees, and the
Trustee hereby accepts, that such letter transfers all right, title and
interest in all monies, securities and instruments in each Collection Account
to the Trustee. Each of CEI, TE and the Transferor agrees to execute such
further documents
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and take such other actions as may be reasonably requested by the Trustee in
order to effect such transfer.
SECTION 4.03. DAILY CALCULATIONS AND ALLOCATION OF
COLLECTIONS. (a) CALCULATION OF CARRYING COST AMOUNT AND BASE AMOUNT. On or
prior to _________ (New York City time) on each Business Day prior to the
Amortization Date, the Master Servicer shall deliver the Daily Report to the
Trustee and the Paying Agent as contemplated by SECTION 3.05(a). No increases
shall be made to the Invested Amount of any Variable Funding Certificate if, as
a result thereof (and after giving effect to the application of funds
therefrom), the resulting Net Invested Amount as reflected in such Daily Report
would be greater than the Base Amount.
(b) DAILY ALLOCATION OF FUNDS IN THE CONCENTRATION ACCOUNT,
CARRYING COST ACCOUNT AND RESERVE ACCOUNT PRIOR TO THE AMORTIZATION DATE. On
each Business Day prior to the Amortization Date, the Master Servicer shall
instruct the Trustee in the applicable Daily Report to, and the Trustee shall,
allocate all Collections and other funds then on deposit in the Trust Accounts
(other than funds which are required to be returned pursuant to SECTION 4.02(a)
or are required by the terms of any Supplement to be dealt with in some other
manner) to the following items, in the following order of priority:
FIRST, to the extent that the funds in the Carrying Cost
Account are less than the Carrying Cost Amount, funds shall be
transferred from the Concentration Account to the Carrying Cost
Account up to the amount of such deficiency. Funds which are on
deposit in the Carrying Cost Account shall be withdrawn solely for the
purpose of paying the applicable Carrying Costs and any other fees and
expenses included in the calculation of the Carrying Cost Amount. If,
on any day, the amount of Collections on deposit in the Carrying Cost
Account exceeds the Carrying Cost Amount, then funds on deposit in the
Carrying Cost Account up to the amount of such excess shall, if so
requested by the Master Servicer in the Daily Report, be transferred
to the Reserve Account and/or the Concentration Account for
distribution in accordance with the remaining provisions of this
SECTION 4.03(b).
SECOND, if a Set-Aside Period has occurred and is continuing,
funds on deposit in the Concentration Account shall be transferred
into the Reserve Account until the Net Invested Amount is less than or
equal to the Base Amount. If the Base Amount is greater than the Net
Invested Amount and funds are on deposit in the Reserve Account, then
funds on deposit in the Reserve Account up to the amount of such
excess shall, if so requested by the Master Servicer in the Daily
Report, be transferred to the Concentration Account for
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distribution in accordance with the remaining provisions of this
SECTION 4.03(b).
THIRD, if the Base Amount is greater than or equal to the Net
Invested Amount, funds on deposit in the Reserve Account shall, if
requested by the Master Servicer in the Daily Report and permitted by
the Supplement relating to any Investor Certificates, or if otherwise
required under any Supplement relating to any Investor Certificates,
be withdrawn to reduce the Invested Amount of any such Investor
Certificates in the order of priority described below and in
accordance with the terms of the applicable Supplements;
FOURTH, to the extent the Master Servicer has so requested in
the Daily Report if permitted by the Supplement relating to any
Investor Certificates or to the extent otherwise required under the
Supplement relating to any Investor Certificates, any funds on deposit
in the Concentration Account shall be withdrawn to reduce the Invested
Amount of any such Investor Certificates (or to deposit such amounts
in any Defeasance Account for the purpose of making such reduction) in
the order of priority described below and in accordance with the terms
of the applicable Supplements;
FIFTH, to the extent required by this Agreement or any
Supplement, funds on deposit in the Concentration Account shall be
deposited to the Trustee's own account, any Defeasance Account or any
other Series Account for the payment of any fees, costs, expenses or
other obligations (including prepayment premiums, if applicable) owed
to the Trustee and/or the Investors which are not payable from funds
in the Carrying Cost Account;
SIXTH, any remaining funds on deposit in the Concentration
Account shall be deposited into the Transferor's Account to be applied
towards the purchase of new Receivables, towards the payment of
ordinary costs and expenses of the Transferor and towards the payments
of any other amounts specified or permitted under the Receivables
Purchase Agreement or this Agreement; PROVIDED that, if the Transferor
so directs, amounts owed to the Originators under this clause SIXTH
may be paid directly to the Originators.
If, on any day prior to the Amortization Date, funds are to be
distributed under CLAUSES THIRD or FOURTH above to the Investors of more than
one Series, such funds shall be distributed among such Investors in the
following order of priority: first to all such Investors whose Certificates
constitute a Senior Class ratably in accordance with their Class Allocation
Percentages until the amount of the required or requested payments to be
distributed
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to such Investors has been paid in full, and second to all such Investors whose
Certificates constitute a Subordinated Class in accordance with their Class
Allocation Percentages until the amount of such required or requested payments
to be distributed to such Investors has been paid in full. If, on any day prior
to the Amortization Date, the funds to be distributed under CLAUSE FIFTH are
less than the fees, costs, expenses and other obligations to be paid pursuant to
such CLAUSE, such funds shall be allocated PRO RATA for distribution to the
Persons to whom such amounts are owed according to the respective amounts of
such obligations held by such Persons.
Funds on deposit in the Carrying Cost Account shall be
distributed in the following order of priority: FIRST, to the Trustee for
payment of the Trustee's Fee; SECOND, to the payment of the Servicing Fee to
the extent owed to a Successor Servicer which is not an Affiliate of the
Originators or of Centerior; THIRD, to the payment of accrued and unpaid Yield
on all Investor Certificates constituting a Senior Class; FOURTH, to the
payment of accrued and unpaid Yield on all Investor Certificates constituting a
Subordinated Class; FIFTH, to the payment of any other costs, fees, expenses or
other obligations included in the calculation of the Carrying Cost Amount and
SIXTH, to the payment of the Servicing Fee to the extent owed to CEI, TE or any
Affiliate of either of them. If, on any day prior to the Amortization Date,
the funds available for distribution from the Carrying Cost Account under any
of the immediately preceding CLAUSES FIRST through SIXTH above are less than
the amount of costs, fees, expenses or other obligations to be paid pursuant to
any such clause, then, in any such case, such available funds shall be
allocated by the Master Servicer PRO RATA for distribution to the Persons to
whom such amounts are owed according to the respective amounts of such
obligations held by such Persons and all obligations in lower priority
categories shall remain unsatisfied until the obligations in the preceding
category have been satisfied.
All Collections and other funds distributed for the benefit of
Investors of any Series pursuant to this SECTION 4.03(b) will be deposited and
distributed as specified in the related Supplement, and amounts so allocated to
any Series will not, except as specified in the related Supplement or as
provided in the first paragraph of SECTION 4.03(c)(i), be available to the
Investors of any other Series. Allocations among the Series or to any
Enhancement Agreement and among the Classes in any Series or to any Enhancement
Provider shall be set forth in the related Supplement or Supplements.
All obligations in lower priority categories shall remain
unsatisfied until the obligations in the preceding category have been
satisfied.
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(c) ALLOCATION OF FUNDS IN THE TRUST ACCOUNTS DURING THE
AMORTIZATION PERIOD. (i) On the Amortization Date, the outstanding principal
amount of the Variable Funding Certificate shall no longer be subject to
increase and the Floating Allocation Percentage shall, in accordance with the
terms of SECTION 4.01(b), become fixed as computed as of the close of business
on the Business Day immediately preceding the Amortization Date, and all funds
on deposit in the Carrying Cost Account, the Reserve Account and any Defeasance
Account shall be reallocated to the Concentration Account for distribution in
accordance with the remaining provisions of this SECTION 4.03(c).
(ii) On the Amortization Date and on each Business Day
thereafter during the Amortization Period, the Master Servicer shall direct the
Trustee in the Daily Report to, and the Trustee shall, allocate all Collections
and other funds received or held in the Concentration Account (other than any
such funds which are required to be returned pursuant to SECTION 4.02(a) or are
required by the terms of any Supplement to be dealt with in some other manner),
based on the Floating Allocation Percentage for the Amortization Period either
as funds allocable to the Investors' Interest or funds allocable to the
Transferor Interest. The Trustee shall:
(a) set aside and hold in trust in the Concentration Account,
for the benefit of the Investors, all Collections held in the Carrying
Cost Account, the Reserve Account and/or any Defeasance Account as of
the close of business on the Business Day immediately preceding the
Amortization Date, and all other Collections allocable to the
Investors' Interest;
(b) set aside and hold in trust in the Concentration Account,
for the benefit of the Investors and out of the Collections allocable
to the Transferor Interest, all fees, costs and expenses (other than
Yield, Servicing Fee or the Trustee's Fee) which have been identified
to the satisfaction of the Trustee as amounts due and owing to the
Trustee, the Investors, and/or any Successor Servicer; and
(c) deposit to the Transferor's Account all remaining
Collections allocable to the Transferor Interest.
(iii) Collections and other funds set aside and held for the
benefit of the Investors shall be allocated to the Investors in the following
order of priority:
FIRST, to be distributed for payment of accrued Carrying Costs
in the same order of priority described for the payment thereof in
SECTION 4.03(b);
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SECOND, to be distributed to Investors to reduce the Invested
Amount of all Investor Certificates in the following order of priority: FIRST,
to those Investors holding Certificates which constitute a Senior Class ratably
in accordance with their Class Allocation Percentages (as calculated on the
Amortization Date) until the Invested Amounts of such Certificates have been
reduced to zero, and SECOND to all such Investors whose Certificates constitute
a Subordinated Class in accordance with their Class Allocation Percentages (as
calculated on the Amortization Date) until the Invested Amounts of such
Certificates have been reduced to zero; and
THIRD, to be deposited to the Trustee's own account or any
Series Account or otherwise paid to any Successor Servicer for the
payment of any accrued and unpaid fees, costs, expenses or other
obligations (including prepayment premiums, if applicable) owed to
such Persons under this Agreement or any Supplement.
Notwithstanding the foregoing, to the extent set forth in any
Supplement, Collections which are identified as having been received in respect
of Receivables which are not Eligible Receivables or which are otherwise not
included in the calculation of the Net Receivables Balance may be distributed
first to the Investors of any Series which elected to give value to the
Transferor on account of such Receivables before being distributed to the
Investors of any other Series.
(iv) If, on any Business Day during the Amortization Period,
the amount of funds on deposit in the Concentration Account and available for
allocation under any of CLAUSES FIRST or THIRD above is less than the amount of
the obligations described in such CLAUSE, then the available Collections shall
be allocated by the Master Servicer PRO RATA for distribution to the Persons to
whom such amounts are owed according to the respective amounts of such
obligations held by such Persons; PROVIDED, however, that any such amounts to
be distributed to Investors shall be distributed (1) to the holders of such
obligations relating to any Senior Class until the same have been paid in full
and (2) thereafter to the holders of such obligations relating to any
Subordinated Class until the same have been paid in full. The allocation among
holders within each such Class shall be made PRO RATA according to the
respective amounts of such obligations held by them. All other obligations in
lower priority categories shall remain unsatisfied until the obligations in the
preceding category have been satisfied.
After the payment in full of all amounts described above in
priority categories FIRST through THIRD, all remaining funds received or held
in the Concentration Account and/or any of the other Trust Accounts and
allocable to the Investors' Interest shall
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be remitted to the Transferor in consideration of the Deferred Payment Right.
Collections and other funds distributed for the benefit of
Investors of any Series pursuant to this SECTION 4.03(c) will be deposited and
distributed as specified in the related Supplement, and amounts so allocated to
any Series will not, except as specified in the related Supplement, be
available to the Investors of any other Series. Allocations among the Series
or to any Enhancement Agreement and among the Classes in any Series or to any
Enhancement Provider shall be set forth in the related Supplement or
Supplements.
ARTICLE V
DISTRIBUTIONS AND REPORTS TO INVESTORS
Distributions shall be made to, and reports shall be provided
to, Investors as set forth in SECTION 3.08 hereof and in the applicable
Supplement.
ARTICLE VI
THE CERTIFICATES
SECTION 6.01. THE CERTIFICATES. The Investor Certificates of
any Series or Class shall be issued in the form contemplated by the applicable
Supplement and shall upon issue be executed and delivered by the Transferor to
the Trustee for authentication and redelivery as provided in SECTION 6.02.
Except to the extent otherwise provided in an applicable Supplement, the
Investor Certificates shall be issued in minimum denominations of [$250,000]
and in integral multiples of [$1,000] in excess thereof (except that one
Certificate may be issued in a denomination that includes any residual amount);
provided, however, that if such Investor Certificates are issued in Book-Entry
Form, the Trustee shall have no liability to any Person for the issuance of
such Certificates in a denomination not permitted by this Section 6.01. The
Investor Certificates shall be issued upon initial issuance as one or more
Investor Certificates in an aggregate original principal amount equal to the
Initial Invested Amount or, in the case of any Variable Funding Certificate, in
its applicable Stated Amount. The Transferor Revolving Certificate shall be a
single certificate, substantially in the form of EXHIBIT A hereto, and shall
represent the Transferor Interest. Each Certificate shall be executed by
manual or facsimile signature on behalf of the Transferor by the President, any
Vice President, the Chief Financial Officer, the Chief Administrative and
Credit Officer, Treasurer or the Secretary of the Transferor, or by any other
officer or assistant officer duly authorized to execute such Certificate on
behalf of the Transferor. Certificates bearing the manual or facsimile
signature of the individual who was, at the
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time when such signature was affixed, authorized to sign on behalf of the
Transferor shall not be rendered invalid, notwithstanding that such individual
ceased to be so authorized prior to the authentication and delivery of such
Certificates or does not hold such office at the date of such Certificates. No
Certificates shall be entitled to any benefit under this Agreement or the
applicable Supplement or be valid for any purpose, unless there appears on such
Certificate a certificate of authentication in substantially the form provided
for herein executed by or on behalf of the Trustee by the manual signature of a
duly authorized signatory, and such certificate upon any Certificate shall be
conclusive evidence, and the only evidence, that such Certificate has been duly
authenticated and delivered hereunder. All Certificates shall be dated the
date of their authentication.
SECTION 6.02. AUTHENTICATION OF CERTIFICATES. The Trustee
shall authenticate and deliver the Investor Certificates of each Series to, and
upon the written order of, the Transferor against payment to the Transferor of
the purchase price therefor. The Trustee shall authenticate and deliver the
Transferor Revolving Certificate to the Transferor simultaneously with its
delivery of the first Series of Investor Certificates to be issued hereunder.
The Certificates of any Series or Class shall be duly authenticated by or on
behalf of the Trustee, in authorized denominations equal to (in the aggregate)
in the case of the Investor Certificates, the Initial Invested Amount or Stated
Amount, as applicable, of such Series or Class, and, in the case of the
Transferor Revolving Certificate, in an indefinite denomination equal to the
Transferor Interest from time to time.
SECTION 6.03. REGISTRATION OF TRANSFER AND EXCHANGE OF
CERTIFICATES. (a) The Trustee shall cause to be kept at its corporate trust
operations office in New York City, New York, such office or agency to be
maintained in accordance with the provisions of SECTION 11.16 a register (the
"CERTIFICATE REGISTER") in which, subject to such reasonable regulations as it
may prescribe, a transfer agent and registrar (which may be the Trustee) (the
"TRANSFER AGENT AND REGISTRAR") shall provide for the registration of the
Certificates and of transfers and exchanges of the Certificates as herein
provided. The Transfer Agent and Registrar shall initially be the Trustee,
together with any co-transfer agent and co-registrar chosen by the Trustee and
acceptable to the Servicers, and any reference in this Agreement to the
Transfer Agent and Registrar shall include any co-transfer agent and
co-registrar unless the context requires otherwise. The provisions of SECTIONS
11.01, 11.02, 11.03 and 11.05 shall apply to the Trustee also in its role as
Transfer Agent and Registrar, for so long as the Trustee shall act as Transfer
Agent and Registrar.
The Trustee shall be permitted to resign as Transfer Agent and
Registrar upon 30 days' (60 days' during an Amortization
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Period) written notice to the Transferor and the Servicer. Upon receiving such
notice of resignation, the Servicers shall appoint a successor Transfer Agent
and Registrar reasonably acceptable to the Transferor. If no successor
Transfer Agent and Registrar shall have been appointed and have accepted
appointment within 30 days (60 days during an Amortizaton Period) after the
giving of such notice of resgination, the Trustee may petition any court of
competent jurisdiction for the appointment of a successor Transfer Agent and
Registrar; PROVIDED, HOWEVER, that such resignation shall not be effective and
the Trustee shall continue to perform its duties as Transfer Agent and
Registrar until a successor Transfer Agent and Registrar has been appointed in
accordance with this paragraph, and such successor has assumed its duties under
this Agreement.
It is intended that the registration of Certificates which is
described in this SECTION 6.03 comply with the registration requirements
contained in Section 163 of the Internal Revenue Code.
Upon surrender for registration of transfer of any Investor
Certificate at any office or agency of the Transfer Agent and Registrar
maintained for such purpose, the Transferor shall execute, and the Trustee
shall authenticate and deliver, in the name of the designated transferee or
transferees, one or more new Investor Certificates (of the same Series and
Class) in authorized denominations of like aggregate Undivided Fractional
Interests in the Aggregate Investors' Interest.
Except as otherwise expressly provided in the Supplement
relating to any Series or Class of Investor Certificates and subject to SECTION
6.11, Investor Certificates may, at the option of an Investor, be exchanged for
other Investor Certificates (of the same Series and Class) of authorized
denominations of like aggregate Undivided Fractional Interests in the
Investors' Interest, upon surrender of the Investor Certificates to be
exchanged at any such office or agency. Whenever any Investor Certificates are
so surrendered for exchange, the Transferor shall execute, and the Trustee
shall authenticate and deliver, the Investor Certificates which the Investor
making the exchange is entitled to receive.
Every Investor Certificate presented or surrendered for
registration of transfer or exchange shall be accompanied by a written
instrument of transfer in a form satisfactory to the Trustee or the Transfer
Agent and Registrar duly executed by the Holder thereof or his attorney-in-fact
duly authorized in writing. Each Holder must satisfy the transfer restrictions
set forth in the applicable Certificates.
Each Investor Certificate shall be registered at all times as
herein provided, and any transfer or exchange of such Investor Certificate will
be valid for purposes hereunder only upon registration of such transfer or
exchange by the Trustee or the Transfer Agent and Registrar as provided herein.
Payments on any Distribution Date shall be made to Holders of record on the
immediately preceding Record Date.
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No service charge shall be made for any registration of
transfer or exchange of Investor Certificates, but the Transfer Agent and
Registrar or any co-transfer agent and co-registrar may require payment of a
sum sufficient to cover any tax or governmental charge that may be imposed in
connection with any transfer or exchange of Investor Certificates.
All Investor Certificates surrendered for registration of
transfer or exchange, or for payment, shall be canceled and disposed of in a
manner reasonably satisfactory to the Trustee.
(b) The Transfer Agent and Registrar will maintain at its
expense, an office or offices or agency or agencies where Investor Certificates
may be surrendered for registration of transfer or exchange which office, so
long as the Trustee acts as Transfer Agent and Registrar, shall be the
Corporate Trust Office designated in Section 11.16.
SECTION 6.04. MUTILATED, DESTROYED, LOST OR STOLEN
CERTIFICATES. If (a) any mutilated Certificate is surrendered to the Transfer
Agent and Registrar, or the Transfer Agent and Registrar receives evidence to
its satisfaction of the destruction, loss or theft of any Certificate and (b)
there is delivered to the Transfer Agent and Registrar, the Trustee and the
Transferor such indemnity (provided, that a letter of indemnity from an
insurance company or an institutional investor in either case of investment
grade credit rating shall satisfy such requirement) as may be required by them
to save each of them harmless, then, in the absence of notice to the Trustee
that such Certificate has been acquired by a bona fide purchaser, the
Transferor shall execute and the Trustee shall authenticate and deliver, in
exchange for or in lieu of any such mutilated, destroyed, lost or stolen
Certificate, a new Certificate of like tenor and (in the case of any new
Investor Certificate) Undivided Fractional Interest. In connection with the
issuance of any new Certificate under this SECTION 6.04, the Trustee or the
Transfer Agent and Registrar may require the payment by the Certificateholder
of a sum sufficient to pay any tax or other governmental charge that may be
imposed in relation thereto. Any duplicate Certificate issue pursuant to this
SECTION 6.04 shall constitute complete and indefeasible evidence of ownership
in the Trust, as if originally issued, whether or not the lost, stolen or
destroyed Certificate shall be found at any time.
SECTION 6.05. PERSONS DEEMED OWNERS. At all times prior to
due presentation of a Certificate for registration of transfer, the Trustee,
the Paying Agent, the Transfer Agent and Registrar and any agent of any of them
shall treat the Person in whose name any Certificate is registered as the owner
of such Certificate as of the most recent Record Date for the purpose of
receiving distributions pursuant to the terms of the applicable Supplement and
for all other purposes whatsoever and neither the Trustee, the Paying
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Agent, the Transfer Agent and Registrar nor any agent of any of them shall be
affected by any notice to the contrary. Notwithstanding the foregoing, in
determining whether the Holders of the requisite Undivided Fractional Interests
have given any request, demand, authorization, direction, notice, consent or
waiver hereunder, Certificates owned by the Transferor, the Servicers or any
Affiliate thereof shall be disregarded and deemed not to be outstanding, except
that, in determining whether the Trustee shall be protected in relying upon any
such request, demand, authorization, direction, notice, consent or waiver, only
Certificates which the Trustee knows to be so owned shall be so disregarded.
Certificates so owned which have been pledged in good faith shall not be
disregarded and may be regarded as outstanding if the pledgee establishes to
the satisfaction of the Trustee the pledgee's right so to act with respect to
such Certificates and that the pledgee is not the Transferor, a Servicer or an
Affiliate thereof.
SECTION 6.06. APPOINTMENT OF PAYING AGENT. The Paying Agent
shall make distributions to Investors, the Servicers and the Trustee pursuant
to the applicable Supplement and shall report the amounts of such distributions
to the Trustee. The Trustee shall make available to the Paying Agent funds
from the applicable Trust Account on the day on which they are to be
distributed pursuant to the applicable Supplement. The Paying Agent shall
initially be the Trustee. The Trustee shall be permitted to resign as Paying
Agent upon 30 days' written notice to the Servicers. In the event that the
Trustee shall no longer be the Paying Agent, the Servicers shall appoint a
successor to act as Paying Agent (which shall be a bank or trust company). The
Servicers shall cause such successor Paying Agent to execute and deliver to the
Trustee an instrument in which such successor Paying Agent shall agree with the
Trustee that, as Paying Agent, such successor Paying Agent will hold all sums,
if any, held by it for payment to the Certificateholders, the Servicers or the
Trustee in trust for the benefit of the Certificateholders entitled thereto,
the Servicers or the Trustee, respectively, until such sums shall be paid to
such Certificateholders, the Servicers or the Trustee, respectively. The
Paying Agent shall return all unclaimed funds to the Trustee and upon removal
of a Paying Agent such Paying Agent shall also return all funds in its
possession to the Trustee. The provisions of SECTIONS 11.01, 11.02, 11.03 and
11.05 shall apply to the Trustee also in its role as Paying Agent, for so long
as the Trustee shall act as Paying Agent.
SECTION 6.07. ACCESS TO LIST OF CERTIFICATEHOLDERS' NAMES AND
ADDRESSES. The Trustee will, within five Business Days after receipt by the
Trustee of a written request therefor from the Servicers, the Transferor, or
the Paying Agent, respectively, furnish (or cause the Transfer Agent to
furnish) a list of the names and addresses of the Certificateholders. Upon
written
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request of any Investor or group of Investors holding Investor Certificates
evidencing not less than 10% of the Invested Amount of any Series, the Trustee
will (or will cause the Transfer Agent and Registrar to) afford such Investors
access during normal business hours to the current list of Investors of such
Series.
Every Certificateholder, by receiving and holding a
Certificate, agrees that neither the Trustee, the Transfer Agent and Registrar,
the Transferor, any Servicer, any Originator, nor any of their respective
agents, shall be held accountable by reason of the disclosure of any such
information as to the names and addresses of the Certificateholders hereunder,
regardless of the sources from which such information was derived.
SECTION 6.08. AUTHENTICATING AGENT. (a) The Trustee may
appoint one or more authenticating agents with respect to the Certificates
which shall be authorized to act on behalf of the Trustee in authenticating the
Certificates in connection with the issuance, delivery, registration of
transfer, exchange or repayment of the Certificates. Whenever reference is
made in this Agreement to the authentication of Certificates by the Trustee or
the Trustee's certificate of authentication, such reference shall be deemed to
include authentication on behalf of the Trustee by an authenticating agent and
a certificate of authentication executed on behalf of the Trustee by an
authenticating agent. Each authenticating agent must be acceptable to the
Transferor and the Servicers.
(b) Any institution succeeding to the corporate agency
business of an authenticating agent shall continue to be an authenticating
agent without the execution or filing of any power or any further act on the
part of the Trustee or such authenticating agent.
(c) An authenticating agent may at any time resign by
giving written notice of resignation to the Trustee and to the Transferor. The
Trustee may at any time terminate the agency of an authenticating agent by
giving notice of termination to such authenticating agent and to the
Transferor. Upon receiving such a notice of resignation or upon such a
termination, or in case at any time an authenticating agent shall cease to be
acceptable to the Trustee or the Transferor, the Trustee may promptly appoint a
successor authenticating agent. Any successor authenticating agent upon
acceptance of its appointment hereunder shall become vested with all the
rights, powers and duties of its predecessor hereunder, with like effect as if
originally named as an authenticating agent. No successor authenticating agent
shall be appointed unless acceptable to the Trustee and the Transferor.
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(d) The Transferor agrees to pay to each authenticating
agent from time to time reasonable compensation for its services under this
SECTION 6.08.
(e) The provisions of SECTIONS 11.01, 11.02, 11.03 and
11.05 shall be applicable to any authenticating agent.
(f) Pursuant to an appointment made under this SECTION
6.08, the Certificates may have endorsed thereon, in lieu of or in addition to
the Trustee's certification of authentication, an alternate certificate of
authentication in substantially the following form:
This is one of the Certificates described in the Pooling and
Servicing Agreement.
________________________________
________________________________
as Authenticating Agent
for the Trustee
By:_____________________________
Authorized Officer
SECTION 6.09. NEW ISSUANCES. (a) The Transferor may from
time to time direct the Trustee, on behalf of the Trust, to issue one or more
new Series of Investor Certificates pursuant to a Supplement. The Investor
Certificates of all outstanding Series shall be equally and ratably entitled as
provided herein to the benefits of this Agreement without preference, priority
or distinction, all in accordance with the terms and provisions of this
Agreement and the applicable Supplement except, with respect to any Series or
Class, as provided in the related Supplement and except that any Enhancement
with respect to a particular Series or Class shall not be available for any
other Series or Class unless so provided in the applicable Supplement.
(b) On or before the Closing Date relating to any new
Series, the parties hereto will execute and deliver a Supplement which will
specify the Principal Terms of such new Series. The terms of such Supplement
may modify or amend the terms of this Agreement solely as applied to such new
Series. 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:
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(i) on or before the fifth Business Day immediately
preceding the applicable Closing Date (or such later date preceding the
Closing Date as shall be acceptable to the Trustee, each Rating Agency
and any Enhancement Provider), the Transferor shall have given the
Trustee, the Servicers, each Rating Agency and any Enhancement Provider
written notice of such issuance and such Closing Date;
(ii) the Transferor shall have delivered to the Trustee
the related Supplement in a form satisfactory to the Trustee, executed
by each party hereto other than the Trustee;
(iii) the Transferor shall have delivered to the
Trustee any related Enhancement Agreement executed by each party
hereto other than the Trustee;
(iv) each Rating Agency shall have notified the
Transferor, the Servicers, the Trustee and any Enhancement Provider in
writing that the issuance of such new Series of Investor Certificates
will not result in a reduction or withdrawal of the rating of any
outstanding Series or Class with respect to which it is a Rating
Agency;
(v) such issuance will not result in the occurrence of an
Early Amortization Event and the Transferor shall have delivered to
the Trustee and any Enhancement Provider an Officer's Certificate,
dated the applicable Closing Date (upon which the Trustee may
conclusively rely), to the effect that the Transferor reasonably
believes that such issuance will not in and of itself result in the
occurrence of an Early Amortization Event and is not reasonably in and
of itself expected to result in the occurrence of an Early
Amortization Event;
(vi) the Transferor shall have delivered to the Trustee
and any Enhancement Provider an Opinion of Counsel to the effect that
the issuance of the Investor Certificates of such Series (A) has been,
or need not be, registered under the Act and will not result in the
requirement that any other Series of Investor Certificates not
registered under the Act be so registered (unless the Transferor has
elected, in its sole discretion, to register such Certificates), (B)
will not result in the Trust becoming subject to registration as an
investment company under the Investment Company Act and (C) will not
require this Agreement or the related Supplement to be qualified under
the Trust Indenture Act of 1939, as amended;
(vii) the Transferor shall have delivered to the Trustee a
Tax Opinion, dated the applicable Closing Date, with respect to such
issuance;
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(viii) such issuance will not cause the Floating Allocation
Percentage (after giving effect to such new issuance and the deposit
of any proceeds into the Reserve Account) to exceed 100%;
(ix) if such issuance is in exchange for any outstanding
Investor Certificates, the Transferor shall have delivered to the
Trustee the Investor Certificates to be canceled in connection with
such exchange;
(x) if such Supplement allocates to any Investor
Certificate a Ratable Principal Amount in excess of its Invested
Amount, the Servicers shall have delivered to the Trustee an Officer's
Certificate stating that such allocation will not dilute the benefit of
the Required Reserves to which any pre-existing Series is entitled
prior to the effectiveness of such Supplement; and
(xi) the Transferor shall have delivered to the Trustee an
Officer's Certificate that the foregoing conditions have been
satisfied.
Upon satisfaction of the above conditions, the Trustee shall execute the
Supplement and the Transferor shall execute and deliver the Investor
Certificates of such Series for authentication and redelivery to or upon the
order of the Transferor. Notwithstanding the provisions of this SECTION
6.09(b), prior to the execution of any Supplement, the Trustee shall be
entitled to receive and rely upon an Opinion of Counsel stating that the
execution of such Supplement is authorized or permitted by this Agreement and
any Supplement related to any outstanding Series. The Trustee may, but shall
not be obligated to, enter into any such Supplement which adversely affects the
Trustee's own rights, duties or immunities under this Agreement.
(c) Except in the case of an exchange of Investor
Certificates, each new Issuance of Investor Certificates hereunder shall result
in a simultaneous reduction of the Transferor Interest.
SECTION 6.10. CHANGES IN VARIABLE FUNDING CERTIFICATES.
The Invested Amount of any Variable Funding Certificate shall at no time exceed
the Stated Amount then applicable to such Certificate. The Stated Amount and
the Invested Amount of any Variable Funding Certificates may be increased or
decreased from time to time, subject to any terms set forth in the applicable
Supplement and the allocation of Collections set forth in ARTICLE IV hereof,
PROVIDED that the Invested Amount of any Variable Funding Certificates may not
be increased in any manner which would cause the Net Invested Amount to exceed
the Base Amount as in effect prior to such increase.
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SECTION 6.11. BOOK-ENTRY CERTIFICATES. If the Transferor
shall establish pursuant to any Supplement that the Certificates to be issued
thereunder are to be issued in Book-Entry Form, then the Transferor shall, in
accordance with the other provisions of this Agreement, execute and the Trustee
shall authenticate and deliver one or more Global Certificates, evidencing the
Certificates of such Series which (i) shall be in an aggregate Invested Amount
equal to the Initial Invested Amount of such Series, (ii) shall be registered
in the name of the Clearing Agency therefor or its nominee, which shall
initially be Cede & Co., as nominee for The Depositary Trust Company, the
initial Clearing Agency, (iii) shall be delivered by the Trustee to such
Clearing Agency or such nominee pursuant to such Clearing Agency's or such
nominee's instructions, and (iv) shall bear a legend substantially to the
following effect: "Transfers of this Global Certificate shall be limited to
transfers in whole, but not in part, to the Clearing Agency or a nominee of the
Clearing Agency or to a successor thereof or such successor's nominee and
transfers of portions of this Global Certificate shall be limited to transfers
made in accordance with the restrictions set forth in the Pooling and Servicing
Agreement pursuant to which these Certificates were issued."
Each Clearing Agency designated pursuant to this SECTION 6.11
must, at the time of its designation and at all times while it serves as
Clearing Agency hereunder, be a "clearing agency" registered under the
Securities Exchange Act of 1934, as amended, and any other applicable statute
or regulation.
No Holder of any Investor Certificates issued in Book-Entry
Form shall receive a Definitive Certificate representing such Holder's
Undivided Fractional Interest except as provided in SECTION 6.13 or in the
applicable Supplement relating to such Certificates. Unless (and until)
certificated, fully registered Certificates of any Series (the "DEFINITIVE
CERTIFICATES") have been issued to the Investors of such Series pursuant to
SECTION 6.13 or pursuant to any applicable Supplement relating thereto:
(a) the provisions of this SECTION 6.11 shall be in full
force and effect;
(b) the Transferor, each Servicer, the Paying Agent, the
Transfer Agent and Registrar and the Trustee may deal with the
Clearing Agency for all purposes (including the making of
distributions on the Certificates of such Series) as the authorized
representatives of the Investors of such Series;
(c) to the extent that the provisions of this SECTION 6.11
conflict with any other provisions of this Agreement, the provisions
of this SECTION 6.11 shall control; and
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(d) the rights of Investors of such Series shall be exercised
only through the Clearing Agency and the Clearing Agency Participants
and shall be limited to those established by law and agreements
between such Investors and the Clearing Agency and/or the Clearing
Agency Participants. Unless and until Definitive Certificates are
issued pursuant to SECTION 6.13, the initial Clearing Agency will make
book-entry transfers among the Clearing Agency Participants and
receive and transmit distributions of principal and interest on the
Book-Entry Certificates to such Clearing Agency Participants.
SECTION 6.12. NOTICES TO CLEARING AGENCY. Unless and until
Definitive Certificates shall have been issued to Investors of such Series
pursuant to SECTION 6.11 or the applicable Supplement relating to such Investor
Certificates, whenever notice, payment, or other communication to the holders
of Book-Entry Certificates of any Series is required under this Agreement, the
Trustee, the Servicers and the Paying Agent shall give all such notices and
communications specified herein to be given to Investors of such Series to the
Clearing Agency.
