<PAGE> 1
PROSPECTUS Filed Pursuant to Rule 424(b)(1)
Registration No. 33-63315
DATED JULY 10, 1996
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CENTERIOR ENERGY RECEIVABLES MASTER TRUST
$150,000,000 7.20% SERIES 1996-1 RECEIVABLES-BACKED INVESTOR
CERTIFICATES
The $150,000,000 7.20% Series 1996-1 Receivables-Backed Investor Certificates
(the "Series 1996-1 Certificates") offered hereby represent undivided interests
in certain assets of the Centerior Energy 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 (as
defined on page 4 below) transferred to the Trust under the Pooling Agreement,
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 series (i) may have terms significantly different from the terms of the
Series 1996-1 Certificates offered hereby and (ii) if required to be registered
under the Securities Act, will be effected on one or more new registration
statements. Certain Trust Assets will be allocated to holders of the 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 January 15 and July 15 of each year, commencing on January 15,
1997 (or, if any such day is not a Business Day, the next succeeding Business
Day). The Series 1996-1 Certificates will bear interest at 7.20% per annum. See
"Description of the Pooling Agreement and the Series 1996-1
Certificates-Interest."
Principal payments with respect to the Series 1996-1 Certificates are scheduled
to commence on July 15, 2001 and, to the extent there are not sufficient funds
to reduce the principal balance of the Series 1996-1 Certificates to zero,
principal and interest payments will 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
Pooling Agreement and 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 14 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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<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNT AND PROCEEDS TO
PUBLIC(1) COMMISSIONS THE TRANSFEROR(2)
<S> <C> <C> <C>
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Per Certificate..................... 99.875% 0.625% 99.250%
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Total............................... $149,812,500.00 $937,500.00 $148,875,000.00
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</TABLE>
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(1) Plus accrued interest, if any, calculated from July 16, 1996.
(2) Before deduction of expenses, estimated to be $550,000.00.
CITICORP SECURITIES, INC.
CHASE SECURITIES INC.
CS FIRST BOSTON
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<PAGE> 2
The Series 1996-1 Certificates are offered subject to prior sale and
subject to the Underwriters' (as defined on page 71 below) 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 July 16, 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 (as defined on page 3 below) 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 and the Series 1996-1 Certificates -- 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 Pooling
Agreement and the Series 1996-1 Certificates -- Reports," "-- 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> 3
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......... $150,000,000 7.20% 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 Pooling Agreement and the
Series 1996-1 Certificates."
Issuer..................... Centerior Energy Receivables Master Trust (the
"Trust"), a New York trust, is the issuer of the
Series 1996-1 Certificates. The Trust, as a
master trust, from time to time may issue other
series of Investor Certificates (each, a
"Series") pursuant to the Pooling and Servicing
Agreement dated as of May 30, 1996 (the "Pooling
Agreement"). Such other Series (i) may have terms
significantly different from the Series 1996-1
Certificates and (ii) if required to be
registered under the Securities Act, will be
effected on one or more new registration
statements. The assets of the Trust are expected
to change over the life of the Trust as new
Receivables 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
Pooling Agreement and 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 is not
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."
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.................. Each of CEI and TE is responsible for servicing and
making collections on all Receivables sold by it
to the Trust. CEI has been designated as the
initial Master Servicer. See "Originators/Initial
Servicers."
Trust Assets............... The Transferor agreed to purchase from the
Originators from time to time until the
termination of the Revolving Period pursuant to a
Receivables Purchase Agreement, all Receivables
existing as of May 30, 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 Receiv-
3
<PAGE> 4
ables 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 continue to 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"
include the Receivables so transferred to the
Trust (collectively the "Receivables"), funds
collected or to be collected in respect of such
Receivables, any Enhancement issued with respect
to any Series (the drawing on or payment of such
Enhancement not being available to Investors of
any other Series) and monies on deposit in
certain accounts of the Trust. "Enhancement"
shall mean, with respect to any Series, any
letter of credit, surety bond, cash collateral
account, spread account, guaranteed rate
agreement, tax protection agreement, interest
rate hedge agreement or other similar arrangement
for the benefit of the Investors of such Series.
No Enhancement has been issued with respect to
the Series 1996-1 Certificates and no Enhancement
will be made available to the Series 1996-1
Investors. The subordination of any series or
class or of the Deferred Payment Right to any
series or class shall not be deemed to be an
Enhancement.
The Receivables............ The "Receivables" consist of all of the
Originators' United States dollar-denominated
accounts receivable or portions thereof,
generated from the sales of electricity and/or
related services by the Originators in the normal
course of their respective businesses to their
respective customers ("Obligors"), whether
evidenced by an invoice (a "Billed Receivable")
or representing Obligors' usage of electricity
that will be billed during the next billing cycle
(an "Unbilled Receivable"); provided, however,
that "Receivables" do 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 May 31, 1996 was
approximately $308,024,916. 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
$150,000,000, 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 and the Series 1996-1
Certificates -- 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.
The Investor Certificates collectively represent a
fractional undivided beneficial interest in the
Trust (the "Aggregate Investors' Interest") and
the right to receive funds from the Trust Assets,
to the extent of
4
<PAGE> 5
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" 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 Pooling
Agreement and the Series 1996-1 Certificates."
Receivables Purchase
Agreement................ The Transferor, as purchaser, has entered into a
Receivables Purchase Agreement dated as of May
30, 1996 (the "Receivables Purchase Agreement"),
with the Originators, each as seller. Pursuant to
the Receivables Purchase Agreement, each
Originator sold to the Transferor all of its
right, title and interest in and to all
Receivables existing on the Cut-Off Date
(excluding a certain amount of Receivables
contributed by CEI to the capital of the
Transferor) and agreed 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 transferred those Receivables to the Trust
pursuant to the Pooling Agreement. The Transferor
also assigned 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") consists of an undivided
fractional interest in the Trust Assets not
allocable to the Aggregate Investors' Interest,
which fractional interest is 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 ranks
pari passu with the Investors' Interest. The
Transferor Revolving Certificate may not be
pledged or transferred without a Tax Opinion. The
Transferor also has 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
5
<PAGE> 6
the Investor Certificates to zero and pay all
interest thereon. The Deferred Payment Right is
not evidenced by any certificate and is
subordinate in right of distribution to all
Series of the Investor Certificates.
Notwithstanding the foregoing, the Transferor
agreed 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 times the aggregate unpaid balance of
the Receivables minus (b) the Aggregate Invested
Amount. See "Description of the Pooling Agreement
and the Series 1996-1 Certificates --
Subordination."
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 minus the Aggregate Required
Reserves. The "Net Receivables Balance" shall
equal (i) the aggregate unpaid balance of
Eligible Receivables (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 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 Pooling
Agreement and 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 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
6
<PAGE> 7
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" is 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. The
"Carrying Cost Reserve" is 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 Pooling Agreement
and 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.
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
7
<PAGE> 8
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
Pooling Agreement and 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 7.20% per annum. Interest will accrue on
the Invested Amount of the Series 1996-1
Certificates (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 January 15 and July 15 of each year,
commencing on January 15, 1997, 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 July 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) April 15, 2001 (the
"Scheduled Amortization Date") and (ii) the date
of any Early Amortization Event. So long as the
Revolving Period continues, except during any
Set-Aside Period, 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
include the events listed in "Description of the
Pooling Agreement and the Series 1996-1
Certificates -- Series 1996-1 Early Amortization
Events." On each Business Day during the
Revolving Period, all
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<PAGE> 9
Collections and other funds 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 are 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;
(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;
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<PAGE> 10
(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
(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
Pooling Agreement and 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 computes 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 (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" commences on any Business Day
on which the Base Amount is less than the Net
Invested Amount, and continues 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 the Base Amount. The Servicers will
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
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<PAGE> 11
Amount will continue to be greater than or equal
to the Net Invested Amount. See "Description of
the Pooling Agreement and 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 July 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.
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, in each case,
together with accrued and unpaid interest
thereon.
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
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<PAGE> 12
distributed to the Transferor in consideration of
the Deferred Payment Right. See "Description of
the Pooling Agreement and the Series 1996-1
Certificates -- Principal" and "-- Distribution
to Investors."
Servicing.................. The Servicers 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 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 is
payable solely from Collections. See "Description
of the Pooling Agreement and the Series 1996-1
Certificates -- Servicing Compensation and
Payment of Expenses."
Collection Procedures...... The Originators have (i) assigned 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)
assigned 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) assigned 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 receive all
Collections not deposited directly into the
Collection Accounts by the Obligors or
third-party agents and, on each Business Day,
deposit all such other Collections into a
Transferor Collection Account. The Servicer
Collection Accounts and the Transferor Collection
Accounts are used solely for receiving
Collections and other funds belonging to the
Transferor, do not contain any other funds of the
Originators and are held in the name of the
Trustee.