SECTION 6.13. DEFINITIVE CERTIFICATES. If (i)(A) the
Transferor advises the Trustee in writing that the Clearing Agency is no longer
willing or able to properly discharge its responsibilities under any Letter of
Representations and (B) the Transferor is unable to locate a qualified
successor Clearing Agency, (ii) the Transferor, at its option, advises the
Trustee in writing that, with respect to any Series, it elects to terminate the
book-entry system through the Clearing Agency or (iii) after the occurrence of
a Servicer Default, a Majority in Interest of the Investors of any Series of
Investor Certificates maintained as Book-Entry Certificates advise the Trustee
and the Clearing Agency (through the Clearing Agency Participants) in writing
that the continuation of a book-entry system through the Clearing Agency is no
longer in the best interests of the Investors of such Series, the Trustee shall
notify the Clearing Agency and all such Investors of such Series of the
occurrence of any such event and of the availability of Definitive Certificates
of such Series to the Investors of such Series requesting the same. Upon
surrender to the Trustee of the Global Certificates of such Series by the
Clearing Agency accompanied by registration instructions from such Clearing
Agency for registration, the Trustee shall authenticate and deliver Definitive
Certificates of such Series. None of the Transferor, the Transfer Agent and
Registrar or the Trustee shall be liable for any delay in delivery of such
instructions and may conclusively rely on, and shall be protected in relying
on, such instructions. Upon the issuance of Definitive Certificates of any
Series, all references herein to obligations with respect to such Series
imposed upon or to be performed by the Clearing Agency shall be deemed to be
imposed upon and performed by the Trustee, to the extent applicable with
respect to such Definitive Certificates and the Trustee shall
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recognize the holders of the Definitive Certificates as the Investors
hereunder.
SECTION 6.14. TEMPORARY CERTIFICATES. Pending the
preparation of Definitive Certificates of any Series to be issued in accordance
with SECTION 6.13, the Transferor may execute and, in accordance with the terms
of SECTION 6.02, the Trustee shall authenticate and deliver, temporary Investor
Certificates for such Series which are printed, lithographed, typewritten or
otherwise produced and are in any authorized denomination and substantially in
the forms of the Definitive Certificates of such Series, but with such
omissions, insertions and variations as may be appropriate for temporary
Investor Certificates, all as may be determined by the Transferor as evidenced
by the execution thereof by the authorized officers of the Transferor.
Temporary Investor Certificates may contain such references to any provisions
of this Agreement as may be appropriate. Every temporary Investor Certificate
of any Series shall be executed by the Transferor and authenticated by the
Trustee upon the same conditions and in substantially the same manner, and with
like effect, as the Definitive Certificates of such Series. If temporary
Investor Certificates are issued, the Transferor, without unreasonable delay,
shall cause Definitive Certificates to be executed and delivered to the Trustee
for authentication; and thereupon the temporary Certificates of such Series
shall be exchangeable for Definitive Certificates without charge at each office
or agency to be maintained for such purpose in accordance with SECTION 6.03.
The Trustee shall authenticate and deliver in exchange for temporary
Certificates of such Series so surrendered Definitive Certificates of equal
tenor and denomination. Until so exchanged, the temporary Certificates of any
Series shall be entitled to the same benefits under this Agreement as the
Definitive Certificates of such Series.
SECTION 6.15. CUSIP NUMBER. The Transferor in issuing any
Investor Certificates or Series of Certificates may use a "CUSIP" number and,
if so used, the Trustee shall use the CUSIP number in any notices to the
Investors thereof as a convenience to such Investors; PROVIDED, that any such
notice may state that no representation is made as to the correctness or
accuracy of the CUSIP number printed in the notice or on the Investor
Certificates and that reliance may be placed only on the other identification
numbers printed on the Investor Certificates. The Transferor shall promptly
notify the Trustee of any change in the CUSIP number with respect to any
Investor Certificate.
SECTION 6.16. LETTER OF REPRESENTATIONS. Notwithstanding
anything to the contrary in this Agreement or any Supplement, the parties
hereto shall comply with the terms of each Letter of Representations.
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ARTICLE VII
OTHER MATTERS RELATING TO THE TRANSFEROR
SECTION 7.01. OBLIGATIONS NOT ASSIGNABLE. The obligations of
the Transferor hereunder shall not be assignable nor shall any Person succeed
to the obligations of the Transferor hereunder.
SECTION 7.02. LIMITATIONS ON LIABILITY. None of the
directors, officers, shareholders, employees or agents of the Transferor, past,
present or future, shall be under any liability to the Trust, the Trustee, the
Certificateholders or any other Person for any action taken or for refraining
from the taking of any action in such capacities pursuant to this Agreement or
for any obligation or covenant under this Agreement; PROVIDED, HOWEVER, that
this provision shall not protect any such Person against any liability which
would otherwise be imposed by reason of willful misconduct or bad faith, in the
performance by such Person of such Person's duties or the reckless disregard by
such Person of any of his, her or its obligations and duties hereunder. The
Transferor and any director, officer, employee or agent of the Transferor may
rely in good faith on any document of any kind prima facie properly executed
and submitted by any Person (other than the Transferor or any Affiliate
thereof) respecting any matters arising hereunder.
SECTION 7.03. INDEMNIFICATION OF THE TRUSTEE, THE TRUST AND
THE INVESTORS. Without limiting any other rights which the Trustee, the Trust
or any Investor (each, an "INDEMNIFIED PARTY") may have hereunder or under
applicable law, the Transferor hereby agrees to indemnify each Indemnified
Party from and against any and all claims, losses and liabilities (except to
the extent that such claims, losses and liabilities arise from any action by
such Indemnified Party) (all of the foregoing being collectively referred to as
"INDEMNIFIED AMOUNTS") arising out of or resulting from this Agreement, the
activities of the Trust or the Trustee in connection herewith, the Transferor's
use of proceeds of Transfers of Receivables or reinvestments of Collections,
the interest conveyed hereunder in Trust Assets, or in respect of any
Receivable or the Receivables Purchase Agreement, excluding, however, (a)
Indemnified 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, (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 this
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Agreement or the interest conveyed hereunder in Trust Assets or in respect of
any Receivable or any Contract or the Receivables Purchase Agreement. Without
limiting or being limited by the foregoing (other than clauses (a), (b), (c)
and (d)) the Transferor shall pay on demand to each Indemnified Party any and
all amounts necessary to indemnify such Indemnified Party from and against any
and all Indemnified Amounts relating to or resulting from:
(i) reliance on any representation or warranty or statement
made or deemed made by the Transferor under or in connection with this
Agreement or the Receivables Purchase Agreement which shall have been
incorrect in any material respect when made;
(ii) the failure by the Transferor to comply with this
Agreement or the Receivables Purchase Agreement, or the failure by the
Transferor to comply with any applicable Requirement of Law with
respect to any Receivable or the related Contract or invoice or the
Receivables Purchase Agreement, or the nonconformity of any Receivable
or the related Contract or invoice or the Receivables Purchases
Agreement with any Requirement of Law;
(iii) the failure to vest and maintain vested in the
Transferor a first priority perfected ownership interest in
the Receivables and the Related Security therefor as against
the Originators and the failure to vest and maintain vested in
the Trustee, for the benefit of the Investors, an undivided
fractional beneficial interest or perfected security interest
to the extent of the Investors' respective Undivided
Fractional Interests, in the Receivables and the other Trust
Assets, free and clear of any Lien;
(iv) the failure to have filed, or any delay in filing,
financing statements or other similar instruments or documents under
the UCC of any applicable jurisdiction or other applicable laws with
respect to any Receivable or any other Trust Asset, whether at the
time of Transfer thereof or reinvestment of the proceeds thereof or at
any subsequent time;
(v) any dispute, claim, offset or defense (other than
discharge in bankruptcy of the Obligor or other defense relating to
such Obligor's inability to pay) of any Obligor to the payment of any
Receivable;
(vi) any investigation, litigation or proceeding related to
this 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
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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 Affiliate thereof prevails in a final non-appealable judgment by a
court of competent jurisdiction;
(vii) any products liability claim, personal injury or
property damage suit or other similar claim or action arising out of
or in connection with the services that are the subject of any
Receivable or any Related Security;
(viii) any failure by the Transferor or any 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;
(ix) the failure of the Transferor or any Originator to remit
Collections as required under this Agreement or the commingling of
Collections of Receivables at any time with other funds prior to
distribution under the applicable Supplement; or
(x) any tax (other than any taxes excluded by reason of
clause (d) in the first paragraph of this SECTION 7.03) imposed by
reason of ownership of the Receivables or other Trust Assets by the
Trustee.
In case any proceeding shall be instituted involving any
Person in respect of which indemnity may be sought pursuant to this SECTION
7.03 the Indemnified Party shall promptly notify the Transferor in writing and
the Transferor, upon request of the Indemnified Party, shall retain counsel
reasonably satisfactory to the Indemnified Party to represent the Indemnified
Party and any others the Transferor may designate in such proceeding and shall
pay the reasonable fees and disbursements of such counsel related to such
proceeding. In any such proceeding, any Indemnified Party shall have the right
to retain its own counsel, but the reasonable fees and expenses of such counsel
shall be at the expense of such Indemnified Party unless (i) the Transferor and
the Indemnified Party shall have mutually agreed to the retention of such
counsel or (ii) the named parties to any such proceeding (including any
impleaded parties) include both the Transferor and the Indemnified Party and
representation of both parties by the same counsel would be inappropriate due
to actual conflicts of interests between them. It is understood that the
Transferor shall not, in connection with any proceeding or related proceedings
in the same jurisdiction, be liable for the reasonable fees and expenses of
more than one separate firm for all such Indemnified Parties. It is further
understood that the Transferor shall not be liable to any Indemnified Party
until or unless such Indemnified Party promptly notifies the Transferor in
writing of its request for indemnification.
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Indemnification pursuant to this SECTION 7.03 shall only be
payable from Collections and other funds in the Trust Accounts remaining after
all other obligations payable under CLAUSE FOURTH of SECTION 4.03(b) or CLAUSE
THIRD of SECTION 4.03(c)(iii) have been paid, as applicable, or from other
assets of the Transferor, and there shall be no recourse to, and no Person
shall have any Claim against, the Transferor for payment of all or any part of
any such indemnification to the extent that such Collections and other funds
are insufficient to pay the applicable Indemnified Amounts. In addition, any
indemnification payable under clause (vii), (viii), (ix) or (x) of this SECTION
7.03 shall be payable only to the extent that the Transferor has received
payment from the Originators under the equivalent indemnification provision of
the Receivables Purchase Agreement and there shall be no recourse to, and no
Person shall have any Claim against, the Transferor for payment of any all or
any part of any such indemnification to the extent that the amounts so received
are insufficient to pay the applicable Indemnified Amounts arising under such
clauses. The agreement contained in this SECTION 7.03 shall survive the
collection of all Receivables, the termination of this Agreement and the
payment of all amounts otherwise payable hereunder.
ARTICLE VIII
OTHER MATTERS RELATING TO THE SERVICERS
SECTION 8.01. LIABILITY OF THE SERVICERS. Each Servicer
shall be liable under this Agreement only to the extent of the obligations
specifically undertaken by such Servicer in its capacity as Servicer.
SECTION 8.02. MERGER OR CONSOLIDATION OF, OR ASSUMPTION OF
THE OBLIGATIONS OF, THE SERVICERS. Except for a merger or consolidation of TE
with and into CEI or CEI with and into TE in which CEI or TE, as applicable, is
the surviving corporation, no Servicer shall consolidate with or merge into any
other Person or convey or transfer its properties and assets substantially as
an entirety to any Person unless:
(a) (i) the Person formed by such consolidation or into
which such Servicer is merged or the Person which acquires by conveyance or
transfer the properties and assets of such Servicer substantially as an
entirety shall be, if such Servicer is not the surviving entity, a corporation
organized and existing under the laws of the United States of America or any
State or the District of Columbia, and such successor corporation shall have
expressly assumed, by an agreement supplemental hereto, executed and delivered
to the Trustee, in form reasonably satisfactory to the Trustee, the performance
of every covenant and obligation of such Servicer hereunder; (ii) the
applicable Servicer shall have delivered to the Trustee an Officer's
Certificate and an Opinion of
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Counsel stating that such consolidation, merger, conveyance or transfer
complies with this SECTION 8.02 and that all conditions precedent herein
provided for relating to such transaction have been complied with; and (iii)
the Rating Agency Condition shall have been satisfied with respect thereto; and
(b) if such Servicer is an Originator, all conditions for
such merger or consolidation or conveyance or transfer, as the case may be,
contained in the Receivables Purchase Agreement shall be satisfied; and
(c) the corporation formed by such consolidation or into which
such Servicer is merged or which acquires by conveyance or transfer the
properties and assets of the applicable Servicer substantially as an entirety
shall have all licenses and approvals of Governmental Authorities required to
service the Receivables, as evidenced by an officer's certificate of such
Servicer, except to the extent the failure to have any such license would not
have a material adverse effect on its ability to perform the obligations of a
Servicer hereunder.
SECTION 8.03. LIMITATIONS ON LIABILITY. None of the
directors, officers, shareholders, employees or agents of any Servicer, past,
present or future, shall be under any liability to the Trust, the Trustee, the
Certificateholders or any other Person for any action taken or for refraining
from the taking of any action in such capacities pursuant to this Agreement or
for any obligation or covenant under this Agreement, it being understood that,
with respect to the Servicers, this Agreement and the obligations created
hereunder are solely the corporate obligations of the Servicers; PROVIDED,
HOWEVER, that this provision shall not protect any Servicer or any such other
Person against any liability which would otherwise be imposed by reason of
willful misconduct, bad faith, gross negligence or the reckless disregard by
such Person of any of his, her or its obligations and duties. Each Servicer
and any director or officer or employee or agent of a Servicer may rely in good
faith on any document of any kind prima facie properly executed and submitted
by any Person (other than such Servicer or any Affiliate thereof) respecting
any matters arising hereunder. No Servicer shall be under any obligation to
appear in, prosecute or defend any legal action which is not incidental to its
duties as Servicer in accordance with this Agreement and which in its
reasonable judgment may involve it in any material expense or liability.
SECTION 8.04. SERVICER INDEMNIFICATION. Each Servicer shall
indemnify and hold harmless each Indemnified Party from and against Indemnified
Amounts suffered or sustained by reason of any breach by such Servicer of its
representations and warranties or obligations under this Agreement, excluding,
however, Indemnified Amounts to the extent resulting from (i) willful
misconduct, bad
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faith, gross negligence, the reckless disregard by such Indemnified Party of
any of his, her or its obligations and duties, (ii) recourse for uncollectible
Receivables, (iii) lost profits or for consequential, special or punitive
damages or (iv) 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
this Agreement or the interest conveyed hereunder in Trust Assets or in respect
of any Receivable or any Contract or the Receivables Purchase Agreement.
Indemnification pursuant to this SECTION 8.04 shall not be payable from the
Trust Assets. The agreement contained in this SECTION 8.04 shall survive the
collection of all Receivables, the termination of the Trust and the payment of
all amounts otherwise due hereunder.
In case any proceeding shall be instituted involving any
Person in respect of which indemnity may be sought pursuant to this SECTION
8.04, the Indemnified Party shall promptly notify the applicable Servicer in
writing and such Servicer, upon request of the Indemnified Party, shall retain
counsel reasonably satisfactory to the Indemnified Party to represent the
Indemnified Party and any others may designate in such proceeding and shall pay
the reasonable fees and disbursements of such counsel related to such
proceeding. In any such proceeding, any Indemnified Party shall have the right
to retain its own counsel, but the reasonable fees and expenses of such counsel
shall be at the expense of suchIndemnified Party unless (i) the applicable
Servicer and the Indemnified Party shall have mutually agreed to the retention
of such counselor (ii) the named parties to any such proceeding (including any
impleaded parties) include both such Servicer and the Indemnified Party and
representation of both parties by the same counsel would be inappropriate due
to actual or potential differing interests between them. It is understood that
no Servicer shall, in connection with any proceeding or related proceedings in
the same jurisdiction, be liable for the reasonable fees and expenses of more
than one separate firm for all such Indemnified Parties. It is further
understood that no Servicer shall be liable to any Indemnified Party unless
such Indemnified Party promptly notifies such Servicer in writing of its
request for indemnification.
SECTION 8.05. THE SERVICERS NOT TO RESIGN. No Servicer shall
resign from the obligations and duties hereby imposed on it except upon
determination that (i) its performance of its duties hereunder is no longer
permissible under applicable law and (ii) there is no reasonable action which
such Servicer could take to make its performance of its duties hereunder
permissible under applicable law. Any determination permitting the resignation
of
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such Servicer shall be evidenced by an Opinion of Counsel with respect to
clause (i) above, delivered to the Trustee. No resignation shall become
effective until the Trustee or a Successor Servicer shall have assumed the
responsibilities and obligations of the resigning Servicer in accordance with
SECTION 10.02 hereof. If within 60 days of the date of the determination that
the resigning Servicer may no longer act as Servicer hereunder for any reason
and the Trustee has not appointed a Successor Servicer, the Trustee shall serve
as Successor Servicer hereunder. Notwithstanding the foregoing, the Trustee
shall, if it is legally unable so to act, petition a court of competent
jurisdiction to appoint any established institution that is an Eligible
Servicer (other than the Trustee) as the Successor Servicer hereunder.
SECTION 8.06. EXAMINATION OF RECORDS. Each Servicer shall
indicate in its computer records that the Receivables and other Trust Assets
have been Transferred to the Trustee, on behalf of the Trust, pursuant to this
Agreement for the benefit of the Certificateholders. Each Servicer (and the
Transferor) shall, prior to the sale or transfer to a third party of any
receivable held in its custody, examine its records to determine that such
receivable is not a Transferor Receivable.
ARTICLE IX
EARLY AMORTIZATION EVENTS
SECTION 9.01. EARLY AMORTIZATION EVENTS. If any one of the
following events shall occur:
(a) any failure by the Transferor, either Originator or any
Servicer to make any payment, transfer or deposit required to be paid by it
under the terms of this Agreement, or the Receivables Purchase Agreement, on or
before the date occurring (i) in the case of any payment of Yield, five
Business Days after the date such payment is required to be made hereunder and
(ii) in the case of any other payment, transfer or deposit, within seven
Business Days after the date such payment, transfer or deposit is required to
be made hereunder or thereunder;
(b) any failure by the Transferor, either Originator or any
Servicer to observe or perform in any material respect any other covenant or
agreement to be performed by it under this Agreement, or the Receivables
Purchase Agreement, which failure has a material adverse effect on the
interests of the Investors of any Series and which continues unremedied for a
period of thirty 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
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Servicer, as applicable, and the Trustee by the Majority Investors or by a
Majority in Interest of any Series; or
(c) (i) any representation, warranty or certification made by
the Transferor, an Originator or a Servicer under or in connection with this
Agreement, or the Receivables Purchase Agreement, or in any certificate or
information delivered pursuant hereto or thereto or in connection herewith or
therewith, 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 SECTION 2.03(g) hereof, 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 any
representations and warranties made under SECTION 2.04, 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
(d) any other default by the Transferor, an Originator or a
Servicer shall occur, and shall not be remedied within the applicable grace
period, if any, under the Receivables Purchase Agreement, or the Receivables
Purchase Agreement shall for any reason cease to be in full force and effect or
the Transferor shall otherwise cease to continue purchasing Receivables
thereunder;
(e) an Insolvency Event shall occur with respect to the
Transferor, an Originator or the Trust; or
(f) the Securities and Exchange Commission or other
regulatory body shall have reached a final determination that the Trust is an
"investment company" within the meaning of the Investment Company Act; or
(g) (i) any purchase of any Receivables by the Transferor
under the Receivables Purchase Agreement shall cease to create a valid sale,
transfer and assignment to the Transferor of all right, title and interest of
the Originators in and to such Receivables and the proceeds thereof; or (ii)
any Transfer of any Receivables on any date shall for any reason cease to
create either (A) a valid transfer and assignment to the Trust of all right,
title and interest of the Transferor in and to such Receivables and the
proceeds thereof or (B) if such Transfer does not constitute such a sale,
transfer and assignment, a valid and perfected first priority "security
interest" (as defined in the UCC of the jurisdiction the law of which governs
the perfection of the
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interest in such Receivables created hereunder) in such Receivables and the
proceeds thereof, or (iii) the Investor Certificates delivered hereunder shall
for any reason cease to evidence the transfer to the Investors of, or the
Investors shall otherwise cease to have, a beneficial interest in a trust
owning or having a perfected first priority security interest in the
Receivables and the other Trust Assets now existing and hereafter arising and
the proceeds thereof to the extent of their respective Undivided Fractional
Interests; or
(h) a Servicer Default shall have occurred and be continuing,
which Servicer Default shall have a material adverse effect on the interests of
the Investors; or
(i) the Trust at any time shall have received a final
determination that it will be treated as an association taxable as a
corporation or "publicly traded partnership" taxable as a corporation for
federal income tax purposes; or
(j) the Net Invested Amount shall be greater than the Base
Amount for a period of five consecutive Business Days; or
(k) the aggregate amount of Cure Funds deposited in the
Reserve Account at any time shall, without the prior consent of the Majority
Investors, exceed either (i) 30% of the Aggregate Invested Amount for five (5)
consecutive Business Days or (ii) 35% of the Aggregate Invested Amount at any
time; or
(l) the Servicers (if the Originators) shall have resigned
under SECTION 8.05 and the Person then acting as Successor Servicer, if not an
Affiliate of the Originators, shall not have been approved by the Majority
Investors within thirty (30) days of its agreement to act as Successor
Servicer; or
(m) the PBGC or the Internal Revenue Service shall have filed
notice of one or more Liens against either Originator or the Transferor unless
such Lien does not purport to cover the Receivables), and such notice shall
have remained in effect for more than fifteen (15) Business Days unless, prior
to the expiration of such period, such Liens shall have been adequately bonded
by the Originators in a transaction with respect to which the Rating Agency
Condition has been satisfied;
(n) any Originator shall admit in writing its inability to
pay its debts as they become due or shall fail generally to pay its debts as
they become due; or
(o) any Additional Early Amortization Event shall have
occurred with respect to any outstanding Series;
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then, in the case of any event either the Trustee (unless otherwise directed by
the Majority Investors), or the Majority Investors, by notice then given in
writing to the Transferor and the Servicers (and to the Trustee if given by
such Investors), may declare (provided such event shall not have been remedied)
that an early amortization event (an "EARLY AMORTIZATION EVENT") has occurred
as of the date of such notice; PROVIDED that, in the case of any event
described in subsection (e), (f), (j) or (m), or in the case of any event
described in subsection (g) which has occurred and is continuing for a period
of five (5) Business Days, subject to applicable law, an Early Amortization
Event shall occur without any notice or other action on the part of the Trustee
or the Investors, immediately upon the occurrence of such event and additional
Receivables will not be transferred to the Trust. Promptly and in any event
within one Business Day after a Servicer becomes aware of any Early
Amortization Event, such Servicer shall notify the Trustee and each Rating
Agency of the occurrence of such Early Amortization Event.
Notwithstanding the foregoing, a delay in or failure of
performance referred to in SECTION 9.01(a) for a period of ten Business Days
after the applicable grace period, or under SECTION 9.01(b), (c) or (d) for a
period of thirty Business Days after the applicable grace period, shall not
constitute an Early Amortization Event if such delay or failure could not have
been prevented by the exercise of reasonable diligence by any of the
Transferor, the Originators or the Servicers and such delay or failure was
caused by an act of God or the public enemy, acts of declared or undeclared
war, public disorder, rebellion or sabotage, epidemics, computer system
failure, landslides, lightning, fire, hurricanes, earthquakes, floods, union
strikes, work stoppages or similar occurrences. The preceding sentence shall
not relieve the Transferor, any Servicer or any Originator from using its best
efforts to perform its obligations in a timely manner in accordance with the
terms of this Agreement and/or the Receivables Purchase Agreement, as
applicable, and the Transferor shall provide the Trustee and any Enhancement
Provider with an Officer's Certificate giving prompt notice of such failure or
delay by it, together with a description of its efforts so to perform its
obligations.
SECTION 9.02 ADDITIONAL RIGHTS UPON THE OCCURRENCE OF ANY
EARLY AMORTIZATION EVENT. (a) Upon the occurrence and during the continuance
of any Early Amortization Event, in addition to all other rights and remedies
under this Agreement or otherwise and all other rights and remedies provided
under the UCC of the applicable jurisdiction and other applicable laws (which
rights shall be cumulative), each of the Servicers, at the direction of the
Trustee, and the Trustee may exercise any and all rights and remedies of the
Transferor under or in connection with the Receivables Purchase Agreement,
including, without limitation, any and all rights of the Transferor to demand
or otherwise require
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payment of any amount under, or performance of, the Receivables Purchase
Agreement.
(b) If an Insolvency Event with respect to the Transferor
occurs, the Transferor shall immediately cease to transfer Receivables to the
Trust and shall promptly give written notice to the Trustee, who shall within
three Business Days forward such notice to the Investors and each Servicer of
such event. Notwithstanding the above, Receivables transferred to the Trust
prior to the occurrence of such Insolvency Event and collections relating to
such Receivables shall continue to be part of the Trust. Unless, within 90
days of the date of the notice provided by the Trustee in the preceding
sentence, the Trustee receives written instructions from the Majority Investors
instructing the Trustee not to sell, dispose of or liquidate the Receivables,
the Trustee shall, to the extent permitted by applicable law, promptly proceed
to sell, dispose of, or otherwise liquidate the Receivables in a commercially
reasonable manner and on commercially reasonable terms (which terms may include
the solicitation of bids by the Trustee or a Qualified Sale Agent and the
acceptance of the highest cash purchase offer from any bidder); PROVIDED,
HOWEVER, that if the amount available to the Trust for distribution after such
sale, disposition or liquidation would be less than the Aggregate Invested
Amount plus any unpaid Yield thereon through the Distribution Date next
succeeding the date of such sale, the Trustee shall not proceed with such sale,
disposition or liquidation unless the Majority in Interest of all outstanding
Series have consented in writing thereto. The proceeds from such sale,
disposition or liquidation of the Receivables shall be treated as Collections
on the Receivables and shall be immediately deposited in the Concentration
Account in accordance with the terms of this Agreement.
ARTICLE X
SERVICER DEFAULTS
SECTION 10.01. SERVICER DEFAULTS. If any one of the
following events (each being a "SERVICER DEFAULT") shall occur and be
continuing:
(a) any failure by a Servicer to make any payment,
transfer or deposit, or, if applicable, to give instructions or notice to the
Trustee to make such payment, transfer or deposit, which failure, (i) in the
case of any payment of Yield, continues for five Business Days after the date
such payment is required to be made hereunder and (ii) in the case of any other
payment, transfer or deposit, continues for seven Business Days after the date
such payment, transfer or deposit is required to be made hereunder or
thereunder;
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(b) any failure by a Servicer to give notice to the
Trustee as required in this Agreement, any Supplement or any Enhancement
Agreement, or any failure to provide the Determination Date Certificate to the
Trustee, on or before the date occurring five Business Days after the date such
notice or Determination Date Certificate is required to be made or given, as
the case may be, under the terms of this Agreement, such Supplement or
Enhancement Agreement;
(c) any failure by a Servicer duly to observe or perform
in any material respect any other covenant or agreement to be performed by it
as Servicer set forth in this Agreement, which failure has a material adverse
effect on the interest of the Investors and which continues unremedied for 30
days (or, with respect to any covenant contained in SECTIONS 3.04(a), 3.04(b),
3.04(h) and 3.04(i), continues unremedied for five Business Days) after the
earlier of (i) knowledge of such failure by a Responsible Officer of such
Servicer and (ii) the date on which written notice of such failure, requiring
the same to be remedied, shall have been given to such Servicer by the Trustee,
or to such Servicer and the Trustee by the Majority in Interest of any Series
which is materially and adversely affected by such failure; or such Servicer
shall assign its duties under this Agreement, except as permitted by SECTION
8.02;
(d) any representation, warranty or certification made by
such Servicer under or in connection with this Agreement, or in any certificate
or information delivered pursuant to or in connection with this Agreement,
shall prove to have been incorrect in any material respect when made and which
has a material adverse effect on the interests of the Investors of any Series
and which material adverse effect continues for a period of 30 days after the
earlier of (i) knowledge of such failure by a Responsible Officer of either
Servicer and (ii) the date on which written notice thereof, requiring the same
to be remedied, shall have been given (A) to such Servicer by the Trustee or
(B) to such Servicer and the Trustee by the Majority in Interest of any Series
which is materially and adversely affected by such incorrect representation,
warranty or certification; or
(e) an Insolvency Event shall occur with respect to such
Servicer;
then, as long as such Servicer Default shall not have been remedied and is
continuing, then either the Trustee shall, by notice given in writing to the
Servicers at the direction of the Holders of Investor Certificates evidencing
not less than 66 2/3% of the Aggregate Invested Amount (the "REQUISITE
HOLDERS") or the Requisite Holders may, by notice given in writing to the
Servicers and to the Trustee (each such notice being a "TERMINATION NOTICE"),
terminate all but not less than all the rights and obligations of
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each Servicer as a Servicer under this Agreement. The Trustee shall not be
deemed to have knowledge of a Servicer Default unless it has actual knowledge
or if a Responsible Officer has received written notice thereof.
The Majority Investors may, on behalf of all Investors, waive
any default by the Transferor or a Servicer in the performance of their
obligations hereunder and its consequences, except the failure to make any
distributions required to be made to Investors or to make any required deposits
of any amounts to be so distributed. Upon any such waiver of a past default,
such default shall cease to exist, and any such default shall be deemed to have
been remedied for every purpose of this Agreement. No such waiver shall extend
to any subsequent or other default or impair any right consequent thereon
except to the extent expressly so waived.
After receipt by the Servicers of a Termination Notice, and on
the date that a Successor Servicer shall have been appointed pursuant to
SECTION 10.02, all authority and power of such Servicers under this Agreement
shall pass to and be vested in such Successor Servicer (a "SERVICE TRANSFER");
and, without limitation, the Trustee is hereby authorized, empowered and
instructed (upon the failure of either Servicer to cooperate) to execute and
deliver, on behalf of such Servicer, as attorney-in fact or otherwise, all
documents and other instruments upon the failure of such Servicer to execute or
deliver such documents or instruments, and to do and accomplish all other acts
or things necessary or appropriate to effect the purposes of such Service
Transfer. Each Servicer agrees to cooperate, at its expense, with the Trustee
and such Successor Servicer in (i) effecting the termination of the
responsibilities and rights of the Servicers to conduct servicing hereunder,
including, without limitation, the transfer to such Successor Servicer of all
authority of the Servicers to service the Receivables as provided under this
Agreement, including all authority over all Collections which shall on the date
of such Service Transfer be held by the Servicers for deposit to any Collection
Account, the Concentration Account, the Reserve Account or the Transferor's
Account, or which have been deposited by the Servicers to any Collection
Account, the Concentration Account, or any other account, or which shall
thereafter be received with respect to the Receivables, and (ii) assisting the
Successor Servicer until all servicing activities have been transferred to such
Successor Servicer, such assistance to include, without limitation, (x)
assisting any accountants selected by the Successor Servicer to verify
collection records and reports made prior to the Service Transfer and (y)
assisting the Successor Servicer in making the computer systems of the
Servicers and the Successor Servicer compatible to the extent necessary to
effect the Service Transfer. Each Servicer shall, at its expense, within five
Business Days of such Service Transfer, (A) assemble such documents,
instruments and other records (including computer tapes and discs), which
evidence
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the Receivables and the other Trust Assets, and which are necessary or
desirable to collect the Receivables and shall make the same available to the
Successor Servicer or the Trustee or its designee at a place selected by the
Successor Servicer or the Trustee and in such form as the Successor Servicer or
the Trustee may reasonably request, and (B) segregate all cash, checks and
other instruments received by it from time to time constituting Collections of
Receivables in a manner acceptable to the Successor Servicer and the Trustee,
and, promptly upon receipt, remit all such cash, checks and instruments to the
Successor Servicer or the Trustee or its designee.
At any time following a Termination Notice:
(1) Each Servicer shall, at the Trustee's request
and at such Servicer's expense, give notice of the Trust's ownership
of the Receivables to the related Obligors and direct that payments be
made directly to the Trustee or its designee;
(2) If such Servicer fails to provide the notice
to Obligors required in paragraph (1) above, the Trustee may direct
the Obligors of Receivables, or any of them, that payment of all
amounts payable under any such Receivables be made directly to the
Trustee or its designee;
(3) Each of the Transferor and each Investor
hereby authorizes the Trustee to take any and all steps in the
Transferor's name and on behalf of the Transferor and the Investors
necessary or desirable, in the determination of the Trustee, to
collect all amounts due under any and all Receivables, including,
without limitation, endorsing the Transferor's name on checks and
other instruments representing Collections in respect of such
Receivables and enforcing such Receivables.
Notwithstanding the foregoing, a delay in or failure of
performance referred to in SECTION 10.01(a) for a period of ten Business Days
after the applicable grace period, or under SECTION 10.01(b) for a period of
thirty Business Days after the applicable grace period, shall not constitute a
Servicer Default if such delay or failure could not have been prevented by the
exercise of reasonable diligence by the applicable Servicer and such delay or
failure was caused by an act of God or the public enemy, acts of declared or
undeclared war, public disorder, rebellion or sabotage, epidemics, computer
system failure, landslides, lightning, fire, hurricanes, earthquakes, floods,
union strikes, work stoppages or similar occurrences. The preceding sentence
shall not relieve the applicable Servicer from using its best efforts to
perform its obligations in a timely manner in accordance with the terms of this
Agreement, and such Servicer shall provide the Trustee, the
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Transferor and any Enhancement Provider with an Officer's Certificate giving
prompt notice of such failure or delay by it, together with a description of
its efforts so to perform its obligations.
SECTION 10.02. TRUSTEE TO ACT; APPOINTMENT OF SUCCESSOR
SERVICER. (a) On and after the receipt by the Servicers of a Termination
Notice pursuant to SECTION 10.01 or upon a resignation by such Servicer
pursuant to SECTION 8.05, each Servicer shall continue to perform all servicing
functions under this Agreement until (i) in the case of any such receipt, the
date specified in such Termination Notice or otherwise specified by the Trustee
in writing or, if no such date is specified in such Termination Notice or
otherwise specified by the Trustee, until the earlier of a date agreed upon by
such Servicers and the Trustee or a date specified by the Trustee in a written
notice to the Servicers, and (ii) in the case of any such resignation, until
the Trustee or a Successor Servicer shall have assumed the responsibilities and
obligations of such Servicer pursuant to this SECTION 10.02. The Trustee shall
as promptly as possible after the giving of a Termination Notice or such a
resignation appoint an Eligible Servicer as a successor servicer (the
"SUCCESSOR SERVICER"), subject to the consent of any Enhancement Providers and
if specified in any Supplement, the consent of the Majority in Interest of the
Investors of the related Series, which consent shall not be unreasonably
withheld, and such Successor Servicer shall accept its appointment by a written
assumption in a form acceptable to the Trustee. In the event that a Successor
Servicer has not been appointed or has not accepted its appointment by the
earlier of 60 days after the date of such Termination Notice or at the time
when the applicable Servicers cease to act, the Trustee without further action
shall automatically be appointed the Successor Servicer. The Trustee may
delegate any of its servicing obligations to an affiliate or agent in
accordance with the terms of this Agreement. Notwithstanding the foregoing,
the Trustee shall, if it is legally unable so to act as Successor Servicer,
petition a court of competent jurisdiction to appoint any established
institution that is an Eligible Servicer (other than the Trustee) as the
Successor Servicer hereunder.
(b) Upon its appointment, the Successor Servicer shall be
the successor in all respects to the Servicers being terminated with respect to
servicing functions under this Agreement performed by such Servicers and shall
be subject to all the responsibilities, duties and liabilities relating thereto
placed on such Servicers by the terms and provisions hereof, and all references
in this Agreement to a Servicer or the Servicers shall be deemed to refer to
such Successor Servicer; PROVIDED, HOWEVER, that neither the Trustee (solely in
its capacity as such) nor any Successor Servicer shall be deemed in default
hereunder as a result of any predecessor Servicer's failure to deliver
necessary Trust Assets, documents, or records to the Trustee (solely in its
capacity as such) or to such
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Successor Servicer. Any Successor Servicer, by its acceptance of its
appointment, will automatically agree to be bound by the terms and provisions
of any Enhancement Agreement.
(c) In connection with any Termination Notice, the
Trustee will review any bids which it obtains from Eligible Servicers and shall
be permitted to appoint any Eligible Servicer submitting such a bid as a
Successor Servicer for servicing compensation not in excess of the Servicing
Fee.
(d) All authority and power granted to the Successor
Servicer under this Agreement shall automatically terminate upon termination of
the Trust pursuant to SECTION 12.01, and shall pass to and be vested in the
Transferor and, without limitation, the Transferor is hereby authorized and
empowered to execute and deliver, on behalf of the Successor Servicer, as
attorney-in-fact or otherwise, all documents and other instruments, and to do
and accomplish all other acts or things necessary or appropriate to effect the
purposes of such transfer of servicing rights. The Successor Servicer agrees
to cooperate with the Transferor in effecting the termination of the
responsibilities and rights of the Successor Servicer to conduct servicing of
the Receivables. The Successor Servicer shall transfer its electronic records
relating to the Receivables to the Transferor in such electronic form as the
Transferor may reasonably request and shall transfer all other records,
correspondence and documents to the Transferor in the manner and at such times
and the Transferor shall reasonably request.
(e) Upon the effectiveness of the appointment of a
Successor Servicer, the Successor Servicer shall as soon as practicable upon
demand deliver to each Originator all documents, instruments and records in its
possession which evidence or relate to receivables owned by such Originator
which are not Trust Assets, and copies of documents, instruments and records in
its possession which evidence or relate to such receivables.
SECTION 10.03. NOTIFICATION TO CERTIFICATEHOLDERS. Promptly
and in any event within three Business Days after a Servicer becomes aware of
any Servicer Default, such Servicer shall give written notice thereof to a
Responsible Officer of the Trustee, and the Trustee shall promptly deliver a
copy of such notice to the Investors and each Rating Agency. Upon any
termination of the initial Servicers or appointment of a Successor Servicer
pursuant to this ARTICLE X, the Trustee shall give prompt written notice
thereof to the Transferor and the Investors.
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ARTICLE XI
THE TRUSTEE
SECTION 11.01. DUTIES OF TRUSTEE. (a) The Trustee, prior to
the occurrence of a Servicer Default of which it has actual knowledge and after
the curing of all Servicer Defaults which may have occurred, undertakes to
perform such duties and only such duties as are specifically set forth in this
Agreement and no implied duties or covenants shall be read into this Agreement
against the Trustee. If a Servicer Default to the actual knowledge of the
Trustee has occurred (which has not been cured or waived), the Trustee shall
exercise such of the rights and powers vestedin it by this Agreement and use
the same degree of care and skill in their exercise, as a prudent person would
exercise or use under the circumstances in the conduct of his or her own
affairs.
(b) The Trustee, upon receipt of any resolutions,
certificates, statements, opinions, reports, documents, orders or other
instruments furnished to the Trustee which are specifically required to be
furnished pursuant to any provision of this Agreement or any Supplement, shall
examine them to determine whether they substantially conform to the
requirements of this Agreement or any Supplement. The Trustee shall give
prompt written notice to the Investors and each Rating Agency of any material
lack of conformity of any such instrument to the applicable requirements of
this Agreement or any Supplement discovered by the Trustee which would entitle
a specified percentage of the Investors to take any action pursuant to this
Agreement or any Supplement.
(c) Subject to SECTION 11.01(a), no provision of this
Agreement shall be construed to relieve the Trustee from liability for its own
negligent action, its own negligent failure to act or its own willful
misconduct; PROVIDED, HOWEVER, that:
(i) the Trustee shall not be personally liable for an
error of judgment made in good faith by a Responsible Officer or
Responsible Officers of the Trustee, unless it shall be proved that
the Trustee was negligent in ascertaining the pertinent facts;
(ii) the Trustee shall not be personally liable with
respect to any action taken, suffered or omitted to be taken by it in
good faith in accordance with the direction of the requisite amount of
Investors specified hereunder for each Series relating to the time,
method and place of conducting any proceeding for any remedy available
to the Trustee, or exercising any trust or power conferred upon the
Trustee, under this Agreement; and
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(iii) the Trustee shall not be charged with knowledge for any
failure by a Servicer to comply with the obligations of the Servicers
referred to in SECTION 10.01 unless a Responsible Officer of the
Trustee obtains actual knowledge of such failure or the Trustee
received written notice of such failure from such Servicer or from
Holders of Investor Certificates evidencing not less than 10% of the
Invested Amount of any Series.
(d) The Trustee shall not be required to expend or risk
its own funds or otherwise incur financial liability in the performance of any
of its duties hereunder or under any Supplement or in the exercise of any of
its rights or powers. None of the provisions contained in this Agreement shall
in any event require the Trustee to perform, or be responsible for the manner
of performance of, any obligations of a Servicer under this Agreement except
during such time, if any, as the Trustee shall be the successor to, and be
vested with the rights, duties, powers and privileges of, a Servicer in
accordance with the terms of this Agreement.
(e) Except for actions expressly authorized by this
Agreement, the Trustee shall take no action reasonably likely to impair the
interests of the Trust in any Receivable now existing or hereafter created or
to impair the value of any Receivable now existing or hereafter created.
(f) Except as expressly provided in this Agreement, the
Trustee shall have no power to vary the corpus of the Trust including, without
limitation, by (i) accepting any substitute obligation for a Receivable
initially Transferred to the Trust under SECTION 2.01, (ii) adding any other
investment, obligation or security to the Trust, or (iii) withdrawing from the
Trust any Receivable.
(g) In the event that the Paying Agent or the Transfer
Agent and Registrar shall fail to perform any obligation, duty or agreement in
the manner or on the day required to be performed by the Paying Agent or the
Transfer Agent and Registrar, as the case may be, under this Agreement or under
any Supplement, the Trustee shall be obligated promptly upon its actual
knowledge thereof to perform such obligation, duty or agreement in the manner
so required.
(h) The Trustee shall have no responsibility or liability
for investment losses on Eligible Investments.
(i) Notwithstanding any other provision contained herein,
the Trustee is not acting as, and shall not be deemed to be, a fiduciary for
any Enhancement Provider and the Trustee's sole responsibility with respect to
any such Enhancement Provider shall
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be to perform those duties with respect to any such Enhancement Provider as are
specifically set forth herein or in any applicable Supplement and no implied
duties or obligations shall be read into this Agreement or such Supplement
against the Trustee with respect to any such Enhancement Provider.
SECTION 11.02. CERTAIN MATTERS AFFECTING THE TRUSTEE. Except
as otherwise provided in SECTION 11.01:
(a) the Trustee may rely on and shall be protected in
acting on, or in refraining from acting in accord with, any resolution,
Officer's Certificate, certificate of auditors or any other certificate,
statement, instrument, opinion, report, notice, request, consent, order,
appraisal, bond or other paper or document believed by it to be genuine and to
have been signed or presented to it pursuant to this Agreement by the proper
party or parties;
(b) the Trustee may consult with counsel and any advice
or Opinion of Counsel shall be full and complete authorization and protection
in respect of any action taken or suffered or omitted by it hereunder in good
faith and in accordance with such advice or Opinion of Counsel, and the cost of
obtaining any such Opinion of Counsel shall be an expense of the Trust
reimbursable under SECTION 3.02(b);
(c) the Trustee shall be under no obligation to exercise
any of the rights or powers vested in it by this Agreement, or to institute,
conduct or defend any litigation hereunder or in relation hereto, at the
request, order or direction of any of the Certificateholders, pursuant to the
provisions of this Agreement, unless such Certificateholders shall have offered
to the Trustee security or indemnity reasonably satisfactory to the Trustee
against the costs, expenses and liabilities which may be incurred therein or
thereby; PROVIDED, HOWEVER, that nothing contained herein shall relieve the
Trustee of the obligations, upon the occurrence of a Servicer Default (which
has not been cured or waived), to exercise such of the rights and powers vested
in it by this Agreement, and to use the same degree of care and skill in their
exercise as a prudent man would exercise or use under the circumstances in the
conduct of his own affairs;
(d) the Trustee shall not be personally liable for any
action taken, suffered or omitted by it in good faith and believed by it to be
authorized or within the discretion or rights or powers conferred upon it by
this Agreement;
(e) the Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, report, notice, request, consent, order,
appraisal, approval, bond or other paper or document;
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(f) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
agents or attorneys or a custodian, and the Trustee shall not be responsible
for any misconduct or negligence on the part of any such agent, attorney or
custodian appointed with due care by it hereunder;
(g) the Trustee shall not be required to make any initial
or periodic examination of any documents or records related to the Receivables
for the purpose of establishing the presence or absence of defects, the
compliance by the Transferor with its representations and warranties or for any
other purposes; and
(h) nothing in this Agreement shall be construed to
require the Trustee to monitor the performance of the Servicers or act as a
guarantor of the Servicers' performance.
SECTION 11.03. TRUSTEE NOT LIABLE FOR RECITALS IN
CERTIFICATES. The Trustee assumes no responsibility for the correctness of the
recitals contained herein and in the Certificates (other than the certificate
of authentication on the Certificates). Except as set forth in SECTION 11.15,
the Trustee makes no representations as to the validity or sufficiency of this
Agreement or of the Certificates (other than the certificate of authentication
on the Certificates) or of any Receivables or related document. The Trustee
shall not be accountable for the use or application by the Transferor of any of
the Certificates or of the proceeds of such Certificates, or for the use or
application of any funds paid to the Transferor in respect of the Receivables
or deposited in or withdrawn from any Collection Account, the Concentration
Account, the Reserve Account, any other Trust Account, the Transferor's Account
or any other account hereafter established to effectuate the transactions
contemplated by and in accordance with the terms of this Agreement and any
Supplement.
SECTION 11.04. TRUSTEE MAY OWN CERTIFICATES. The Trustee in
its individual or any other capacity may become the owner or pledgee of
Investor Certificates and may otherwise deal, and transact banking business,
with any Originator, any Servicer and/or the Transferor with the same rights as
it would have if it were not the Trustee.
SECTION 11.05. COMPENSATION; TRUSTEE'S EXPENSES. (a) The
Trustee shall be entitled to receive a monthly Trustee's fee (which shall not
be limited by any provision of law in regard to compensation of a trustee of an
express trust, such fee being the "TRUSTEE'S FEE") in respect to each
Collection Period (or portion thereof) from the initial Closing Date until the
termination of the Amortization Period, payable in arrears on each Distribution
Date in an amount agreed in writing by the Trustee and the Transferor which
amount shall not exceed $___ per month. The Trustee's Fee
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shall be payable, FIRST, from the Carrying Cost Account or (during the
Amortization Period, the Concentration Account) pursuant to, and subject to the
priority of payment set forth in, SECTION 4.03 of this Agreement and, SECOND,
to the extent not paid from the Trust Accounts, by the Transferor, and, THIRD,
to the extent not paid from the Trust Accounts or by the Transferor, by the
Servicers pursuant to SECTION 3.02(b).
(b) EXPENSES. The Transferor will pay or reimburse the
Trustee upon its request, for all reasonable expenses, disbursements and
advances incurred or made by the Trustee in accordance with any of the
provisions of this Agreement or any Supplement or in connection with any
amendment hereto (including the reasonable fees and expenses of its agents, any
co-trustee and counsel and fees incurred in connection with any Indemnified
Amounts, any Servicer Default or any Early Amortization Event) except any such
expenses, disbursement or advance as may arise from the Trustee's gross
negligence or bad faith and except as otherwise provided below in this SECTION
11.05(b). In addition to the foregoing, the Servicers will pay or reimburse
the Trustee upon its request, for all reasonable expenses, disbursements and
advances incurred or made by the Trustee incurred in connection with any
Servicer Default or Indemnified Amounts with respect to which the Servicers
have provided indemnification under SECTION 8.04 except any such expenses,
disbursement or advance as may arise from the Trustee's gross negligence or bad
faith and except as otherwise provided below in this SECTION 11.05(b). All
such amounts shall be paid by the Transferor and/or, if applicable, by the
Servicers in accordance with the provisions of SECTION 3.02(b). If the Trustee
is appointed Successor Servicer pursuant to SECTION 10.02, the provision of
this SECTION 11.05 shall not apply to expenses, disbursement and advances made
or incurred by the Trustee in its capacity as Successor Servicer, which shall
be paid, FIRST, out of the Servicing Fee, and, SECOND, to the extent not paid
out of the Servicing Fee, by the Transferor pursuant to SECTION 3.02(b). The
Transferor's and Servicers' covenants and disbursements provided for in this
SECTION 11.05 are in addition to, and not in limitation of, any other rights
the Trustee may have under this Agreement (as an Indemnified Party or
otherwise) or under the Receivables Purchase Agreement as an assignee of the
Transferor and such covenants shall survive the termination of this Agreement.
SECTION 11.06. ELIGIBILITY REQUIREMENTS FOR TRUSTEE. The
Trustee hereunder shall at all times be an Eligible Institution. If the
Trustee publishes reports of condition at least annually, pursuant to law or to
the requirements of the aforesaid supervising or examining authority, then for
the purposes of this SECTION 11.06, the combined capital and surplus of such
corporation shall be deemed to be its combined capital and surplus as set forth
in its most recent report of condition so published. In case at any time the
Trustee shall cease to be eligible in
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accordance with the provisions of this SECTION 11.06, the Trustee shall resign
immediately in the manner and with the effect specified in SECTION 11.07.
SECTION 11.07. RESIGNATION OR REMOVAL OF TRUSTEE. (a) The
Trustee may any time resign and be discharged from the trust hereby created by
giving written notice thereof to the Transferor and each Servicer. Upon
receiving such notice of resignation, the Transferor shall promptly appoint an
Eligible Institution as successor trustee by written instrument, in duplicate,
one copy of which instrument shall be delivered to the Trustee so removed and
one copy of which shall be delivered to the successor trustee. If no successor
trustee shall have been so appointed and have accepted appointment within 30
days after the giving of such notice of resignation, the resigning Trustee may
petition any court of competent jurisdiction for the appointment of a successor
trustee.
(b) If at any time the Trustee shall cease to be eligible in
accordance with the provisions of SECTION 11.06 hereof and shall fail to resign
after written request therefor by the Transferor, or if at any time the Trustee
shall be legally unable to act, or shall be adjudged a bankrupt or insolvent,
or if a receiver of the Trustee or of its property shall be appointed, or any
public officer shall take charge or control of the Trustee or of its property
or affairs for the purpose of rehabilitation, conservation or liquidation, then
the Transferor may remove the Trustee and promptly appoint an Eligible
Institution as successor trustee by written instrument, in duplicate, one copy
of which instrument shall be delivered to the Trustee so removed and one copy
of which shall be delivered to the successor trustee.
(c) If at any time the Trustee shall fail to perform its
obligations under this Agreement, the Majority Investors may remove the Trustee
and direct the Transferor to promptly appoint an Eligible Institution as
successor trustee by written instrument, in duplicate, one copy of which
instrument shall be delivered to the Trustee so removed and one copy of which
shall be delivered to the successor Trustee.
(d) Notwithstanding anything herein to the contrary, any
resignation or removal of the Trustee and appointment of successor trustee
pursuant to any of the provisions of this SECTION 11.07 shall not become
effective until acceptance of appointment by the successor trustee as provided
in SECTION 11.08 hereof.
SECTION 11.08. SUCCESSOR TRUSTEE. (a) Any successor trustee
appointed as provided in SECTION 11.07 shall execute, acknowledge and deliver
to the Transferor, to the Servicers and to its predecessor Trustee an
instrument accepting such appointment hereunder, and thereupon the resignation
or removal of the predecessor Trustee shall become effective and such successor
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trustee, without any further act, deed or conveyance, shall become fully vested
with all the rights, powers, duties and obligations of its predecessor
hereunder, with like effect as if originally named as Trustee herein. The
predecessor Trustee shall deliver (with the expenses therefor payable out of
the Servicing Fee, andby the Transferor and the Servicers, pursuant to SECTIONS
3.02(b) and 11.05(b)) to the successor trustee all documents or copies thereof
and statements held by it hereunder; and the Transferor and the predecessor
Trustee shall execute and deliver such instruments and do such other things as
may reasonably be required for fully and certainly vesting and confirming in
the successor trustee all such rights, powers, duties and obligations.
(b) No successor trustee shall accept appointment as provided
in this SECTION 11.08 unless at the time of such acceptance such successor
trustee shall be eligible under the provisions of SECTION 11.06 hereof.
(c) Upon acceptance of appointment by a successor trustee as
provided in this SECTION 11.08, such successor trustee shall mail notice of
such succession hereunder to all Investors.
SECTION 11.09. MERGER OR CONSOLIDATION OF TRUSTEE. Any
Person into which the Trustee may be merged or converted or with which it may
be consolidated, or any Person resulting from any merger, conversion or
consolidation in which the Trustee shall be a party, or any Person succeeding
to the corporate trust business of the Trustee, shall be successor of the
Trustee hereunder, provided such corporation shall be eligible under the
provisions of SECTION 11.06, without the execution or filing of any paper or
any further act on the part of any of the parties hereto, anything herein to
the contrary notwithstanding.
SECTION 11.10. APPOINTMENT OF CO-TRUSTEE OR SEPARATE TRUSTEE.
(a) Notwithstanding any other provisions of this Agreement, at any time, for
the purpose of meeting any legal requirements of any jurisdiction in which any
part of the Trust may at the time be located, the Trustee shall have the power
and may execute and deliver all instruments to appoint one or more persons to
act as a co-trustee, or co-trustees, or separate trustee or separate trustees,
of all or any part of the Trust, and to vest in such Person or Persons, in such
capacity and for the benefit of the Certificateholders, such title to the
Trust, or any part thereof, and, subject to the other provisions of this
SECTION 11.10, such powers, duties, obligations, rights and trusts as the
Trustee may consider necessary or desirable. No co-trustee or separate trustee
hereunder shall be required to meet the terms of eligibility as a successor
trustee under SECTION 11.06 and no notice to Certificateholders of the
appointment of any co-trustee or separate trustee shall be required under
SECTION 11.08 hereof.
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(b) Every separate trustee and co-trustee shall, to the
extent permitted by law, be appointed and act subject to the following
provisions and conditions:
(i) all rights, powers, duties and obligations conferred or
imposed upon the Trustee shall be conferred or imposed upon and
exercised or performed by the Trustee and such separate trustee or
co-trustee jointly (it being understood that such separate trustee or
co-trustee is not authorized to act separately without the Trustee
joining in such act), except to the extent that under any law of any
jurisdiction in which any particular act or acts are to be performed
(whether as Trustee hereunder or as Successor Servicer hereunder), the
Trustee shall be incompetent or unqualified to perform such act or
acts, in which event such rights, powers, duties and obligations
(including the holding of title to the Trust or any portion thereof in
any such jurisdiction) shall be exercised and performed singly by such
separate trustee or co-trustee, but solely at the direction of the
Trustee;
(ii) no trustee hereunder shall be personally liable by
reason of any act or omission of any other trustee hereunder; and
(iii) the Trustee may at any time accept the resignation of
or remove any separate trustee or co-trustee.
(c) Any notice, request or other writing given to the Trustee
shall be deemed to have been given to each of the then separate trustees and
co-trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this Agreement and
the conditions of this ARTICLE XI. Each separate trustee and co-trustee, upon
its acceptance of the trusts conferred, shall be vested with the estates or
property specified in its instrument of appointment, either jointly with the
Trustee or separately, as may be provided therein, subject to all the
provisions of this Agreement, specifically including every provision of this
Agreement relating to the conduct of, affecting the liability of, or affording
protection to, the Trustee. Every such instrument shall be filed with the
Trustee and a copy thereof given to the Servicers.
(d) Any separate trustee or co-trustee may at any time
constitute the Trustee, its agent or attorney-in-fact with full power and
authority, to the extent not prohibited by law, to do any lawful act under or
in respect of this Agreement on its behalf and in its name. If any separate
trustee or co-trustee shall die, become incapable of acting, resign or be
removed, all its estates, properties, rights, remedies and trusts shall vest in
and be exercised by the Trustee, to the extent permitted by law, without the
appointment of a new or successor trustee.
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SECTION 11.11. TAX RETURNS. No federal income tax return
shall be filed on behalf of the Trust unless either (i) the Trustee or the
Servicers shall receive an Opinion of Counsel based on a change in applicable
law occurring after the date hereof that the Internal Revenue Code requires
such a filing or (ii) the Internal Revenue Service shall determine that the
Trust is required to file such a return or (iii) the Trust is required to file
such a return by order of a court of competent jurisdiction. In the event the
Trust shall be required to file tax returns, the Master Servicer shall prepare
or to cause to be prepared any tax returns required to be filed by the Trust
and shall remit such returns to the Trustee for signature at least five days
before such returns are due to be filed; the Trustee shall promptly sign such
returns and deliver such returns after signature to the Master Servicer and
such returns shall be filed by the Master Servicer. The Trustee, the Paying
Agent and the Transfer Agent and Registrar, upon request, will each furnish the
Master Servicer with all such information known to such Person as may be
reasonably required in connection with the preparation of all tax returns of
the Trust, and the Trustee shall, upon request of the Master Servicer, execute
such returns. In no event shall the Trustee, any Servicer or the Transferor be
liable for any liabilities, costs or expenses of the Trust or the Investors
arising out of the application of any tax law, including federal, state,
foreign or local income or excise taxes or any other tax imposed on or measured
by income (or any interest penalty or addition with respect thereto or arising
from a failure to comply therewith).
SECTION 11.12. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION
OF CERTIFICATES. All rights of action and claims under this Agreement or the
Certificates may be prosecuted and enforced by the Trustee without the
possession of any of the Certificates or the production thereof in any
proceeding relating thereto, and any such proceeding instituted by the Trustee
shall be brought in its own name as trustee. Any recovery of judgment shall,
after provision for the payment the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, be for the
ratable benefit of the Certificateholders in respect of which such judgment has
been obtained.
SECTION 11.13. SUITS FOR ENFORCEMENT. (a) If a Servicer
Default shall occur and be continuing, the Trustee, in its discretion may,
subject to the provisions of SECTIONS 11.01 and 11.14, proceed to protect and
enforce its rights and the rights of the Certificateholders under this
Agreement by suit, action or proceeding in equity or at law or otherwise,
whether for the specific performance of any covenant or agreement contained in
this Agreement or in aid of the execution of any power granted in this
Agreement or for the enforcement of any other legal, equitable or other remedy
as the Trustee, being advised by counsel, shall deem
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most effectual to protect and enforce any of the rights of the Trustee or the
Certificateholders.
(b) Nothing herein contained shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf of any
Certificateholder any plan of reorganization, arrangement, adjustment or
composition affecting the Certificateholders or the rights of any Holder
thereof, or to authorize the Trustee to vote in respect of the claim of any
Certificateholder in any such proceeding.
SECTION 11.14. RIGHTS OF CERTIFICATEHOLDERS TO DIRECT
TRUSTEE. The Majority Investors shall have the right to direct the time,
method, and place of conducting any proceeding for any remedy available to the
Trustee, or exercising any trust or power conferred on the Trustee; PROVIDED,
HOWEVER, that subject to SECTION 11.01, the Trustee shall have the right to
decline to follow any such direction if the Trustee after being advised by
counsel determines that the action so directed may not lawfully be taken, or if
the Trustee in good faith shall, by a Responsible Officer or Responsible
Officers of the Trustee, determine that the proceedings so directed would be
illegal or involve it in personal liability or be unduly prejudicial to the
rights of Investor Certificateholders not parties to such direction; and,
PROVIDED, FURTHER, that nothing in this Agreement shall impair the right of the
Trustee to take any action deemed proper by the Trustee and which is not
inconsistent with such direction of the Investors unless the Majority Investors
shall have directed the Trustee not to take such action.
SECTION 11.15. REPRESENTATIONS AND WARRANTIES OF TRUSTEE.
The Trustee represents and warrants that:
(a) The Trustee is a national banking association;
(b) the Trustee has full power, authority and right to
execute, deliver and perform this Agreement, and has taken all necessary action
to authorize the execution, delivery and performance by it of this Agreement;
and
(c) this Agreement has been duly executed and delivered by
the Trustee.
SECTION 11.16. MAINTENANCE OF OFFICE OR AGENCY. The Trustee
will maintain at its expense, an office or agency (the "CORPORATE TRUST
OFFICE") where Certificates may be presented for registration of transfer. The
Trustee initially designates its office or agency at 111 Wall Street, 5th
Floor, New York City, New York, 10043 as such office. The Trustee will give
prompt written notice to the Servicers and to Certificateholders of any change
in
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the location of the Certificate Register or any such office or agency.
ARTICLE XII
TERMINATION
SECTION 12.01. TERMINATION OF TRUST. (a) The Trust and the
respective obligations and responsibilities of the Transferor, the Servicers
and the Trustee created hereby (other than the obligation of the Trustee to
make payments to Certificateholders and to the Transferor as hereinafter set
forth) shall terminate, except with respect to the duties described in SECTIONS
3.02(b), 7.03, 8.04, 11.05 and 12.02(b), upon the earlier to occur of (i)
December 31, 2004 and (ii) the day following the Distribution Date on which (x)
the final distribution for each Series is made in accordance with this ARTICLE
XII and under the related Supplement and (y) the amount allocated to the
Transferor Revolving Certificate has been reduced to zero.
(b) Notwithstanding the foregoing, the last payment of the
principal of and Yield on the Investor Certificates of any Series shall be due
and payable no later than the Final Scheduled Payment Date. If, on or before
the Final Scheduled Payment Date, the Master Servicer determines that the
Aggregate Invested Amount will exceed zero as of the Final Scheduled Payment
Date (after giving effect to all distributions to be made on such date under
SECTION 4.03(c)), the Master Servicer shall, or shall engage a Qualified Sale
Agent to, solicit bids for the sale of interests in the Transferor Receivables
and Related Security which are included in the Trust Assets at an asking price
equal to 110% of the Aggregate Invested Amount on the Final Scheduled Payment
Date (after giving effect to all distributions required to be made on such date
under SECTION 4.03(c)). The proceeds of any such sale, disposition or
liquidation will be treated as Collections on the Receivables and shall be
immediately deposited in the Concentration Account for further distribution in
accordance with the terms of this Agreement. The Transferor shall be entitled
to participate in and to receive notice of each bid submitted in connection
with such bidding process. Upon the expiration of such period, the Master
Servicer shall determine (a) the highest cash purchase offer from any bidder
and (b) the amount of Collections on deposit in the Trust Accounts available
for distribution pursuant to the terms of this Agreement. The Master Servicer
shall sell such interests in the Trust Assets on the Final Scheduled Payment
Date to the bidder which has made the highest cash purchase offer and shall
deposit the proceeds of such sale in the Concentration Account for allocation
(together with the amounts described in clause (b) of the immediately preceding
sentence) for distribution to the Certificateholders.
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SECTION 12.02. FINAL DISTRIBUTION. (a) The Servicers shall
give the Trustee and the Transferor, and the Trustee shall give each Investor,
at least twenty days' prior written notice of the date on which (i) the Trust
is expected to terminate in accordance with SECTION 12.01 and (ii) the
Certificateholders shall surrender their Certificates for payment of the final
distribution on, and cancellation of, such Certificates. Such notice shall be
accompanied by an Officer's Certificate setting forth the information specified
in SECTION 3.06 covering the period during the then-current calendar year
through the date of such notice. Not later than five Business Days after the
Trustee shall receive such notice, the Trustee shall mail notice to the
Certificateholders specifying (i) the date upon which such final distribution
will be made upon presentation and surrender of such Certificates at the office
or offices therein designated, (ii) the amount of any such final distribution
and (iii) that the Distribution Date otherwise applicable to such final
distribution is not applicable, payments being made only upon presentation and
surrender of such Certificates at the office or offices therein specified.
Each such Certificateholder shall surrender its Certificate to the Trustee
following receipt of the final distribution thereon and any remaining amounts
shall be distributed to the Transferor in consideration of the Deferred Payment
Right. The Trustee shall give such notice to the Transfer Agent and Registrar
and the Paying Agent at the time such notice is given to the
Certificateholders.
(b) Notwithstanding the Servicers' delivery to the Trustee,
or the Trustee's delivery to the Certificateholders, of the notices required
under SECTION 12.02(a), all funds then on deposit in the Concentration Account,
the Reserve Account, any Series Account, any Defeasance Account, any other
Trust Account or the Transferor's Account shall continue to be held in trust
for the benefit of the Certificateholders (including, for purposes of this
SECTION 12.02, the Transferor as the holder of the Deferred Payment Right), and
the Paying Agent or the Trustee shall pay such funds to the Certificateholders
upon surrender of their Certificates pursuant to, and subject to the priorities
set forth in, the applicable Supplement, as if such surrender date were on a
Distribution Date (and any excess shall be paid in accordance with the terms of
any Enhancement Agreement). In the event that all Certificateholders shall not
surrender their Certificates for cancellation within six months after the date
specified in the above-mentioned written notice from the Trustee, the Trustee
shall give a second written notice to the remaining Certificateholders to
surrender their Certificates for cancellation and receive the final
distribution with respect thereto. If within one year after the second notice
all the Certificates shall not have been surrendered for cancellation, the
Trustee may take appropriate steps, or may appoint an agent to take appropriate
steps, to contact the remaining Certificateholders concerning surrender of
their Certificates, and the cost thereof shall be paid out of the funds
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in the Trust Accounts (if such Certificateholders are Investors) or the
Transferor's Account (if any such Certificateholder is the Holder of the
Transferor Revolving Certificate) held for the benefit of such
Certificateholders. The Trustee and the Paying Agent shall pay to the
Transferor any monies held by them for the payment of principal or interest
that remains unclaimed for two years. After payment to the Transferor,
Investors entitled to the money must look to the Transferor for payment as
general creditors unless an applicable abandoned property law designates
another person.
SECTION 12.03. TRANSFEROR'S TERMINATION RIGHTS. Upon the
termination of the Trust pursuant to SECTION 12.01, the payment in full of all
amounts due to the Investors, the payment of the Trustee's fees and expenses
and the surrender of the Transferor Revolving Certificate, the Trustee shall
assign and convey to the Transferor (as the holder of the Deferred Payment
Right) or its designee, without recourse, representation or warranty, all
right, title and interest of the Trust in and to the Receivables, whether then
existing or thereafter created, and all other Trust Assets, and all proceeds
thereof except for amounts held in any account by the Trustee or the Paying
Agent pursuant to SECTION 12.02(b). The Trustee at the expense of the
Transferor shall execute and deliver such instruments of transfer and
assignment, in each case without recourse, representation or warranty, as shall
be prepared by the Transferor for execution by the Trustee which are reasonably
requested by the Transferor to vest in the Transferor all right, title and
interest which the Trust had in the Receivables and all other Trust Assets.
SECTION 12.04. OPTIONAL REPURCHASE OF TRUST ASSETS. On any
Distribution Date occurring on or after the Amortization Date when the
Aggregate Invested Amount is reduced to 10% or less of the Aggregate Invested
Amount as of the Amortization Date, the Transferor shall have the option, upon
giving twenty days' prior written notice to the Servicer, the Trustee and the
Rating Agencies, to repurchase the Aggregate Investors' Interest in the Trust
by depositing into the Concentration Account, on such Distribution Date, an
amount equal to the Aggregate Invested Amount as of such Distribution Date plus
accrued and unpaid Yield plus any other amounts, if any, which may be owed to
the Investors pursuant to the applicable Supplements or this Agreement;
PROVIDED, however, that if at such time the long-term unsecured debt
obligations of either of the Originators are not rated at least Baa-3 by
Moody's and BBB- by S&P, then such repurchase may not be funded through funds
other than Transferor Collections retained by the Transferor unless one of the
following conditions is satisfied: (i) the Transferor provides an Opinion of
Counsel (containing such assumptions and qualifications as are customary) to
the effect that such purchase would not constitute a fraudulent conveyance by
the Transferor or (ii) the Transferor provides a certificate from an
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independent accountant, investment banking firm or valuation research firm that
such purchase price represents a fair market value for the Investor
Certificates. Such notice shall be accompanied by a notice of a final
distribution in accordance with SECTION 12.02. The Trustee shall treat such
deposits as Collections on the Receivables allocable to the Aggregate
Investors' Interest and shall distribute such amounts to the Investors in
accordance with the terms hereof and the applicable Supplements upon
presentation and surrender of the Certificates as provided under SECTION 12.02.