On each Business Day, each bank with which a
Transferor Collection Account is maintained is
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
is
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<PAGE> 13
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 is 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 is 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 is 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. ("S&P"), "Aaa" by
Moody's Investors Service, Inc. ("Moody's") and
"AAA" by Duff & Phelps Credit Rating Co. ("Duff &
Phelps") (S&P, Moody's and Duff & Phelps are
referred to collectively 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 be eligible to
acquire or hold Series 1996-1 Certificates. See
"ERISA Considerations."
Tax Status................. In the opinion of Squire, Sanders & Dempsey,
special tax counsel for the Transferor and the
Trust, the Investor Certificates will be
characterized as debt of the Transferor for
federal income tax purposes and, as long as the
Investor Certificates are so characterized, they
will be characterized as debt of the Transferor
for Ohio income tax purposes. Each Investor, by
the acceptance of an Investor Certificate, will
agree to treat such Investor Certificates as
indebtedness of the Transferor for federal, state
and local income tax purposes. See "Tax
Considerations" for additional information
concerning the application of Federal and Ohio
tax laws.
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<PAGE> 14
RISK FACTORS
NO ASSURANCE THAT SECONDARY MARKET WILL DEVELOP
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 MAY ADVERSELY AFFECT ABILITY TO GENERATE RECEIVABLES
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; however, there can be no assurance that any legislative measures taken
to address the fact that municipal systems are exempt from taxation and the
Originators are not will place the rates of the Originators on a par with those
of municipal competitors. 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 Federal Energy
Regulatory Commission (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.
On April 24, 1996, the FERC issued final order No. 888 which required that
all public utilities which own, control or operate transmission facilities file
open access transmission tariffs on or before July 9, 1996. The Originators
filed open access transmission tariffs on July 9, 1996.
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 Public Utilities Commission of Ohio
(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.
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 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. The FERC and the PUCO have acknowledged the need to
provide at least partial recovery of stranded investment as greater competition
is permitted and, therefore, the Originators believe that there will be a
mechanism developed for the recovery of stranded investment. However, due to the
uncertainty involved, there is a risk that some of their assets may not be fully
recovered.
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<PAGE> 15
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 a
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 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."
POTENTIAL ADVERSE EFFECT FROM FAILURE TO COMPLY WITH APPLICABLE 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 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. 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.
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 this assessment 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
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<PAGE> 16
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 own interests in three nuclear
generating units. The balance sheets of the Originators at December 31, 1995
include the following combined book values of those facilities: Perry Unit
1 -- $2,831,000,000; Beaver Valley Unit 2 -- $1,485,000,000; and
Davis-Besse -- $1,317,000,000. In addition, the Originators are co-lessees of
portions of Beaver Valley Unit 2.
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 were necessary to recover cost increases and amortization of certain
costs deferred since 1992. 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.
On April 11, 1996, the PUCO granted the full amount of the Originators'
requests. The PUCO also recommended that the Originators reduce the value of
their assets for regulatory purposes by $1.25 billion during the next five
years; however, implementation of the rate increase is not contingent upon a
revaluation of assets. The new rates have been put into effect by the
Originators. The PUCO invited the Originators to file a proposal to effectuate
the PUCO's revaluation recommendation and expressed a willingness to consider
alternatives to its recommendation. The PUCO stated in its order that failure by
the Originators to follow the recommendation could result in a PUCO-ordered
write-down of assets for regulatory purposes. The PUCO denied all applications
for rehearing with respect to the April 11, 1996 order. It is expected that the
City of Toledo will appeal such denial to the Ohio Supreme Court. The
PUCO-ordered investigation remains open but is currently inactive.
The Originators agree with the concept of accelerating the recognition of
costs and recovery of assets as such concept is consistent with the corporate
objective to become more competitive. However, the Originators believe that such
acceleration must also be consistent with their reduction of debt and the
opportunity for share owners to receive a fair return on their investment.
The PUCO provided for recovery of all regulatory assets in the approved
rates and the Originators continue to comply with the provisions of SFAS 71.
With respect to the PUCO's asset revaluation recommendation and the corporate
objective to become more competitive, the Originators are examining a number of
accelerated cost recognition and asset recovery plans.
If there is a change in the Originators' evaluation of the competitive
environment, regulatory framework or other factors, or the PUCO significantly
reduces the value of the Originators' assets for future regulatory purposes,
such actions could require the Originators to record material charges to
earnings.
The Originators intend to freeze prices through 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.
The PUCO order will increase the Originators' rates by 2.7% to 7.2%
depending upon the customer class. The average rate increase is 4.9% for CEI
customers and 4.7% for TE customers. The Originators believe that the rate
increases will not materially change their competitive positions. The
Originators will continue to have higher rates than their municipal competitors;
however, the increases 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.
Although a substantial revaluation of assets could have a material adverse
effect on the financial condition of the Originators, a revaluation of assets
without any rate decrease would not have an immediate adverse impact on the
level of the Receivables generated. However, the reduction in assets would
reduce the
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<PAGE> 17
Originators' revenue requirements from what they otherwise would be which could
lead to rate reductions in future rate proceedings.
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 began on April 18, 1996. 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 the Beaver Valley Power
Station 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 the Davis-Besse Nuclear Power
Station. The total annual amount of such accelerated benefits was $46,000,000 in
1995, 1994 and 1993.
ECONOMIC FACTORS MAY ADVERSELY AFFECT ABILITY TO GENERATE RECEIVABLES
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.
POTENTIAL LOSS OF LARGEST 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 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
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"-- Competitive Conditions May Adversely Affect Ability to Generate
Receivables," "-- 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. If required to be registered under the Securities Act,
such Series will be effected on one or more new registration statements. 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 be 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 Pooling
Agreement and the Series 1996-1 Certificates -- New Issuances; Other
Modifications."
DECLINE IN GENERATION OF ADDITIONAL RECEIVABLES COULD LEAD TO AN EARLY
AMORTIZATION EVENT
The continuation of the Revolving Period of a Series is 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 Pooling Agreement and the
Series 1996-1 Certificates -- Early Amortization Events." Any rating assigned to
the Investor Certificates of a Series or Class by either Rating Agency will not
address the possibility of the occurrence of an Early Amortization Event with
respect to such Series or Class. See "-- Limited Nature of Rating."
18
<PAGE> 19
ABILITY OF SERVICER TO CHANGE PAYMENT TERMS
Provided that no Early Amortization Event or Servicer Default has occurred
and is continuing, each Servicer is 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 and the Series 1996-1 Certificates --
Collection and Other Servicing Procedures" and "Description of the Receivables
Purchase Agreement -- Certain Originator Covenants."
CERTAIN LEGAL ASPECTS -- TRANSFER OF RECEIVABLES
Although the Originators will continue to 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 have warranted 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 have taken certain actions under
applicable state law to perfect the Transferor's ownership interest in the
Receivables transferred to the Transferor by the Originators. Nevertheless, a
tax or government lien or other nonconsensual lien on property of the
Originators arising before Receivables come into existence may have priority
over the Trust's interest in such Receivables.
In a 1993 case decided by the Court of Appeals for the Tenth Circuit,
Octagon Gas System, Inc. v. Rimmer, 995 F.2d 948 (10th Cir. 1993) 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.
19
<PAGE> 20
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 and the Series 1996-1 Certificates -- Definitive
Certificates." Similarly, under certain circumstances, the consent or approval
of the holders of a specified percentage of the Aggregate Invested Amount is
required to direct certain actions, including requiring the appointment of one
or more successor Servicers following a Servicer Default, amending the Pooling
Agreement under certain circumstances and directing a reassignment of the entire
portfolio of accounts. Further, in certain cases (including with respect to
certain amendments described under "Description of the Pooling Agreement and the
Series 1996-1 Certificates -- 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 constitutes the sole remedy available to any person respecting any
breach of such representations and warranties (except for any remedies which may
be available under the federal securities laws). See "Description of the Pooling
Agreement and the Series 1996-1 Certificates -- Representations and Warranties,"
"-- Servicer Covenants" and "-- 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, "Aaa" by
Moody's and "AAA" by Duff & Phelps. Any rating assigned to the Investor
Certificates of a Series or a Class by any Rating Agency will reflect such
Rating Agency's assessment of the likelihood that Investors of such Series or
Class will receive the payments of interest and principal required to be made
under the Pooling Agreement and will be based primarily on the value of the
Receivables in the Trust and the availability of any Enhancement with respect to
such Series or Class. However, any such rating will not address the likelihood
that the principal of, or interest on, any Investor Certificate of such Class or
Series will be paid on a scheduled date. In addition, any such rating will not
address the possibility of the occurrence of an Early Amortization Event with
respect to such Class or Series or the possibility of the imposition of United
States withholding tax with respect to non-U.S. Investors. The rating will not
be a recommendation to purchase, hold or sell Investor Certificates of such
Series or Class, and such rating will not comment as to the marketability of
such Investor Certificates, any market price or suitability for a particular
Investor. There is no assurance that any rating will remain for any given period
of time or that any rating will not be lowered or withdrawn entirely by a Rating
Agency if in such Rating Agency's judgment circumstances so warrant. Nor can
there be any assurance that another rating agency will not rate the Series
1996-1 Certificates at a rating lower than the equivalent of the ratings
obtained in connection with their issuance.