ARTICLE XIII
MISCELLANEOUS PROVISIONS
SECTION 13.01. AMENDMENT. (a) This Agreement or any
Supplement may be amended from time to time by the Servicers, the Transferor
and the Trustee without the consent of any of the Investors, (i) to cure any
ambiguity, (ii) to correct or supplement any provision herein or in any
Supplement which may be inconsistent with any other provision herein or
therein, (iii) to evidence the succession of another Person to any Originator,
the Transferor, any Servicer and/or the Trustee in each case to the extent that
such succession is otherwise permitted under the terms of this Agreement and,
if applicable, the Receivables Purchase Agreement, (iv) to add any other
provisions with respect to matters or questions arising under the Agreement or
any Supplement which are not inconsistent with the provisions of the Agreement
or such Supplement and (v) to change or eliminate any provisions of this
Agreement or any Supplement in order to maintain the outstanding rating of any
outstanding Series or Class of Investor Certificates; PROVIDED, that any
amendment pursuant to this paragraph (a) shall not, as evidenced by an
Officer's Certificate of the Servicers, adversely affect in any material
respect the interests of any Investors. No such Supplement or amendment to
this Agreement or any Supplement pursuant to this SECTION 13.01 shall become
effective unless a copy thereof shall have been sent to each Rating Agency and
the Rating Agency Condition shall have been satisfied with respect thereto.
The Trustee may request an Officer's Certificate and Opinion of Counsel with
respect to any such amendment concerning compliance with the requirements of
this Agreement.
(b) This Agreement or any Supplement may be amended from time
to time by the Servicers, the Transferor and the Trustee, with the consent of
the Majority in Interest of each adversely affected Series, for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of this Agreement or of modifying in any manner the rights of the
Investors; PROVIDED, HOWEVER, that no such amendment shall (i) reduce in any
manner the amount of, or delay the timing of, distributions to be
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made to any Investor or deposits of amounts to be so distributed or the amount
available under any Enhancement without the consent of such affected Investor,
(ii) change the definition of or the manner of calculating the Investors'
Interest or the Aggregate Investors' Interest without the consent of each
affected Investor, (iii) reduce the aforesaid percentage required to consent to
any such amendment without the consent of each Investor or (iv) cause any
adverse tax effect for an Investor without the consent of each affected
Investor. The Trustee may request an Officer's Certificate and Opinion of
Counsel with respect to an amendment entered into pursuant to this SECTION
13.01(b) concerning compliance with the requirements of this Agreement. Any
amendment to be effected pursuant to this paragraph shall be deemed to
adversely affect all outstanding Series. No such amendment to this Agreement
or any Supplement pursuant to this SECTION 13.01(b) shall become effective
unless a copy thereof shall have been sent to each Rating Agency and either (i)
the Rating Agency Condition shall have been satisfied with respect thereto or
(ii) if the Rating Agency Condition is not so satisfied, the Investors holding
Certificates evidencing not less than 66-2/3% of the Invested Amount of each
Series whose rating is or would be adversely affected thereby shall have
consented thereto in writing.
(c) Promptly after the execution of any such amendment or
consent (other than an amendment pursuant to SECTION 13.01(a)), the Trustee
shall furnish written notification of the substance of such amendment to each
affected Investor and each Enhancement Provider.
(d) It shall not be necessary for the consent of Investors
under this SECTION 13.01 to approve the particular form of any proposed
amendment, but it shall be sufficient if such consent shall approve the
substance thereof. The manner of obtaining such consents and of evidencing the
authorization of the execution thereof by Investors shall be subject to such
reasonable requirements as the Trustee may prescribe.
(e) Notwithstanding anything in this SECTION 13.01 to the
contrary, no amendment may be made to this Agreement or any Supplement without
the consent of any Enhancement Provider unless such amendment would not (as
evidenced by an Officer's Certificate of the Servicers) adversely affect in any
material respect the interests of such Enhancement Provider.
(f) Any Supplement executed in accordance with the provisions
of SECTION 6.09 shall not be considered an amendment to this Agreement for the
purposes of this SECTION 13.01.
(g) Prior to the execution of any amendment to this Agreement
or any Supplement, the Trustee and any Enhancement Provider shall be entitled
to receive and rely upon an Opinion of
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Counsel stating that the execution of such amendment is authorized or permitted
by this Agreement. The Trustee may, but shall not be obligated to, enter into
any such amendment which affects the Trustee's own rights, duties or immunities
under this Agreement, any Supplement or otherwise.
SECTION 13.02. PROTECTION OF RIGHT, TITLE AND INTEREST TO
TRUST. (a) The Servicers shall cause this Agreement, all amendments hereto
and all financing statements and continuation statements and any other
necessary documents covering the Certificateholders' and the Trustee's right,
title and interest in and to the Trust to be promptly recorded, registered and
filed, and at all times to be kept recorded, registered and filed, all in such
manner and in such places as may be required by law to preserve and protect
fully the right, title and interest of the Certificateholders and the Trustee
hereunder in and to all property comprising the Trust. The Servicers shall
deliver to the Trustee file-stamped copies of, or filing receipts for, each
document recorded, registered or filed as provided above, as soon as available
following such recording, registration or filing. The Transferor shall
cooperate fully with the Servicers in connection with the obligations set forth
above and will execute any and all documents reasonably required to fulfill the
intent of this SECTION 13.02(a).
(b) Within 30 days after the Transferor makes any change in
its name, identity or corporate structure which would make any financing
statement or continuation statement filed in accordance with the terms of this
Agreement seriously misleading within the meaning of Section 9-402(7) (or any
comparable provision) of the UCC as in effect in the jurisdiction the law of
which governs the perfection of the interest in the Trust Assets created
hereunder, the Transferor shall give the Trustee notice of such change and
shall file such financing statements or amendments as may be necessary to
continue the perfection of the Trust's interest in the Trust Assets and the
proceeds thereof contemplated by SECTION 2.01 hereof.
(c) The Transferor and the Servicers will give the Trustee
prompt written notice of any relocation of any office from which any of them
service Receivables or keep records concerning the Receivables or of their
principal executive offices and whether, as a result of such relocation, the
applicable provisions of the UCC would require the filing of any amendment of
any previously filed financing or continuation statement or of any new
financing statement and shall file such financing statements or amendments as
may be necessary to perfect or to continue the perfection of the Trust's
interest in the Receivables and the other Trust Assets and the proceeds thereof
contemplated by SECTION 2.01 hereof. The Transferor and the Servicers will at
all times main-
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tain each office from which they service Receivables and their principal
executive offices within the United States of America.
SECTION 13.03. LIMITATION ON RIGHTS OF CERTIFICATEHOLDERS.
(a) The death or incapacity of any Investor shall not operate to terminate
this Agreement or the Trust, nor shall such death or incapacity entitle such
Investors' legal representatives or heirs to claim an accounting or to take any
action or commence any proceeding in any court for a partition or winding up of
the Trust, nor otherwise affect the rights, obligations and liabilities of the
parties hereto or any of them.
(b) No Certificateholder shall have the right to vote (except
as expressly provided in this Agreement, including without limitation under
SECTION 11.14) or in any manner otherwise control the operation and management
of the Trust, or the obligations of the parties hereto, nor shall anything
herein set forth, or contained in the terms of the Certificates, be construed
so as to constitute the Certificateholders from time to time as partners or
members of an association nor shall any Investor be under any liability to any
third person by reason of any action taken by the parties to this Agreement
pursuant to any provision hereof.
(c) No Investor shall have any right by virtue of any
provisions of this Agreement to file or otherwise institute any suit, action or
proceeding in equity or at law upon or under or with respect to this Agreement,
unless such Investor previously shall have made, and unless the Majority
Investors shall have made, a written request to the Trustee to institute such
action, suit or proceeding in its own name as Trustee hereunder and shall have
offered to the Trustee such reasonable indemnity as it may require against the
costs, expenses and liabilities to be incurred therein or thereby, and the
Trustee, for 60 days after such request and offer of indemnity, shall have
failed to file or otherwise refused to institute any such action, suit or
proceeding; it being understood and intended, and being expressly covenanted,
by each Certificateholder with every other Certificateholder and the Trustee,
that no one or more Certificateholders shall have any right in any manner
whatever by virtue or by availing itself or themselves of any provisions of
this Agreement to affect, disturb or prejudice the rights of the holders of any
of the Investor Certificates, or to obtain or seek to obtain priority over or
preference to any such Investor, or to enforce any right under this Agreement,
except in the manner herein provided and for the equal, ratable and common
benefit of all Investors. For the protection and enforcement of the provisions
of this SECTION 13.03, each and every Investor and the Trustee shall be
entitled to such relief as can be given either at law or in equity.
Notwithstanding any other provision of this Agreement, the Certificates or any
Supplement, each Investor shall have the right to receive the payments of all
amounts due hereunder, under the Certificates held by such Holder
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and under the Supplement relating to the Series of Certificates held by such
Holder and the right to institute suit for the enforcement of any such payment
without the consent of the Trustee or any other Holder.
(d) By its acceptance of the Transferor Revolving
Certificate, the Holder thereof agrees that it will take no action with respect
to such Holder's rights under the Agreement that is inconsistent with, or
adverse to, the interests of the Investors.
SECTION 13.04. GOVERNING LAW; JURISDICTION; CONSENT TO
SERVICE OF PROCESS. (a) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, INCLUDING
WITHOUT LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE
OF NEW YORK BUT OTHERWISE WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS,
AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE
DETERMINED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
[(b) JURISDICTION. Each of the parties hereto hereby
irrevocably and unconditionally submits to the nonexclusive jurisdiction of any
federal court of the United States of America sitting in New York City or, if
jurisdiction is not available in such federal court, New York State court, and
any appellate court from any thereof, in any action or proceeding arising out
of or relating to this Agreement, and each of the parties hereto hereby
irrevocably and unconditionally agrees that all claims in respect of any such
action or proceeding may be heard and determined in such New York State or, to
the extent permitted by law, in such federal court. Each of the parties hereto
agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment
or in any other manner provided by law.]
(c) CONSENT TO SERVICE OF PROCESS. Each party to this
Agreement irrevocably consents to service of process in the manner provided for
notices in SECTION 13.05. Nothing in this Agreement will affect the right of
any party to this Agreement to serve process in any other manner permitted by
law.
SECTION 13.05. NOTICES; PAYMENTS. (a) All demands, notices,
instructions, directions, requests, authorizations and communications
(collectively, "NOTICES") under this Agreement shall be in writing and shall be
deemed to have been duly given if personally delivered at, mailed by registered
mail, return receipt requested, or sent by facsimile transmission (i) in the
case of the Transferor, to Centerior Funding Corporation, Suite 350, 1013
Centre Road, Wilmington, Delaware 19805, Attention: ___________, (ii) in the
case of CEI, to The Cleveland Electric Illuminating Company, c/o Centerior
Energy Corporation, 6200 Oak Tree Boulevard, Independence, Ohio 44131,
Attention: _________, (iii) in the case
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of TE, to The Toledo Edison Company, 300 Madison Avenue, Toledo, Ohio 43652,
Attention: _________, (iv) in the case of the Trustee (including in its
capacity as Paying Agent), to 120 Wall Street, New York, New York 10043,
Attention: _________________, (v) in the case of the Trustee in its capacity as
Transfer Agent and Registrar, to 111 Wall Street, New York, New York
10043, Attention: ___________ or, as to each such party, at such other address
or facsimile number as shall be designated by such party in a written notice to
each other party. In the case of any Successor Servicer, successor Trustee or
any successor Paying Agent or successor Transfer Agent and Registrar, notices
shall be given to such Person at the address designated by it in a notice to
the other parties hereto at the addresses designated above as applicable.
(b) Any Notice required or permitted to be mailed to an
Investor shall be given by first-class mail, postage prepaid, at the address of
such Investor as shown in the Certificate Register. Notice so mailed within
the time prescribed in this Agreement shall be conclusively presumed to have
been duly given, whether or not the Investor receives such notice.
(c) If the Transferor is not the Holder of the Transferor
Revolving Certificate, the Holder of the Transferor Revolving Certificate shall
be entitled to receive all notices which the Investors receive.
SECTION 13.06. RULE 144A INFORMATION. In the event that and
for so long as any of the Investor Certificates of any Series or Class are
"restricted securities" within the meaning of Rule 144(a)(3) under the Act, the
Transferor, the Servicers and any Enhancement Provider agree to cooperate with
each other to provide to each Investor of such Series or Class and to each
prospective purchaser of the applicable Investor Certificates designated by
such an Investor, upon the request of such Investor or prospective purchaser,
any information required to be provided to such holder or prospective purchaser
to satisfy the condition set forth in Rule 144A(d)(4) under the Act (or any
successor provision).
SECTION 13.07. SEVERABILITY OF PROVISIONS. If any one or
more of the covenants, agreements, provisions or terms of this Agreement shall
for any reason whatsoever be held invalid, then such covenants, agreements,
provisions or terms shall be deemed severable from the remaining covenants,
agreements, provisions or terms of this Agreement and shall in no way affect
the validity or enforceability of the other covenants, agreements, provisions
or terms of this Agreement or of the Certificates or rights of the
Certificateholders.
SECTION 13.08. ASSIGNMENT. Notwithstanding anything to the
contrary contained herein, (i) this Agreement may not be assigned by the
Transferor, and (ii) except as provided in SECTION
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8.02, this Agreement may not be assigned by either Servicer without the prior
consent of the Majority in Interest of each Series.
SECTION 13.09. CERTIFICATES NONASSESSABLE AND FULLY PAID. It
is the intention of the parties to this Agreement that the Investors shall not
be personally liable for obligations of the Trust, that the Transferor shall
not be personally liable for obligations of the Trust except as otherwise
expressly provided herein, that the interests in the Trust represented by the
Certificates shall be nonassessable for any losses or expenses of the Trust or
for any reason whatsoever and that Certificates upon authentication thereof by
the Trustee pursuant to SECTION 6.02 are and shall be deemed fully paid.
SECTION 13.10. FURTHER ASSURANCES. The Transferor and the
Servicers agree to do and perform, from time to time, any and all acts and to
execute any and all further instruments and documents required or reasonably
requested by the Trustee more fully to effect the purposes of this Agreement,
including, without limitation, the execution of any financing statements or
continuation statements relating to the Receivables for filing under the
provisions of the UCC of any applicable jurisdiction.
SECTION 13.11. NONPETITION COVENANT. Notwithstanding any
prior termination of this Agreement, the Servicers, the Trustee and the
Transferor shall not, prior to the date which is one year and one day after the
termination of this Agreement with respect to the Trust, acquiesce, petition or
otherwise invoke or cause the Trust to invoke the process of any Governmental
Authority for the purpose of commencing or sustaining a case against the Trust
under any Federal or state bankruptcy, insolvency or similar law or appointing
a receiver, liquidator, assignee, trustee, custodian, sequestrator or other
similar official of the Trust or any substantial part of its property or
ordering the winding-up or liquidation of the affairs of the Trust.
SECTION 13.12. NO WAIVER; CUMULATIVE REMEDIES. No failure to
exercise and no delay in exercising, on the part of any Person, any right,
remedy, power or privilege hereunder shall operate as a waiver thereof; nor
shall any single or partial exercise of any right, remedy, power or privilege
under this Agreement preclude any other or further exercise thereof or the
exercise of any other right, remedy, power or privilege. The rights, remedies,
powers and privileges herein provided are cumulative and not exhaustive of any
rights, remedies, powers and privileges provided by law.
SECTION 13.13. COUNTERPARTS. This Agreement may be executed
in two or more counterparts and by different parties on separate counterparts),
each of which shall be an original, but all of which together shall constitute
one and the same instrument.
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SECTION 13.14. THIRD-PARTY BENEFICIARIES. This Agreement
will inure to the benefit of and be binding upon the parties hereto, the
Certificateholders and their respective successors and permitted assigns.
Except as otherwise provided in this Agreement, no other Person will have any
right or obligation hereunder.
SECTION 13.15. ACTIONS BY INVESTORS. (a) Wherever in this
Agreement a provision is made that an action may be taken or a Notice given by
Investors, such action or Notice may be taken or given by any Investor, unless
such provision requires a specific percentage of Investors.
(b) Any Notice, consent, waiver or other act by the Holder of
a Certificate shall bind such Holder and every subsequent Holder of such
Certificate and of any Certificate issued upon the registration of transfer
thereof or in exchange therefor or in lieu thereof in respect of anything done
or omitted to be done by the Trustee or the Servicers in reliance thereon,
whether or not notation of such action is made upon such Certificate.
SECTION 13.16. MERGER AND INTEGRATION. Except as
specifically stated otherwise herein, this Agreement sets forth the entire
understanding of the parties relating to the subject matter hereof, and all
prior understandings, written or oral, are superseded by this Agreement. This
Agreement may not be modified, amended, waived or supplemented except as
provided herein.
SECTION 13.17. HEADINGS. The headings herein are for
purposes of reference only and shall not otherwise affect the meaning or
interpretation of any provision hereof.
SECTION 13.18. CONSTRUCTION OF AGREEMENT. The Transferor
hereby grants to the Trustee on behalf of the Trust a security interest in all
of the Transferor's right, title and interest in, to and under the Transferor
Receivables now existing and hereafter created, all monies due or to become due
and all amounts received with respect thereto, and all other Trust Assets, and
all "proceeds" thereof, to secure all the Transferor's and the Originators'
obligations hereunder, including, without limitation, the Transferor's
obligation to transfer and convey to the Trust all Receivables existing on the
date hereof or hereafter created and transferred to the Transferor from time to
time under the Receivables Purchase Agreement. This Agreement shall constitute
a security agreement under applicable law.
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IN WITNESS WHEREOF, the Transferor, the Servicers and the
Trustee have caused this Agreement to be duly executed by their respective
officers as of the day and year first above written.
CENTERIOR FUNDING CORPORATION
Transferor
By:___________________________
Name:
Title:
THE CLEVELAND ELECTRIC ILLUMINATING
COMPANY and THE TOLEDO EDISON
COMPANY,
as Servicers
By:___________________________
Name:
Title:
CITIBANK, N.A., as Trustee
By:___________________________
Name:
Title:
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EXHIBIT A
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FORM OF TRANSFEROR REVOLVING CERTIFICATE
THIS CERTIFICATE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED. NEITHER THIS CERTIFICATE NOR ANY
PORTION HEREOF MAY BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EXEMPTION FROM THE
REGISTRATION PROVISIONS OF SUCH ACT.
CENTERIOR ENERGY RECEIVABLES MASTER TRUST
TRANSFEROR REVOLVING CERTIFICATE
THIS CERTIFICATE REPRESENTS AN UNDIVIDED INTEREST
IN CERTAIN ASSETS OF THE CENTERIOR ENERGY RECEIVABLES
MASTER TRUST
the corpus of which consists primarily of certain receivables generated from
time to time by The Cleveland Electric Company ("CEI") and The Toledo Edison
Company ("TE" and, together with CEI, collectively, the "Originators") and
purchased by Centerior Funding Corporation (the "Transferor"), which in turn
transfers and assigns such receivables to the Centerior Energy Receivables
Master Trust. This certificate does not represent any recourse obligation of,
and is not guaranteed by, the Transferor, any Originator or any Affiliate of
any of them.
This certifies that Centerior Funding Corporation is the
registered owner of the fractional undivided interest (the "Transferor
Interest") in the assets of the Centerior Energy Receivables Master Trust (the
"Trust") not represented by the Investor Certificates pursuant to that certain
Pooling and Servicing Agreement, dated ______________, 1996 (as supplemented or
modified, the "Agreement"), by and among the Transferor, CEI and TE, as
Servicers, and Citibank, N.A. as trustee (the "Trustee"). To the extent not
defined herein, the capitalized terms used herein have the meanings ascribed to
them in the Agreement.
The corpus of the Trust consists of (i) a portfolio of
receivables (the "Receivables") transferred under the Agreement from time to
time, (ii) funds collected or to be collected from Obligors in respect of the
Receivables, (iii) all funds which are from time to time on deposit in the
Collection Accounts, the Concentration Account and any other account or
accounts held for the benefit of Certificateholders, and (iv) all other assets
and interests constituting the Trust Assets.
<PAGE> 122
This Certificate is issued under and is subject to the terms,
provisions and conditions of the Agreement. Although a summary of certain
provisions of the Agreement is set forth below, this Certificate does not
purport to summarize the Agreement, is qualified in its entirety by the terms
and provisions of the Agreement and reference is made to the Agreement for
information with respect to the interests, rights, benefits, obligations,
proceeds and duties evidenced hereby and the rights, duties and obligations of
the Trustee, the Servicers and the other parties bound by the Agreement.
This Certificate is the Transferor Revolving Certificate,
which represents an interest in the Trust, including the right to receive
Collections and other amounts at the times and in the amounts specified in the
Agreement to be paid to the holder of the Transferor Revolving Certificate. In
addition to this Certificate, Investor Certificates are being issued pursuant
to the Agreement, which will represent the interests of Investors in the Trust.
The Transferor has the right to receive deferred compensation from the
Investors' Interests in the Trust, which deferred compensation right (i) is
payable from the interests of the Investors in the Trust and (ii) if so
received, will be applied towards the payment of this Certificate as provided
in the Agreement. This Certificate shall not represent any interest in the
Concentration Account or other account or Trust Asset except as provided in the
Agreement.
This Certificate does not represent an obligation of, or an
interest in, the Transferor, any Servicer, any Originator or any Affiliate of
any of them. This Certificate is limited in right of payment to certain
Collections of the Receivables (and certain other amounts), all as more
specifically set forth in the Agreement.
This Certificate may not be transferred or pledged except as
otherwise permitted under Sections 2.06(a) and 2.06(k) of the Agreement.
Subject to certain conditions in the Agreement, the
obligations created by the Agreement and the Trust created thereby shall
terminate upon the earliest of (i) December 31, 2004 and (ii) the day following
the Distribution Date on which the amount allocated to this Transferor
Revolving Certificate is zero.
By its acceptance of this Transferor Revolving Certificate,
the Holder hereof agrees that it will take no action with respect to such
Holder's rights under the Agreement that is inconsistent with, or adverse to,
the interests of the Investors as provided under the Agreement.
A-2
<PAGE> 123
Upon termination of the Trust pursuant to Article XII of the
Agreement, subject to the provisions of the Agreement, payment in full of the
Investors and the surrender of this Certificate, this Certificate shall be
repaid in full and the Trustee shall assign and convey to the Transferor, all
right, title and interest of the Trust in the Trust Assets, whether then
existing or thereafter created, including the Receivables and all proceeds
thereof, except for amounts held by the Trustee pursuant to subsection 12.02(b)
of the Agreement. The Trustee shall execute and deliver such instruments of
transfer and assignment, in each case without recourse, as shall be reasonably
requested by the Transferor to vest in the Transferor all right, title and
interest which the Trust has in the Trust Assets.
Unless the certificate of authentication hereon has been
executed by or on behalf of the Trustee, by manual signature, this Certificate
shall not be entitled to any benefit under the Agreement, or be valid for any
purpose.
IN WITNESS WHEREOF, the Transferor has caused this Certificate to be duly
executed.
Dated: ________________________
CENTERIOR FUNDING CORPORATION
By:__________________________
Name:
Title:
A-3
<PAGE> 124
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Certificates described in the
within-mentioned Pooling and Servicing Agreement.
Dated:___________________, 1996
CITIBANK, N.A.,
not in its individual capacity but
solely as Trustee
By:__________________________ OR
Authorized Officer
______________________________
Authenticating Agent for the
Trustee
By:__________________________
Authorized Officer
A-4
<PAGE> 125
EXHIBIT B
---------
FORM OF DAILY REPORT
PART I
INSTRUCTIONS TO TRUSTEE
Series 1996-1
(A) ON EACH DEPOSIT DATE (NO SET-ASIDE PERIOD)
- ----------------------------------------------
(i) Transfer to Carrying Cost Account the
Required Carrying Cost Amount
(ii) Transfer Collections from Concentration Account
to Transferor Account (Compliance Date)
(iii) Transfer Cure Funds in the Reserve Account
to the Transferor's Account (Transaction
Must be in Compliance)
(B) ON EACH DEPOSIT DATE (SET ASIDE PERIOD)
- -------------------------------------------
(i) Retain Collections in Concentration Account
to cover Carrying Cost Amount N/A
(ii) Transfer Investor Collections to the Reserve
Account up to an amount until Net Invested Amount = Base Amount N/A
(iii) Transfer Collections to any Defeasance
Account if requested or required for any
other Series (transaction must be in compliance) N/A
(iv) Transfer Remaining Collections from
Concentration Account to Transferor Account N/A
(C) ON EACH DEPOSIT DATE (EARLY AMORTIZATION OR
- -----------------------------------------------
AMORTIZATION PERIOD)
- --------------------
(i) Retain Investor Collections in Concentration Account or
Defeasance Account for Distribution to Each Series N/A
(ii) Transfer Transferor Collections from Concentration
Account to the Transferor's Account (after payment of fees and
expenses) N/A
(D) ON THE FIRST BUSINESS DAY IMMEDIATELY AFTER
- -----------------------------------------------
EARLY AMORTIZATION OR AMORTIZATION PERIOD
- -----------------------------------------
(i) Transfer Cure Funds in the Reserve Account
to the Defeasance Accounts
<PAGE> 126
FORM OF DAILY REPORT (continued)
PART II
REQUIRED BASE AMOUNT COMPLIANCE
Series 1996-1
O/S Invested Amount of all Series
LESS: (1) Cure Funds for all Series
(2) Concentration or Defeasance Account Funds allocated to
Principal of any Series
Net Invested Amount [O/S Invested Amount of all
Series reduced by (1) and (2)]
Net Receivables Balance
MINUS: Carrying Cost Reserve for all Series
Loss and Dilution Reserve for all Series
Base Amount
Net Invested Amount
Does Base Amount Exceed or Equal Net Invested Amount? (Y/N)
If "No", amount of Cure Funds required to put
the transaction in compliance
<PAGE> 127
FORM OF DAILY REPORT (continued)
PART III
CASH ALLOCATION
Series 1996-1 Transferor Total
Allocation Percentage 100.00%
Collections Received since Date of Prior
Daily Report
Less: Collections Not Applicable to
Trust Receivables
Net Collections Available for Allocation
(i) Collections Allocated as Transferor
Collections N/A N/A
(ii) Collections Allocated as Investor
Collections (Note: If no Amortization
Period, (ii) = Net Collections
Available for Allocation)
Carrying Cost Amount Required
(Reflects Cumulative Required Balance)
Funds Held in the Carrying Cost Account
Additional Funds Required to be
Deposited as Carrying Cost Account
Investor Collections from (ii) above
Deposited to Carrying Cost Account
as additional Carrying Cost Amount
Cure Funds Required
Funds held in the Reserve Account to cover
the Required Net Invested Amount
Additional Funds Required to be Deposited
as Cure Funds to the Reserve Account
Collections Deposited to Reserve Account
Remaining Collections
<PAGE> 128
FORM OF DAILY REPORT (continued)
PART IV
PORTFOLIO INFORMATION
1/ Portfolio Aging Data below reflect exclusion of PIP receivables, credit
balances of Budget Billing, Deposit balances, DFA Not Due
<TABLE>
<CAPTION>
Aging Category 0-30 Days 31-59 Days 60-89 Days 90+ Days
Unbilled From Invoice From Invoice From Invoice From Invoice Total
<S> <C> <C> <C> <C> <C> <C>
Receivables Pool Balance 1/
Percentage to Total % % % % % 100.00%
</TABLE>
Amount of delinquent Receivables with original due dates extended (other than
under the Deferred Payment Plan)
<PAGE> 129
FORM OF DAILY REPORT (continued)
PART V
NET RECEIVABLES BALANCE
Gross Receivables Pool
Less: PIP, restructured into DPP, Deposits and
other Ineligibles
Defaulted Receivables (60+ Days From Invoice) Government Receivables
Unbilled Receivables allocated to
ineligible obligors 1/
Eligible Receivables Pool Balance
Less: Credit Adjustment under Budget Billing Plan
Deduction due to Cash Payments
Cum. Rate Increase subject to PUCO final approval Excess Concentration
Amount Unapplied Collections
Net Receivables Balance
1/ Calculated as the product of (A) the sum of (i) the % of PIP Usage to
Revenue, (ii) the % of Government Receivables Balance to Billed
Receivables, (iii) the % of other Ineligible Obligor Receivables
Balance to Billed Receivables and (B) the Unbilled Receivables
Balance.
$ to Billed
$ Amount A/R
PIP Dollar Usage 1/
Centerior Billed Revenue 1/
Government Receivables as of this
Report Date
Other Ineligible Obligor Receivables
Balance as of this Report Date
Billed Receivables as of this
Report Date
1/ Recalculated at the start and middle of each month and represent one
month's aggregate amount, i.e. (i) for the calculation done at the
start of the month, the data will be from the start of the previous
month to the end of the previous month and (ii) for the calculation
done during the middle of the month, the data will be from the middle
of the previous month to the middle of the current month.
<PAGE> 130
FORM OF DAILY REPORT (continued)
PART VI
CARRYING COST AMOUNT
<TABLE>
<CAPTION>
Series 1996-1
<S> <C>
% of each Series to the Floating
Allocation Percentage
Series Certificate Rate
No. of Days until the Next Distribution
Date (See Note Below)
Note: Until the Series' First Distribution Date,
the No. of Days until the Next Distribution Date
will be 1.5 months rather than one calendar month.
No. of Days from Next Distribution Date to
Following Distribution Date
Servicing Fee Per Annum Rate
(For Carrying Cost Amount) 1.00%
Servicing Fee Per Annum Rate
(For Carrying Cost Reserve) 2.00%
Series 1996-1 Invested Amount at
end of Prior Collection Period
Yield/Servicing Fee to accrue until the
Next Distribution Date
Yield/Servicing Fee to accrue from Next
Dist. Date to Following Dist. Date
Total Yield Needed to be set aside
for this Period
Monthly Trust Expense Amount
Trustee Expenses (@ 2,500)
Trustee Fees (@ 3,000)
Servicing Fee
Total
Total Required Carrying Cost Amount
to be set aside for this Period
</TABLE>
<PAGE> 131
FORM OF DAILY REPORT (continued)
Cumulative Required Carrying Cost Amount
(Net of Any Payments Made)
a) Monthly Period 1 Carrying Cost Amount
(Net of Any Payments Made)
b) Monthly Period 2 Carrying Cost Amount
(Net of Any Payments Made)
c) Monthly Period 3 Carrying Cost Amount
(Net of Any Payments Made)
d) Monthly Period 4 Carrying Cost Amount
(Net of Any Payments Made)
e) Monthly Period 5 Carrying Cost Amount
(Net of Any Payments Made)
f) Monthly Period 6 Carrying Cost Amount
(Net of Any Payments Made)
Total Cumulative Carrying Cost Amount Required
in the Carrying Cost Account
(Net of Any Payments Made)
Total Carrying Cost Account Balance as of
Last Daily Report Date
Additional Carrying Cost Amount to be
Allocated in the Carrying Cost Account
<PAGE> 132
FORM OF DAILY REPORT (continued)
PART VII
CARRYING COST RESERVE
Series 1996-1
Accrued and Unpaid Carrying Cost Amount
Less: Amount in the Carrying Cost Account
Net Amount to be added in Carrying Cost Reserve
Invested Amount
Weighted Average Certificate Rates
(Includes Successor Servicer Fee)
Turnover Days
Turnover Days Stress Factor
Total Carrying Cost Reserve
<PAGE> 133
FORM OF DAILY REPORT (continued)
PART VIII
LOSS AND DILUTION RESERVE
<TABLE>
<CAPTION>
Series 1996-1
<S> <C>
(A) Invested Amount (at the end
of the Last Daily Report)
Less: (1) Cure Funds
(2) Partial Amortization Amount
(B) Invested Amount net of (1) and (2)
(C) Carrying Cost Reserve
(D) Net Invested Amount + Carrying Cost
Reserve (B+C)
(E) Loss and Dilution Reserve Percentage
(Most recent Distribution Date)
(F) Loss and Dilution Reserve
The sum of:
(i) (NRP) x ("B"LDRP)
(ii) MAX ("0", [(NRP) x (A"LDRP)]-
[("B"IA)+ ("NRPB) x ("B"LDRP)])
(G) Invested Amount + Carrying Cost Reserve +
Loss and Dilution Reserve
(H) Net Receivables Pool - Required Loss
and Dilution Reserve
</TABLE>
FLOATING/SERIES ALLOCATION PERCENTAGE
(i) Floating Allocation Percentage [(D)/(H)]
Is Floating Allocation Percentage Greater than 100%? (Y/N)
<PAGE> 134
FORM OF DAILY REPORT (continued)
PART IX
EXCESS CONCENTRATION AMOUNT
<TABLE>
<CAPTION>
S&P Moody's Concentration Limit
<S> <C> <C> <C>
Concentration Limits: A-1+ or AA P-1 or Aa3 7.00%
A-1 or A+ P-1 or A2 5.50%
A-2 or BBB+ P-2 or Baa1 4.00%
A-3 or BBB- P-3 or Baa3 3.00%
Non-Rated/Other Non-Rated/Other 1.50%
</TABLE>
<TABLE>
<CAPTION>
Unpaid Billed
+ Unbilled
Concentration Limit Concentration Receivables
Obligor Obligor Debt Rating Percentage Limit ($) Balance
<S> <C> <C> <C> <C>
1 Obligor 1
2 Obligor 2
3 Obligor 3
4 Obligor 4
5 Obligor 5
6 Obligor 6
7 Obligor 7
8 Obligor 8
9 Obligor 9
10 Obligor 10
11 Obligor 11
</TABLE>
Total Excess Concentration Amount
Pro-forma Calculations of Major Obligor Outstandings (Billed and Unbilled)
<TABLE>
<CAPTION>
Billed Amount Has Billed No. of Days
in Most Recent Amount Been Since Last Billed Days in Total Unpaid
Obligor Billing Cycle Paid (Y/N) Cut-Off Billing Cycle Billed + Unbilled
<S> <C> <C> <C> <C> <C>
1 Obligor 1
2 Obligor 2
3 Obligor 3
4 Obligor 4
5 Obligor 5
6 Obligor 6
7 Obligor 7
8 Obligor 8
9 Obligor 9
10 Obligor 10
11 Obligor 11
12 Obligor 12
</TABLE>
<PAGE> 135
FORM OF DAILY REPORT (continued)
PART X
ADDITIONAL SERVICER INPUTS
<TABLE>
<CAPTION>
Series 1996-1
<S> <C>
Transaction Status:
(a) Is the Pool (NRP Balance) in Compliance? (Y/N)
(b) Extra Line
(c) Has the Transferor begun a Set Aside Period (Y/N)
(d) Is the Trust in an Early Amortization or
Amortization Period (Y/N)
Additional Cure Funds deposited by the
Transferor to the Reserve Account
Cure Funds to be transferred from the Reserve Account
to Transferor Account
Cure Funds Deposited in Reserve Account
Concentration Account Funds Allocated to
Each Series Defeasance Account
No. of Consecutive Days of Pool Non-Compliance
No. of Days in the Present Monthly Period
No. of Days in the Next Monthly Period
Outstanding Carrying Cost Amount balance in
the Concentration Account as of Last
Daily Report
Series Allocation Percentage in Last Daily Report
100.00% Series 1996-1 Invested Amount at the end
of the Prior Monthly Period
Series Certificate Rate
Turnover Days (as of Last Distribution Report)
Loss and Dilution Reserve Percentage
(as of Last Distribution Report)
Gross Receivables Pool (Before Adjustments on
PIP, Credit Balances, Deposits, DFA Not Due, etc.) Required Adjustments to
Gross Receivables Pool
(as described above) excluding Credit Adj.
under Budget Billing
Credit Adjustment under Budget Billing Plan
Adjusted Receivables Pool (Must match with the
Aging Analysis in Section IV)
Government Receivables
Collections since date of Last Daily Report
Unapplied Collections
Collections Not Applicable to Trust
Cum. Rate Increase subject to PUCO approval
Reduction due to cash payments
</TABLE>
<PAGE> 136
FORM OF DAILY REPORT (continued)
PART XI
SERIES INVESTED AMOUNT BALANCES
Series 1996-1
Invested Amount Outstanding as of end
of Previous Daily Report Date
Planned Increase/(Paydown) in Series
Invested Amount during Daily Report Date
New Invested Amount Outstanding as of end
of Current Daily Report Date
PART XII
OUTPUTS FOR NEXT DAILY REPORT
Series 1996-1
Cure Funds Allocated for Each Series
Carrying Cost Amount Deposited in the
Carrying Cost Account for each Series
<PAGE> 137
EXHIBIT C
FORM OF DETERMINATION DATE CERTIFICATE
PART I
CERTIFICATE INFORMATION
<TABLE>
<CAPTION>
Invested Certificate
Amount Rate
<S> <C> <C>
Series 1996-1
</TABLE>
PART II
PORTFOLIO INFORMATION
1/ Portfolio Information Data below reflect exclusion of PIP Receivables,
credit balances of Budget/Balance Billing, Deposit balances, restructured
Deferred Payment Plan balances.