20
<PAGE> 21
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 and the Series 1996-1
Certificates -- 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 July 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 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, varies from month to month due to
seasonal variations, legal factors and general economic conditions. See "Risk
Factors" and "Description of the Pooling Agreement and 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 are entitled to receive
the amount of collections allocated to the Investors' Interest during the
preceding month. See "Description of the Pooling Agreement and 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
21
<PAGE> 22
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 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 are
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 Pooling Agreement and the
Series 1996-1 Certificates -- Subordination."
THE RECEIVABLES
GENERAL
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.
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.
22
<PAGE> 23
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 during a given period is generally representative of the
receivables balances during that period, there can be no assurance that the
amount of revenues of each Originator for that period corresponds to the actual
amount of receivables generated during that 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 ORIGINATOR(1)
(AS A % OF TOTAL)
<TABLE>
<CAPTION>
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%
<FN>
- ---------------
(1) Based on Revenues for Residential, Commercial, and Industrial/Other tenant
classes.
</TABLE>
The table below sets forth the aggregate number of customers of both
Originators at the end each of the last three years. There can be no assurance
that the number of customers in the future will be similar to the historical
numbers of customers set forth below.
NUMBER OF CUSTOMERS BY TENANT CLASS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------------------
1995 1994 1993
-------------------- -------------------- --------------------
TENANT CLASS (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>
23
<PAGE> 24
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>
DECEMBER 31,
----------------------------------------------------------------------
1995 1994 1993
-------------------- -------------------- --------------------
TENANT CLASS (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 amount of
the revenues from the top ten customers in the future will be similar to the
historical amounts set forth below.
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.
24
<PAGE> 25
MONTHLY RECEIVABLES BALANCE AS A PERCENTAGE
OF THE YEARLY AVERAGE RECEIVABLES BALANCE
FOR CEI AND TE COMBINED
<TABLE>
<CAPTION>
MONTH 1996(1) 1995 1994 1993
----------------------------------- ------- ------ ------ ------
<S> <C> <C> <C> <C>
January............................ 104.98 % 95.23% 108.50% 103.03%
February........................... 100.36 % 94.27% 106.19% 100.71%
March.............................. 100.72 % 89.36% 97.30% 92.75%
April.............................. 93.94 % 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%
<FN>
- ---------------
(1) January 1996 through April 1996
</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.
PORTFOLIO TURNOVER HISTORY
FOR CEI AND TE COMBINED
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AVERAGE MONTHLY
RECEIVABLES RECEIVABLES DAYS SALES PAYMENT
YEAR ENDED DECEMBER 31, GENERATED(1) OUTSTANDING(2) TURNOVER(3) OUTSTANDING(4) RATE(5)
- ------------------------------ ----------- -------------- ----------- -------------- -------
<S> <C> <C> <C> <C> <C>
1996(6).................. $ 2,236,632(7) $247,725 9.029 39.87 75.24%
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.
(6) January 1996 through April 1996.
(7) Annualized. The annualized Receivables Generated amount was calculated by
multiplying (i) the cumulative Receivables Generated for the period from
January 1996 through April 1996 by (ii) 3.
</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
25
<PAGE> 26
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,
FOUR MONTHS ENDED ----------------------------------
APRIL 30, 1996 1995 1994 1993
----------------- -------- -------- --------
<S> <C> <C> <C> <C>
Average Receivables Outstanding(1)........ $ 247,725 $249,032 $239,722 $240,952
Average Monthly Dilution(2)............... $ 775 $ 598 $ 896 $ 1,407
Average Monthly Dilution as a Percentage
of Average Receivables Outstanding...... 0.31% 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>
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>
April 1996................................. $ 174,531 $ 694 0.362%
March 1996................................. 191,918 634 0.353%
February 1996.............................. 179,752 967 0.485%
January 1996............................... 199,343 805 0.407%
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%
</TABLE>
26
<PAGE> 27
<TABLE>
<CAPTION>
RECEIVABLES TOTAL DILUTION
MONTH GENERATED DILUTION RATIO(1)
------------------------------------------- ----------- -------- --------
<S> <C> <C> <C>
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"). Receivables
generated under the Percentage of Income Payment Plan ("PIP"), a fourth type of
payment plan offered by the Originators, are 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 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.
27
<PAGE> 28
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.
RECEIVABLES PORTFOLIO BREAKDOWN BY TYPE OF PAYMENT PLAN
FOR CEI AND TE COMBINED(1)
<TABLE>
<CAPTION>
TYPE OF PAYMENT PLAN APRIL 30, 1996
---------------------------------------------------------- --------------
<S> <C>
Regular Billing........................................... 94.21%
Budget/Balanced Billing................................... 5.30%
Deferred Arrangement...................................... 0.49%
-----
Total..................................................... 100.00%
<FN>
- ---------------
(1) As a percentage of Billed Receivables under the Regular, Budget/Balanced,
and Deferred Arrangement Billing Plans.
</TABLE>
Other Payment Plans. The PUCO requires that the Originators provide to
delinquent residential customers a means to avoid disconnection. These payment
plans consist of PIP, the "One-Third of Total Bill Payment Plan," and a Deferred
Arrangement Payment Plan. Under the One-Third of Total Bill Payment Plan,
delinquent customers pay one-third of their total bill each month. Under PIP,
customers must pay their entire billed amount from April 16 through October 31
and a lower amount, based on a percentage of their income from November 1
through April 15.
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. An estimated rate per
KWh is used to calculate the daily dollar amount of Unbilled Receivables
transferred to the Trust on any given day during the next monthly period. For
any day on which the amount of the total retail output of an Originator is
unknown, such Originator will estimate the amount of such output as (a) the
average daily output for the five previous weekdays if such day is a weekday or
(b) the average daily output for the six previous weekend days if such day
occurs on a weekend. After the end of each month, the Originators will compare
the sum of the daily Unbilled Receivables for such month to the additions to
Receivables as reported on the general ledger which includes the monthly
unbilled Receivables calculation as discussed above. Within three (3) Business
Days after such comparisons are made, the Originators will adjust the total
Receivables purchased on such day to account for
28
<PAGE> 29
any discrepancies between the sum of the daily calculations of the Unbilled
Receivables and the total additions to Receivables as shown on the general
ledger.
HISTORICAL RECEIVABLES POOL BALANCE
On April 30, 1996, the aggregate balance of Billed Receivables of the
Originators amounted to approximately $174 million. After (i) including Unbilled
Receivables, (ii) deducting Receivables from PIP customers, Receivables from
ineligible Obligors, Deferred Arrangement Payment Plan receivable balances, and
(iii) adjusting for credit or debit balances under the Budget/Balanced Billing
Payment Plan, the adjusted receivables pool balance amounted to approximately
$232 million. From the period January 1993 through April 1996, 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 1996 1995 1994 1993
- ---------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
January $260,054 $237,153 $260,110 $248,247
February 248,619 234,775 254,551 242,654
March 249,520 222,536 233,248 223,492
April 232,706 222,475 227,564 212,460
May 212,156 212,895 220,306
June 245,663 242,341 232,081
July 287,062 280,124 275,008
August 309,947 262,181 282,148
September 277,738 242,016 256,594
October 232,249 216,510 234,454
November 237,125 215,403 226,669
December 269,507 229,716 237,309
</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 and the Series 1996-1
Certificates -- Collection and Other Servicing Procedures"; and "Description of
the Receivables Purchase Agreement -- Certain Originator Covenants."
CEI's Credit Department, located in Cleveland, Ohio, is responsible for
credit approval, monitoring and collection of receivables for CEI. TE's Credit
Department, located in Toledo, Ohio, is responsible for credit approval,
monitoring and collection of receivables for TE. Credit policy requires that
each new customer be appropriately reviewed to justify credit extension. Each
customer is assigned to one of two credit managers who have responsibility over
credit functions and will set up, administer or develop credit policies and
procedures that comply with Ohio law.
Credit Monitoring and Credit Limits. Credit managers monitor customer
accounts on a computerized credit system as well as through management reports
which periodically provide information with respect to overdue accounts and the
expiration of credit guidelines. Accounts that are over their credit limit are
handled on a case-by-case basis, depending on the size of the overage, past
payment history and the nature of the Originator's relationship with the
customer. Additionally, each credit manager periodically analyzes customer
29
<PAGE> 30
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 the day they are received and/or processed.
Each mail payment is directed to the appropriate Transferor Collection
Account for the remittance of payments on the Receivables to the Originators.