<TABLE>
<CAPTION>
0-30 Days 31-59 Days 60-89 Days 90+ Days
Unbilled From Invoice From Invoice From Invoice From Invoice Total
<S> <C> <C> <C> <C> <C> <C>
Aging Category
Percentage to Total % % % % % 100.00%
</TABLE>
Amount of delinquent Receivables with original due dates extended (other than
under the Deferred Payment Plan)
<PAGE> 138
FORM OF DETERMINATION DATE CERTIFICATE (continued)
PART III
NET RECEIVABLES BALANCE (in $ 000)
Gross Receivables Pool
Less: PIP, restructured into DPP, Deposits,
Other Ineligible A/R
Defaulted Receivables (60+ Days from Invoice) Government Receivables
Unbilled Revenues allocated to
ineligible obligors 1/
Outstanding Balance of Eligible Pool Receivables
Less: Credit Adjustment under Budget Billing Plan
Cum. Rate Increase subject to final PUCO approval Deduction due to
Cash Payments Excess Concentrations (From Daily Report) Unapplied
Collections
Net Receivables Pool Balance
1/ Calculated as the product of (A) the sum of (i) the % of PIP Usage to
Revenue, (ii) the % of Government Receivables Balance to Billed
Receivables, (iii) the % of other Ineligible Obligor Receivables
Balance to Billed Receivables and (B) the Unbilled Receivables
Balance.
<TABLE>
<CAPTION>
$ to Billed
$ Amount A/R
<S> <C> <C>
PIP Dollar Usage 1/
Centerior Billed Revenue 1/
Government Receivables as of this
Report Date
Other Ineligible Obligor Receivables
Balance as of this Report Date
Billed Receivables as of this
Report Date
1/ Recalculated at the start and middle of each month and represent one month's aggregate amount, i.e. (i) for the calculation done
at the start of the month, the data will be from the start of the previous month to the end of the previous month and (ii) for
the calculation done during the middle of the month, the data will be from the middle of the previous month to the middle of
the current month.
</TABLE>
<PAGE> 139
FORM OF DETERMINATION DATE CERTIFICATE (continued)
PART IV
TURNOVER DAYS CALCULATION
Total Receivables Balance at the end
of the Preceding Collection Period
Total Receivables Balance at the end
of the Current Collection Period
New Billed Receivables generated during
the Current Collection Period
No. of Days in the Current Collection Period
Turnover Days 1/
1/ [[(B34+G34)/2] x (Days in Collection Period)]/New Billed Receivables
Generated
PART V
CARRYING COST RESERVE
Daily Report Carrying Cost
Date Reserve
The Carrying Cost Reserve is calculated in the Daily
Report. The Carrying Cost Reserve for the Daily Report
date which has the same date as this Determination
Date Statement is:
<PAGE> 140
FORM OF DETERMINATION DATE CERTIFICATE (continued)
PART VI
LOSS AND DILUTION RESERVE CALCULATION
(in $ 000)
Current Month (EOM) Eligible Pool Balance
Billed A/R
Unbilled A/R
Total
Less: 60+ Days From Invoice
Excess Concentrations
Government A/R
Deduction due to Cash
Unapplied Collections
Cum. rate inc. subject to PUCO final approval Total
Net Receivables Balance
DYNAMIC LOSS RESERVE
<TABLE>
<CAPTION>
Change in
Restructured Restructured Gross 3-Month Highest in Dynamic
Revenues Deferred Monthly Deferred Loss Rolling Last 12 Loss Loss
(Billed A/R) Payment Plan Gross W/O's Payment Plan Ratio Average Months Horizon Reserve
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Current Month
1 Month Prior % % % %
2 Months Prior % % % %
3 Months Prior % % % %
4 Months Prior % % % %
5 Months Prior % % % %
6 Months Prior % % % %
7 Months Prior % % % %
8 Months Prior % % % %
9 Months Prior % % % %
10 Months Prior % % % %
11 Months Prior % % % %
</TABLE>
<PAGE> 141
FORM OF DETERMINATION DATE CERTIFICATE (continued)
DYNAMIC DILUTION RESERVE
<TABLE>
<CAPTION>
12-Month Highest Dilution Dynamic
Monthly Expected Rolling Dilution Last Volatility Dilution Dilution
Dilution Dilution Average 12 Months Factor Horizon Reserve
<S> <C> <C> <C> <C> <C> <C> <C>
Current Month % % % % %
1 Month Prior % % % % %
2 Months Prior % % % % %
3 Months Prior % % % % %
4 Months Prior % % % % %
5 Months Prior % % % % %
6 Months Prior % % % % %
7 Months Prior % % % % %
8 Months Prior % % % % %
9 Months Prior % % % % %
10 Months Prior % % % % %
11 Months Prior % % % % %
</TABLE>
<TABLE>
<CAPTION>
Dynamic Floor Required
Loss and Loss and Loss and
Dilution Res Dilution Res Dilution Res
<S> <C> <C> <C>
Series 1996-1 % % %
</TABLE>
PART VII
DISTRIBUTION TO CERTIFICATEHOLDERS
(Based on Outstanding on the
date of this report)
Amount to be distributed on the 15th Day of the next calendar month which is:
Note: For Series 1996-1 Certificates, since payment of interest is
semi-annual, if the 15th Day of the next calendar month is not an interest
settlement date, then place "0".
<TABLE>
<CAPTION>
Outstanding Series Interest Principal Total
<S> <C> <C> <C>
Series 1996-1 Certificates
</TABLE>
<PAGE> 142
FORM OF DETERMINATION DATE CERTIFICATE (continued)
PART VIII
PURCHASE PRICE PERCENTAGE
A. LOSS DISCOUNT %
Greater of: % BUT Maximum: % 2/
(i) %
(ii) % 1/
1/ 1.5 times Loss-to-Liquidation Ratio.
2/ .5% plus Loss-to-Liquidation Ratio.
B. LOSS-TO-LIQUIDATION RATIO FOR THREE MOST RECENT INTEREST PERIODS %
Loss 3/ Liquidation
Current Interest Period
Prior Interest Period
2nd Prior Interest Period
Loss-to-Liquidation
3/ Net Write-offs.
C. PURCHASE DISCOUNT RESERVE RATIO 4/ %
Turnover Days
Discount Rate 5/ %
4/ Calculated as PDRR = (TD x DR)/360.
5/ Prime Rate of the Trustee.
D. PURCHASE PRICE PERCENT(PPP) = 100% (Loss Discount + Purchase
Discount Reserve Ratio)
= %
<PAGE> 143
EXHIBIT D
---------
FORM OF ANNUAL SERVICER'S CERTIFICATE
(As required to be delivered on or before ___________ of each
calendar year beginning with April 30, 1997, pursuant to
Section 3.06 of the Pooling and Servicing Agreement)
[Name of Servicer]
_______________________________________
CENTERIOR ENERGY RECEIVABLES MASTER TRUST
The undersigned, chief financial officer of [Name of
Servicer], in its capacity as a "Servicer" pursuant to the Pooling and
Servicing Agreement, dated _________, 1996 (as amended and supplemented, the
"Agreement"), by and among Centerior Funding Corporation, as transferor, the
"Servicers" party thereto and Citibank, N.A., as trustee, do hereby certify
that:
1. [Name of Servicer] is, as of the date hereof, [a] [the]
Servicer under the Agreement.
2. The undersigned chief financial officer is duly authorized
pursuant to the Agreement to execute and deliver this Certificate to
the Trustee, each Rating Agency and any Enhancement Providers.
3. A review of the activities of [name of Servicer] during
the calendar year ended December 31, ____, and of its performance
under the Agreement was conducted under my supervision.
4. Based on such review, such Servicer has, to the best of my
knowledge, performed in all material respects all of its obligations
under the Agreement throughout such year and no material default in
the performance of such obligations has occurred or is continuing
except as set forth in paragraph 5 below.
5. The following is a description of each material default in
the performance of such Servicer's obligations under the provisions of
the Agreement known to me to have been made by the named Servicer
during the calendar year ended December 31, _____, which sets forth in
detail the (a) nature of such material default, (b) the action taken
by such Servicer, if any, to remedy each such material default and (c)
<PAGE> 144
the current status of each such default: [if applicable, insert
"None."]
Capitalized terms used but not defined herein are used as
defined in the Agreement.
IN WITNESS WHEREOF, the undersigned has duly executed this
Certificate this ____ day of _________________, ____.
By:__________________________
Name:
Title:
D-2
<PAGE> 145
EXHIBIT E
---------
FORM OF COLLECTION ACCOUNT LETTER
[Collection Account Bank]
Re: [Lock Box No.
Lock Box Account No.]*
Ladies and Gentlemen:
We hereby notify you that, effective as of the "Effective Date"
(as defined below), we have transferred exclusive ownership and control
of our [lock-box number (the "Lock-Box") and the corresponding lock-box account
no. (the "Account")] maintained with [Collection Account Bank] to
Centerior Funding Corporation, a Delaware corporation ("CFC") and CFC has
transferred exclusive ownership and control of the account to Citibank, N.A.,
as trustee for Centerior Energy Receivables Master Trust (the "Trust")
established pursuant to a Pooling and Servicing Agreement, dated _____________,
1996 by and among Centerior Funding Corporation, as transferor,
each of The Cleveland Electric Illuminating Company and The Toledo Edison
Company, Edison, as Servicers, and Citibank, N.A., as trustee (the "Trustee").
We hereby irrevocably instruct you to collect the monies,
checks, instruments and other items of payment [mailed to the Lock-Box and
deposit] [deposited] into the Account all monies, checks, instruments and other
items of payment (unless otherwise instructed by the Trustee), and to make all
payments to be made by you out of or in connection with the Account directly to
the [Centerior Energy Receivables Master Trust Concentration Account, account
no. ____________________, such account being in the name of the Trustee at
__________________, Attention _____________, for the account of the Trustee.]**
Anything in this letter agreement to the contrary notwithstanding, we and the
Trustee understand and agree that you will make the proceeds of items deposited
into the Account available for withdrawal in accordance with your applicable
availability schedule(s) in effect from time to time.
__________________________________
* If the Collection Account is a Transferor Collection Account, references
should be made here to the appropriate depositary account and not to any
lock-box.
** In the case of a Servicer Collection Account, transfers may be made to a
Transferor Collection Account rather than directly to the Concentration Account
at the option of the Servicers.
1
<PAGE> 146
We also hereby notify you that the Trustee shall be
irrevocably entitled to exercise any and all rights in respect of or in
connection with the [Lock-Box and the] Account, including without limitation,
the right to specify when payments are to be made out of or in connection with
the [Lock-Box and the] Account. The monies, checks, instruments and other
items of payment [mailed to the Lock-Box and the funds] deposited into the
Account will not be subject to deduction, set off, banker's lien, or any other
right in favor of any person other than the Trustee; PROVIDED, HOWEVER, that
you may deduct from or set-off against amounts from time to time in the Account
(i) your usual and customary costs and expenses in respect of interest on
overdrafts and any return items, and your usual and customary fees and expenses
associated with any such return item, overdraft and/or the maintenance of the
Account [or any related lock-box] and (ii) the face amount (or portion thereof)
of any check, instrument or other item which was deposited in the Account and
which has been returned unpaid for reasons of insufficient funds or has
otherwise not been collected. You hereby acknowledge and agree that all such
interest, costs, fees and expenses shall be for the account of the Transferor
and in the event the amounts in the Account are insufficient to reimburse you
for the same, the Transferor agrees to reimburse you for such interest, costs,
fees and/or expenses immediately upon your demand therefor in immediately
available funds.
You shall not be liable to either us or the Trustee, directly
or indirectly, for any damages arising out of your provision of services
pursuant to this letter agreement, other than damages arising as a result of
your negligence or willful misconduct, and in no event shall you be liable for
any consequential, indirect or special damages, even if you have been advised
of the possibility of such damages.
This letter agreement is binding upon us, you and the Trustee
and each of our respective successors and assigns and shall inure to the
benefit of each of us and our respective successors and assigns. It supersedes
all prior agreements, oral or written, with respect to the subject matter
hereof and may not be modified without the prior written consent of the
Trustee. This letter agreement may be terminated only as follows: (i) you may
terminate this letter agreement and the Account at any time which is thirty
(30) days or more after the date you shall have given written notice of such
termination to us, with a copy to the Trustee, and the (ii) the Trustee may
terminate this letter agreement and the Lock-Box Account at any time which is
thirty (30) days or more after the date the Trustee shall have given written
notice of such termination given to the Transferor and you. Notice hereunder
shall be delivered to each party hereto at the address and to the attention of
the person set forth below, or at such other address
2
<PAGE> 147
or to the attention of such other party as the party to be addressed may
specify by written notice delivered to each other party hereto. No termination
shall affect or impair any of the agreements, rights or obligations hereunder
of any party with respect to any period of time prior to the date of such
termination.
Notwithstanding anything to the contrary in this letter
agreement, this agreement shall not become effective unless and until the date
(such date, the "Effective Date") specified to you in writing in the form
attached hereto as Exhibit A.
This letter agreement shall be governed by and construed in
accordance with the internal law of the State of New York and applicable
federal law. This letter agreement shall become effective immediately upon
being executed by all of the parties hereto.
Very truly yours,
[NAME OF ORIGINATOR]
By:_____________________
Name:
Title:
CENTERIOR FUNDING COPORATION
By:_____________________
Name:
Title:
Acknowledged and agreed to this
day of ____________, 1996
[NAME OF COLLECTION ACCOUNT BANK]
By: _____________________________
Name:
Title:
3
<PAGE> 148
EXHIBIT A TO
COLLECTION ACCOUNT LETTER
FORM OF NOTICE OF EFFECTIVENESS
[VIA FACSIMILE TRANSMISSION]
To: [Name of Collecton Account Bank]
[Address]
Dated: ,199
Re: [Collection] Account No. .
Ladies and Gentlemen:
We hereby give you notice that the transfer of the above-referenced
Account, as described in our letter agreement to you dated as of , 199 ,
is effective as of 199 . You are hereby instructed to comply immediately with
the instructions set forth in that letter agreement.
Very truly yours,
[NAME OF ORGINATOR]
By:
Name:
Title:
CENTERIOR FUNDING CORPORATION
By:
Name:
Title:
ACKNOWLEDGED:
[NAME OF COLLECTION ACCOUNT BANK]
By:
Title:
4
<PAGE> 149
ACKNOWLEDGMENT AND AUTHORIZATION
Citibank, N.A., as trustee (the "Trustee") for the Centerior
Energy Receivables Master Trust, referenced in the attached letter executed by
_______________ and acknowledged by [Collection Account Bank] and the Trustee
(the "Notice"), hereby acknowledges the transfer of exclusive ownership and
control of the ["Lock-Box" and] the "Account", in each case, as defined in and
pursuant to the Notice. Pursuant to the second paragraph of the Notice, the
Trustee hereby authorizes [Collection Account Bank] to continue to accept
instructions from ___________ for the payment of funds from said [Lock-Box and]
Account until the Trustee notifies [Collection Account Bank] in writing to the
contrary; PROVIDED that no such instructions shall provide for the withdrawal
of funds from said [Lock-Box and] Account to any account other than as
expressly permitted in the attached letter.
Very truly yours,
______________________________
as Trustee
By:___________________________
Name:
Title:
Agreed and Acknowledged:
[Collection Account Bank]
By: ____________________________
Name:
Title:
5
<PAGE> 150
SCHEDULE I
----------
LIST OF COLLECTION ACCOUNTS
<PAGE> 151
SCHEDULE II
-----------
CREDIT AND COLLECTION POLICY
<PAGE> 152
SCHEDULE III
------------
LOCATIONS OF RECEIVABLES RECORDS
6200 OAK TREE BOULEVARD
INDEPENDENCE, OHIO 44131
300 MADISON AVENUE
TOLEDO, OHIO 43652
SUITE 350, 1013 CENTRE ROAD
WILMINGTON, DELAWARE 19805
<PAGE> 1
EXHIBIT 4.2
CENTERIOR FUNDING CORPORATION, Transferor
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
and
THE TOLEDO EDISON COMPANY,
each as a Servicer
and
CITIBANK, N.A., as Trustee
SERIES 1996-1 SUPPLEMENT
Dated as of _________, 1996
to
POOLING AND SERVICING AGREEMENT
Dated as of ___________, 1996
CENTERIOR ENERGY RECEIVABLES MASTER TRUST
$_________ Series 1996-1 Fixed Rate
Receivables-Backed Certificates
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
ARTICLE I CREATION OF THE SERIES 1996-1 CERTIFICATES
SECTION 1.01. Designation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II DEFINITIONS
SECTION 2.01. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE III CONDITIONS PRECEDENT
SECTION 3.01. Conditions Precedent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE IV RIGHTS OF SERIES 1996-1 INVESTORS AND ALLOCATION AND APPLICATION OF COLLECTIONS
SECTION 4.01. Establishment of Series Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 4.02. Allocation of Collections To and From The Series 1996-1 Defeasance Account . . . . . . . . . . . . . . 9
ARTICLE V PAYMENTS OF YIELD
SECTION 5.01. Yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 5.02. No Optional Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE VI EARLY AMORTIZATION EVENTS
SECTION 6.01. Additional Early Amortization Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE VII MISCELLANEOUS PROVISIONS
SECTION 7.01. Ratification of Pooling and Servicing
Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 7.02. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 7.03. Governing Law; Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 7.04. The Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 7.05. Restrictions on Transfer to Benefit Plan
Investors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
EXHIBIT A Form of Series 1996-1 Investor Certificate
</TABLE>
<PAGE> 3
SERIES 1996-1 SUPPLEMENT, dated as of _________, 1996 (the
"SERIES SUPPLEMENT"), among CENTERIOR FUNDING CORPORATION ("CFC"), a Delaware
corporation, as Transferor (the "TRANSFEROR"), THE CLEVELAND ELECTRIC
ILLUMINATING COMPANY, an Ohio corporation ("CEI") and THE TOLEDO EDISON
COMPANY, an Ohio corporation ("TE"), each as Servicer (collectively, the
"SERVICERS" and individually, a "SERVICER"), and CITIBANK, N.A., a national
banking association, as Trustee (the "TRUSTEE").
Pursuant to Section 6.09 of the Pooling and Servicing
Agreement dated as of __________, 1996 (as amended and supplemented, the
"POOLING AND SERVICING AGREEMENT"), among the Transferor, the Servicer and the
Trustee, the Transferor may from time to time direct the Trustee to issue, on
behalf of the Trust, one or more Series of Investor Certificates representing
fractional undivided interests in the Trust. The Principal Terms of any new
Series are to be set forth in a Supplement to the Pooling and Servicing
Agreement, of which this Series Supplement is one. Capitalized terms used in
this Series Supplement without definition shall have the meanings specified in
the Pooling and Servicing Agreement.
Pursuant to this Series Supplement, the Transferor and the
Trustee shall create a Series of Investor Certificates and specify the
Principal Terms thereof.
ARTICLE I
CREATION OF THE SERIES 1996-1 CERTIFICATES
SECTION 1.01. DESIGNATION. (a) There is hereby created a
Series of Investor Certificates to be issued pursuant to the Pooling and
Servicing Agreement and this Series Supplement to be known as the "Fixed Rate
Receivables-Backed Certificates, Series 1996-1" (the "SERIES 1996-1
CERTIFICATES"). This Series shall consist of a Senior Class. Subject to the
conditions set forth in ARTICLE III hereof, the Trustee shall authenticate and
deliver the Series 1996-1 Certificates in the form attached hereto as Exhibit
A, to or upon the written order of the Transferor, in an aggregate initial
Invested Amount of $_________. The Series 1996-1 Certificates shall be issued
in Book-Entry Form.
(b) In the event that any term or provision contained herein shall conflict
with or be inconsistent with any term or provision contained in the
Pooling and Servicing Agreement, the terms and provisions of this
Series Supplement shall govern.
(c) Unless otherwise indicated, terms defined herein shall be deemed to apply
only to the Series 1996-1 Certificates.
<PAGE> 4
ARTICLE II
DEFINITIONS
SECTION 2.01. DEFINITIONS. (a) Whenever used in this Series
Supplement the following words and phrases shall have the following meanings.
"ADDITIONAL EARLY AMORTIZATION EVENT" shall have the meaning
specified in SECTION 6.01.
"AMORTIZATION DATE" shall mean the earlier of (i) the
Scheduled Amortization Date and (ii) the date on which an Early Amortization
Period is deemed to have occurred.
"APPLICABLE STRESS FACTOR" shall mean, with respect to the
Series 1996-1 Certificates, 2.0.
"APPLICABLE RESERVE RATIO" shall mean, at any time with
respect to the Series 1996-1 Certificates, a percentage calculated by the
Master Servicer in the most recent Determination Date Certificate to equal the
greater of (a) the Minimum Required Reserve Ratio with respect to such Series
and (b) the sum of the Loss Reserve Ratio and the Dilution Reserve Ratio with
respect to such Series.
"AVERAGE DILUTION RATIO" shall mean, for any Collection
Period, the average of the Dilution Ratios for such Collection Period and for
the immediately preceding eleven consecutive Collection Periods.
"CARRYING COST RESERVES" shall mean, with respect to the
Series 1996-1 Certificates at any time, an amount equal to the following:
CCR = (ACC - CCA) + AIA x WFR x ( 2 x TD)
---------------------
360
where:
CCR = the Carrying Cost Reserves;
CCA = the aggregate balance of funds on balance in the
Carrying Cost Account as of such date and allocated
to the Series 1996-1 Certificates;
-2-
<PAGE> 5
ACC = accrued and unpaid Carrying Costs plus the amount of
Carrying Costs (exclusive of Yield on the Investor
Certificates) that will, or are estimated to, have
accrued by the next fifteenth calendar day of any
month (or, if such day is not a Business Day, the
immediately succeeding Business Day, in each case as
set forth in the then-effective Determination Date
Certificate (such total being herein called the
"ACCRUED CARRYING COSTS");
AIA = the Invested Amount of the Series 1996-1 Certificates
as of such date;
WFR = the sum of (a) the Certificate Rate then in
effect PLUS (b) the Servicing Fee rate
(computed at the fixed rate for a Successor
Servicer); and
TD = Turnover Days.
"CERTIFICATE RATE" shall mean, with respect to the Series
1996-1 Certificates, ____%.
"CHANGE IN DEFERRED ARRANGEMENT PLAN BALANCE" shall mean, as
calculated by the Master Servicer in each Determination Date Certificate for
the most recent Collection Period, an amount equal to the excess, if any, of
(i) the aggregate Outstanding Balance of all Deferred Arrangement Payment Plan
Receivables as of the last Business Day of such Collection Period, over (ii)
the average of the Outstanding Balances of all Deferred Arrangement Payment
Plan Receivables as of the last Business Day of each of the twelve most recent
Collection Periods.
"CLOSING DATE" shall mean ________, 1996.
"DILUTION" shall mean, with respect to any Receivable, any
reduction in the Outstanding Balance thereof on account of such Receivable or
any portion thereof becoming a Diluted Receivable; PROVIDED, that for purposes
of calculating the Dilution Ratio, Dilution shall not include any refunds or
setoffs of any security deposits or credit balances which were subtracted from
the Outstanding Balances of Eligible Receivables included in the calculation of
the Net Receivables Balance.
"DILUTION HORIZON RATIO" shall mean, as calculated by the
Master Servicer in each Determination Date Certificate for the most recently
ended Collection Period, a fraction, (i) the numerator of which equals the sum
of (A) the aggregate amounts of all new billed Pool Receivables generated
during the most recently ended Collection Period and (B) the aggregate
-3-
<PAGE> 6
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 Net Receivables Balance as determined on the last Business Day
of the most recently ended Collection Period.
"DILUTION RATIO" shall mean, as calculated by the Master
Servicer in each Determination Date Certificate for the most recently ended
Collection Period, the percentage equivalent of a fraction (a) the numerator of
which equals the aggregate amount of Dilution on the Pool Receivables during
such Collection Period and (b) the denominator of which equals the aggregate
amounts of new billed Pool Receivables generated during the Collection Period
immediately preceding the most recently ended Collection Period (so that, for
example, if the Collection Period specified in CLAUSE (A) corresponded to the
month of February, the Collection Period in this CLAUSE (B) would be the one
corresponding to the month of January).
"DILUTION RESERVE RATIO" shall mean, as calculated by the
Master Servicer in each Determination Date Certificate for the Series 1996-1
Certificates for the most recently ended Collection Period, the percentage
equivalent of a fraction equal to the product of:
(a) the sum of
(i) the product of (A) the Applicable Stress Factor
for such Series and (B) the Average Dilution Ratio for such
Collection Period, and
(ii) the Dilution Volatility Factor, TIMES
(b) the Dilution Horizon Ratio then in effect.
"DILUTION VOLATILITY FACTOR" shall mean, as calculated by the
Master Servicer in each Determination Date Certificate for the Series 1996-1
Certificates for the most recently ended Collection Period, the percentage
equivalent of a fraction 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" shall mean (i) during the Revolving
Period, each ______ and ______ of each year, commencing __________, 199__, and
(ii) during the Amortization Period, the fifteenth day of each calendar month
commencing (A) in the event that the Amortization Period commences on the
Scheduled Amortization Date,
-4-
<PAGE> 7
on the Expected Final Payment Date and (B) in the event 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 or, if
any such date described above is not a Business Day, the next succeeding
Business Day.
"EARLY AMORTIZATION EVENT" shall mean any Early Amortization
Event specified in Section 9.01 of the Pooling and Servicing Agreement.
"EXPECTED FINAL PAYMENT DATE" shall mean the Distribution Date
occurring in ______________, 2001.
"GROSS LOSS RATIO" shall mean, as calculated by the Master
Servicer in each Determination Date Certificate for the most recent Collection
Period, the percentage equivalent of a fraction, (a) the numerator of which
equals the sum of (i) the aggregate Outstanding Balances of all Pool
Receivables which were written off as uncollectible during such Collection
Period and (ii) the Change in Deferred Arrangement Plan Balance for such
Collection Period, and (b) the denominator of which equals the aggregate amount
of new billed Pool Receivables generated during the Collection Period that
occurred six Collection Periods prior to the most recently ended Collection
Period.
"INITIAL INVESTED AMOUNT" shall mean, with respect to the
Series 1996-1 Certificates in the aggregate, the initial principal amount
thereof, which shall equal $____________.
"INTEREST PERIOD" shall have the meaning specified in the
Pooling and Servicing Agreement.
"INVESTED AMOUNT" shall mean, with respect to the Series
1996-1 Certificates as of any date, (a) the Initial Invested Amount of such
Certificates MINUS (b) the aggregate amount of distributions to the Holders of
such Certificates in reduction of the Invested Amount thereof; PROVIDED,
HOWEVER, that the "Invested Amount" shall not be reduced by any amount of funds
so received and distributed if at any time such distribution of such amount is
rescinded or must otherwise be returned for any reason.
"LOSS HORIZON RATIO" shall mean, as calculated by the Master
Servicer in each Determination Date Certificate 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
-5-
<PAGE> 8
which equals the Net Receivables Balance as determined on the last Business Day
of the most recently ended Collection Period.
"LOSS RESERVE RATIO" shall mean, as calculated by the Master
Servicer in each Determination Date Certificate for the Series 1996-1
Certificates for the most recently ended Collection Period, the percentage
equivalent of a fraction equal to the product of (a) the Applicable Stress
Factor TIMES (b) the highest average of the Gross Loss Ratios for any three
consecutive Collection Periods that occurred during the twelve-month period
ending on the last Business Day of the most recently ended Collection Period
TIMES (c) the Loss Horizon Ratio then in effect.
"MINIMUM REQUIRED RESERVE RATIO" shall mean, at any time, as
calculated by the Master Servicer for the Series 1996-1 Certificates in the
most recent Determination Date Certificate, a percentage equal to the higher of
(i) 7.5% and (ii) the sum of (x) six times the percentage set forth in the
definition of Excess Concentration Balances for Obligors in the category "Not
rated/other" and (y) the product of (1) the Average Dilution Ratio for the most
recently ended Collection Period times (2) the Dilution Horizon Ratio for such
Collection Period.
"RATING AGENCIES" shall mean Moody's and S&P.
"REQUIRED RESERVES" shall mean, as of any date of
determination with respect to the Series 1996-1 Certificates, the product of
(i) the Applicable Reserve Ratio with respect to such Certificates as of such
date and (ii) the Net Receivables Balance as of such date.
"REVOLVING PERIOD" shall mean the period beginning on the
Closing Date and terminating on the earlier of (a) the close of business on the
Business Day immediately preceding the Amortization Date and (b) the close of
business on the Business Day immediately preceding the day on which any Early
Amortization Event which has not been waived shall occur.
"SCHEDULED AMORTIZATION DATE" shall mean the first
Distribution Date following the last day of the 57th month following the month
during which the Closing Date shall have occurred.
"SERIES CUT-OFF DATE" shall mean the close of business on the
Business Day immediately preceding the Closing Date.
"SERIES 1996-1" shall mean the Series of Investor
Certificates, the terms of which are specified in this Series Supplement.
"SERIES 1996-1 DEFEASANCE ACCOUNT" shall have the meaning
specified in SECTION 4.01(d).
-6-
<PAGE> 9
"SERIES 1996-1 INVESTORS" shall mean the Holders of the Series
1996-1 Certificates.
"UNDIVIDED FRACTIONAL INTEREST" shall mean the undivided
fractional interest in the aggregate Investors' Interest evidenced by a Series
1996-1 Certificate, the numerator of which equals the Ratable Principal Amount
of such Series 1996-1 Certificate at the time of determination and the
denominator of which equals the aggregate of the Ratable Principal Amounts of
all Investor Certificates.
"YIELD" shall mean with respect to any Interest Period, (i)
the product of (a) the Certificate Rate TIMES (b) the outstanding Invested
Amount of such Certificate TIMES (c) the number of months elapsed in such
Interest Period times 30 DIVIDED BY (d) 360.
(b) All capitalized terms used herein and not otherwise
defined herein have the meanings ascribed to them in the Pooling and Servicing
Agreement. Each capitalized term defined herein shall relate only to the
Series 1996-1 Certificates and no other Series of Certificates issued by the
Trust. The definitions in SECTION 2.01 are applicable to the singular as well
as the plural forms of such terms and to the masculine as well as to the
feminine and neuter genders of such terms.
(c) The words "hereof", "herein" and "hereunder" and words of
similar import when used in this Series Supplement shall refer to this Series
Supplement as a whole and not to any particular provision of this Series
Supplement; references to any Article, Section or Exhibit are references to
Articles, Sections and Exhibits in or to this Series Supplement unless
otherwise specified; and the term "including" shall mean "including without
limitation".
ARTICLE III
CONDITIONS PRECEDENT
SECTION 3.01. CONDITIONS PRECEDENT. The Trustee will not
authenticate the Series 1996-1 Certificates to be issued hereunder unless:
(a) The Trustee shall have received written certification
from the Transferor and the Servicers that the Receivables Purchase
Agreement and the Pooling and Servicing Agreement have become
effective in accordance with the terms thereof;
(b) All conditions to the issuance of the Series 1996-1
Certificates set forth in SECTION 6.09 of the Pooling and Servicing
Agreement shall have been satisfied; and
-7-
<PAGE> 10
(c) On or prior to the Closing Date, the Trustee shall have
received copies of ratings letters from each Rating Agency confirming
that the Series 1996-1 Certificates shall be rated at least 'AAA' by
S&P and 'Aaa' by Moody's.
ARTICLE IV
RIGHTS OF SERIES 1996-1 INVESTORS AND
ALLOCATION AND APPLICATION OF COLLECTIONS
SECTION 4.01. ESTABLISHMENT OF SERIES ACCOUNTS. (a) (i) The
Master Servicer, for the benefit of the Series 1996-1 Investors, shall
establish and maintain in the name of the Trustee, on behalf of the Trust, with
an Eligible Institution (which shall initially be the Trustee) a Trust Account
accessible only by the Trustee (the "SERIES 1996-1 DEFEASANCE ACCOUNT"), which
shall be identified as the "Defeasance Account for the Centerior Energy
Receivables Master Trust, Series 1996-1" and shall bear a designation clearly
indicating that the funds deposited therein are held for the benefit of the
Series 1996-1 Investors. The Series 1996-1 Defeasance Account shall be a
Defeasance Account within the meaning of the Pooling and Servicing Agreement.
(ii) At the direction of the Master Servicer (which may be a
standing direction), funds on deposit in the Series 1996-1 Defeasance Account
shall be invested by the Trustee in Eligible Investments selected by the Master
Servicer. All such Eligible Investments shall be held by the Trustee for the
benefit of the Series 1996-1 Investors. Funds on deposit in the Series 1996-1
Defeasance Account shall be invested in Eligible Investments that will mature
so that such funds will be available on the next "Distribution Date" (as
defined in the Pooling and Servicing Agreement) with respect to any Collection
Period (whether or not such date is a Distribution Date within the meaning of
this Supplement).