The Originators 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 then wires the funds to the Concentration Account on a daily
basis. Payments may also be remitted to third-party collection agents who are
instructed to deposit such payments into a Servicer Collection Account. Each
bank with which a Servicer Collection Account is held sends, from time to time,
the funds to the Transferor Collection Account as instructed by the applicable
Servicer, but in no event does 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 Pooling Agreement and the Series 1996-1
Certificates -- Collection Accounts" and "-- Concentration Account."
A report that identifies all daily deposits into the Concentration Account
is used to verify that all transfers are received and recorded for the proper
amount. Servicer staff takes 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.
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.
30
<PAGE> 31
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
FOUR MONTHS ENDED DECEMBER 31,
APRIL 30, 1996 1995 1994 1993
----------------- -------- ------------ --------
<S> <C> <C> <C> <C>
Average Receivables Outstanding(1)..... $ 247,725 $249,032 $239,722 $240,952
Average Monthly Net Write-Offs(2)...... $ 371 $ 405 $ 426 $ 530
Average Monthly Net Write-Offs as a
Percentage of Average Receivables
Outstanding.......................... 0.15% 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>
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 are 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.
31
<PAGE> 32
AGING EXPERIENCE FOR THE PORTFOLIO
FOR CEI AND TE COMBINED
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
APRIL 30, DECEMBER 31,
1996 1995 1994 1993
--------- -------- ------------ --------
<S> <C> <C> <C> <C>
Unbilled Revenues............................. $ 84,344 $100,344 $ 93,344 $ 96,944
0-29 days past invoice date................... 121,031 140,578 113,271 114,688
30-59 days past invoice date.................. 15,511 16,563 15,173 14,244
60-89 days past invoice date.................. 4,921 4,964 4,218 4,712
90+ past invoice date......................... 6,899 7,058 3,710 6,721
------ ------ ------ ------
Total......................................... $ 232,706 $269,507 $229,716 $237,309
</TABLE>
<TABLE>
<CAPTION>
APRIL 30, DECEMBER 31,
1996 1995 1994 1993
--------- -------- ------------ --------
<S> <C> <C> <C> <C>
Unbilled Revenues............................. 36.25% 37.23% 40.63% 40.85%
0-29 days past invoice date................... 52.01% 52.16% 49.31% 48.33%
30-59 days past invoice date.................. 6.67% 6.15% 6.60% 6.00%
60-89 days past invoice date.................. 2.11% 1.84% 1.84% 1.99%
90+ past invoice date......................... 2.96% 2.62% 1.62% 2.83%
------ ------ ------ ------
Total......................................... 100.00% 100.00% 100.00% 100.00%
</TABLE>
USE OF PROCEEDS
The net proceeds from the sale of the Series 1996-1 Certificates will be
used first to repay an outstanding Series of Investor Certificates, the Series
1996-A Floating Rate Receivables-Backed Certificates, which Series was purchased
by and continues to be held by a commercial paper conduit that is administered
by an affiliate of one of the Underwriters. The remaining balance will be paid
to the Transferor, and the Transferor will use such proceeds to make payments on
the Transferor Intercompany Notes and to pay dividends to CEI. The Originators
will use the proceeds from such payments 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).
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."
32
<PAGE> 33
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 with 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 the six rural elective 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 elective 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.
Each of CEI and TE is acting as a Servicer and, initially, CEI has been
acting 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 is 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. It is anticipated that the surviving company
will operate under a new name; 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 Condition."
33
<PAGE> 34
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 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. However, competition for such
customers will continue. In March 1995, one of CEI's large 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 electricity to Medco with both the PUCO and the FERC. The PUCO
dismissed the complaint and CEI has appealed the 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 1998. In October 1995, the Toledo City Council
responded to a petition drive by appropriating funds to complete the Electrical
Franchise Committee's study on, among other things, whether to create a
municipal electric utility in the City of Toledo. This study is expected to be
completed by the end of 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 challenged the
City of Clyde's Miller Act proceeding before the PUCO. On April 11, 1996, the
PUCO denied the request by the City of Clyde, Ohio, to require TE to abandon
service within the city limits of Clyde. The PUCO determined that the City of
Clyde has the authority to require such an abandonment, but that Clyde failed to
show that such an action would benefit the public interest. The PUCO also denied
Clyde's application on the basis that there was no clear mechanism for TE to
recover stranded costs caused by such forced abandonment. This action by the
PUCO is significant because cities contemplating forming a municipal electric
system are now on notice that they cannot evict a utility without compensating
that utility for stranded costs. TE also filed an
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action in the Court of Appeals for Sandusky County, Ohio to challenge the City's
ordinance prohibiting new customers from using TE's service. On June 23, 1995,
the Court denied that action. TE has appealed this decision to the Ohio Supreme
Court. TE currently serves approximately 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
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
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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 exists only for the transactions described herein,
including the receipt of the Trust Assets and holding such Trust Assets and
proceeds therefrom, the issuance of the Investor Certificates, and making
payments on such Investor Certificates and related activities. See "Description
of the Pooling Agreement and 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
is 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
acquired from the Originators all Receivables existing on May 30, 1996 (the
"Cut-Off Date") and the right to acquire substantially all Receivables
thereafter generated by the Originators and transferred 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 POOLING AGREEMENT
AND THE SERIES 1996-1 CERTIFICATES
GENERAL
The Receivables sold to the Transferor are transferred to the Trust
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. The Series 1996-1 Certificates will be issued
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. The following summary
describes all of the material terms of the Pooling Agreement and the Series
1996-1 Certificates and is qualified in its entirety by reference to the Pooling
Agreement and the Series Supplement.
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 "-- 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 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 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
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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 close of business on the day immediately preceding 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
7.20% 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) April
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 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
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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 "-- Termination of the Trust"),
distribution 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 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 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"). If required to be registered under the Securities Act,
New Issuances will be effected on one or more new registration statements. Each
New Issuance will have the effect of decreasing
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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 pay or 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 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
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Certificates are issued, periodically request the holder of each such Variable
Funding Certificate to provide funds to the Trustee in order to increase the
then outstanding principal amount of such Variable Funding Certificate, subject
to the Stated Amount and certain requirements regarding the sufficiency of the
level of Net Eligible Receivables in the Trust. The principal balance of
Variable Funding Certificates may be reduced and distributions in reduction
thereof made prior to commencement of the Amortization Period.
COLLECTION ACCOUNTS
Prior to the Closing Date, the Originators (i) assigned 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) assigned 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) assigned 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 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' current
collection practices 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 held in the name of the Trustee. On each Business Day the Servicers 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 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 is currently 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 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
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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 is instructed to wire all Collections received to the
Concentration Account. Each bank with which a Servicer Collection Account is
held is, from time to time, 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 "-- 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 is 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 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" is 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 any
of the Rating Agencies 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.
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SET-ASIDE PERIOD; RESERVE ACCOUNT
On each Business Day during the Revolving Period, the Transferor will
compute whether the Net Receivables Balance minus the Aggregate Required
Reserves minus the Carrying Cost Reserve (such amount, the "Base Amount") is
equal to or greater than the Aggregate Invested Amount (computed as if reduced
by the amount of Cure Funds held in the Reserve Account for each such Series and
the amount of funds held in any Defeasance Account to reduce the Invested Amount
of any Series) (such recomputed amount, the "Net Invested Amount"). A "Set-Aside
Period" will commence on any Business Day on which the Base Amount is less than
the Net Invested Amount and will continue until such insufficiency no longer
exists; provided that, if such Set-Aside Period continues for five consecutive
Business Days, then an Amortization Period shall commence for all Series on such
fifth Business Day.
During the Set-Aside Period, the Transferor shall, after making any
necessary allocations to the Carrying Cost Amount, deposit all remaining
Collections to the Reserve Account (all such funds so deposited from time to
time by the Transferor being "Cure Funds") until the amount so deposited equals
the amount by which the Aggregate Invested Amount exceeds the Base Amount.
Notwithstanding the foregoing, the Transferor may not deposit any Cure Funds to
the Reserve Account at any time if, 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 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 "--
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 Certificates other than the Series 1996-1
Certificates or to deposit in any Defeasance Account;
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 will 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 will be
deposited into the Transferor's Account, or upon the Transferor's instruction
directly to the Originators, for the purchase of new
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Receivables, the payment of ordinary costs and expenses of the Transferor and
the payment 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 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.
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
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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 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;
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(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
(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 are 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 is 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
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the lesser of (x) 110% of the aggregate reasonable costs and expenses incurred
by such Servicer during such Collection Period in connection with the
performance of its servicing obligations and (y) 2% per annum of the beginning
monthly balance of the Receivables. The Servicing Fee is 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 pays 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 are paid by the Transferor but only after all other
allocations and payments to Investors have been made, and there is 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 "-- Book-Entry Registration."
REPORTS
On each Business Day, the Master Servicer prepares and delivers 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 delivers a copy of such Daily Report to
each Originator on each Business Day.
On the second Business Day preceding the fifteenth day of each calendar
month, the Master Servicer, with respect to each Series of Investor
Certificates, delivers 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
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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 "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.
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 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
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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 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.
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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.
FINAL PAYMENT OF PRINCIPAL
In any event, the last payment of principal and interest on the Series
1996-1 Certificates 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 Investors. 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 Investors.
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 Investor 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 as of the Amortization Date, the Transferor will have the option
to repurchase the undivided interests in the Trust Assets represented by the
Investor Certificates without any payment of any prepayment premium. The
purchase price will be equal to the unpaid Aggregate Invested Amount 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
Investors, including the Series 1996-1 Certificateholders as a final payment of
their Series 1996-1 Certificates. Following any such repurchase, the
Certificateholders will have no further rights with respect to the Receivables.
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;
(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
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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;
(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);
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(y) make or suffer to exist any loans or advanced to any Affiliate or
other person except for purchases or Receivables and permitted cash
equivalents to be determined; or
(z) cancel or terminate the Receivables Purchase Agreement or amend or
waive any of its terms to the extent that such cancellation, termination,
amendment or waiver would adversely affect the interests of the Trustee or
the Investors unless the Rating Agency Condition has been satisfied with
respect thereto.
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 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, have agreed to 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
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to the Trustee for the benefit of the Investors. Indemnification payments by the
Transferor shall be paid from Collections (including payments received by the
Transferor on account of the Originators' indemnification payments) to the
extent that funds are available in accordance with the allocation of payment
provisions in the Pooling Agreement, or from other assets of the Transferor.
There will be no recourse to the Transferor for all or any part of such
indemnification payments if such funds and assets 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 includes (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 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, is 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 is 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
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terms or conditions of any Contract related thereto, all as it may determine to
be appropriate to maximize collection thereof.
Servicing activities to be performed by the Servicers include collecting
and recording payments, communicating with Obligors, investigating payment
delinquencies, providing billing and tax records to Obligors and maintaining
internal records with respect to each Obligor. Managerial and custodial services
performed by the Servicers on behalf of the Trust include maintaining the
agreements, documents and files relating to the Receivables as custodian for the
Trust and providing related data processing and reporting services for Investors
of any Series and on behalf of the Trustee.
Each Servicer may delegate any of its servicing activities to any third
party (including their respective Affiliates) provided that 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) 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 covenanted 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
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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 Obligor, to deposit,
or cause such Affiliate to deposit, such Collections to the appropriate
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.
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
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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 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 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
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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 has 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 is
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 is obligated to appoint a successor Trustee.
Any resignation or removal of the Trustee and appointment of a successor Trustee
will not become effective until acceptance of the appointment by the successor
Trustee.
DESCRIPTION OF THE RECEIVABLES PURCHASE AGREEMENT
The Receivables transferred to the Trust by the Transferor have been
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 all material 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 agreed to
sell to the Transferor all their right, title and interest in and to the
Receivables existing as of May 30, 1996 (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 May 31, 1996, each Originator sold all of its Billed Receivables and
Unbilled Receivables to the Transferor. On each date thereafter each Originator
sold, and on each date for the remainder of the Revolving Period, each
Originator will continue to sell, to the Transferor all of the newly generated
Unbilled Receivables not previously sold to the Transferor.
The purchase price ("Purchase Price") for Billed Receivables and existing
Unbilled Receivables conveyed to the Transferor on the Closing Date under the
Receivables Purchase Agreement was a dollar amount equal to 98.77% of the
aggregate invoiced or otherwise recorded and unpaid balance of all Receivables
existing as of the Cut-Off Date. The Purchase Price for Billed Receivables for
services and for any Unbilled
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Receivables transferred under the Receivables Purchase Agreement on any date
thereafter has been and will continue to be a dollar amount equal to the product
of (a) the aggregate recorded balance of such Billed Receivables or Unbilled
Receivables that have not previously been transferred to the Transferor and (b)
the above-stated percentage until recalculated and thereafter a percentage
discount calculated monthly to account for loss experience with respect to the
Receivables and the costs associated with Collections.
Credit Adjustment. 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
ten percent (10%) of the aggregate amount of the Receivables due and owing which
were purchased by Transferor through the opening of business on such date.
Originator Loans are 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 remits 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 made representations and warranties to the Transferor,
among other things, that as of any day on which the Receivables and related
assets are sold:
(a) it is a corporation duly organized and validly existing in good
standing under the laws of the State of Ohio and has the corporate power
and authority and legal right to own its property and conduct its business
as such properties are presently owned and as such business is presently
conducted and to execute, deliver and perform its obligations under the
Receivables Purchase Agreement and each other document or instrument to be
delivered by it thereunder;
(b) it is duly qualified to do business and is in good standing as a
foreign corporation (or is exempt from such requirement) and has obtained
all necessary licenses and approvals in all jurisdictions in which the
failure so to qualify is likely to have a material adverse effect on such
Originator's ability to perform its obligations under the Receivables
Purchase Agreement;
(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;
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(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;
(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;
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(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 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.
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").
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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"). Such
provision is not intended as, and shall not constitute, a waiver or limitation
of any rights that may be available to Investors under the Federal securities
laws. The terms and provisions of such repurchase vary under the Receivables
Purchase Agreement depending upon the representation and warranty breached.
With respect to a breach of an Originator's representation and warranty
regarding (a) the ownership of a Receivable sold by it to the Transferor, (b)
the necessity of obtaining further consents, licenses, approvals, authorizations
or the like from any Governmental Authority in connection with the transfer of a
Receivable or (c) the compliance of each Receivable classified by such
Originator in a document prepared under the Receivables Purchase Agreement as an
"Eligible Receivable" with the requirements of eligibility set forth in the
definition of Eligible Receivable then in effect, the Receivables Purchase
Agreement provides that within 90 days (or with the prior written consent of
Transferor, such longer period specified in such consent) of the earlier to
occur of the discovery of such breach by such Originator, or receipt by such
Originator of written notice of such breach given by Transferor, such Originator
shall repurchase from the Transferor and the Transferor shall convey to such
Originator, without recourse, representation, or warranty, all of the
Transferor's right, title, and interest in and to each Ineligible Receivable to
which such breach relates; provided, however, that no such repurchase shall be
required to be made with respect to such Ineligible Receivable if, at the time
of such repurchase, either (x) the representations and warranties referred to in
this sentence shall then be true and correct in all material respects with
respect to such Ineligible Receivable as if such Ineligible Receivable had been
conveyed to the Transferor on such day, (y) such Ineligible Receivable has been
collected in full, or (z) the aggregate amount of Ineligible Receivables
outstanding at any time and with respect to which such representations and
warranties continue to be incorrect in any material respect does not in the sole
reasonable judgment of an officer of Transferor have a material adverse effect
on the interest of the Trust in the Receivables as whole, including the ability
of the Servicer in its sole reasonable judgment to collect the Receivables.
With respect to a breach of an Originator's representation and warranty
regarding the conveyance of the Receivables to the Transferor free and clear of
certain liens and in compliance with applicable law, the Receivables Purchase
Agreement provides that such Originator shall repurchase from the Transferor and
the Transferor shall convey to such Originator, without recourse,
representation, or warranty, all of the Transferor's right, title, and interest
in all of the Ineligible Receivables affected by such breach as soon as
practicable after 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
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Collections received by the Servicer with respect to such Repurchased
Receivables. Payment of the Repurchase Price may be made, at the option of the
repurchasing Originator: (i) in immediately available funds; (ii) as a credit to
the Purchase Price that would be payable by the Transferor to the repurchasing
Originator on such Distribution Date or on any future Distribution Date until
the Repurchase Price has been paid in full; or (iii) any combination of the
foregoing.
On or prior to the date that an Originator is required to repurchase
Receivables under the Receivables Purchase Agreement, the Transferor is required
to execute and deliver to the repurchasing Originator a reconveyance pursuant to
which the Transferor conveys to such Originator all of the Transferor's right,
title, and interest in the Receivables to be repurchased by such Originator. The
Transferor shall (and shall cause the Trustee to) execute such other documents
or instruments of conveyance or take such other actions as the repurchasing
Originator may reasonably require to effect any repurchase of Receivables
pursuant to the Receivables Purchase Agreement.
The Originators may elect (between themselves, and without the necessity of
any consent or approval of any other Person) that any repurchase of Receivable
required or permitted to be effected by an Originator (the "Assignor
Originator") under the Receivables Purchase Agreement may be effected by the
other Originator (the "Assignee Originator"), with such election to be made by
an Originators' delivery to the Transferor of notice, not more than five (5)
Business Days prior to the date of such repurchase of such election, which
notice shall identify the Receivables subject to such election. Upon delivery of
such notice, all rights, liabilities and obligations of the Assignor Originator
in respect of such repurchase shall be automatically assigned to the Assignee
Originator, the Assignor Originator shall have no further rights, liabilities or
obligations in respect of such repurchase, and such repurchase shall thereupon
be consummated by and in the name of the Assignee Originator.