(b)(i) The Trustee shall possess all right, title and
interest in and to all funds on deposit from time to time in, and all Eligible
Investments credited to, the Series 1996-1 Defeasance Account and in all
proceeds thereof. The Series 1996-1 Defeasance Account shall be under the sole
dominion and control of the Trustee for the benefit of the Series 1996-1
Investors and shall, except as expressly set forth in this Series Supplement,
be subject to the provisions of the Pooling and Servicing Agreement relating to
all Trust Accounts.
(c) Any request by the Master Servicer to invest funds on
deposit in any Series 1996-1 Defeasance Account shall be in writing and shall
certify that the requested investment is an
-8-
<PAGE> 11
Eligible Investment which matures at or prior to the time required hereby.
SECTION 4.02. ALLOCATION OF COLLECTIONS TO AND FROM THE
SERIES 1996-1 DEFEASANCE ACCOUNT. (a) During the Revolving Period, no
reductions shall be made to the Invested Amounts of the Series 1996-1
Certificates.
(b) On each Business Day during the Amortization Period, the
Trustee shall, out of the Collections and other funds made available for
allocation to the Series 1996-1 Investors pursuant to CLAUSE FIRST, SECOND
and/or THIRD of SECTION 4.03(C)(III), deposit all such funds into the Series
1996-1 Defeasance Account until the amount on deposit therein equals the
Invested Amount of the Series 1996-1 Certificates, plus all accrued Yield
thereon through the next applicable Distribution Date. On each Distribution
Date during the Amortization Period, the Paying Agent shall distribute all
amounts on deposit in the Series 1996-1 Defeasance Account to the Series 1996-1
Investors until the Invested Amount of the Series 1996-1 Certificates and all
Yield thereon have been paid in full, and any funds thereafter remaining shall
be returned to the Transferor in satisfaction of the Deferred Payment Right.
Notwithstanding anything to the contrary hereinabove, on any Distribution Date
which is not the final Distribution Date for the Series 1996-1 Investors, the
Paying Agent may, in its sole discretion and for purposes of administrative
convenience, retain funds in the Series 1996-1 Defeasance Account in lieu of
distributing the same provided that such funds are not in excess of $100,000.
All amounts distributed to the Series 1996-1 Investors from the Series 1996-1
Defeasance Account during the Amortization Period shall be distributed in the
following order of priority:
FIRST, to the payment of all accrued and unpaid Yield owing to
the holders of the Series 1996-1 Certificates until such Yield has
been paid in full; and
SECOND, to the reduction of the Invested Amount of the Series
1996-1 Certificates until such Invested Amount has been reduced to
zero.
If the funds available for distribution from the Series 1996-1
Defeasance Account under any of the immediately preceding CLAUSES FIRST through
SECOND above are less than the amounts to be paid pursuant to any such clause,
then, in any such case, such available funds shall be allocated by the Master
Servicer PRO RATA for distribution to the Investors to whom such amounts are
owed according to the respective Invested Amounts of the Investors entitled to
payment under such clause. All obligations
-9-
<PAGE> 12
in lower priority categories shall remain unsatisfied until the obligations in
the preceding category have been satisfied.
ARTICLE V
PAYMENTS OF YIELD
SECTION 5.01. YIELD. (a) The outstanding Invested Amount of
the Series 1996-1 Certificates shall accrue Yield at the Certificate Rate until
such Invested Amount has been reduced to zero. On each Distribution Date
during the Revolving Period, the Trustee shall make available to the Paying
Agent and the Paying Agent shall distribute to the Series 1996-1 Investors, out
of the Collections and other funds on deposit in the Carrying Cost Account
allocable to the Series 1996-1 Investors, an amount equal to all accrued and
unpaid Yield on the Series 1996-1 Certificates. If the amounts so made
available are insufficient to pay such accrued and unpaid Yield in full, then
the Paying Agent shall distribute such funds to the holders of the Series
1996-1 Certificates ratably in accordance with their respective Invested
Amounts until the Yield owing on the Series 1996-1 Certificates has been paid
in full. Any Yield due but not paid on any Distribution Date will be due on
the next succeeding Distribution Date with additional interest on such overdue
amount at the applicable Certificate Rate to the extent permitted by applicable
law.
SECTION 5.02. NO OPTIONAL PREPAYMENTS. (a) The Transferor
shall not have the right to cause the Series 1996-1 Certificates to be prepaid
in full, or, in part, at any time prior to the Expected Final Payment Date.
ARTICLE VI
EARLY AMORTIZATION EVENTS
SECTION 6.01. ADDITIONAL EARLY AMORTIZATION EVENTS. It shall
constitute an Additional Early Amortization Event with respect to the Series
1996-1 Certificates if the average of the Applicable Reserve Ratios for the
Series 1996-1 Certificates, as calculated by the Master Servicer in the
relevant Determination Date Certificates for any three (3) consecutive
Collection Periods, shall exceed thirty percent (30%).
ARTICLE VII
MISCELLANEOUS PROVISIONS
SECTION 7.01. RATIFICATION OF POOLING AND SERVICING
AGREEMENT. As supplemented by this Series Supplement, the
-10-
<PAGE> 13
Pooling and Servicing Agreement is in all respects ratified and confirmed and
the Pooling and Servicing Agreement as so supplemented by this Series
Supplement shall be read, taken and construed as one and the same instrument.
SECTION 7.02. COUNTERPARTS. This Series Supplement may be
executed in two or more counterparts (and by different parties on separate
counterparts), each of which shall be an original, but all of which together
shall constitute one and the same instrument.
SECTION 7.03. GOVERNING LAW; JURISDICTION. (A) THIS SERIES
SUPPLEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
YORK, INCLUDING WITHOUT LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS
LAW BUT OTHERWISE WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE
OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
[(b) JURISDICTION. Each of the parties hereto hereby
irrevocably and unconditionally submits to the nonexclusive jurisdiction of any
federal court of the United States of America sitting in New York City or, if
jurisdiction is not available in such federal court, New York State court, and
any appellate court from any thereof, in any action or proceeding arising out
of or relating to this Series Supplement, and each of the parties hereto hereby
irrevocably and unconditionally agrees that all claims in respect of any such
action or proceeding may be heard and determined in such New York State or, to
the extent permitted by law, in such federal court. Each of the parties hereto
agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgement
or in any other manner provided by law.]
(c) CONSENT TO SERVICE OF PROCESS. Each party to this Series
Supplement irrevocably consents to service of process in the manner provided
for notices in Section 13.05 of the Pooling and Servicing Agreement. Nothing
in this Series Supplement will affect the right of any party to this Agreement
to serve process in any other manner permitted by law.
SECTION 7.04. THE TRUSTEE. The Trustee shall not be
responsible in any manner whatsoever for or in respect of the validity or
sufficiency of this Series Supplement, or for or in respect of the recitals
contained herein, all of which recitals are made solely by the Transferor and
the Servicers.
SECTION 7.05. RESTRICTIONS ON TRANSFER TO BENEFIT PLAN
INVESTORS. Notwithstanding anything to the contrary in the Pooling and
Servicing Agreement, the Series 1996-1 Certificates may not be issued, assigned
or transferred to or otherwise held by any "benefit plan investor" as defined
in Section 2510.3-101(f)(2) of the Labor Regulations promulgated under ERISA
unless
-11-
<PAGE> 14
the acquisition or holding of such Certificates by such benefit plan investor
is exempted from the "prohibited transaction" provisions of ERISA.
Notwithstanding anything to the contrary herein or in the Pooling and Servicing
Agreement, any purported transfer of a Series 1996-1 Certificate to a benefit
plan investor in violation of this SECTION 7.05 shall be void and of no effect.
Each benefit plan investor which acquires any Series 1996-1 Certificates shall
be deemed to have represented and warranted to the Trust that such Investor's
acquisition or holding of the Series 1996-1 Certificates does not constitute a
nonexempt "prohibited transaction" under the applicable provisions of ERISA and
the Internal Revenue Code. The Trustee shall be entitled to rely on such deemed
representation and shall have no responsibility for, nor any liability in
respect of, the inaccuracy of any such representation or warranty or the failure
of any issuance, assignment, transfer or holding to otherwise be in compliance
with this Section 7.05.
-12-
<PAGE> 15
IN WITNESS WHEREOF, the Transferor, the Servicers and the
Trustee have caused this Series Supplement to be duly executed by their
respective officers as of the day and year first above written.
CENTERIOR FUNDING CORPORATION
Transferor
By: ______________________________
Name:
Title:
THE CLEVELAND ELECTRIC ILLUMINATING
COMPANY and THE TOLEDO EDISON
COMPANY, as Servicers
By:___________________________
Name:
Title:
CITIBANK, N.A., as Trustee
By:___________________________
Name:
Title:
-13-
<PAGE> 16
EXHIBIT A
FORM OF SERIES 1996-1 CERTIFICATE
Number ____________ CUSIP ___________
Initial Invested Amount $_____________
FIXED RATE RECEIVABLES-BACKED CERTIFICATE
SERIES 1996-1
THIS CERTIFICATE REPRESENTS AN
UNDIVIDED INTEREST IN CERTAIN ASSETS OF THE
CENTERIOR ENERGY RECEIVABLES MASTER TRUST
the corpus of which consists primarily of certain receivables generated from
time to time by The Cleveland Electric Company ("CEI") and The Toledo Edison
Company ("TE" and, together with CEI, collectively, the "Originators") and
purchased by Centerior Funding Corporation (the "Transferor"), which in turn
transfers and assigns such receivables to the Centerior Energy Receivables
Master Trust. This Certificate does not represent any recourse obligation of,
and is not guaranteed by, the Transferor, any Originator or any Affiliate of
any of them.
This certifies that
(the
"Holder"), is the registered owner of a fractional undivided interest in the
assets of the Centerior Energy Receivables Master Trust (the "Trust"), created
pursuant to the Pooling and Servicing Agreement, dated as of ______________,
1996 (as supplemented or modified, the "Agreement"), by and among the
Transferor, CEI and TE, as Servicers, and Citibank, N.A., as trustee (the
"Trustee"). To the extent not defined herein, the capitalized terms used
herein have the meanings ascribed to them in the Agreement. Unless the
certificate of authentication hereon has been executed by or on behalf of the
Trustee by manual or facsimile signature, this Certificate shall not be
entitled to any benefit under the Agreement or be valid for any purpose.
Reference is hereby made to the further provisions of this
Certificate set forth below, which further provisions shall for all purposes
have the same effect as if set forth at this place.
This Certificate is one of the duly authorized Series 1996-1
Certificates designated and issued under the Agreement on the Closing Date and
constitutes a Senior Class.
The corpus of the Trust consists of (i) a portfolio of
receivables (the "Receivables") transferred under the Agreement from time to
time, (ii) funds collected or to be collected from Obligors in respect of the
Receivables, (iii) all funds which are from time to time on deposit in the
Collection Accounts, the
<PAGE> 17
Concentration Account and any other account or accounts held for the benefit of
Certificateholders and (iv) all other assets and interests constituting the
Trust Assets.
This Certificate is issued under and is subject to the terms,
provisions and conditions of the Agreement and the Series 1996-1 Supplement
relating thereto (the "Supplement"), to which Agreement and Supplement, as
amended from time to time, the Holder by virtue of the acceptance hereof
assents and is bound. Although a summary of certain provisions of the
Agreement is set forth below, this Investor Certificate does not purport to
summarize the Agreement and the Supplement and is qualified in its entirety by
the terms and provisions of the Agreement and the Supplement. Reference is
made to the Agreement and the Supplement for information with respect to the
interests, rights, benefits, obligations, proceeds and duties evidenced hereby
and the rights, duties and obligations of the Trustee, the Servicers and the
other parties bound thereby. A copy of the Agreement and Supplement may be
requested by writing to the Trustee at 111 Wall Street, 5th Floor, New York,
New York 10043, Attention: _________, at the expense of the Transferor.
This Certificate is an Investor Certificate. The Trust's
assets are allocated in part to the Holder, the other Investors of this Series
and the Investors of other Series, if any, with the remainder allocated to the
Transferor. The Investor Certificates represent an undivided fractional
beneficial interest in the Trust and the right to receive, to the extent
necessary to make the required payments with respect to the Investor
Certificates, at the times and in the amounts specified in the Agreement and
the Supplement, of the Investors' Interest of Collections from time to time,
with any excess of the Investors' Interest of Collections over the amount of
such required payments to be remitted to the Transferor in satisfaction of the
Deferred Payment Right.
The Initial Invested Amount on the Closing Date is $________.
The Invested Amount with respect to any date will be an amount equal to (a) the
Initial Invested Amount, MINUS (b) the amount of any distributions to the
Investor in reduction of the Invested Amount on or prior to such date pursuant
to the terms of the Agreement. The Initial Invested Amount and the
distributions of principal to the Investors shall be recorded on the
Certificate Register.
Yield with respect to this Certificate shall be distributed to
the Holder hereof on each Distribution Date as provided in the Supplement.
Payment of any installment of Yield on this Certificate will be made or caused
to be made by the Paying Agent to the person in whose name such Certificate is
registered at the close of business on the Record Date. Payment of such
interest will be made by wire transfer to a designated account maintained by
the Holder, provided that such Holder has
-2-
<PAGE> 18
provided the Paying Agent with the wire transfer designation, in writing,
received by the Paying Agent on or prior to the relevant Record Date. In the
absence of such timely wire transfer instructions, payment will be made by
check to the address of record of the Holder.
Payment of principal in respect of this Certificate will be
made by transfer to an account maintained by the Holder. The final
distribution on this Certificate will be made after due notice by the Trustee
of the pendency of such distribution and upon presentation and surrender of
this Certificate at the Corporate Trust Office of the Trustee. Upon payment of
the final distribution on this Certificate, all further payments on account of
the Holder's interest in the Trust shall be remitted to the Transferor in
satisfaction of the Deferred Payment Right.
This Certificate does not represent an obligation of, or an
interest in, the Transferor, any Servicer, any Originator or any Affiliate of
any of them. This Certificate is limited in right of payment to certain
Collections of the Receivables (and certain other amounts), all as more
specifically set forth hereinabove, in the Agreement and in the Supplement.
The Agreement may be amended by the Transferor, the Servicers
and the Trustee, without the consent of any Investor, under certain
circumstances and may also be amended by the Servicers, the Transferor and the
Trustee, with the consent of the Investors owning a Majority in Interest of the
Investor Certificates of each adversely affected Series, all as more fully
described in SECTION 13.01 of the Agreement.
As provided in the Agreement and subject to certain
limitations therein set forth, this Certificate is exchangeable for a new
Investor Certificate evidencing a like fractional undivided interest in the
Trust, as requested by the Investor surrendering this Certificate. No service
charge will be imposed for any such transfer or exchange, but the Transfer
Agent and Registrar may require payment of a sum sufficient to cover any tax or
other governmental charge that may be imposed in connection therewith.
This Certificate shall be construed in accordance with and
governed by the laws of the State of New York, including without limitation
Section 5-1401 of the General Obligations Law but otherwise without reference
to its conflict of law provisions.
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<PAGE> 19
IN WITNESS WHEREOF, the Transferor has caused this Certificate
to be duly executed.
CENTERIOR FUNDING CORPORATION
By: ______________________________
Name:
Title:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Investor Certificates described in the
within-mentioned Pooling and Servicing Agreement.
Dated: ______________________
CITIBANK, N.A.,
not its individual capacity but
solely as Trustee
By: ________________________ OR ______________________________
Authorized Officer ______________________________ as
Authenticating Agent for
the Trustee
By: _________________________
Authorized Officer
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<PAGE> 1
EXHIBIT 10.1
______________________________________________________________________________
CENTERIOR FUNDING CORPORATION
Buyer
and
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
and
THE TOLEDO EDISON COMPANY
Sellers
______________________________________________________________________________
RECEIVABLES PURCHASE AGREEMENT
Dated as of _____________________, 1996
______________________________________________________________________________
<PAGE> 2
TABLE OF CONTENTS
ARTICLE I
<TABLE>
<S> <C> <C> <C>
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2 Other Definitional Provisions . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE II
PURCHASE, CONVEYANCE AND SERVICING OF RECEIVABLES . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.1 Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE III
CONSIDERATION AND PAYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 3.1 Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 3.2 Payment of Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 3.3 Adjustments to Purchase Price . . . . . . . . . . . . . . . . . . . . . . 8
Section 3.4 Settlement of Adjustments . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 3.5 Capital Contribution . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE IV
REPRESENTATION AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 4.1 Sellers' Representations and Warranties . . . . . . . . . . . . . . . . . 9
Section 4.2 Sellers' Representations and Warranties
Regarding Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 4.3 Buyer's Representations and Warranties . . . . . . . . . . . . . . . . . . 13
ARTICLE V
COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 5.1 Sellers' Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 5.2 Buyer's Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
</TABLE>
<PAGE> 3
ARTICLE VI
<TABLE>
<S> <C> <C> <C>
REPURCHASE OBLIGATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 6.1 Mandatory Repurchase . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 6.2 Conveyance of Repurchased Receivables . . . . . . . . . . . . . . . . . . 22
Section 6.3 Sole Remedy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 6.4 Assignment of Repurchase Rights and Obligations . . . . . . . . . . . . . 22
Section 6.5 Liability to Customers . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE VII
CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 7.1 Conditions to the Buyer's Obligations
Regarding Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 7.2 Conditions to the Sellers' Obligations . . . . . . . . . . . . . . . . . 23
ARTICLE VIII
TERM AND TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 8.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 8.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE IX
SELLER'S INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 9.1 Indemnification of Buyer . . . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE X
MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 10.1 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 10.2 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 10.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 10.4 Severability of Provisions . . . . . . . . . . . . . . . . . . . . . . . 27
Section 10.5 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 10.6 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 10.7 No Waiver, Cumulative Remedies . . . . . . . . . . . . . . . . . . . . . 28
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C> <C>
Section 10.8 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 10.9 Binding Effect; Third-Party Beneficiaries . . . . . . . . . . . . . . . . 28
Section 10.10 Merger and Integration . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 10.11 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 10.12 Schedules and Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Exhibit A Form of Daily Report . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
Exhibit B Form of Reconveyance . . . . . . . . . . . . . . . . . . . . . . . . . . . B-1
Exhibit C Form of Settlement Statement . . . . . . . . . . . . . . . . . . . . . . . C-1
Exhibit D Form of Buyer Intercompany Note . . . . . . . . . . . . . . . . . . . . . D-1
</TABLE>
iii
<PAGE> 5
RECEIVABLES PURCHASE AGREEMENT
------------------------------
RECEIVABLES PURCHASE AGREEMENT, dated as of ________________,
1996 (the "Agreement"), by and between THE CLEVELAND ELECTRIC ILLUMINATING
COMPANY, an Ohio corporation ("CEI") and THE TOLEDO EDISON COMPANY, an Ohio
corporation ("TE", together with CEI, the "Sellers"), and CENTERIOR FUNDING
CORPORATION, a Delaware corporation ("Buyer").
W I T N E S S E T H :
- - - - - - - - - - -
WHEREAS, the Buyer, the Sellers and Citibank, N.A., as
Trustee, are parties to a Pooling and Servicing Agreement dated as of
_________________, 1996 pursuant to which the Buyer has agreed to transfer
Receivables to the Trust created thereunder;
WHEREAS, the Buyer in order to fulfill its obligations under
the Pooling and Servicing Agreement desires to purchase from time to time the
Receivables (as defined herein) generated by Sellers in the normal course of
their business;
WHEREAS, Sellers desire to sell and assign from time to time
the Receivables to Buyer upon the terms and conditions set forth herein;
NOW, THEREFORE, it is hereby agreed by and between Buyer and
Sellers as follows:
ARTICLE I
DEFINITIONS
-----------
Section 1.1 DEFINITIONS. All capitalized terms not otherwise
defined herein are defined in the Pooling and Servicing Agreement. In the event
that any terms or provision contained herein shall conflict with or be
inconsistent with any provisions contained in the Pooling and Servicing
Agreement, the terms and provisions contained herein shall govern with respect
to this Agreement. For all purposes of this Agreement, except as otherwise
expressly provided herein or unless the context otherwise requires, capitalized
terms used herein shall haveing the following meanings assigned to them:
"BILLED RECEIVABLE" shall mean a Receivable which represents a
bona fide enforceable obligation for the provision of electricity to an Obligor
that is evidenced by an invoice of the applicable Seller.
"CLOSING DATE" shall mean _____________________, 1996.
"CONTRACT" shall mean an agreement between either CEI or TE
and an Obligor, in the form of a written contract, tariff or invoice or an
unwritten agreement deemed to have arisen after such person has accepted
electric service, in each case pursuant to or under which such other person
shall be obligated to pay from time to time for electric service and the other
charges related thereto.
<PAGE> 6
"CUT-OFF DATE" shall mean the close of business on the
Business Day immediately preceding the Closing Date.
"DAILY REPORT" shall mean a report substantially in the form
of Exhibit A hereto.
"ERISA AFFILIATE" shall mean with respect to either Seller,
any trade or business (whether or not incorporated) which, together with such
Seller, is treated as a single employer within the meaning of Section 414(b),
(c), (m) or (o) of the Internal Revenue Code.
"INVOLUNTARY CASE" shall have the meaning set forth in Section
2.1(c) hereof.
"LOSS TO LIQUIDATION RATIO" means the ratio (expressed as a
percentage) computed as of the last day of each Collection Period by dividing
(i) the sum of (a) the aggregate outstanding Balance of all Receivables written
off, or which should have been written off, in accordance with its Credit and
Collection Policy during the three-month period then ended minus (b) cash
actually received during such three-month period on account of Receivables
previously written off by (ii) the aggregate amount of Collections of
Receivables actually received during such three-month period.
"MULTIEMPLOYER PLAN" shall mean as defined in Section
4001(a)(3) of ERISA to which either Seller or an ERISA Affiliate of any of them
is making, is obligated to make, or has within the last six years made or been
obligated to make contributions on behalf of participants who are or were
employed by any such entity.
"OBLIGOR" shall mean each Person who is obligated to pay for
goods or services provided by a Seller which gave rise to a Receivable,
including any guarantor of such Person's obligations.
"OPINION OF COUNSEL" shall mean a written opinion of counsel
reasonably acceptable to Buyer and Sellers, which counsel shall be selected by
Sellers, shall be reasonably acceptable to Buyer and may be an employee of a
Seller or an Affiliate of a Seller.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or
any successor thereto.
"PAYMENT DATE" shall mean any Business Day on which Buyer pays
either Seller for Receivables purchased pursuant to this Agreement.
"PLAN" shall mean any plan, program, arrangement, agreement,
practice or contract that provides or is intended to provide benefits or
compensation to or on behalf of one or more employees or former employees of
either Seller or an ERISA Affiliate of either of them, whether formal or
informal, whether or not written, including, but not limited to
2
<PAGE> 7
any employee benefit plan, as defined in Section 3(3) of ERISA, any employee
pension benefit plan and any retiree welfare plan.
"POOLING AND SERVICING AGREEMENT" shall mean the Pooling and
Servicing Agreement dated as of ______________________, 1996 among the Buyer,
the Sellers and Citibank, N.A., as Trustee, pursuant to which the Buyer has
agreed to transfer Receivables to the Trust created thereunder.
"PURCHASE PRICE" shall have the meaning set forth in Section
3.2 hereof.
"RECEIVABLE" shall mean an account receivable shown on the
records of either Seller as of the Cut-Off Date, and from time to time
thereafter, arising from the sale of electricity by a Seller in the ordinary
course of its business and shall include, without limitation, all monies due or
to become due and all Collections and other amounts received from time to time
with respect to such account receivable and all proceeds (including, without
limitation, "proceeds" as defined in the UCC of the jurisdiction the law of
which governs the perfection of the interest on the Receivables transferred
hereunder) thereof; PROVIDED, HOWEVER, that the term "Receivable" shall not
include any accounts receivable (i) that are due from any Consolidated
Affiliates of Centerior Energy Corporation or of either Seller; (ii) arising
from wholesale electricity sales to other utilities or parties in the business
of providing electric power; or (iii) that are due from any Obligors located
outside the United States.
"RECOVERIES" shall mean any amounts received by a Servicer
with respect to a Receivable which was previously charged off as uncollectible
in accordance with such Servicer's customary and usual servicing procedures.
"REPORTABLE EVENT" shall mean any of the reportable events
described in Section 4043 of ERISA and the regulations issued from time to time
thereunder (other than a reportable event not subject to the provisions for
30-day notice to the PBGC under such regulations).
"REPURCHASE PRICE" shall have the meaning set forth in Section
6.1(c) hereof.
"SALE" shall mean any transfer by a Seller of a Receivable to
Buyer pursuant to this Agreement.
"SALE DOCUMENTS" shall have the meaning set forth in Section
4.1(c) hereof.
"SECURED OBLIGATIONS" shall have the meaning set forth in
Section 2.1(g) hereof.
"SETTLEMENT STATEMENT" shall mean a statement substantially in
the form of Exhibit C hereto.
"TERMINATION DATE" shall have the meaning set forth in Section
8.2 hereof.
3
<PAGE> 8
"UNBILLED RECEIVABLE" shall mean a Receivable which represents
a bona fide enforceable obligation for the provision of electricity to an
Obligor but that has not yet been evidenced by an invoice and which is
accounted for on the applicable Seller's books and records as "unbilled
revenue" in accordance with its current financial accounting practices.
Section 1.2 OTHER DEFINITIONAL PROVISIONS. The words
"hereof," "herein" and "hereunder" and words of similar import when used in
this Agreement or any Sale Documents shall refer to this Agreement as a whole
and not to any particular provision of this Agreement; and Section, Subsection,
Schedule and Exhibit references contained in this Agreement are references to
Sections, Subsections, Schedules and Exhibits in or to this Agreement unless
otherwise specified.
ARTICLE II
PURCHASE, CONVEYANCE AND SERVICING
----------------------------------
OF RECEIVABLES
--------------
Section 2.1 SALE. (a) Upon the terms and subject to the
conditions set forth herein, each Seller does hereby sell, assign, transfer,
set-over, and otherwise convey to Buyer, and Buyer hereby purchases from each
Seller, on the terms and subject to the conditions specifically set forth
herein, all of such Seller's right, title and interest in, to and under: (i)
the Billed Receivables now existing and hereafter created and all monies due or
to become due with respect thereto, (ii) the Unbilled Receivables now existing
and hereafter generated and all monies due or to become due with respect
thereto, (iii) Recoveries and (iv) all proceeds of the foregoing. The
foregoing sale, transfer, assignment, set-over and conveyance does not
constitute and is not intended to result in a creation or an assumption by
Buyer of any obligation of Sellers in connection with the Receivables or any
agreement or instrument relating thereto, including, without limitation, any
obligation to any Obligors or insurers.
(b) In connection with the foregoing sale, each Seller
agrees to record and file on or prior to the Closing Date, at its own expense,
a financing statement or statements with respect to the Receivables and the
other property described in Section 2.1(a) sold by such Seller hereunder
meeting the requirements of applicable state law in such manner and in such
jurisdictions as are necessary to perfect and protect the interests of Buyer
created hereby under the applicable UCC against all creditors of and purchasers
from such Seller, and to deliver a file-stamped copy of such financing
statements or other evidence of such filings to Buyer within 10 days after the
Closing Date.
(c) Buyer shall not purchase Receivables of a Selelr
hereunder if such Seller shall become an involuntary party to (or be made the
subject of) any bankruptcy proceeding or any other insolvency, readjustment of
debt, marshalling of assets and liabilities or similar proceedings of or
relating to such Seller or relating to all or substantially all of its
property (an "INVOLUNTARY CASE") upon receipt by such Seller at its head
corporate office of notice of such Involuntary Case.
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(d) Buyer shall not purchase Receivables of a Seller
hereunder if such Seller shall commence a voluntary case under the federal
bankruptcy laws, as now or hereafter in effect, or any present or future
federal or state bankruptcy, insolvency or similar law, or such Seller shall
consent to the appointment of or taking possession by a receiver, liquidator,
assignee, trustee, custodian, sequestrator or other similar official of such
Seller or of any substantial part of its property or such Seller shall make an
assignment for the benefit of creditors or such Seller shall take corporate
action in furtherance of any of the foregoing.
(e) Buyer may, but shall not be obligated to, elect not
to purchase additional Receivables of a Seller hereunder if an Early
Amortization Event shall have occurred and is continuing; provided that Buyer
shall cease purchasing additional Receivables upon the commencement of the
Amortization Period. If Buyer elects not to purchase from such a Seller, Buyer
shall promptly deliver written notice of such election to each Seller and the
Trustee for the Trust.
(f) In connection with the sale and conveyance hereunder,
each Seller agrees, at its own expense, on or prior to the Closing Date and on
each Business Day thereafter, to indicate or cause to be indicated clearly and
unambiguously in its accounting and master data processing records that such
Receivables and the other property described in Section 2.1(a) have been sold
to Buyer pursuant to this Agreement as of the Cut-Off Date or such Business Day
as applicable.
(g) It is the express intent of Sellers and Buyer that
the conveyance of the Receivables by Sellers to Buyer pursuant to this
Agreement be construed as a sale of such Receivables by Sellers to Buyer. It
is, further, not the intention of the Sellers and Buyer that such conveyance be
deemed a grant of a security interest in the Receivables by Sellers to Buyer to
secure a debt or other obligation of Sellers. However, in the event that,
notwithstanding the intent of the parties, a court of competent jurisdiction
determines that the Receivables continue to be property of Sellers, then (i)
this Agreement also shall be deemed to be and hereby is a security agreement
within the meaning of the UCC; and (ii) the conveyance by Sellers provided for
in this Agreement shall be deemed to be and each Seller hereby grants to Buyer
a security interest in and to all of such Seller's right, title and interest in
(x) all Receivables outstanding on the Cut-Off Date and thereafter created by
such Seller and all rights (but not the obligations) relating to such
Receivables, (y) all monies due or to become due with respect thereto and (z)
all proceeds of the foregoing, to secure the rights of Buyer to recover all
Collections and other property or payments received from time to time in
respect of the Receivables purported to be conveyed hereunder (the "Secured
Obligations"). Sellers and Buyer shall, to the extent consistent with this
Agreement, take such actions as may be necessary to ensure that, if this
Agreement were deemed to create a security interest in the Receivables, such
security interest would be deemed to be a perfected security interest of first
priority in favor of Buyer under applicable law and will be maintained as such
throughout the term of this Agreement. Sellers and Buyer may rely upon an
Opinion of Counsel addressed to them as to what is required to provide Buyer
with such security interest; and any such Opinion of Counsel shall permit the
Trustee, on behalf of the Certificateholders, the Certificateholders (in the
case of any Series issued in a placement exempt from the registration
requirements of the Securities Act) and the Rating Agencies to rely on it.
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(h) In connection with the sale and conveyance hereunder,
each Seller hereby assigns to Buyer, all of its rights in and to all lockbox
accounts to which payments on Receivables are made. Each Seller agrees that it
shall have no right to withdraw any funds from such lockbox accounts; provided,
however, that Buyer agrees that upon verification by it that amounts deposited
in any lockbox accounts are not Collections owing to Buyer, it shall remit such
amounts to the appropriate Seller as soon as practicable. In no event, shall
either Seller have the right to withdraw any Collections owing to Buyer which
are deposited into such accounts.
ARTICLE III
CONSIDERATION AND PAYMENT
-------------------------
Section 3.1 PURCHASE PRICE. The Purchase Price for the
Receivables and related property conveyed to Buyer under this Agreement shall
be a dollar amount equal to (a) for all Billed Receivables and existing
Unbilled Receivables, all of which will be transferred on the Closing Date, the
product of (i) the aggregate invoiced or otherwise recorded and unpaid balance
of all Receivables existing as of the Cut-Off Date, and (ii) the then
applicable Purchase Price Percentage, and (b) for any Unbilled Receivables
generated after the Cut-Off Date, the product of (i) the aggregate recorded
balance of all such Unbilled Receivables that have not been transferred to
Buyer on any previous Payment Date and (ii) the then applicable Purchase Price
Percentage.
Section 3.2 PAYMENT OF PURCHASE PRICE. (a) Except as
otherwise provided below in this Section 3.2, the Purchase Price for the
Receivables sold by Sellers under this Agreement shall be payable in full in
cash by Buyer to the applicable Seller, in each case on the date of each such
Purchase, except that Buyer may, with respect to any Purchase, offset against
such Purchase Price (i) any amounts shown on a Settlement Statement as owing
from the applicable Seller to Buyer and which remain unpaid or (ii) any other
uncontested amounts owed by such Seller to Buyer hereunder and which remain
unpaid.
(b) On each Business Day, Buyer, based on information
provided to it by the Servicer, shall deliver to each party hereto a Daily
Report substantially in the form of Exhibit A attached hereto, which Daily
Report shall set forth, among other things, the Purchase Price owed to each
Seller on such date. The purchase price payable on any Business Day (the
"PURCHASE PRICE") shall be equal to the aggregate original balances of
Receivables to be purchased on such date as noted on such Daily Report times
the Purchase Price Percentage then in effect pursuant to the remaining
provisions of this Section 3.2(b). From the Closing Date until the first
Determination Date on which payment is made by Buyer thereafter, the Purchase
Price Percentage shall equal __%. Thereafter, the Purchase Price Percentage
shall be calculated in accordance with the following formula:
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PPP = 100% - (LD + PDRR)
where:
PPP = the Purchase Price Percentage in effect on such day;
LD = from and after each Determination Date, the "LOSS
DISCOUNT" (expressed as a percentage) calculated in
the most recent Settlement Statement to equal the
greater of (i) one-fourth of one percent and (ii) 1.5
times the Loss to Liquidation Ratio for the average
of the three Interest Periods ending on the most
recent Determination Date, provided that the Loss
Discount from and after any Determination Date shall
in no event exceed the sum of (x) one-half of one
percent and (y) the Loss to Liquidation Ratio for the
average of the three Interest Periods ending on the
most recent Determination Date; and
PDRR = from and after each Determination Date, the "PURCHASE DISCOUNT
RESERVE RATIO" (expressed as a percentage) calculated in the
most recent Settlement Statement in accordance with the
following formula:
PDRR = TD X DR
-------
360
where:
PDRR = the Purchase Discount Reserve Ratio in effect on such day;
TD = the Turnover Days for the Receivables originated by such
Seller during the immediately preceding Interest Period; and
DR = the "Discount Rate" calculated in the most recent Settlement
Statement to equal the Trustee's publicly announced "prime"
rate as of the most recent Determination Date plus the amount,
if any (expressed as a percentage), by which the per annum
rate in effect on such Determination Date for computing the
Servicing Fee exceeds one percent.