Nothing in the Receivables Purchase Agreement is intended to assign or
impose on the Transferor, any Servicer, or the Trustee, any obligations or
liability to any Obligor under any Receivable nor to any other customer or
client of either Originator (including any obligation to perform any of the
obligations of either Originator under any Receivable, any related Contracts or
any other related purchase orders or agreements). All such obligations and
liabilities shall remain with the respective Originator thereof.
INDEMNIFICATION
The Receivables Purchase Agreement provides that each Originator will
indemnify the Transferor, each of its successors, permitted transferees and
assigns and all officers, directors, shareholders, employees and agents of any
of the foregoing (each individually, an "Indemnified Party"), from and against
any and all claims, losses, liabilities, reasonable costs and expenses awarded
against or incurred by any of them (all of the foregoing, collectively
"Indemnified Amounts") including, among others:
(a) the failure by such Originator to comply with certain provisions
of the Receivables Purchase Agreement, or the failure by such Originator to
comply with any applicable Requirements of Law with respect to any
Receivable or the related Contract or invoice;
(b) any dispute, claim, offset or defense of any Obligor to the
payment of any Receivable asserted against such Originator to the extent
that such dispute, claim, offset or defense does not relate specifically to
the amount or the validity of the Receivable;
(c) any investigation, litigation or proceeding related to the
Receivables Purchase Agreement or such Originator or the use of proceeds by
such Originator or reinvestments of proceeds thereof, other than any
litigation or proceeding between such Originator or any Affiliate thereof,
on the one hand, and the Transferor or any Affiliate thereof, on the other
hand, in which such Originator or an Affiliate thereof prevails in a final
non-appealable judgment by a court of competent jurisdiction;
(d) any product liability claim, personal injury or property damage
suit, environmental liability claim or any other claim or action by a party
other than the Transferor or any obligor, whether sounding in tort,
contract or any other legal theory, arising out of or in connection with
the goods or services that are the subject of any Receivable or the related
assets with respect thereto or collections thereof;
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(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 has sold and will continue to sell the Receivables to the
Transferor and the Transferor in turn has transferred and will continue to
transfer the Receivables to the Trust. The Transferor has represented and
warranted that the transactions described in the Pooling Agreement are either a
sale to the Trust of all right, title and interest of the Transferor in the
Receivables and the proceeds thereof or a grant of a security interest to the
Trust in and to the Receivables and the proceeds thereof.
Each of the Originators and the Transferor has represented and warranted
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. Financing statements
covering the Receivables have been filed under the UCC as in effect in Delaware,
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
warranted to the Transferor, and under the Pooling Agreement, the Transferor
warranted to the Trust, that it has transferred the Receivables free and clear
of the lien of any third party.
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CERTAIN MATTERS RELATING TO BANKRUPTCY
Each Originator warranted 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 has agreed to treat the transactions described in the Receivables
Purchase Agreement as a sale of the Receivables to the Transferor, and the
Originators have taken 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, 995 F.2d 948 (10th Cir. 1993), the court
determined that "accounts," as defined under the Uniform Commercial Code, and
which would likely include the Receivables, may properly be included in the
bankruptcy estate of a transferor regardless of whether the transfer of such
receivables is treated as a sale or a secured loan. The Octagon case has been
criticized by many commentators as an incorrect reading of the law. The
circumstances under which the Octagon ruling would apply are not fully known and
the extent to which the Octagon decision will be followed in other courts or
outside of the Tenth Circuit is not certain. If the conclusions in the Octagon
case were applied in a bankruptcy of an Originator, the Receivables would be
part of its bankruptcy estate, would be subject to claims of certain creditors
and would be subject to the potential delays and reductions in payments to the
Transferor and Investors described in the preceding paragraph even if the
transfer is treated as a sale.
In addition, if an Originator were to become a debtor in a bankruptcy case
and a creditor or trustee-in-bankruptcy of such debtor or such debtor itself
were to request a court to order that such Originator should be substantively
consolidated with the Transferor, delays in payments on the Investor
Certificates could result. Should the bankruptcy court rule in favor of any such
creditor, trustee-in-bankruptcy or such debtor, reductions in such payments
could result.
The Transferor has warranted 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
has taken 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 has warranted 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 have covenanted 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
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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. 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 Pooling
Agreement and 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.
TAX CONSIDERATIONS
GENERAL
Set forth below is a discussion of the anticipated material 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 for other Series or Classes of
Certificates will be disclosed in the applicable registration statement for such
Series or Class, if such registration statement is required under the securities
laws. 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 have expressed 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 has agreed,
and each Investor, by the acceptance of an Investor Certificate, will agree to
treat the Investor Certificates as indebtedness of the Transferor for Federal,
state and local income and franchise tax purposes. However, the Transferor will
treat the arrangement, for certain non-tax purposes, as a transfer of an
ownership interest in the Receivables and not as creating a debt obligation of
the Transferor.
A basic premise of Federal income tax law is that the economic substance of
a transaction generally determines the tax consequences. The form of a
transaction, while a relevant factor, is not conclusive evidence of its economic
substance. In appropriate circumstances, the courts have allowed taxpayers, as
well as the IRS, to treat a transaction in accordance with its economic
substance, as determined under Federal income
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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.
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
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Agent. Accordingly, each nonexempt Investor will be required to provide, under
penalties of perjury, a certificate or IRS Form W-9 containing the Investor's
name, address, correct Federal taxpayer identification number and a statement
that such Investor is not subject to backup withholding. If a nonexempt Investor
fails to provide the required certification, the Paying Agent (or the
Participants or Indirect Participants) will be required to withhold (or cause to
be withheld) 31% of the interest (and principal) otherwise payable to the
Investor, and remit the withheld amount to the IRS as a credit against the
Investor's Federal income tax liability.
Possible Classification of the Investor Certificates as Interests in a
Partnership or Association. Although, as described above, it is the opinion of
Tax Counsel that the Investor Certificates properly will be characterized as
debt for Federal income tax purposes, such opinion is not binding on the IRS and
thus no assurance can be given that such a characterization will prevail. If the
IRS were to contend successfully that some or all of the Investor Certificates
were not debt obligations for Federal income tax purposes, the Trust or the
arrangement among the Transferor (and any other holders of equity interests in
the Trust) and the Investors might be classified as a partnership for Federal
income tax purposes, as an association taxable as a corporation, or as a
"publicly traded partnership" taxable as a corporation.
If the Investor Certificates were treated as interests in a partnership
other than a "publicly traded partnership," the income reportable by Investors
as partners in such a partnership could differ from the income reportable by
Investors as holders of debt. However, except as provided below, it is not
expected that such differences would be material. A cash basis Investor treated
as a partner might be required to report income when it accrues to the
partnership rather than when it is received by the Investor. Moreover, an
individual Investor's share of expenses of the partnership would be
miscellaneous itemized deductions that might not be deductible in whole or in
part, with the result that the Investor might be taxed on a greater amount of
income than the stated interest on the Investor Certificates.
If, alternatively, some or all of the Investor Certificates were treated as
equity interests in an association taxable as a corporation or in a "publicly
traded partnership" taxable as a corporation, the resulting entity would be
subject to Federal income taxes at corporate tax rates on its taxable income
generated by ownership of the Receivables. Moreover, distributions by 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
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signed by the beneficial owner of the Investor Certificates or such owner's
agent claiming exemption from withholding of tax on income connected with
the conduct of a trade or business in the United States; provided that in
any such case (x) the applicable form is delivered pursuant to applicable
procedures and is properly transmitted to the United States entity
otherwise required to withhold tax and (y) none of the entities receiving
the form has actual knowledge that the holder is a U.S. person or that any
certification on the form is false;
(b) an Investor who is a nonresident alien or foreign corporation
generally will not be subject to United States Federal income tax on gain
realized on the sale, exchange or redemption of such Investor Certificate,
provided that (i) such gain is not effectively connected to a trade or
business carried on by the holder in the United States, (ii) in the case of
an Investor that is an individual, such Investor is not present in the
United States for 183 days or more during the taxable year in which such
sale, exchange or redemption occurs and certain other conditions are met,
and (iii) in the case of gain representing accrued interest, the conditions
described in clause (a) are satisfied; and
(c) an Investor Certificate held by an individual who at the time of
death is a nonresident alien will not be subject to United States Federal
estate tax as a result of such individual's death if, immediately before
his death, (i) the individual did not actually or constructively own 10% or
more of the voting stock of the Transferor or its affiliates, and does not
bear certain relationships to holders of equity interests, if any, in the
Trust, other than the Transferor and (ii) the holding of such Investor
Certificate was not effectively connected with the conduct by the decedent
of a trade or business in the United States.