The Purchase Price Percentage shall be calculated on each Determination Date
and such calculation shall, except as otherwise provided in Section 6.1 and
Section 6.2 hereof, be utilized in the calculation of the Purchase Price owed
under this Agreement for all Purchases occurring from and after such
Determination Date until (but not including) the next Determination Date.
(c) On each Business Day, to the extent that Buyer
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 and Servicing Agreement, then Buyer shall remit
such funds to the Sellers (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 such Sellers; and second
to pay amounts owed by Buyer to the Sellers under the Buyer Intercompany Notes
described in Section 3.2 (d) below. All such payment shall be made ratably
according to the amounts in each such category owed to each of the Sellers.
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 Purchase Price owing
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therefor, then Buyer may, by notice to the applicable Sellers, elect to pay
such remaining part of the Purchase Price by borrowing a revolving loan (each a
"SELLER LOAN") under its Buyer Intercompany Note issued in favor of such
Seller, and each Seller shall have irrevocably agreed to advance, and shall be
deemed to have advanced, a Seller Loan in the amount so specified by Buyer;
provided, however, that Buyer may not make any such election if, as a result
thereof, the aggregate unpaid principal amount of all of the Seller Loans would
exceed the sum of (i) the Net Receivables Balance as of the opening of business
on such date minus (ii) the Net Invested Amount minus (iii) an amount equal to
the greater of (a) the product of the amount described in clause (i) above
times the Loss Reserve Ratio (utilizing an Applicable Stress Factor of 1.35) in
effect on such day and (b) 4.5%.
(d) The Buyer's obligations to repay the Seller Loans
shall be subject to the terms of the Pooling and Servicing Agreement and the
Seller Loans shall be payable solely from funds which, pursuant to the terms of
the Pooling and Servicing Agreement, are not required to be set aside for the
payments of the Investor Certificates or any other obligations of Buyer arising
under the Pooling and Servicing Agreement. Buyer shall, to the extent
reasonably practicable, use its best efforts to allocate the amount of Seller
Loans made on any day to the respective Purchase Prices owed to each Seller for
Receivables sold on such date. The Seller Loans advanced by each Seller shall
be evidenced by, and payable in accordance with the terms and provisions of, a
promissory note (each, a "BUYER INTERCOMPANY NOTE") payable to such Seller in
the form of Exhibit D attached hereto. Buyer shall, to the extent reasonably
practicable, use its best efforts to allocate payments of principal and
interest on the Buyer Intercompany Notes to the outstanding principal amounts
thereof.
Section 3.3 ADJUSTMENTS TO PURCHASE PRICE. There shall be no
adjustments to the purchase price for the Receivables after the Buyer purchases
the Receivables.
Section 3.4 SETTLEMENT OF ADJUSTMENTS. On each Determination
Date under the Pooling and Servicing Agreement, each Seller shall deliver a
Settlement Statement to Buyer in substantially the form of Exhibit C, showing
(a) the aggregate amount of Receivables conveyed by each Seller from the end of
the calendar month next prior to the one covered by such Settlement Statement
(or from the Closing Date in the case of the first Settlement Statement) to the
end of the calendar month covered by such Settlement Statement, (b) the amount
of all payments of the Purchase Price received by such Seller no later than
the last Business Day of the previous calendar month in respect of such
Receivables, and (c) the settlements of the remaining Purchase Price for
such Receivables to be made as of the end of the previous calendar month
between Buyer and each Seller in accordance with Section 3.4 hereof. The
balance due, if any, from Buyer to a Seller as reflected on such Settlement
Statement shall be paid by Buyer in immediately available funds or by borrowing
under the Buyer Intercompany Notes.
Section 3.5 CAPITAL CONTRIBUTION. The capital contribution
made to Buyer by CEI shall be deemed to have been contributed in cash and Buyer
shall be deemed to have received cash in exchange for 1000 shares of common
stock of Buyer, which 1000 shares represent all of the outstanding capital
stock of Buyer. In addition, in connection with the sale of Receivables to
Buyer on the Closing Date, Billed Receivables with an outstanding
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balance equal to $_________ shall be deemed paid for by Buyer with cash and
such cash shall be retained by Buyer and will be considered to have been
contributed by CEI to Buyer as capital surplus.
ARTICLE IV
REPRESENTATION AND WARRANTIES
Section 4.1 SELLERS' REPRESENTATIONS AND WARRANTIES. Each
Seller, but only as to itself, hereby severally (and not jointly) represents
and warrants to Buyer as of the Closing Date, and shall be deemed to represent
and warrant as of the date of any Supplement and the related Closing Date,
that:
(a) ORGANIZATION AND GOOD STANDING. Such Seller 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 this Agreement and each other document or
instrument to be delivered by it hereunder.
(b) DUE QUALIFICATION. Such Seller is duly qualified to
do business and is in good standing as a corporation or foreign corporation, as
applicable (or is exempt from such requirement), and has obtained all necessary
licenses and approvals, in each jurisdiction in which failing to so qualify or
to obtain such licenses and approvals is likely to have a material adverse
effect on such Seller's ability to perform its obligations hereunder.
(c) DUE AUTHORIZATION. The execution and delivery of
this Agreement and each other document or instrument to be delivered by such
Seller hereunder (collectively, the "SALE DOCUMENTS"), and the consummation of
the transactions provided for herein and therein have been duly authorized by
all necessary corporate action the part of such Seller and the Sale Documents
have been executed and delivered on such Seller's behalf.
(d) BINDING OBLIGATION. Each of the Sale Documents
constitutes a legal, valid and binding obligation of such Seller, enforceable
against such Seller in accordance with its terms, except as such enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other similar laws now or hereinafter in effect, affecting creditors' rights
generally and except as such enforceability may be limited by general
principles of equity (whether considered in a proceeding at law or in equity).
(e) NO CONFLICTS. The execution and delivery of the Sale
Documents and the performance of the transactions contemplated hereby and
thereby do not conflict with or violate any Requirements of Law applicable to
it or conflict with, result in any breach of any of the material terms and
provisions of, or constitute (with or without notice or lapse of time or both)
a default under, any material indenture, contract, agreement, mortgage, deed of
trust or other instrument to which such Seller is a party or by which it or its
properties are bound in any manner which is likely to have a material adverse
effect on the Buyer's financial
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condition or operations or the Trust Assets or such Seller's ability to perform
its obligations hereunder.
(f) NO PROCEEDINGS. There are no proceedings or
investigations pending or, to the knowledge of such Seller, 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 this Agreement, or
(ii) seeking to prevent the consummation of any of the transactions
contemplated by this Agreement, or (iii) seeking any determination or ruling
which would have a material adverse effect on the operations or Receivables of
such Seller or on the transactions contemplated hereunder.
(g) CONSENTS. No authorization, consent, license, order
or approval of, registration or declaration with any Governmental Authority or
other Person is required to be obtained, effected or given by such Seller in
connection with the execution and delivery of the Sale Documents by such
Seller, with the performance of its obligations hereunder or thereunder or the
transactions contemplated hereby and thereby except for (i) the approval of the
sale by the Public Utilities Commission of Ohio, which approval has been
obtained and is in full force and effect, (ii) the filings of the financing
statements or other documents required to have been filed on or prior to the
Closing Date pursuant to Section 2.01 of the Pooling and Servicing Agreement,
all of which were so filed and are in full force and effect, (iii) the filing
of any amendments, assignments or continuation statements which may become
applicable pursuant to Section 2.01 of the Pooling and Servicing Agreement; and
(iv) any consents for which the failure to obtain or such consent
authorization, individually or in the aggregate for all such failures, is
likely to have a material adverse effect on such Seller's ability to perform
its obligations under this Agreement.
(h) LIENS ON RECEIVABLES. Except as created or permitted
hereby, and except for Liens that will be terminated prior to the sale of the
Receivables on the Closing Date, there are no Liens (except for Permitted
Liens) of any nature whatsoever on any Receivable. Such Seller is not a party
to any contract, agreement, lease or instrument (other than this Agreement) the
performance of which, either unconditionally or upon the happening of any
event, will result in or require the creation of any Lien on any Receivable.
(i) CONTRACTUAL OBLIGATIONS. (i) Such Seller is not a
party to any indenture, loan or credit agreement or any lease or other
agreement or instrument, or subject to any Requirements of Law, that would have
a material adverse effect on the ability of such Seller to carry out its
obligations hereunder or under any of the Sale Documents, and (ii) neither such
Seller nor, to the best of the knowledge of such Seller, any other party is in
default in any respect under or with respect to any material contract,
agreement, lease or other instrument to which such Seller is a party in any
manner which is likely to have a material adverse effect on such Seller's
ability to perform its obligations hereunder.
(j) LOCATIONS. The chief place of business and chief
executive office of such Seller are located at the address of such Seller
referred to on Schedule 1 attached hereto, and the locations of the offices
where such Seller keeps the originals of its books,
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<PAGE> 15
records and documents regarding the Receivables and the other Trust Assets are
listed on Schedule 1 attached hereto (or at such other locations as such Seller
shall notify Buyer).
(k) TRADENAMES. The legal name of such Seller is as set
forth on the signature page of this Agreement and such Seller has no
tradenames, fictitious names, assumed names or "doing business as" names other
than the name "Centerior Electric Company."
(l) INVESTMENT COMPANY ACT. Each sale of Receivables to
the Buyer hereunder constitutes a purchase or other acquisition of notes,
drafts, acceptances, open accounts receivable or other obligations representing
part or all of the sales price of merchandise or services within the meaning of
Section 3(c)(5) of the Investment Company Act.
(m) INFORMATION. Each certificate, information, exhibit,
financial statement, document, book or record or report furnished by such
Seller to Buyer in connection with this Agreement is accurate in all material
respect as of its date and when considered as a whole with other such
documents, and no such document contains any material misstatement of fact or
omits to state a material fact or any fact necessary to make the statements
contained therein not materially misleading.
(n) SOLVENCY. As of the date hereof and after giving
effect to the transactions contemplated by this Agreement, the fair saleable
value of such Seller's assets exceeds its liabilities and such Seller is
currently repaying all of its indebtedness as such indebtedness becomes due.
After giving effect to the transaction contemplated by this Agreement, such
Seller will have adequate capital to conduct its business as presently
conducted and as contemplated by this Agreement.
(o) COMPLIANCE. Such Seller has complied in all material
respects with all Requirements of Law with respect to it, its business and
properties and all Receivables transferred to the Trust hereunder and the
Contracts related thereto.
(p) TAXES. Such Seller has filed all material tax
returns (federal, state and local) which it reasonably believes are required to
be filed by it and has paid or made adequate provision for the payment of all
taxes, assessments and other governmental charges due from such Seller or is
contesting any such tax, assessment or other governmental charge in good faith
through appropriate proceedings. Such Seller knows of no basis for any
material additional tax assessment for any fiscal year for which adequate
reserves have not been established.
The representations and warranties set forth in this Section
4.1 shall survive the sale of the Receivables to Buyer and shall cease and be
of no effect upon the date following the repayment in full of all amounts due
to the Investors according to the terms of the Certificates when all
Receivables conveyed hereunder have been collected in full or have been written
off as uncollectible under the Credit and Collection Policy. Upon discovery by
either Seller or by Buyer of a material breach of any of the foregoing
representations and
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warranties, the party discovering such breach shall give prompt written notice
to the other parties hereto.
Section 4.2 SELLERS' REPRESENTATIONS AND WARRANTIES REGARDING RECEIVABLES.
(a) VALID SALE, ETC. Each Seller (x) hereby represents
and warrants as of the Closing Date, with respect to the Receivables created on
or prior to, and outstanding on, such date and (y) shall be deemed to represent
and warrant as of the date of the creation and transfer to Buyer of any
Receivables with respect to such Receivables, that:
(i) The transfer of Receivables by such Seller to
Buyer under this Agreement constitutes a valid sale, transfer,
assignment, set-over and conveyance to Buyer of all right,
title and interest of such Seller in and to the Receivables,
whether then existing or thereafter created and the proceeds
thereof.
(ii) Such Seller is (or, with respect to Receivables
arising after the Cut-Off Date, will be) the legal and
beneficial owner of all right, title and interest in and to
each Receivable sold hereby.
(iii) All consents, licenses, approvals or
authorizations of or registrations or declarations with any
Governmental Authority required in connection with the
transfer of such Receivables have been obtained.
(iv) Each Receivable classified as an "Eligible
Receivable" by such Seller in any document or report delivered
hereunder will satisfy the requirements of eligibility
contained in the definition of Eligible Receivable as of the
time of such document or report.
(v) Each Receivable then existing has been conveyed
to Buyer free and clear of any Lien of any Person claiming
through or under such Seller or any of its Affiliates (other
than Permitted Liens) and in compliance, in all material
respects, with all Requirements of Law applicable to such
Seller.
(b) NOTICE OF BREACH. The representations and warranties
set forth in this Section 4.2 shall survive the transfer and assignment of the
respective Receivables to Buyer. Upon discovery by either Seller or Buyer of a
breach of any of its representations and warranties set forth in this Section
4.2, the party discovering such breach shall give prompt written notice thereof
to the other. Each Seller agrees to cooperate with Buyer in attempting to cure
any such breach by it.
The representations and warranties set forth in this Section
4.2 shall survive the sale of the Receivables to Buyer and shall cease and be
of no effect upon the date following the repayment in full of all amounts due
to the Investors according to the terms of the Certificates when all
Receivables conveyed hereunder have been collected in full or have been written
off as uncollectible under the Credit and Collection Policy. Upon discovery by
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either Seller or by Buyer of a material breach of any of the foregoing
representations and warranties, the party discovering such breach shall give
prompt written notice to the other parties hereto.
Section 4.3 BUYER'S REPRESENTATIONS AND WARRANTIES. Buyer
hereby represents and warrants, as of the date hereof and as of the Closing
Date, and Buyer shall be deemed to represent and warrant as of the date of the
creation of any Receivable sold by Sellers to Buyer hereunder, that:
(a) ORGANIZATION AND GOOD STANDING. Buyer is a
corporation without subsidiaries duly organized and validly existing 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
Sale Documents.
(b) DUE QUALIFICATION. Buyer is duly qualified to do
business and is in good standing as a corporation or a foreign corporation, as
applicable, and has obtained all necessary licenses and approvals, in each
jurisdiction in which failure to do so qualify or to obtain such licenses
approvals would have a material adverse effect on Buyer's ability to perform
its obligations hereunder.
(c) DUE AUTHORIZATION. The execution and delivery of the
Sale Documents and the consummation of the transactions provided for herein and
therein have been duly authorized by Buyer by all necessary corporate action on
its part and the Sale Documents have been executed and delivered on Buyer's
behalf.
(d) NO CONFLICT. The execution and delivery of the Sale
Documents and the performance of the transactions contemplated hereby and
thereby do not conflict with or violate any Requirement of Law or conflict
with, result in any breach of any of the terms and provisions of, or constitute
(with or without notice or lapse of time or both), or default under, any
indenture, contract, agreement, mortgage, deed of trust or other instrument to
which Buyer is a party or by which it or its properties are bound.
(e) NO PROCEEDINGS. There are no proceedings or
investigations pending or, to the best knowledge of Buyer, threatened against
Buyer, before any Governmental Authority which may have a material adverse
effect on the performance by Buyer of its obligations hereunder.
(f) CONSENTS. No authorization, consent, license, order
or approval of, registration or declaration with any Governmental Authority or
other Person is required to be obtained, effected or given by Buyer in
connection with the execution and delivery of the Sale Documents by Buyer with
the performance of its obligations hereunder or thereunder or with the
transactions contemplated hereby and thereby except for (i) the filing of the
financing statements or other documents required to have been filed on or prior
to the Closing Date pursuant to Section 2.01 of the Pooling and Servicing
Agreement, all of which were so filed and are in full force and effect and (ii)
the filing of any amendments,
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assignments or continuation statements which may become applicable pursuant to
Section 2.01 of the Pooling and Servicing Agreement.
(g) BINDING OBLIGATION. Each of the Sale Documents to
which Buyer is a party constitutes a legal, valid and binding obligation of the
Buyer, enforceable against Buyer in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereinafter in effect,
affecting creditors' rights generally and except as such enforceability may be
limited by general principles of equity (whether considered in a proceeding at
law or in equity).
The representations and warranties set forth in this Section
4.3 shall survive the sale of the Receivables to Buyer, and shall cease and be
of no effect upon repayment in full of all amounts due to the Investors
according to the terms of the Certificates. Upon discovery by either Seller or
by Buyer of a material breach of any of the foregoing representations and
warranties, the party discovering such breach shall given prompt written notice
to the other parties hereto.
ARTICLE V
COVENANTS
---------
Section 5.1 SELLERS' COVENANTS. Each Seller, but only as to
itself and as to those Receivables, if any, transferred by it hereunder,
severally (and not jointly) covenants and agrees with Buyer as follows:
(a) RECEIVABLES TO BE ACCOUNTS OR GENERAL INTANGIBLES. Such
Seller will take no action to cause any Receivable to be evidenced by any
instrument (as defined in the UCC as in effect in the relevant UCC state),
except in connection with the enforcement or collection of a Receivable.
Except in such circumstances, such Seller will take no action to cause any
Receivable to be anything other than an "account" or a "general intangible"
(each as defined in the UCC as in effect in the relevant UCC state).
(b) SECURITY INTERESTS. Except for the conveyances
hereunder, such Seller will not sell, pledge, assign or transfer to any other
Person, or grant, create, incur, assume or suffer to exist any Lien on, any
Receivable, whether now existing or hereafter created, or any interest therein;
and such Seller shall defend the right, title and interest of Buyer in and to
the Receivables, whether now existing or hereafter created, against all claims
of third parties claiming through or under such Seller; PROVIDED, HOWEVER, that
nothing in this Section 5.1(b) shall prevent or be deemed to prohibit such
Seller from suffering to exist upon any of the Receivables any Permitted Lien.
(c) CONTRACTS AND CREDIT AND COLLECTION POLICIES. Such
Seller shall keep and maintain all documents, books, records and other
information relating to the Receivables and take all actions reasonably within
its control to perform such Seller's obligations under the Contracts and the
Credit and Collection Policy except where the failure to do so would not
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materially and adversely affect the rights of Buyer. Such Seller shall not
change the terms and provisions of the Contracts or the Credit and Collection
Policy in any respect unless (i) such change would not, in the reasonable
belief of such Seller, materially impair the collectibility of any Receivable,
(ii) such change is not to be made with the intent to materially benefit either
Seller over Buyer or to materially adversely affect Buyer, unless otherwise
permitted by an agreement between such Seller and an unrelated third party or
by the terms of the Contracts; and (iii) such change is permitted under Section
3.04 of the Pooling and Servicing Agreement.
(d) RECEIVABLES ALLOCATIONS. In the event that such Seller
is unable for any reason to transfer Receivables to Buyer in accordance with
the provisions of this Agreement (including, without limitation, an order by
any Governmental Authority or any court of competent jurisdiction that such
Seller not transfer any additional Receivables to Buyer) then, in any such
event, such Seller shall transfer any additional Receivables to Buyer and such
Seller agrees to allocate and pay to Buyer, after the date of such inability,
all Collections with respect to Receivables purported to have been conveyed
hereunder, and all amounts which would have constituted Collections with
respect to Receivables but for such Seller's inability to transfer such
Receivables.
(e) DELIVERY OF COLLECTIONS. In the event that such Seller
receives Collections, such Seller agrees to deposit such Collections into a
Transferor Collection Account within one Business Day following the date on
which such Collections are entered into the accounting records of the
applicable Seller.
(f) CONVEYANCE OF RECEIVABLES. Except as provided in Section
9.5 hereof, such Seller covenants and agrees that it will not convey, assign,
exchange or otherwise transfer any Receivable, to any Person other than such
Buyer prior to the termination of this Agreement pursuant to Article VIII.
(g) NOTICE OF LIENS. Such Seller shall notify Buyer promptly
after becoming aware of any Lien on any Receivable other than Permitted Liens.
(h) SEPARATE BUSINESS. Such Seller will not permit its
assets to be commingled with those of Buyer and such Seller shall maintain
separate corporate records and books of account from those of Buyer. Such
Seller will not conduct its business in the name of Buyer and will cause Buyer
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. Such
Seller will provide for its own operating expenses and liabilities from its own
funds or those of Affiliates other than Buyer. It will preserve its own
corporate existence and will not amend its articles of incorporation or code of
regulations until such Seller has filed all amendments to the UCC financing
statements related to the Receivables required to maintain the perfection and
protect the interests of Buyer created hereby against all creditors of and
purchasers from such Seller. Except as permitted by Section 5.1(k) hereof,
such Seller shall not merge with or into or consolidate with or into any other
Person. Such Seller will not hold itself out, or permit itself to be held out,
as having agreed to pay, or as generally being liable for, the debts of Buyer,
except that the organizational expenses of Buyer may be paid
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by CEI and CEI shall have made such contributions to the capital of the Buyer
as are required by Section 3.5 of this Agreement. Such Seller shall cause
Buyer 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 Seller. Such Seller will
maintain an arm's length relationship with Buyer with respect to any
transactions between such Seller, on the one hand, and Buyer, on the other.
Such Seller covenants and agrees to take all actions required to be taken by it
to cause Buyer to comply with Section 2.06(j) of the Pooling and Servicing
Agreement.
(i) COMPLIANCE WITH REQUIREMENTS OF LAW. Such Seller will
comply in all material respects with all Requirements of Law applicable to it,
its business and properties and the Trust Assets, where failure to so comply
would have a material adverse effect on such Seller's ability to perform its
obligations under this Agreement.
(j) CLAIMS ON RECEIVABLES. Except as permitted hereby or by
the Pooling and Servicing Agreement, such Seller covenants and agrees that it
will not sell, pledge, assign or otherwise dispose of, or create or suffer to
exist any adverse claim on any Receivable it sells to Buyer.
(k) MERGER OR CONSOLIDATION OF, OR ASSUMPTION OF THE
OBLIGATIONS OF, SELLERS. Such Seller shall not consolidate with or merge into
any other corporation or convey or transfer substantially all of its properties
and assets to any Person, unless:
(i) such Seller merges into or consolidates with or
assumes the obligations of the other Seller;
(ii) the corporation formed by such consolidation or
into which such Seller is merged or the Person which acquires
by conveyance or transfer the properties and assets of such
Seller substantially as an entirety shall be a corporation
organized and existing under the laws of the United States of
America or any State or the District of Columbia and, if such
Seller is not the surviving entity, shall expressly assume, by
an agreement supplemental hereto, executed and delivered to
Buyer in form satisfactory to Buyer, the performance of every
covenant and obligation of such Seller hereunder (to the
extent that any right, covenant or obligation of such Seller,
as applicable hereunder, is inapplicable to the successor
entity, such successor entity shall be subject to such
covenant or obligation, or benefit from such right, as would
apply, to the extent practicable, to such successor entity);
(iii) in the case of any consolidation, merger,
conveyance or transfer involving either Seller or any
Affiliate of either Seller, such Seller or Affiliate shall
have delivered to Buyer an Officer's Certificate that such
consolidation, merger, conveyance or transfer and such
supplemental agreement comply with this Section 5.1(k) and
that all conditions precedent herein provided for relating to
such transaction have been complied with and an Opinion of
Counsel that such supplemental agreement is legal, valid and
binding with respect to the successor entity and that the
entity surviving such consolidation,
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merger, conveyance or transfer is organized and existing under
the laws of the United States of America or any State or the
District of Columbia; and
(iv) in the case of any consolidation, merger,
conveyance or transfer involving any unrelated third party,
the Rating Agency Condition shall have been satisfied with
respect to such consolidation, merger, conveyance or transfer.
Notwithstanding anything in this Section 5.1(k) to the contrary, but subject to
the requirements of Section 5.1(n)(ii) below, TE may merge into CEI, and
neither TE nor CEI shall be obligated under this Agreement to provide any
documentation to, or obtain any consent or approval from, any Person with
respect thereto.
(l) PAYMENT OF TAXES, ETC. Such Seller will 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 under this 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.
(m) NO BANKRUPTCY PETITION AGAINST BUYER. Prior to the
date which is one year and one day after the payment in full of all Invested
Amounts, such Seller will not institute against or join any other Person in
instituting against Buyer any bankruptcy, reorganization, arrangement,
insolvency or liquidation proceedings or other similar proceeding under the
laws of the United States or any state of the United States.
(n) PROTECTION OF RIGHT, TITLE AND INTEREST TO
RECEIVABLES.
(i) Such Seller shall cause this Agreement, all
amendments hereto and/or all financing statements and
continuation statements and any other necessary documents
covering such Seller's and Buyer's right, title and interest
to the Receivables to be promptly recorded, registered and
filed, and at all times to be kept recorded, registered and
filed, all in such manner and in such places as may be
required by law fully to preserve and protect the right, title
and interest of Buyer hereunder to the Receivables and
proceeds thereof. Such Seller shall deliver to the Buyer
file-stamped copies of, or filing receipts for, any document
recorded, registered or filed as provided above, as soon as
available following such recording, registration or filing.
Buyer shall cooperate fully with such Seller in connection
with the obligations set forth above and will execute any and
all documents reasonably required to fulfill the intent of
this Section 5.1(n).
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(ii) Within 30 days after such Seller makes any
change in its name, identity or corporate structure which
would make any financing statement or continuation statement
filed in accordance with paragraph (i) above materially
misleading within the meaning of Section 9-402(7) of the UCC
as in effect in the relevant UCC state, such Seller shall give
Buyer and the Rating Agencies written notice of any such
change and shall file such financing statements or amendments
as may be necessary to continue the perfection of Buyer's
security interest in the Receivables and the proceeds thereof.
Such Seller shall deliver to the Buyer file-stamped copies of,
or filing receipts for, any financing statement or
continuation statement filed as provided above, as soon as
available following such filing.
(iii) Such Seller will give the Buyer prompt written
notice of any relocation of any office from which it services
Receivables or keeps records concerning the Receivables or of
its principal executive office and whether, as a result of
such relocation, the applicable provisions of the UCC would
require the filing of any amendment of any previously filed
financing or continuation statement or of any new financing
statement and shall, within 20 days of the date of any such
relocation, file such financing statements or amendments as
may be necessary to continue the perfection of Buyer's
security interest in the Receivables and the proceeds thereof.
Such Seller will at all times maintain each office from which
it services Receivables and its principal executive office
within the United States of America.
(o) SALE TREATMENT. Such Seller agrees to treat this
conveyance for all purposes (including, without limitation, tax and financial
accounting purposes) as a sale on all relevant books, records, tax returns,
financial statements and other applicable documents, except to the extent that
such sale is not recognized due to the reporting of taxes on a consolidated
basis in accordance with applicable law and the preparation of consolidated
financial statements under generally accepted accounting principles. Such
Seller agrees to make its electronic and master data processing records reflect
that the Receivables have been sold.
(p) PRESERVATION OF CORPORATE EXISTENCE. Such Seller
will preserve and maintain its corporate existence, rights, franchises and
privileges in the jurisdiction of its formation, and qualify and remain
qualified in good standing as a foreign corporation in each jurisdiction where
the failure to maintain such qualification would materially and adversely
affect (i) the interests of the Buyer or the Trust Assets, (ii) the
collectibility of the Receivables or (iii) the ability of the Buyer to perform
its obligations under this Agreement in any material respect.
(q) ERISA. Such Seller shall promptly give the Trustee
notice of the following events, as soon as possible and in any event within 30
days after such Seller or any of its ERISA Affiliates knows or has reason to
know of: (i) the occurrence or expected occurrence of any Reportable Event
with respect to any Plan to which such Seller or any of its ERISA Affiliates
contributed, or any withdrawal from, or the termination, reorganization
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or insolvency of, any Multiemployer Plan to which such Seller or any of its
ERISA Affiliates contributes or to which contributions have been required to be
made by such Seller or such ERISA Affiliate or (ii) the institution of
proceedings or the taking of any other action by the PBGC or such Seller or any
of its ERISA Affiliates or any such Multiemployer Plan with respect to the
withdrawal from, or the termination, reorganization or insolvency of, any such
Plan or Multiemployer Plan. Such Seller shall give the Trustee notice, as soon
as possible and in any event within 10 days after such Seller or any of its
ERISA Affiliates knows or has reason to know thereof, of any filing of any Lien
against the assets of such Seller or any of its ERISA Affiliates, unless such
Lien does not purport to cover the Receivables.
(r) ADDITION OF RECEIVABLES. Such Seller shall include
as a Receivable all receivables which meet the definition of Receivables from
and after the date upon which such Receivables are created and shall
automatically sell to Buyer all such Receivables, whether then existing or
thereafter created, upon their creation by such Seller.
Section 5.2 BUYER'S COVENANTS. Buyer covenants and agrees
with Sellers as follows:
(a) SALE TREATMENT. Buyer agrees to treat this
conveyance for all purposes (including, without limitation, tax and financial
accounting purposes) as a sale on all relevant books, records, tax returns,
financial statements and other applicable documents, except to the extent that
such sale is not recognized due to the reporting of taxes on a consolidated
basis in accordance with applicable law and the preparation of consolidated
financial statements under generally accepted accounting principles.
(b) NONDISCLOSURE; INSPECTION. Buyer shall not disclose
(and shall cause the Trustee not to disclose) to any Person any of the account
numbers or other information contained in any computer files or microfiche or
written lists delivered to Buyer (or to Trustee if Buyer so directs) pursuant
to this Agreement, except (i) as is required in connection with the performance
of the Trustee's duties under the Pooling and Servicing Agreement or in
enforcing the rights of the Certificateholders and (ii) such disclosures as are
required upon appointment of a successor Servicer under the Pooling and
Servicing Agreement. Buyer shall (and shall cause the Trustee to) take such
measures either Seller shall reasonably request to protect and maintain the
security and confidentiality of such information, and in connection therewith,
shall allow either or both Sellers to inspect the applicable security and
confidentiality arrangements from time to time during normal business hours.
Buyer shall (and shall cause the Trustee to) give Sellers five days' prior
written notice of any disclosure pursuant to this Section 5.3(b).
(c) AMENDMENTS TO RECEIVABLES PURCHASE AGREEMENT. Buyer
shall not permit any amendment to this Agreement that would have a material
adverse effect on the Investors or any Enhancement Provider.
(d) ADDITION OF RECEIVABLES. Buyer shall include as a
Receivable all receivables which meet the definition of Receivables from and
after the date upon which such
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Receivables are created and shall automatically purchase from Sellers all such
Receivables, whether then existing or thereafter created, upon their creation
by such Seller.
(e) SEPARATE BUSINESS. Buyer shall (i) maintain a
separate and distinct office from which its business will be conducted, which
is not as of the date hereof but may be specifically designated space at the
offices of CEI or its Affiliate which is leased or subleased from CEI or such
Affiliate; (ii) maintain at least two directors who are not directors, officers
or employees of, or a direct or indirect beneficial owner of any of the voting
securities of, or a member of the immediate family of such director, officer,
employee or beneficial owner of CEI or any of its Affiliates (other than
Buyer); (iii) maintain accurate and proper corporate records and books of
account separate and apart from those of CEI and any Affiliate; (iv) not permit
its funds and other assets to be commingled with those of CEI or any other
Person; (v) hold all appropriate meetings to authorize all corporate actions,
including regular meetings of its board of directors at least four times per
annum and regular meetings of its stockholders at least once per annum; (vi)
maintain proper minutes and records of all meetings or other proceedings of its
board of directors and stockholders; (vii) retain sufficient funds of its own
for, and provide from such funds for, its operating expenses and liabilities;
(viii) not incur any indebtedness except as permitted by this Agreement and the
documents contemplated hereunder; (ix) not pay any of the operating expenses or
liabilities of CEI or any other Person; (x) will engage in transactions with
CEI and its Affiliates only on terms and conditions comparable to transactions
on an arms-length basis with unaffiliated persons and only pursuant to a
written agreement and with the prior approval of its board of directors,
including the independent directors; (xi) pay the costs of any participation by
any of its employees in any pension, insurance or benefit plans maintained by
CEI or its Affiliates; (xii) will not hold itself out and will not permit
itself to be held out as having any liability with respect to the obligations
of CEI or any of its Affiliates; (xiii) will not acquire obligations or
securities of CEI or make loans or advances to CEI; (xiv) will not form or
cause to be formed any subsidiaries; (xv) act solely in its corporate name and
through its duly authorized officers and agents in the conduct of its business;
and (xvi) conduct its business so as not to mislead others as to the identity
of the entity with which they are concerned.
ARTICLE VI
REPURCHASE OBLIGATION
---------------------
Section 6.1 MANDATORY REPURCHASE.
(a) INELIGIBLE RECEIVABLES. Except as hereinafter provided,
in the event that any representation and warranty by a Seller set forth in
Section 4.2 hereof (other than Section 4.2(a)(i) or 4.2(a)(v) hereof) was not
true and correct in all material respects as of the date of the Sale, then,
within 90 days (or with the prior written consent of Buyer, such longer period
specified in such consent) of the earlier to occur of the discovery of such
breach by such Seller, or receipt by such Seller of written notice of such
breach given by Buyer, such Seller shall repurchase and Buyer shall convey,
without recourse, representation, or warranty, all of Buyer's right, title, and
interest in each Receivable to which such breach
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relates (an "INELIGIBLE RECEIVABLE") on the terms and conditions set forth
below; 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 (i) the representations and warranties of such Seller in Section 4.2
(other than Section 4.2(a)(i) or 4.2(a)(v)) with respect to such Ineligible
Receivable 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 Buyer on such day, (ii) such Ineligible Receivable has been
collected in full, or (iii) 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 Buyer 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.
(b) RECEIVABLES SUBJECT TO LIEN OR NOT IN COMPLIANCE WITH
LAWS. In the event that the representation and warranty by such Seller set
forth in Section 4.2(a)(v) hereof was not true and correct in all material
respects as of the date of Sale, then as soon as practicable after the earlier
to occur of the discovery of such breach by such Seller or the receipt by such
Seller of written notice of such breach given by Buyer, such Seller shall
repurchase and Buyer shall convey, without recourse, representation or
warranty, all of Buyer's right, title and interest in each Ineligible
Receivable affected by such breach.
(c) INVALIDITY OF SALE. In the event of a breach of the
representations and warranties of a Seller set forth in Sections 4.1(d) and
4.2(a)(i) hereof, Buyer may give such Seller written notice directing such
Seller to repurchase all of the Receivables transferred by such Seller
hereunder within 60 days after such notice (or within such longer period as may
be specified in such notice); whereupon, such Seller shall repurchase and Buyer
shall convey to such Seller, without recourse, representation, or warranty, all
of Buyer's right, title, and interest in all of the Receivables transferred by
such Seller, on the first Distribution Date occurring after such applicable
period on the terms and conditions set forth below; PROVIDED, HOWEVER, that no
such repurchase by a Seller shall be required to be made if, at the time of
such repurchase, the representations and warranties of such Seller contained in
Section 4.1(d) and 4.2(a)(i) shall then be true and correct in all material
respects.