If the IRS were to contend successfully that some or all of the Investor
Certificates are equity interests in a partnership (not taxable as a
corporation), an Investor that is a nonresident alien or foreign corporation
might be required to file a U.S. individual or corporate income tax return and
pay tax on its share of partnership income at regular U.S. rates, including in
the case of a corporation the branch profits tax, and would be subject to
withholding tax on its share of partnership income. If some or all of the
Investor Certificates are recharacterized as equity interests in an association
taxable as a corporation or a "publicly traded partnership" taxable as a
corporation, to the extent distributions on such Investor Certificates were
treated as dividends, a nonresident alien individual or foreign corporation
would generally be taxed on the gross amount of such dividends (and subject to
withholding) at the rate of 30% unless such rate were reduced by an applicable
treaty.
STATE AND LOCAL TAX CONSEQUENCES
The state and local tax consequences of an investment in the Investor
Certificates will depend in part upon the tax laws of the jurisdictions where
the Investors reside or are doing business. Certain Ohio tax implications of an
investment in the Investor Certificates are described below. The tax
consequences arising to the Investors under the laws of other jurisdictions are
not discussed in this summary. Potential Investors should consult their own tax
advisers as to the state and local tax consequences of an investment in the
Investor Certificates in their particular circumstances.
The discussion of Ohio tax consequences set forth below is based upon
present provisions of the Ohio statutes and the regulations promulgated
thereunder, and applicable judicial or ruling authority, all of which are
subject to change, which change may be retroactive.
In general, the treatment of the Investor Certificates for Federal income
tax purposes should apply for Ohio tax purposes. Thus, if the Investor
Certificates are treated as indebtedness for Federal income tax purposes, the
Investor Certificates should be treated as indebtedness for Ohio income tax
purposes. In such case, Investors not otherwise subject to Ohio tax would not
become subject to such tax solely because of their ownership of the Investor
Certificates. The Trust would not be taxable in Ohio.
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
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taxation in Ohio. Rather each item of income, gain, loss, deduction and credit
generated through the ownership of the Receivables by the partnership would be
passed through to the partners of the partnership (including holders of Investor
Certificates that are treated as equity interests in the partnership), who would
be responsible for any income tax imposed at the partner level. Nonresident
individual partners who receive allocations of the partnership's Ohio taxable
income would be subject to tax in Ohio on that income. Corporate partners
generally would be required to take into account income from their partnership
interests for purposes of calculating the amount of their income apportioned to
Ohio. However, corporate limited partners not otherwise subject to Ohio
corporate franchise tax should not become subject to such tax by reason of mere
ownership of the Investor Certificates.
If the Investor Certificates are instead treated for Federal income tax
purposes as equity interests in an entity classified as an association taxable
as a corporation or in a "publicly traded partnership" taxable as a corporation,
the entity would be subject to the Ohio corporate franchise tax on its taxable
income generated by ownership of the Receivables. The Investors probably would
be taxed on distributions by the entity on such Investor Certificates in the
same manner as they are taxed on regular corporate dividends and other
distributions. The entity-level taxes could result in reduced distributions to
all Investors. If corporate treatment were to apply, an Investor not otherwise
subject to tax in Ohio should not become subject to Ohio tax on distributions
from the entity as a result of its mere ownership of the Investor Certificates.
ERISA CONSIDERATIONS
Section 406 of the Employee Retirement Income Security Act of 1974, as
amended, ("ERISA") prohibits employee benefit plans described in Section 401 of
ERISA from engaging in certain transactions with persons who are "parties in
interest" unless a statutory or administrative exemption applies to the
transaction. Section 4975 of the Code prohibits plans described in Section
4975(e)(1) of the Code from engaging in transactions with persons who are
"disqualified persons" unless a statutory or administrative exemption applies.
Plans described in Section 401 of ERISA and Section 4975(e)(1) of the Code
(collectively, "Benefit Plans") may be subject to excise taxes, civil fines and
other liabilities for violating the "prohibited transaction" rules of Section
406 of ERISA and Section 4975 of the Code. For example, a prohibited transaction
could arise, unless an exemption were available, if, a Series 1996-1 Certificate
was viewed as debt of the Originators or the Transferor and such entity was a
"party in interest" or a "disqualified person" with respect to a Benefit Plan
that acquired the Series 1996-1 Certificate.
Moreover, additional prohibited transactions could arise if the Trust
Assets were deemed to constitute assets of any Benefit Plan that owned Series
1996-1 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 Series 1996-1
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 a Series 1996-1 Certificate is an
equity interest for purposes of the Final Regulation, the Final Regulation
contains several exceptions that may apply to the purchase of Series 1996-1
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
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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 Series 1996-1 Certificates must be separately tested under the criteria
of publicly offered securities as described above. There are no restrictions
imposed on the transfer of the Series 1996-1 Certificates, and such Series
1996-1 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 Series 1996-1
Certificates, the Transferor will notify the Trustee as to whether or not the
Series 1996-1 Certificates will be held by at least 100 separately named persons
at the conclusion of the offering thereof. The Transferor will not, however,
determine whether the 100 independent investors requirement of the exception for
publicly offered securities is satisfied. 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 Series 1996-1 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 the
Series 1996-1 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
Series 1996-1 Certificates.
If the Series 1996-1 Certificates 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 Series 1996-1 Certificates
is an Obligor of one of the Receivables, under a DOL interpretation the purchase
of such Series 1996-1 Certificates by such Benefit Plan could constitute a
prohibited transaction.
There are four 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), 96-23 (Class Exemption for Plan Asset Transactions Determined by
In-House 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 Series
1996-1 Certificates will properly be treated as debt for Federal income tax
purposes, if all or a portion of the Series 1996-1 Certificates are treated as
equity interests in a partnership in which any other Investor Certificates are
debt, all or part of a tax-exempt investor's share of income from the Series
1996-1 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 Series 1996-1 Certificates should consult their own counsel as to
whether the acquisition of such Series 1996-1 Certificates would be a prohibited
transaction, whether Trust Assets which are represented by such Series 1996-1
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 decision in John Hancock Mut. Life Ins. Co. v. Harris Trust and
Sav. Bank, 114 S. Ct. 517 (1993), under certain circumstances assets in
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the general account of an insurance company may be deemed to be plan assets for
certain purposes, and under such reasoning a purchase of Series 1996-1
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 Series 1996-1 Certificates.
UNDERWRITING
Subject to the terms and conditions set forth in an Underwriting Agreement
dated July 10, 1996 (the "Underwriting Agreement"), among the Transferor, the
Servicers, and Citicorp Securities, Inc., CS First Boston Corporation 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.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OF
SERIES 1996-1
UNDERWRITER CERTIFICATES
----------- ---------------
<S> <C>
Citicorp Securities, Inc. $ 50,000,000.00
CS First Boston Corporation 50,000,000.00
Chase Securities Inc. 50,000,000.00
---------------
Totals $150,000,000.00
==============
</TABLE>
In the Underwriting Agreement, the Underwriters will agree, subject to the
terms and conditions set forth therein, to purchase all the Series 1996-1
Certificates offered hereby if any Series 1996-1 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 Series 1996-1 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 .375% of the principal
amount of the Series 1996-1 Certificates. The Underwriters may allow, and such
dealers may reallow, a discount not in excess of .125% 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.
Affiliates of two of the Underwriters have a lending relationship with
Centerior Energy or its subsidiaries. In addition, affiliates of one of the
Underwriters have acted as trustee for investors of certain publicly issued
securities of CEI and TE.
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 LLP. 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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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 4 of the Prospectus.
"Aggregate Required Reserves" is defined on page 7 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 for the 30-day period ending on the preceding
Business Day;
ATR = the aggregate dollar amount of total revenues for the immediately
preceding 30 day period, as calculated in the most recent Daily
Report for the 30-day period ending on the preceding Business Day;
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 which amount excludes PIP
Receivables, Deferred Arrangement Plan Receivables and credit
balances as set forth in such report.
"Amortization Date" is defined on page 44 of the Prospectus.
"Amortization Period" is defined on page 11 of the Prospectus.
"Applicable Stress Factor" is defined on page 79 of the Prospectus.
"Assignee Originator" is defined on page 62 of the Prospectus.
"Assignor Originator" is defined on page 62 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.
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"Bankruptcy Code" is defined on page 32 of the Prospectus.
"Base Amount" is defined on page 10 of the Prospectus.
"Benefit Plans" is defined on page 69 of the Prospectus.
"Billed Receivable" means a bona fide, enforceable obligation of customers
that is evidenced by an invoice of an Originator.
"Budget/Balanced Billing Payment Plan" is defined on page 27 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; provided, however,
that the term "Business Day" shall not include any additional day (not to exceed
ten such days per year) on which the Master Servicer, with not less than one
Business Day's prior written notice to the Trustee, shall have closed its
information processing center so long as no two such additional days shall be
consecutive.
"CPP" is defined on page 34 of the Prospectus.
"CEI" is The Cleveland Electric Illuminating Company.
"Carrying Cost Account" is defined on page 9 of the Prospectus.
"Carrying Cost Amount" is defined on page 41 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 13 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 8 of the Prospectus.
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<PAGE> 74
"Class" means any Class of a Series of Investor Certificates identified in
the applicable Series Supplement.
"Class Allocation Percentage" means, with respect to any Class on any
Distribution Date after the Scheduled Amortization Commencement Date, a fraction
with (a) a numerator which equals the 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 Accounts" is defined on page 12 of the Prospectus.
"Collection Period" is defined on page 12 of the Prospectus.
"Collections" is defined on page 12 of the Prospectus.
"Commission" means the Securities and Exchange Commission.
"Concentration Account" is defined on page 12 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 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 19 of the Prospectus.
"Cure Funds" is defined on page 10 of the Prospectus.
"Cut-Off Date" is defined on page 3 of the Prospectus.
"DOL" means the United States Department of Labor.
"DTC" means The Depository Trust Company.
"Daily Report" is defined on page 46 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 27 of the
Prospectus.
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<PAGE> 75
"Deferred Payment Right" is defined on page 5 of the Prospectus.
"Definitive Certificates" is defined on page 48 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 46 of the Prospectus.
"Diluted Receivable" means that portion of any Eligible Receivable which is
either (a) reduced or canceled as a result of (i) any failure by an Originator
to deliver any electric power or provide any services or otherwise to perform
under the underlying Contract or invoice, (ii) any change in the terms of, or
cancellation of, a Contract or invoice or any other adjustment by an Originator
which reduces the amount payable by the Obligor on the related Receivable or
(iii) any setoff in respect of any claim by an Obligor on the related Receivable
or (b) subject to any specific dispute, offset, counterclaim or defense
whatsoever asserted (except the discharge in bankruptcy of the Obligor thereof).
"Dilution" means, with respect to any Receivable, any reduction in the
Outstanding Balance thereof on account of such Receivables or any portion
thereof becoming a Diluted Receivable; provided that for purposes of calculating
the Dilution Ratio, Dilution shall not include any refunds or set offs of any
security deposits or credit balances which were subtracted from the Outstanding
Balances of Eligible Receivables included in the calculation of the Net
Receivable Balance.
"Dilution Horizon Ratio" means, as calculated 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 Ratio for any Collection Period
ending during the most recently ended twelve-month period exceeds (B) the
Average Dilution Ratio for the most
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<PAGE> 76
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, January 15 and
July 15 of each year, commencing on January 15, 1997 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 July 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.
"Duff & Phelps" means Duff & Phelps Credit Rating Co.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Early Amortization Event" is defined on page 44 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 40 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
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 and/or related services by or on behalf of such
Originator; (g) which represents a bona fide enforceable obligation resulting
from a sale of electricity and/or related services 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,
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<PAGE> 77
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 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 11 of the Prospectus.
"FERC" means Federal Energy Regulatory Commission.
"Final Regulation" is defined on page 69 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 6 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.
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<PAGE> 78
"Indemnified Amounts" is defined on page 62 of the Prospectus.
"Indemnified Party" is defined on page 62 of the Prospectus.
"Indirect Participants" is defined on page 47 of the Prospectus.
"Ineligible Receivable" is defined on page 61 of the Prospectus.
"Insolvency Event" is defined on page 44 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 5 of the Prospectus.
"Investment Company Act" is defined on page 39 of the Prospectus.
"Investor" is defined on page 3 of the Prospectus.
"Investor Certificates" is defined on page 3 of the Prospectus.
"Investors' Interest" is defined on page 5 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:
<TABLE>
<S> <C> <C>
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
</TABLE>
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<PAGE> 79
<TABLE>
<S> <C> <C>
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 Receivables generated during the
Collection Period that occurred 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
</TABLE>
"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 7 of the Prospectus.
"Moody's" means Moody's Investors Service, Inc.
"Net Eligible Receivables" means, at any time (a) the aggregate unpaid
balance of all Eligible Receivables in the Trust, minus (b) the then aggregate
amount of all Excess Concentration Balances with respect to all Obligors minus
(c) the aggregate amount of all Collections not applied to any corresponding
Receivables.
"Net Invested Amount" means, at any time, the Aggregate Invested Amount
minus the amount of Cure Funds on deposit in the Reserve Account as of such time
minus the amount of funds on deposit in any Defeasance Account to be distributed
to Investors in reduction of the Invested Amount of their Investor Certificates.
"Net Receivables Balance" is defined on page 6 of the Prospectus.
"New Issuance" is defined on page 7 of the Prospectus.
"OID" and "OID Regulations" are defined on page 66 of the Prospectus.
"Obligors" is defined on page 4 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 58 of the Prospectus.
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<PAGE> 80
"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 47 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 27 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.
"Principal Allocation Percentage" is defined on page 38 of the Prospectus.
"Principal Distribution Amount" is defined on page 37 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 57 of the Prospectus.
"Purchase Termination Date" is defined on page 60 of the Prospectus.
"Purchased Assets" is defined on page 57 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, Moody's Investors
Service, Inc. or Duff & Phelps Credit Rating Co.
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<PAGE> 81
"Rating Agency Condition" is defined on page 8 of the Prospectus.
"Receivables" is defined on page 4 of the Prospectus.
"Receivables Purchase Agreement" is defined on page 5 of the Prospectus.
"Record Date" is defined on page 46 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 27 of the Prospectus.
"Required Reserves" is defined on page 6 of the Prospectus.
"Reserve Account" is defined on page 9 of the Prospectus.
"Revolving Period" is defined on page 8 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 8 of the Prospectus.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Class" is defined on page 6 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 12 of the Prospectus.
"Servicer Collection Bank" means any bank at which a Servicer Collection
Account is located.
"Servicer Default" is defined on page 55 of the Prospectus.
"Servicing Fee" is defined on page 12 of the Prospectus.
"Service Transfer" is defined on page 55 of the Prospectus.
"Set-Aside Period" is defined on page 10 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 6 of the Prospectus.
"Supplement" is defined on page 7 of the Prospectus.
"TE" means The Toledo Edison Company.
"Tax Counsel" means Squire, Sanders & Dempsey.
"Tax Opinion" is defined on page 39 of the Prospectus.
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<PAGE> 82
"Termination Notice" is defined on page 55 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 12 of the Prospectus.
"Transferor Intercompany Note" is defined on page 58 of the Prospectus.
"Transferor Interest" is defined on page 5 of the Prospectus.
"Transferor Revolving Amount" is defined on page 5 of the Prospectus.
"Transferor Revolving Certificate" is defined on page 5 of the Prospectus.
"Transferor Revolving Initial Amount" means $128,381,754.96, being the
initial principal amount of the Transferor Revolving Certificate on May 31,
1996.
"Trust" means Centerior Energy Trade Receivables Master Trust.
"Trust Accounts" means the accounts described in the Pooling Agreement and
any accounts required to be established pursuant to any Series Supplement, that
are designated as Trust Accounts in that Series Supplement.
"Trust Assets" is described on the front cover page of the Prospectus.
"Trustee" means 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:
<TABLE>
<S> <C> <C> <C> <C> <C>
TD = AOBx + AOBy X ED
----------- BR
2
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.
</TABLE>
"UCC" means the Uniform Commercial Code, as enacted in Ohio or New York as
the case may be.
"Unbilled Receivable" means a bona fide, enforceable obligation of
customers that will be billed by an Originator during the next billing cycle.
"Underwriters" is defined on page 71 of the Prospectus.
"Underwriting Agreement" is defined on page 71 of the Prospectus.
"Variable Funding Certificates" is defined on page 8 of the Prospectus.
82
<PAGE> 83
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No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and, if given or
made, such information or representations must not be relied upon. This
Prospectus does not constitute an offer to sell or a solicitation of an offer to
buy any securities other than the securities offered hereby nor an offer of such
securities to any person in any state or other jurisdiction in which such offer
would be unlawful. The delivery of this Prospectus at any time does not imply
that information herein is correct as of any time subsequent to their respective
dates; however, if any material change occurs while this Prospectus is required
by law to be delivered, this Prospectus will be amended or supplemented
accordingly.
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PROSPECTUS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information..................... 2
Reports to Investors...................... 2
Prospectus Summary........................ 3
Risk Factors.............................. 14
Maturity Considerations................... 21
The Receivables........................... 22
Use of Proceeds........................... 32
The Transferor............................ 32
Originators/Initial Servicers............. 33
The Trust................................. 36
Description of the Pooling Agreement and
the Series 1996-1 Certificates.......... 36
Description of the Receivables
Purchase Agreement...................... 57
Certain Legal Aspects of the
Receivables............................. 63
Tax Considerations........................ 65
ERISA Considerations...................... 69
Underwriting.............................. 71
Legal Matters............................. 71
Glossary.................................. 72
</TABLE>
Until October 8, 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.
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CENTERIOR ENERGY RECEIVABLES
MASTER TRUST
$150,000,000 7.20%
SERIES 1996-1 RECEIVABLES-BACKED
INVESTOR 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
DATED JULY 10, 1996
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