(d) REPURCHASE OF AND PAYMENT FOR REPURCHASED RECEIVABLES.
The Receivables to be repurchased by Sellers shall be reconveyed monthly by
Buyer. The Repurchase Price for the Receivables shall be an amount equal to
the aggregate unpaid balance of each such Ineligible Receivable on the date of
repurchase times the Purchase Price Percentage therefor. Payment of the
Repurchase Price may be made, at the option of the repurchasing Seller: (i) in
immediately available funds; (ii) as a credit to the Purchase Price that would
be payable by Buyer to the repurchasing Seller 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.
Section 6.2 CONVEYANCE OF REPURCHASED RECEIVABLES. On or
prior to the date that a Seller is required to repurchase Receivables under
Section 6.1 hereof, the Seller and Buyer shall execute and deliver to the
repurchasing Seller a Reconveyance substantially in the
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form and upon the terms of Exhibit B hereto, pursuant to which Buyer conveys to
such Seller all of Buyer's right, title, and interest in the Receivables to be
repurchased by such Seller. Buyer shall (and shall cause the Trustee to)
execute such other documents or instruments of conveyance or take such other
actions as the repurchasing Seller may reasonably require to effect any
repurchase of Receivables pursuant to this Article VI.
Section 6.3 SOLE REMEDY. The obligation of a Seller to
repurchase Ineligible Receivables pursuant to Section 6.1 hereof shall
constitute the sole remedy available to Buyer, the Trustee, any
Certificateholder, any Servicer, any Enhancement Provider or any other person
respecting any breach of the representations and warranties set forth in
Sections 4.1 and 4.2 of this Agreement with respect to such Receivables.
Section 6.4 ASSIGNMENT OF REPURCHASE RIGHTS AND OBLIGATIONS.
Sellers 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 a Seller (the "Assignor Seller") under Section 6.1
hereof may be effected by the other Seller (the "Assignee Seller"), with such
election to be made by Sellers' delivery to Buyer 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 Seller
in respect of such repurchase shall be automatically assigned to the Assignee
Seller, the Assignor Seller shall have no further rights, liabilities or
obligations in respect of such repurchase, and such repurchase shall thereupon
be consummated by and in the name of the Assignee Seller.
Section 6.5 LIABILITY TO CUSTOMERS. Nothing in this
Agreement is intended to assign or impose on the Buyer, any Servicer, or the
Trustee, any obligations or liability to any Obligor under any Receivable nor
to any other customer or client of either Seller (including any obligation to
perform any of the obligations of either Seller under any Receivable, any
related Contracts or any other related purchase orders or agreements). All
such obligations and liabilities shall remain with the respective Seller
thereof.
ARTICLE VII
CONDITIONS PRECEDENT
--------------------
Section 7.1 CONDITIONS TO BUYER'S OBLIGATIONS REGARDING
RECEIVABLES. The obligations of Buyer to purchase the Receivables on any
Business Day shall be subject to the satisfaction of the following conditions
and subject to the conditions set forth in Section 2.1(c) through (e):
(a) All representations and warranties of Sellers contained
in this Agreement shall be true and correct on the Closing Date and on the day
of creation of any Receivable created thereafter with the same effect as though
such representations and warranties had been made on such date (except for
representations and warranties which speak as of a specific date);
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(b) All information concerning the Receivables that was
provided to Buyer shall be true and correct in all material respects as of the
Cut-Off Date, in the case of Receivables sold to Buyer on the Closing Date, or
the applicable date of purchase, in the case of Receivables created after the
Closing Date;
(c) At the Closing Date, Sellers shall have substantially
performed all other obligations required to be performed by the provisions of
this Agreement;
(d) With respect to Receivables sold to Buyer on the Closing
Date, Sellers shall have filed the financing statement(s) required to be filed
pursuant to Section 2.1(b) of this Agreement; and
(e) All corporate and legal proceedings and all instruments
in connection with the transactions contemplated by this Agreement shall be
satisfactory in form and substance to Buyer, and Buyer shall have received from
Sellers copies of all documents (including, without limitation, records of
corporate proceedings) relevant to the transactions herein contemplated as
Buyer may reasonably have requested.
Section 7.2 CONDITIONS TO THE SELLERS' OBLIGATIONS. The
obligations of Sellers to sell Receivables on any Business Day shall be subject
to the satisfaction of the following conditions:
(a) All representations and warranties of Buyer contained in
this Agreement shall be true and correct with the same effect as though such
representations and warranties had been made on such date;
(b) Payment or provision for payment of the Purchase Price in
accordance with the provisions of Section 3.2 hereof shall have been made; and
(c) All corporate and legal proceedings and all instruments
in connection with the transactions contemplated by this Agreement shall be
satisfactory in form and substance to Sellers, and Sellers shall have received
from Buyer copies of all documents (including, without limitation, records of
corporate proceedings) relevant to the transactions herein contemplated as
Sellers may reasonably have requested.
ARTICLE VIII
TERM AND TERMINATION
--------------------
Section 8.1 TERMINATION. Sellers may not, prior to the
Amortization Date, terminate their agreement to sell Receivables to Buyer,
except that if Buyer exercises its right of optional repurchase of the Trust
Assets pursuant to the Pooling and Servicing Agreement, Sellers may, after such
exercise, terminate their agreement to sell Receivables to Buyer. The
agreement of Sellers to sell, and Buyer to buy, Receivables hereunder will
terminate automatically on the Amortization Date.
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Section 8.2 EFFECT OF TERMINATION. No termination,
rejection or failure to assume the executory obligations of this Agreement upon
the bankruptcy of either Seller or Buyer shall be deemed to impair or affect
the obligations pertaining to any executed sale or executed obligations,
including, without limitation, pre-termination breaches of representations and
warranties by either Seller or by Buyer. Without limiting the foregoing, prior
to termination, neither a Servicer's failure to deliver or cause to be
delivered any Settlement Statement nor the Buyer's failure to pay any amounts
specified on any Settlement Statement shall render such transfer or obligation
executory, nor shall the continued duties of the parties pursuant to this
Agreement render an executed sale executory.
ARTICLE IX
SELLERS' INDEMNIFICATION
------------------------
Section 9.1 INDEMNIFICATION OF BUYER. Each Seller hereby
agrees to indemnify Buyer, 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") arising out of or resulting from this Agreement or the
purchase of the Receivables by Buyer, excluding, however, (a) Indemnified
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, (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 , (e) those resulting from any action or
omission of a Servicer unless such Servicer is a Seller or an Affiliate of a
Seller or (f) any claims, losses, liabilities, reasonable costs and expenses
relating to a Receivable as to which there has been a repurchase obligation
pursuant to Article VI of this Agreement. Except as excluded by clauses (a)
through (f) above, the applicable Seller shall pay on demand to each
Indemnified Party any and all amounts necessary to indemnify such Indemnified
Party from and against any and all Indemnified Amounts relating to or resulting
from:
(i) the failure by such Seller to comply with
Articles II, III, V and VI this Agreement, or the failure by
such Seller to comply with any applicable Requirements of Law
with respect to any Receivable or the related Contract or
invoice;
(ii) any dispute, claim, offset or defense of any
Obligor to the payment of any Receivable asserted against
such Seller to the extent that such dispute, claim, offset or
defense does not relate specifically to the amount or the
validity of the Receivable;
24
<PAGE> 29
(iii) any investigation, litigation or proceeding
related to this Agreement or such Seller or the use of
proceeds by such Seller or reinvestments of proceeds thereof,
other than any litigation or proceeding between such Seller or
any Affiliate thereof, on the one hand, and Buyer or any
Affiliate thereof, on the other hand, in which such Seller or
an Affiliate thereof prevails in a final non-appealable
judgment by a court of competent jurisdiction;
(iv) any product liability claim, personal injury or
property damage suit, environmental liability claim or any
other claim or action by a party other than Buyer 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;
(v) any failure by such Seller 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;
(vi) the failure of such Seller to remit Collections
as required under this Agreement or the commingling of
Collections of Receivables at any time with other funds prior
to distribution under the applicable Supplement; or
(vii) any tax or governmental fee or charge (other
than income or franchise taxes and other taxes on or measured
by the gross or net income or receipts of Buyer 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.
In case any proceeding shall be instituted involving any
Person in respect of which indemnity may be sought pursuant to this Section
9.1, the Indemnified Party shall promptly notify the Sellers in writing and the
Sellers, upon request of the Indemnified Party, shall retain counsel reasonably
satisfactory to the Indemnified Party to represent the Indemnified Party and
any others the Sellers may designate in such proceeding and shall pay the
reasonable fees and disbursements of such counsel related to such proceeding.
In any such proceeding, any Indemnified Party shall have the right to retain
its own counsel, but the reasonable fees and expenses of such counsel shall be
at the expense of such Indemnified Party unless (i) the Sellers and the
Indemnified Party shall have mutually agreed to the retention of such counsel
or (ii) the named parties to any such proceeding (including any impleaded
parties) include both the Sellers and the Indemnified Party and representation
of both parties by the same counsel would be inappropriate due to actual
conflicts of interests between them. It is understood that the Sellers shall
not, in connection with any proceeding or related proceedings in the same
jurisdiction, be liable for the reasonable fees and expenses of more than just
one separate firm for all such Indemnified Parties. It is further understood
that the Sellers shall not be liable to any Indemnified Party until or unless
such Indemnified Party promptly notifies the Transferor in writing of its
request for indemnification.
25
<PAGE> 30
ARTICLE X
MISCELLANEOUS PROVISIONS
------------------------
Section 10.1 AMENDMENT. This Agreement and any other Sale
Documents and the rights and obligations of the parties hereunder may not be
changed orally, but only by an instrument in writing signed by Buyer and both
Sellers. The parties shall make material amendments to this Agreement only
after they comply with the Rating Agency Condition. The parties shall deliver
a copy of any non-material amendments to the Rating Agencies.
Section 10.2 (a) GOVERNING LAW. THIS AGREEMENT AND THE OTHER
SALE DOCUMENTS SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
NEW YORK, INCLUDING, WITHOUT LIMITATION, SECTION 5-1401 OF ITS GENERAL
OBLIGATIONS LAW BUT OTHERWISE WITHOUT REFERENCE TO ITS CONFLICT OF LAW
PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER
SHALL BE DETERMINED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
(b) CONSENT TO SERVICE OF PROCESS. Each party to this
Agreement irrevocably consents to service of process in the manner provided for
notices in Section 10.3. Nothing in this Agreement will affect the right of
any party to this Agreement to serve process in any other manner permitted by
law.
Section 10.3 NOTICES. All demands, notices and
communications hereunder shall be in writing and shall be deemed to have been
duly given if personally delivered at or mailed by registered mail, return
receipt requested to:
(a) in the case of Buyer, to:
Centerior Funding Corporation
Suite 350
1013 Centre Road
Wilmington, Delaware 19805
Attn: Nancy Descano, Secretary
(b) in the case of Sellers, to:
The Cleveland Electric Illuminating Company
c/o Centerior Energy Corporation
6200 Oak Tree Boulevard
Independence, Ohio 44131
Attention: Assistant Treasurer
The Toledo Edison Company
300 Madison Avenue
26
<PAGE> 31
Toledo, Ohio 43652
Attention: Assistant Treasurer
or, as to each party, at such other address as shall be designated by such
party in a written notice to each other party.
Section 10.4 SEVERABILITY OF PROVISIONS. If any one or more
of the covenants, agreements, provisions or terms of this Agreement or any
other Sale Documents shall for any reason whatsoever be held invalid, then such
covenants, agreements, provisions, or terms shall be deemed severable from the
remaining covenants, agreements, provisions, or terms of this Agreement or any
other Sale Documents and shall in no way affect the validity or enforceability
of the other provisions of this Agreement or of any other Sale Documents.
Section 10.5 ASSIGNMENT. Notwithstanding anything to the
contrary contained herein, this Agreement may not be assigned by Buyer or
either Seller except as contemplated by Section 6.4, by this Section 10.5 and
by the Pooling and Servicing Agreement; PROVIDED, HOWEVER, that simultaneously
with the execution and delivery of this Agreement, Buyer shall assign all of
its right, title and interest herein to the Trustee for the benefit of the
Investor Certificateholders of all Series as provided in Section 2.01 of the
Pooling and Servicing Agreement, to which assignment Sellers hereby expressly
consent; PROVIDED, FURTHER, that except for the foregoing assignment, no such
assignment shall occur unless Buyer shall have received confirmation from the
Rating Agencies that such assignment shall not cause a reduction or withdrawal
of the rating of any Series of Certificates. Each Seller agrees to perform its
obligations hereunder for the benefit of the Trust and of the Trustee and that
the Trustee may enforce the provisions of this Agreement, exercise the rights
of Buyer and enforce the obligations of Sellers hereunder without the consent
of Buyer.
Section 10.6 FURTHER ASSURANCES. Buyer and each Seller agree
to do and perform, from time to time, any and all acts and to execute any and
all further instruments required or reasonably requested by the other party
more fully to effect the purposes of this Agreement and the other Sale
Documents, including, without limitation, the execution of any financing
statements or continuation statements or equivalent documents relating to the
Receivables for filing under the provisions of the UCC or other laws of any
applicable jurisdiction.
Section 10.7 NO WAIVER, CUMULATIVE REMEDIES. No failure to
exercise and no delay in exercising, on the part of Buyer or either Seller, any
right, remedy, power or privilege hereunder, shall operate as a waiver thereof;
nor shall any single or partial exercise of any right, remedy, power or
privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, remedy, power or privilege. The rights, remedies,
powers and privileges herein provided are cumulative and not exhaustive of any
rights, remedies, powers and privileges provided by law.
Section 10.8 COUNTERPARTS. This Agreement and all other Sale
Documents may be executed in two or more counterparts including telefax
transmission thereof (and by
27
<PAGE> 32
different parties on separate counterparts), each of which shall be an
original, but all of which together shall constitute one and the same
instrument.
Section 10.9 BINDING EFFECT; THIRD-PARTY BENEFICIARIES. This
Agreement and the other Sale Documents will inure to the benefit of and be
binding upon the parties hereto and their respective successors and permitted
assigns. The Trustee shall be a third-party beneficiary of this Agreement.
Section 10.10 MERGER AND INTEGRATION. Except as specifically
stated otherwise herein, this Agreement and the other Sale Documents set forth
the entire understanding of the parties relating to the subject matter hereof,
and all prior understandings, written or oral, are superseded by this Agreement
and the other Sale Documents. Neither this Agreement nor the other Sale
Documents may be modified, amended, waived or supplemented except as provided
herein.
Section 10.11 HEADINGS. The headings herein are for purposes
of reference only and shall not otherwise affect the meaning or interpretation
of any provision hereof.
Section 10.12 SCHEDULES AND EXHIBITS. The schedules and
exhibits attached hereto and referred to herein shall constitute a part of this
Agreement and are incorporated into this Agreement for all purposes.
IN WITNESS WHEREOF, Buyer and Sellers each have caused this
Agreement to be duly executed by their respective officers as of the day and
year first above written.
CENTERIOR FUNDING CORPORATION,
as Buyer
By:_____________________________________
Title:
THE CLEVELAND ELECTRIC
ILLUMINATING COMPANY, as Seller
and
THE TOLEDO EDISON COMPANY,
as Seller
By:_____________________________________
Title:___________________ of each
28
<PAGE> 33
SCHEDULE 1
SELLERS' CHIEF EXECUTIVE OFFICES
AND
PRINCIPAL PLACES OF BUSINESS:
The Cleveland Electric Illuminating Company
c/o Centerior Energy Corporation
6200 Oak Tree Boulevard
Independence, Ohio 44131
The Toledo Edison Company
300 Madison Avenue
Toledo, Ohio 43652
LOCATIONS OF BOOKS AND RECORDS:
The Cleveland Electric Illuminating Company
c/o Centerior Energy Corporation
6200 Oak Tree Boulevard
Independence, Ohio 44131
The Toledo Edison Company
300 Madison Avenue
Toledo, Ohio 43652
29
<PAGE> 34
EXHIBIT A
TO
RECEIVABLES PURCHASE AGREEMENT
------------------------------
FORM OF DAILY REPORT
Date: _______________
<TABLE>
<S> <C> <C> <C>
A. DAILY RECEIVABLES ACQUIRED BY TRANSFEROR
Receivables Purchased Since Last
Daily Report:
1. Estimated Unbilled $__________
2. Miscellaneous Services $__________
3. Unbilled Estimate Adjustment $__________
4. Receivables Adjusted for Prior
Estimate Differences $__________
5. Purchase Price Percentage $__________
6. Purchase Price for Unbilled Receivables $__________
7. Repurchased Receivables $__________
8. Repurchased Receivables,
Net of Applicable Purchase
Price Percetage $__________
9. Seller Cash for Repurchased
Receivables $__________
10. Credit for Repurchased Receivables $__________
11. Net Receivables for Purchase $__________
B. PAYMENT FOR ACQUIRED RECEIVABLES
12. Cash for Transferor $__________
13. Transferor Retentions $__________
14. Offset for Seller Refunds to Customers $__________
15. Net Paid in Cash $__________
16. Incremental Note Limit (From Section D) $__________
17. Payment on Subordinated
Revolving Note $__________
18. Addition to Subordinated
Revolving Note $__________
19. Subordinated Revolving Note
Balance on Prior Daily Report $__________
20. New Subordinated Revolving
Note Balance $__________
21. Capital Contribution $__________
C. OPERATING COMPANY INCOME STATEMENT ITEMS
22. Daily Interest Expense on Subordinated
Revolving Note $__________
23. Loss on Unbilled Receivables Purchased $__________
24. Offset to Loss from Repurchased Receivables $__________
25. Net Loss on Purchase of Receivables $__________
D. INCREMENTAL NOTE LIMIT
26. Aggregate Eligible Receivables $__________
27. Less: Net Invested Amount $__________
28. Less: Greater of Value 1 or Value 2 $__________
Value 1:
29. Aggregate Eligible Receivables $__________
30. Loss Reserve Ratio with
1.35 Ratings Factor _____%
31. Product Equals Value 1 = $__________
Value 2:
32. Aggregate Eligible Receivables $__________
33. Fixed Factor _____%
34. Product Equals Value 2 = $__________
35. Limit on Total Subordinated
Revolving Note Balance $_________
36. Subordinated Revolving Note
Balance on Prior Daily Report $_________
37. Incremental Limit on
Subordinated Revolving Note $_________
</TABLE>
A-1
<PAGE> 35
EXHIBIT B
TO
RECEIVABLES PURCHASE AGREEMENT
------------------------------
FORM OF RECONVEYANCE
RECONVEYANCE No. _____ OF RECEIVABLES (This "Reconveyance"),
dated as of __________________, _____, by and between CENTERIOR FUNDING
CORPORATION, a Delaware corporation, ("Buyer") and THE CLEVELAND ELECTRIC
ILLUMINATING COMPANY, an Ohio corporation ("CEI"), or THE TOLEDO EDISON
COMPANY, an Ohio corporation ("TE", CEI and Toledo Edison collectively herein,
the "Sellers"), pursuant to the Receivables Purchase Agreement referred to
below.
W I T N E S S E T H :
WHEREAS, Sellers and Buyer are parties to the Receivables
Purchase Agreement, dated as of ___________________, 1996 (as such agreement
may have been, or may from time to time be, amended, supplemented or otherwise
modified, the "RECEIVABLES PURCHASE AGREEMENT");
WHEREAS, pursuant to Article VI of the Receivables Purchase
Agreement (i) under certain conditions, a Seller is required to repurchase
Receivables, and (ii) Buyer may designate from time to time certain Receivables
for repurchase;
WHEREAS, pursuant to Article VI of the Receivables Purchase
Agreement, Buyer wishes to sell and convey to a Seller the Receivables listed
on SCHEDULE 1 hereto (the "REMOVED RECEIVABLES"); and
WHEREAS, such Seller is willing to repurchase the Removed
Receivables by payment, or provision for the payment, of the Repurchase Price
therefor pursuant to Article VI of the Receivables Purchase Agreement;
NOW, THEREFORE, Buyer and such Seller agree as follows:
1. DEFINED TERMS. Capitalized terms used in this
Reconveyance have their respective meanings set forth in the Receivables
Purchase Agreement, except that "Repurchase Date" shall mean, with respect to
the Removed Receivables designated hereby, ______________, _____.
2. DESIGNATION OF REMOVED RECEIVABLES. On or before the
Repurchase Date, Buyer shall deliver or cause to be delivered to the
repurchasing Seller a computer file, microfiche or written list containing a
true and complete list of all Removed Receivables identified by account number
and the unpaid balance of such Removed Receivables. Such list shall be marked
as SCHEDULE 1 to this Reconveyance and shall, as of the Repurchase
B-1
<PAGE> 36
Date, be incorporated into and made a part of this Reconveyance, the
Receivables Purchase Agreement and the other Sale Documents.
3. CONVEYANCE OF RECEIVABLES. (a) For value received, Buyer
sells, transfers, assigns and sets over to the repurchasing Seller, without
recourse, on and after the Repurchase Date, all of Buyer's right, title and
interest in, to, and under the Removed Receivables designated hereby, all
monies due or to become due with respect thereto (including all finance
charges), all Recoveries, Collections and other proceeds thereof (including,
without limitation, "proceeds" as defined in the UCC as in effect in the State
of New York), all rights to security for any such Removed Receivables and all
proceeds and products of the foregoing.
(b) In connection with such transfer, Buyer shall (and shall
cause Trustee to) execute and deliver to such Seller on or prior to the date of
this Reconveyance, a termination statement or partial release with respect to
the Removed Receivables designated hereby evidencing the sale and conveyance of
the Removed Receivables and the release of all liens or security interests
thereon, which shall meet the requirements of applicable state law and shall be
filed in such manner and in such jurisdictions as are necessary to evidence
such sale and conveyance and remove such lien.
4. ACCEPTANCE BY SELLER. After Buyer delivers or causes to
be delivered to the repurchasing Seller the computer file or microfiche or
written list described in Section 2 of this Reconveyance, such Seller shall, at
Buyer's request, execute a written acknowledgment that it has received such
file or list.
5. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer represents
and warrants to Sellers as of the Repurchase Date:
(a) LEGAL, VALID AND BINDING OBLIGATION. This Reconveyance
constitutes a legal, valid, and binding obligation of Buyer, enforceable
against Buyer in accordance with its terms, except as such enforceability may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws now or hereinafter in effect, affecting creditors' rights
generally and except as such enforceability may be limited by general
principles of equity (whether considered in a proceeding at law or in equity);
and
(b) SCHEDULE 1. SCHEDULE 1 to this Reconveyance and the
computer file or microfiche or written list delivered pursuant to Section 2 of
this Reconveyance is an accurate and complete listing in all material respects
of all the Removed Receivables as of the Repurchase Date and the information
contained therein with respect to the identity of such Removed Receivables is
true and correct in all material respects as of the Repurchase Date;
(c) COMPLIANCE WITH POOLING AND SERVICING AGREEMENT. Buyer
has effected a retransfer from the Trust of the Removed Receivables in
compliance with the provisions of the Pooling and Servicing Agreement.
B-2
<PAGE> 37
(d) SELECTION PROCEDURES. In respect of Removed Receivables
designated pursuant to Section 6.2 of the Receivables Purchase Agreement, Buyer
and Sellers have mutually agreed as to the designation of the Removed
Receivables, and such designation has been made in a manner that is not
materially adverse to the interests of the Trust or the Certificateholders.
(e) INSOLVENCY. As of the date Buyer gave Sellers notice of
the repurchase evidenced hereby and as of the Repurchase Date, Buyer is not
insolvent and, after giving effect to the conveyance set forth in Section 3 of
this Reconveyance, Buyer will not be insolvent.
6. CONDITIONS PRECEDENT. (a) The amendment of the
Receivables Purchase Agreement set forth in Section 7 hereof is subject to the
satisfaction by Buyer, on or prior to the Repurchase Date, of the following
conditions precedent:
(i) All information concerning the Removed
Receivables provided or to be provided to the repurchasing
Seller shall be true and correct in all material respects as
of the Repurchase Date;
(ii) Buyer shall have, on or before the Repurchase
Date: (1) delivered to the repurchasing Seller a computer
file or microfiche or written list containing a true and
correct list of all such Removed Receivables, identified by
account number and by unpaid balance as of the Repurchase
Date; and (2) substantially performed all other obligations it
is required to perform by this Reconveyance;
(iii) Buyer shall have delivered to the repurchasing
Seller the termination statements and partial releases
required to be delivered in Section 3(b) of this Reconveyance.
(b) The amendment of the Receivables Purchase Agreement set
forth in Section 7 hereof is subject to payment or provision for payment of the
Repurchase Price in accordance with the provisions of Article VI of the
Receivables Purchase Agreement on or prior to the Repurchase Date.
7. AMENDMENT OF THE RECEIVABLES PURCHASE AGREEMENT. The
Receivables Purchase Agreement is amended to provide that all references
therein to the "Receivables Purchase Agreement," to "this Agreement," and
"herein" shall be deemed from and after the Repurchase Date to be a reference
to the Receivables Purchase Agreement as supplemented by this Reconveyance.
Except as expressly amended hereby, all of the representations, warranties,
terms, covenants and conditions of the Receivables Purchase Agreement shall
remain unamended and shall continue to be, and shall remain, in full force and
effect in accordance with its terms and except as expressly provided herein
shall not constitute or be deemed to constitute a waiver of compliance with or
a consent to noncompliance with any term or provision of the Receivables
Purchase Agreement.
B-3
<PAGE> 38
8. COUNTERPARTS. This Reconveyance may be executed in two or
more counterparts (and by different parties on separate counterparts), each of
which shall be an original, but all of which together shall constitute one and
the same instrument.
9. GOVERNING LAW. This Reconveyance shall be construed in
accordance with the laws of the State of New York, and the obligations, rights
and remedies of the parties hereunder shall be determined in accordance with
such laws.
IN WITNESS WHEREOF, the undersigned have caused this
Reconveyance to be duly executed and delivered by their respective duly
authorized officers on the day and year first above written.
CENTERIOR FUNDING CORPORATION
By:______________________________
Title:___________________________
[Repurchasing Seller]
By:______________________________
Title:___________________________
B-4
<PAGE> 39
EXHIBIT C
TO
RECEIVABLES PURCHASE AGREEMENT
------------------------------
FORM OF SETTLEMENT STATEMENT
CENTERIOR FUNDING CORPORATION
Current Determination Date: _________________, ____
(For Month Ended ________________, ___________)
The Cleveland Electric Illuminating Company and The Toledo
Edison Company (collectively, the "SELLERS") and Centerior Funding Corporation
("BUYER"), pursuant to the Receivables Purchase Agreement (the "RECEIVABLES
PURCHASE AGREEMENT") dated as of __________________, 1996, by and among Sellers
and Buyer, agree and certify as follows:
1. Capitalized terms used in this Settlement
Statement unless otherwise defined herein shall have
their respective meanings in the Receivables Purchase
Agreement. As used herein, the term "Subject Period" shall
mean the calendar month period immediately preceding the
calendar month in which this Settlement Statement is
delivered. This Settlement Statement is being delivered
pursuant to Section 3.4 of the Receivables Purchase Agreement.
References hereto to certain sections are references to the
respective sections in the Receivables Purchase Agreement.
2. The date of this Settlement Statement is a
Determination Date under the Receivables Purchase Agreement.
A. RECEIVABLES PURCHASED FROM A SELLER AND PURCHASE PRICE FOR SUBJECT
PERIOD1
3. The aggregate amount of Receivables
conveyed to Buyer by a Seller pursuant to the Receivables
Purchase Agreement during the Subject Period was equal
to $__________
4. The sum of the Purchase Prices for all
Receivables for the Subject Period was equal to
$__________
__________________________________
1 Replicate this Section A (as Sections B, C, D, etc.) for each
additional Seller.
C-1
<PAGE> 40
B. RECEIVABLES REPURCHASED BY A SELLER AND REPURCHASE PRICE FOR
SUBJECT PERIOD2
5. The aggregate Repurchase Price of
Receivables repurchased by a Seller pursuant to Section 6.1 of
the Receivables Purchase Agreement during the Subject Period
(the "Repurchased Receivables") was equal to $__________
6. The portion of the Repurchase Price for the
Repurchased Receivables paid in cash during the Subject Period
was equal to $__________
7. The portion of the Repurchase Price for the
Repurchased Receivables paid as a credit against the Purchase
Price of other Receivables during the Subject Period (item 5
MINUS item 6) is equal to $__________
8. The Purchase Price as adjusted to account
for Repurchased Receivables (item 4 MINUS item 7) was equal to
$__________
C. PAYMENT OF PURCHASE PRICE AS ADJUSTED
9. The portion of the amount shown in item 8
paid in cash during the Subject Period was equal to $__________
10. The portion of the amount shown in item 8
paid by a subordinated revolving note to a Seller during
the Subject Period is
$__________
D. CALCULATION OF DISCOUNT RATE
11. Discount Rate in effect as of the most
recent Determination Date is equal to _________%
__________________________________
2 Replicate this Section B for each additional Seller.
C-2
<PAGE> 41
IN WITNESS WHEREOF, the undersigned have duly executed and
delivered this Settlement Statement this ______ day of ________________, 199_.
CENTERIOR FUNDING CORPORATION
By:______________________________
Title:___________________________
THE CLEVELAND ELECTRIC ILLUMINATING
COMPANY and THE TOLEDO EDISON
COMPANY, Sellers
By:______________________________
Title:___________________________
of each Seller
C-3
<PAGE> 42
EXHIBIT D
TO
RECEIVABLES PURCHASE AGREEMENT-
BUYER INTERCOMPANY NOTE
SUBORDINATED REVOLVING NOTE
$_______________ Wilmington, Delaware
Date: _______________
FOR VALUE RECEIVED, the undersigned, Centerior Funding
Corporation, a Delaware corporation, ("CFC") hereby unconditionally promises to
pay to the order of [name of applicable Seller] (the "Seller"), at the Seller's
office at ___________________________, in lawful money of the United States of
America and in immediately available funds, (i) during each Collection Period,
any portion of the aggregate unpaid principal amount of each Subordinated
Revolving Loan; and (ii) on the "Final Payment Date" (as defined below), the
aggregate unpaid principal sum outstanding of all Subordinated Revolving Loans
made from time to time by the Seller to CFC. This Subordinated Revolving Note
is referred to as the Buyer Intercompany Note in that certain Receivables
Purchase Agreement dated _______________, 1996 (the "RPA") among the Seller,
the other "Seller" party thereto and CFC and was executed and delivered
pursuant to the RPA. Reference to the RPA is hereby made for a statement of
the terms and conditions under which the Subordinated Revolving Loans evidenced
hereby have been and will be made. All terms which are capitalized and used
herein (which are not otherwise specifically defined herein) shall have the
meanings set forth in the RPA. "FINAL PAYMENT DATE" shall mean the Business
Day that is one year and one day after the date the Investors are paid in full.
CFC further promises to pay interest on the outstanding unpaid
principal amount hereof, as provided in the RPA, from the date hereof until
payment in full hereof at _____%; PROVIDED, HOWEVER, that if CFC shall default
in the payment of any principal hereof, CFC promises to, on demand, pay
interest at the rate of ___% on any such unpaid amounts, from the date such
payment is due to the date of actual payment. Interest shall be payable on
each Distribution Date in arrears. The outstanding principal of any
Subordinated Revolving Loan made under this Subordinated Revolving Note may be
repaid or prepaid at any time without premium or penalty to the extent then
permitted under the RPA.
The Seller is authorized and directed by CFC to enter on the
grid attached hereto, or, at its option, in its books and records, the date and
amount of each Subordinated Revolving Loan made by it which is evidenced by
this Subordinated Revolving Note and the amount of each payment of principal
made by the Borrower, and absent manifest error, such entries shall constitute
PRIMA FACIE evidence of the accuracy of the information so entered; PROVIDED
that neither the failure of the Seller to make any such entry or any error
therein shall expand, limit or affect the obligations of CFC hereunder.
D-1
<PAGE> 43
The indebtedness evidenced by this Subordinated Revolving Note
is subordinated to the prior payment in full of all CFC's Obligations under the
Pooling and Servicing Agreement, and may not be accelerated by the holder
hereof until the one year and one day after the earlier of (i) the termination
of the Trust and (ii) the date all amounts due under the Certificates shall
have been paid in full. The indebtedness evidenced by this Subordinated
Revolving Note is payable solely from Collections of Trust Assets which are
allocable to CFC pursuant to the terms of the Pooling and Servicing Agreement
and from other funds of CFC which do not constitute Trust Assets.
This Subordinated Revolving Note shall not be amended or
modified except in accordance with Section 5.2(c) of the RPA.
This Subordinated Revolving Note has been delivered at and
shall be deemed to have been made at Wilmington, Delaware and shall be
interpreted and the rights and liabilities of the parties hereto determined in
accordance with the internal laws (as opposed to conflicts of law provisions)
and decisions of the State of Delaware. Wherever possible each provision of
this Subordinated Revolving Note shall be interpreted in such manner as to be
effective and valid under applicable law, but if any provision of this
Subordinated Revolving Note shall be prohibited by or invalid under applicable
law, such provision shall be ineffective to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Subordinated Revolving Note.
All parties hereto, whether as makers, endorsers, or
otherwise, severally waive presentment for payment, demand, protest and notice
of dishonor.
CENTERIOR FUNDING CORPORATION
By:___________________________________
Name:
Title:
D-2
<PAGE> 44
Schedule
to
SUBORDINATED REVOLVING NOTE
---------------------------
LOANS AND PAYMENTS OF PRINCIPAL
-------------------------------
<TABLE>
<CAPTION>
Amount Amount Unpaid
of of Principal Notation
Date Loan Principal Paid Balance Made By
- ---- -------- -------------- ---------- --------
<S> <C> <C> <C> <C>
______ ________ _______________ ___________ __________
______ ________ _______________ ___________ __________
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</TABLE>
D-3
<PAGE> 1
EXHIBIT 24
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 Registration Statement No. 033-63315, 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 April 9, 1996, by the following
persons in the capacities indicated.
/s/ Barbara A. Frastaci
- --------------------------------------
Name: Barbara A. Frastaci
Title: Treasurer and Director
(principal financial officer
and principal accounting officer)
/s/ Kevin P. Burns
- --------------------------------------
NAME: Kevin P. Burns
TITLE: Director
